DELIVERING THE CIRCULAR ECONOMY A TOOLKIT FOR POLICYMAKERS

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64 • DELIVERING THE CIRCULAR ECONOMY – A TOOLKIT FOR POLICYMAKERS Economic • Not profitable for businesses even if other barriers are overcome. • Capital intensive and/or uncertain payback times. • Technology not yet available at scale. Market failures • Externalities (full costs to society) not fully reflected in market prices. • Insufficient public goods/infrastructure 64 provided by the market or the state. • Insufficient competition/markets leading to lower quantity and higher prices than is socially desirable. • Imperfect information that negatively affects quality of market decisions, such as asymmetric information. • Split incentives (agency problem) when two parties to a transaction have different goals. • Transaction costs such as the costs of finding and bargaining with customers or suppliers. Regulatory failures • Inadequately defined legal frameworks that govern areas such as the use of new technologies. • Poorly defined targets and objectives which provide either insufficient or skewed direction to industry. • Implementation and enforcement failures leading to the effects of regulations being diluted or altered. • Unintended consequences of existing regulations that hamper circular practices. Social factors • Capabilities and skills lacking either in-house or in the market at reasonable cost. • Custom and habit: ingrained patterns of behaviour displayed by consumers and businesses. Though many of these barriers can be attributed to individual opportunities, some can apply across opportunities in one sector or even across several sectors. An example of such a cross-cutting barrier is unpriced negative externalities, e.g. carbon emissions, that applies to most circular economy opportunities regardless of sector – albeit to a different extent. The regulatory failure of inadequately defined targets also applies across the economy, which is measured primarily by flow metrics such as GDP without taking into account, for example, stocks of natural capital. Making an assessment such as that illustrated in Figure 15 ideally entails discussions with a wide range of relevant businesses and their representative associations, along with think tanks and academics. Each business will perceive the barriers particular to its 64 Infrastructure defined as fundamental physical and organisational structures and facilities, such as transportation, communication, water and energy supplies and waste treatment.
DELIVERING THE CIRCULAR ECONOMY – A TOOLKIT FOR POLICYMAKERS • 65 line of business, product focus and position in the value chain. To get a rounded picture it is advisable to consult multiple businesses for the focus sector as well as selected businesses along the focus sector’s value chains. Industry associations are also important to consult as they have a higher-level perspective on the general barriers and pressures reported by firms across the sector. Barriers relating to the unintended consequence of existing regulations will likely require the most detailed work – the devil is in the details here. In undertaking the exercise for Denmark it became clear that while many circular economy opportunities have sound underlying profitability, there are often non-financial barriers limiting further scale-up or holding back their development pace. An overview of the barriers to each of the opportunities in the Denmark pilot is provided in Chapter 3.1. 2.2.5 Map sector-specific policy options Objective: Lay out all relevant available policy options to address the barriers identified in Section 2.2.4. End product: List of policy options for each barrier to each opportunity. Once the barriers have been identified for each circular economy opportunity, policymakers can systematically map policy options to overcome them. The sectorspecific policy options that are the focus of this Section can be complemented by economy-wide interventions (discussed in Section 2.3.2). Mapping policy options is just a first step and needs to be followed by cost-benefit analysis and prioritisation, packaging and sequencing (detailed in Section 2.3.3), and building the necessary political consensus and momentum for change. Six types of policy can be useful to enable the circular economy. An overview of these types, with examples of each, is shown in Figure 7. Figure 16 gives a broad, illustrative indication of how these policy interventions could address the barriers – though variations will exist depending on regional and sector specifics. A first source of inspiration for mapping sector-specific policy options can be found in existing reports about circular economy policy, such as those listed in Table 2 in Part 1, or the policy options listed for the different opportunities for Denmark in Part 3 of this report. Interviewing policymakers who have already implemented circular economy policy in other countries would also be a valuable exercise at this stage, as would another round of interviews with industry stakeholders to gauge their perspective on different policy approaches for specific opportunities. Inspiration could also come from experience in other policy areas: for instance the innovative public-sector-supported financing mechanisms applied to overcome the split incentives barrier to increasing energy efficiency might be applicable. The application of behavioural economics techniques could be useful in taking an experimental, iterative route to finding the right interventions. While national policymakers have a broad set of policy instruments at their disposal, some interventions require international coordination, especially in a European context. The regional and municipal level can also play an important role. Figure 17 gives an example indication for the Denmark pilot of how the relevance of the six policy intervention types is broadly distributed among the different government levels.
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DELIVERING THE CIRCULAR ECONOMY A TOOLKIT FOR POLICYMAKERS

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