Industrial symbiosis: How to apply successfully

TL;DR

This paper critically examines industrial symbiosis, revealing that while it promotes circular economy benefits, it can also lead to increased pollution due to misaligned incentives, with outcomes dependent on key technological parameters.

Contribution

It introduces a simple model showing potential environmental drawbacks of industrial symbiosis and identifies a critical technology parameter influencing mutual benefits.

Findings

IS can increase pollution under certain market conditions

Recycling incentives may lead to higher production and pollution

A key technology parameter determines when mutual benefits occur

Abstract

The premise of industrial symbiosis IS is that advancing a circular economy that reuses byproducts as inputs in production is valuable for the environment. We challenge this premise in a simple model. Ceteris paribus, IS is an environmentally friendly approach; however, implementing IS may introduce increased pollution into the market equilibrium. The reason for this is that producers' incentives for recycling can be triggered by the income gained from selling recycled waste in the secondary market, and thereby may not align with environmental protection. That is, producers may boost production and subsequent pollution to sell byproducts without internalizing the pollution emitted in the primary industry or the recycling process. We compare the market solution to the social optimum and identify a key technology parameter - the share of reused byproducts that may have mutual benefits for firms, consumers, and the environment.