Circular Economy

The transition to a circular economy is the fourth environmental objective of the EU Taxonomy. It addresses the unsustainable linear model of take-make-dispose by establishing criteria for activities that promote resource efficiency, extend product lifetimes, increase the use of secondary raw materials, and minimise waste generation. This objective aligns with the EU Circular Economy Action Plan and supports the broader goal of decoupling economic growth from resource consumption within the European Union.

An economic activity substantially contributes to the circular economy when it uses natural resources, including sustainably sourced bio-based and other raw materials, more efficiently in production, including by reducing the use of primary raw materials or by increasing the use of by-products and secondary raw materials. Other contribution pathways include increasing the durability, reparability, upgradability, and reusability of products; increasing the recyclability of products, including the recyclability of individual materials contained in those products; reducing the content of hazardous substances in materials and products; and substantially reducing waste generation, including through prevention, reuse, and recycling.

The Environmental Delegated Act adopted in June 2023 provides technical screening criteria for circular economy activities. These cover a range of sectors including manufacturing, construction and demolition, water and waste management, and information and communication technologies. For the construction sector, criteria address the reuse of building materials, design for deconstruction, and the reduction of construction and demolition waste. Products must demonstrate measurably improved circularity metrics compared to mainstream practice, and activities must meet quantitative benchmarks where specified.

Meeting the DNSH requirements for the remaining objectives is essential for taxonomy alignment under this objective. Activities contributing to the circular economy must not generate significant greenhouse gas emissions, must not use hazardous substances above legal thresholds, and must not compromise biodiversity or water quality. The circular economy objective is expected to grow in importance as the European Commission continues to develop standards for material passports, extended producer responsibility, and product-as-a-service business models.