Energy as Part of the Circular Economy

I have to admit that the first time I heard about the circular economy and Kate Raworth’s work, while researching material for my Ph.D. dissertation, I thought it was just one of many trendy topics reserved for young people to have a reason to avoid school and protest on the streets. I was  wrong. Further studies on the circular economy at University of Cambridge’s Judge Business  School taught me that our perception of new or innovative concepts can be misleading. 

The circular economy is indeed a complex mechanism, which goes far beyond already known  concepts like ESG (environmental, social and governance). The circular economy is not only a way  to preserve natural capital, but indeed, a mechanism of competitiveness and profit for national  and global companies. Thus, properly implemented, this is far from those efforts that originally meant that companies needed to spend financial resources to comply with social,  governmental and environmental standards, but in a linear scenario, this does not necessarily  produce a positive effect on revenue, profit, financial competitiveness and cash flow, unless, of  course, finance is obtained to develop specific ESG-driven projects.  

But guess what? The circular economy, by its nature, means profit. 

Green as a Dollar 

If I have caught your attention with this last statement, here comes the best part.  The circular economy relies on what it is called the “Three P’s,” which stand for planet, people and profit. As an example, when only 14% of plastic is recycled, that means that companies spend millions of dollars buying new plastics to “replace” the amount not reused. That is neither very efficient nor financially wise. So the circular economy is not only about  covering “trendy” topics, such as saving the planet and being good to people (both of which are very important, indeed), it  also produces huge amounts of profits for companies. 

Power production is responsible for about 70% of all greenhouse gases around the world. Yes, it  is not possible to end the use of fossil fuels from one day to another, but replacing power supplies on national grids, and potentially from fossil-fueled power generation plants, with local renewable energy projects is not only good for the planet, it is a fantastic way to save money and increase profits.  What’s more, in many industrial processes, heat, gases, fumes and other physical production  “waste” are simply put into the atmosphere or landfills. This means that millions of dollars are  literally put into the garbage bin. In summary, the circular economy means that in every stage of sourcing, production, distribution and consumption, strategies for reuse, repurposing, recycling  and reduction are implemented, creating what is called a “reverse supply chain.’” 

If that is not enough for companies to be interested, the circular economy also means not  only a “reputational gold star” for companies, but it will soon become a standard to obtain financing and a requirement to be considered and selected as suppliers, providers or clients. So, as I have learned, the question is not if companies will understand and implement the circular economy, but when, if only  to avoid the tide that will wash over them if they are not ready to make the change. But smile, it will bring a profit. 

What the Law Says in Mexico 

As a lawyer, sometimes efforts like these need what is called a “stick and carrot,” meaning that incentives, both positive and negative, should be in place through federal and state legislation for all this to take place. In Mexico, the General Circular Economy Law (Ley General de Economia  Circular) might be discussed (it has not been enacted yet). In Mexico City, the Mexico City Circular Economy Law (Ley de Economia Circular de la Ciudad de Mexico) was enacted on March 1, 2023.  

On the energy side, the Electricity Industry Law (Ley de la Industria Electrica), enacted on  Aug. 11, 2014, includes several schemes that companies can choose from to be supplied by renewable  energy. I am not going to discuss the current legal scenario of the power market in Mexico simply because we all know what is happening, but a complete circular economy would include options for the  industry to be supplied by green energy and to reuse, recycle and repurpose their industrial waste in power production, cogeneration and waste-to-energy technologies. These are a great start but they are not the only options, with aisle production and distributed generation also great mechanisms to consider. 

Thus, federal and local laws in Mexico on the circular economy cannot be disassociated from the electricity and power laws already in place. Perhaps that is the reason why the Federal Circular  Economy Law in Mexico has not been enacted. More work on policies and a change in mindset are still needed. Indeed, the implementation of the circular economy around the world has already  detected that five main barriers exist for its implementation, in particular, and in what is called the SDG (Sustainable Development Goals), in general. Those are: economic, social,  technological, political and institutional. That is precisely why a legal framework is needed to create the proper incentives for an efficient implementation of the circular economy, in which a clear and non-ideological Electricity Industry Law is crucial if we want to include renewable energy in production processes as one of the components of the circular economy.  

Finally, depending on the relevant industry implementing all these practices, particular laws should  be reviewed to understand the mechanisms, incentives (economic/tax), authorizations, permits  and processes to follow in order to implement the circular economy in particular industries, goods and services and in a case-by-case scenario. 

We are happy to help.