Environmental Implications of Income and Circular Material Use in Circular Economy: Insights from European Countries Using Panel Data Analysis

Managing environmental degradation all around the world has been one of the important and toughest tasks of the global policymakers as it has been a necessary requirement to attain sustainable development. Circular economy is a novel concept, primarily originated from the so-called developed countries, which has the capacity to mitigate environmental degradation. It represents an efficient and sustainable approach to resource management, aiming to maximize the use of circular materials instead of primary natural resources in economic production processes. The European Union (EU) has been the leader in promoting the circular economy. This study examines empirically the relationships among income, circular material use and greenhouse gas emissions (GHG) in the circular economy of 27 EU countries from 2010 to 2021. According to the Westerlund cointegration test, some panels of these countries are cointegrated, indicating that the relationships between the variables vary across different countries; while some countries share a common long-term trend, others do not. The estimated coefficients of the Pooled Mean Group-Autoregressive Distributed Lag (PMG-ARDL) model reveal that, in the short run, as income increases, greenhouse gas emissions also increase within the circular economy. However, in the long run, greenhouse gas emissions decrease with the rise in income in this economy. In contrast, the use of circular materials does not influence greenhouse gas emissions in the short run, although their increased usage within the economy leads to a rise in emissions over the long term.