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Environmental Fiscal Reform

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A new economic paradigm
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Environmental Fiscal Reform

  1. 1. Fiscal Approaches to driving the change to the circular economy Stephen Hinton The Swedish Sustainable Economy Foundation
  2. 2. Congestion Materials 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.
  3. 3. 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.
  4. 4. 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
  5. 5. 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.
  6. 6. 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
  7. 7. 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?
  8. 8. 1 2 3 5 6 7 8 Case study phosphorous 4
  9. 9. 1 2 3 5 6 7 8 Case study phosphorous 4 €2/kg €20/kg €600/kg price/kg to import or clean
  10. 10. 1 2 3 5 6 7 8 Case study phosphorous 4 €2/kg €20/kg €600/kg A fee mechanism that stops import will make circular solutions economically viable
  11. 11. The case FOR Pollutant surcharges  Stimulates investment in circular technology  Creates jobs in the country with nutrient recovery  Preparedness for future shortages  Infrastructure change takes time
  12. 12. The case AGAINST Pollutant surcharges – Undermines infrastructure investment – Might be inefficient – Very unpopular : poor people pay more for food, etc. – Technology exists, but is unintegrated
  13. 13. CAN WE GET MODERN?
  14. 14. Jay Wright Forrester Why General Electric’s factories show inexplicable cycles NOT TIME AND MOTION BUT SYSTEMS THEORY
  15. 15. The VEHICLE Industry 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
  16. 16. 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.
  17. 17. 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 CHANGES 2. IMPORT FEE ON POLLUTANTS 3. INTEREST RATE FEE ON MORTGAGE 4. Dividend to citizens 5. Property deed transfer fees 6. Municipal charges 6
  18. 18. 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
  19. 19. 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 Target vs. Performance
  20. 20. BUSINESS GAME SIMULATIONS USING STABILIZING ECONOMIC MECHANISMS To understand the concepts we have created and run
  21. 21. LILLIPUT DECLARATION 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.
  23. 23. 0 100 200 300 400 500 600 1 2 3 4 5 6 7 8 9 10 11 12 13 Team 1 Team 2 Team 3 Team 4 Those who invested made more profit Those who kept prices low lost
  24. 24. 0 100 200 300 400 500 600 700 800 900 Start 1 2 3 4 5 6 7 8 9 10 11 12 Prices Spend power Confidence in politicians varied – hard to see patterns. Even when money was available to pay for raised prices
  25. 25. Some take-aways It is an economic and societal system Explore a modern route with: • Dynamic control • Computer power • Healthy diet • Land function • The Swedish Sustainable Economy Foundation • •
  26. 26. Extra slides
  27. 27. 16/12/12 P C C N N Consumption Biological nutrients Services Technical nutrients A short introduction to circular economy P P
  29. 29. LEGAL ENTITYPROPERTY Extraction Import Nutrient transfer LEGAL ENTITY Product Sale 1 2 3 4 Points of surcharge 1. Import 2. Property nutrient performance 3. Extraction fee 4. Sales tax National Boundary