Incentives for the Transition to a Sustainable Economy

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* Report: Incentivising the Transition to a Sustainable Economy. Stephen Hinton and Anders Hoglund. Swedish Sustainable Economy Foundation (TSSEF), 2017



From the Executive overview:

Stephen Hinton et al.:

"The Natural Step offers a five-level framework for planning complex systems. The framework is accompanied by a set of system conditions for global socio-ecological sustainability.

This paper takes as its starting point the economic system, and using the framework explores how the economic system – with price signals as powerful motivators- can be designed to meet citizens’ needs whilst ensuring natural resources and eco-systems are available for future generations.

The framework methodology requires that the system itself is described thoroughly. This analysis offers a model of the monetary system as a flow of money from citizens to enterprises and government and back again.

The analysis is taken one step further identifying the main areas where the monetary system and the socio-ecological system interface: production, extraction and property ownership.

Models of the circular economy - where substances are reused rather than being emitted as pollutants or made unrecoverable – include the concept of system nutrients.

These nutrients flow between the various spheres of the natural and social system. Here the concepts of product, service, property ownership and legal transactions are investigated to identify where the economic system can provide incentive barriers or stimulus for individuals and companies to change their behavior towards sustainability.

The economic system cannot be accurately described solely in terms of money flow. We identify four types of capital along with the role of the monetary system in building up capital that supports the sustainable society.

Starting from the generally accepted idea that money – within limits – can act as an incentive for good, opportunities within the modern digitalized economy are identified where fees and surcharges can be applied to points in the system in ways that incentivize desired behaviours and influence the functioning of the system as a whole. Applying a system control approach to the economy, such economic mechanisms would be designated as ‘actuators’. ‘Sensors’ measure system performance and data from sensors is fed back to inform decisions on surcharges.

Rather than creating new taxes and fees, more efficient stabilization of the economy can be achieved by applying surcharges and dividends within already existing fee and tax mechanisms. Five types of fiscal mechanisms: import fees, property fees, interest rates, extraction fees and sales taxes can be surcharged in a way that provides stabilizing feedback to ensure the economic system performs to requirements. A citizens’ tax account provides the other potential financial stimulus point. Sensors include economic performance measurements that most nations have in place already including emission figures, import figures, the status of various ecosystems and figures on mineral reserves and extraction rates. Recycling performance statistics are also important “sensor” measurements.

The methodology for analyzing the often complex eco-system of economic incentives implicated in pollution and resource depletion is a step methodology called back-stepping. It involves identifying the key substances at molecular level and mapping out their route through the supply chain. The elements to prioritize – carbon from fossil sources phosphorus and nitrogen - are identified in the work on planetary boundaries by the Stockholm Environmental Institute.

Fiscal mechanisms need to be flexible so the levy can be raised at regular intervals until the market responds. They need to be redistributive in ensuring that goods and services are affordable even to the poorest, and they need to be self – financing rather than putting an overall drain on the economy.

Six fiscal mechanisms, applied together, can create an economic system that incentivizes the socio-ecological system to perform within system conditions. These mechanisms are described for each system condition in terms of strategic guidelines for their implementation, specific actions required and the tools that will aid their introduction. The description includes the sensor measurements that provide the feedback to decision-makers.

This report also offers a way of categorizing investments in the firm as circular or linear, and of analyzing to what extent a product is linear (uses non-recycled material) or circular (uses recycled or natural material). From this it is possible to create the circular company financial statements and report.

Several reports and analyses have been produced on the economic stabilizing mechanisms. Based on the findings in these reports next steps could include small scale trials and simulations." (


"Fiscal mechanisms

Six fiscal mechanisms are proposed by the TSSEF Foundation

• Dividend-bearing pollutant surcharges • Dividend-bearing essential substance extraction surcharges • Dividend – bearing toxin surcharges • Dividend-bearing property surcharges • Employment stabilization surcharges/discounts • Mortgage interest rate surcharge for house price stabilization ."