Green Capitalism - Waves of the Future
Climate Change, Non-Renewable Resources, Energy, Contaminants, Carbon Pricing...The 21st Century Environmental Revolution
6. A Comprehensive Environmental Strategy
7. Premises of Large-Scale Environmental Change
A Market-Based Global Warming Strategy
More Powerful and Less Costly Than Cap-and-Trade for GHG, Carbon Emission Reduction, Renewable Energy, Resource Conservation...
Based on a free approach (revenue-neutral taxation), this new strategy would make non-green products more expensive and lower relative prices and boost markets for environment-friendly alternatives. As a result, both consumers and markets would shift to more ecological goods and economies would turn green. All of it, not costing a cent to consumers or the taxpayer.
A View of the New Green Society and Sustainable Economy
Overview Reviews
See also Book II of the Waves of the Future Series
CHAPTER 6-7
6. A Comprehensive Environmental Strategy
Commitment to the environment has picked up recently but still falls short of what we need. We have to shift gear, or we will leave behind a devastated world to future generations. We need fundamental change.The only strategies powerful enough to turn things around for the environment are those targeting the very structure of economies. Patching up after disasters or dealing with symptoms has not worked so far and will likely continue to fail us in the future.
We need to use markets to our advantage and make them work for us. This could be achieved by changing the incentive structure of the marketplace in order to create an economic environment in which environmental practices would be more profitable than their opposites. The new structure would make green goods cheaper than others, prompting a shift in consumption patterns and industrial practices.
The First Principle
The first principle of a comprehensive environmental strategy is the recognition that a significant part of environmental contamination and degradation is directly related to the amount of non-renewable resources we dig out of the ground. Decreasing our consumption of these resources is key to both conserving them for future generations and reducing environmental degradation.Many environmentalists campaign hard when it comes to global warming and pollution, but few call for action on the conservation of non-renewable metallic resources. Yet, these issues are intimately connected, one being a significant part of the solution to the other.
One of today's generally accepted principles in science is that nothing is created nor destroyed. Antoine Lavoisier (1743-1794) and Mikhail Lomonosov (1711-1765) are credited with its development and formulation. The law of mass/matter conservation, as it is known, pertains to the fact that things in the physical world are not destroyed when they burn or decompose. They are simply transformed into something else.
As a kid, you saw a log burn and assumed that the combustion process destroyed it almost completely, that most of its matter simply disappeared. In fact, it was only transformed. Some of it was released into the atmosphere as water vapor, gas, or smoke. Certain elements burned down to ashes, and the energy that was captured from the sun through photosynthesis was radiated back into the environment.
According to the Lomonosov-Lavoisier law, the tons of ore that we mine every year are not magically destroyed after we are finished with them. They end up in the environment. Some of what we extract from the ground becomes refuse at mining sites, and some is emitted into the air or discharged into toxic lagoons. Jared Diamond, an American evolutionary biologist and UCLA professor, describes the hardrock (metals) mining industry as “currently the leading toxic polluter in the U.S., responsible for nearly half of reported industrial pollution” (Diamond, 2005, p. 452).
The rest of what is extracted in the mining process is made into goods that eventually end up in landfill sites. But the story does not end there. As Annegrete Bruvoll, the Head of Research at the Unit for Energy and Environmental Economics (Statistics Norway) reports, ”End treatment, i.e. waste disposal and incineration, results in emissions of toxic pollutants and greenhouse gases, and seepage from waste disposal sites pollutes ground water and watercourses” (Bruvoll, 1998, p. 16).
The total amount of minerals we extract every year is exactly equal to the amount of wastes we generate (refuse, emissions, fluid discharges, garbage, gases and solids from incineration, etc.). One ton of extracted minerals today means one ton of waste added to the environment tomorrow. We dig out ore annually by the millions of tons. Therefore, by the same millions of tons, we create wastes and pollutants every year!
Reusing and recycling are the closest thing we have come to so far in terms of a solution to the problem. Unfortunately, our best efforts only minimally delay environmental degradation. Most things can only be reused or recycled so many times.
In the long term, our two most prominent achievements, reusing and recycling, will only give us a bit more time as everything will sooner or later end up in the environment. Although their impact is very significant in the short term, they cannot bring change on the scale needed and are only part of the solution.
Conservation, on the other hand, achieves two goals at the same time. It preserves resources for future generations and massively reduces wastes and pollution: one ton for every ton of minerals not mined or extracted.
The Second Principle
The second principle of a comprehensive environmental strategy is that cutting down on the extraction of minerals would not only preserve resources and massively reduce pollution but also achieve a third goal: decrease our use of the battery of invisible toxic compounds produced in the processing of ores and manufacturing of goods.Many of the toxic chemicals that are released into the environment today result from the transformation of the minerals we mine and their manufacturing into finished goods. A range of compounds—intermediate chemicals—are produced for those purposes or are by-products of manufacturing. This is also true of certain toxic metals. As such, they often end up in lagoons, waterways, and the atmosphere just like intermediate chemicals.
For example, mercury is at times used in the extraction of gold. It is also contained in the ores of other minerals, the smelting of which releases the volatile metal into the atmosphere. The burning of coal for electricity or other purposes also results in the emission of mercury into the air in addition to all the other pollutants its combustion produces.
By virtue of the fact that nothing is created nor destroyed, intermediate chemicals and some toxic metals also end up in the environment, in their original forms or as byproducts.
The Third Principle
The third principle of a comprehensive environmental strategy is that we have to reduce world population. Even the greenest measures and initiatives will not be able to compensate for the devastation that billions of people can wreak upon the earth. The greater it is, the more resources are consumed at any given point in time.For example, if the total number of people on the planet were reduced by 30% and everything else remained the same, we would theoretically consume 30% fewer goods and use up approximately 30% fewer resources. We would need to extract 30% less mineral, burn 30% less fossil fuels. We would create 30% less waste, pollution, and degradation. Industrialized countries consume far more than their fair share of resources. Reducing their population would have a much larger impact on mineral reserves and the health of the planet.
Today's efforts towards the environment only skim the surface of problems and have no hope of ever catching up to the current rate of destruction. There is just too much being dumped into the environment, from the billions of tons of minerals extracted every year, to the millions of gallons of intermediate chemicals, to the multitudes of soaps, detergents, solvents, and cosmetics flushed down rivers on a daily basis.
Funding for a Comprehensive Environmental Strategy
Taxation
Funding has always been the stumbling block of the environmental movement. Fixing problems costs money. This is why our efforts are still only skimming the surface of problems.People often complain of giving too much of their hard-earned cash to governments. Doubling taxes to raise the trillions needed for the environment is not going to happen. The countries that do tax for the environment have only been able to raise minimal amounts for that purpose. There is no particular support, either on the part of politicians or voters, for any large amount of additional taxation. Even the most charismatic environmentalists already have enormous difficulties raising money to support their own work.
As it stands, additional taxation can only have a minimal impact for the environment because of its hopelessly insufficient fundraising capability.
Subsidies and Tax Breaks
When governments give grants or tax breaks to corporations, they have to make up for the shortfall in revenue through additional income tax, cuts in services, or other similar actions. Subsidies and tax breaks are not as free as many would think; taxpayers ultimately foot the bill. As such, these approaches to resolving environmental problems are nearly as limited as additional taxation is.Regulations
Regulations have scored a number of victories for the environment, for example, outlawing PCBs in open systems and chlorofluorocarbons (CFCs), the chemicals responsible for the depletion of the ozone layer of the atmosphere. However, they are also ultimately limited by the availability of funds. PCBs, for example, are still widely used today in closed systems. CFCs will only be totally phased out in 2030 despite being the object of significant restrictions and bans since the late 1980s. Why is that?Regulations do cost money either in the form of higher prices for substitutes or because of conversion expenses. These are usually passed on to consumers. Once again we pay the bill, this time in the form of more expensive retail products. This is why regulations are often much weaker than needed, assuming they make it to the political agenda and are enforced.
Short of people dying, there is a limited amount of social commitment to seriously address environmental problems and even less with respect to long-term preemptive planning. Regulations will remain an important tool for the environment, but alone they have no hope of ever solving our problems. We may be willing to pay a little more for greener alternatives but not what would be required for an environmental turnaround or revolution.
Policies for the Future
Resource conservation has generally failed to make it to the social and political agendas. Most often, the only resources targeted with our efforts towards sustainability are forestry and fisheries. This is no great achievement as both are actually renewable. Despite that fact, we still managed to fail. The collapse of the cod fishery on the Grand Banks on the eastern coast of Canada and the U.S. is but a striking example of our lack of resolve.We have made no significant progress on the issue of non-renewable resources, which is by far much more critical. The world hopes that OPEC increase production to lower gasoline prices, not decrease it to save reserves. Nothing is done to conserve metals. On the contrary, calls are being made to increase production in order to create jobs.
Sustainable development runs over and over again into the same brick wall. The very incentive structure of the system in which we live directly pushes us to deplete non-renewable resources to keep prices down or create jobs. Similarly, it makes it cheaper to pollute, use toxic compounds in the manufacturing of goods, and flush hazardous waste into waterways than opt for cleaner alternatives.
Today's reality is that the more we pollute and decimate resources, and the less we leave for our children, the greater our economic growth. Two things are needed to address environmental problems. Firstly, the solutions have to be on the scale of the problems. Secondly, the current economic structure has to change. No matter how hard we fight for the environment, if capital runs counter to our efforts, little will be achieved. How do we change that? Let us first look at what has been proposed before.
Hitting the Jackpot
The idea of environmental taxes is not new. In 1989, David Pearce produced for the Department of the Environment in Britain a document which recommended a comprehensive green taxation program in the UK (Dryzek, 2005, p. 130-132). The U.S., Canada, and many European countries have already implemented some form of environmental levies, albeit very minimally. The global warming debate has also led to talks of carbon taxes in several countries.Could trillions of dollars in additional taxation for the environment solve our problems? Probably. The scale would be appropriate, but the idea would not be politically viable. Could we find trillions' worth of spare change within the existing taxation system? The answer is also very likely no. But...
Many countries have deterrence or punitive taxes such as levies on cigarettes and alcohol. These are meant to do two things: deter usage and generate income for the government. They are dual-purpose levies. When governments tax income, they bring in revenue but nothing is specifically being deterred. Because this is a single-purpose type of levy, society derives from it only one benefit when it could have had two.
Shifting taxation to the environment would double the social dividends we get from our tax dollars. This would create synergies that could achieve a lot while not costing us a cent. There might not be trillions of dollars of spare change available within the current taxation system, but there certainly is that amount of wasted incentive or social benefit.
Considering that Americans and Canadians alone are paying about US$ 2 trillion annually in income tax, the benefits of such a strategy could be massive and result in a complete turnaround for the environment in as little as a decade. Let's take a closer look.
A New Budget for the Environment
There is no doubt that levies have to be collected to fill governments' coffers and fund social services, healthcare, education, roads, the police, the army, etc. But, who is to say that income has to be taxed in order to raise the money for the above? Canadian taxation represents over 30% of national income. In the U.S., the figure is somewhat lower but remains a massive component of the country's revenue. Those represent staggering amounts.Let me illustrate with a concrete example what a shift in taxation could do. For the purpose of the exercise, $1 of deterrence is considered $1 of benefits although it is not clear how much direct savings the deterrence would translate into for society. It could be less but also more.
Income tax is a single-purpose levy designed to raise revenue for governments: $100 of it produces $100 worth of services. With deterrence taxes, governments collect revenues to provide services as well as deter the use of products which are generally considered unhealthy: $100 of those provides not only $100 worth of services but also $100 of deterrence. In the case of cigarettes, the latter could translate, for example, into lower healthcare costs from decreased cancer rates.
In North America, when you tax income—as opposed to goods like cigarettes—you get US$ 2 trillion into the government coffers, but you lose another US$ 2 trillion worth of deterrence effect. That alone could radically turn things around for the environment without costing the taxpayer a cent, i.e. without additional taxation!
Most environmental issues are ones of deterrence. We want to deter the emission of greenhouse gases, the use of pollutants, and the depletion of non-renewable resources. Shifting the single-purpose tax on income to an environmental deterrence system would double the social benefits we get from every dollar of tax paid without increasing taxation. The US$ 2 trillion of deterrence that this would generate for North America alone would be a massive engine of change for the environment.
Our lifestyles would change, but that is unavoidable. As expressed earlier, the transition to a greener world will occur one way or the other, either destructively or constructively. However, with the strategy proposed in this book, our standard of living would not go down. Disposable incomes would essentially remain the same as the total amount of taxes paid before and after the shift to dual taxation would essentially be equal.
We already know that there is no social commitment to any significant increase in taxation and that current spending for the environment is far from adequate. The shift to deterrence taxation would allow us to get a second bang for free from the tax system. If you currently pay $10,000 in income tax, you will still be paying about the same amount under a dual taxation system. However, a significant portion of it would then come from deterrence levies, for example on fossil fuels, contaminants, and non-renewable resources, instead of income. $10,000 worth of revenue would still be generated for the government, but the punitive effect would reduce greenhouse gases and contaminants, and foster resource conservation without your paying any more taxes than before.
In 2000, Canada collected on incomes about CAD$ 127 billion (Revenue Canada, 2002). Americans paid US$ 2,098 billion in taxes in total during the same year. Assuming that the currencies are at par (CAD$ 1.00 = US$ 1.00), this would amount to about US$ 2,225 billion (or $2.225 trillion).
In comparison, the U.S. gross national product (GNP)—a measure of the total value of goods and services produced by a country—for 2000 was about US$ 10 trillion. The actual annual environmental deterrence budget—the green firepower—for the U.S. alone would be about 20% of its entire national production.
Internationally, the story would be similar. The rest of the developed world would have a comparable share of its total production available for environmental deterrence. Developing countries, which have been able to afford environmental standards only with difficulty up until now, would have less but still enormous amounts of deterrence at their disposals. By any standards, we are talking about massive and unprecedented firepower for the environment in both rich and poor countries.
The GNP is very effective in giving us a good idea of the actual size of the new potential environmental deterrence budget. But, a much more interesting comparison is with the American military budget. It stood at US$ 379 billion for 2003 (Council for a Livable World), in the midst of the Afghan and Iraq Wars. At $2,225 billion, the new budget for the environment would not only beat but actually dwarf the war chest of the most powerful military on the planet.
With this kind of budget, an environmental revolution becomes more than a mere possibility. It is right in our hands, just waiting to happen.
7. Premises of Large-Scale Environmental Change
Turning things around for the environment would imply change on a large-scale. At first sight, it may seem impossible to achieve. However, if certain principles are respected, it can happen. There is a science to massive change.The First Premise: Massive Scale
The first premise of a meaningful environmental strategy is that needs are massive. Therefore, the solution should be of appropriate scale, powerful enough to address all issues. There is an urgency to deal with global warming and environmental degradation. There is also a dire need to reverse the current trend of rapid resource depletion so that future generations can have enough for themselves. The sad reality is that the earth does not come with a warranty stating that because its life expectancy is five billion years, its resources should last that long.The small step by small step incremental solutions proposed so far will not do the job.
The Second Premise: Strong Political Support
The second premise is that environmental change on the scale needed would require massive voter support. For any solution to be implemented, it must first make it to the political agenda and receive support. To that purpose, the strategy explored in this book is revenue neutral, making it as voter friendly and as politically viable as possible given the ambitious task at hand.Because society's support for the environment is ultimately limited, large-scale change would have to be achieved with virtually no additional amount of social commitment. This brings us to the next premise.
The Third Premise: Minimal Social Commitment
The third premise is that to be voter friendly and get massive support, strategies for large-scale environmental change have to be able to be implemented essentially without additional social commitment.Current solutions always run into the same obstacle: voters do not want any additional taxes, at least not on the scale required. Designing strategies based on a massive increase in support is unrealistic. We need solutions that are able to address most environmental problems with roughly the same amount of social commitment as we have today. The revenue-neutral approach proposed in this book does provide for this.
The Fourth Premise: Implementability
The fourth premise is that large-scale environmental change calls for practical and implementable solutions. Remember Keynes' famous quote, “Foul is useful and fair is not”? Rather than an attempt at cynicism, it was an acknowledgment of the basic reality of economics. Theories and principles are not very useful if they are not applicable. If he had spoken about the environment, he might have said, “What does not make it to the political agenda and sway the voter has very little use.”Some of the money spent on research every year does not benefit society for a number of reasons. Studies might not result in practical applications, they might not have been brought to the general public's attention, or the solutions proposed are just too unfriendly to voters to be politically viable. Of course, not all research is meant to produce solutions. Some types are supportive in nature.
The 21st Century Environmental Revolution was written strictly from an implementability point of view. What is implementable and politically viable is useful; what is not, is not. The strategy described in the next chapters is intended to be as practical and voter friendly as it can be, considering the fact that we are contemplating massive change.
The Fifth Premise: Market-Efficient Mechanisms
The fifth premise is that, to maximize implementability and political support—especially given the magnitude of change being considered—environmental solutions should make use of the most efficient mechanisms available. Let's review the options at our disposition.Current research divides approaches into two main categories, regulations (command-and-control) and taxation. Regulations can be very effective in specific cases and have their place on the environmental agenda. However, they generally lack efficiency on several counts.
Ian Bailey (Senior Lecturer in the School of Geography department, University of Plymouth, UK) reports that they are viewed as economically inefficient because they are imposed uniformly on polluters who have different abilities to adapt to better practices (Bailey, 2002, p. 235). For example, big corporations can more easily invest in cleaner technologies than smaller businesses.
Annegrete Bruvoll (1998) further argues:
The required control costs under regulations can be considerable and the administrative costs are usually higher than under taxes. Also, price incentives offer free cost information, while mandated recycling is often accompanied by expensive education and motivation programs. (p. 19)
In other words, regulations often have a number of costs associated with them—administrative, implementational, educational, etc. The same author also reports that studies had consistently shown regulatory programs to be poorly designed and have costs exceeding benefits.
Another problem is that, unlike taxation—which promotes continued improvement—regulations are not dynamically efficient. That is, they offer little incentive for polluters to exceed minimum requirements and do better year after year. In addition, without international agreements to back them up, regulations are further limited as they tend to impede the competitiveness of countries which implement them.
For these reasons, the focus of policy has recently been shifting to market-based solutions. These new approaches are increasingly viewed as the best ways to address environmental issues. Bailey (2002) states that “both theoretical and empirical studies suggest that market-based mechanisms remain the most efficient method for pursuing many environmental goals, so that countries pursuing such strategies generally perform better economically than those that rely on legislative standards” (p. 237).
Note that the Kyoto Accord sets caps or limits on emissions. As such, it is a regulatory system, not a market-based solution. The cap part of cap-and-trade refers to its targets. The trade component refers to an exchange system that would need to be set up and that would make use of markets. However, it is only a flexibility component allowing companies that find it cheaper to pollute to continue to do so and buy emission credits instead.
As demonstrated further down, the trading system itself would not lead to a reduction of greenhouse gases. Shocked? As such, it is not an environmental strategy per se. What would bring down carbon emissions are the caps negotiated under the Kyoto Accord. The system does not help businesses or countries—whether through information, funding, research, strategic planning, or technology—to reduce carbon emissions. Under a cap-and-trade initiative, it is really up to the industry to figure out how the Kyoto Accord target are going to be achieved. Such an approach does not take too much thinking on the part of governments!
Market-Based Options
Bailey (2002) describes three main market-based options, incentive taxes, cost-covering charges, and revenue-raising taxes. Incentive taxes are designed to increase the costs of polluting in order to bring about positive environmental behaviors. For example, toxic chemical compounds or fossil fuels can be taxed to reduce their use.Cost-covering charges are usually levied from users of a particular resource and used to manage it or mitigate its degradation. For example, entrance fees to national parks may be used for their maintenance. Pollutants might be taxed to raise funds to undo the damage they cause.
There are two types of revenue-raising taxes. The first, additional taxation, involves for example environmental charges on plastic soft drink bottles or residential tipping fees on garbage. The revenue generated through these go directly to general government tax coffers rather than being targeted for specific purposes. They are additional charges to consumers and businesses (which pass those on to us) just like the first two types of market-based approaches discussed above.
As such, all three options are limited by the current level of social commitment—nobody wants to face new user fees or pay more taxes, at least not on the scale required—and are therefore bound to only skimming the surface of environmental problems. This brings us to the last option.
The second type of revenue-raising options is revenue-neutral taxation. Environmental levies are collected and offset by lowering other taxes, for example, on income or retail sales. They do not increase the general level of taxation for people in a country. They are only a shift from one form of levies to another.
For example, if a government were to raise $1 billion in new environmental taxes, it would decrease income or retail taxes for taxpayers by the same amount. A government would take with one hand and give back with the other. In other words, because environmental taxation is offset by a drop in other taxes, it would be revenue neutral. The levies would result in a deterrence of unenvironmental behaviors—progressively making economies greener—without increasing total taxation for individuals.
This essentially gives us not only an efficient mechanism but also a politically-viable one. It is the basis for structural changes that would be powerful enough to bring about an environmental revolution.
The Sixth Premise: Focus on Resource Conservation
The sixth premise is that resource conservation should be at the core of environmental policy as it attacks the problem at the source through prevention.As discussed earlier, a ton of mineral not extracted represents one less ton of garbage produced and a reduction of intermediate chemical use and environmental degradation from waste disposal. In addition, making conservation a primary focus of policy forces us to address the issue of non-renewable resource depletion. Current economic planning leads us to give little or no attention to preserving resources for future generations. In fact, it does the very opposite.
Another important reason for putting conservation at the core of environmental policy is that pollution and contamination are in most cases easier and cheaper to prevent than clean up. To what extent can gases from industrial processes or the incineration of garbage be cleaned up? Bruvoll (1998) writes, “Most [waste] materials are dispersed and hard to collect after use at the emission stage, and designing and operating a tax system that tracks all environmental effects is out of reach” (p. 16).
The Seventh Premise: Landfill Sites Are Limited
The seventh premise is that there is a limited supply of suitable sites to dispose of our garbage. Because of the toxicity of some materials and concerns about seepage of contaminants into water tables, not all locations are geologically suitable for waste disposal.For economic efficiency, landfill sites are often located in close proximity to towns, threatening the contamination of drinking water sources. Current recycling efforts only partly reduce the continued demand for landfill space. They do not eliminate it.