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The Circular Economy: A driver of inclusive and sustainable industrial development

Circularity can offer a backbone for public policy to support industrial development amidst existing environmental and social concerns.

By Manuel Albaladejo , Laura Franco Henao and Paula Mirazo

Industrialization remains a key driver of structural transformation1 and prosperity2. However, current and future industrialization efforts must be placed in the context of planetary boundaries and the ongoing environmental crisis. The convergence of the circular economy and industrialization has assumed increasing importance.

The ultimate challenge to sustainable development is the decoupling of economic growth from resource use (‘resource decoupling’), which will likely have a positive impact on the environment (impact decoupling).3 Decoupling entails significant changes in production and consumption patterns supported by policies that adapt economic activities to the earth’s environmental boundaries. Absolute decoupling is unlikely to occur, however, unless total resource consumption is capped, considering that growing resource demand will largely offset material efficiency gains.4

Decoupling Economic Activity from Resource Use
Source: UNEP. (2011) Decoupling natural resource use and environmental impacts from economic growth, A Report of the Working Group on Decoupling to the International Resource Panel.

The concept of resource decoupling should be the tenet of the new industrialization paradigm. As a major resource user and CO2 emitter (21 per cent of global CO2 emissions5), industry will have to do more with less. In such a scenario, the circular economy could act as a wedge for resource decoupling and efficiency. The production of four materials only, including cement, steel, plastics and aluminium, account for 60 per cent of total emissions from industry. Applying circular economy strategies in these four industries would reduce their global CO2 emissions by 40 per cent, or nearly half of those industries’ zero emissions target.6

Impact of the Circular Economy on Inclusive and Sustainable Industrial Development

Inclusive and sustainable industrial development (ISID) promotes industrial advancement, economic growth and diversification in a socially inclusive and environmentally sound manner. In accordance with this vision, industrialization should not be evaluated based on its income-generating potential alone – the efficient use of resources, the level of emission reductions and the generation of high-quality green jobs must be considered as well. In addition to promoting resource decoupling and efficiency, the circular economy could contribute to ISID in several ways that in themselves are interconnected (figure below) and foster a more human- and environment-centred industrialization model. A new industrialization paradigm needs to therefore be accompanied by a re-evaluation of the metrics and indicators created by the circular economy.

Impact of the Circular Economy on Inclusive and Sustainable Industrial Development
Source: Authors’ own elaboration.

Circularity to increase value addition and productivity primarily entails cost reduction and the substitution of intermediate inputs, including raw materials (primary or secondary), energy (fossil or renewable) and other goods and services needed for production. The circular economy’s biggest contribution to industrialization is the redesigning of industrial processes from the inception phase, leading to radically different business models. One of the most crucial impacts of the circular economy on industry, for example, is industrial dematerialization (i.e. when industrial products can be sold as services), as waste is ‘designed out’, thereby putting an end to planned obsolescence.

At the country level, the circular economy promotes diversification by establishing and consolidating new circular sectors and activities. Advancing the circular economy agenda boosts sectors relevant to industry such as waste management, repair, maintenance, remanufacturing and recycling. Similarly, circularity can diversify a country’s export basket by promoting trade in secondary raw materials and high value-added industrial waste. At the enterprise level, industrial firms can generate new income sources through new activities by recovering and reusing waste streams in their own industrial processes. For instance, dairy farms can diversify their income sources by generating bioenergy out of animal waste.   

Although the circular economy is often wrongly perceived as consisting of low-value, end-of-pipe activities, with technology hardly playing a role at all, it is actually a major source of innovation and technological development in the most advanced countries. As the new industrialization paradigm cannot be delinked from the technologies associated with the Fourth Industrial Revolution, neither can the circular economy. Hence, if Industry 4.0 technologies can speed up the transition to the novel circular economy7, its disruptive nature can nurture innovation-driven industrialization.

Efforts to move towards sustainable consumption and production patterns requires industrial goods to comply with increasingly demanding environmental regulations and standards imposed by international organizations (e.g. WTO) as well as trade partners. In this regard, the application of circular economy principles can lead to industrialization efforts that meet global sustainability demands and market entry requirements. For example, the EU’s Circular Economy Plan under the Green Deal will have an impact on the nature of trade agreements and the technical requirements for global industrial producers seeking entry into EU markets. The International Standards Organization’s (ISO) current effort to develop several circularity standards also point towards an overarching trend that will affect industrial firms around the globe. Similarly, firms’ collective efficiency is central to the industrialization debate and closely linked to sustainable production patterns. Industrial associations and export consortia have indisputably been key for the internationalization of industrial firms. The circular economy reinforces the notion of a collaborative and sustainable ecosystem through the exchange of energy, water and resource streams for the common good. Industrial symbiosis based on circularity, as exemplified in eco-industrial parks, can serve as industrialization growth poles.

Lastly, looking beyond economic and environmental challenges, new industrialization efforts need to create jobs to guarantee income equality, promote inclusivity and create shared prosperity. The future of work will be affected by several megatrends, including the Fourth Industrial Revolution and the circular economy. These transitions will result in job losses but will at the same time generate new ones. Industrialization will benefit from embracing the circular economy as a major source of jobs and skill development for the future. It is expected that circular economy sectors, which focus on material and resource efficiency (including material reuse and recycling), renewable energy, energy efficiency and the shared economy, will create a net 18 million green jobs by 2030.8

Circular Economy and Green Industrial Policies

Given the mechanisms through which the circular economy promotes ISID, it is likely that it will become the cornerstone of the new generation of green industrial policies. A shift towards sustainable production requires an understanding of how circularity can maximize industrial output, generate new jobs and increase overall well-being, while minimizing resource consumption. The impact of the application of circularity may vary from (industrial) sector to sector, and will be influenced by a country’s policy and regulatory environment, yet the underlying principles the circular economy is built upon will provide the backbone for public policy to address industrial development in the context of existing environmental and social concerns.

  • Manuel Albaladejo is UNIDO Country Representative for Argentina, Chile, Paraguay and Uruguay.
  • Laura Franco Henao is Learning Engagement Manager at the Ellen MacArthur Foundation.
  • Paula Mirazo is Economic Transformation and Industrialization Research Assistant at the UNIDO Regional Office in Uruguay.

Disclaimer: The views expressed in this article are those of the authors based on their experience and on prior research and do not necessarily reflect the views of UNIDO (read more).

References

  1. Lall, Sanjaya. (2000) The technological structure and performance of developing country manufactured exports, 1985–98. Oxford Development Studies, 28:3, 337–369.
  2. WEF. (2016) Manufacturing Our Future – Cases on the Future of Manufacturing. Geneva: WEF.
  3. UNEP. (2011) Decoupling natural resource use and environmental impact from economic growth, A Report of the Working Group on Decoupling to the International Resource Panel. Paris: UNEP. 
  4. Hickel, Jason (2020). Less is More: How Degrowth Will Save the World. William Heinemann. London
  5. IPCC. (2014) Climate Change 2014: Mitigation of Climate Change. Contribution of Working Group III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change. Cambridge and New York: Cambridge University Press.
  6. Ellen MacArthur Foundation. (2019) Completing the Picture: How the Circular Economy Tackles Climate Change. Isle of Wight: Ellen MacArthur Foundation.
  7. Albaladejo Manuel and Alonso-Ribas, Pía. Speeding up the Circular Economy in Latin America through the Internet of Things. Chatham House 23 October 2020.
  8. ILO. (2018) World Employment Social Outlook: Greening with Jobs. Geneva: ILO.  

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