April 3, 2013 2 Comments
In this blog post I argue that there are key intervention points within the Brazilian economic, social and legal structures that open up opportunities for a circular economy. It is intended as a follow-up from my last blog post, which discussed key trends that point to the need for Brazil to embrace a more sustainable economic model.
Why the circular economy: an opportunity for restoration
I am currently reading Paul Hawken’s The Ecology of Commerce, which outlines the destructive effects of our global linear economy. A fact I read this morning during my commute put our urgent situation into perspective:
Our human economy utilizes, consumes, converts, [...] and burns annually more than 40% of the total net primary production* of the planet. [...] Our species, out of 5-30 million species, is directly and indirectly claiming 40% of the earth’s production for itself. If, as predicted, population grows to 9 billion, we will usurp 60% of the primary production of the planet. [...] We will quadruple our impact, a physical impossibility.
(*Net primary primary production of the planet = defined as the sum of all photosynthetic production minus the energy required to maintain and support those plants.)
The economic activity described above is currently being driven largely by Western consumption and demand for goods. As Brazil, and other emerging and developing countries, move towards high levels of income and consumption, this will compound the destructive effect illustrated by Paul Hawken.
The circular economy is an opportunity for growth, enabling the development of a restorative economy that protects the environment and natural resources. This can be achieved through a broad range of strategies, including closed-loop material flows, replacing end-of-life waste disposal with repair, design theories such as Design for Remanufacture and Design for Disassembly, and Cradle-to-Cradle production and Industrial Ecology (see image below).
These strategies lie in stark opposition to those practiced by our ‘take-make-waste’ economic and industrial systems. This structure depends on linear modes of production, namely: extracting resources, manufacturing goods, transportation, sale, use, disposal. Whilst we have enjoyed a boom in trade, economic prosperity (not for all) and mass production since the Industrial Revolution, this has been at the expense of ecosystems, cheap labour, abundant resources and energy. As theprice for energy and resources rise (see graph below), there is an urgent need for a non-destructive, restorative economic as an alternative to our ‘take-make-waste’ model, and current trends in Brazil give rise to the opportunity for a more circular economy.
Key intervention points Brazil can leverage in order to restructure for a more circular economy
1. National Policy on Solid Waste
After much dithering (approximately 20 years) the Brazilian government introduced the country’s first national law on solid waste, the Política Nacional de Resíduos Sólidos. The policy focuses on six hazardous waste types, including e-waste and aims to decrease the production of waste and improve the sustainability of municipal solid waste management.
Key features of the policy render it a viable platform from which to build a circular economy:
- the policy introduces the waste hierarchy that determines priorities for post-consumer waste management, stressing the need for prevention and reduction, which has implications on product design
- polluter pays principle is upheld, as producers are obliged to pay for waste management
- reverse logistics and supply chains are to be developed, in order to divert waste from landfill and dumps and return end-of-life products to the producer
It is this last point concerning reverse logistics, in particular, that is of importance. Reverse logistics help transition an economy from a ‘take-make-waste’ model to one which operates based on closed-loop models of production, where waste is reused as an input. This Brazilian law requires producers within a given industry to work together to build reverse supply chains, which fosters greater collaboration, information sharing and communication between key players. Of course, there are large institutional, physical and economic barriers involved in developing reverse logistics. For example, whilst Brazil has the fourth largest road network in the world, only 13% of it is paved, which sets challenges for the development of road cargo for reverse logistics (CIA World Factbook).
Nevertheless, in developing reverse supply chains, Brazilian industries could be setting themselves up for circular modes of design, production and reuse.
2. Policies and financial mechanisms
Several funding sources and policies exist that incentivise the production of sustainable goods:
- National Fund for Climate Change – Climate Fund Fundo Nacional sobre Mudança Climatica - Fundo Clima will soon support projects that develop reverse logistics
- FINEP’s (Projects Financing Institution) Brasil Sustentável invests in projects that promote sustainable production and innovation in technology
- BNDES (Brazilian National Bank for Sustainable Development) Funtec invests in sustainable innovation in technology
- National Action Plan for Sustainable Production and Consumption Plano de Ação para Produção e Consumo Sustentáveis
The three funds above are national programmes that provide investment to help sustainable business, technology and services overcome market barriers. Brasil Sustentável, for example, has access to US$ 987 million in funding that is intended for the development of sustainable products, technologies and innovation. 75% will go towards projects that enhance company innovation and the remaining 25% will subsidise the development of new technologies in priority areas that hold relevance to the Circular Economy.
Furthermore, the Brazilian government recently launched the National Action Plan for Sustainable Production and Consumption, which I have written about here. In brief, the Plan sets out sustainability objectives and targets for six key sectors (see table below) that are aimed at transitioning Brazil towards a more sustainable society. This Plan provides a necessary regulatory framework from which to grow the market for sustainable goods and services.
One of the biggest barriers concerns the market demand for sustainable goods: currently only 5% of Brazilian consumers consider themselves as ‘conscious consumers’ (Instituto Akatu). This stifles innovation and sustainability efforts, as the return of investment for sustainable products remains very low. Other challenges include high running costs in Brazil, known as custo Brazil, and bureaucratic processes that act as barriers to market entry.
3. São Paulo & Rio de Janeiro: a South East city-region opportunity
Brazil is typically divided into five regions, which group together several states. The South Eastern region is made up of four states, including some of Brazil’s most competitive and tech-savvy cities: São Paulo, Rio de Janeiro, and Curitiba (The World Bank, 2010).
The South Eastern and Southern regions of Brazil provide the biggest enabling factors for a circular economy, given:
- Most of Brazil’s industrial activity is concentrated in the city regions of São Paulo and Rio de Janeiro, which between them contribute on average 25% to Brazil’s GDP annually
- The largest amount of waste is produced in the South East, most driven by São Paulo and Rio de Janeiro cities
- Eco-Industrial Parks are flourishing in the state of Rio de Janeiro, originally set up by a government initiative and now private sector led
- The best road infrastructure lies within the South East, facilitating the development of reverse logistics at lower cost
- The majority of the BNDES funding mentioned in point 2 above went to companies based in this South Eastern region of Brazil
4. Entrepreneurs & SMEs in the driving seat
Finally, entrepreneurs and SMEs have a real opportunity to grow niche markets and lead the way in the design and production of sustainable goods, given their ability to innovate around products, as exemplified by TerraCycle, NovoCiclo and EPEA Brasil. These actors benefit from not being locked-in into resource and energy intensive production and processes. The National Law on Solid Waste offers the opportunity to generate new market opportunities, supported by sustainable finance offered by FINEP and BNDES that support entrepreneurs and SMEs, which lowers the barriers to entry.
Admittedly, the Brazilian government hasn’t developed the best operating environment for start-ups and entrepreneurs, but the good news is that change is imminent: last month the government announced it would invest R$200,000 for each of 100 selected start-ups that demonstrate the most potential for growth and opportunities for scaling up.
There are certainly opportunities that can be leveraged to transition Brazil to a circular economy. The above four points lower the ‘barriers to entry’ for such a transition to occur. I have also attempted to (very) briefly outlined some of the key challenges involved in this process, one of which remains political will. With a track record of influential government leadership and the use legislative solutions, political will and backing is required for any economic transition to take place in Brazil (without it many initiatives fail to be successful). The above points remain context specific in isolation, however, when taken in aggregate, they represent a network of opportunities for a new economic system, business and consumption models that will help Brazil develop into a sustainable, resilient society.
National Fund for Climate Change / Fundo Nacional sobre Mudanca Climatica
FINEP’s Brasil Sustentável (Projects Financing Institution)
BNDES Funtec (Brazilian National Bank for Sustainable Development)
National Action Plan for Sustainable Production and Consumption / Plano de Ação para Produção e Consumo Sustentáveis