Beyond market failure: a rationale for life cycle policymaking

Linked Sessions:

Poster Number:  06 

Main Presenter:    Stijn van Ewijk 

Co-Authors:   Reid Lifset                                               

Environmental policy analysis is traditionally informed by microeconomic theory and the market failure framework. However, this is not the only approach to environmental policy. Increasingly, governments apply life cycle thinking, which focuses on product life cycles (or value chains) instead of markets. Life cycle policymaking is rooted in a view of goods and services as product systems: the sum of processes from raw material extraction to end-of-life disposal that contributes towards the fulfilment of a specific demand.
Welfare economists have formulated a coherent rationale for intervention, which is widely used by governments and even codified in the legislative frameworks of some countries (including the US), but policymakers lack a comparable rationale for intervention from a life cycle perspective. In this study, we identify an analogous rationale for life cycle policymaking. The broader aim of the study is to equip policymakers with an analytical understanding of when and how to intervene based on life cycle thinking and evidence.
In a nutshell, the market framework postulates that under ideal conditions, the unobstructed operation of the market yields the best possible allocation of resources and thus the highest welfare. Market failures are deviations from the ideal functioning of the market, which lead to lower welfare. Life cycle policymaking is based on an altogether different starting point. It does not focus on markets, supply, demand, and prices. Instead, its starting points are product systems and material life cycles.
In our tentative definition, life cycle policymaking aims to intervene in one stage of the product life cycle to prevent or reduce harmful effects in another stage of the life cycle, often across space and time, based on an understanding of the systemic interactions across the life cycle. This type of policymaking aims to exploit leverage points in the product system, such as the choices of product designers, based on an understanding of the relationships between the flows of materials and energy.
We explain the rationale for intervention through life cycle policies with a focus on systemic leverage points, the multiple challenges of regulating across jurisdictional boundaries, and the role of hard life cycle evidence. To illustrate the application of the framework, we reflect on historical policy decisions through the lens of the new rationale. Our study provides a first step towards a coherent approach for deriving policy interventions from life cycle thinking and evidence, which can support a multidisciplinary approach to environmental policymaking.

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