The dynamic interaction between circular economy and the environment: Evidence on EU countries.

Area of Science:

• Environmental Economics
• Sustainable Development
• Resource Management

Background:

• The European Union (EU) aims for sustainable development, necessitating an understanding of the relationship between the circular economy (CE) and carbon dioxide (CO2) emissions.
• Key CE indicators include trade in recyclable raw materials (TRM), circular material use rate (CMR), generation of municipal waste per capita (GMWp), and recycling rate of municipal waste (RMW).

Purpose of the Study:

• To investigate the causal dynamics between CE indicators and CO2 emissions in EU countries.
• To analyze both short-run and long-run relationships using panel cointegration and vector error correction models.

Main Methods:

• Panel cointegration equations were used to estimate the long-term effects of CE indicators on CO2 emissions.
• A panel vector error correction model (VECM) was employed to examine short-run dynamics and causalities.

Main Results:

• A 1% increase in RMW led to a 0.5% decrease in CO2 emissions, while increases in GMWp and TRM raised CO2 emissions by 0.263% and 0.101%, respectively.
• Long-run bidirectional causalities exist between CE indicators and carbon emissions.
• Short-run impacts of CE indicators on CO2 emissions were not significant, possibly due to the nascent stage of CE in Europe.

Conclusions:

• Improving the recycling rate of municipal waste is crucial for reducing CO2 emissions.
• Policymakers should implement integrated strategies focusing on carbon reduction, resource efficiency, waste recycling, and investment in secondary raw materials.
• Achieving resource and impact decoupling is essential for sustainable development in the EU.