5.3 Practical Challenges for Realizing Benefits in a Circular Economy 119
119
virgin resources. As a consequence, the prices of virgin and circulatable resources
assimilate and circular products are able to compete with conventional products
pricewise. The representative of the organization in case Alpha explained: “The
second solution is to introduce policies that force the true costs of virgin polyester into
the market. Those true costs, of course, include the costs to the planet of the petroleum
that is used in the polyester. As an example, if carbon taxes were to be implemented,
they would drive up the cost of petroleum and increase the costs of virgin types of
polyester, if carbon is to the point where recycled polyester will be less expensive.”
The demand for governmental action to support sustainable development is notnew. In fact, the idea of incorporating the costs of environmental damage was first
developed in 1912 by Arthur Pigou (Pigou 1912). Other theorists who supported the
concept such as Filipović and Golušin 2015; Pearce 1991; Brennan and Buchanan
1980; Meade 1955 sought to develop it. Market transactions have, at times, indirect
impacts such as pollution that are not reflected in the price of a product. Economists
term these effects externalities. Externalities are the main reason for governmental
intervention in the economic sphere.
One example of externalities is that a manufacturing company usually emitspollutants into the air. Whilst the organization only pays for material, electricity
and so on, the people living in the surrounding of the site ‘pay’ for the air pollution,
with payments such as health issues and increased medical bills. The reason for
this is that property rights for air are not defined hence, the organization is not
held responsible for the pollution it causes. One way to mitigate greenhouse gases
is the implementation of tradable emission rights for organizations. Other meth-
ods developed to reduce emissions include command and control policies (direct
regulations) and emissions taxes (Uddin and Holtedahl 2013).
A recent study assessing the quality of current methodologies for expressingenvironmental tax revenue summarized that an environmental tax reform has the
potential to improve the environmental situation and the economy (Filipović and
Golušin 2015). By shifting tax from labor to resources more jobs can be created.
Although taxation of environmental damage has this potential, strong theoretical
arguments can be made that taxation makes the existing tax distortions worse
(Uddin and Holtedahl 2013; Bovenberg, L., Mooij, R. 1994) or that there is no proof
of a positive effect (Cremer et al. 1998).
Despite the ongoing academic debate about whether or not environmental tax-ation has the desired effect of supporting sustainable development, the data in this
study reveals that organizations see a need for governmental intervention to support
their transition towards circular economy. Case Alpha (see above quote), as well as
cases Delta and Epsilon, highlight the need for policies either to ensure companies
pay the ‘real’ costs for virgin resources or to support the usage of recycled material.