Circular Economy, Industrial Sovereignty and European Law: From Environmental Over-Regulation to Competitive Effectiveness

The circular economy through a geopolitical lens: from sectoral environmental policy to a cornerstone of European economic sovereignty

Circularity has come to occupy a distinct position: it has become a core instrument of the European Union’s industrial, trade and economic security policy, a central pillar of European economic sovereignty. This shift is normative, institutional and geopolitical, and entails a profound transformation in the purpose of European environmental law, which no longer confines itself to correcting externalities but actively intervenes in the configuration of markets, value chains and the strategic decisions of member states.

The 2020 Circular Economy Action Plan itself, adopted as one of the cornerstones of the European Green Deal, already framed the circular transition in terms of product design, resource value retention and the competitiveness of the European economy – not merely in terms of end-of-life waste management as a problem to be resolved.

The novelty of the current moment lies in the acknowledged reality that Europe does not only need to be greener; it needs to be more resilient, more productive and less dependent on external supply. The disruption of global supply chains, the technological rivalry between major blocs, the geographical concentration of certain critical raw materials and the growing instrumentalisation of trade have revealed that material dependence is also a form of strategic vulnerability.

The circular economy is therefore no longer merely an environmental concern; it is a pathway to retaining value, securing supplies and reinforcing the Union’s open strategic autonomy.

In this new landscape, the pertinent question is no longer solely how to advance towards sustainability, but how to do so without undermining European industrial competitiveness and without jeopardising transactional capacity in other areas.

This shift in approach has been expressly acknowledged in The Future of European Competitiveness report, prepared by Mario Draghi for the European Commission and published in September 2024, which concludes that Europe faces a loss of competitiveness relative to its partners and rivals, with particular weaknesses in energy, technology and investment.

Within that framework, secure access to materials, industrial modernisation and the reduction of external dependencies emerge as central elements of the new European economic agenda – confirming that circularity is directly linked to strategic sovereignty, and that the capacity to recover, reuse and valorise materials has become a key factor in reducing external dependence, particularly in resource-intensive sectors.

The European Commission has given even greater expression to this evolution through the Clean Industrial Deal, presented on 26 February 2025 as “a Plan for the competitiveness and decarbonisation” of European industry, in which circularity ceases to appear as an appendage of waste policy and is instead integrated into a strategy for industrial growth, cost reduction, job creation, value chain strengthening and improved access to materials. In the same vein, the Commission has announced the forthcoming Circular Economy Act, expected in 2026, with the ambition of establishing a single market for high-quality secondary raw materials and stimulating their demand within the Union.

What emerges from the foregoing is that circularity must combine both environmental protection and regulatory change with the commercial viability that those structural changes may generate in production and consumption. The key is not to choose between ecology and competitiveness, but to construct a regulatory framework in which competitiveness depends, increasingly, on the capacity to reduce material dependence, extend the useful life of products, reuse components and valorise waste within a framework of legal certainty.

From this perspective, the circular economy has become a cross-cutting instrument straddling European environmental law, internal market law and industrial law.

The debate therefore no longer centres on whether Europe should advance towards circularity, but on how to make it operational without multiplying transaction costs to an unsustainable degree, without fragmenting the internal market and without generating a regulatory ecosystem so dense that it ultimately discourages precisely what it seeks to promote.

In this context, Spain offers a particularly instructive case study. The very title of the legislation – Law 7/2022 of 8 April on Waste and Contaminated Soil for a Circular Economy – already evidences the shift in approach. However, that shift is not translating into the expected outcomes. Secondary legislation, administrative co-ordination and public incentives are not keeping pace to the necessary degree, which prevents the legislation from giving full effect to its provisions, particularly in key areas such as product design, logistics, data management, procurement, taxation and investment.

The circular economy is therefore necessarily entering a new phase – one oriented towards the effective operation of the regulatory framework already adopted, and towards translating it into practical reality across such areas as ecological design, durability, repairability, traceability, digital information, end-of-waste status, extended producer responsibility, market surveillance, public procurement, state aid and secondary raw material markets.

From waste to product and from product to data: the transformation of European circular economy regulation

The primary legal development within the European circular economy consists in having shifted the regulatory objective away from the end of the cycle – when waste arises – to the beginning of the process: the design, manufacturing, commercialisation and information stages of a product’s life. This shift has caused circularity to cease being treated as a pathology – a solution to a product that has already reached the end of its useful life – and to become instead an attribute of the product itself, valued by both markets and society.

At the centre of this development stand the Ecodesign for Sustainable Products Regulation (ESPR) (Regulation (EU) 2024/1781 of the European Parliament and of the Council of 13 June 2024) and the Batteries and Waste Batteries Regulation (Regulation (EU) 2023/1542 of the European Parliament and of the Council of 12 July 2023).

The significance of the ESPR lies in the fact that its content goes beyond that of a technical standard on ecodesign: it enables circularity to move away from focusing on waste management obligations and to be considered instead as an obligation applicable from the product design stage. Furthermore, it introduces one of the most significant instruments of the new era: the Digital Product Passport (DPP).

The passport is not a mere informational appendage added to a product. Rather, it is a mechanism that enables the storage and sharing of relevant information on sustainability, durability, composition, repair, maintenance and end-of-life treatment, making it accessible to consumers, businesses and competent authorities alike. From a legal standpoint, this represents a change of enormous significance: the effectiveness of the legislation no longer depends solely on substantive mandates, but on the legal system’s capacity to generate, safeguard, exchange and verify reliable data at European scale.

The necessary connection between circularity and data re-emerges with a more sectoral focus in the Batteries Regulation, which creates a horizontal framework imposing requirements relating to durability, reuse, repairability, upgradability, recycled content, remanufacturing, recyclability and environmental footprint, among other elements. This instrument is particularly illustrative because it combines substantive requirements – sustainability, due diligence, collection and recycling – with highly demanding obligations concerning information, conformity assessment and verification.

This regulation exemplifies the direction in which European environmental law is heading: fewer abstract declarations and more verifiable requirements concerning the specific product, its composition, its traceability and its treatment.

Something similar is observed in the Packaging and Packaging Waste Regulation (PPWR) (Regulation (EU) 2025/40 of the European Parliament and of the Council of 19 December 2024), which substantially reinforces European harmonisation in a sector that is particularly sensitive to the internal market. This is precisely why it was adopted as a regulation rather than a directive: to reduce national regulatory divergences in a sector where fragmentation generates significant costs and competitive distortions.

The regulation imposes sustainability and labelling requirements throughout the packaging lifecycle, with the objectives of preventing unnecessary packaging, promoting reuse, refilling and recycling, and simultaneously contributing to both the circular economy and climate neutrality. From a legal perspective, packaging ceases to be a mere accessory element of commercialisation and becomes a direct object of structural market regulation.

From the foregoing, it is apparent that, as a consequence of the progressive evolution of the circular economy, its conceptual framework has expanded in three principal directions. First, the focus shifts from waste to product, by anticipating regulatory intervention to the design and manufacturing stages. Second, from product to market, by conditioning the rules governing market access, operation and competition between operators to circular economy requirements. And finally, from market to data, by establishing information – its generation, traceability and verification – as a structural element of the system, such that compliance ceases to be exclusively a material matter and becomes also an exercise in continuous evidencing through data.

It is therefore no longer sufficient to license waste managers, set collection targets or penalise unauthorised disposal. It is now necessary to go further and act upon how products are designed, how information is shared, what data must be provided, how compliance with the rules is verified and how the various systems involved in the market are co-ordinated.

Another instrument confirming the geopolitical dimension of circularity is the Critical Raw Materials Act (CRMA) – Regulation (EU) 2024/1252 of the European Parliament and of the Council of 11 April 2024. Although it is not a “circular economy” measure in the strict sense, its connection with circularity is direct. The recovery, recycling and substitution of strategic raw materials already form part of European supply security policy. Circularity therefore not only seeks to reduce waste but to preserve material access to strategic inputs – and this is precisely the point at which environmental law and geoeconomics converge.

Moreover, within this new framework, whilst the Waste Framework Directive (WFD) – Directive 2008/98/EC of the European Parliament and of the Council of 19 November 2008, as amended – continues to provide the structural principles of the waste management system, it is no longer the instrument around which circularity pivots.

The effectiveness of the system therefore no longer depends solely on the basic waste legislation of each EU member state, but on how that legislation is articulated alongside directly applicable European rules on products, packaging, batteries, ecodesign, market surveillance and product data.

Given that co-ordination between the European and national frameworks is essential, the circular economy can no longer be addressed in a fragmented, sector-by-sector manner, as this generates considerable regulatory complexity and hinders coherent implementation. In this context, circularity demands a cross-cutting form of governance capable of integrating environmental policies with product and market regulation.

The real challenge: the gap between regulatory ambition and market reality

As set out above, one of the main problems of the European circular economy system lies neither in any lack of strategic vision nor in any absence of legal instruments, but in the actual capacity to make it function. Europe risks winning the battle of legislation whilst losing the battle of implementation – as a consequence of a complex and dense regulatory framework, a diverse range of operators, fragmented competences, cross-border flows, growing verification requirements and secondary markets that are not yet sufficiently developed.

From a strictly legal perspective, the first source of difficulty is regulatory overload, which is scarcely manageable for a significant portion of the business community. The European legislator appears to have overlooked the fact that law only produces real effects when obligations are comprehensible, economically feasible and verifiable by the competent authorities. When any one of these three conditions fails, legislation ceases to be an effective guide and becomes an obligation of uncertain compliance.

Second, for circularity to be competitive, secondary raw material markets must function properly. It is not enough to require that waste must be reincorporated into the economic cycle; prior to that, far more specific legal and economic questions must be resolved: when does a material cease to be waste, under what quality standards may it be commercialised, who bears the risk of non-conformity, what information accompanies the material, and how can one prevent regulatory differences between virgin and recovered materials from ultimately penalising the latter, primarily in terms of cost?

The European Commission itself, in announcing the forthcoming Circular Economy Act for 2026, has implicitly acknowledged this shortcoming by setting as an objective the creation of a single market for high-quality secondary raw materials. This acknowledgment is significant: if a circular framework that raises costs in design, documentation, traceability and compliance does not simultaneously secure solvent demand for recovered materials, it risks displacing burdens onto producers without connecting circularity to competitiveness.

Third, implementation encounters a fundamental administrative challenge: insufficient institutional capacity to oversee the new model. The Regulations adopted – including the Ecodesign, Batteries and Packaging Regulations – presuppose an administration capable of interacting with complex information systems, interpreting technical data, verifying digital documentation and co-ordinating with market surveillance authorities, as well as possessing robust conformity and traceability mechanisms.

Spain is well acquainted with this difficulty. Whilst Law 7/2022 of 8 April on Waste and Contaminated Soil for a Circular Economy represented a significant step forward in updating the national framework, its practical application continues to face substantial obstacles. These include insufficient secondary legislation, a lack of co-ordination between central government and the Autonomous Communities, limited inspection capacity, inadequate means for digitalising procedures and divergent criteria in their application – all of which generate a high degree of uncertainty for economic operators.

In other words, the European internal market suffers when each member state implements differently; the Spanish domestic market likewise suffers when administrative application becomes territorially fragmented or when licensing and control practice fails to keep pace with the complexity of new obligations at the required speed.

Particular mention must be made of digitalisation, which is often presented as an almost automatic solution to implementation problems – but practice has shown that it is not. Tools such as the digital product passport, documentary traceability or information systems are only effective if the underlying data is reliable, accessible and standardised, since the evidencing of circularity compliance depends on precisely these qualities.

The legal question will therefore no longer be solely whether a product is repairable or recyclable, but what valid evidence can demonstrate this, who generates it, who verifies it, who is liable for its inaccuracy and under what conditions it may be used by authorities, customers, competitors or consumers. All of this must be co-ordinated with the requirements of data protection, information security, regulated access, trade secrets and market surveillance.

In other words, data is indispensable – but it cannot substitute for the material foundations of circularity.

That said, it would be mistaken to read this diagnosis in purely negative terms: criticism of over-regulation or the implementation gap reveals that accumulated experience has enabled the identification of the principal weaknesses, and these should serve as a guide for improving the system.

In this regard, rebalancing requires, first, reducing fragmentation and reinforcing regulatory coherence; second, paying greater attention to the entire execution chain – standards, data, verification, surveillance, demand and financing; and third, creating market conditions for secondary materials and for the outputs of repair, remanufacturing and valorisation.

Towards a competitive circular economy: a demanding, critical and reasonably optimistic legal agenda

In our assessment, the problem with the European circular economy has been the delayed recognition that without competitiveness it cannot achieve transformative impact. Circularity that does not alter investment, design, procurement and contracting decisions produces no substantial change in the market – and consequently no meaningful change in waste prevention and management.

The current shift towards a competitive circular economy should therefore be viewed positively, because it will enable circularity to transcend the confines of environmental law and become a genuine EU policy with true structural effect, consistent with the 2020 Circular Economy Action Plan and the Clean Industrial Deal.

The key question is how to translate this change into practice. In our view, this process should be structured around five elements.

The first is regulatory simplification. This is not a matter of deregulation, but of rationalisation: the European regulatory framework on circularity requires greater interoperability, greater clarity in the delineation of obligations and better articulation between product, waste, data and market surveillance rules. The Ecodesign Regulation offers a promising vehicle, provided its delegated and implementing measures are designed with a systemic rationale rather than as a cumulation of additional administrative burdens.

The second element is the genuine construction of a European secondary raw materials market. This will be shaped by the forthcoming Circular Economy Act, which must advance on key fronts: material quality standards, demand generation, harmonisation of standards and the removal of barriers to the free movement of secondary materials.

The third element is the consolidation of useful and operational tools that enable not only traceability but also compliance and its evidencing. The digital product passport has the potential to be a highly effective instrument, provided it achieves genuine functionality rather than becoming a mere repository for depositing data. To this end, the information it contains must be verifiable, access protocols must be clearly defined – given the range of stakeholders involved, including authorities, producers, repairers, recyclers and consumers – and it must be accessible to small and medium-sized operators without sophisticated technological capacity.

The fourth element is the creation of robust demand for these products and materials. In this regard, public procurement policies will be essential, as will the imposition of technical specifications, strategic purchasing, labelling schemes and public incentives to drive the use of recovered materials. The Clean Industrial Deal points in this direction, although the challenge will be to translate these proposals into practical and coherent administrative instruments.

The fifth element is the geopolitical dimension. Circularity cannot be made dependent on external openness for strategic raw materials. Supply security requires combining domestic extraction, production, processing, recycling and substitution with external partnerships. In this context, every decision concerning ecodesign, recyclability or traceability also carries a dimension of strategic positioning for the European Union.

The fundamental conclusion is that the European circular economy is no longer merely an aspirational ideal; it has entered a stage in which it must align itself with the reality of markets, public administrations, domestic and external operators, and the unstable geopolitical environment in which we are all operating.

The function of law in the context of the circular economy must be to contribute to building a framework of legal certainty that makes viable a circularity that is industrially operational, environmentally ambitious and politically sustainable.

If that effort is executed well, the circular economy will cease to be perceived as an additional burden and will instead become part of the European strategy – as a key to maintaining economic sovereignty, preserving industrial capacity and reinforcing an internal market that has been significantly tested in recent times.