Closed Cycle Economy - Miracle or Myth?

Closed-Cycle Economy - Miracle or Myth?

Ganga Prasad Rao
http://myprofile.cos.com/gangar



If the 9/11s of the world have taught us anything, it is that the human society, ultimately fails not for lack of technology or efficiency, but for equity and enviromental sustainability. Not that economists or sociologists did not anticipate it. Infact, and to the contrary, many have espoused such concepts as a 'closed cycle economy' or a 'technology-driven rama rajya'. So what stands between our egalitarian dreams and the wretched reality - the veritable 'closed-cycle cup and leap'? Greed-based economic systems coupled to 'beggar-thy-neighbor' competition? 'Subsidy-based satisfice-the-voter' economies coupled to 'feed-on-the-growth, forage on the recession' stock markets? or 'Foul the commons and pass the buck' syndrome? Ace, YES, and Sssshhh!

Industrial economists have long espoused the 'closed-cycle economy' - an ideal system in which the society comprising the industry and consumers recycles what it produces/consumes in to new products so the economy need not scour the earth to mine minerals and fill it with unsorted garbage, pollute the air, or turn the oceans of the world so thick with effluents that fishes would rather jump in to the nets and on to your dinner plates than swim merrily in their school! Honestly, the recycling technology is already here. After all, we do recycle metals, bottles, paper and even plastics. The story, however, is in what we do not recycle. And therein lies the problem. How do we get the industry to recycle what they do not find economic to recycle?

One could always tax the polluting activity or subsidise recycling or both. Perhaps that explains the variation in the degree of recycling across economies of the world. But are we willing to tax ourselves to the point that the industry finds it profitable to 'close' its production cycle, even if that means doubling or tripling prices? More to the point, is that the only way out? Perhaps not. If the motive is merely to induce producers and consumers to adopt a certain practice as a profit-maximizing or cost-minimizing alternative, the same can be arranged in a myriad ways. One of those ways is to reward producers, consumers and investors in the stock market. But how?

Since the capital markets around the world are a 'common meeting ground' for producers, consumers and investors alike, (and since in a trade-driven world, the higher cost of closed-cycle production is likely to favor the 'Archaean economy'), it'd be prudent to introduce closed-cycle policies thru the global capital markets so they apply equally to all participants - regardless of which part of the world they are in, what industry or investor they represent. But what form do these incentives take? Who'd pay and why? As the trustees of the global environment, the UNEP, the GEF, the Greenpeace and the WWF would be the sponsors of a system that incentivizes 'closed-cycle' scrips at the stock market with a formula-based valuation upgrade. The formula would require these sponsors to support 'green' scips at a premium determined by their 'degree of closure'. The 'degree of closure' would be an internationally agreed-upon construct that draws upon company-level data on material balances, environmental releases and product attributes to compute a single measure of environmental sustainability (Call it a 'Closed Cycle Sustainability (CCS) index', if you like). The index would be a broad-based construct that subsumes such concepts as degree of recyclability/recycling, environmental degradability/half-life, toxicity, dispersion potential and so on.

For instance, a publicly-listed firm that completely internalizes its environmental releases and recycles its products - whether in its own network or thru the market - would be eligible for a 100% up-grade in its P/E or PEEG. You may wonder what incentives the sponsors have beyond their immediate charter to safeguard the environment. But these are the very same institutions that pay for your oil spills, plastic cleanup in the oceans, remove old cars from the roads, and sponsor 'garbage hunts' along the Himalayan mountaineering routes. It'd stand to reason that their investments in the capital markets, over a period of time, tilt the balance in favor of a environmentally sustainable, closed-cycle economy, and the same results in reduced cost to them over the long term. Stock market participants, looking for returns, would naturally favor those firms and industries with high sustainability index. In turn, these favored firms, finding capital easy to come, would expand at the expense of the 'archaean dinosaurs', and increase the penetration (or the market share) of the closed-cycle economyo. And we would slowly but surely converge to a 'closed- and environmentally-sustainable economy', avoiding along the way, the 'price-hiccups' under a pigouvian tax regime, and the well-known problems of a subsidy regime.

Now if only one could find a way for consumers to favor healthy foods over unhealthy foods in an analogous way (and subscribe to a system of equity driven by a universal scale of character and virtuosity).

Plastic waste recycled to fibre-rich popcorn at prices appropriate to your 'rank' on the virtuosity ladder!

Rama Rajya, Here we come !