Driving Europe’s clean industrial deal: time to close the loop on circular economy policy

As the European Union pushes toward climate neutrality, one pillar of its strategy must stand taller: the circular economy. Not simply a tool for environmental stewardship, circularity is essential to the EU’s industrial competitiveness, resilience, and autonomy in an increasingly volatile world. Yet, despite a decade of policy work, Europe’s circular material use rate has stagnated at just 11.8%. Material consumption continues to rise, and the European Environment Agency warns that the bloc is far from meeting its 2030 targets to halve its material footprint and double the share of recycled materials.

If Europe continues on this path, it risks not only missing its climate goals but also failing to equip its industry for the future. A new approach is urgently needed, one that finally embeds reuse, repair, and material efficiency as central principles of EU industrial policy.

The Clean Industrial Deal, the European Commission’s new flagship initiative, gives the European Green Deal an “industrial twist” and offers a genuine opportunity to change course.

With the upcoming 2040 Climate Law expected to recognise circularity as a cornerstone of decarbonisation, the Clean Industrial Deal sets an ambitious target: to double Europe’s use of circular materials by 2030.

However, this promise must now be backed by concrete legislative muscle-most crucially through the forthcoming Circular Economy Act, due by the end of 2026.

Achieving such an ambition demands far more than tweaking recycling targets. The shift must begin with reducing material use across the board. In a world of resource scarcity and growing geopolitical competition, material efficiency has become a matter of strategic interest.

Less dependence on imported virgin resources means more industrial sovereignty for Europe and fewer environmental and social costs exported elsewhere.

Yet the EU’s regulatory framework remains riddled with outdated rules that obstruct circular innovation. From packaging laws to building codes, the policies that govern how we make, use, and dispose of goods too often reinforce the linear model. Circular approaches, particularly those centred on reuse, still face significant regulatory and market barriers, leaving many pioneering solutions stuck in early-stage pilots.

This is especially true for cities and regions, which implement around 70% of EU legislation and are the natural laboratories of circular experimentation. Local authorities across Europe are leading efforts to scale reuse systems, support repair services, and set new standards in sustainable procurement. But despite this leadership, they are still treated as implementers, not shapers, of circular economy policy. And when it comes to EU funding, cities often struggle to access the investment needed to move from pilots to full-scale implementation. More strategic investment is essential—yet current EU programmes remain skewed toward research and development, with too little emphasis on deployment. The result is a €27 billion annual investment gap in building a circular economy at scale.

Public procurement offers one of the most powerful levers to bridge this gap. Representing over 14% of EU GDP, procurement can shape markets by creating stable demand for circular products and services. But for now, the potential of public purchasing remains largely untapped. Procurement rules still favor short-term cost considerations over life-cycle performance, while contract criteria often exclude reused or remanufactured materials. Integrating reuse and durability into procurement would boost market uptake and innovation. With better regulations and funding, cities and regions could drive systemic change, using procurement to shift entire value chains toward circularity.

Furthermore, circular frontrunners, especially small and medium enterprises, face investment barriers due to their unconventional models like repair, leasing, or shared ownership. These businesses are often excluded from EU funding because they don’t fit traditional risk frameworks. To support them, financial rules must adapt to their unique risks, and fiscal policies should favor secondary materials over virgin ones.Taxation that reflects the true environmental cost of extraction, and rewards the circular use of resources, could significantly shift market incentives.

The recent publication of the Clean Industrial Deal State Aid Framework marks modest but important progress, explicitly referencing circularity and prioritising relevant projects. This is a welcome shift, as the original draft largely overlooked the circular economy, risking a significant gap in Europe’s strategy to build a resilient, low-carbon industrial base.

Yet despite this improvement, the broader policy architecture remains fragmented. What Europe now needs is a coherent and comprehensive resource strategy, one that goes beyond waste management and places materials at the core of industrial resilience and competitiveness.

Circularity is more than just improved recycling—it involves rethinking how products are designed, used, maintained, and reused across sectors like electronics, clothing, vehicles, and buildings. It means empowering local actors, unlocking funding for innovation, and making sustainability the easiest path for European industry. A well-designed circular economy can reduce costs by extending product lifespans, lowering maintenance, and reducing reliance on unstable global supply chains. It can also create quality jobs in repair, remanufacturing, digital traceability, and AI-driven lifecycle management, while helping Europe meet climate targets without outsourcing environmental harm. To fulfill the Clean Industrial Deal’s vision, Europe must move from fragmented pilots to a unified, strategic, and well-funded circular transition—featuring harmonised standards, reimagined procurement, and investment mechanisms that reward reuse and regeneration. Only then can the EU truly close the loop in both policy and practice.