5 Conclusions and recommendations

This study has highlighted how economic policy instruments can play a crucial role in promoting a circular economy in the Nordic countries. It examined the role of the textile- and construction sector in the circular transition across Finland, Norway, and Sweden. The study used in-depth analysis of price elasticities to illustrate how a natural resource tax in the textile- and construction sector would affect the quantity demanded of goods made of polyester and cement. The analysis used in the study is based on linear changes which would be approximations with less validity for large changes in tax levels. In reality, both these sectors have complex value-chains that include many actors.

The results reveal that environmental taxes, such as natural resource taxes can be used to affect the markets and consumer behaviour. However, the findings indicate that the tax level needs to be quite high to incentivize a shift towards circular economy, thus putting some question marks on its viability as a politically feasible policy instrument. The findings also indicate that an environmental tax, such as a natural resource tax alone will not be an effective instrument in the two studied sectors. There are also difficulties in anticipating its environmental and socio-economic impacts without advanced modelling methods, as the value-chains in both studied sectors are complex.

Aspects that need to be considered when dealing with complex and often global value chains include:

the location of the production taking place throughout the value chain
the availability of sustainable substitutes
the value of the circulated material

In many cases, climate and environmental impacts can be reduced by introducing more sustainable materials and methods of production, as well as policies and regulations that promote production which eliminate pressure on water, energy, and chemicals.

A combination of economic instruments, other policy instruments and investments in resource efficient business models, is a prerequisite for achieving socially efficient higher-value material loops. For the textile sector an internalizing combination of economic instruments could be e.g., a textile import tax, consumption tax on textile products, and subsidies targeting reuse or recycling of textiles.

Economic policy instruments are then correcting market failures, maintaining a linear economy by making it unprofitable for business. As such, economic instruments can incentivize systemic change through the value-chain that is needed, especially to close material loops. It is essential that economic instruments are sufficiently stringent as traditional, linear value chains are challenging to change solely with low economic incentives, when they are upheld by various regulatory, market and cultural barriers.

Another challenge lies in effectively designing, modelling, monitoring, and measuring the impact of economic instruments. After implementation, it is essential to evaluate progress and ensure that the desired outcomes are achieved, as well as continuously identify and monitor unsought trade-offs and unintended consequences. For example, environmental considerations can lead to severe socio-economic challenges in some regions, or cost savings from labour practices may compromise social or ethical considerations.

Conclusively, this study identifies a need for continued analysis on what kind of combination of economic policy instruments would be most effective in incentivising the circular transition in the Nordics

Specifically, we recommend looking into further possibilities of introducing and expanding combinations of waste taxes, VAT practices, and EPR schemes.
With regard to both construction and textiles/clothing, the main priority should be on prolonging the life span of existing products, and investigating alternative ownership models, in order to decrease the overall need for new material.
To better support the circular transition in the Nordics, a combination of economic instruments is needed, due to the complexity of the textile- and construction sectors respective value chains.

To be able to give more concise answers to when environmental taxes, such as natural resource taxes should be part of the solution, there is a need for more research on Nordic price elasticities across different parts of the value-chains in the textile and construction sector. As well as, in general, to make use of life-cycle analysis and circular economy models to design effective environmental policies.