The long-term goal of the European Union is to become a recycling society that uses waste as a resource (COM, 2005, p.666). The basic objectives of current EU waste policy are to prevent waste and promote reuse, recycling and recovery so as to reduce negative environmental impact. In this paper we focus on drivers and barriers for increasing material efficiency by using industrial by-products instead of raw material. Environmental legislation, which includes both traditional categories such as environmental protection, pollution control, environmental assessment and waste, and new categories such as emissions trading, is one of the main drivers in improving material efficiency, but it may also become one of the main barriers (2008/98/EC). We find that the most important barriers for environmentally friendly innovations seem to be the cost of investment and the high risk involved in committing capital to unproven technology. Other drivers, like corporate social responsibility, stakeholder pressure and general public pressure, will also affect the final decision. The EU encourages member states to increase the use of a combination of regulatory and economic instruments. An important mental barrier is still the lack of realisation that there is an opportunity to choose, and that there is no obligatory need for a change and no sanctions for operating in a traditional way. Such a realisation might only come from legislation. (C) 2011 Elsevier Ltd. All rights reserved.