Policies for a More Dematerialized EU Economy. Theoretical Underpinnings, Political Context and Expected Feasibility

Economic systems are connected to the natural environment through a continuous flow of energy and materials. The production of economic wealth implies the use of natural resources and their transformation into goods (bound to become, at least partially, waste in the future), current waste (pollution) and low-valued energy (entropy). The scarcity of natural resources and the negative externalities arising from their use throughout the entire value chain are quite natural motivations for the current policy push towards a more dematerialized and a more circular economy. In this perspective, the EU seems to be approaching a new frontier in environmental policy. The main contribution of this paper is a qualitative assessment of a coordinated set of dematerialization policies, which aim at fostering the socially efficient use (and re-use) of virgin materials at firm level. The policy mix we propose envisages a green tax reform (GTR) with a material tax, which aims at shifting relative input prices in favour of labour and capital, and a policy of funding research and development activities in the area of resource efficiency. In order to support firms in their transition to higher material efficiency, we foresee targeted skill enhancement programmes. Finally, to prevent firms to shift towards less material-intensive production, potentially leading to lower output quality, we complete the policy mix with specific command-and-control measures, aiming at setting minimum quality standards for selected product categories. The qualitative assessment of this mix of policies relies on the four basic criteria of the economic policy analysis (effectiveness, efficiency, equity and feasibility). Since the EU is deeply integrated in the world economy, and it is a net importer of virgin resources, our policy evaluation necessarily takes an open-economy perspective. In this vein, the paper reviews the state of affairs of the major world countries (USA, Japan and China in particular) on this issue, and contextualizes the EU action in a global perspective.