Is this the solution for pollution?

Jul 17, 2019

Welcome to Finance & Fury, the ‘Say What Wednesday’ edition. I recently received a great email from Nick, on a fantastic topic. So, I’ll read most of the email as background to today’s discussion;

 “Hey Louis, I’ve recently be thinking about an issue that I think should be at the forefront of people’s minds a lot more than climate change, and that’s waste pollution.

The issue of waste pollution in both the ocean and land seems to get a lot less coverage than the issue of climate change, even though the issue has a far greater capability to affect us in a dire manner, as pollution can undeniably kill life. Now, what does this have to do with finance?

I recently attended Groove in the Moo, and they had this system where they overcharged all cans by $1, but gave you a $1 cash refund for every can you brought back to the purchasing station. Me and my friend being thrifty got to work and collected over 200 cans that we saw just lying on the floor to make some money over the day. This concept got me thinking though. What if the government began a program similar to this, whereby if they overcharge particular items and offer cash refunds for their return to a recycling centre?

Having a system like this would act as a disincentive for people wanting to buy single use plastics (as it would then cost more) but could also effectively stimulate the GIG economy, where a government doesn’t have to pay for as many workers to clean up streets and so forth, and also allow people who are short on cash to earn extra money for recycling and doing the right thing by the environment (This is of course if people actually took to the idea of cleaning up rubbish they saw on the street).

I do understand that you get something like $0.05 for every aluminium can take to a recycling centre, but the incentive isn’t promoted in any way by the government. Do you think a system like this could actively help reduce the amount of waste produced, rather than legislating bans on particular goods (similar to the ban of single use plastics)? Thanks again for all your content, and hope to talk soon. Nick”

Awesome Question – and a great way to make some money, nice work! To start, I think it would be a great thing. I am a big fan of incentives to recycle and reuse. This program, and different forms of it, have been in use for a long time.  

From what I have seen of this first hand, it does work well when implemented well;

• I lived in Austria/Germany and while they have few bins, there isn’t much rubbish around.
• That is due to them having rebates on bottles/other goods that can be reused. We used to take a carton of bottles back to the supermarket to get a discount on the next slab
• Even out in parks or concerts, people would walk around and collect a bottle as soon as it was put down anywhere and come up to you to ask to take your rubbish away. This was mostly thrifty people, like Nick, but I noticed it also outside of music events randomly on the streets – it was the homeless that would go around and collect bottles – and earn income for themselves.

As mentioned in Nick’s email, some states do have a few cents reward per can/bottle. It’s not that popular though.

1. The issue is a very limited distribution chain – except in reverse.
   • For example; imagine Amazon, what happens if they didn’t have drones or employed delivery drivers, but relied on delivery people who come and go at random. Who have to find their own transport, go grab the item from the storage house and then drop it off to the person? Good luck getting next day delivery!
   • The same problem is in reverse – getting the millions of recycling items back to the place they are best suited is an issue especially with the collection method.
2. Think about your recycling habits; You may be the best – tear off labels, rinse out products, remove lids, etc. put it in the bin, then it gets collected and thrown in with everyone else’s rubbish, bottles smash, combined with actual rubbish put into the wrong bin… and it becomes the sum of averages and what basically becomes rubbish anyway as it can’t be processed or sorted.
   • Doing it manually isn’t practical; there’s labour costs – shipped to Asia – which uses a lot of CO2 in transport
   • Due to low environmental regulations overseas, the rubbish was mostly being burnt or dumped upon arrival anyway.
3. The countries that suffer; Indonesia, Vietnam and, in particular, Malaysia, which received more than 71,000 tonnes of our plastic in the last year alone – so all that rubbish you see in pictures of beaches in Bali and Thailand – chance it has come from our recycling.
4. Normally I’d have a bit of a chuckle at government incompetency and them somehow getting the exact opposite result than intended – but this situation is really and massively impacts lives – policy allowed to continue, with opposite to intended effect – wouldn’t they stop?
   • If it was a company – like Amazon and their delivery model, if the packages are burnt instead how long would they stay in business?

What can be done?

Give incentives to individuals and also companies to participate – a free market solution!

1. There are two parties here – those producing the goods, and polluting in the process, and those consuming the goods, and polluting in the process.
2. Recycling policy focuses on us – how to recycle our waste, but controls the process – a monopoly on supply goods at the government level. The supply chain is broken, there’s very limited supply due to everything being sent to Asia
3. The policy to put this into force does require the supplies of goods (i.e. producers and sellers) to willingly adopting the collection of their rubbish;
   • Without an incentive for them to do this, it is hard to enforce the adoption of this system
   • They are instead punished for polluting (but, we will get back to this topic!)
4. The current methods in Australia are state by state. Rubbish needs to be returned to recycling plants and the homeless don’t have any method of getting the goods there (as there’s no public transport close either).
   • A lot of the producers aren’t exactly local - supply chains are normally across many countries
   • May be more costly for the producers / large suppliers to adopt
5. To solve this the Government mandates that companies must only use recycled goods = price rise and undersupply

Where the recycling chain really comes unstuck unfortunately, is in the process of recycling itself.

1. This is a very labour and CO2 heavy industry, so the nature of trying to reuse goods actually leads to more pollution with the current methods and technology (like us shipping it overseas to be done).
2. Collection methods are inefficient and costly – is all bundled and broken up into one pile at great expense to tax payers
3. All based on enforcement rather than encouragement

This opens up a very interesting point in economics – behavioural economics. When people are incentivised and not punished, they tend to work better, and systems that provide incentives work better than punishments – in any economy, environment, etc.

1. For example; Two options – one is to make 10 items for your boss or you get beaten, the other is to make 10 items and you keep the rest on top to trade – what environment would you have more items? Items = Food, goods, money
2. Worried about pollution? Give companies tax breaks, not fines – Profits are more effective than fines
3. Punishment – there’s a risk you won’t get caught (corruption, nepotism, government inefficiency)
   • Limitations – there may be loop holes or result in opposite to intended outcomes – forcing one thing but resulting in a worse outcome
   • There’s no instant feedback loop – and it doesn’t stop the damage – all fines are in the end are an additional government revenue. Companies continue to pay and the Government continues to collect (and they’re happy with that arrangement)
   • Sometimes the regulations get so green that the companies go out of business. Then everyone suffers – Government lose the revenues from the taxes and fines, workers lose incomes (government loses further tax revenue), consumers lose a good or service, less competition or options can lead to price increases, and so on.
4. Legislating requirements at the individual level isn’t entirely effective on its own either – littering fines, or having garbage in your recycling bin – another form of government revenue
5. Have the ability to remove the middle-managed system – allowing consumer and companies trade trash for treasure
   • The complexity of modern society is in orders of magnitude greater than anything humans have experiences based on recorded history
   • In a simple system you can be pretty sure if you do A, then B will happen – a piece of paper and a drawer
     • 1 piece of paper, one drawer – 100% chance of knowing that if you take paper and store it, will be in that one drawer
     • 1 piece – 2 drawers – now there’s a 50/50 chance, 1 piece – 3 draws – now 1/3, so on – this is a simple system. It’s linear.
   • However, when you introduce a second step (order of consequence) the probability jumps when guessing
     • 2 pieces – 2 drawers – goes from 50/50 to 25%, 2 pieces – 3 drawers = 9 options from 3
     • 5 pieces – 8 drawers – 32,768 outcomes – add one more bit of paper – 262,144 outcomes
   • Complexity in outcomes increases exponentially – paper and drawers are no comparison to people, companies, governments, and all of society.
6. We live in an incredibly complex system that nobody truly understands or can predict the effects of actions

So why try? There is a solution to get the best outcomes (over time). Not a wish list, but one that actually works, unlike wishes coming true – let’s go back to the example from Austria

• Austria/Germany – Pick up a case from the supermarket. When you’re done, take the label off (polite) and return with crate to supermarket, put it into a mini conveyer belt, hit the pad and it disappears and you get a docket printout to scan next time you spend to reduce the bill.
• This is just one example – but it can and is extended to other goods and items.

Incentives work better than punishments

1. Incentives provide growth in new economic activity – like Nick said, the gig economy and collecting rubbish – Uber Rubbish
2. Due to opening up new opportunities – not taking away choices and freedoms which have the opposite effect
3. At the company level – set bonus benchmarks as an incentives system
   • Hit reduction of CO2 targets, use of recycled goods, helping collect rubbish, etc they may be incentives with tax reductions
   • Way to truly unlock some of the social good that companies can do – leverage the people as well
     • Day off work to go clean up trees – might cost the company $40k in wages, but save $60k in tax
   • Individual incentives
     • Money back/money off goods next time you buy – makes you value garbage
     • Help out with cleaning through company programs – get tax credits, or tax-free bonus from company tax savings
   • There are a lot of options – we can work it out based around how to maximise the system to benefit us

Circular economies (I’ll can do another episode if you guys) – I was doing CPD points a while back and the study was focusing on circular economies - an economic system aimed at minimizing waste and making the most of resources. ... This regenerative approach is in contrast to the traditional linear economy, which has a 'take, make, dispose' model of production.

This sounds good on the surface but this sadly is just more of the same on a global level promoted by places like the UN. Governments adopt policy to force the reuse of goods.

If you are interested – let me know – www.financeandfury.com.au

Thanks Nick! If anyone else has a topic to discuss or a question to ask, hit me up via our contact page.