Stephen Hinton Consulting recently completed the compilation of a database of Market Based Instruments that have been thought of, proposed or applied to stimulating the economy to circularity. The list is far from comprehensive but was put together as a first step for the Circular Economy Delegation to gain an initial insight into the opportunities for politicians and authorities to use these instruments to introduce full circularity into the Swedish Economy.Continue reading “Recent Assignments: the Swedish Circular Economy Delegation”
If renewable solutions were cheaper for firms to use, they would. This is how price signals function to steer the behaviour of firms. For the circular economy to function, price signals should favour circular products and production methods. In other words, it needs to make better business sense to install circular and renewable energy infrastructure, and to install and use infrastructure that uses recycled materials. Without that, the linear economy – one that inputs extracted materials and outputs materials as waste – will continue to be the modus operandi of the profitable firm.
This article explores how to use price signals to steer firms’ buying behaviour in a way that keeps the economy stable. Market-based instruments are financial mechanisms that steer price signals to guide the behaviour of firms and markets in general.
What not to do
The product cost price equation reveals the opportunity
ProductCost= Labour + Energy(Renewable + Fossil) + Materials (Recycled + VirginExtracted)
From the equation above it follows that the relative prices of renewable energy compared to fossil will affect the choice of energy source and the end-price of the product. So will too the price of circular materials over extracted materials affect sourcing decisions. If renewable energy is more expensive to utilize then fossil energy will be substituted. The same goes for recycled materials being substituted for extracted ones.
As proposed by the Swedish Sustainable Economy Foundation, a progressive extraction surcharge (or import surcharge) on for example fossil fuels could be levied when the material enters the economy. This surcharge is raised at regular intervals. This is a process of discovery; the levy is raised until sustainable products reach price parity with unsustainable alternatives.
A surcharge on waste leaving the firm could have the same effect, assuming the surcharges are carried over to the final consumer price. This makes sustainable products competitive. We can represent this in the equations below.
ProductCost_Linear=Labour +Energy(Surcharge+Fossil) + Materials (Surcharge+VirginExtracted) + WasteSurcharge
ProductCost_Circular= Labour + Energy(Renewable)+ Materials(Recycled)
ProductCost_Linear + Surcharge>ProductCost_Circular
However, introducing the fee would make the overall range of product offering more expensive to the end-user.
ProductCost_Linear+ Surcharge> Normal Market Price
ProductCost_Circular>Normal Market Price
To redress the imbalance, all or most of the fees levied should be returned to tax payers as a dividend. Guaranteeing the repayment of a sufficient fraction of the dividend in equal amounts to every tax payer by law will be an important step in an Environmental Fiscal Reform and an essential component for majority support in a functioning Circular Economy.
The equation would thus look like this:
ProductCost_Circular -Dividend=Normal Market Price
The repayment is needed to secure that the majority of the tax payers will always receive more dividend (repayment) each month than their increased cost of living due to the fees levied to correct the price signals and to create a sustainable economic incentive structure.
Not crony capitalism, not raw capitalism, not capitalism in the hands of wrong people but capitalism itself is the cause of the environmental degradation and social misery we see around us. Capitalism offers the rules if you like, the players play by those rules, and the results are what we see. If I am going to say something this bold, I need to be really specific and present good arguments. Let me attempt that, but you will have to bear with me through some details. This is not rocket science, but the whole subject area has many branching ideas so you will need to look hard to see the path through the subject matter.
Kate Raworth’s Doughnut model of the way an economy should perform is excellent. But it needs an idea of how to control that economy so it performs to requirements. Enter the bath tub.
Kate Raworth has a wonderfully clear and simple concept – that we should arrange the way we run society on the principle that we do not exceed planetary boundaries – in our relation to nature – on one hand, and that we set things up to avoid people suffering and that everyone’s basic needs get fulfilled – the human dimension – on the other. She draws it like a doughnut.
In her excellent book, Doughnut Economics, Kate shows how this task is essentially one for the economy and a question for economics. Doughnut economics gives us a very clear set of requirements for how an economy should work. That immediately brings one to think of money, investments, taxes, banks businesses etc. And that is where the model needs a little help .Continue reading “Why the doughnut needs the bathtub – economic models for real change”
Some results from alpha testing of the Universal Basic Income simulation game
Together with the Swedish Sustainable Economy Foundation I am developing a Universal basic Income “Business Game“. The idea is to take a simplified, fictive country and play around with various aspects of UBI to learn by doing.
We are into the first alpha testing phase and have produced an overview dashboard to look into what sort of figure we are interested in following as the game progresses
The above run was a force run to see how raising taxes and lowering numbers in work looks in the system. As you see the state gets less to spend on services as income declines. Maybe not so interesting. The next run looks at raising UBI from under minimum standard and just raising VAT.
The second run added spending power of UBI takers to the dashboard. If you raise VAT you lower spending power. Interestingly – in the simplified model at least – you get MORE state income and the UBI takers do not get lowered VAT. This gives us a hint that it might be possible to raise UBI and Universal Basic Services, although the UBI eats away at the money available for social costs.
Modelling like this raises many detailed questions and it is a difficult task to make the game engine simple enough to handle in a game situation ( so that you learn basic principles) and complex enough to give a feeling of “real life” (so it feels authentic enough).
Let me know in the comments if there is any logic I am missing or any metric you want to see on the dashboard.
Click here for more articles on the UBI simulation
Circle Economy Training issed their first self-assessment quiz today on circularity readiness. The quiz covers most aspects of the circular economy from an organizational point of view.
Our analysis of signals of change in the world tell us that there are major changes being called for.
Eliminate poverty – we already decided
The Sustainable Development goals set a new precedent for human development and it is still sinking in that the majority of countries in the world have signed up to eliminating poverty (SDG1) and hunger (SDG2) and eliminating threats to the environment.
Universal Basic Income and Universal Basic Services are being tried and debated as a route to achieving SDG 1.
Supporting links: Article in the Independent on University College of London Report.
A new Green Deal proposes massive investment in a new USA
From the Democratic party, the New Green Deal is the boldest proposal to come from the US for a long time – it will aim to eliminate poverty, create green jobs and transform the technical infrastructure of the US to a circular economy
The Circular Economy is central to achieving the SDGs and the New Green Deal
The idea has been with us for a while, and it is slowly becoming more and more apparent that nature works in a circular way and society needs to fit in. The possibilities are huge, from green, dignified jobs for all to eradication of pollution to a better life for future generations.
Supporting links: Learn more about the Circular economy at this online school.
Heavy fees on things that pollute like fossil fuel can be a blessing
We are noticing how more and more economists are realizing that a heavy, increasing fee on fossil carbon could stimulate the economy rather than slow it if the fees are paid back to taxpayers. Some estimates point to 70% of citizens being better off under the scheme as those who use fossil fuels are ofter the wealthiest.
- Economist’s statement on Carbon Dividend
- Swedish Sustainable Economy Foundation’s research into Carbon Dividend Mechanisms
From our sponsors
Great rundown of the circular economy by my colleague Kabir who helps with the union of wastepickers.
Have you ever pondered over the role played by the neighbourhood- cobbler, electrician and tailor in recovering resources and reducing waste? Most of us have never even noticed them. If I say that they like wastepickers and recyclers are going to be the pillars of ‘Circular Economy’ envisioned by economically advanced countries, will you believe me?
I am assured that your first question will be ‘What is circular economy?’
According to the authors- Peter Lacy & Jakob Rutqvist of the book ‘Waste to Wealth- The Circular Economy Advantage’, ‘
Shifting to a circular model means changing our linear economy’s supply logic. We will need more renewable energy, more biomaterials and biochemical that can degrade safely, and more technical materials like metals that are designed to use recovered secondary material and for low cost end of life recycling, effectively closing the manufacturing loop. We need components designed for reuse and products…
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This presentation comes from the “Future day” seminar arranged by waste handler Ragnsells.
It covers why phosphorus requires to be treated as a special case in the circular economy, indeed in a circular economy culture. And gives a few ideas how to do that – mentioning the acute need to do something about the Baltic Sea.
Slides can be downloaded here. RAGNSELLS1
To learn more about the circular economy see the online courses available here http://circleeconomy.tssef.se
Launched just a few days ago, with Stephen Hinton as one of the main course developers, this new site will be offering both free and paid courses in the circle economy.
The site offers courses appealing to a wide range of audiences, from entrepreneurs, activists, policy makers, macro-economists and even those working with the peace economy.
Currently the site offers two free courses, one for entrepreneurs and the other connecting macro-economics and the circular economy.
Be sure to sign up to get notifications of coming courses!