An FV Finance-mediated Recycling Policy: A Proposal

An FV Finance-mediated Recycling Policy: A Proposal

Prasad Rao, MTech PhD., Director

AltKuznets Sustainability Advisors

director@altkuznetsadvisors.com

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Introduction

The global Nominal economy, with price-based competition and PE-based arbitrages in the Capital markets, has cumulated externalities in all three media. And though much attention focuses on Climate Change and its all too evident manifestations in Polar Melting, Forest Fires and Floods, the enlarging landfills of Plastics and other wastes are just as significant a concern for their multifarious impacts on Humanity and beyond. Conventional non-market and market-policies have had a limited impact on the enlarging crisis, and it is opportune to seek more drastic, innovative policies facilitated by technological progress in other fields, notably.

The Recycling Market

Recycling has assumed significant proportions in economies where competition implies cutting back on material and energy costs – both which constitute a large proportion of Costs for primary metals and certain primary materials. Recycling is most prevalent in metals where those costs are substantially saved for adopting secondary, recycled metals, and where those secondary products, despite their inferior quality, do not significantly impact upon Product quality and price. Consequently, the Recycling market has divided in to Metals, Plastics, and other materials. Whereas many metals are recycled commercially – with or without subsidies, technology limits the recycling of Plastics to HDPEs, LDPEs and PETs. Other metals and materials are technologically recyclable in to secondary products, but find no commercial buyers. Such recycled products must be subsidized to find favor in the cost structure of the potential manufacturing firms.

Yet another noteworthy feature is the crucial role played by Technology at both ends – in the recycling of Wastes in to Secondary products, and in the substitution of such Secondary products as manufacturing inputs in the upper tiers of the economy. Whereas Waste Recycling typically creates recycled Secondary products of various qualities that sell at quality-differentiated prices, Manufacturing Technology determines the degree of substitutability of Secondary, recycled materials for primary material inputs in the production process (and the differential between Secondary materials of acceptable and non-acceptable qualities). Primary and Secondary materials that do not substitute for each other due technological rigidity turn fungible upon the advent of Technological progress, and cause the price of Primary material inputs to shrink toward the price of Recycled materials. Thus, and in the limit Technological progress is favorable to Secondary materials, and unfavorable to Primary material Prices.

The Problem

The problem of Recycling, however, is much broader and complex. It encompasses umpteen wastes, of various forms, with various contaminants, and which are found in unsorted and diffuse, concentrated forms. Products intended for different end uses, as well as Manufacturing Technologies with limited capability to handle secondary materials of different qualities, imply that Recycling and Recycling Policy must be tailored, and specific to the context. However, Politicians and Economists often come out with broadbrush policies that neither recognize, nor take cognizance of such market- and end-use specific Recycling considerations. Consequently, those policies are misguided, oftentimes inefficient, and risk the total failure of well-intentioned voluntary activities and resources with substantial opportunity costs.

AltKuznets Advisors have, hence, preferred the financial route to solving the Recycling conundrum. Realizing the magnitude of financial resources that’d be necessary, AltKuznets has leaned on principles of FV Finance to dip in to Fiduciary Pots and Funds held by the Sovereign, to design a strategy that has the potential to comprehensively, and efficiently resolve the (non-)commercial recycling of Secondary materials jointly and in a quasi-pareto with the Primary Metal/Material industry. The following proprietary design is preliminary and subject to substantial revisions prior the delivery of a final report.

Leverage the Bullion Precinct Collateral

The Recycling Bond

If Subsidies are a primary mechanism to obtain the expansion of the Recycling economy, the same must be funded from an appropriate source. However, putting together such funds is often a daunting task due the scale of the manufacturing and recycling economies. AltKuznets proposes a design that overcomes this hurdle ingeniously by leaning upon Macro-FV Finance. The strategy constitutes a Recycling Bond that leverages the existence and Mint-sourced replenishment of a ‘Bullion Precinct 6G Deep Gold Collateral-Bullion Shallow Liened Gold’ toward its purposes.

Conceive of a Schumpeterian Recycling Bond that leverages the ‘Precinct Public 6G Deep Collateral – Shallow Private 3G3D Lien – Follow Global ZS Local 6D Capital. Constituted as an ‘SDRE Bond Environment Cause Future-OpCy Primary Value Added FV-SDRE Bond Now-CC Secondary Fungibility PV-Narnia OE Bakey Resource-Technology RawMaterial Schump BV-OpCy Technology End-Data EV-CC Technology Start’, the Recycling Bond would operate from the Bullion Annexe with SX$, ZS$, and SX$ GETFs that it issues on the Bullion Shallow-Liened Gold obtained with an SDRE Bond activated ‘Call’ on Deep Gold.

If the NGDP Bond obtained a ‘Sectoral M2’ to fund the dynamically-expanding Nominal frontier as an ‘OpCy Shallow Public 3G3D Mirror’ of the Deep Collateral, the Recycling Bond could stake a ‘Follow Secondary ZS Primary’ tranche, obtained by unliening Precinct Deep Gold to Bullion Shallow Gold toward administering a Schumpeterian Recycling strategy in the static economy. The Bond would issue, toward its purposes, a 3-faced ZS-mirrored Primary-Secondary GETF Currency, the PX$-ZS$-SX$. By the intents of the Bond, SX$ would be imbued with Future-BV, PX$ with Bakey-PV and ZS$ with Schumpeterian PVFV. Whereas the PX$ would incentivize value-addition in Primary metals production, the SX$ would subsidize non-commercial Recycling. The RawMaterial Schumpeterian ZS$, would incentivize Recycling-friendly Technology over technologies that exclude Secondary materials. The PX$, the ZS$ and the SX$ would not be tradable elsewhere in the economy, and redeemable only at the Recycling Bond counter.

The Nitty Gritty

The Recycling Bond would issue the PX$, the ZS$ and the SX$ to top tier Primary/Secondary material-consuming Manufacturers. Whereas the SX$ would be applicable toward exclusive purchase of Secondary materials from Recyclers and intermediaries, the PX$ would apply for purchases made from Primary producers. Whereas the SX$ paid Secondary Recycler would entirely cover the transaction value, PX$ transferred the Primary Producer would be proportional the $ Purchase price.

The SX

Top Tier Manufacturers, seeking to minimize costs and maximize profits, would apply SX$ toward the purchase of Secondary materials from Recyclers at various material/metal-specific (shadow) prices. The Recyclers would, in turn, be required to exchange those SX$ to their Shadow value in conventional PV$. Post receipt of SX$ from Recyclers toward exchange to PV$, the Recycling Bond would vet the SX$, capitalize the imbued incremental recycling in to the Recycling Bond NAV, redux the SX$, and return the underlying Gold back from the Shallow Lien to the Precinct Deep Collateral. Recyclers holding SX$ would be paid in PV$ proportional the ratio of Quantity to Price of Secondary Material (Qsec/Psec). The calibrating ratio would induce Recyclers to offer Recycled Secondary Material at bulk prices as a means to increment their Subsidy Take from the Recycling Bond.

The prevalence of commercially-viable Secondary materials complicates the design outlined above. Since it is not the intention of the Recycling Bond to subsidize competitive recycling and commercially-saleable secondary materials, the design enforces a price-calibrated delay in the redemption of SX$ to PV$. Incrementally higher-priced Secondary metals and materials would be exchanged to SX$ albeit after longer ‘Wait Periods’. The mandatory delay incentivizes Recyclers to increment Recycling efficiency, shrink margins, and quote lower prices on their recycled Secondary materials if only to obtain an earlier payment from Manufacturers who have the option to buy primary metals/materials, or commercially-saleable secondary materials.

The PX$

The PX$ obtains as a Monetary Incentive that Top-tier Manufacturers issue Primary Producers against transactions. Primary Producers could convert the PX$ to conventional PV$ at a rate proportional the ratio of Price over Quantity of the Primary Metal transaction (Pprm/Qprm). Consequently, Primary Producers would be incentivized to produce exotic and advanced metals and materials that sell in lower quantities, albeit at a high unit rate.

The ZS$

Unlike the PX$ and the SX$ that are issued to Top Tier Manufacturers with instructions to transfer to their Suppliers of Primary and Secondary raw materials, the ZS$ issued by the Recycling Bond would be retained by the Manufacturers. The ZS$ are meant to incentivize schumpeterian replacement of Manufacturer Technology. That is, the Manufacturer would be issued PV$ by the Recycling Bond upon submission of ZS$ in proportion the ratio of the Quantity of Secondary Materials to Primary Materials in its operations (Qsec/Qprm). Should the TechSchumpeterian Lumpsum be significant, Manufacturers would be incentivized to seek Technology and Equipment that permitted them to substitute Secondary material for Primary material and claim incremental returns to their Business from the Recycling Bond.

Data? Mine? How d....

Any scheme that operated across Sectors of the economy and involved transactions of primary and secondary materials, or that calibrated its Payouts based on confidential corporate information, must rely on a means of securing the underlying Data. Clearly, Data availability would be paramount to the operations of the Recycling Bond. Toward this intent, the Recycling Bond could distribute ‘Data AO End’ and ‘Data End OC’ Coins respectively at the bottom of the Primary Material vertical and the Secondary Material Vertical. These ‘Data End Coins’ would be activated from the bottom tier as they are traded up through the Vertical, and facilitate the Recycling Bond to distribute an ‘End’ within both the Primary Material and the Secondary Recycling Biz, albeit post the submission of relevant Data. Those responding to the incentives in the PX$, ZS$ and SX$ may apply the End to exit their respective businesses, thus obtaining a two-way pareto that is convenient to the goals of the Recycling Bond.

Specification of Bond NAV & Financial Closure

Any Bond-based macro-strategy grounded in finance must have a Source fund pot, a mechanism to allocate those funds, and obtain a financial equilibrium in the market consistent with Bond outcomes. The Deep-Shallow Gold strategy proposed here is easy to trace whether physically, or through the meta-GETFs issued on the Gold, and its eventual conversion to PV GETFs upon successful completion of Bond objectives. Toward such closure, it’d be necessary to a) specify an allocation mechanism that determines how many ‘meta GETFs’, SX$, ZS$, and PX$, would be issued on Bullion Shallow Liened Gold, b) what price to issue them at, c) how to determine the Bond NAV, d) how to obtain a dynamic formula that indicates the prices at which those mGETFs would be bought back at, and e) whether and how those mGETFs would be issued by the Bullion as PV GETFs.

The AltKuznets Proposal

The Strategy outline above, and offered commercially to Regulatory and Policy Institutions, as well as Corporates, is likely to bring about a significant change in the Recycling Scape of a Precinct or Nation. The grounding in Bullion Finance and Recycling Bond ensures that the proposed design is comprehensive and robust, and that it’d engender the correct incentives to the different players and niches in the market. Those incentives would be correct to market prices of primary and secondary materials, their current and prospective technological substitutability, and the ‘tunable’ conversion to PV$ offered by the Recycling Bond. The Bond would leverage the information in PX$, ZS$ and SX$, to capitalize on the appreciation in its formulaic NAV and close its finances with issual of PV GETFs, even as it obtains ground-up evolution in the Metal/Material Recycling and Corporate Sustainability. The Schumpeterian incentives are consistent with a technologically-advancing economy, and would propel Nations and Corporates in to the elite league characterized by strong Currencies and premium PEs.

AltKuznets proposes to research and publish a detailed report that expands on the design broached in this foreword. The Final Report, would touch upon the various elements of Macro-FV Design and the essentials of the Recycling Bond, and expand on the strategy outlined above, adding quantitative details that permit calibration and facilitate easy implementation of the Design. It’d, subject to Client interest and preferences, carry out simulations whether for the entire economy, a particular sector, or a Corporate. So informed of Policy details, and What-if Simulations, Public Institutions would be empowered to confidently propose and legislate Sustainability Policies, and Private Clients better chart a privately optimal course to Sustainability.