• Regulatory environment

Good environmental and economic decisions go hand in hand

Long-term sustainable growth comprises more than environmental decisions – it also includes economic and social ones. According to MEP Henna Virkkunen, only by thinking about economic decisions more seriously can the EU achieve environmental regulation that works better for everyone.

Twenty years ago, the subject at the heart of politics was economics. At that time, when Members of European Parliament (MEPs) made decisions on regulation, economic effects were the primary concern. In politics today, the fundamental issue on people’s minds is the environment. For MEPs, that means focusing on target setting above all else.

“In policymaking at the European level, we set targets. That’s our job,” says Henna Virkkunen, MEP. “The questions for the various political groups are: which targets are realistic, and which ones are ambitious? What kind of timeline should we have? How many years will it take before we can cut emissions to a certain extent? It's very much about numbers.”

Incentives drive innovation

Banning is a legitimate approach to regulating the Green Deal but should never be the first instinct for policymakers, according to Virkkunen. The key to banning is to have products or substances lined up in the market to replace whichever ones are banned.

According to Virkkunen, the single-use plastics ban was radical but possible because there were already sustainable products on the market to take their place. “If we do implement a ban, there should be enough time for the industry to react to it.”

Instead, she argues, there should be a greater focus on incentives. There must be a business case for industries so that the economy does not become dependent on publicly funding and supporting businesses. On top of that, innovation should happen atop a technologically neutral backdrop.

"When thinking about circular economy, industries should not be told how to do things. For environmental issues, targets should be set and then industrial sectors must be allowed to figure out how to best achieve those targets."

“Public funding is necessary for innovation to get products to the market. After that, however, the free market should take over. And when thinking about the circular economy, we shouldn’t be telling industries how they should do things. For environmental issues, we should be setting targets and then letting the industrial sectors figure out how to best achieve those targets.”

But while changes such as the plastic ban have had a lot of public support, there is an argument to be made that if products like cups use only a small amount of single-use plastic, then banning is potentially unfair to the producers of those cups.

“Many single-use bio-based products play an important technical and economical role in the food chain,” she points out. “For both single-use as well as reusable products, the important question is: are the products recyclable, and what is their overall environmental footprint? We must look at the bigger picture and make sure that regulation does not hamper the development of new innovative materials.”

Longer-term thinking is needed for better regulation

Decision-making at the EU level would benefit from having a much more long-term perspective, argues Virkkunen. “Often at the European level, we expect changes to manifest too quickly, but the research and development of new products takes time before the industries get a hold of them.”

This can be seen in the dissonance between the climate goals of 2030 and 2050, which creates a significant amount of uncertainty for industries. When placed side-by-side, the climate goals for 2030 might not seem as ambitious as those for 2050.

“The goals we have set for 2050 are ambitious,” says Virkkunen. “It can take industries decades to go from investing in research and development to standardizing products. The goals of 2050 are where we should be focusing – not so much 2030 – and the circular economy must play a huge role in that.”

A more balanced approach to legislation can enable sustainable growth

In Virkkunen’s view, policymakers should also think more broadly as well as thinking over a longer time scale. The environment is one of three parts of sustainable development. There are also economic and social aspects, and decision-makers need to balance all three of them in order to achieve sustainable growth in the future.

“During the coronavirus pandemic, we have seen that emissions dipped greatly because no one has been able to do much. That isn’t truly sustainable development, however, if you take the economic and social aspects into account, too.”

And just as there is more to sustainable development than the environment, there is more to environmental legislation than rules on plastic. While there is still work to be done to curb plastics – for example, on how to deal with microplastics – environmental legislation should also cover more industries.

“There has recently been attention on the textile industry, for example, where there is little transparency in how products are produced, or whether it’s possible to recycle them. We need to give consumers more tools to empower them to make their own decisions.”

Increasing investment can boost competitiveness

One of the obstacles to better regulation, according to Virkkunen, is a lack of European investment in research and development. “In this area, our main competitors, the USA and Asia, are investing much larger shares of their GDP. It is crucial for innovation that we invest more in research and development.”

One of the major pieces of legislation that has been built with a circular economy in mind is the EU Waste Framework Directive. MEPs are now looking into what special regulation can be made for plastics, the textile industry, electronics, and so on.

“The Commission has now decided to focus on resource-intensive sectors. This is important, especially from the consumer perspective, as, for example the unsustainability of the textile industry is not fully recognized yet. Not everyone knows that after the food, housing and transport sectors, the textile industry is the fourth largest cause of environmental pressure globally. Replacing today’s fossil-based fibers with recycled fibers or bio-based innovative materials would undoubtedly have both large environmental and economic consequences.”

More coherent regulation is needed at the EU level

And finally, no amount of thinking or investment can fulfill its full potential without leading to regulation that isn’t as coherent as it could be. One of the main obstacles for businesses acting in accordance with the Green Deal is the fact that regulation isn’t always coherent at a European level.

“There are so many decision-makers in so many member states, in Parliament, in different committees, that even when the Commission takes great care in crafting coherent legislation, there are always changes during the process,” emphasizes Virkkunen. “That’s something we need to work on.”

This article is part of a series where different stakeholders discuss the opportunities offered by digital innovation for the manufacturing sector, ahead of our virtual roundtable ‘How can digitalization deliver circular and sustainable manufacturing?’.

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