No central data - no central planning?

I see, via edie, that people are concerned about the lack of centralised data which might enable better (central) planning to address resource risks.

The issue for me is that knowledge of resource flows and potential risks is widely dispersed among market participants. It is very difficult, if not impossible, for such information to be collated by centralised authorities in any way which might be of practical benefit and not simply a snapshot in time which is outdated by the time it is published.

Markets are the most efficient means we have for allocating resources. The government really needs to recognise that it can't do this better than the market or try to anticipate future resource flows or how to address them.

When the EEF surveyed its Members in 2012, resource risks featured prominently (first? second?) among their concerns. I suspect that if this survey was repeated today then those concerns would be somewhat diminished.

A real issue though may be the fact that for some materials, total volumes produced and traded are relatively low, which can lead to large swings in prices. Rather than Canute-like trying to stop the inevitable, the government could instead consider how to minimise its impact. This could potentially be done by working with the financial industry to develop hedging instruments which are more widely available (particularly for SMEs).

For me the government's resource security action plan is already out of date. Defra is trying to find a way in which it is relevant to the government's overall economic agenda. This isn't it.

ADEPT warns on infrastructure

I see via Lets Recycle that ADEPT is warning that Defra shouldn't have cut waste infrastructure credits at some local authority projects.

Coincidentally I am sure, ADEPT's current President also happens to be strategic advisor to Cheshire West and Chester which was of course one of the projects to have its funding removed.

My personal view is that if ONS projections for population growth are correct, then it is likely that this factor will dominate a continuing fall in arisings per head in forthcoming years (second half of this decade) leading to a (relatively small) rise in total household arisings by 2020.

The crucial factor though will be whether we are able to deliver the PPP/PFI projects which are yet to be built. Progress is painfully slow in closing remaining projects and ADEPT is right to flag up that if the pace doesn't quicken then there really is a possibility that we could miss the targets.

Do falling commodity prices undermine case for resource policy?

I see, via @MRWMagazine, that after two years of falling commodity prices people are starting to cotton on to the fact.

As it says in the article, falling prices for secondary materials will put upward pressure on gate fees which will, in turn, raise costs for waste producers. The commodity boom of the past decade has, to a degree, masked the extent to which higher regulatory requirements and targets in waste management have increased the (potential) burden on councils and businesses. A sustained period of lower prices will expose just how much it costs to deliver higher environmental standards.

I have never been convinced by those who have argued that competition for global resources means that the UK needs a resources policy, mirroring its carbon policy. Where is the market failure? At least for CO2, the environmental externality is clear, and along with it the justification for intervention. But resource markets are well established and function as markets should with price signals indicating relative scarcity.

Higher prices induce changes in behaviour. Demand shrinks as people find substitutes, while supply increases as higher prices incentivise new investment. Lower demand and higher supply lead to lower prices. Commodity markets have always been cyclical. This is always likely to remain the case.

I have long believed that we were heading for a period of lower prices. (I also believe that this will be followed by a period of higher prices, during which commentators will again panic and will tell policy makers that they must do something to secure resources for the UK.)

Where does this leave UK and European policy for resource security? A little redundant I suspect.

Government assumes businesses don't know what they're doing

I see that the government has set up a commission to investigate how businesses can improve their productivity and raise the efficiency with which they use their inputs.

No doubt the talking heads on the commission will be able to spot savings from afar which cannot be identified from up close by those mere mortals working on the front-line of business activity.

I struggle to see the point of this really.

(As an aside, I of course disagree with the estimates of potential savings which businesses could make through resource efficiency and think that the original remit for this committee was probably drawn up back in the days before prices for rare earth metals (among other commodities) started to fall.)

This looks like a classic case of policy makers catching on to an issue which has already been addressed by the market.

The resource efficiency of the UK economy

I was just glancing at WRAP's 2010 report on the resource efficiency of the UK economy and was surprised to see the claim that the UK's Total Material Requirement (TMR) has been broadly flat since 1990. I thought it had decreased somewhat.

And I was right. WRAP reaches its conclusion by only looking at the data up to 2008 (despite the 2010 publication date), which show that TMR was broadly flat during that period (although down 5%). Since then however, it has fallen off a cliff and in 2010 was down over 20% on 2008 and 27% on 1990.

Of course a large portion of these falls has been induced by the recession and could prove to be cyclical in nature. But at the same time, we may be witnessing large-scale structural changes and just don't yet know it.

Either way, the UK economy is using far fewer resources now than it was in 1990 despite intervening GDP growth and indeed is lower than at any point since records began in 1970. To me, this doesn't currently justify widespread concerns about the UK economy's use of natural resources.

Ellen MacArthur's boat as a small, zero production economy

Ellen MacArthur (EM) is doing a great job as the poster girl for the circular economy and is clearly very passionate about the subject. Where does that passion come from?

I think I've seen references to her comparing the enclosed nature of her round the world voyages to the planet in general and how this awakened her realisation of the finite nature of resources and the need to change global production and consumption patterns. But how realistic is this comparison?

At its simplest level we might think of EM's boat as a small, zero production economy. In this economy EM is given an initial endowment of resources which she manages/depletes during the course of her voyage.

An alternative model of an economy would add production, which would enable the economy to apply different combinations of capital and labour to its initial endowment thereby producing new goods/resources. In this way, the supply of resources available to the economy is no longer fixed but can be grown through production. Productivity improvements over time enable the economy to grow (ad infinitum).

Which of these two models is more appropriate for the global economy? This question really boils down to whether or not resource scarcity is actually a problem at the global level.

Environmentalists say of course resources are finite. But this isn't really true in any practical sense (known commodity reserves are at all time highs as is commodity production). The US shale gas boom and the recent news that Japan has found a new way to extract energy from methane hydrate are examples of how the supply of resources isn't fixed but can be grown through new production methods (a new application of labour and capital to our initial endowment).

Does this really matter for the circular economy? Not if it has an alternative justification, such as minimising environmental impacts or reducing business costs, but it is not necessarily as straightforward as some might expect.

Market failures in waste prevention

Defra has today published a call for evidence for its waste prevention programme. I haven't yet read the whole document but one thing which immediately raised my hackles was spotting a section on "market failures". I personally think that policy makers are all too quick to refer to market failure when actually these either don't exist or are preferable to the far more prevalent alternative of government failure.

The first one Defra refers to is the case of "environmental externalities" - fair enough at first glance. It then says this is manifested through the full cost of waste not being paid by producers. On the contrary, businesses do pay for the waste they produce (and pay prices which are higher than the externalities would actually suggest). In the household sector this incentive is of course missing but I don't suppose for one minute Defra is proposing the politically unpalatable introduction of pay-as-you-throw.

"Split incentives" are another policy makers' favourite. The example used here is of a manufacturer designing out waste to the benefit of consumers or local authorities (presumably packaging). But the manufacturer benefits from not having to pay for avoided material inputs. The landfill tax escalator and the commodity boom of the past decade have both shown that manufacturers respond to price signals and reduce waste.

"Information failures". This is where policy makers expose their belief that they are better placed to spot bottom-line savings than actual businesses themselves. Not true in my book.

"Behavioural barriers". Here Defra seems to think that firms/individuals discount the future too heavily and so are unwilling to take longer term actions. However, individuals must take decisions under conditions of extreme uncertainty and their choice of discount rate may actually lead to far more rational choices than Defra officials could come up with.

"Financial barriers". Businesses/individuals may be credit constrained. For me, this is just the real world where financial choices have to be made between competing priorities and, to the horror of Defra officials, waste prevention may not be at the top of the list.

Overall, I think that Defra (and its various consultants) tend to underestimate the opportunity costs associated with waste prevention measures. Implementing waste prevention often has a positive financial return. But so does investment in productive business activity/output. It is not necessarily irrational for businesses to choose to invest in production rather than waste prevention, but policy makers often seem to miss this point.