Macroeconomic and environmental consequences of circular economy measures in a small open economy

This paper investigates the economy-wide impact of the uptake of circular economy (CE) measures for the small open economy (SOE) of Belgium, in particular the impact of fiscal policies in support of lifetime extension through repair activities of household appliances. The impact assessment is completed by means of a computable general equilibrium model as this allows quantification of both the direct and indirect economic and environmental impact of simulated shocks. The results show that different fiscal policy types can steer an economy into a more circular direction. However, depending on the policy type, the impact on the SOE's macroeconomic structure and level of circularity differs. Furthermore, common claims attributed to a CE (e.g. local job creation or decreased import dependence) can be, but are not always, valid. Hence, policy-makers must prioritize their most important macroeconomic goals and opt for an according fiscal policy. Finally, this paper finds that the CO2 equivalent emissions calculated from a production (or territorial) perspective increase, while they decrease from a consumption perspective. This is explained by the substitution of international activities by local circular activities. This comparative analysis advocates for the consumption approach to assess the CE's impact on CO2 equivalent emissions.

Automated summary

This study explores the impact of fiscal policies supporting lifetime extension through repair activities on the uptake of circular economy measures in a small open economy like Belgium. While different fiscal policy types can steer an economy towards circularity, their effects on the macroeconomic structure and level of circularity may vary. It is found that CO2 equivalent emissions increase from a production perspective but decrease from a consumption perspective due to the substitution of international activities by local circular activities. Policy-makers should prioritize their macroeconomic goals and choose fiscal policies accordingly.