Policy levers

Policymakers have a central role to play in achieving the transition to a circular economy. According to research by the Ellen MacArthur Foundation (City Governments and Their Role in Enabling a Circular Economy Transition31) and Circle Economy (The Role of Municipal Policy in the Circular Economy: Investment, Jobs and Social Capital in Circular Cities32), municipalities can create the right conditions for the circular economy to thrive using a range of approaches.


Circular economy city roadmaps and strategies can set a direction for a city and inform the development of other policy levers, such as urban planning standards or material and waste classifications and regulations. Major cities such as Amsterdam, London, Paris, Auckland and Charlotte have such frameworks in place, which combine aspiration with practical guidance.

Financial incentives

City governments can use financial support to help foster innovation and establish markets, while fiscal measures such as taxes, penalties and charges can help incentivize circular, or discourage linear, production practices. Through loans, subsidies and grants for circular economy activities, cities can help overcome the financial barriers related to establishing a business, servicing immature markets or taking office space in a city. Such measures encourage long-term thinking and collaboration. For instance, economic instruments (including public procurement) harness market dynamics to influence behavior and decisions by changing prices, imposing or exempting taxes, or mandating carbon accounting.

Financial incentives in action

To stimulate the construction and purchasing of green buildings in the city, Cleveland and Cincinnati have offered 100 percent tax abatements for 10–15 years for new construction and existing building retrofits that are Leadership in Energy and Environmental Design (LEED) certified.

San Francisco is one of many cities to charge waste fees by volume, and has managed to divert 80 percent of its waste from landfill.

A number of European countries have reduced sales tax (VAT) for the repair of clothes, bicycles, leather goods, shoes and linen in order to stimulate the repair economy.

In New York State, donating used goods such as textiles, toys or furniture to a charitable non-profit organization can be rewarded with tax deductions at the end of the year. On donation the recipient organization issues a tax deduction receipt.


Developing regulatory, economic and soft instruments is a core domain of government and can play a vital role in shaping markets, influencing behavior and removing barriers to progress. Regulation can both be prohibitive (such as bans) and prescribe specific behavior, but also give a clear strategic direction for the incentivization, coordination and implementation of policies. Other examples of regulatory instruments include performance standards, monitoring, strategy, and targets or labeling.

Regulation in action

New York City’s Styrofoam ban has helped reduce urban litter and alleviate pressure on waste management services. The city has also established a rule to expand the organic waste treatment requirements for large commercial food retailers and food service establishments, with the aim of increasing the amount of organic waste diverted from landfill that can be put into beneficial use.

Meanwhile, in Scotland a ban on the landfilling of biodegradable municipal waste will be put into effect from January 2021, with the aim of stimulating the recovery and recycling of food waste in cities, among other things.


City governments have a unique ability to engage with multiple stakeholders from across sectors via information campaigns, education programs, matchmaking platforms and institutional design, among other things. In doing so they can enable networks and information sharing that can catalyze action. This is key to the emergence in cities of circular economy opportunities, which require understanding, collaboration and action within and between industries.

Urban management

Municipal governments have a strong influence over the physical development of cities, the management of their assets and the procurement of public goods and services. This lever relates strongly to the choice, design, use and flow of materials, making it key to the transition to a circular economy.

Urban management in action

In California, the City of Palm Desert has issued an ordinance stating a building permit can only be given if a Waste Management Plan has been submitted demonstrating “maximum reuse and recycling of debris and other waste generated during demolition, new construction, roofing, landscape and other construction projects.”

New York City’s Commercial Zones Bill was passed in October 2019 to facilitate much more effective waste management practices in the commercial waste sector.

In Amsterdam, the city is facilitating the development of Buiksloterham into a circular district. Underutilized city-owned land is being leased for construction projects linked to the circular economy and that satisfy certain sustainability criteria.