A huge fraction of the energy consumed by a modern industrial society is used indirectly to produce, supply, and transport goods and services; an allegedly “green” technological device that’s made from petroleum-based plastics and exotic metals taken from an open-pit mine in a Third World country, then shipped halfway around the planet to the air-conditioned shopping mall where you bought it, can easily have a carbon footprint substantially bigger than some simpler item that does the same thing in a less immediately efficient way. Dark Age America, John Michael Greer, 2016The sort of life-cycle analysis required to establish the environmental benefits or otherwise of shifts in our behaviour are bedevilled by boundary issues, measurement difficulties and the difficulty of weighting one type of environmental impact against another. They are better than blandly assuming that rail is ‘better’ than air travel, or that solar power is better than coal-fired power stations but, for the making of robust policy, they would need to be continually reassessed in the light of improving technology, our ever-expanding knowledge of the environment, and our ever-changing environmental priorities. Government policy cannot be so responsive: if government did use life-cycle analysis with the aim of altering our behaviour, it would probably do so on the basis of a one-time, one-size-fits-all, and possibly quite subjective assessment of environmental costs and benefits. It’s not good enough, but even worse would be what we largely have now: government environmental policy based on corporate interests, regulatory wrinkles, and 'feels-good' media stories and the launching of visually appealing initiatives that attract air time but otherwise achieve nothing.
Social Policy Bonds would take a different approach. They would subordinate environmental policy to targeted environmental outcomes. It might be, for instance, that society wishes to reduce its use of fossil fuels. A Social Policy Bond issue that rewarded achievement of such a reduction would generate incentives for bondholders to bring it about at least cost. They might well carry out life-cycle analyses in their attempt to do so. But there is an important difference between the way do they would conduct their research and the way government would do so: bondholders have incentives to achieve their goal efficiently. This is likely to mean responding to and stimulating: increased knowledge of scientific relationships, and technical advances.
More important, though, is that a Social Policy Bond regime would compel clarity over society's real goals. In this case, we'd have to answer the question: is reducing fossil fuel use an end in itself, or a means to other ends? And if the latter, what are those ends? Let's say those ends include, inter alia, improving air quality. Now, is improving air quality an end in itself, or is it the effects that air pollution has on human, plant and animal life that we really want to be targeting? And, if the latter, why not target these ends directly? There might be good reasons, involving the costs of monitoring, for targeting indirect means of achieving our goals, but we do need to keep these goals clearly in mind.
A Social Policy Bond regime would necessarily entail asking ourselves what are the real goals of, say, environmental policy. It would then contract out the achievement of these goals to those people or bodies - public- or private-sector - who, at any one time, will form that coalition that can most efficiently take us along the route towards achieving our goals. Even a perfect life-cycle analysis cannot do this: technology and our knowledge are changing constantly. Policy should therefore limit itself to articulating our environmental goals, and raising the revenue for their achievement.
Most of our important environmental goals will require diverse, adaptive responses. These are precisely the sort of responses that government does very badly. Government can and should articulate society’s environmental goals, and can help pay for their achievement: in the democratic countries it performs these functions quite well and, indeed, it is the only body that can do so. But actually achieving these goals requires continuous, well-informed and impartial decisions to be made about the allocation of scarce resources. For that purpose, Social Policy Bonds, with their incentives to achieve targeted outcomes efficiently would, I believe, be far better than the current ways in which environmental policy is formulated. For more about how Social Policy Bonds could target improve the environmental goals, see here.