Remedy Waste Externalities – the FV-Finance Way !

A Monetization-facilitated, CCS-incentivized

Resolution to Waste Externalities

&

An Equity Market-arbitraged Path

to a

Global Closed-Cycle Economy

Prasad Rao, MTech (IIT KGP), MS, (PhD PennState)

Private Energy, Environmental and Mineral Economist

http://gprao64.blogspot.com; gprao64@gmail.com

Evernote: gprao

DISCLAIMER

This work is the exclusive Researchand Intellectual Property of GangaPrasad G. Rao, MTech, MS, PhD (gprasadrao@hotmail.com). The Author proclaims his expansive and unlimited ownership to the ideas and proposals contained in the document, and retains all rights in all contextual matters and its derivatives globally. Though entirely recommending the Proposal, the Author absolves himself of all errors, omissions, and their social, financial and all other consequences within and beyond the Banking, Corporates and Capital markets.

ABSTRACT

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Real Austerity, Social Subsidies and Nominal Profligacy are two-edged concepts that often have unintended impacts beyond the immediate context. The munificence of political parties in issuing Subsidies toward Vote-garnering in the cover of fulfilling Precinct PQ Rights, the focus on cost-cutting to engender prudent Public Administration and Private living, and Public-/Commons-injurious Production Inefficiency, oftentimes engender perverse incentives that manifest as environmental and social externalities. By their definition, Social & Public Externalities that are engendered in the maximization of PV Profits, are ignored to increment Private PV Benefits, gains, profits and returns. Those externalities cumulate imperceptibly or otherwise, across time and space until they turn a social and a political crisis, a technological challenge, and occasionally a Nominal-Political opportunity. Parallelly, Competition in the globally-networked Financial and Equity markets across Sectors and Nations, at times, engenders incentives at variance with the larger and long-run Environmental (and Social) Sustainability Cause. In fact, Market incentives tied to EPS and PE, are entirely biased against Environmental Sustainability. Firms with Business models that concentrate their Private Profits on the temporally-distanced Public 6G, and the spatially-dispersed 6D-Commons,cause costly-to reverse, if not irreversible damage, or immeserize them environmentally, socially and politically. Such firms report a higher EPS, claim a higher PE and a lower cost of expansion Capital. Consequently and paradoxically, such firms expand over other Sustainability-conformable firms that report lesser RoE on externality-internalized Full Cost. Bundled with the preference for more employment, larger subsidies and budgets that characterize Social and Governance segments, the incentives that pervade Businesses hurtle the society toward an unsustainable future characterized by Social externalities, and Externalities of the Slow, Diffused and Remote nature. Prudence dictates Humanity foresee and anticipate the irreversibilities of its actions and implement sagacious and pre-emptive actions that are both equitable and efficient. The design presented here is both comprehensive, and detailed; it induces Cooperation across Segments and Competition within Sectors, and brings about a quantum improvement in Sustainability at every stage and tier of the socio-economy.

It is a universal truth that Wastes are generated in the entire socio-economy – whether Government and its various arms, Social Segments, or Business Sectors. Consequently, any Waste externality policy design limited to a context less than the whole is beset with the risk of policy failure due existence of a leak – a ‘Coverage Loophole’ that turns the Policy inequitable, irrational and difficult to defend publicly, and which hence dis-incentivizes participation, and ultimately brings down the entire design. Societal segments, whether politically-managed Governance, or Bureaucratic Administration, are incentivized to inflate (subsidized) Precinct Budgets and pursue Employee-intensive paradigms at the cost of Closed-cycle efficiencies. Socially-supported and Politically-inflated budgets are, perversely, leveraged by businesses toward a PV return for their waste-engendering business pursuits. Consequently, the ‘Live the Present’ -‘Reap the Future’ paradigm and the facility to push all inconvenient and costly externalities of the PV-maximizing socio-economic paradigm to the ‘Deep 6G’ and the ‘Diffuse 6D’, causes an exacerbation of Waste externalities no matter whether Government, Society, or Business. Anticipating such policy failure, this design envisages both, a universally-competed Cause/Prudence Monetization scheme that incentivizes and issues resources linked to the degree of Externality Internalization within a context that extends across Segments, Sectors, and Nations. The design also offers a ‘NotMonetize-RoE Floor-PE’-incentivized paradigm for listed and unlisted Businesses and Precinct Commerce that facilitates a richer and diverse economy across the Precinct, OpCy and CC tiers.

The manuscript conceives of an overarching Environmental Sustainability-(Galactic)-Resource GESRES Pot AO-twinned to a Mirror ZS GESRES ‘Galactic Sponsorer’ pot. The Monetization begins with a Global Political Stake conveyed to the Galactic Bond through the IMF. That Stake is moderated as much by Closed-Cycle Score, CCS and Technology Gap, ΔTECH, as it is by Social Score, SSS. Whereas the GESRES AO Pot monetizes Prudence, Insurance, and Schumpeterian Lumpsums, its Mirror ZS Pot monetizes in to ‘MSDG Inefficiency ZS APLSDYS Efficiency Pot’. This manuscript elaborates on the SUSORG – an IMF-Bullion:GIA-WB ‘Grand Alliance’ that facilitates global, and Sovereign Segmental and Sectoral Monetizes and endows the SUSAO-SUSOE. The alliance participates in endowing the Global Insurance Association, GIA, with a Bullion Schumpeterian Dollop¹, and thereafter obtains Cause/Prudence Monetizations leveraging a Mirror Monetize, and a Cost of Segmental/Sectoral Capital, (CoSC) Construct that itself is a derivative of a Segment/Sector-specific Social-S ustainability and Closed-Cycle Scores.

The manuscript expands on the creation and operation of a Schumpeterian Resource pot, the ‘SchumpLump’, followed by the Pin-wheel Mirror Monetization of PVFV Fund Pots Segmental&Sectoral Cause Prudence Monetizations. The SchumpLump obtains directly from the Monetization of the GESRES Pot, albeit moderated by a Schumpeterian Cost of Capital, CoSch, and a Monetization Risk, MRISK. Notably, the Monetization Risk internalizes inflationary tendencies in the economy that might cause unintended, Monetization-associated monetary externalities. Segmental and Sectoral Prudence Monetizations are moderated by context-specific Costs of Monetization. Thereafter, the manuscript details the computation of a size-blind measure of environmental- and material efficiency, the Closed-Cycle Score, CCS, across Segments and Sectors of the Society and the Economy. Denominated in Value-addition, it differentially rewards Segmental/Sectoral entities for SSS- and CCS-remediating actions, advantages them for applying Recycled, Renewable and Bio-degradable inputs, and disadvantages them for leveraging externality-intensive inputs. The design optionally, permits a Consumer-centric strategy to increment that CCS. Segmental and Sectoral entities may exercise the option to buy in to the cumulative, ‘full-price’ consumption of Households and increment their CCS toward a larger Budgetary monetization, or a higher PE, albeit in return for a ‘Lifetime PV Lumpsum Offer’. The strategy, beyond obtaining a long-run Corporate-Household Connect, incentivizes Households to be environmentally responsible in their Consumption practices. The strategy facilitates a ‘Not Monetize’ for LandStatus Bank-supported Precinct Commerce, an ROE-floor for Durable-associated businesses, and a CCS-moderated PE-re-equilibration of listed (and unlisted) businesses, even as it commonly resolves, distributes and attenuates their unsustainabilities and obtains concentrated FV Opportunities for deserving CC-entities within. Whereas Social and Governance Segments and entities within compete in CCS simultaneous to their primary objective to claim more of the Cause Prudence Monetize, firms face a SUSOE-enforced CCS-calibrated reversible Lien-Choke on Gross Revenues that modifies their CCS-E(EPS)-PE relationship as perceived in the Equity market. Corporate Managers, answerable to Return-seeking shareholders, are incentivized to increment the CCS of their operations to protect their Revenues and regain PE. The PE strategy anticipates the latent externalities imbued in (Mineral/Fossil fuel) reserves held by Resource firms, and discounts their CCS to the extent those firms have deficient Technology and high Growth rates. Firms that demonstrate compliance with Closed Cycle environmental principles with a) their acquisition and submission of Ambient Air Pollutants & Toxics Abatement Certificates (AAPTACs) and Recycling Certificates, b) the purchase of ‘Long Carbon Permits’, or c) global SDRE Bonds, and which hence demonstrate a higher CC Score, suffer a lesser choke on current and cumulative past Revenues, and enjoy a higher relative PE for reasons market expectations of un-impacted Revenues and EPS. Conversely, the Capital market would rationally expect firms with inferior CCS performance to suffer a more severe choke on their Revenues and EPS prospectively, and hence downgrade their PEs. These perceptions and expectations constitute a strong incentive for Corporates to align themselves with Closed Cycle Principles. The proposed CCS Constructs for the various Segmental and Sectoral entities permit several solutions that enhance Closed Cycle Performance and abate Environmental Externalities. Faced with such incentives, firms re-strategize their business models to augment CCS, even as Investors in the Capital market re-orient and reward rather than punish Environmental Sustainability. (Similar financial incentives – whether Supply of Capital, Operating Subsidies, Precinct Taxes, Annual Budget, or Cause/Prudence Monetizations govern incentives in other Social and Governance Segments.) Between the ‘Insurance Bullion Dollops’, Segmental Cause Monetizations, and Sectoral re-equilibration of PEs, the radical FVPV Financial design obtains comprehensive participation and resolution of multi-media waste externalities across Societal tiers, Precincts, Nations and the Commons.

The Proposal is significant for its anticipation and flexibility. Foremost, it is cognizant of pressures faced by social, political and corporate entities that obstruct the resolution of slow, diffused and remote externalities, particularly, Climate Change. The design obtains a novel, Bullion-centric Optimal Control-derived, temporal profile of goal-guaranteeing Long Carbon Permits issued by the SDRE Bond. It offers several suggestions and incentives including a novel resolution of high-priced LCPs involving a Blackmail of Carbon Sustainability Goals that obtains a workable, almost ppareto compromise with the Nominal economy. It anticipates a discriminatory, size-based impact of CCS on Firm Revenue witholdings and partially internalizes the same. It offers unmatched flexibility to users of Carbon fuel in resolving their Climate Change externalities. It anticipates the urgency of early part icipation and investment in Carbon mitigation activities through the ‘CCS-Premium’ mechanism that induce firms to stock up on Long Carbon Permits early, cumulate a ‘Turn-In Premium’ for delayed use, and permits flexible allocation and use across years, thus fast-forwarding LCP purchases, and endowing the SDRE Bond with funds to make early investments in abatement technologies. Carbon Consumers, no matter, which nation, segment or sector, may trade-off with each other their Carbon burden against various other Pollution abatement and Recycling Certificates in other media. They are also free to negotiate Abatement/Recycling Certificates across Media and Pollutants, as well as Segmental and Sectoral affiliations. They may, collectively, blackmail the SDRE Ambient Carbon Concentration Terminal goal and seek a conversion of LCPs to more affordable Nominal Carbon Permits, albeit for a diffused, but reversible price that expands the SDRE Cause. These flexibilities on their own, and in interaction with one another, obtain an information- and instrument-rich environmental marketplace that permits of innumerable production and abatement strategies that vary contextually, and which together ensure an early and efficient achievement of environmental goals, specifically Waste Externalities, at minimum aggregate cost.

The proposal breaches much new ground in FV Social Finance and its application to Waste Externalities. It offers a novel strategy to capitalize a Schumpeterian lumpsum to fast-forward Sustainability, and endow global Insurance firms with a Bullion-sourced universal Insurance Dollop. It proposes an ingenious Monetization Risk indicator that factors in i) Inflation expectation and ii) Coverage ratio, as well as other Cost of Monetization variables that include a) a Cost of Sustainable Living indicator, b) an EO Index, c) a Precinct-specific slice that relates to its Natural Endowment, ‘Technology Gap’, & Status of Resident Population, and d) a 3-pronged Social, RoW and CC Diligence Statistic to obtain Nation, Segment and Sector-specific Monetizes. The manuscript offers an efficient means to calibrate macro-coefficients and parameters in the multi-Segmental/Sectoral model that leans on analytical derivatives and the Gold market. It construct variables that finetune the monetization contingent upon the state of the technology, society and economy, and which calibrate that monetize to anticipated Inflation, Precinct-specific Equity and Cost of Sustainable Living. So conceptualized and calibrated, the model would equilibrate across Segments and Sectors within and across nations, and thus enhance the efficiency of the design in achieving outcomes and objectives. The Monetization obtains, beyond a Prudence Monetize for the various Segments/Sectors, a Governance Dollop, and a Precinct ‘Efficiency Prize’. The global Monetize and the Bullion-reset obtain a natural and Sustainability-consistent re-equilibration of Gold prices, Segmental Budgets Sectoral PEs and FX. It introduces the reader to the possibility of a ‘Precinct Rights Economy’ linked to the concept of ‘Status-linked Consumption (and Externality) Rights’, even as it proposes a ‘Household Consumption Externality Coefficient’ HCEC-graduated LQ-incentive to subscribe to full-cost pricing of their Consumption baskets. Households are incentivized with the promise of a ‘OpCy RoW Resettle-House Bond Next LQ Offer-CC Lifetime PV Offer’ for subscribing to a lifetime ‘Full Cost-priced Consumption’ paradigm. Segmental and Sectoral entities obtain a CCS-increment for buying in to, and leveraging the Full-cost-priced Consumption of such subscribers. The strategy fast-forwards remediation of Consumption externalities even as it obtains an otherwise difficult-to-achieve coordination between the Producer and the Consumer. The design also proposes a strategy around a cumulating ‘CCS Premium’ that fast-forwards purchase of Carbon Abatement instruments and obtains early, significant resources. It integrates a global Environmental Sustainability Bond with globally-distributed Recycling and Externality abatement efforts, that is curated by an optional Bond-mediated Challenge to the veracity of Pollution Abatement/Recycling Certificates. It proposes a Local-RoW Financial market strategy designed around the Bullion and Sectoral Inflation Hedge Bonds to cancel and attenuate Corporate Externalities against Business Risks, diffusely distribute environmental risks as well as concentrate Business Opportunities. It imagines a residual, cross-Precinct PWGDA that is volatility-funded through the Bullion-Equity market with Sustainability deficits of the various other Segments and Sectors. Finally, it offers a ‘social heuristic’ to accompany the two-pronged Precinct LowTech-Commercial HighTech Recycling Biz that solves the Recycling quagmire across Time, Space and Socio-economic tiers.

Though subject to many caveats that encompass a) the number and definition of Segments and Sectors, b) subjective choice of variables, c) calibration of micro-coefficients and parameters, d) the creation of new indicators and prices, financial instruments, organizations and institutions, and e) a multi-laterally-consistent definition of Social Status across nations, the Proposal is recommended, post calibration, simulation, academic and capital market review, for implementation globally.