Options for using economic incentives to drive the circular economy

1. Market Based
Instruments for the
circular economy:
An Overview
Produced originally for the Swedish Circular
Economy Delegation
Stephen Hinton
Stephenhinton.org
Swedish Sustainable Economy Foundation
Tssef.se
Circleeconomy.teachable.com
Annotated version

2. See the film: https://youtu.be/3CcXrRN1DJ4
Picture the economy as a set of bathtubs,
and money as water.
Really everything belongs to citizens in one
way or another as citizens own companies
and governments represent citizens.

3. Enterprises
Citizens
Government Municipalities
Enterprises
You can always put a tax on things that are
not good for citizens, but that has the
effect of taking money out of the economy.
You need to look holistically when
introducing market based intruments.

4. Citizens
Government Municipality
Enterprises
Number employed= E+G+M
E
G M
ACTUATORS/Subsidies/Surcharges
1. VAT
1
3
2
4
5
7
6
6
2. Import fees
3. Risk substance surcharges
4. Employers’ taxes
5. Subsidies (electric bikes, solar etc)
6. Municipal fees
7. Personal taxes
As in all mechanical systems, control and
regulation can be done with a series of
sensors and ”valves” or actuators.

5. Citizens
Municipality
Enterprises
Number employed= E+G+M
E
G M
Government
Nature Waste
XH W
Import/extraction surcharge
Waste fee surcharge
It is important to clarify where substances
from nature (extracted from the bedrock or
harvested from ecosystems) enter the
economy to understand circularity.
And where they leave the economy.
The first and last transaction is interesting
for the circular economy. Different controls
can ensure that less virgin material comes
in and less unusable material falls out.
In Sweden, consensus says that companies
(enterprises) are responsible for most
material use. Instruments should ensure
that citizens are offered circular products
and services.

6. Market-Based Instruments Command and Control
Price-based Rights-based Market Friction
(e.g. nudging,
information and
education)
Includes voluntary controls
e.g. standards and
government goals
Subsidies on e.g electric
cars, solar panels
Exemption from
parking fees for
electric cars
Public awareness
campaigns
Restrictions on use
of diesel vehicles
in inner cities
Fertilizer taxes Cap and trade on
land emissions
Emission Bubbles
Farmer Education Restrictions on land-based
emissions
City Congestion Fees Entry permits Public awareness
campaigns
Emissions standards for
automobiles
Alcohol Tax Rationing Public awareness
campaigns
Alcohol sales restrictions
Research (wide definition)
Some classifications include research as a market incentive, includes development, basic research, demonstration,
technology and system evaluation.
Examples of various types of instruments

7. Market failure Goals Instruments Measures Effects
Data collection
Indicators
Critical materials Instruments need to be part of the whole to ensure market failures are redressed.

8. Latest approach – dynamic
levy with dividend
• Tax on import / extraction of fossil carbon
ingroduced and increased gradually until the target
is reached.
• Introduced as a “Carbon Dividend “funds raised are
paid out to all taxpayers equally
• The rich who consume more contribute to
transition while the poorest get more in their
pocket.
• Circular infrastructure needs investment. The fact
that people can pay for circular products is an
important signal to investors who hopefully invest
so that circular products come out on the market
while fossil-based products become expensive.

9. Simple truths
• Economists are cautious about saying that instruments actuall work –
solid evidence is lacking
• Implement and forget - not recommended
• Upstream as far as possible is best place for levies
• Several instruments working holistically are better
• Levies remove money from the economy
• Facts don’t seem to work as persuaders alone
• Positive language; Circular economy bonus sounds good!

10. Read more on
https://stephenhinton.org/category/bathtub-economics/
And visit the Swedish Sustainable Economy Foundation
Tssef.se