The role of policy in promoting the recycling of critical raw materials

The transition to a zero-carbon and digital economy is expected to drive a substantial increase in the demand for critical raw materials (CRMs), while concerns over supply security have strengthened interest in recycling. Despite its potential, recycling rates for many CRMs remain low, i.e., suggesting the presence of barriers that impede the emergence of efficient recycling markets. This paper examines these barriers through a framework that distinguishes between market failures and systemic failures. This distinction builds on the notion that policy needs to ensure that markets allocate existing resources in an efficient manner but also keep them open to experimentation as well as to any structural change entailed by knowledge development and innovation. The market failures include environmental externalities, information asymmetries, and product design externalities that distort incentives among existing market participants. The systemic failures arise from deficiencies in knowledge development processes, actor networks, infrastructure provision, and institutional frameworks, all of which constrain technological innovation and the formation of viable recycling value chains. Drawing on examples from both established bulk-metal recycling systems and emerging CRM recycling markets, the paper demonstrates how these failures interact and shape CRM recycling outcomes. The paper argues that effective policy should rest on a product-centric rather than a material-centric perspective and, in turn, rely on a coherent mix of policy instruments combining environmental regulation, information-enhancing measures, eco-design regulations, innovation support (e.g., pilot and demonstration plants), infrastructure development, and institutional reforms.