How to apply economic instruments to creating the circular economy

1. Fiscal Approaches to driving the
change to the circular economy
Stephen Hinton
The Swedish Sustainable Economy Foundation
TSSEF.se

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. 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. 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. 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. 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. 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. 1
2
3
5
6 7 8
Case study phosphorous
4

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. 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. 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. 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. CAN WE GET MODERN?

14. Jay Wright Forrester
Why General Electric’s factories
show inexplicable cycles
NOT TIME AND MOTION
BUT SYSTEMS THEORY

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

17. 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.

18. 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

19. 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

20. 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

21. BUSINESS GAME SIMULATIONS USING
STABILIZING ECONOMIC MECHANISMS
To understand the concepts we have created and run

22. 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. Pollutant surcharge simulations
GOVERNMENT
FOOD PRODUCERS
PROPERTY OWNERS
TRANSPORTERS
THE VOTING PUBLIC
SCORE-KEEPING

24. 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

25. 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

26. 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
• TSSEF.se
• Stephen.hinton@tssef.se

27. Extra slides

28. 16/12/12
P
C
C
N
N
Consumption
Biological nutrients
Services
Technical nutrients
A short introduction to circular economy
P
P

29. ECOLOGICAL MATURITY
CLOSED MINERAL CYCLES
ACCUMULATION OF PHOSPHORUS
NITROGEN 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

30. 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