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Thursday, May 25, 2017

How to connect money and environment

Posted by steve on October 28, 2004

Tapescript:

Please note: these exercises are done by people sometimes with expertise in the subject matter and sometimes without. The aim is stimulate your own thoughts and innovative powers and to get you involved in sustainability. We take no responsibility for the feasibility any of these ideas unless we have entered extensive verification and testing.



The aim of this visualisation is find a place that has used money to create a very fast transformation from an explosive growth society emitting large amounts of material into the biosphere to a sustainable society where money has been the principle instrument of this change.

A curiosity: earlier on in PORENA money was a bit of a problem as people had forgotten its purpose. We are asking for a situation where money is the instrument of change.

So I follow my own instructions and sit in the exit lounge on a bench.

The facilitator turns up.

“You again!” he says.

I reply “My quest is different this time it is to find how society has gone from explosive growth to very rapidly to sustainable society using money as the instrument of change.”

“That’s a tough one,” says the facilitator “I am not sure I can help you”.

There must be one of these lifts that can take me where I want to go.

He looks puzzled. I ask “What are you doing here then if you can’t help?”

“Don’t go with me,” he says.

I look around this gigantic departure lounge and mall.

Further down the mall a green lift seems to be calling me,

The button on the outside of the lift says “money”.

So I guess this must be right. It seems to be similar to the other lifts, painted very plainly in a light green.

“Using the money” is on the lift button I push and off we go.

Slowly, with the lift cranking “budda budda,” we ascend.

I notice I am alone. I lean against the metal handrail, unsure of what is going on.

Apprehensive. Is this right, good, possible? Is money a good way to create change towards sustainability? Am I the right one to ask the question – I have no head for economics?

The door opens onto a rock tunnel. I go through into another door this time it opens onto an underground control area very similar to where I was before, looking at the sustainability footprint reporting. Maybe I have ended up in the footprint monitoring area again.

A lot of people are staring at a lot of screens in what I think they call “the pit”.

And up in the control room managers, I assume, are staring down at them. A gigantic screen seems to be showing the news or something like it.

I enter this control booth. People are moving knobs, staring at the screen. It seems to be a monitoring station – you would think it is NASA. It IS a national body – or an international body of some sort.

“Can you tell me what you are doing,” I ask one guy.

“We are monitoring the waves, the airwaves, for the news”

I feel confused until I understand that is what HE is doing, monitoring the news for economic information.

But If I am to find out how you use money to get to sustainability I need to talk to an expert down on the floor. I go down to the floor and ask.

“Sure, let’s grab a room with a whiteboard,” a guy says.

“Wait up! Is this going to be complicated?” I ask.

“Not really.”

This is how we use money to accelerate sustainability.

He draws a diagram of time vs emission, with time on the horizontal axis. This represents an index which all countries have agreed to follow.

There is a straight line descending from the present levels to levels equivalent to a limit per inhabitant that does not exceed what nature of the equivalent area can absorb. It looks to be over 10 or 20 years.


emission

The index is connected somehow to money and the price of goods.

The total amount of money in the country is connected to the rate of reduction in emissions.

Everyone wants the value of the money to go up I am thinking, but realising I know nothing about economics and wondering why I even started on this exercise.

A total monetary index based on the currency values at the starting point. That index works … I am not getting it….

Time for borrowed genius. I come behind my guide and look through his eyes.

Diagram

This is how it works. All developed nations agree on a starting point. They agree on a certain GDP (Gross Domestic Product), number of inhabitants, and the footprint exerted by the nation. They also agree currency exchange rates in order to fix the GDP relative to each others.

From this they work out the footprint per inhabitant at the starting point.

Then, the theoretical footprint limit for the nation, based on its area and a few other factors.

From the theoretical footprint limit it is possible to work out the footprint limit per inhabitant.

Now, that would mean a decrease in the footprint exerted by a certain percentage.

For example, a nation like Sweden which is just about at its theoretical limit might only have to achieve a few percent reduction.

A highly industrialised, densely populated country like England would have a much higher percentage reduction to achieve.

The value of this reduction is set equivalent to the corresponding percentage of GDP. Say a reduction of 20% was needed. This would be equivalent to 20% of that nation’s GDP.

To make it easier to follow, every nation had these figures converted to an index where 100 was starting footprint per inhabitant and 0 was target level. This reduction was to take place over 20 years.

Except it was interpreted as the debt was 0 at year one, and 100 percent at year 20.

So if a nation did not reduce its emissions at all, it would have a debt of the equivalent amount to the other countries.

Existing footprint, existing currency. These are combined into the index, put all into a currency basket.

I am really not sure I understand what he is saying. “What about … can you make a difference between environmentally good transactions and those that aren’t? Would the less environmentally sound transactions cost more? Is there a coupling, a connection there between the two?”

He replies,” to understand that you need to look at the way the society involved in the scheme operates.”

And this is why you need central monitoring. It is the central monitoring centre that puts the environment and the currency together. And it is the deciding body. A bit like having a central bank.

To understand how that works in practice we have to go out in the street.

We go to the local market.

I see on the market stall that prices and taxes are different. There is a tax on everything. The tax helps the government. It takes money in to pay for the environmental debt, as a tax on top of the price of the goods.

So for example if something is taxed highly, the tax goes into government funds which are earmarked either to pay the debt (to the IEF?) or to solve the problem and thus not incur the debt. If it doesn’t work you will have nations owing a lot of money. If it does work they will not owe anything as the footprint will be reduced by the equivalent amount required in the index.

The nation could also “buy” some other nation’s footprint absorption ability o the other nations own footprint was less than its land area.

This nation has decided to add a tax on top of all consumer goods sold.

The environmentally sound product is cheap for the consumer to buy as tax is low. Unsound products incur higher tax and are relatively more expensive.

“It all requires monitoring” says my guide.

“Why were you monitoring the news?” I ask.

“The body monitors what goes on in each country and how the news is spread. This is because consumer attitude and all kinds of human factors can come into play to affect the mechanism.”

“Now we are half way through the year. Some are making it some are not. Those that are not will be asked to pay, and that money will be used to fund a task force to redress the emissions.”

There is technological solution, which is the cost of cleaning it up. This is difficult to pinpoint so there is an agreed set of standard costs for each emission type clean-up.

For those countries that are able to go below the planned limits, they are able to sell their goods cheaper as there is less tax on them and they become more competitive. And the goods are better for the world as long as the right logistic route is found to supply other countries.

So this is using competing and money by re-drawing the playing field.

Anything else?

“How would you define the tax?” I ask.

The reply reveals it is defined as a percentage scale based on GRI (Global Reporting Index). It puts goods into 12 categories based on GRI, with yes/no questions covering 50 different analysis points.

For every product you sell you submit a declaration, from that your tax category is worked out for that product. It makes it more complicated but modern techniques it is possible. Tax groups are from 0 – 12.

For example, local produce sold in the market is group Zero.

“How does that affect wages?” .. “no difference there.”

“VAT? “

“VAT is included in the tax group”

“And the black market?“

“There will always be a black market whatever you do. It will be for environmentally unsound good of high value. The tax is only on the consumer, taxed when it is bought not when it is produced.”

The high tax ones, you should keep the price down, to do that production should be efficient so the incentives are there to reduce the tax, not go into black marketing.

The decision was taken among nations in a federation. It was done as a decision between those countries with high emission levels per inhabitant.

It gives other countries with low emissions an advantage.

Those countries with low levels were not in the reduction basket.

I get frustrated: ”I can’t see America going along with it. There is not enough incentive.”

Once you understand that release of materials into the environment is essentially expensive the system is good because it encourages efficiency, which brings competitiveness.

The system is very good because it encourages you, like best practice, like accounting follows best practice, because it represents what is considered to be the limits to what the Earth, or the part of the Earth the country is sovereign over, can handle long term.

It connects a monetary figure to the limits of emissions for what the biosphere can take.

I put a question. How they work it out?

table

We go down to the control room there your have the currency monitoring system. It reminds me of a stockbrokers room, where the figures come up. They are being monitored continually. The footprint of the nation broken down into greenhouse gasses: Carbon dioxide, Methane, Ethane, etc.

The countries down the left and along the top Metals, in use, metals dumped,

The dumping you need to measure what you dump, which is mostly estimated. Household rubbish not sorted has a high tax. It s contents are estimated; by testing samples of household waste regularly a reasonable estimate can be achieved.

The tax is collected in order to offset the debt. The money should be used to put activities and packages in action to rectify the problem.. If the audit by the federation reveals the footprint is not reduced by the required amount, the debt is collected. And used to rectify the problem, the federal agency which then uses it to put the problem right.

It is an environmental undertaking, not a sustainability one. Reaching sustainability is up to each government.

I strain to understand the real name of this body it looks like EEF or EMF or something. The European environmental Foundation. Economic Environmental Foundation. Federation. European Environmental Fund. That is where we are. The foundation is given money in order to work with the nations.

Each nation gets recommendations, reports and then the money is given back as grants depending on what needs to be done. If for example people are using a lot of transport then the funds are given back to address that.


Articles

Got it! And then it is monitored again. There are reports written and published. These are followed by the news. What we are watching on the news is the reaction in the country to the most recent EEF report and recommendations.

The first question was how they managed to get countries to set the federation up in the first place. But having achieved that, the nations gave the federation the task of connecting money to environment. To find a starting point and carrying on with it and monitoring it. Finding a working method.

I suppose you can describe the method as reporting and then setting currency and deciding the level of contribution based on the debt incurred. (The cost of cleaning it all up in ten years)

The aim is to reduce the footprint to what can be absorbed in that country.

Although you can have footprint trading in the federation.

That is why the currency has to be aligned.

If you have the same currency you cannot do that. It has to be a tax if nations share a single currency. It could be handled in a tax union or federation.

Let’s take an example. Start in 1990 one dollar is ten euros. The Europeans reduce their footprint faster than the Americans do. Now. For the same goods, as the Europeans are better at reducing footprint, their products are cheaper (incur less national debt).

This means there is a relative inflation in the US and a relative rise in the exchange rate dollar- euro. The dollar becomes more expensive to the Euro plus the dollar the Americans have a larger federal debt. After two years the American pay for the year gone that money is taken, there is and audit the federation gives the nation tasks to do and offers to help using best practice. Remember we are aiming towards significant reduction, extreme reduction. Every month a reduction is required. Then some of the money is used to subsidies to funds and grants and it comes back to the country under the jurisdiction of the EEF. This is like quarantining funds, or lending them at zero interest.

As the currency is higher products are more expensive and it is more expensive to go there and trade. So the rise means their products that still sell will get more money for them they have more money to pay the tax.

“That is neat!” I exclaim as I start to see some kind of symmetry.

“We think so,” my guide replies.

The report is done once a year, the debt is charged, the funds transferred, and distributed.

The EEF then puts actions into prioritises countries and aspects of countries to pay the money back in one way or another. If you keep in track there is no money to pay.

Being a real amateur in economics, and feeling I have had more than I can handle I take my leave.

End of tapescript connecting money to environment



Reflections, connecting money to environment

I think I understand the basics of this: that each nation has a debt equivalent to the extent its footprint exceeds the country area, in proportion to its GDP.

Either the country reduces its footprint or incurs fines. These fines affect the national economy negatively but help other more environmental countries.

The fines are used to pay for cleaning and resolution of the problem.

The fine details of how this affects inflation and currency exchange rates I would like to leave to an expert.

A method reflection: I have worked with something I now nothing about. I have learnt a lot. Being forced to look up the basics of economics in order even to be able to type up the tapescript. I have noticed the last few days that I have taken in economic information on the news in another way. So Image streaming like this is a good way to learn a new subject.

The problem will come with verification. The only way I can verify this is to give it to someone who understands macro economics. Yet I daren’t in case the person laughs and says things like “so out of my depth, wasting time etc”.

On the other hand, why are economists not working on this to come up with something better? – it really is urgent!

End reflections

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