Environmental Fiscal Reform

Fiscal Approaches to driving the change to the circular economy

Stephen HintonThe Swedish Sustainable Economy Foundation

TSSEF.se

CongestionMaterials pile up.Good things get to be too many in the wrong place at the wrong time

(A waste of resources)

Economies are like traffic: sometimes they perform poorly and accumulate things in the wrong amounts at the wrong times in the wrong places.Cars are what we want: traffic and pollution are what we don’t want.

The challenge, then, is to design an eco-system of rules and payments to encourage good performance.

This is the essence of the circular economy.

Unemployment

Unemployment is a kind of congestion: people accumulating outside the healthy flow of exchange of goods and services.

Unemployment is also under- utilization of valuable resources.

STRESS

Congestion puts a stress on people, organisations, and nature. The symptoms are clear to see, even if it feels like an impossible task to redress the imbalances

Capital:• Infrastructure.• Used in the provision of

services.• It is not itself consumed.

The kind of capital needed for the circular economy is one of social, human, ecological and built infrastructure.

We need to invest what we have to ensure the capital is in place to drive the circular economy in a stabilized way.

Land that functions as a mature eco-system (i.e. retains nutrients) is useful capital.

Energy to make(emergy)

Energy to operate, emissions

Hi

Hi

Lo

Lo

Build once, use a hundred years(Hydropower, trains, trams)

Use, recycle(Baskets)

THE DRAIN(Cars)

Energy sink! Replace(oil lamps)

The trick is to have society invest in the kind of infrastructure that makes up the circular economy: low energy to operate and zero emissions

We study the elements that are essential components of life and our human bodies to see how they flow through society. At each step there are accumulations and emissions. Each step includes a financial transaction, an owner, a buyer, a seller and an eco system of rules and fees and taxes around that transaction.

At each step we can ask:How are people thinking, what rules apply and what are the alternatives?

1 2

3

56 7 8

Case study phosphorous

4

1 2

3

56 7 8

Case study phosphorous

4

€2/kg

€20/kg€600/kg

price/kg to import or clean

1 2

3

56 7 8

Case study phosphorous

4

€2/kg

€20/kg€600/kg

A fee mechanism that stops import will make circular solutions economically viable

The case

FORPollutant

surcharges

Stimulates investment in circular

technology

Creates jobs in the country with

nutrient recovery

Preparedness for future shortages

Infrastructure change takes time

The case

AGAINSTPollutant

surcharges

– Undermines infrastructure

investment

– Might be inefficient

– Very unpopular : poor people pay

more for food, etc.

– Technology exists, but is

unintegrated

CAN WE GET MODERN?

Jay Wright Forrester

Why General Electric’s factories show inexplicable cycles

NOT TIME AND MOTIONBUT SYSTEMS THEORY

The

VEHICLEIndustry has

been doing this a long time

Making a potentially dirty and unsafe technology fulfil the purpose it is intended for.

Thanks to digital technology and system engineering vehicles are cleaner, safer, and respond better to driver commands.

It’s time for the economy to run clean, perform to requirements and respond to controls

Citizens

State

Enterprises including

banks

Municipality

The monetary system needs stabilizing mechanisms.

A stabilized system includes sufficient:

• Citizens spending freely• Enterprises offering jobs• Enterprises behaving sustainably• Governments and Municipalities providing services

See the money that citizens have to spend each month as water. The money leaves the “bathtub” at the end of the month and comes back in time to circulate again.

The economy is a complex system but there are enough intervention points

Citizens

State

1

4

3

5

2

Enterprises including

banks

Municipality

ATTENUATORS/Surcharges

1. VAT RATE CHANGES2. IMPORT FEE ON POLLUTANTS3. INTEREST RATE FEE ON MORTGAGE4. Dividend to citizens5. Property deed transfer fees6. Municipal charges

6

GOVERNMENT

CITIZENS

Balancing feedback:Raise import fees.Companies pass the increased costs on to citizens.

As long as citizens receive a good proportion of the funds and cover costs, the economy will not be damaged.

On the contrary, more environmental solutions will be comparatively cheaper

target

Too little, RAISE fee

Too fast, LOWER fee

DIVIDEND-BEARING POLLUTANT SURCHARGES• Decide on a phase-out target of a substance or practice.• Levy a fee where it enters the economy• Raise the fee until the market responds• Keep the fee stable or lower it if changes happen too fast to avoid instability• Return the collected fee to taxpayers to avoid creating shortages.

Read more http://tssef.se/making-the-case-for-a-dividend-bearing-climate-surcharge/

Target vs. Performance

BUSINESS GAME SIMULATIONS USING STABILIZING ECONOMIC MECHANISMS

To understand the concepts we have created and run

LILLIPUTDECLARATION

Per capita Ambition Instrument

Carbon dioxide 11 ton 0,25 ton Import surcharge 100

P import in chemicals 1 kg P 0,5kg Import surcharge 100

P Emissions 0,3 kg P

zero Property waste emission surcharge

100

The Government of Lilliput has decided to introduce a circular economy for phosphorus. In 12 turns of the clock the land will halve its dependence on imported phosphorus and reduce emissions from human activity to zero.

The Government is appointing an Emissions Dividend Commission to • Raise or lower pollutant surcharges and decide on distribution of the collected fees to citizens.• Ensure prosperity of citizens whilst reducing dependence on imports of non-renewables and ensuring emissions abate.

Pollutant surcharge simulations

GOVERNMENT

FOOD PRODUCERS

PROPERTY OWNERS

TRANSPORTERS

THE VOTING PUBLIC

SCORE-KEEPING

1 2 3 4 5 6 7 8 9 10 11 12 130

100

200

300

400

500

600

Team 1Team 2Team 3Team 4

Those who invested made more profit

Those who kept prices low lost

Start

1 2 3 4 5 6 7 8 9 10 11 120

100200300400500600700800900

PricesSpend power

Confidence in politicians varied – hard to see patterns.Even when money was available to pay for raised prices

Some take-aways

It is an economic and societal systemExplore a modern route with:• Dynamic control• Computer power• Healthy diet• Land function

• The Swedish Sustainable Economy Foundation

• TSSEF.se• [email protected]

Extra slides

16/12/12

PC

C

N

N

ConsumptionBiological nutrients

ServicesTechnical nutrients

A short introduction to circular economy

PPN

ECOLOGICAL MATURITY

CLOSED MINERAL CYCLESACCUMULATION OF PHOSPHORUSNITROGEN ACCUMULATION

LARGE BIOMASS•WOOD•LARGER ANIMALS•SOIL PRODUCTION•FUEL•WATER RETENTION

NUTRIENT CONSERVATION

•NUTRIENT-FREE WATER•NO LEAKAGE TO OTHER SYSTEMS

DETRITUS PROCESSING•DECAY•FUNGI

NICHE SPECIALISM•DIVERSITY

LEGAL ENTITYPROPERTY

Extraction

Import

Nutrient transfer

LEGAL ENTITY

Product Sale

1

2

3

4

Points of surcharge1. Import 2. Property nutrient performance 3. Extraction fee 4. Sales tax

National Boundary