Prepared for the Policy Research Center for Environment and Economy, State Environmental Protection Administration, China
by Ernest Lowe

Abstract

In twelve years the Eco-industrial park has evolved from a visionary concept to hundreds of projects seeking to implement the concept around the world. This rapid dissemination has naturally led to differing understandings of what the term means. On the one hand, the US-EPA, the US President’s Commission on Sustainable Development, a Handbook this author produced for Asian Development Bank, and a number of major universities have tended to agree on a basic broad systems definition. On the other hand, a narrower focus on company to company by-product exchanges is often adopted as the primary purpose of creating an EIP.

In China the State EPA has identified the EIP as one of the important tools for realizing the Circular Economy. However, many specific pilot project plans have focused on company exchanges or “eco-chains” rather than using the full systems definition. In fact, this limitation in scope reduces the effectiveness of the EIP in supporting realization of the Circular Economy (CE).
Company to company exchanges are only one part of an integrated system for recovering now wasted resources and reusing them at highest value. A strong cluster of resource recovery and recycling companies, an effective coordination agency or company, company eco-industrial networks, research and development, and financing are other essential parts of this system. In addition, cleaner production within facilities must precede end-of-pipe recovery to optimize utilization of resources in the production process. 

The broader definition of eco-industrial park yields many more strategies to further the important transition to the Circular Economy by identifying the EIP as a hub to regional economic development. In this way, the EIP has a very active economic role in creating or expanding enterprises and opening employment opportunities while increasing productivity of resource use and lowering pollution. The “eco” in the name stands for economic as well as ecological benefits.

Review of eco-industrial projects in China as well as other Asian countries suggests that two primary challenges must be addressed: 1) dominance of public sector in the planning and implementation and 2) ineffective management of the projects. In most Asian countries, eco-industrial park or network projects have been managed by public authorities with insufficient private sector input or participation. Often political influences have determined decisions, rather than a clearly defined economic development requirement and strategy. In many areas this has resulted in excessive investment in development of industrial sites with little chance of fully using the land and gaining adequate return on this public investment. Greater private sector  participation and testing of public private partnership models for eco-industrial development is needed.

The second issue is that management of eco-industrial projects has often failed to overcome the inertia and lack of capacity of bureaucratic structures. In China many projects appear to follow the policies and procedures of the old planned economy rather than the innovative spirit of the new entrepreneurial economy. Innovations that seek to bridge the perceived gap between economic development and environmental protection require highly effective management. Some means of improving eco-industrial management include leadership at a high level of the organizations involved; measures to maintain continuity of key managers in the projects; a clear statement of responsibility for the success of the EID projects in staff job descriptions; and improved interagency coordination. 

See chapter 1 of our Eco-Industrial Park Handbook for more details on the definition of eco-industrial parks, eco-industrial networks, and by-product exchanges.

The Eco Industrial Park definition in common usage

The now commonly accepted international definition of “eco-industrial park” is based on the one initially created by an Indigo Development team in 1992 and then expanded for the US-Environmental Protection Agency in 1995 (Lowe, Moran and Warren 1995). This definition was refined in an Asian Development Bank publication in 2001 as follows” (Lowe 2001).

“An eco-industrial park or estate is a community of manufacturing and service businesses located together on a common property. Member businesses seek enhanced environmental, economic, and social performance through collaboration in managing environmental and resource issues. By working together, the community of businesses seeks a collective benefit that is greater than the sum of individual benefits each company would realize by only optimizing its individual performance. 

“The goal of an EIP is to improve the economic performance of the participating companies while minimizing their environmental impacts. Components of this approach include green design of park infrastructure and plants (new or retrofitted); cleaner production, pollution prevention; energy efficiency; and inter-company partnering. An EIP also seeks benefits for neighboring communities to assure that the net impact of its development is positive.”

This definition is now accepted broadly by innovators in the field of eco-industrial development such as Marian Chertow at Yale University (Chertow 2004) and Ray Cote at Dalhousie, University, Canada (Cote 2004), as well as the United Nations Environmental Program (UNEP 2001), the US President’s Council on Sustainable Development set up under President Clinton (PCSD 1997), the Asian Eco-Industrial Estate Network (www.eieasia.org ), and the European Environmental Agency (see EEA glossary on world wide web: http://glossary.eea.eu.int/EEAGlossary/E/eco-industrial_park .)

This broad definition implies a mission for EIPs

“An Eco-Industrial Park will achieve profitable return on investment while demonstrating an environmentally and socially sound form of industrial real estate development. This model of industrial development will be a major hub for sustainable regional development.

“For public authorities profit includes local ventures developed, foreign direct investment attracted, new jobs created, and environmental and social benefits. Nevertheless, the park should generate sufficient revenue to pay its own operating costs.”

An EIP operates in a regional context of eco-industrial development, which is defined as: Networks of businesses that work with each other and in conjunction with their communities to efficiently share resources (information, materials, water, energy, infrastructure and local habitat), leading to economic gains, environmental quality gains, and the equitable enhancement of human resources for the business and local community. (Côté 2004)

A more constrained definition

However, other academics and consultants have proposed alternative definitions of the term, “eco-industrial park”, which are based on a more limited objective of by-product utilization within networks of companies.

“Industrial ecology . . . emphasizes the development of eco-industrial parks in which there is material and energy cycling, and "webs" of firms that mimic the activities of producers, consumers, scavengers, and decomposers in a natural ecosystem. In an "industrial ecosystem", the waste of one firm essentially becomes an input into the production process of another firm. These waste exchanges result in cost savings and revenues for the firms, which are now able to not only cut down on waste disposal and material costs but also generate revenue by selling their waste as a commodity.” (Peck and Ierfino 2003)

“An eco-industrial park (EIP) is a community of companies, located in a single region, that exchange and make use of each other’s by-products or energy.” (Desrochers 2002)

This constrained understanding of the nature and potential of eco-industrial parks fails to see many of the benefits of this innovation in industrial resource management. It appears to be popular because it is a simpler concept that can be modeled and communicated relatively easily. Teams of engineering students have done hundreds of flow charts indicating potential industrial by-product trades among companies. One scholar has written a book outlining fifteen possible industrial complexes with hypothetical flows between companies of by-products. (Nemerow 2005.) These complexes usually depend upon one major anchor company with large by-product outputs. (Guitang Group in China is similar to one of Nemerow’s hypothetical complexes.) However, business realities often limit realizing such exchanges.

The limitations of company to company by-product exchange

There are outstanding examples of the effectiveness of the company to company by-product exchange strategy, but it may only be feasible in a broader eco-industrial network or region. The original inspiration was the case of Kalundborg in Denmark, where materials, energy, and water exchanges evolved among a group of companies in a region and their host community. Here a large power plant’s outputs were the basis for a series of inter-firm deals to utilize by-products economically among a refinery, a wallboard company, a pharmaceutical company, a fish farm, and community district heating. However, this “symbiosis” depended on the size and diversity of the companies, which were not located in a formal industrial park. The network of companies at Kalundborg is not an eco-industrial park.

In China the Guangxi Guitang Group is a notable example of using sugar production by-products, first within a single city-owned company, and then in a broader network including other sugar producers in the city of Guitang and the farmers growing cane. This success was possible because the first investments in infrastructure and plants were all within a single corporate group, not between separate firms. From this single-company, an eco-industrial network has evolved, including other sugar producers and the farmers growing the sugar cane.

There are serious limits to company to company exchanges achieving the resource efficiency goals of the circular economy:

• Often plants located together in an industrial park or development zone are clustered by industry and may generate very similar by-products. A cluster of electronics firms will find relatively few ways to use each other’s secondary product outputs.
  
• Even when there are diverse by-products available, firms have limited time to negotiate the transactions required for one plant to use another’s un-marketed products. The cost of reaching a deal (and minimizing the risks) may be greater than the value of the material, water, or energy utilized.
  
• The investment in negotiation needed results in a focus on the higher volume and higher value by-products and avoids dealing with many resource flows of lower value or volume.
  
• By-product exchange is an end-of-pipe solution that may diminish efforts to redesign process or product design to eliminate the by-product in the first place.
  

Therefore, it is important to maintain the more systemic definition of the eco-industrial park, in which firm to firm exchange is only one of many possible features of an EIP. In order to achieve the Circular Economy goals of multiplied efficiency of resource use, the commonly accepted definition of EIPs offers many more strategies than the by-product focused definition. These include: Site development preserving its natural features and utilizing natural water treatment/storage and indigenous plants as far as possible.

• Design and construction of the infrastructure and buildings following high performance resource efficiency standards and utilizing renewable energy and materials.
• Recruitment of companies committed to high resource efficiency and low pollution, including ones that support major industries in achieving these goals through the services and products they offer. 
• Management to support the financial, environmental, and social success of EIP companies.
• Strong linkage to surrounding communities through economic development, social and environmental programs.

The Eco-Industrial Park Handbook provides in-depth discussion of all aspects of EIP development. (Lowe 2001 and Lowe and Geng 2003)

The EIP’s role in achieving the Circular Economy’s goals

Company to company by-product exchange is only one of a system of strategies for full optimization of resource utilization. The Circular Economy vision emphasizes full implementation of Cleaner Production programs within plants and government facilities to reduce, reuse, and recycle “waste” materials within a facility. This strategy will reduce the total volume of materials and products to be managed at the end of the production/consumption cycle.

There is a simple management tactic at the plant level to encourage source reduction within plants: give every un-marketed output a product number and a line in the management accounts. Assign a staff person to manage these products and to find ways to stop producing them or to market them. (Douglas Holmes personal communication)
Another strategy vitally important to achieving the Circular Economy is innovation in product and process design (design for environment or eco-design) to reduce resource inputs per unit of output and to extend the lifecycle of end products through durability, reparability, upgradability, and recyclability. Eco-design plays an important role in German and Japanese Recycling Economy plans.  

If the commonly accepted international definition of “eco-industrial park” is accepted in China, it offers even stronger support to achieving Circular Economy goals than the limited definition linked to eco-chains. While some development of company to company resource exchange within an EIP may be feasible, an EIP can also include firms that support manufacturing and service plants in the park and throughout the region in achieving Circular Economy goals through Cleaner Production as well as eco-chains. This EIP-based CE support system would include

• Skills in resource efficient eco-design of products and industrial processes,
  
• Services and products to improve efficiency of energy, water, and materials use,
  
• Brokering of by-product exchanges among plants across an industrial region, and
  
• Resource recovery companies collecting, processing, and reusing industrial wastes. (See next section for detail.)
  

Circular Economy theorists such as Qian Yi and Shi Lei at Tsinghua University recommend the underlying broader strategy of cleaner production. “Actually, the fundamental goal of circular economy is to systematically prevent and reduce resources consumption and wastes generation in economy process. Therefore, cleaner production implementation is the cornerstone of circular economy.” (Shi and Qian 2003)

However, at this point, many local and regional plans for Circular Economy pilot projects and EIPs in China still tend to focus on the company to company exchanges. This limited understanding was evident in the majority of presentations at the Eco-Industrial Estates Asian Network workshop and conference, Bangkok March, 2004 and the GTZ Eco-Cities Conference, Yangzhou April, 2004. Projects summarized on the China-EU Environmental Management Cooperation Programme (EMCP) website also show this limitation. Http://www.cestt.org.cn/emcp/eindex.htm (English)
Http://www.cestt.org.cn/emcp/index.htm(Chinese)

A Regional Resource Recovery System

An eco-industrial park can serve as the coordinating hub to a full Regional Resource Recovery System including these elements:

• Coordinating firm or agency that integrates management of industrial, residential, commercial, and government “waste” streams for maximum resource recovery. (This entity should also coordinate with waste reduction, reuse, and recycling programs within plants, as well as design for environment programs.
  
• By-product exchange networks among plants.
  
• Resource recovery industrial cluster
  
• R & D to improve value of recovery and include more materials
  
• An investment capital network committed to this industry (both public and private sources)
  

The Resource Recovery Industrial Cluster may often be as important as plant to plant exchange networks in achieving a high level of efficiency in regional resource use.  This cluster includes:

• Niche collectors to separate and preserve the value of materials.
  
• Recycling firms to manage processing and distribution.
  
• Manufacturing firms to utilize recycled materials.
  
• Reuse firms to sell used equipment, materials & products.
  
• Re-manufacturing firms to rehabilitate used equipment.
  
• Composting firms to process biomaterials for nutrients.
  
• Energy companies to generate fuel or power from biomass.
  
• A firm that supports companies in creating by-product exchanges and eco-industrial networks and integrates their efforts into the larger system.
  

An eco-industrial park can benefit its whole community by hosting such a cluster of resource recovery companies, as well as other firms promoting Cleaner Production and design for environment to increase efficiency and productivity of major companies and government facilities. Eco-industrial parks should be designed to support implementation of this whole system.
(see EIP recruitment paper and our earlier description of an integrated resource recovery system for more detail)

The EIP as driver of regional eco-industrial development

The “eco” in “eco-industrial park” stands for economic as well as ecological benefits. The EIP has a very active economic role in creating or expanding enterprises and opening employment opportunities while increasing productivity of resource use and lowering pollution. This integrated role is a very important way to make clear that the Circular Economy is of economic and financial benefit, not another cost to the private sector. As China sets high goals for improving efficiency of resource use, fulfilling this strategy contributes strongly to improved international competitiveness.

For instance, most Chinese steel plants operate at a very low level of resource efficiency, less than half that of global leaders. This low efficiency increases the cost of infrastructure and building construction and manufacturing, thus lowering competitiveness and wasting scarce resources.

Challenges in EIP development

Review of eco-industrial projects in China as well as other Asian countries suggests that two primary challenges must be addressed: 1) dominance of public sector in the planning and implementation and 2) ineffective management of the projects. In most Asian countries, eco-industrial park or network projects have been managed by public authorities with insufficient private sector input or participation. Often political influences have determined decisions, rather than a clearly defined economic development requirement and strategy. In many areas this has resulted in excessive investment in development of industrial sites with little chance of fully using the land and gaining adequate return on this public investment.

The second issue is that management of eco-industrial projects has often failed to overcome the inertia and lack of capacity of bureaucratic structures. In Thailand, the Industrial Estate Authority of Thailand launched a major initiative in 2000 with support from the German bi-lateral aid organization, GTZ. The goal was to eventually make all 28 estates eco-industrial estates, beginning with five pilot estates. GTZ withdrew its support a year early because only one of the pilot estates had demonstrated any significant progress. The project suffered from changes in management of the other estates

In China many projects appear to follow the policies and procedures of the old planned economy rather than the innovative spirit of the new entrepreneurial economy. Innovations that seek to bridge the perceived gap between economic development and environmental protection require highly effective management. The following tables summarize the advantages and disadvantages of exclusively public or private sector development.

Advantages

• Charged with protection of the public interest: economic, social, and environmental outcomes.
• Can directly utilize government policy, R&D, and incentives.
• Not required to make a profit, so long as projects return their investment.
• The “profit” of real estate development includes this whole package of economic, social, and environmental benefits.
• Long term view.
• Leverage for inter-firm cooperation.
• Has enforcement ability
• Tax increment financing flexibility
• Can set own regulations
• Can leverage tax revenues

• Bureaucracies often slow & fragmented.
• Changes in administration & agency leadership may interrupt/end projects.
• Weak sense of ownership.
• May lack understanding of business needs and values.
• Focus on regulations, forgetting economic rationale
• Managed as cost (not-profit) center.
• Financial motivation unclear due to lack of accountability.
• May be subject to corruption.

• Strong in financial analysis of real estate investment
• Greater innovation
• Profit-motivated
• Forced to develop value concept
• Share risks with businesses
• Understands corporate management
• Tenants as Shareholders
• Estate manager can be better motivated by financial incentives
• Better integration into business routine