Towards a circular economy: Identifying key driving factors for waste-to-energy across EESG dimensions

Waste-to-energy (WtE) systems are increasingly recognized as a strategic component of the circular economy (CE), offering dual benefits in waste reduction and renewable energy generation. This study investigates the key Environmental, Economic, Social, and Governance (EESG) drivers influencing WtE production across nine EU countries from 2000 to 2020, with particular attention to long-run dynamics, institutional readiness, and structural conditions. Using the Cross-Sectionally Augmented Autoregressive Distributed Lag (CS-ARDL) model and Dumitrescu-Hurlin panel causality tests, the analysis captures both short- and long-run interdependencies between EESG indicators and circular economy performance, as proxied by total WtE output. The results indicate that recycling efficiency, energy self-sufficiency, recycling innovation, and WtE consumption significantly enhance circular economy performance in the long term. Causal tests confirm bidirectional relationships between circular economy performance and both recycling efficiency and energy self-sufficiency, underscoring mutual reinforcement between front-end recovery and energy resilience. WtE consumption shows a unidirectional effect on circular economy performance, driven by immediate energy needs and waste diversion. Circular economy performance also Granger-causes improvements in recycling innovation and environmental regulation, suggesting that strong circular outcomes may catalyze downstream innovation and policy development. However, environmental regulation itself does not show a significant direct impact on WtE. These findings highlight the need for targeted, system-level policies that balance environmental integrity, energy autonomy, and technological capability to enhance WtE’s contribution to circular economy transitions in the EU.