EU Ecolabel diffusion and circular material use: Evidence from EU countries and implications for sustainable business models

Abstract

The transition from a linear to a circular economy has intensified interest in environmentally friendly business models and policy instruments that support sustainable production and consumption. While prior research has largely examined green labels at the micro level, focusing on consumer perceptions and purchase intentions, limited evidence exists on their macro-level role in circular economic performance. This study tests the hypothesis that higher EU Ecolabel diffusion is positively associated with circular material use rates (CMUR) across European Union Member States over the period 2010–2024. This study does not directly measure business models but examines macro-level indicators associated with their development. Using panel data from Eurostat and the European Commission’s EU Ecolabel catalogue, ecolabel intensity is operationalized as the logarithm of total licenses per country. Pooled OLS models with year fixed effects and country-clustered standard errors are estimated, first in baseline specification and then with controls for GDP per capita, environmental tax revenues, manufacturing value added, and R&D intensity. Results reveal a positive and statistically significant relationship between ecolabel intensity and circular material use rates, remaining robust after including macroeconomic controls. These findings suggest that green labeling is associated with circular economy performance and may reflect an institutional dimension aligned with circular economy governance. The results are also consistent with patterns associated with environmentally friendly business models at the macro level. This study contributes by providing a macro-level, cross-country analysis of the relationship between EU Ecolabel diffusion and circular economy performance, incorporating key structural controls.