3. Regulatory Framework for PSS

The Nordic countries are recognised as global leaders in advancing circular economy (CE) initiatives underpinned by ambitious national policies and strategies. These strategies frequently emphasise the importance of circular business models as essential drivers of the green transition. However, despite this forward-thinking approach, the market penetration of circular business models remains relatively narrow, largely concentrated in areas such as waste management and the production and utilisation of secondary raw materials.  

Other types of circular business models, such as PSS, continue to represent only a small fraction of the economic and material turnover (OECD, 2019). While certain PSS, like car-sharing platforms, have seen rapid growth, they still operate primarily within niche markets. For the Nordics to fully transition to a more circular and resource-efficient economy, there needs to be a broader adoption and integration of alternative business models, including PSS. Public policy can facilitate this shift, providing the necessary frameworks and incentives to scale PSS models more broadly across industries.

Policymakers can support the PSS development and implementation through indirect and direct interventions. Indirect support comes from general policy measures that create favourable conditions for PSS, while direct support involves adopting policies specifically tailored to promote PSS initiatives (Clemente et al., 2018). Thus, governments and public institutions can influence the demand for innovative business models through various instruments, including the implementation of national strategies, action plans and roadmaps; the introduction of new regulations, standard and control mechanisms; economic incentives such as tax breaks; subsidies and public funding programs; dissemination of knowledge through campaigns and labelling schemes; and direct public sector purchasing.

This section briefly discusses how policies can help to promote broader adoption of PSS in the Nordics. It offers a high-level overview of policy frameworks rather than a detailed analysis of specific PSS models in the Nordic countries.

Given this report's scope, exploring every possible variation is not feasible. However, the specific policy barriers and enablers identified through the pilot projects provide valuable insights into the existing policy landscape in the Nordic countries, which are discussed in more detail in the product-specific sections of this report. These examples illustrate the current challenges and highlight potential avenues for policy interventions that could support the scaling of PSS across the region.

Overarching strategies and action plans at both the EU and national levels play a crucial role in shaping the vision and direction for the development of our economies and societies. Both at the EU and national level in the Nordics, PSS is increasingly mentioned in strategies aiming at resource efficiency, such as circular economy strategies. The following section provides a more detailed overview of the relevant strategies. To limit the scope, only strategies that directly reference PSS are included at the EU level while all key circular economy strategies are considered at the Nordic level, even if they do not directly address PSS.

While there is no dedicated strategy for promoting PSS at the EU level, the concept – also often referred to as Product-as-a-Service (PaaS) by EU institutions – is explicitly mentioned in several recent EU strategies and implementation instruments under the European Green Deal. Most prominently, the New Circular Economy Action Plan (CEAP) seeks to incentivise product-as-a-service and similar models (European Commission, 2020). This inclusion reflects the EU’s recognition of PSS as a key model for accelerating the transition to a more sustainable and circular economy.

However, despite this strategic recognition, there remains a significant need for further support to promote and implement PSS across the EU effectively. The current gap between high-level strategies and on-the-ground execution suggests that additional targeted measures are required to ease the transition from policy to practice. To illustrate the growing emphasis on PSS within EU strategies, the following table provides an overview of key EU strategies explicitly mentioning PSS, highlighting their role in advancing the European Green Deal objectives.

In the Nordics, the Nordic Council of Ministries has set out a Nordic Vision for 2030, addressed in the Action Plan 2021 to 2024. The Nordic Region aspires to become the world's most sustainable and integrated region, based on three dimensions: a green, competitive, and socially sustainable Nordic Region (Nordic Council of Ministers, 2019). PSS is not specifically mentioned in the NMR’s strategy, but the action plan seeks to promote circular business models more generally and foster innovation to achieve this vision. Likewise, the Nordic countries also developed national strategies for promoting a more circular economy.

In Denmark, a national strategy for circular economy (Miljø- og Fødevareministeriet og Erhvervsministeriet, 2018) was launched in 2018, including initiatives to strengthen enterprises as a driving force for the circular transition and changing consumption patterns through a circular economy. In the strategy, PSS is mentioned several times to increase material efficiency and the utilisation rate of products through shifting consumption patterns of leasing and sharing products or buying a service instead of a product. In 2021, the strategy was followed by the Danish National Waste Prevention and Management Plan 2020–2032 (Miljøministeriet, 2021)  with policies and initiatives promoting CE at different stages in the value chain. The plan further highlights circular business models, such as PSS models, as important for reducing waste generation and improving resource utilisation. However, the Danish strategy and action plan do not include any specific measures to promote PSS. In light of Denmark being one of the first countries to reach World Overshoot Day, Danish environmental NGOs call for an ambitious national strategy for a circular economy with concrete targets for reducing resource consumption (Larsen et al., 2024).

In Sweden, a national strategy for the transition to circular economy was adopted in 2020 (Regeringskansliet, 2020), which was followed by a circular economy action plan and an action plan for plastics in 2021 (Regeringskansliet, 2021a, 2021b). The Swedish strategies and action plans identify plastics, textiles, renewable and bio-based materials, food, the construction and property sector and innovation-critical materials and minerals as key sectors. Furthermore, they cover the entire product lifecycle and include innovation and circular business models as focus areas, amongst others. While Sweden is generally considered a frontrunner in terms of eco-innovation, which is greatly supported by government policy, the Swedish Action Plan has been criticised by the European Commission for its lack of a concrete timeline for implementation (Nordic Council of Ministers, 2022).

In Norway, a national strategy for a green, circular economy (Reynolds, 2021) has been adopted in 2021. It includes specific action points for the sectors identified with high circularity potential: the bio-based sectors; the process industries; construction and buildings; and service industries, including retail and wholesale trade (Ministry of Climate and Environment, 2022). While the strategy does not include direct references to PSS, it includes a more general commitment to support the development of innovative business models to use resources more efficiently, including the service industries. 

In Finland, the first roadmap to a circular economy was published in 2016 and followed by an updated version 2.0 in 2019 (Järvinen et al., 2019). The overall vision is to achieve a carbon-neutral society by 2035; whereby sustainable products and services and the sharing economy are mentioned to keep materials circulating longer and to reduce natural resource use. The strategy includes a clear commitment to move away from ownership-based consumption models, towards the use of services on product sharing, renting and recycling (ibid.).

In Iceland, the national strategy "Towards a circular economy" with an integrated waste prevention programme was published in 2021 (Umhverfis– og auðlindaráðuneytið, 2021). The Icelandic strategy incorporates circular economy principles by prioritising material efficiency and promoting sustainable consumption practices, such as opting for services over products, favouring sharing instead of ownership, and repairing items rather than discarding them. Although the strategy explores innovative methods to maximise material use, reuse, and longevity, the primary approach remains reducing the overall consumption of materials, particularly targeting materials like plastics and paper (Steingrímsson, 2022).

The overarching assumption reflected in all strategies is that Nordic societies and businesses must rethink the design and use of products and services and reconsider how value is generated in economic activities. Some strategies explicitly highlight PSS as examples of circular business models that enhance resource efficiency. However, while acknowledging the potential of PSS in national strategies is crucial, more concrete policy initiatives are necessary to create conditions that allow PSS to effectively compete with traditional business models. This will involve developing sector-specific strategies and action plans, as well as implementing systematic approaches to establish the framework needed for a transition from linear to circular production models.

Business models designed with circularity in mind typically demand fewer virgin resources and generate lower environmental impacts than their linear counterparts, which follow the traditional “take-make-dispose” model of production and consumption. However, linear business models maintain a competitive advantage by benefitting from low-cost raw materials and externalised environmental costs. These externalities, such as pollution and resource depletion, are not reflected in the pricing of products or services, which undermines the financial viability of more sustainable, circular PSS models. Policies can thus help to ensure that the full environmental costs of production and consumption are reflected in market prices, creating a level-playing field between linear and circular business models (OECD, 2019). 

To bridge this competitive gap and encourage the transition to circular business practices, economic incentives are needed. Key policies such as Extended Producer Responsibility (EPR) schemes and shifts in tax structures can create a level playing field by internalising environmental costs, incentivising innovation in sustainable design, and promoting the adoption of PSS models. This section explores the role of EPR schemes and other fiscal measures in driving PSS competitiveness and fostering circularity at both the EU and Nordic levels.

Extended Producer Responsibility (EPR) schemes can incentivise the adoption and growth of PSS models. As the (financial) responsibility of the end-of-life treatment of products is placed on the producer, PSS models offer a solution for increased waste prevention and product reuse, e.g. through maintenance and repair services. This responsibility encourages circular design innovation, as well as reuse and remanufacturing, levelling the playing field between linear and circular business practices – and potentially creating new business opportunities for PSS models.

Many EU Member States already have established EPR schemes in various sectors, and recent EU policies have now called for mandatory and harmonised EPR schemes across the EU. Following the Packaging and Packaging Waste Directive, all EU Member States are already required to introduce EPR schemes for packaging by 2024. Furthermore, the EU is currently revising the Waste Framework Directive (WFD) to better align it with the EU’s circular economy objectives. The proposal for the revision provides for harmonised extended producer responsibility (EPR) schemes for the textile sector that would require fashion brands and textile producers to cover costs for textile waste management.  

While EPR schemes have historically focused on covering waste management costs, the EU is working to expand their scope with measures like modulated fees. The idea is that fees can be reduced for products that follow eco-design guidelines, such as repairability or durability. However, there is a risk of losing the incentive for businesses to put fewer products on the market, and it is thus important that the fees are not reduced overly much so that PSS models remain economically viable (Christiansen et al., 2021). Furthermore, there are also proposals to replace traditional EPR schemes with "Producer Ownership schemes," where producers retain some ownership throughout the product's lifecycle (Stena Circular Consulting, 2022).

As the EU continues to refine and expand EPR schemes, the underlying philosophy aligns closely with the broader polluter-pays principle. The polluter pays principle is at the core of EU environmental policy, seeking to hold polluters accountable for the environmental and social damages that they cause. This is enacted through forcing polluters to pay compensation for those environmental and social damages that they cause, whenever damages cannot be avoided.

A report for the European Commission (2021) shows that many opportunities are still missed to make polluters pay and that a more rigorous application of this principle could produce positive macroeconomic benefits for the EU economy (European Commission, 2021). Across all pollutants (air, GHG, water, waste, water scarcity and biodiversity loss), in all EU MS and across all economic sectors polluters continue to externalise costs, leaving the taxpayer to pick up the bill. The report proposes a general tax shift from labour to the environment and believes this will help address the issue. Inconsistent application of the polluter pays principle across EU environmental policies and actions has also been confirmed by the European Court of Auditors (European Court of Auditors, 2021).

The Nordic countries have implemented mandatory EPR schemes across a diverse range of product categories and waste streams, such as cars, tyres, electronic goods, packaging, pharmaceuticals and batteries, for many years, except for Denmark, where EPR schemes were only recently introduced (Nordic Council of Ministers, 2024c).

In line with the European Commission's proposal to introduce mandatory EPR schemes for textiles, Sweden has been the first Nordic country to pass EPR rules for textiles and clothing, putting the financial and operational responsibility of textile waste collection and management on Swedish textile producers. However, plans to introduce a clothing and footwear tax to reduce hazardous chemicals and minimise environmental impacts have been abandoned (Conde et al., 2022). 

As highlighted in a recent Nordic Council of Ministers report (2024c), the Nordic countries face different challenges in successfully implementing EPR systems. For packaging EPR schemes, issues include administrative burdens, unclear definitions of producer obligations, limited enforcement and sanctions, and minimal impact on encouraging product design improvements. In Norway, for instance, the EPR for plastics has been criticised for providing insufficient incentives to create a circular value chain for plastic packaging within the current framework. The report suggests that EPR should be integrated with other policies to create a more comprehensive approach to promoting a circular economy (Nordic Council of Ministers, 2024c). Sweden, for example, has recently passed a regulation on mandatory reusable options for takeaway, further discussed in section 6.1.1 of this report.

Likewise, in Denmark, the implementation of EPR for packaging, already delayed, is facing calls for further postponement by the collective schemes. They cite excessive bureaucracy, unclear guidelines, and last-minute regulatory changes as key reasons for the requested delay (Nielsen, 2024). These challenges, seen in both Denmark and Norway, point to a broader need for improved coordination and more streamlined processes across the Nordic region. As the Nordic countries continue to refine their EPR schemes, it will be essential to address these operational issues to ensure that the intended environmental benefits of EPR, including promoting circular business models like PSS, can be fully achieved.

Taxes and subsidies are powerful regulatory tools facilitating market development and driving circular business models. Tax exemptions, reductions, and financial support for innovative business practices can provide crucial economic incentives to implement circular strategies. However, misalignments in policy – especially the current tax structures – can also obstruct the emergence of circular models, such as PSS.

An economy that favours product-life extension is inherently more labour-intensive than one based on the linear model. Services like repair, maintenance, upgrading, and remanufacturing of products require more human input than highly automated processes like mining and manufacturing (Wijkman & Skånberg, 2020). Thus, shifting the tax burden from labour to natural resources could provide the necessary economic incentives to support circular business models.

At the EU level, there is a general misalignment between taxation and environmental objectives. As noted in a report by the Club of Rome, modern EU tax systems impose high rates on employment while leaving the use of natural resources tax-free or even subsidised (Wijkman & Skånberg, 2020). This encourages businesses to exploit natural resources instead of investing in human labour for circular activities like repair and maintenance.

There are no EU-wide rules on the taxation of personal income since these fall within the competence of the Member States. The coordination on income tax is primarily focused on eliminating tax obstacles to cross-border activities, and the income tax rules by EU Member States have to respect the free movement of workers, services and capital (European Commission, n.d.-c).

The EU has introduced mechanisms like the Carbon Border Adjustment Mechanism (CBAM) and the EU Emissions Trading System (ETS) to address environmental concerns, but these are not direct taxes and focus more on carbon emissions rather than resource use. To better align taxation with circular goals, further exploration of environmental tax reforms is necessary.

In the Nordic countries, the high wage levels make it more expensive to repair or maintain products than to purchase new ones, which undermines the business case for circular models like PSS. High labour costs, partly due to significant taxation on labour income, contribute to this imbalance. In 2021, Denmark (24.7%), Norway (19.7%), and Sweden (21.3%) all generated a substantial share of their tax revenue from personal income taxes and social security contributions (Fíonta, 2023), making it difficult to shift towards more labour-intensive circular models.

The Circularity Gap report for Sweden recommends a “green tax shift from labour to virgin resources” (Conde et al., 2022). Similarly, research on how to implement a larger environmental tax reform in Finland suggests lowering income taxes to mitigate increased carbon taxes – and that new tax revenue derived from emissions can be used to lower labour taxes for low incomes more than those of higher incomes, to reduce income inequality (Tamminen et al., 2019).

Denmark already has mechanisms in place to offer incentives for businesses to employ people who are unable to work full-time, due to impairments. Employers can get the wage costs partially covered through subsidies. A similar approach could be applied to support circular businesses by subsidising the labour costs involved in repair and maintenance services (Yrjö-Koskinen et al., 2019). Already today, many examples exist of companies that have a strong focus on circularity and social aspects alike, such as the Danish lighting company Fischer Lighting, which has successfully combined circularity with social employment goals by refurbishing old luminaires and providing jobs for individuals who might otherwise struggle to find employment.

In Sweden, the government has implemented several tax incentives to promote a more circular economy. These measures included reducing the VAT for repair services from 25% to 12% and further lowering it to 6% in 2022 for the repair of household goods such as bicycles, clothes, and shoes. However, in 2023, the VAT was reverted to 12% (Finansdepartementet, 2022). Additionally, tax deductions were introduced to repair white goods, allowing consumers to deduct 50% of the labour costs, up to a maximum of 25,000 SEK per year (or 50,000 SEK for individuals over 65). This deduction was applied directly by service providers, who could subtract the amount from the customer’s invoice.

Despite these initiatives, the Right to Repair campaign has reported that the impact of promoting repair services has been limited. Several factors contributed to this, including the exclusion of electronic goods like TVs (“brown goods”) from the tax benefits, the administrative burden placed on service providers, and the fact that only individuals who earn enough to file taxes benefit from the deductions. Moreover, these measures fail to tackle the root issue of cheap new products entering the market, which continues to undercut the demand for repair services (Ganapini, 2023). As a result, while well-intentioned, these tax incentives have not fully achieved their goals of promoting repair and extending product lifecycles.

Across the Nordic countries, different tax models have been established by governments targeting short-term renting of private cars. In Norway, private car owners can earn up to 10,000 NOK tax-free annually from renting out their cars to private customers (The Norwegian Tax Administration, n.d.). In contrast, in Sweden, a different tax system has been established with 13 SEK pr driven miles tax-free when renting out a private car to private customers (GoMore, n.d.). The Danish tax model differentiates fossil fuel from electric, hydrogen or hybrid cars. Private owners of gasoline-fuelled cars can earn up to 11,500 DKK tax-free through short-term renting on an established platform. In contrast, private owners of electrical, hydrogen or hybrid cars can earn up to 21,600 DKK tax-free annually through short-term renting on established car renting platforms to private customers (Skat, 2024). In contrast to Norway and Sweden, the Danish tax model might succeed in encouraging private car owners who intend to short-term rent their car to opt for an electric, hydrogen or hybrid car instead of a fossil-fuelled car.

In the broader Nordic context, reduced tax rates on circular services or tax breaks for sharing platforms could enhance the benefits of the sharing economy and PSS models. For example, the Circularity Gap Report for Norway suggests providing tax incentives like VAT exemptions or tax refunds for shared goods (de Wit et al., 2020), making sharing and service-based models more economically viable.

In summary, shifting the tax burden from labour to natural resources can create significant incentives for circular practices by lowering the cost of labour-intensive services like repair and maintenance. With their high labour taxes, Nordic countries are well-positioned to explore such reforms, which could help level the playing field for circular business models like PSS while supporting broader social and environmental goals.

In addition to economic incentives to create a more level playing field between linear and circular business models, such as PSS, direct financial support for innovative business models through public funding can be an important driver for PSS development. However, It is beyond this project's scope to present all public funding programs supportive of PSS at the EU level and within the Nordic countries. A few selected programmes explicitly incorporate PSS within their objectives and activities are presented in the following.

The EU has long provided funding for knowledge generation, the exchange, and the uptake of best practices on circular business models. One example is the European Circular Economy Stakeholder Platform, which facilitates the exchange of best practices, knowledge, and strategies for implementing PSS. The platform brings together stakeholders across sectors to promote circular economy principles and highlights successful PSS models, offering valuable resources for those looking to adopt similar approaches (European Union, 2024).

Moreover, the EU’s Horizon and LIFE funding programs have substantially supported PSS pilot projects across Europe. For example, Horizon provided funding for a project on resource-efficient circular product-service systems. Notably, in its recent call for proposals, the LIFE program has incorporated PSS as a specific objective (ECIEEA, 2024), reflecting an increased focus on scaling PSS models and exploring their potential to contribute to the EU’s sustainability goals. These projects serve as important test beds for scaling PSS models and exploring their viability in different contexts.  

In addition, EU programs like Horizon Europe and LIFE have provided substantial financial support for CE business models and PSS initiatives. For instance, Horizon has funded projects focused on developing resource-efficient circular product-service systems (ReCiPSS, n.d.), encouraging the creation of scalable PSS models. With its recent calls for proposals, the LIFE program has explicitly included PSS as a strategic objective (ECIEEA, 2024), reflecting the EU’s increased focus on scaling PSS models as part of its broader sustainability goals. These programs serve as essential platforms for testing and refining PSS models in various sectors, contributing to the overall transition toward a circular economy.

In the Nordic Region, public funding is also seen as a critical enabler for the growth of PSS. Nordic PSS providers have emphasised that access to traditional financial sources, such as venture capital and loans, remains limited for PSS ventures, which often require long-term investments. Therefore, public funding programs are essential to create a supportive ecosystem for PSS development and scaling as discussed in section 16.2.

In the Nordic Region, Denmark leads with multiple funding opportunities. Programs like SMV Grøn support small and medium-sized enterprises (SMEs) in adopting greener, more circular business models, while Grøn Cirkulær Omstilling (GCO) offers financial and advisory support for companies implementing circular economy principles, including PSS. These regional programs are critical in fostering innovation and scaling PSS solutions within the Nordic economies.

In the broader Nordic Region, funding specifically targeting PSS projects or companies offering PSS solutions remains limited. In Finland, the Bio and Circular Finland Research, Development, and Innovation Program supports companies focused on bioeconomy and circular economy solutions, aiming to enhance their competitiveness. In Sweden, the Mistra Programme promotes robust environmental research, while the Re:Scource Programme works to increase the competitiveness of companies by fostering and funding sustainable and resource-efficient solutions. In Iceland, an Innovation Fund exists, but its scope does not align with the needs of PSS providers.

Another characteristic of PSS – like other circular business models – is the need for increased collaboration within and across value chains. The supply chain of PSS needs to include actors at several stages of the life cycle, creating additional challenges for managing the supply chain (Lingegård, 2020). For example, PSS providers that offer maintenance and repair services depend on the availability of spare parts from manufacturers and/or sub-suppliers. Thus, design decisions by traditional manufacturing firms can have implications for the feasibility of product life extension activities and other services offered further downstream.

To address these complexities, there is a growing need for standardisation and unified reporting frameworks on sustainable business practices. Such frameworks would facilitate better coordination across the value chain, ensuring that all actors align their practices with circular economy goals and contribute to a more transparent and efficient system.

In its pursuit of a more transparent and accountable corporate environment, the EU has introduced key regulations such as the EU Taxonomy for Sustainable Finance and the Corporate Sustainability Reporting Directive (CSRD). These initiatives aim to steer the EU towards its climate and environmental objectives by promoting sustainable finance and enhancing transparency in corporate practices.

The EU Taxonomy provides a unified definition of sustainable activities, including PSS, which it recognises as a sustainable business model (European Commission, 2023a). By defining PSS as a sustainable activity, the Taxonomy offers clear guidelines for structuring such activities, encouraging businesses to align their practices with circular economy principles. However, the Taxonomy’s criteria can be complex and challenging to implement, potentially creating barriers for smaller enterprises that lack the resources to navigate these regulations effectively. While disclosures are only mandatory for large companies that fall under the scope of the Non-Financial Reporting Directive, it is intended to also benefit SMEs whose business models are based on green activities (European Commission, n.d.-b).

In parallel, the CSRD strengthens sustainability reporting by requiring companies to disclose information on environmental, social, economic, and governance factors. This includes specific requirements related to resource use and circular economy practices, encompassing PSS activities. While these disclosure requirements are designed to enhance transparency and accountability, there is concern that the increased reporting burden might disproportionately affect smaller businesses, which may struggle with the administrative demands of compliance. 

The Ecodesign for Sustainable Products Regulation (ESPR) (European Commission, 2024b) is another recent example of EU policy fostering circular consumption and production by improving product standards. The ESPR focuses on extending product lifecycles by introducing energy efficiency requirements and addressing environmental impacts through material efficiency, durability, reusability, upgradability, and reparability standards for all product groups (excluding perishable items like food and medication). For PSS models, which often rely on extending product life through maintenance, repair, and reuse, the regulation aligns with their core business principles. By promoting sustainable and circular product design, the ESPR could make it easier for PSS providers to source spare parts and perform repairs, as more products will be designed to meet these sustainability requirements from the outset.

In addition, the ESPR introduced the Digital Product Passport (DPP), which contains vital product information, such as performance, traceability, technical documentation, and user manuals for repair. By making this information more accessible to stakeholders across the value chain, the DPP could significantly reduce technical obstacles for PSS models. For instance, PSS providers could use the DPP to track a product’s repair history, enabling faster diagnostics for future repairs and evaluating product performance throughout its lifecycle.

However, there are still uncertainties surrounding the ESPR’s implementation, as the first product requirements are expected to take effect in 2027. Key details, such as how DPP information will be made available to professional actors and consumers, are yet to be decided. The ultimate success of the ESPR will hinge on its execution, including effective market surveillance mechanisms (ECOS, 2024).

The Nordic countries are in the process of implementing the newly adopted EU regulations, as well as preparing for upcoming EU regulations that are likely to have a strong impact on the framework conditions in the Nordics. For instance, Denmark is implementing the CSRD Directive, mirroring the EU requirements and phased implementation. However, Danish authorities seek to expand the scope of organisations covered by the mandatory reporting requirements beyond what is requested at the EU level, including large enterprises such as commercial foundations, cooperatives, and state-owned public limited companies (Hasselbalch, 2023). In Sweden, a government proposal to delay the national implementation of the CSRD provoked some confusion among businesses, which were already preparing to report on their 2024 data (SustainLab, 2024). This case illustrates, that there are still many uncertainties regarding the process and effects of the implementation of these new technical standards and reporting schemes.

In support of these regulations, tools like the Danish Klimakompasset and other resources enabled by Nordic policies can assist PSS companies in navigating sustainability requirements. Klimakompasset, for example, helps businesses measure and manage their carbon footprint, providing guidance on assessing climate impact and identifying reduction strategies. This can be particularly beneficial for PSS companies, often in need of assistance calculating the environmental benefits of their business models. Similarly, the Swedish government initiative Fossilfritt Sverige provides sectoral roadmaps for transitioning to a fossil-free economy, e.g. tools and strategies for businesses to reduce fossil fuel dependency and move towards climate neutrality (Sveriges Miljömål, n.d.).

The Nordic Circular Economy Playbook provides a practical framework for businesses looking to integrate circular economy principles into their operations. It helps companies identify circular opportunities, optimise resource use, and improve product design for sustainability. For PSS companies, this playbook can guide their business models toward greater resource efficiency and reduced environmental impact. For further tools and resources to aid companies in achieving these goals, explore the guide Pathways to Circular Business – 15 Tools and Guides for Product-Service System Innovation.

A significant challenge to the widespread adoption of PSS is consumer behaviour, particularly the strong cultural preference for ownership and the often low appeal of service-based offerings. Even when PSS models are cost-competitive over the full product lifecycle, many consumers still prefer to purchase inexpensive, low-quality products that are easily accessible. This tendency to favour ownership and disposable goods creates a barrier to the growth of PSS, relying on longer-lasting, service-oriented consumption. To overcome this, policy initiatives must not only support the economic and environmental benefits of PSS but also actively promote consumer interest and trust in these alternative, resource-efficient consumption models.

The EU has launched several initiatives to promote sustainable consumption and empower consumers for the green transition. In May 2024, the Right-to-Repair Directive was adopted to encourage product repair over replacement. This legislation aims to make repairs more accessible, transparent, and attractive to consumers by implementing key measures such as (European Council, 2024):

While the Right-to-Repair Directive does not directly challenge traditional ownership models, it enhances repairability, indirectly supporting the growth of PSS. By making repair services more accessible and promoting longer product lifespans, PSS models can offer product use as a service and benefit from the reduced need for product replacement. However, the directive has faced criticism for only covering products under Ecodesign criteria and for ambiguous definitions – such as what constitutes a “reasonable price for spare parts” – which could create loopholes (Rezende, 2024).

Repair-related requirements are also integrated into the EU Ecolabel, a voluntary product label for goods and services that meet high environmental standards. For instance, EU Ecolabel criteria for electronic displays mandate that products must be repairable, spare parts must be available for at least eight years, and producers must offer a three-year warranty at no additional charge (Šajn, 2022). Furniture products require spare parts to be available for five years, while footwear manufacturers need only inform consumers about the environmental benefits of repairing their products (Šajn, 2022). Like the Right to Repair, the EU Ecolabel does not directly promote PSS but encourages a broader shift toward higher-quality, repairable products and environmentally conscious consumption. Furthermore, the EU Ecolabel offers discounts to SMEs and micro-enterprises (EU Ecolabel, 2024). These discounts can provide financial support to PSS businesses, many of which are SMEs, by making certification more affordable and helping them demonstrate their commitment to sustainability.

To further empower consumers and prevent greenwashing, the Green Claims Directive (GCD) was proposed in March 2023. The GCD aims to establish clear, reliable, and verifiable criteria for companies’ environmental claims about their products and services, complementing the EU’s efforts to foster trust in sustainable consumption models (European Commission, 2023b). In theory, this could help inform consumers about the environmental benefits of PSS. However, many PSS businesses find it difficult to pursue verification processes due to the complexity and cost of assessing the environmental impact of service-based models compared to traditional products. This could limit their ability to promote their services as environmentally beneficial (European Commission, 2023b).

Similar to the efforts at the EU level, there has been attention by policymakers on how to foster sustainable consumption practices, and how to prevent greenwashing.

Already in 1989, the Nordic Swan Ecolabel was established, as a voluntary scheme for certification within the Nordic countries. Currently, more than 25,000 products are certified within a wide range of product groups (Svanemærket, n.d.-a). The Nordic Swan also includes certification for “Textile Services”, such as laundry and rent of textiles, washing and delivery of clothes, and textiles for hospitals and hotels (Nordic Swan Ecolabel, n.d.-b). Thus, it directly offers a certification for PSS models, recognising them as an environmentally friendly alternative to ownership-based models or the use of disposable items. There are currently 117 textile services certified, including services offered by the Lindström Group, the largest PSS provider in Finland (Svanemærket, n.d.-b). However, when discussing the topic of ecolabelling with other PSS providers in the Nordics during the course of this project, it was considered valuable in some cases, but also an expensive and inconvenient process (Egebæk et al., 2023). More recently, the Nordic Swan Ecolabel also introduced reduced fees for SMEs and micro companies (Nordic Swan Ecolabel, n.d.-a), following the efforts of the EU Ecolabel to reduce challenges for these companies to obtain certification for their products and services.

Furthermore, the Nordic countries are also pursuing national efforts to prevent greenwashing and to protect consumers better.

In Denmark, the Danish Marketing Practices Act establishes guidelines for good marketing practices (Forbrugerombudsmanden, n.d.). For PSS, the sections addressing misleading actions and omissions are most relevant, especially in the context of environmental marketing. The Danish Consumer Ombudsman has noticeably increased the focus on the prevention of false green claims since 2021, leading to Denmark's first greenwashing conviction (Osbæck, 2022) – and other convictions have followed since (Dijk, 2024). In response to this, a comprehensive guide on environmental marketing was published in 2021, distinguishing between general and concrete statements (Forbrugerombudsmanden, 2021).

In Sweden, the Swedish Consumer Agency (SCA) is responsible for safeguarding consumer interests, guided by objectives set by the government and parliament. Led by the Consumer Ombudsman, the SCA monitors market trends to identify consumer issues, including environmental concerns. Key legislation includes the Swedish Marketing Act (Government Offices of Sweden, 2015), which includes sections on accepted marketing practices, misleading marketing, and comparative advertising. Thus, this might be relevant for PSS providers, who often seek to compare their service-based models with other market alternatives, such as ownership-based models or single-use items.

In Finland, the Consumer Protection Act includes guidelines for marketing procedures, and the Consumer Ombudsman published guidelines on the use of environmentally oriented claims in marketing, which were last updated in 2019. The Finnish Competition and Consumer Authority, which is responsible for compliance with consumer laws, has recently stopped multiple companies from using environmental claims in their marketing since their claims were too vague and not it was not clear what they were based on (Aarikka & Bräutigam, 2024).

In Norway, the Norwegian Consumer Authority (NCA) has created a set of guidelines for companies promoting green claims to Norwegian consumers to prevent misleading practices and assist businesses in adhering to the rules established by the Norwegian Marketing Control Act (MCA) (Fobrukertilsynet, 2020). This serves as Norway’s primary legal framework for consumer marketing and incorporates the EU directive 2005/29/EC on unfair commercial practices. In recent years, the Norwegian Consumer Authority (NCA) has increased its focus on fashion retailers using vague green claims in their marketing. In February 2020, the NCA issued a formal notice to 53 retailers, emphasizing the need for specific explanations when labelling products as "green," "sustainable," or "ethical” (CMS, n.d.).

In Iceland, the Consumer Agency (Neytendastofa) is responsible for market surveillance, and covers both aspects related to market competition, and consumer safety. This includes the prevention of unfair business practices, such as misleading marketing.

While it is important for Nordic countries to update legislation on greenwashing and hold companies accountable for false environmental claims, these efforts could unintentionally create challenges for PSS providers, particularly smaller ones. The complexity of documenting and verifying the environmental benefits of PSS models might lead to "greenhushing," where businesses refrain from fully communicating their sustainability efforts out of fear of being accused of greenwashing. This could result in smaller, genuinely sustainable PSS providers being overshadowed by larger companies with less circular business models but greater resources to promote even marginal environmental improvements.

To ensure that these policies empower consumers and support the green transition, it is crucial to address these verification challenges and complement the initiatives with regulations that enhance the competitiveness of PSS models, especially since price remains a key factor in consumer decisions.

Public institutions can directly stimulate the development of PSS models by implementing circular economy principles, such as functional requirements, in public procurement procedures. Potentially, this could provide a significant driver of market development for PSS and even contribute to cost savings (Linder et al., 2022). On a broader level, green public procurement (GPP) can serve as a model and guide for individual consumers through the dissemination of knowledge on green consumption and the acceleration of the adoption of new environmental standards (Wang et al., 2021).

The EU considers GPP as key for boosting the circular economy. However, so far GPP has been limited to voluntary criteria, where EU Member States can decide whether and how to apply them (European Commission, n.d.-d). Thereby, ecolabels such as the EU Ecolabel can play an important role in the development of technical specifications and award criteria. To be more effective, the EC is proposing minimum mandatory GPP criteria and clear targets for the wider uptake of GPP across Member States (Directorate-General for Environment, European Commission, n.d.). In a position paper on the revision of EU GPP criteria, Digital Europe stated that they would welcome criteria where electronic products such as PCs, displays and smartphones are purchased as services to facilitate the shift towards a more circular economy (DigitalEurope, 2020). However, significant progress is still required for public procurement to contribute to a more circular economy, and to stimulate growth in alternative business models such as PSS (Linder et al., 2022)

Moreover, the EU has supported different pilot projects on circular public procurement, which also covered aspects related to the procurement of services instead of products. For example, the Interreg project Public Procurement in the Baltic Sea Region promoted a circular procurement approach and stimulated the development of new business models, including PSS (Interreg, n.d.). The project included public authorities, procurement officers, suppliers and policymakers from Denmark, Sweden and Latvia between 2014–2020. These pilots, which focused on circular procurement in sectors such as ICT, furniture, and playground equipment, offer valuable insights into how PSS can be integrated into public procurement processes. One of the key policy recommendations of the project is to “buy services or product-service systems instead of traditional products” (Interreg, 2020). Similarly, the ProCirc project in the North Sea region, including actors from Denmark, Sweden and Norway, aimed to create knowledge on how circular procurement contributes to resource efficiency and reduced emissions across industries. The project offers guidance and tools for various stakeholders and published a guide on circular public procurement, that includes different PSS models (Interreg, 2022).

Across the Nordic countries, public procurement is recognized as an important tool for driving innovation and the promotion of environmentally friendly consumption and production. In the following, key strategies and legislation is briefly presented:

In Denmark, a strategy for green public procurement was published in 2020, covering both the procurement of goods and services (Ministry of Finance, 2020). The strategy includes the development of guidelines to assist public procurers in using the possibilities for green public procurement offered by the Public Procurement Act. While not directly addressing PSS, the strategy also includes the development of guidelines for product life extension, such as requirements for extended product warranties and repair.

In Finland, the National Public Procurement Strategy was established by the Finnish government in 2020 (Valtiovarainministeriö, 2020). The strategy serves mainly to increase the effectiveness of public procurement but also seeks to improve social and environmental sustainability through the purchasing of high-quality products and services. As part of this initiative, the network-based competence centre KEINO was launched to develop and implement innovative public procurement systems in Finland, including learnings on PSS and other alternative business models. However, KEINO is no longer operating (Keino, n.d.). The Public Procurement Act (1397/2016) also supports innovative and sustainable procurement practices, covering PSS (Oy, 2024).

In Norway, the government published an Action Plan to increase the share of green public procurement and green innovation and a new procurement regulation in Norway include more environmental provisions and possibilities to promote innovation (The Norwegian Agency for Public and Financial Management, 2021). For electronics, the strategy specifically mentions leasing or buying second-hand as an alternative to buying new, thus encouraging alternative business models such as PSS.

In Sweden, the National Public Procurement Strategy includes goals on public procurement supporting innovation and promoting alternative solutions that are more environmentally responsible (Regeringskansliet, 2015). The Swedish Procurement Agency was created in 2015, and is responsible for supporting and overseeing the implementation of the strategy. The Swedish Public Procurement Act was adopted in 2016, also including the promotion of environmental considerations, but these are not mandatory (Lewis & Machlowska, 2022).

In Iceland, a national policy on sustainable procurement was adopted in 2021, followed by an action plan for 2021–2024. According to the action plan, the Central Public Procurement Authority Ríkiskaup will take measures to include mandatory environmental criteria for certain products and services (Government of Iceland, n.d.).

All of the Nordic countries have strategies and legal frameworks in place to support public procurement practices in line with social and environmental goals. However, there is often a gap between the ambitions of national plans and the resources and capacities allocated to the implementation, as found in the case of Sweden (Lewis & Machlowska, 2022). In the case of the procurement of product-as-a-service, this project equally found existing practices and cultural norms as the main barriers. Many PSS providers in the Nordics are thus hesitant to enter the B2G markets since they perceive it as inaccessible due to their distinctive business models. Experiences on PSS in public procurement in the Nordic countries are discussed in more detail in the section 16.3 and 16.4.