This report analyses the potential of developing new economic instruments or modifying existing ones to promote the transition towards a circular economy. Specifically, in the textile- and construction sector. Two sectors with extensive material flows and a prominent role in the Nordic countries.
The results are quite similar for the two sectors. Economic instruments that could promote circularity include environmental taxes, such as natural resource taxes, import taxes, waste taxes, as well as Extended Producer Responsibility, VAT, and subsidies. A more in-depth analysis of the implementation of environmental taxes in the respective sectors show that taxes can be used to affect the market and consumer behaviour. However, the results indicate that the tax level needs to be relatively high to boost a shift towards circular economy. The results also show that it is difficult to anticipate the environmental and socio-economic impacts of a tax, 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 productions, as well as policies and regulations that promote production which eliminate pressure on resources such as water, energy, and chemicals.
In conclusion, a combination of economic instruments, other policy instruments and investments in resource efficient business models, is needed to achieve circular economy. 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.
The report is divided into two parts where the first part provides an overview of different economic policy instruments and their connection to the circular economy in the Nordics, specifically with focus on Finland, Sweden, and Norway. The second part of the report focuses on how environmental taxes can be used to reduce environmental impacts. It contains an in-dept analysis on how an environmental tax affect the demanded quantities by using price elasticities of demand.