Final report on policy recommendations and guidelines for the sustainable transition

Creating a Circular Bio-Based Economy (CBBE) is associated with several obstacles, including market challenges such as the lack of competitiveness of sustainable products. In addition, policy challenges have to be overcome, such as the high complexity of the transition and unintended side effects. SUSTRACK illustrates a possible approach on how to navigate through this complexity and create consistent policy solutions. This approach requires, first, a careful assessment of the strengths and weaknesses of the dominant type of policy intervention – direct regulation or market-based instruments. A marketbased policy approach is often better suited to deal with the complexity and limit administrative burdens of the transition. However, direct regulation meets higher acceptance from stakeholders and can induce change where politically feasible pricing instruments or subsidies are ineffective. Depending on the weight policy makers assign to the strengths and weaknesses, one or another policy pathway can be preferable. Regarding individual policy instruments, the most promising options are: ● subsidies to support innovative solutions, ● quotas for the use of sustainable feedstocks in combination with ● sustainability criteria for material uses of biomass and ● a carbon price for fossil feedstocks and low-value biomass uses. Depending on the characteristics of individual economic sectors and stakeholder preferences, this basic policy mix allows for a customisation for different sectors: ● In the textiles sector, market-based instruments such as a tax on fossil feedstocks and fast fashion, in combination with a “Green VAT”, could lead the transition. ● In the chemicals sector, combining a quota for non-fossil feedstocks with a pollution tax can be used to initiate change despite high transition costs (quota) and to cope with the high dynamics of a market that continuously produces novel substances (tax). ● In the (non-packaging) plastics sector, the similar challenge of high transition costs and complexity can be addressed likewise with a mix of instruments that effectively drive change (eco-design criteria and quota for recycled materials) and improve the competitiveness of sustainable solutions for circular and bio-based solutions that elude direct regulation. ● In the construction sector, financial support (for innovation and carbon storage in biomaterials) could be combined with standards for building and demolishing infrastructures. To account for varying conditions in the EU member states, the EU might consider creating differentiated levels of ambition or providing targeted support to less advanced economies. It should also be taken into account that EU member states vary in their success regarding compliance with environmental targets or target trajectories, for example, regarding protecting and enhancing carbon sinks in the land use sector LULUCF. This again may justify additional EU support for these sinks or require restrictions in regard to policies supporting the use of (forest) biomass. Varying progress in terms of waste management infrastructure is another factor to consider when, for example, setting quotas for using recycled materials. A process with the scope and depth of the CBBE is also likely to impact overarching economic variables such as economic growth and employment. While the transition may positively affect growth in the long run under certain conditions, stagnation or even negative growth may occur along the way, possibly requiring additional policy interventions. Furthermore, the CBBE transition may lead to substantial shifts in employment away from manufacturing to other sectors. Policy makers should smooth this transition, e.g., with respective programs for requalification. In addition, the modelled transition scenarios show that a CBBE is likely to increase demand for biomass. To align this effect with efforts to protect biodiversity or other ecological sustainability targets, strategies to cultivate additional biomass in line with such targets are required. Alternatively, or in addition to this, measures to reallocate biomass from low- to high-value uses can support the sustainability of the transition.