Governing the Interplay between Industrial Ecosystems and Environmental Regulation

Introduction

There are good reasons to understand the governance of industrial symbiosis based on large volumes of potentially hazardous materials. One of the findings of environmental governance research is a call for analytical attention to the details of the interplay between the biophysical characteristics of specific environmental management systems and their socioculturally grounded governance systems (Ostrom 1995; Young 2002). Summarizing Ostrom and colleagues (1999), the challenge of sustainable governance in today's world is this: how to cope with multiple scales and cultures in interlinked ecosystems characterized by rapid rates of change and narrow margins for safety.

Industrial symbiosis has been defined as the synergistic exchange of material and energy between traditionally separate industrial organizations in a locality, region, or even in a virtual community (Chertow 2000). In this article we take up the challenge of governance for sustainability by investigating the interplay between industrial symbiosis with large volumes of potentially hazardous by-products and its regulatory environment. Our case study is located in the Gulf of Bothnia region in Finland and Sweden (figure 1).

Our objective is to highlight the technological and regulatory trade-offs involved in organizing a system of metallurgical industries as a regional industrial symbiosis crossing the national border between Finland and Sweden. Considerable potential for sustainability benefits warrants an investigation of how to transform the region's industries into industrial symbiosis: waste energy could be utilized more efficiently; mineral, chemical, and wood processing residues could be utilized across industrial sectors (in 2004, approximately 890,000 metric tons (t)¹ of mineral waste from the region's metal industries ended up in landfills); and sea transport of bulk materials across the Gulf of Bothnia between Finland and Sweden offers inexpensive alternatives to overland transport.

From an engineering perspective, waste reuse around the Gulf of Bothnia does not appear particularly challenging, and it is even likely to be economically feasible. The challenges arise from the current models of residue governance, which are limited to a market-driven model and a public-administrative model. The low rate of connections between the industries, particularly across the Gulf of Bothnia, shows that market incentives have not been sufficient to guarantee a high degree of waste reuse. Single industrial parks in the region, like the Kokkola Industrial Park in Finland, exhibit a high number of connections between industrial units, but these parks are unable to utilize the large amounts of waste generated annually in the region. A particular problem is the investment risk for facilities that would put a large amount of waste-based bulk products into the market.

Public administration, which uses chiefly the environmental permit system to regulate industries, has not been able to promote enhanced waste reuse either. The permit system defines the difference between wastes and by-products, but it does not regularly include any requirements or rewards for enhanced waste reuse. What is more, changes in environmental permits aimed at turning wastes into by-products are often followed by lengthy court processes, which may turn too costly for the operator trying to sell a novel waste-based product. In this article we suggest a new waste-to-by-product governance system to be established around the Gulf of Bothnia. The system follows the principles articulated in the common pool resource (CPR) management literature (Dietz et al. 2003; Ostrom et al. 1999; Ostrom 1990; 2005), and would help to resolve problems related to the operation of the market and public administration in waste reuse in the region.

We aim to answer the following research questions:

We model a technically and metallurgically feasible industrial symbiosis consisting of steel and zinc industries. The system displays innovative uses of waste material flows by the Gulf of Bothnia industries, as raw material for products. We then assess the strengths and weaknesses in national and European Union (EU) waste regulation for the modeled industrial symbiosis. Finally, we conduct a CPR analysis of the system, taking into consideration the identified technical, market, and regulatory issues in the Gulf of Bothnia case.

In technical terms, our article contributes to the well-documented research on global material flows (Graedel et al. 2005; Lifset et al. 2002). We argue that while these studies increase our knowledge of the fate of mineral resources globally, mineral recovery in industrial symbiosis requires better recognition of the compound and alloy properties of mineral waste at the local level. Zinc and iron offer a good illustration of our argument: while it may make sense to treat zinc and iron separately in a global-level material flow analysis, their interconnected production and recovery cycles make it impossible to separate the two at the local level (Reuter et al. 2005).

In policy terms, our article contributes to the ongoing debate on the applicability of EU and national waste legislation to waste reuse (Costa et al. 2010, Phillips et al. 2006). We argue that there are significant possibilities for achieving the EU's “end-of-waste” goals in industrial symbiosis.

Finally, our article contributes to the debate on the management of industrial symbiosis. Given the technological, market, and regulatory boundary conditions for managing our selected case materials, we propose a novel CPR governance system that will reduce some of the market and regulatory risks involved in large-scale regional industrial symbiosis.

Technological Potential for Industrial Symbiosis around the Gulf of Bothnia

The case study region around the Gulf of Bothnia consists of 41 heavy industry units and numerous smaller industrial operations that depend upon the heavy industry units. In industrial ecology vocabulary, the heavy industry units are the “anchor tenants” of the industrial symbiosis (Chertow 1999). Our industrial symbiosis model consists of seven anchor tenant units (figure 1): two carbon steel mills in Finland and two in Sweden, one stainless steel mill in Finland, one zinc plant in Finland, and a novel iron regeneration plant to be placed adjacent to any of the four carbon steel plants. In this way, the Gulf of Bothnia industrial system fulfills the three-to-two minimum criterion for industrial symbiosis: more than three industrial companies are engaged in exchanging more than two different resources (Chertow 2008). Next we will briefly introduce the contribution of each type of industry.

Dusts, scales, and sludge from steelmaking processes have been identified as a valuable and underutilized iron and zinc resource (Samuelsson et al. 2001). Unlike many steelmaking residues, these fractions cannot be utilized in the blast furnace without the harmful components first being removed by a separate pretreatment process. When dusts, scales, and sludge are processed in a separate treatment plant, the main challenge is to avoid disturbing the primary steel production process of the plant. In addition to iron, the waste flows contain zinc, which can be utilized as a raw material in a zinc plant (Heino et al. 2008). In our industrial symbiosis model, we consider either a Waelz kiln or a rotary hearth furnace (RHF) residue handling plant. In both of these solutions, zinc evaporates and zinc concentrate can be separated from the gas phase (Reuter et al. 2005). Preliminary estimates have shown that an annual 160,000 t of carbon steel mill waste, together with the 1,000,000 t of previously landfilled waste, is sufficient for the operation of an RHF in the Gulf of Bothnia (Larsson and Wedholm 2009). What is more, shipping the carbon steel mill waste by sea over the gulf offers further cost reductions compared with overland transport (Samuelsson et al. 2001).

In the production model depicted in figure 1, dust containing iron and zinc is fed into a regeneration plant (figure 2). This regeneration plant, as suggested for use around the Gulf of Bothnia by Larsson and Wedholm (2009), has a capacity to treat 200,000 metric tons per annum (t/a) of steel mill waste. It produces direct reduced iron (DRI) and zinc oxide, which are fed into the blast furnace of the Rautaruukki carbon steel mill and the Boliden Kokkola zinc process, respectively. The steel mill waste is expected to contain on average 45% iron and 1% zinc (Larsson and Wedholm 2009).

Another large waste fraction containing iron and zinc is jarosite² (200 kilotons per annum [kt/a], 0.35 to 0.8 t per ton of zinc produced, depending on the concentrate) from the Boliden Kokkola zinc plant. On average, jarosite contains 20% to 32% iron, 2% to 6% zinc, and less than 1% lead. Jarosite is classified as a hazardous waste because of the content of leachable elements such as cadmium, lead, and arsenic (Carcilaso 2008). Thermal treatment has also been demonstrated for jarosite waste using the Waelz kiln, Ausmelt, and Outokumpu flash furnace processes. Zinc and other volatile metals are fumed off and recovered; the slag produced could be suitable for construction processes. The processes are technologically viable, but they are very energy intensive and have not been shown to be economically viable as a general residue treatment method (Carcilaso, 2008). In our industrial symbiosis model, the input of jarosite is thus considered only as a tentative alternative, as it would exceed the capacity of the waste regeneration plant and would require more complex waste treatment equipment.

In addition to jarosite, the Boliden Kokkola zinc plant produces manganese dregs that are currently stored for further possible use.³ As manganese is linked to stainless steel production, the Boliden manganese dregs provide an additional waste material of interest. The current stainless steel production at the Tornio steel mill in Finland already uses Norwegian high-purity manganese as a nickel substitute. In our industrial symbiosis model, the Tornio steel mill uses manganese dregs from Boliden Kokkola instead of Norwegian virgin manganese.

In conclusion, we find that the auxiliary production of iron, zinc, and manganese from wastes around the Gulf of Bothnia does not face significant technological obstacles. From a technological point of view, even the reuse of jarosite would make sense. In terms of supply and demand, the three waste material flows—iron, zinc, and manganese—could easily be taken up by the current production around the Gulf of Bothnia (table 1). From an ecological point of view, the marine transport of hazardous materials across a large piece of open sea during winter is, of course, risky. Conducting a risk assessment on marine transport would extend beyond the scope of our article and needs to be the focus of future research. Suffice it to say, the industrial harbors and marine routes used by the steel and zinc plants are in active use throughout the year and are kept continuously ice-free by icebreakers. The same harbors and routes would be used in the transport of steel mill dusts and other by-products in the industrial symbiosis. Marine transport would thus not face risks larger than those faced by regular transport of industrial hazardous materials during the icy winter conditions.

This section has assessed the technological potential for waste recovery around the Gulf of Bothnia. From an engineering perspective, industrial symbiosis around the Gulf of Bothnia appears not particularly difficult and is likely to be economically feasible. In terms of regulation, however, the industrial symbiosis model may require large amounts of waste to be redefined as by-products. Under current environmental regulations, turning wastes into by-products has proved to be complicated. In the following, we assess the regulatory obstacles of turning wastes into nonwaste by-products under the current national and EU regulations.

Regulatory Conditions for Industrial Symbiosis around the Gulf of Bothnia

Waste to By-product in National Environmental Permit Systems

Replacing the waste status of a material with a nonwaste by-product status can be crucial for a management decision on material recovery. Typically, changing the waste status means that a company needs to apply for a new environmental permit. The Finnish and Swedish systems for granting environmental permits are highly analogous. Even though the examples given in this section are from the Finnish permit process, similar conditions apply for Sweden as well.

Industrial actors apply for environmental permits through a process in which the environmental authority and the general public assess and evaluate the application (figure 3). If no complaints are filed against the permit application, the environmental authority can issue the permit without court decisions. If a complaint is filed during the evaluation by the environmental authority, however, the permit process is transferred to an administrative court. Should the permit evoke further complaints after the court decision and after the applicant has revised the application, the permit process is transferred to the Supreme Administrative Court (SAC). Finally, the SAC often turns to the Court of Justice of the European Communities for statements and recommendations on whether a given substance can be treated as a by-product instead of waste.⁴

Under the current environmental permit system, removing the waste status of a material tends to be a time-consuming and expensive process for all actors involved. What is more, drawing the line between a waste and a by-product (a recovered raw material) appears to be a recurrent definitional struggle between permit applicants, environmental administration, administrative courts, and citizens. A good example is the environmental permit renewal process for Rautaruukki's steelmaking plant, which lasted from 2002 to 2008. The application included actions to remove the waste status of slag and scrap metals. The preparation phase of the environmental permit started in 2002 and the permit application was sent to the environmental authority in 2003. In February 2006, Rautaruukki received its permit from the environmental authority. Immediately after this a complaint was filed against the permit to the Administrative Court of Vaasa, Finland. The Administrative Court decided in favor of Rautaruukki in August 2007, but another complaint was filed against the permit, forcing the Administrative Court to take the permit process to the SAC. In September 2008, Rautaruukki received a legally valid but conditional environmental permit: the SAC decreed a number of adjustments that the company needs to make to its production process in order for the permit to be valid.⁵ These adjustments are due at the end of 2012. It should be noted that the permit has a fixed term and Rautaruukki needs to apply for a permit renewal in 2013.

The key issue in the lengthy Rautaruukki process has been the difference in interpretations of the environmental authority and the company on the SAC criteria for waste. In short, the environmental authority considers slag (excepting blast furnace slag) and scrap metal produced at the steel mill as waste because these materials require further processing prior to reuse. On the other hand, the company does not see these materials as waste because they are never discarded and are part of a continuous production process.

The example of Rautaruukki provides a good background as we turn, in the next subsection, toward material reuse within the Gulf of Bothnia industrial symbiosis. We use the EU Waste Framework Directive, which reflects closely the nonwaste by-product criteria applied by the national environmental administration in Finland and Sweden.

Toward Common-Pool Resource Governance of the Gulf of Bothnia Industrial Symbiosis

Our analysis of Gulf of Bothnia heavy industries highlights two unique characteristics of the region's material flow system that strongly guide our governance proposals. First, the low per-ton price of industrial by-product streams of the region means that the streams need to be large in quantity if reuse is to be profitable. This puts pressure on securing reliable reuse of by-product streams. Exposure to global markets is a threat to reliability, because a drop in the market price of an alternative virgin natural resource can stop reuse and create overnight the need for large-scale by-product storage. A prime example of this vulnerability is the manganese by-product from the Kokkola zinc plant, which has not yet been able to compete with virgin manganese at the Tornio steel mill. Second, some of the industrial by-product streams in the region contain hazardous substances. This creates a need for stable regulatory distinction between waste and nonwaste. Uncertainty over whether or not a by-product will, in the future, be considered a waste is a cost risk for the industrial operators in the region, as shown in the case of jarosite in Kokkola.

The “binary” quality of the Gulf of Bothnia by-product streams (i.e., relatively few by-product streams of very large magnitude that may or may not be reusable, some of which may or may not be hazardous) make the region very different from industrial symbiosis with many small and benign by-product streams. The balancing act that all cases of industrial symbiosis face between the public interest (reuse without environmental degradation) and the private interest (reuse with minimal cost) is uniquely challenging in the Gulf of Bothnia because of the double requirement for reliability: reliable market demand for a by-product whose nonwaste status is unambiguous.

We see very little chance of these requirements being satisfied under the current market-based governance system. First, fluctuations in the market price of mineral resources may suddenly make a key anchor tenant switch from by-product to virgin resource use, thus threatening the entire industrial symbiosis. Second, and posing an equally great threat to the survival of the industrial symbiosis, regulatory uncertainties related to whether a by-product is considered a waste or not can very quickly turn large reusable by-product streams into hazardous waste streams in need of safe disposal. To make the move to an industrial symbiosis and at the same time satisfy both interests, fundamental changes are needed in the way by-products and wastes are conceived as goods and governed as a resource.

To survive the contingencies of the global market and the regulatory environment, industrial by-products in the industrial symbiosis we have modeled would have to be redefined as CPRs. Under a CPR system, the by-products would gain the properties of private and public goods at the same time. They would be private goods in the sense that the utilization of a nonwaste by-product by one industrial plant in the industrial symbiosis reduces the possibilities of other plants to use the resource (conversely, the generation of a waste by-product by one plant increases the waste management burden on other plants). In other words, the resource is subtractable. But the by-products would also be public goods in the sense that it is difficult to exclude a plant in the industrial symbiosis from the utilization of a nonwaste by-product (or, conversely, from the generation of a waste by-product). In other words, the resource is nonexclusive (Ostrom 2005). The purchase gained from redefining the industrial by-products as CPRs is a repositioning of interests to manage them: on the one hand, each party can reap the benefits of having their by-products reused and their wastes managed within the industrial symbiosis; on the other hand, by joining the industrial symbiosis, the parties can share the by-product risks posed by global markets and waste management (Ostrom et al. 1999).

Ensuring that each party in the Gulf of Bothnia industrial symbiosis actually reaps the benefits and shares the risks of by-product management requires an appropriate governance system. Here we can rely on the principles outlined for CPR governance by the economics Nobel laureate Elinor Ostrom on the basis of extensive empirical case material worldwide (Dietz et al. 2003; Ostrom 1990, 1995, 2005; Ostrom et al. 1999). We will next summarize the principles and sketch their implications in the Gulf of Bothnia case.

First, the CPR should have clearly defined physical and membership boundaries. In the Bothnian case, there must be an explicit agreement on which industrial plants and by-product streams are part of the industrial symbiosis. Second, the CPR governance system should apply proportional equivalence between benefits and costs. Several management options exist for sharing the benefits and risks in the Bothnian case. Voluntary databases for by-products, long-term recycling contracts, by-product retailing (wholesale), waste stock market arrangements, site-based waste retailing, tradable pollution permits, and natural resource banking are all well-known means of environmental and natural resource management (see, e.g., Van den Bergh 1999; Tietenberg et al. 1999). One option would be the “Gulf of Bothnia Waste Insurance Company.” The company would act as a risk taker and it would be funded by member corporations. The company is analogous to the valuation of natural resources and ecosystem services (Suvantola 2004): a deposit in the natural resource bank is an insurance against harmful action in the future. The company could even partly offset the present system of waste liability fees to which industrial producers are currently subject.

Third, the CPR should be organized to enhance participation in collective decision making, to ensure monitoring and fair sanctioning, and to provide local conflict resolution. In the Bothnian case, these activities could be organized in the context of arrangements just described for the sharing of benefits and costs in the industrial symbiosis. Finally, the CPR should have nested governance, that is, local responsibility with global recognition of rights. In the Bothnian case we see good opportunities for doing this through the EU End of Waste policy. In order to speed up the slow environmental permit system in waste-to-by-product questions, the European Commission has published a report on waste materials that could possibly be freed from their waste status and, in this way, promote the End of Waste policy (Delgado et al. 2009). These waste materials (e.g., metals, solvents, paper, ashes, and so on) need to fulfill specific criteria so that their waste status can be removed. End of Waste criteria are “all the requirements that have to be fulfilled by a material derived from waste, and which ensure that the quality of the material is such that that material will not be discarded and its use is not detrimental for human health and the environment” (Delgado et al. 2009, 6). An important distinction is that the removal of waste status would not require a court decision, but would undergo a committee procedure given that the by-product criteria set up by the commission are not violated.

Details of how member states are to proceed in attempting to remove the waste status of certain materials, however, are unclear. The UK Environment Agency has benchmarked the field in January 2009 by collecting proposals for candidate waste materials from industry. Examples of the materials that the Environment Agency has accepted vary from fertilizers made of treated ash from poultry litter incineration to compressed tire bales for water attenuation systems (Gyekye 2009). In the Gulf of Bothnia CPR system, the industry would jointly suggest potential by-product materials that are generic enough as not to exclude operators within the CPR, but specific enough to exclude those outside the CPR system. Dust, sludge, and scales from steelmaking and manganese dregs from zinc production, for instance, would fit this double criterion of the CPR. These materials could be the technical cornerstone of the Gulf of Bothnia industrial symbiosis as well.

Discussion

We have shown that the Gulf of Bothnia industrial symbiosis has technical potential and may even turn out to be economically profitable. Steelmaking dusts, sludge, and scales form a significant underutilized resource, mainly because it is not feasible for any steel plant alone to process these wastes. In a joint arrangement, however, the materials would exceed amounts sufficient for a recovery facility. Some of the plants in the system, like the Boliden Kokkola zinc plant, would share several flows with the other industries: it would receive a zinc raw material from the steel waste recovery facility, produce a manganese flow for the nonferrous steel plant Outokumpu, and could even provide a jarosite flow for recovery in the future. We also argue that the industrial symbiosis could be economically feasible and challenge the market-based system in handling potential by-products. Economy is a key factor for industrial operators, and if the potential by-products are not economically feasible, no firm will use them as raw materials instead of virgin materials and the formation of the industrial symbiosis will fail.

What makes us confident that a CPR governance system would work better than a market-based system in our case? First, the examples of manganese and jarosite are empirical evidence of problems with the existing market-based system. Second, empirical research shows that transition to a CPR governance system depends on the perceived benefits and costs for the parties involved. Perceived benefits have been found to be greater when the resource reliably generates valuable products for the users. In our case, increased reliability with respect to price fluctuation and by-product definition would significantly contribute to valuable products. In earlier studies, perceived costs have been found to be higher when the resource is large and complex and users have diverse interests and understandings concerning the resource. In our case, the CPR system would lower the costs by simplifying the resource with clear boundaries and definitions, by aligning diverse interests with explicitly shared benefits and risks, and by facilitating common understanding with joint decision making (Ostrom et al. 1999).

In terms of purely economic efficiency, limited data exist on the use of the technologies we have suggested. Nippon Steel has reported that RHF processing has operational costs that are two to three times lower than a conventional steel process when processing steel mill wastes (Ichikawa and Morishige 2002). According to a preliminary assessment, the value of the steel mill dusts as described in this article is up to €15,000,000 per annum (Larsson and Wedholm 2009). A competitor to the RHF, the FASTMET process, has been reported to achieve an energy consumption of 16.5 gigajoules per ton (GJ/ton) of hot metal. In comparison with the conventional blast furnace with 18 GJ/ton of hot metal, the savings in energy costs may be substantial, especially under increasing energy prices (McClelland and Metius 2002).

As these figures are only illustrative and not comprehensive, a thorough empirical analysis of the industrial symbiosis in the Gulf of Bothnia would be needed to specify the costs and benefits of the CPR system. It is possible, for example, that the prices of the by-products discussed in this article do not remain stable, but have some variation alongside their primary equivalences. In this situation the shifting between virgin and by-product material would not be straightforward.

Conclusions

Literature on CPR management usually puts the issue as one of a “struggle” to govern the CPR (Dietz et al. 2003) because of the ever-present dangers of free riding and the tragedy of the commons (Hardin 1968). We have argued here that the binary character of the by-products of the Gulf of Bothnia industrial region actually makes the move from a market-governed resource base to a CPR a beneficial one. In fact, it appears difficult to shape an industrial symbiosis in the Bothnian region without redefining the resource system as a CPR.

The recovery of waste materials in the Gulf of Bothnia industrial symbiosis, we claim, is a governance problem, not an engineering one. It is a governance problem because waste by-product criteria in both the national and EU-level waste policy are subject to radically different interpretations. This renders waste-to-by-product policy unpredictable and unstable. In particular, the interpretation of waste processing has proven to be an object of conflicting viewpoints, as illustrated by the Rautaruukki environmental permit process. The governance problem of the Gulf of Bothnia industrial symbiosis is enhanced by the market-related risks of the waste material flows. Safe recovery and protection against market risks need to be guaranteed for material flows that are both large in scale and in part hazardous.

What we have proposed in the Gulf of Bothnia industrial region constitutes a “phase change” in the system, to borrow the terminology of nonlinear system dynamics. Under the current system, where by-products remain the responsibility of private corporations operating in the region, the relatively high on–off type of risks relating to the quantity and quality of by-products make it an unattractive alternative for corporations to venture into by-product reuse. Under the industrial symbiosis with CPR governance that we propose, the by-products become the responsibility of some form of collective organization created by committed members of the industrial symbiosis. The sharing of risks related to large volumes of by-products, some of which may be hazardous, facilitates by-product reuse among the members of the industrial symbiosis.

We do not imply that our conclusions would be generalizable to all industrial symbioses. The need for CPR governance stems in our case from the particular “brittleness” of the large volume and/or hazardous by-product system. With benign, low-volume material streams configured in complex networks, open markets may be a more attractive form of governance.

Finally, the Gulf of Bothnia industrial symbiosis clearly has the potential for increases in resource productivity. Yet the iron, zinc, and manganese cycles only cover a fraction of the material flows in the region. The remaining 32 industrial units, including large paper and chemical plants, should be included in future studies of industrial symbiosis. In addition, a careful analysis is needed of the judicial obstacles in creating an industrial CPR system.

About the Authors

Olli Salmi was a postdoctoral fellow at the Aalto University School of Science and Technology in Espoo, Finland at the time the article was written. He is currently the CTO of Eero Paloheimo Ecocity Ltd in Helsinki, Finland. Janne Hukkinen is a professor of environmental policy at the University of Helsinki in Helsinki, Finland. Jyrki Heino is a postdoctoral fellow at the University of Oulu, Department of Process Metallurgy in Oulu, Finland. Nani Pajunen and Maaria Wierink are PhD students at the Aalto University School of Science and Technology in Espoo, Finland.