Economics and Risk Analysis

Economics and Risk Analysis

ENG794s1 Energy Management, Economics and Risk Analysis

Roles of Circular Economy in Oil & Gas and Renewable Energy Industry

As circular economy can be deemed as the exact opposite of the linear economy, see Fig 1. The linear economy follows a simple and straight end-of-life concept, in which when a material or product has reached the end of its useful life, it is thrown away or disposed. The two severe consequences of adopting the take-use-dispose model are (i) the creation of a huge amount of waste at the end of each product lifecycle and (ii) the need of huge material extraction at the start of each product cycle….Show Figure for Cycle…

The concept of circular economy is based on a number of school of thoughts, including the frameworks of ecological sustainability and resource sustenance (Ghisellini et al., 2015). It was in 1989 when Pearce and Turner formally introduced the term of ‘circular economy’ and explained the shift from the traditional ‘open-loop system’ to the ‘closed-loop system’ (Pearce & Turner, 1989). The concept of the closed-loop system is fundamental to the understanding of circular economy. (Geng et al., 2014) explain that the industrial process should not directly interactive with the environment, that is, the environment should remain intact regardless of the manufacturing, disposal, or other industrial procures. In an open-loop system, this interaction between the industrial system and the environment cannot be avoided and as a result, there is always some degree of environmental deterioration involved. On the contrary, in a closed-loop system, as guided by the circular economy, all material waste, carbon waste (produced during the manufacturing process), and other undesired by-products are made part of the industrial system in a feedback or closed loop setting, so to isolate them from the environment (Chertow, 2007). Thus, in a more inclusive and globalized form, recycling of goods is just one element of circular economy (Geng et al., 2014), the rest being carbon waste efficiency, steam and heat reuse, and environmental sustenance in all the industrial procedures.

Now when it comes to the implementation of the circular economy, there are always some considerations. According to Andersen (2007), the decision of adopting a circular economy needs revaluation of the industrial outcomes. If revenues and speed of manufacturing are the only Key Performance Indicators (KPIs) to evaluate the manufacturing process and quality of the product, many companies would ignore the value of environmental restoration if no value is assigned to the factors of energy efficiency, carbon control strategies, and waste recycling (Mathews & Tan, 2011).

There have been a number of studies explaining the benefits and implementation of the circular economy model in the manufacturing industry (Kimura et al., 2001; Yuan et al., 2008). However, research and empirical evidence on a methodological and systematic transition remain scarce (Su et al., 2013). As Neubauer and Pesaran (2011) claim that while transiting from linear economy to the circular economy, some business procedures may remain unchanged, while some may change completely or ceased to exist. Thus, the systematic route is the essence of a successful transition as without knowing the what, when, and how of the circular economy, a business might fail in its transition process. The study by Vasilenko and Arbaciauskas (2012) was one of the studies shedding light on the internal and external barriers to circular economy; however, the discussion was quite succinct and did not present an inclusive review of the major obstacles that industries may or would face when adopting the circular economy model.

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