Making Europe the Driving Force Behind Circular Fashion

The State & Prospects of Circular Fashion in Europe study* reveals that the European circular fashion market could exceed €100 billion by 2030. This outlook highlights the considerable economic potential of the circular transition in the textile sector.

This momentum is not driven solely by changing consumer behaviours and expectations. It is also supported by an increasingly robust European regulatory framework, including Extended Producer Responsibility (EPR) schemes, the Digital Product Passport (DPP), fiscal measures, and other policy instruments. The tools are in place, and the ambitions are clear.

However, the success of this transformation will not depend solely on the adoption of new regulations. Above all, it will depend on their effective implementation, consistency, and harmonisation across Europe. Without rigorous and coordinated enforcement, the potential of the circular economy in the textile sector risks remaining largely untapped.

Harmonising EPR schemes to accelerate investment

The first priority is the harmonisation of Extended Producer Responsibility (EPR) schemes. According to the *State & Prospects of Circular Fashion in Europe* study, a harmonised EU-wide textile EPR framework could become one of the main drivers of growth for the circular fashion market.

By transferring the financial responsibility for products’ end-of-life management to producers, EPR schemes help finance the infrastructure needed for collection, sorting, preparation for reuse, and recycling. This is a critical issue, as Europe generates more than **12 million tonnes of textile waste every year**, only part of which is currently collected separately.

The revision of the Waste Framework Directive requires all Member States to establish Extended Producer Responsibility schemes for textile products by 2028. However, the maturity of EPR systems and Producer Responsibility Organisations (PROs) varies significantly from one country to another, while Member States retain considerable flexibility in organising their national schemes.

These differences between national systems undermine their overall effectiveness. Variations in scope, governance, eco-contribution levels, and eco-modulation mechanisms create additional compliance costs for companies operating across multiple European markets. By contrast, a harmonised system would establish a level playing field for producers, prevent market distortions, and provide targeted incentives for sustainable textile product design and production methods.

Making VAT a competitiveness lever for circular business models

The second priority concerns taxation. Although circular business models deliver widely recognised environmental and social benefits, they often remain economically disadvantaged compared with linear models. Sorting, repairing, reusing, upcycling, renting, or placing products back on the market requires more labour and generates additional costs, which are ultimately borne by both businesses and consumers.

Fiscal policy can therefore become a powerful driver of economic transformation. By reducing the tax burden on activities that generate significant environmental value, lower VAT rates would provide circular fashion businesses with greater capacity to invest in skills, improve working conditions, enhance service quality, develop the infrastructure needed for growth, and comply with new regulatory requirements. The objective is not only to make circular products and services more affordable, but also to enable businesses to strengthen their economic models and scale up their activities.

The European Union has already paved the way by revising its VAT Directive, allowing Member States to apply reduced VAT rates to the repair of clothing, footwear, and household linen. While this represents an important step forward, implementation remains limited. So far, only a handful of countries—including Belgium, Ireland, Sweden, and Luxembourg—have fully embraced this opportunity. It is now essential for more Member States, including France, to follow suit in order to create a more favourable fiscal environment for repair and product lifetime extension.

However, ambition should not stop at repair. Second-hand retail, rental, and upcycling also play a central role in reducing the environmental footprint of the textile sector and deserve an appropriate fiscal framework. Applying reduced VAT rates across all these circular business models would help correct existing market distortions while sending a clear and coherent economic signal to both consumers and businesses.

Beyond these two priorities, one guiding principle should shape European action: supporting the full spectrum of circular business models. Reuse, upcycling, repair, second-hand, rental, recycling, and eco-design all contribute to the circular transition of the fashion industry. Future public policies should therefore ensure balanced incentives across the entire hierarchy of circular solutions.

To turn this opportunity into an industrial reality, the European Union must now move from setting objectives to delivering implementation. Harmonising regulations and creating coherent economic incentives are essential conditions for building a European circular fashion market that lives up to its ambitions.

*Study conducted jointly by the Circular Fashion Federation and KPMG France.*

This article is a translated version. The original publication is available on Les Echos Solutions :

https://solutions.lesechos.fr/business/actu-entreprise/faire-de-l-europe-le-moteur-de-la-mode-circulaire/