The ACT Government is developing a circular economy strategy using the following principles.
- Designing out waste and pollution
- Keeping products and materials in use
- Avoiding negative impacts to the environment and regenerating natural systems
The complete draft strategy can be read here.
Another principle of a circular economy that can drive the 1,2 and 3 and is scalable to the rest of Australia is
A Circular Economy is one in which natural and human-made assets are preserved within Local Communities.
We can achieve a local circular economy if individual assets are kept and preserved within the suburbs, nature parks, leaseholds, waterways and national parks of Canberra. Humans value and measure assets using the concept of Capital. Hence, if we change our financial system so that Capital is preserved by the communities that benefit from it, it will assist and fund the first three points of a circular economy.
Keeping Assets within a Community that Benefits from Them
Community Capital preserves Capital within the Community that consumes products. Money is conserved, and the systems that use the assets. For human systems to retain value, the resources consumed must be recycled or replaced with an alternative. This imperative drives the development of many technologies.
Community Capital cycles within a community and increases profits by saving costs. A buyer of products from a Community automatically becomes a shareholder in the community and is incentivised to preserve the Community Capital. Buyers and sellers benefit from reduced costs, so the investment decisions favour reduced consumption, including the preservation and regeneration of Nature's Capital.
Equity Capital extracts Capital from local communities and profits from increased consumption. The investment decisions favour mining and exploitation of other communities' natural resources.
Each existing business that switches to Community Capital reduces the consumption of Nature's resources and releases existing Capital to pay for the change.
Examples
- The benefit of a solar panel on a house is that it keeps the value of electricity within the local community meaning the community does not have to export money to pay for electricity.
- The benefit of local food production is the same. Suppose tomatoes can be produced and consumed locally. With Community Capital, the community has a strong economic incentive to buy local, whereas Equity Capital from an external source wants to export money from a local community. However, if an external source of tomatoes uses Community Capital, the supplied community becomes part of the supplier community.
- Canberrans benefit from Nature through rainfall and water catchment areas. We purchase water from Nature via Icon Water. If Icon Water used Community Capital, it would sell Nature some Capital, and that money should be used to restore and enhance the waterways and catchment areas of the ACT. The amount would be well-defined and a proportion of each consumer's bill. Consumers would be entitled to a voice in how the money was spent.
- Community Batteries supplied by an organisation funded with Community Capital require no government subsidies at $1,000 per kWh, whereas they will require government subsidies if funded with Equity Capital. The reason is the funding circulates within the Community, and the value of the Battery remains within the Community.
Building a Resilient Economy
Community Capital differs from Equity as it strengthens community connection, whereas Equity Capital makes communities compete on price. However, Community Capital allows communities to compete for productivity, savings and external factors such as reduction in Green House Gas emissions.
Community Capital builds resilience because it creates many small interconnected mutual obligations through shareholdings. An external shock to any in the Community will ripple through the communities until the economic system stabilises.
Communities grow by exchanging a product, initially with high profits. When there is enough product for the community, the profits drop by lowering prices. If the prices keep falling, the buyers for a particular product will decrease. So one way to stop the growth of any product is to set the price so that it makes zero profit and for the consumers who buy the product to direct investment in an alternative to the product. This is how we can rapidly phase out coal and gas.
Price Setting in a Circular Economy
Circular economies have many small communities in which money circulates. For a given product, there will be a circulation of Capital. The algorithm to set the price is:
The small community agrees on the profit to be made. Profit can be zero or negative and is a percentage of the cost of production.
When a payment is made for the product, 50% of the profit goes to investors and 50% purchases Capital in the product and is allocated to the buyer.
Community Capital is the cheapest form of Capital, so communities tend to choose suppliers financed with it. However communities are free to choose other suppliers so competition is maintained and it is difficult for companies, even large ones, with deep pockets to use predatory pricing.
Summary
The mutation of Capital so buyers purchase Capital and products releases a large amount of existing Capital for reinvestment. Importantly it provides a way to value Nature's Capital and the funds to restore it. As it is an efficient form of Capital, the economic system is measured by the well-being of the planet and the species that exist here.
