Josh Frydenberg makes Donald Trump look good for the environment. The recent backtracking on the Paris agreements brings some much needed attention to the energy and environment crisis unfolding in Australia. Minister for Environment and Energy Josh Frydenberg not only believes there is a “moral case for coal” but is actively campaigning to encourage coal production rather than sustainable renewable energy. In the expenditure report released by Department of Finance, it demonstrated that our Minister for Environment spent $82,786 on printing in 6 months. To put that in perspective, if the Minister were printing at Officeworks then that equates to 2,069,650 pages, which is over 11,400 pages a day. The problems of waste in Australia clearly start at the top of the tree. As highlighted on the recent series War on Waste, we have a crisis on our hands. Financial markets may use CNN’s Fear and Greed index for market health, economists have GDP and unemployment, politicians have polls and Australia has the Great Barrier Reef as a key indicator of environmental health and performance. With mass bleaching we know we are in a high stakes game.

At home in my daily life I don’t make a hugely conscious effort to be more environmentally conscious. Heck, I know I can be lazy at times so I tried to make everything as easy as possible. I switched our electricity to a 100% renewable provider and our gas to carbon neutral — set and forget. I eat everything in the house and if I’m cooking and there’s those inedible weird ends of fruit and veg then I have a compost bin on the bench that I just throw them in to. The compost is closer to the chopping board than the garbage so that’s easy too. When I go shopping for clothes I buy quality. I have boots that should last me at least 20 years, shirts that easily last 5+ years and I have a style that I believe is timeless; plus it just feels good to be in high quality garments. We minimise the number of trips to the supermarket each week, like honestly, who wants to spend all their time in the supermarket. I stock up for the week ahead and we take our own bags because when you only go once a week it’s easy to remember them! All in all though, I’m a set and forget person, I like to keep it simple and make it all as easy as possible. Our house only throws out 1 bag of rubbish a week; it’s good for the environment and it’s good for the bank account.

The recent TV series by the ABC called the War on Waste got me thinking. While I was thinking, it was announced that the richest person in Australia is Anthony Pratt — owner of Visy industries. This made me wonder if all this waste and growing conscious consumption is having an impact on business, jobs and economies. How do these factors actually fit together and does our waste create wealth or is it our environmentalism creating the billions for Pratt? So I decided to explore five factors of waste that economic in nature.

The five factors of waste

  1. Consumers
  2. Producers (Farmers)
  3. Businesses
  4. Government
  5. Environment

Supermarkets, activists, governments all seem to say it starts with the consumer. With you and me. Which courtesy of the demand factor of supply and demand is a reasonable statement. As the climate change argument has been largely accepted, and people like Leonardo DiCaprio make us aware of environmental challenges, consumers are swapping to environmentally friendly products. Evidence by recent branding such as:

  • Organic
  • Biodegradable
  • Made From Recycled Materials
  • Eco Friendly
  • Green

And if you go to the supermarket you will no doubt be able to find a lot more tag lines pushing environmentalism. These advertisements, marketing campaigns and product differentiation highlight the direction consumer demand is taking us. Consumers are asking for these products and institutions are responding. Consumers shop according to what they value; convenience, materials, quality, price etc. We make decisions everyday that are influenced by opportunity cost and cost benefit analysis. Most of our decisions are centred around “What’s in it for me?” rather than what are all of the externalities to me purchasing this particular product. Economists assume us to be utility maximisers and we try to get the most value out of how we spend our incomes. On the flip side, the business that we engage with when spending our incomes are profit maximisers. They care about the bottom line.

Bizarrely, these are all made up of people. People that live and work in our communities and should reflect our values. Companies are also able to operate for an unlimited time period. A company can exist for as long as its balance sheet permits. This unlimited life span and profit maximisation means that companies are faced with a slight conundrum. If they are to maximise profits then what they do today must not hinder their ability to generate profits tomorrow. Businesses should be sustainable. Businesses are also made up of people in our communities so they should reflect the values in our communities. So we are presented with a chicken and egg dilemma. Did businesses change the goods they were supplying first or did consumers demand different goods?

Consumption makes up almost 60% of Australian GDP. Therefore some element of consumerism is necessary if we are to sustain economic growth and to keep people in jobs. Naturally if you have read my other articles you will know that there are methods that can achieve this. This massive level of consumption creates a huge issue of waste. Things that are produced and never bought, things that are bought and never used, things that are bought and used and thrown out. Production and consumption generate waste. Waste comes at a cost and this cost is not adequately built into consumption. Goods and Services Tax — GST. Is not a tax that the consumer pays in order to offset the waste that their purchase generates. Although it could be. The cost of disposal of a $15 shirt is probably not built into the $15. The cost to health, well being and future production certainly isn’t factored into the purchase price. It takes over 2,500 litres of water to produce a cotton tee shirt, yet if you go to the supermarket you can easily spend $1 on a 1L bottle of water. If we are rational beings then tell me, what is the true value of water because a cotton tee shirt certainly doesn’t cost $2,500 at Kmart.

Let’s make a range of assumptions about consumers and see what economic costs these create:
A.) Consumers require products that are within their income range
B.) Consumers are not able to calculate all externalities of a product
C.) Consumers shop according to what they value
D.) Consumption requires production and distribution
E.) Consumption produces waste

Based on these assumptions we can reason that as consumers we are looking to buy things that are affordable to us and have some value to us. What we are buying has been produce, and brought to us without including all costs of externalities such as waste disposal. This leaves us with a question of who’s job is it to manage the unconsidered externalities and waste. So far the tragedy of the commons has fallen to the government. To people like Minister for Environment and Energy Josh Frydenberg. At present local councils and state governments arrange waste collectors for our household rubbish, sewage for our bodily waste (food consumption), and facilities for garden/green waste and recycling. Based on precedents we can say that it is the governments duty to their people to control, and manage the externalities of consumption. A critical facet of the economy.

As our politicians fail us it is interestingly business that is taking on the challenge. It’s not just the recycling firms like VISY that are getting involved in environmental and energy solutions it is firms like AGL, EnergyAustralia, Telstra, Proctor & Gamble, H&M and more. Businesses are establishing solar farms, recycling their products and changing methods of production. They are doing this despite a government encouraging them not to. Corporate social responsibility is an environmental win. Corporate energy management is a win. As consumers we need to continue to applaud and encourage this behaviour by reinforcing it with our consumption. We need to spend our incomes with businesses making an effort, and maybe we can applaud our communities for managing an environmental and energy crisis without a government.

Our astronomical waste does create some boom business though. As I have highlighted, VISY industries has made Anthony Pratt the richest man in Australia. The peculiar thing is that VISY is focused on the U.S. and not on home soil. Is it a lack of incentive, high labour costs, and high energy costs that’s preventing them? Or is the scale of the U.S. and the lucrative recycling contracts? Well it’s probably both. I know that if I had a business, I would go to where I can scale up and maximise profits. As consumers we don’t consciously pay for someone to dispose of our waste. So these businesses are paid by state and local governments.

Interestingly there are recycling plants that also manufacture goods from the recycled materials. This means that the initial resources allocated to producing the original product aren’t wasted. In stead they are recirculated into the economy. This has huge potential.

A Potential Plan

Economics is all about the efficient allocation of resources. Whether that is scare resources, finite resources, renewable, or the resource of labour. Economics is primarily about allocating these inputs in a way that is sustainable and productive. Single use items I would argue are not an efficient allocation of resources. Over 2,500 litres of water on a single cotton tee shirt is not an efficient allocation of resources. Especially as the production and subsequent disposal of these products have huge future economic consequences.

Here are some renewable energy projects, ideas and concepts available to us:

Other strategies include:

  • Banning plastic shopping bags [ #banthebag ]
  • Charging extra for take away coffee cups and discounts for BYO cups
  • Carbon pricing
  • Increasing GST to include a waste management component
  • Infrastructure spending on renewables
  • Incentives for sustainable production
  • Cash for cans

And many many more. We are so lucky that so many people want to make a better future. We need to get our politicians to recognise the environmental and energy crises at hand. We should continue to encourage businesses that are making a change.

If you find yourself with a few spare hours then I highly recommended going to ABC and watching the War on Waste.



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Chris Leeson

Bringing finance and economics to you with a focus on in-depth analysis and everyday life.