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23 February 2018

Are you incentivising the right people?

I was at the North East Recycling Forum yesterday, one of the very few events I go to as a punter as it really punches above its weight when it comes to speakers and content.

I brought two big thoughts away from me, one I'll blog about on Monday as it requires some stats to make my point, but a qualitative one arose from a presentation on Deposit Return Schemes (DRSs). These are the automatic reverse vending machines which accept glass and plastic waste and pay out cash in return. I've seen this work in action a decade ago in Cologne, not only do people tend to return their bottles, but there is a whole grey economy around homeless and kids collecting litter to make a few shekels.

The problem with this is that these very materials are the ones which make cash for local authorities through existing recycling channels. So by moving to DRS, more material would get recycled, but it would shift the direct economic benefit from local authorities to private companies. The aim of yesterday's talk was to persuade the Council waste officers in the room that the economic benefits from reduced collection costs, reduced litter etc, made up from the lost income from selling materials. They didn't look terribly convinced.

This made me think more generally about the alignment of incentives, beneficiaries and decision-makers. To take an example I've come up against a few times, if you rent a building, either for living or working, then you usually pay the energy bills, but the landlord owns the heating system. Therefore there is no incentive for the landlord to install an efficient heating system as the benefit will go to you, not them.

But you can fix some of these disconnects. If you use activity based accounting, then all overheads are attributed to each activity – so, say, each production manager is responsible for the whole cost of energy, waste etc for their production line, rather than the whole lot being lumped together. You can write contracts to incentivise contractors and suppliers to solve your problems.

You really need to be conscious of this problem or it could jump up and bite your Sustainability efforts on the backside.


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10 June 2016

The perversity of low mileage...


Gnnyuh. I'm just off the phone to our garage. Our car battery has run flat a couple of times in the last few months, but the mechanics can't find a drain. They've concluded that because we drive so little, the battery isn't getting enough charging time between start up and shut down sequences. Yes, our mileage is 'too low' and they're recommending we work some longer journeys into our routine.

This is what we call a perverse incentive. It encourages 'bad' behaviour and penalises 'good'. You will find many examples in your organisation, too. The best way to winkle them out is get a group of colleagues together and let them grumble!

It's also a poor example of design. Our need for an urban bus that will take 3 or 4 child seats (ruling out car clubs on practical grounds) several times a week with the occasional family trip, but not for regular commuting, can't be unique.

The new Tesla Model X is a 7 seater, and if they'd like to send one on permanent trial...


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2 March 2011

Plenty more fish in the sea?

Great news in the Guardian this morning that the EU is to end the incredibly wasteful practice of fish discards. This is the situation where fishermen could catch however many fish they want, but can only land a certain number, so the rest are thrown back - usually dead. This is worse than landing them where at least they would be put to good use - and would offset other food production.

The story illustrates a number of important points:

  • The power of perverse incentives - fisherman are currently encouraged to be wasteful;
  • The risk of unintended consequences - the landing quota was introduced to try and protect fish stocks but has arguably made the situation worse;
  • The stultifying effect of institutional inertia - everybody has known discarding fish is a problem, yet it has taken decades to actually do anything.

These are three potential pitfalls that all of us in the sustainability world come up against some time or other, whether in communities, organisations or in international policy. Watch out for them!

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5 December 2008

Another Perverse Incentive

A perverse incentive is an economic driver that encourages 'bad' behaviour. Examples in the sustainability field include the lack of tax on airline fuel (how do you think those cheap flights are so cheap?), the lack of VAT on building materials for new build when you pay VAT for refurbishment materials and the fact that, despite all the belly aching from the trucking industry, lorries do not pay road tax commensurate with the damage they cause.

Well, when I had to adjust the VAT rate on the Green Business Bible on Monday, it struck me as odd that ebooks are regarded as 'software' by Her Majesty's Revenue and Customs and thus attract VAT when paper books don't.

Ebooks are eco-friendly, books require trees, pulping, glue, distribution, waste. It's perverse...

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