Pitch

Given the right price and funding incentives, markets can solve the whole problem not just the carbon/climate symptom.

Description

Summary

Our collective cognitive bias tells us to seek the smallest simplest solutions to the largest complex problems. For example for the large problem of climate change we seek ways to price only carbon, which ironically results in many complex schemes that don't progress despite decades of efforts.

What we miss is the opportunity to solve the even bigger problem of 'linear economics' where markets cause resources of all kinds to end up as wastes of all kinds in ecosystems of all kinds. The failure to price carbon, which accumulates as wastes in the atmosphere, is just one of many symptoms of this bigger systemic failure. 

It is proposed to price carbon fuel products by correcting prices of all products in the economy. This is counterintuitive for a complexity-averse culture but it offers significant advantages over carbon-only pricing:

  1. Neat correction of the self-destructiveness of both capitalism's wastefulness and society's neglect of ecosystems. 
  2. Manages carbon cycles with no need for extra regulations or interventions beyond what is needed anyway for all other resource flows.
  3. The closing of resource cycles means massively reduced resource demands, which massively reduces energy requirements.

 

This proposal will implement a whole-economy switch from linear economy to circular economy, so the ordinary decisions of all market participants are led by price and funding incentives to quickly eliminate numerous resource-related problems including climate change. A new obligatory market-based instrument, called precycling premiums, will allocate to producers the responsibility for what happens to their products at the end of their useful lives. Products with a high risk of ending up as accumulating wastes in any ecosystem will pay higher premiums to insurers. The premiums will be spent throughout society to support action that cuts the risk of resources becoming wastes - which is called precycling. Premiums from high waste-risk fossil fuels would fund action to cut emissions.  

What actions do you propose?

The proposed action is for the the US government to legislate for producer responsibility via an obligatory premium paid by producers to insurers in proportion to the risk of their product becoming a waste in air, land or water ecosystems. Premiums are to be spent throughout society on actions that cut the risk of resources ending up as wastes in ecosystems. 

This will implement a carbon price by way of implementing a price for the wasting of any resources in any products. This will make fossil fuels more costly by adding premiums to the business costs of fossil fuel producers and importers. It will make renewable energy and energy efficiency actions cheaper since premiums will support efforts to cut the risk of carbon-based products becoming wastes in the atmosphere.

This action would implement the circular economy vision first published by American economist Kenneth Boulding in 1966 (Ref 1). It would enable the USA to gain competitive advantage or leadership compared to other initiatives such as circular economy in Europe (Ref 2.). Circular economy has not happened in reality in all the years since 1966, due to the lack of an efficient market-based method of implementation, which was not published until 2006 (Ref 3). This method is proposed here.

Who will take these actions?

Government will legislate to enact and oversee the scheme. Government agencies will provide web-based guidance and a form for calculating the waste-risk of products based on information about the products and natural or technical capacities for returning the product as new resources. The scheme is market-based so (unlike taxes) government do not handle the funds. Unlike carbon markets, it is the real-world market being corrected, with no need to create new layers of additional markets. 

Producers (including importers) will be responsible for knowing and publishing on public record the waste-risk of their products (many for the first time ever). For waste-risks over a threshold (eg 25% likelihood of the product's materials becoming wastes in any ecosystem) producers will be responsible for paying a premium to an accredited insurer. Premiums will be higher for higher waste-risks, for higher volumes of production and for materials linked to acute problems such as climate change and toxic pollution. 

Government-accredited insurance organizations will receive premiums from producers and spend them, in partnership with suitable NGOs, to cut the waste risk of products by supporting the wide array of actions needed to close resource cycles. Premiums from fossil fuel producers will be spent in support of actions to cut dependence on fossil fuels, by energy efficiency and renewable energy supply. 

Individuals and interested organizations will provide crowdsourced monitoring of producers' waste-risk calculations, in support of government agencies able to investigate and impose fines as needed.  

What challenges will be faced in implementing this proposal and how will they be overcome?

The main barrier of entrenched reductionist problem-solving might be overcome by observing that it hasn't worked over many decades and by offering new policy options with ambition to match the issues.

How much will emissions be reduced or sequestered vs. business as usual levels?

Emissions reductions are projected to be reduced by over 50% by 2025 due to the combined economic, cultural and political switch to a new normal where capitalism is expected to be responsible, markets are expected to solve problems and government's role is to make this possible, not to impose prescribed solutions, taxes or red tape. This projection is supported by a report of Club of Rome anticipating 70% emissions cuts with circular economy by 2030 (Ref 4).

An additional 10-20% of current emission levels is projected be sequestered by expansion of ecosystem capacities (forests and soils) due to spending by producers seeking to reduce their waste-risks (and hence premiums) and by spending of premiums by insurers, to further cut waste-risks of products that rely on natural cycles to regenerate resources.

What are other key benefits?

With this proposal these is no need for anyone to believe in climate change, only to believe that:

  1. resources in the economy can end up as either ecosystem wastes or new resources for the future and that 
  2. producers are best placed to be responsible for initiating decisions that ensure that today's products will remain as resources for nature or society.

This provides a less partisan basis for faster political agreement on a more ambitious solution. 

Economic benefits include massive savings in business material costs, estimated by World Economic Forum (WEF) as over $1 trillion globally by 2025. In addition 200,000 new jobs and prevention of 100 million tonnes of waste are anticipated (Ref 5).  Further benefits include greater societal resilience due to continued availability of critical raw materials and more stable food supplies due to reversal of the historical loss of soil health. 

What are the proposal’s costs?

Costs:

  1. Time and effort by producers finding out about the waste-risk of their products and considering ways to reduce the risk and to create savings and new business. This cost may also be seen as a benefit.
  2. Administrative cost of operating a market-based scheme for circular economics. This cost is minimised by web-based data management and by producer responsibility for data (similar to savings from on-line financial accounting). 
  3. Costs of free-riders, such as producers claiming falsely low waste-risk or insurers underpricing waste-risk. This is minimised by accreditation of insurers and an agreed calculation method. Unreliable information from producers would attract fines and possibly also higher future waste-risk assessments.    
  4. Transition costs. Old infrastructure and equipment will need to be replaced or upgraded for compatibility with circular material flows (including carbon flows). In a business as usual scenario some of this cost would be incurred anyway and costs of ecological/climate impacts would exceed transition costs. 

Time line

Short term: Create movement for circular economics, by allying climate, environment and leading business/political interests (1-2 years). Enact legislation for a precycling premiums scheme. The first phase could involve no premiums, just a responsibility for producers to know and publish the waste-risk of their products (1-2 years).

Medium term: Most producers will have chosen to adopt circular business models; including for example energy efficiency, renewable energy and regeneration of diverse ecosystems/soils. Environmental regulations will be massively simplified and reduced since to the power of responsible capitalism exceeds that of red tape. 

Long term: Debate will have advanced to how quickly society is cutting carbon concentrations, given the international success in phasing out emission and restoring nature. Most weapons spending will have shifted to productive purposes due to higher resource security and international spending on collaboration to cut waste-risks. 

Related proposals

Most Climate CoLab proposals are related. In general this proposal provides the radical cultural and price signals needed to incentivise other actions. Most other regulatory and economic proposals are in principle compatible with this proposal since any effective action would cut waste risk. This offers scope to harmonize varying actions in different areas, for example a carbon tax in one place and a carbon market in another both cutting waste-risk of fuel products and waste-risk premiums. 

References

Ref 1. Kenneth Boulding, 1966. In H. Jarrett (ed.), Environmental Quality in a Growing Economy, pp. 3-14. Baltimore, MD: Resources for the Future/Johns Hopkins University Press. http://www.eoearth.org/view/article/156525/

Ref 2. Circular Economy Strategy for Europe. http://ec.europa.eu/smart-regulation/impact/planned_ia/docs/2015_env_065_env+_032_circular_economy_en.pdf

Ref 3. James Greyson, 2006. Journal of Cleaner Production: An economic instrument for zero waste, economic growth and sustainability. Publisher’s link, paper on precaution.org.

Ref 4. Anders Wijkman, Kristian Skånberg, 2015. The Circular Economy and Benefits for Society. Report by Club of Rome. http://www.clubofrome.org/?p=8260

Ref 5. Press Release for World Economic Forum report  Towards the Circular Economyhttp://www.weforum.org/news/circular-economy-can-generate-us-1-trillion-annually-2025

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Proposal Summary
Correct the whole market not just carbon
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Contest: U.S. Carbon Price 2015
How could a national price on carbon be implemented in the United States?