Circular economy policy barriers:

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IN

DEGREE PROJECT INDUSTRIAL MANAGEMENT, SECOND CYCLE, 30 CREDITS

STOCKHOLM SWEDEN 2020,

Circular economy policy barriers:

An analysis of legislative challenges in white goods and automotive industry within the EU SHADI SHAMS

KTH ROYAL INSTITUTE OF TECHNOLOGY

SCHOOL OF INDUSTRIAL ENGINEERING AND MANAGEMENT

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Circular economy policy barriers:

An analysis of legislative challenges in white goods and automotive industry within the EU

by

Shadi Shams

Master of Science Thesis TRITA-ITM-EX 2020:231 KTH Industrial Engineering and Management

Industrial Management SE-100 44 STOCKHOLM

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Policyhinder för cirkulär ekonomi:

En analys av lagstiftningsutmaningar inom vitvaru- och fordonsindustri i EU

av

Shadi Shams

Examensarbete TRITA-ITM-EX 2020:231 KTH Industriell teknik och management

Industriell ekonomi och organisation SE-100 44 STOCKHOLM

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Master of Science Thesis TRITA-ITM-EX 2020:231

Circular economy policy barriers:

An analysis of legislative challenges in white goods and automotive industry within the EU

Shadi Shams

Approved

2020-06-08

Examiner

Cali Nuur

Supervisor

Emrah Karakaya

Commissioner

CirBES AB

Contact person

Saman Amir

Abstract

Increased consumption, depletion of natural resources and sustainability concerns have challenged the conventional linear model of production, consumption and disposal of products.

Circular economy (CE) has become one of the most popular paradigms that can contribute to economic growth and concurrently satisfy sustainability ambitions. Transitions from a linear economy to a CE will require various reformations on different industry levels with more close collaboration among actors in value chains. For a successful transition, policies and legislative frameworks have shown to be crucial to shape new collaborations and define how costs and benefits are shared among actors in circular value chains. The current legislative setting however may result in barriers in transitioning towards CE and therefore may require adjustments. In this study, the legislative factors hindering the implementation of CE in the European Union (EU) are explored for white goods industry (within the scope of service-based business) and automotive industry (within the scope of remanufacturing). Potential policy adjustments are discussed, which may contribute to accelerate CE adoption. In doing so, qualitative research is conducted where primary data is collected through semi-structured interviews. The primary data is complemented with secondary sources, such as EU directives and reports, which is then discussed in light of academic literature. The findings indicate that the transition towards service-based business models is at early stages for white goods companies. As a result, more comprehensive and consistent policy instruments are necessary to address transitional changes and safeguard long-term success of circular and service-based models. Adjustments in current EU policies are recommended to focus on further developing infrastructure for efficient return of End-of-Life (EoL) appliances. Challenges in the automotive remanufacturing are mainly associated with a lack of policies addressing remanufacturing. This in turn has resulted in absence of sufficient clarifications and guidelines regarding definitions and standards for remanufacturing processes and remanufactured products. Therefore, in order to accelerate CE through promotion of remanufacturing, policies require an introduction of clear definitions for remanufacturing. This study is an attempt to highlight key areas affecting the pace of CE implementation in legislative context, which can serve as input for policy makers and researchers. The findings of this study are mainly in line with identified literature. In future, this study can be expanded to other industries dealing with CE adoption.

Keywords:Circular economy, policy, legislative barriers, remanufacturing, service-based, white goods, automotive

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Examensarbete TRITA-ITM-EX 2020:231

Policyhinder för cirkulär ekonomi:

En analys av lagstiftningsutmaningar inom vitvaru- och fordonsindustri i EU

Shadi Shams

Godkänt

2020-06-08

Examinator

Cali Nuur

Handledare

Emrah Karakaya

Uppdragsgivare

CirBES AB

Kontaktperson

Saman Amir

Sammanfattning

Ökad konsumtion, utarmning av naturresurser och hållbarhetsfrågor har utmanat den konventionella linjära modellen som är baserad på tillverkning, konsumtion och kassering av produkter. Cirkulär ekonomi (CE) har blivit ett av de mest populära paradigmen som kan bidra till ekonomisk tillväxt och samtidigt uppfylla hållbarhetsambitioner. Övergångar från en linjär ekonomi till en CE kommer att kräva olika förändringar på olika industrinivåer med ett närmare samarbete mellan aktörer i värdekedjor. För en framgångsrik övergång, policy och lagstiftningsramar har visat sig vara avgörande för att skapa nya samarbeten och bestämma hur kostnader och vinster ska delas mellan aktörer i cirkulära värdekedjor. Den nuvarande lagstiftningen kan dock leda till hinder i övergången till CE och kan därför behöva anpassas. I denna studie undersöks de lagstiftningsfaktorerna som hindrar genomförandet av CE i den Europeiska Unionen (EU) för vitvaruindustrin (med fokus på tjänstebaserad verksamhet) och fordonsindustrin (med fokus på återtillverkning). Eventuella policyanpassningar som kan bidra till att påskynda övergång till CE har diskuterats. En kvalitativ studie har utförts där primärdata samlats in genom semistrukturerade intervjuer. Primärdata har kompletterats med sekundära källor, till exempel EU-direktiv och rapporter, vilket sedan diskuterats och jämförts med resultat från tidigare studier. Resultaten tyder på att övergången till tjänstebaserade affärsmodeller i vitvaruindustrin befinner sig i ett tidigt skede. Mer omfattande och konsekventa policyinstrument är således nödvändiga för att adressera övergångsförändringar och säkerställa långsiktig framgång för cirkulära och tjänstebaserade modeller. Anpassningar i EU:s nuvarande policy har rekommenderats för att fokusera på vidareutveckling av infrastruktur för en effektiv återlämning av uttjänta produkter. Lagstiftningsutmaningar inom fordonsindustrin är huvudsakligen förknippade med en brist på policy som syftar till återtillverkning. Detta har i sin tur resulterat i brist på tillräckliga förtydliganden och riktlinjer som fastställer definitioner för återtillverkningsprocesser och produkter. För att påskynda CE genom att främja återtillverkning behövs det införande av tydliga definitioner för återtillverkning. I denna studie har det försökts att lyfta fram viktiga områden som i lagstiftningssammanhang påverkar genomförandet av CE, vilket kan användas som input till beslutsfattare och forskare. Resultaten av denna studie bekräftar huvudsakligen resultat från tidigare studier. I framtiden kan ytterligare studier utföras i andra industrier som implementerar CE.

Nyckelord: Cirkulär ekonomi, policy, lagstiftningsbarriärer, återtillverkning, tjänstebaserad, vitvaror, fordon

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List of Figures

Figure 1. Product s lifec cle and EoL strategies, adapted from ERN (2020) ... 7 Figure 2. Building blocks of circular economy, adapted from Ellen MacArthur Foundation

(2017a) ... 8 Figure 3. The four available modes to adopt circular economy principles, adapted from

Urbinati, Chiaroni and Chiesa (2017) ... 9 Figure 4. Building blocks of policy mixes, adapted from Rogge and Reichardt (2016) ... 10 Figure 5. Influence of the policy mix on a product lifecycle, adapted from Milios (2018) .... 14 Figure 6. Generic processes involved in remanufacturing, adapted from ERN (2015) ... 21 Figure 7. Methodological steps of the study ... 26 Figure 8. Resource-related initiatives in EU adapted from Milios (2018) ... 32 Figure 9. Waste hierarchy introduced in directive 2008/98/EC, adapted from European

Commission (2019b)... 34

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IV

List of Tables

Table 1. Outline of the thesis ... 5

Table 2. Definitions of EoL strategies referred to in this study ... 7

Table 3. Details of the interviews ... 28

Table 4. Details of the reviewed directives ... 29

Table 5. Details of the selected white papers and reports ... 30

Table 6. Summary of EU legislations relevant to white goods and automotive industry ... 33

Table 7. Summary of identified legislative barriers for white goods and automotive industry including policy mix characteristics and potential adjustments ... 58

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Abbreviations

APRA Automotive Parts Remanufacturers Associations CBM Circular Business Models

CE Circular Economy

CSC Circular Supply Chains

CSR Corporate Social Responsibility

EC European Commission

EEE Electrical and Electronic Equipment ELV End-of-Life Vehicle

EoL End-of-Life

EORLP Environmentally Oriented Reverse Logistics Practices EPR Extended Producer Responsibility

ERN European Remanufacturing Network

EU European Union

GPP Green Public Procurement IOT Internet of Things

IRP International Resource Panel NGO Non-Governmental Organization OEM Original Equipment Manufacturer PRO Producer Responsibility Organization PSS Product-Service System

RECiPSS Resource-efficient Circular Product-Service Systems

RoHS Restriction of the use of certain Hazardous Substances in electrical and electronic equipment

SC Supply Chain

SME Small and Medium-sized Enterprises VAT Value Added Tax

WEEE Waste Electrical and Electronic Equipment

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Acknowledgment

I would like to take the opportunity to express my gratitude and appreciation to people who have supported me during this thesis work.

First, I would like to thank the team at CirBES - Circular Business and Engineering Systems, for their support and giving me the opportunity to learn more about circular economy and the practical challenges in its implementation.

I would also like to thank my academic supervisor Dr. Emrah Karakaya, for his guidance and feedback during this thesis, which has helped me a lot in improving the quality of this work.

I am also very grateful to all interviewees for their time and collaboration especially during the challenging circumstances based on the ongoing pandemic.

Last but not least, I would like to thank my partner Michael, for always believing in me and encouraging me during the challenging times of this thesis.

This work is performed as part of the ReCiPSS project that has received funding from the European Union s Hori on 2020 research and innovation program under grant agreement No 776577-2.

Shadi Shams Stockholm, June 2020

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1. Introduction

This chapter presents the background, scope and context of the study followed by problem description and the aim of the study leading to the research questions. The chapter ends with a brief description of the outline of the thesis.

1.1. Background

Increased consumption, depletion of natural resources and sustainability concerns have challenged the conventional linear model of production, consumption and disposal of products.

In this context, circular economy (CE) has become one of the most popular topics both in industry and in academia as a solution that can contribute to economic growth and concurrently satisfy sustainability ambitions (Lieder and Rashid, 2016; Geissdoerfer et al., 2018). Compared to the linear economy, which is based on take-make-dispose, a circular economy is a regenerative system based on optimizing resource consumptions and reducing waste.

Various schools of thought have contributed to development of the CE concept. Among others, work of Boulding (1966) has contributed to the concept of CE by highlighting the importance of a closed system for coexistence of economy and environmental sustainability. Pearce and Turner (1990) have suggested a circular economy which considers the important role of natural resources as input to the economic system. Stahel (1982, 2010), by focusing on industrial economics, has suggested products life extension as a strategy to prevent waste in a sustainable society as well as shifting towards performance and service-based offers as sustainable business models. McDonough and Braungart (2010) have introduced the cradle-to-cradle concept for reducing waste generation and closing the resource loops. Particular aspects of CE, such as material flows and products design have gained attention by organizations such as Ellen MacArthur Foundation and the European Commission. Recently, CE concept has evolved and been adapted differently in various social and political contexts (Winans, Kendall and Deng, 2017) and has become a contested concept with several definitions in the vast literature (Korhonen et al., 2018). For instance, Kirchherr et al. have defined CE as an economic system that replaces the end-of-life concept with reducing, alternativel reusing, rec cling and recovering materials in production/distribution and consumption processes [ ] with the aim to accomplish sustainable development, thus simultaneously creating environmental quality, economic prosperity and social equity, to the benefit of current and future generations (Kirchherr, Reike and Hekkert, 2017, p. 229).

Transitions from established linear economies to a circular economy will require various reformations on different levels such as business models, supply chains, productions processes and even consumption models (Technopolis Group, 2016; Ellen MacArthur Foundation, 2017b). In addition, these transitions require high initial investments while the future profits

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are uncertain. Therefore, involvement and collaboration of various public and private stakeholders are required to support a successful transition towards CE (Geng et al., 2012;

Korhonen et al., 2018). In facing these challenges, policies and legislative framework in form of legislations and financial incentives have shown to be crucial in order to create necessary collaborations and economically motivate companies in uncertainties regarding profitability of investments (Fei et al., 2016; Ghisellini, Cialani and Ulgiati, 2016). Legislative factors and policies play crucial roles in defining how costs and benefits are shared among actors in the value chain (Moreau et al., 2017). Legislations can outline which actor should take accountability for certain costs and therefore affect the profitability and competitiveness of firms. In addition, collaboration among actors in value chains are reformed and become more interdependent in a circular economy eco-system compared to the linear economy (Fischer and Pascucci, 2017). Therefore, policies and legislations are necessary in transitions to CE to facilitate and shape new collaborations among the involved actors.

The topic of CE has recently been prioritized at European level. Some European countries such as The Netherlands have even become the leading country in the CE topic (Kirchherr et al., 2018). The European Commission has established a program in 2015 called EU Action Plan for the Circular Economy which aims to cover the entire lifecycle of products including production, consumption and End-of-Life (EoL) products including policies related to waste and reusing it as raw material with the intention of closing the loop (European Commission, 2015). As a part of the Action Plan, new policies have been issued in 2018 in order to improve waste management practices and increase recycling of different materials to different target levels (European Commission, 2015). However, the impacts and outcomes of such policies and legislations on different industrial sectors may vary and need to be investigated.

Against this background, in this study there are two industries of major interest when it comes to policy-related issues in CE transitions: White goods and automotive industry. In the context of white goods industry, 60% of electronic waste weight is attributed to large and small kitchen, bathroom, and laundry appliances, i.e. roughly 40 million tons discarded e-waste each year (The World Counts, 2019). In Europe, 12 million tons of electronic waste was generated during 2016, of which only 35% were collected (Bald et al., 2017). In particular, washing machines are among Electrical and Electronic Equipment (EEE) with the highest consumption growth (Bald et al., 2017). Washing machines are relatively expensive and technically advanced products which are regularly used by consumers and usually need reparations during their lifetime. 14- 15 million units of washing machines were bought on yearly average during the past years in Europe (Michel, Attali and Topten, 2016). These numbers show the urgency for sustainability improvements and need for successful CE strategies in order reduce waste and optimize resource use of EEE products.

In automotive industry, approximately 7-8 million tons of waste associated to End-of-Life Vehicles (ELV) are generated each year in Europe (European Commission, 2020b). Between 2005 and 2030 it has been estimated that the number of EoL vehicles will increase by 45%

(Heiskanen et al., 2013). A large fraction of this amount, about 90% of ELV s eight, is reused

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through recycling or recovery (Eurostat, 2020), which contributes to higher resource efficiency and sustainability in automotive industry. Remanufacturing is another EoL strategy which is considered to be more resource efficient compared to recycling and recovery, as greater amounts of value can be recovered in form of energy and material (Kalverkamp and Raabe, 2018). Remanufacturing of automotive components is an established industry in the EU with an estimated turnover of 7.4 billion, as mentioned in a report by European Remanufacturing Network (ERN). This industry, however, has the potential to be further developed to contribute to circularity of automotive products (ERN, 2015). By moving a larger amount of ELVs from recycling towards remanufacturing practices, millions of tons of potentially valuable waste from ELVs could be exploited to lower the depletion of resources while serving customers with high quality products.

1.2. Scope and the context of the study

This thesis focuses on two illustrative cases in the context of CE. The first case is based on transitioning from product sale to service-based business models in the white goods industry.

In this transition, the washing machines are offered to customers as services through a pay-per- use model. The appliances are then taken back to the manufacturer after use phase for necessary repairs, refurbishments or recovery depending on their status and functionality. The appliances will be then offered to consumers again. The legislative barriers for the first case are investigated in the context of transitions to service-based business models and the return of white goods appliances to the manufacturer. The second case is based on remanufacturing of used automotive parts (cores) in the aftermarket of automotive industry. In car workshops faulty automotive parts are replaced with new ones. The used (faulty) parts are transported to the manufacturer to be remanufactured, to bring them in a new-like condition for re-sale. The legislative barriers for the second case are investigated in the context of remanufacturing of automotive parts.

1.3. Problem description and the aim of the study

In the previous sections, the potential improvements for implementing CE in two particular cases of white goods and automotive industries have been motivated. In the current state, a large-scale implementation of CE in these two industries faces challenges and needs to be further facilitated. For instance, implementation of Circular Business Models (CBM) in white goods industry and transitioning to service offers for household appliances are an emerging phenomenon. Various elements e.g. resource consumption, use and EoL phase issues and products durabilit need to be considered in order to achieve sustainability results (Bocken et al., 2014, 2018). In addition, economic benefits of both companies and consumers in transitioning to CBM need to be considered (Loon et al., 2020). Similarly, remanufacturing in automotive industry, despite being well-established within EU, is currently facing various challenges related to reverse channels, lack of sufficient supply of components and conflicting interests of actors (Kalverkamp and Raabe, 2018).

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Policies and legislations have significant impact in addressing these challenges and preparing the market for large-scale implementation of CE. They can support the transitions to CE by setting crucial incentives, targets and motivating investors (Fei et al., 2016; Ghisellini, Cialani and Ulgiati, 2016; De Jesus and Mendonça, 2018). Lack of such measures in the current legislation can hinder adoption of CE. In the context of white goods and automotive industries, the legislative barriers are relatively understudied, and more practical evidence from companies operating in these industries are required to address the impact of policies and legislations on adoption of CE in the two industries. Addressing this, the aim of this study is to identify the obstacles, in a legislative context, that hinder the implementation of CE in the two mentioned industries and determine how adoption of CE can be facilitated through new policies and potential adjustments.

1.4. Research Questions

Based on the problem description, the scope and the context of the study, the following research questions are formulated:

RQ1: What are the key areas in legislative EU-context hindering transitions from linear to circular economy for service-based business models in white goods industry and remanufacturing in automotive industry?

RQ2: What are feasible EU-policy adjustments that would facilitate circular economy implementation for service-based business models in white goods industry and remanufacturing in automotive industry?

1.5. Delimitations

The scope of this study is limited to two industries: white goods and automotive industry. Only EU-level legislations are considered for investigation of the legislative barriers hindering the implementation of CE in these two industries. Legislations on local and national level in different countries are not within the scope of this study. In addition, the implementation and evaluation of the suggested and improved regulations are not included in the study since applying legislations into practice and observing the results in reality may take longer time which is beyond the scope of this study.

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1.6. Thesis outline

The thesis consists of six chapters in total. Table 1 presents the outline of the thesis and a brief summary of the content in each chapter.

Table 1. Outline of the thesis

Chapter Description

1. Introduction This chapter is an introductory chapter which presents the background, scope and context of the study followed by problem description and the aim of the study leading to the research questions.

2. Literature review This chapter starts with concepts and theories that are of relevance for the study.

It is followed by a literature review on recent research relevant to policies for CE implementation in general, narrowed down to CE in the context of white goods and automotive industry.

3. Methodology This chapter presents the research approach and design behind this study followed by data collection and data analysis.

4. Results This chapter starts with an insight into CE policies in EU and identified directives. It is followed by the results of interviews complemented with secondary data, leading to identification of main categories and themes.

5. Discussion This chapter presents an analysis of the results. The alignment of the findings with identified literature is explored. The findings are also discussed in terms of the theoretical concepts.

6. Conclusions This chapter presents main conclusion of the study starting with a brief summary, followed by main key findings answering the research questions. Finally, implications and the limitations of the study are presented, and future research is suggested.

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2. Literature review

This chapter starts with concepts and theories that are of relevance for the study. It is followed by a literature review on recent research relevant to policies for CE implementation in general, narrowed down to CE in the context of white goods and automotive industry.

2.1. Key concepts

In this section key concepts are outlined that underpin the forthcoming work. The purpose of this section is to provide a basic understanding of the subject of the study and put following chapters into appropriate context. First, the origins, principles and implementation of circular economy are briefly explained, followed by the description of the policy mixes theory.

2.1.1. Origins and principles of circular economy

Circular economy has recently gained a lot of attention both in industry and academia (Ghisellini, Cialani and Ulgiati, 2016). However, the origins of the CE concept formulation can be traced back to the work of the ecological economist, Kenneth Boulding in 1966, referring to a necessity of a closed system to ensure the compliance of the economy to sustainability of the environment (Boulding, 1966). The phrase Circular econom as later used by Pearce and Turner (1990) to describe the transitions from a linear economic system to a circular economic system based on laws of thermodynamics (Ghisellini, Cialani and Ulgiati, 2016; Lieder and Rashid, 2016). To date there are various definitions for CE stemming from various schools of thought. The latest definitions of CE and its implications in industry and economic system mainly share the concept of closed loops (Geissdoerfer et al., 2017). The authors define CE as a regenerative system in which resource input and waste, emission, and energy leakage are minimized by slowing, closing, and narrowing material and energy loops. This can be achieved through long-lasting design, maintenance, repair, reuse, remanufacturing, refurbishing, and recycling (Geissdoerfer et al., 2017, p. 766). Repair, reuse, remanufacturing and recycling can be referred to as EoL strategies which are shown in Figure 1. The narrower (shorter) the loops are, the more effective the CE implementation, since more value is sustained in the products in form of energy and material (Brunø, Andersen and Nielsen, 2019).

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Figure 1. P od c lifec cle and EoL strategies, adapted from ERN (2020)

The definitions for each of the EoL strategies that are used in this study are described in Table 2. These definitions are borrowed from EU legislations, namely 2008/98/EC (European Commission, 2008, p. 10), and European Remanufacturing Network (ERN, 2015) in order to ensure alignment with the content of this study.

Table 2. Definitions of EoL strategies referred to in this study

EoL strategy Definition

Reuse An operation b which products or components that are not waste are used again for the same purpose for which the were conceived

Repair Fixing a fault but with no guarantee on the product as a whole. Returning a faulty or broken product or component back to a useable state. Fixing what is broken or worn Recycling An recover operation b which waste materials are reprocessed into products, materials or substances whether for the original or other purposes. It includes the reprocessing of organic material but does not include energy recovery and the reprocessing into materials that are to be used as fuels or for backfilling operations Recovery An operation the principal result of which is waste serving a useful purpose b

replacing other materials which would otherwise have been used to fulfil a particular function, or waste being prepared to fulfil that function, in the plant or in the wider econom

Remanufacturing To return a used product to at least its original performance with a warrant that is equivalent to or better than that of the newly manufactured product. [remanufacturing]

involves dismantling the product, restoring and replacing components and testing the individual parts and whole product to ensure that it is within its origin design specifications

Raw materials

Material

transformation Components fabrication

Product

assembly Distribution User Waste

Reuse/Repair

Remanufacturing

Recycling

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8 2.1.2. Implementation of circular economy

Four main building blocks have been identified to be essential in transitions towards CE: (1) Circular economy design, (2) New business models, (3) Reverse cycles (4) Enablers and system conditions (Ellen MacArthur Foundation, 2017a). The building blocks and the dynamics among them refer to the necessity of a system view and fundamental changes that are required for a successful CE transition. Such a system view is not limited to single activities in the value chain, for example recycling. A system view furthermore allows to cover the entire value chain during products lifecycles, thus connecting multiple value chain activities. The main building blocks and the link between them are illustrated in Figure 2.

Figure 2. Building blocks of circular economy, adapted from Ellen MacArthur Foundation (2017a)

Circular economy design

Integration of circular economy requires to be considered at during product design. Applying major changes after product s specification and required infrastructure have been decided is challenging. The circular design facilitates slowing and closing the resource loops by taking to account e.g. repairability, durability and reassembly of products at early stages of design (Bocken et al., 2016). The design should consider the EoL phase of products and facilitate extracting the value remaining in the waste. Therefore, durable designs that extends lifetime of products, choice of material, standardized components that allow easy separation for repair or reuse are important factors during the design and production phase of products. However, the business strategy also requires to be considered in the design of products. This means that costs and emissions on supply chain level according to the business model should be linked to the product design (Lieder et al., 2017).

New business models

New business models that facilitate circularity in the value chains are necessary in implementation of CE. From a business model perspective, the adoption of CE and the

Circular economy

design

New business

models

Reverse cycles

Enablers and system conditions

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transitional factors can be considered with the two dimensions customer value proposition and value network (Urbinati, Chiaroni and Chiesa, 2017). The former is defined as the extent to which circularity applies in creating value for customers and the position of the firm in the market (external perspective). The latter is related to how circularity is applied on internal factors such as managing suppliers, resources and activities. Based on these two dimensions, the authors have identified four types of modes for adoption of CE. Firms can stand in different modes depending on the level they have adopted CE in their business models. Figure 3 below illustrates these four modes.

Figure 3. The four available modes to adopt circular economy principles, adapted from Urbinati, Chiaroni and Chiesa (2017)

The first quadrant shows the Linear mode in which firms have not adopted CE and operate based on the traditional take-make-dispose model. The second quadrant is the Downstream circular mode where firms have adopted CE on external level through reuse of their products, however circularity is not implemented on internal practices e.g. design of products. In this mode the focus of firms is on revenue generation and market share. On the contrary, in Upstream circular mode CE is implemented internally e.g. relationship with suppliers and product design. However, consumers and the value created for the customers are not considered, instead the focus on cost efficiency. Lastly, the fourth quadrant shows Full circular mode in which firms have managed to consider both customer value proposition and value network, and as a result have implemented CE on both internal and external levels.

Reverse cycles

In order to benefit from remaining value in products after use phase, reverse logistics are required that facilitate the reverse flow of EoL products throughout the value chains. An effective reverse logistics is crucial in implementation of CE since it not only enables product returns but also facilitates EoL strategies such as reuse, repair, refurbishment, remanufacturing and recycling of EoL products (Bernon, Tjahjono and Ripanti, 2018). Consequently, reverse

Upstream Circular

Linear

Full Circular

Downstream Circular

Customer value proposition and interface

Value network

High

High Low

Low

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logistics operations in this context are not only limited to transportation but also include warehousing, identification of EoL products, sorting, quality assessments, etc. (Cole, Gnanapragasam and Cooper, 2017). Therefore, a multidisciplinary knowledge in e.g. logistics, material, chemistry and biology are required in order to apply these operations efficiently and minimi e the leakage in material flo s. In man cases ho ever, the required infrastructure is still underdeveloped and needs to be improved (Bressanelli, Perona and Saccani, 2017).

Enablers and systems conditions

Implementation of CE also requires enablers embedded in a system that supports and recognizes CE. These enablers can be actors in the market such as policy makers, educational or financial institutions that can play significant roles in establishing new ways of working, new collaborations, creating incentives and international environmental regulations (Bressanelli, Perona and Saccani, 2017). Digital technologies such as Big Data and Internet of Things (IoT) are technical enablers, which have significant potential in facilitation of CE. Such technologies are useful in optimization of forward and reverse flow of products in the value chains as well as service-based Circular Business Models (CBM) (Pagoropoulos, Pigosso and McAloone, 2017).

2.1.3. Policy mixes for circular economy

In the context of sustainability policies, a single policy will not be able to address all challenges related to all problem areas and all actors following different goals. Instead, a policy mix is required which takes separate innovation stages, different barriers and drivers into consideration. Policy mix is defined as a combination of policy instruments where there is a coordination and harmonization between several instruments (Bahn-walkowiak and Wilts, 2017). Rogge and Reichardt (2016) have more specifically defined policy mix as a concept with three building blocks; (1) elements, (2) policy processes and (3) characteristics. Figure 4 shows the building blocks of policy mixes suggested by Rogge and Reichardt (2016).

Figure 4. Building blocks of policy mixes, adapted from Rogge and Reichardt (2016)

Elements Policy processes

Characteristics Policy strategy

§Objective

§Principal plans

§Goal

§Type and purpose

§Design features

§ Policy making

§ Policy implementation

§ Consistency of elements

§ Coherence processes

§ Credibility

§ Comprehensiveness Instrument

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According to the authors, the first building block consists of two components; policy strategy and policy instruments. The former is associated to goals of the policy and the long-term plans for accomplishing these goals. The latter is the actual tools and techniques that can be used in achieving the goals of the policy. The second building block, policy processes, can influence innovations in sustainability transitions and deals with policy making and policy implementation. Policy making can be defined as finding solutions to societal problems through governments decision making. In sustainability transitions, due to uncertainty, learning and experimenting play important roles in policy making processes. Policy implementation can be defined as putting policy instruments into practice by authorities and relevant actors involved.

Finally, the third building block is characteristics of policy mixes. These characteristics are consistency of elements, coherence of processes, credibility and comprehensiveness of policy mixes. The consistency of elements deals with the alignment level between various elements.

The coherence of processes is defined as the synergy of policy making processes and policy implementations leading in parallel to the same policy objectives. The credibility of policy mixes relates to how reliable and practical the policies are which can be affected by factors such as political leadership. The last characteristic, the comprehensiveness is associated to the level of completeness of policy mixes, i.e. whether they consider all markets, possible barriers and drivers and failure factors (Rogge and Reichardt, 2016).

In sustainability transitions, determining policy mixes can be more challenging due to the complexity and pace of transformations as well as the new and unexperienced circumstances (Edmondson, Kern and Rogge, 2019). The authors argue that there is an interaction between policy mixes and socio-technical changes. In this interaction, policy mixes have impact on the socio-technical changes in it in terms of resource, interpretative and institutional effects.

Resource effects can influence the direction of transitions and can be related to knowledge and technology that is promoted by policy mix. Interpretative effects occur by providing information and understanding for the actors. Lastly, institutional effects take place through rules and regulations. In response, the socio-technical transformations also have impacts on policy mixes and how they are formed through both positive and negative feedbacks. These feedbacks can be sociotechnical (public and stakeholders), administrative (public body), and fiscal (budgetary and financial) feedbacks which can influence the policy making (Edmondson, Kern and Rogge, 2019).

2.2. Role of policy in implementation of circular economy

The transition towards a CE can be seen as a paradigm shift where modifications on different policy levels are necessary (Govindan and Hasanagic, 2018). Consequently, a multi-level policy measures including different issues in policy design and policy mixes has been suggested for an effective transition to a CE (Bahn-walkowiak and Wilts, 2017). The policy measures in the context of sustainability are mainly:

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Regulatory instruments (e.g. mandatory targets, standards and certifications) Economic instruments (e.g. financial incentives and public procurement)

Research, development and deployment support measures (e.g. grants for R&D projects)

Information and education support measures (e.g. advising and training)

Voluntary measures (e.g. labels and agreements) (Bahn-walkowiak and Wilts, 2017)

The authors highlight that the consistency and coherence of EU sustainability policies needs to be improved. They exemplify that the CE policies such as Circular Economy Action Plan are limited to waste management and need to be improved by harmonizing strategies, coherent policy processes, consistent and comprehensive policy mixes. In the following sections policy measures related to implementation of CE has been reviewed and grouped into the following three themes: Policy measures for reuse of products, policy measures for circular business models and supply chains and policy measures addressing product lifecycles.

2.2.1. Policy measures for reuse of products

Dominish et al. (2018) have evaluated strategies for optimizing the use of metal resources in production and consumption of consumer goods particularly vehicles and white goods.

According to the authors, lifetime of home appliances can be extended through repair, reuse and resale. Policies are mentioned to play an important role in removing obstacles in applying these strategies. These policies should address issues and challenges not only to close the resource loops through recycling but also recognize the need to slow the resource loops by supporting new business models based on reuse and remanufacturing. Financial incentives and procurement policies are referred to as effective policies (Dominish et al., 2018). Similarly, Ranta et al. (2018) have identified that main drivers address recycling as the main strategy for CE implementation while other strategies such as reuse and remanufacturing seem to be absent.

The authors have pointed out that the main barriers for reuse strategies are cultural factors and related to customers perception of reused products. The role of policies and legislations are highlighted in supporting reuse through incentives and supporting programs for return of products to the manufacturers. In order to improve customers perception of reuse, policies are required to raise awareness through education as well as certifications to ensure sufficient quality of products for reuse. In order to increase the number of products that are reused instead of being recycled, new policies supporting improvement in separation of material from waste are necessary. This will ensure that the potential of products that can be reused is recognized and prioritized over recycling (Ranta et al., 2018).

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2.2.2. Policy measures for circular business models and supply chains

In adoption of circular business models, Kirchherr et al., (2018) consider cultural factors as the main barrier. According to the authors, prioritizing linear products leads to consumers not being interested in or aware of circular products, which in turn encourages manufacturers to produce linear products. It has been suggested that this logical chain can be disrupted through more effort form policy makers by increasing their support for circular business models through for instance reducing Value Added Tax (VAT) on circular products and concurrently lowering subsidies on linear products. Legislative policies are also mentioned to be effective in removing market barriers and in turn increase both companies and consumers interest in adoption of circular business models. More specifically, Wasserbaur and Sakao (2018) through a systematic literature review have analyzed the connections between business models and policies.

Regulatory policies have been identified as the most, and economic policies as second most researched policies in literature. In addition, a frequent connection between regulatory policies and value proposition has been identified which highlights the significant influence of regulations on how new business models are shaped. According to the authors, the economic policies are mainly associated to revenue and cost models which explains the importance of these policies through taxations, subsidies and other financial incentives in formation of business models (Wasserbaur and Sakao, 2018).

On supply chain level, the main drivers in adoption of CE are related to climate change and following the waste management policies that have been established as a solution to climate change problems (Govindan and Hasanagic, 2018). The authors have mentioned laws and policies as the most effective practices for transitioning to circular supply chains. It has been pointed out there is room for improvements in policies and legislation since there is a lack of sufficient financial incentives supporting the adoption of CE in supply chains. Using a more holistic approach, Tura et al. (2019) have systematically categorized the main drivers and barriers in adoption of circular business models into environmental, economic, social, institutional, technological, organizational and supply chain related factors. Lack of consistency in taxations and subsidies are highlighted as main barriers driven by new regulations resulting in new demands from an institutional perspective.

Kiefer, Del and González (2019), have identified main internal drivers in transitioning to CE through eco-innovations. The main drivers of CE within organizations have been associated to compan s culture, ph sical assets, financial resources as ell as investments in technologies and sustainable supply chains. According to the authors, these drivers can be addressed by different policies with different level of intensity for individual organizations. It has been further explained that a joint policy may not be applicable on an entire industry and acknowledging the differences in industries and firms is important in adoption of CE through policies.

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Hartley, van Santen and Kirchherr (2020) have suggested a set of policies for accelerating the adoption of CE in the EU based on different phases in products lifecycle, namely (1) production phase, (2) use phase, (3) EoL phase and (4) product return phase. For the production phase, it is recommended to initiate standards on EU level for supporting circular design of products which considers reuse, repair, refurbish and remanufacturing of products. In the use phase, policies for public procurement are suggested to support circular products. In this way, the role of governments would not only be limited to regulations, but they will also be involved in purchasing and co-production of circular products. In EoL phase, creating financial incentives for producers of circular products are recommended in order to increase their profitability.

Reducing VAT on repair and reuse (implemented in Sweden) or increasing the price of newly extracted material are some examples of such policies. Another recommendation in EoL phase is to improve waste legislations in order to permit cross-border transportation of waste that can be remanufactured or reused. Consequently, the definition of waste itself can also be modified, which helps in recognizing the value and potential of used products for reuse and remanufacturing (Bastein et al., 2013). Establishment of a virtual platform is also suggested in order to facilitate access of producers to information regarding waste in a transparent way. In product return phase, it is recommended to minimize information gaps and increase transparency in material flow through policies and programs e.g. using databases for return of products. It is also recommended to policy makers to increase awareness of consumers about benefits of circular products through programs and campaigns (Hartley, van Santen and Kirchherr, 2020).

Milios (2018) has mapped the current EU policies for sustainability and circularity of material flow to different stages of products lifecycle. The mapping indicates lack of sufficient policies for production and consumption phases during a product s lifec cle. In this regard, a set of policy mixes are suggested by the author for each phase in order to enhance the implementation of CE in the EU. Figure 5 shows the influence of the policy mix on a product lifecycle.

Figure 5. Influence of the policy mix on a product lifecycle, adapted from Milios (2018)

Production/Product design Use phase/Consumption End of Life/Waste

Resource Circulation Policy mix

Product Lifecycle

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In the production and product design phase, durability and repairability as well as remanufacturing policies are suggested. In order to increase durability and repairability of products it is necessary to ensure that spare parts and information regarding repairs are provided by the producers at reasonable costs. Regarding remanufacturing it is suggested by the author that more clarification and information is required when it comes to remanufactured parts that are put back to the market. The issues become significant in applying the EU policies such as Extended Producer Responsibility (EPR) when the manufacturer or remanufacturer should take responsibility for their products. In the use phase of products lifecycle policies such as Green Public Procurement (GPP) are suggested that are effective in pushing innovative and sustainable solutions. According to the author, GPP is not fully implemented in the EU and can therefore become a mandatory policy for authorities. In EoL phase, it is suggested by Milios (2018) that the current EPR needs to be improved. Currently, the producers pay for collection and treatment costs of the waste of their products based on their market share. It has been further explained that the current EPR may hinder encouraging the producers to improve the design of their products for less waste generation. In addition, many other actors are involved in the processes regarding the waste management which makes it difficult for the manufacturers to actually take back their products at EOL phase. Therefore, it is suggested to adjust the current EPR so that individual producers will be responsible for their own products only.

2.2.4. Summary

In summary, the main points identified through literature review in this section can be briefly described as follows:

Policies play an important role in closing the resource loops and extending the lifetime of products. In this context, the current policies mainly address recycling while reuse and remanufacturing of used products can further be promoted and supported.

Regulatory policies have found to be highly influential on business models and incentivizing policies related to taxations and subsidies are mentioned frequently as supporting strategies for circular business models, products and supply chains.

Policies are more effective if they cover and address all phases in products lifecycle i.e.

production, use and EoL phases.

2.3. Circular economy in white goods industry

The recent increase in global attention to sustainability and the effort in reducing electronic waste have advanced the research within white goods industry (Kissling et al., 2013). The recent research within the field provides suggestions on strategies on how the white goods industry can become more sustainable by implementation of CE and closing the resource loops through circular products, new business models, supply chains and technologies. In the following sections some of these strategies relevant to the scope of the study are presented.

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2.3.1. Towards service-based business models for washing machines

Product-service systems (PSS) can be defined as a combination of tangible products and intangible services that can together create value for customers (Bressanelli, Perona and Saccani, 2017). Tukker (2004) has classified PSS into three main categories: (1) Product- oriented services, in which the business model is based on selling products and some extra services are added such as maintenance contracts. (2) Use-oriented services, in which the provider (or the manufacturer) holds the ownership of the product and makes the product available to users. Leasing, renting or sharing are few examples of such services in this category. (3) Result-oriented services, in which there is a specific agreement between the customer and the service provider based on a particular result. Pay-per-use offers are a common example of such services. The result-oriented PSS is the most promising category in implementation of CE (Tukker, 2004). The value in these business models is captured through pricing based on a unit. In the case of white goods appliances e.g. washing machines the unit can be price per wash or price per unit of time for instance (Bocken et al., 2016).

Transformations related to adoption of PSS and transitioning from linear business models (sale of products) to service oriented and circular business models involve different aspects.

Customers, supply chains, sustainability and costs are factors that can be investigated from different perspectives which are presented in the following sections.

User perspective and customer acceptance

Gnoni et al. (2017) have explored the benefits of use-oriented PSS offers (leasing) for washing machines. On the user s side, it is identified that consumers ill have access to higher qualit and therefore more expensive washing machines. According to the authors, it will be more likely that the washing machines have a higher efficiency since the provider holds the ownership and therefore will put more effort in upgrading and keeping appliances in good operating status. For the same reason, the return of used washing machines will be simpler which can prevent the used appliances landing in illegal markets and landfills. However, the authors believe that such business models are new and need to be tested in order to investigate the acceptance level of the customers. Recent studies indicate high acceptance of circular business models for washing machines in the Nordic markets (Lieder et al., 2018). The main barriers in adoption of circular business models for white goods by applying PSS and leasing models have been associated to costs and consumers behavior due to unclear benefits of switching from ownership to leasing based models (Moreno, Braithwaite and Cooper, 2014).

Product-based offers in which consumers are the owners of products seem to be a more convenient option for the consumers. Communication and transparency to consumers as well as clarification of costs have been suggested to play an important role in convincing the consumers to switch to leasing (service-oriented) models. Another barrier according to the authors is that both consumers and manufacturers are locked in the current product-based business models which may be more convenient since consumers and manufacturers are familiar with costs, possible risks and benefits. Tax incentives for the consumers and raising their awareness regarding sustainability benefits of leasing washing machines are the most effective ways to promote adoption of service-based business models (Gnoni et al., 2017).

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On the suppl chain s side, the use-oriented PSS for washing machines will make tracking of the appliances simpler which can be helpful in planning and forecasting demands, required repairs and spare parts for instance (Gnoni et al., 2017). The traceabilit and the provider s ownership of the appliances also simplifies reverse logistics operations and return of used products back to the manufacturer for recovery, remanufacturing, refurbishing or recycling.

Higher effort in repairing and maintenance of the washing machines during their use phase is another factor that can extend the lifetime of appliances and lead to easier recovery of the used washing machines. In this a , companies costs related to putting the used products to landfills are also reduced (Gnoni et al., 2017).

Financial drivers i.e. higher profits and lower costs both for consumers and producers can be motivating in adaption of leasing models. Another benefit of leasing-based models for the producers of white goods appliances is the chance to have a longer commercial relationship with the consumers which can create opportunities for collaborative partnerships such as co- creation (Moreno, Braithwaite and Cooper, 2014). It has been argued by the authors that policies play an important role to increase consumers awareness regarding the benefits of PSS- leasing models and create incentives to adapt these business models. The annual cost saving and reduction in energy consumption for a similar business model i.e. pay-per-use offer for washing machines have been estimated to be 30% for consumers (Bressanelli, Perona and Saccani, 2017). On the national level, cost savings related to the electricity and water consumption could reach up to 0.6% and 1% respectively.

Loon et al. (2020) have compared and discussed the profitability and costs in the linear sales model of washing machines (product-oriented) with the leasing of washing machines (service- oriented) for consumers and manufacturers. Three types of washing machines are considered in their study; premium, economy and budget and costs related to repair, administration and transportation of washing machines are included in the estimations. It is concluded that from consumers perspective, the cost of bu ing a budget ashing machine (linear sales model) is higher in comparison to costs of leasing a premium washing machine (circular model) due to shorter lifetime and more frequent repairs of budget washing machines. From the manufacturer s perspective ho ever, offering washing machines as services i.e. leasing would be more challenging in comparison to the product sales due to cost of ownership, additional administration and repair costs. In the case of leasing premium washing machines, however, reparation costs can be assumed to be lower. The additional costs in the leasing model have shown to increase the pricing in order to be profitable for the manufacturer. Hence, the authors suggest that the profitability of both consumers and the manufacturers should be taken to account in transitioning from linear to circular business models (Loon et al., 2020). In the case of manufacturers particularly, there are many unknowns related to supply chains, reverse logistics, and transportation costs of repair and upgrade of appliances. Therefore, supporting these business models through policies and creating financial incentives can play a significant role in making service-based business models attractive to both consumers and manufacturers (Moreno, Braithwaite and Cooper, 2014).

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18 Sustainability benefits

The environmental benefits of PSS models in service-based business models for white goods appliances e.g. washing machine have been an area of interest and discussed in the literature.

Bocken et al. (2018) have explored environmental impacts of result-oriented PSS business models by analyzing consumers consumption behavior using a pay-per-use model for washing machines. Their results show a reduction in consumers total number of washes and as a result reduction in their energy consumption using washing machines based on pay-per-use offers. In addition, consumers used lower temperatures when using pay-per-use offers compared to the product-based offers, in which they own the washing machines. The authors have pointed out that in pay-per-use offers consumers receive a monthly fee for using the washing machines showing their consumption pattern which can be an encouraging and triggering factor to reduce their energy consumption (Bocken et al., 2018).

2.3.2. Reverse flow of used appliances and EoL strategies

A service-based business model can result in more involvement of the manufacturer or the service provider in all phases of product s lifec cle, from the design and production phase to EoL (Sousa-Zomer et al., 2017). This is due to the ownership of the products in PSS which remains with the manufacturer or service provider and therefore makes it simpler to return the used products at EoL to the manufacturers or service providers and close the resource loop. The used product based on its condition, can then follow an EoL strategy and be reused, refurbished, remanufactured or recycled. Reuse of EoL products is however preferred over e.g. recycling since more value in form of energy, material and labor is preserved (Kalverkamp and Raabe, 2018).

The significant role of logistics and reverse logistics has been highlighted in promoting reuse of EEE particularly home appliances (Cole, Gnanapragasam and Cooper, 2017). The researchers point out that logistics are not only related to transportation but also involve repair, testing, cleaning, refurbishing and ensuring the safety of the products to be put back to market.

In addition, high quality of the appliances can also influence consumers attitude and their acceptance in reusing home appliances. It has also been argued by the authors that is important to recognize the value of products with the potential to be reused and reevaluate their categorization as waste, in order to prioritize reuse over recycling.

O Connell, Hicke and Fit patrick (2013) have studied reuse of white goods appliances in particular washing machines. They have compared reuse and recycling of appliances in terms of sustainability i.e. on environmental, social and economic aspects. They have shown that consumers energy consumption behavior as well as energy sources (e.g. fossil fuels, biomass, nuclear energy, etc.) used for electricity generation on national level play important roles in comparing the environmental sustainability of the two EoL strategies. Regarding social sustainability, the authors argue that reuse will create more job opportunities and can therefore be a more effective solution to unemployment in comparison to the recycling. In addition, reuse of home appliances, can provide access to high quality washing machines with lower cost for

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individuals with lower income. Finally, reuse is shown to be a more economically sustainable choice. However, it is pointed out by the authors that ensuring the supply of material e.g. spare parts is crucial for necessary reparations and maintenance of the washing machines which has been identified as the main barrier for reuse of white goods appliances. In addition, costs and profitability of businesses models based on reuse should also be taken to account to ensure economical sustainability (O Connell, Hicke and Fit patrick, 2013). The main barriers to reuse of EEE has been identified to be related to lack of access to used EEE with sufficient quality and appropriate condition for reuse (Kissling et al., 2013). Similarly, the main driver for reuse has been identified to be related to having control on the products and processes that are involved in reuse sector and assuring customers and other stakeholders of the quality of products. It has been pointed out by the authors that legislative setting also plays a significant role in reuse of EEE; on one hand there is an absence of regulations that actually facilitate access to used EEE e.g. through regulation regarding waste collection and transportation. On the other hand, a complex regulatory framework can also prohibit handling of used EEE in a cost-efficient way for companies. This is particularly the case of companies that operate on international level. For instance, in some cases companies can reduce their cost by shipping the used EEE to other countries to be tested, refurbished or repaired for reuse purposes. However, the current legislative framework and lack of consistent international standards and quality certifications on national and international level does not allow these actions (Kissling et al., 2013). Policies have been identified to be effective in encouraging producers and consumers in reuse of EoL products by increasing awareness of consumers regarding benefits of reuse of appliances (Moreno, Braithwaite and Cooper, 2014). Moreover, the authors argue that financial incentives through policies e.g. reducing VAT on reuse and repair operations, have high influence in consumers choices. For producers, waste and EoL related regulations as well as extending producer responsibility (WEEE) are found as effective actions.

2.3.3. Summary

In summary, the main points identified through literature review in this section can be briefly described as follows:

System thinking is necessary in order to implement CE in white goods considering business models, product design, reverse supply chains and enabling systems facilitating necessary changes. Transitions from product-based to service-based offers may be influenced by factors such as:

Uncertainty of profitability and cost of ownership both for consumers and manufacturers

Consumers and manufacturers locked in the current product-based model and may conceive it as more convenient.

Financial incentives e.g. taxation, in adopting new service-based business models

Circular economy policy barriers:

Circular economy policy barriers:

An analysis of legislative challenges in white goods and automotive industry within the EU SHADI SHAMS

Circular economy policy barriers:

An analysis of legislative challenges in white goods and automotive industry within the EU

by

Shadi Shams

Policyhinder för cirkulär ekonomi:

En analys av lagstiftningsutmaningar inom vitvaru- och fordonsindustri i EU

av

Shadi Shams

Table of Contents

List of Figures

List of Tables

Abbreviations

Acknowledgment

1. Introduction

1.1. Background

1.2. Scope and the context of the study

1.3. Problem description and the aim of the study

1.4. Research Questions

1.5. Delimitations

1.6. Thesis outline

2. Literature review

2.1. Key concepts

2.2. Role of policy in implementation of circular economy

2.3. Circular economy in white goods industry