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Tax The Wind And The Sun

The winter holidays will be upon us before we know it. There will be Christmas trees and menorahs, eggnog and hot cocoa, and lots of excess packaging.

Municipalities will shoulder most of the cost of recycling all that packaging (though consumers will face the task of actually prying it open). The stuff inside the packages must eventually be recycled or otherwise disposed of, too, and that burden also falls mainly on local governments. But in at least one place, that may soon change.

John Gerretsen, Ontario’s environment minister, has proposed a plan that would require manufacturers to pay the full cost of so-called blue box recycling programs, which collect beverage containers, paper products, and some plastic and polystyrene containers from residential customers. Ontario is already piloting a program that requires manufacturers to add a recycling fee to the cost of small electronic devices in order to manage the costs of e-waste.

In the short term, Gerretsen’s plan would likely cut down on the quantity of disposable material that manufacturers produce. In the long term, it would prompt manufacturers to seek new ways to reduce the costs of recycling and disposing of their products and packaging.

The old system in which manufacturers impose some of their products’ costs on governments and society is what economists call an “externality.” An externality occurs whenever the cost of something is not imposed on the party that receives the benefits. Because municipalities were willing to do the dirty work of waste disposal for free, manufacturers did not have to build that cost into their prices. The manufacturers, therefore, had no incentive to ensure that their products and packaging could be easily recycled. Consumers, likewise, do not see disposal costs built into the prices of the goods they purchase, and therefore do not have an incentive to make less wasteful choices.

The separation of costs and benefits has produced centuries of environmental damage. Beginning with the dawn of the Industrial Revolution, manufacturers reaped huge benefits from increases in productivity, while communities near the newly industrialized plants suffered the consequences in terms of air, noise, and water pollution. That process continues today, especially in China and other developing regions.

In response, communities have learned to organize, fighting against developments that burden them with costs without delivering any benefits. Sometimes, the force of organized communities stops practices that harm all of us while benefiting only those perpetrating the harm (think Erin Brokovich). At other times, however, local objections halt projects that have the potential to be widely beneficial.

This is frequently the case with wind farms. Wind is an important source of clean, renewable energy. Harnessing the power of the wind would be good for everyone, not just for those who operate wind farms. However, while the benefits are distributed widely, the costs fall disproportionately on those who live near wind farms and transmission lines, and who must deal with noise pollution and eyesores that can reduce their quality of life and property values.

In politics, the squeaky wheel gets the grease. Communities near potential wind farm sites squeak much louder than those elsewhere who would benefit from the increased use of renewable resources. Everyone wants wind farms, but no one wants a wind farm in his own backyard.

A new invention offers a solution. In the new windmill, turbines will float on the ends of 300- to 10,000-meter cables. The eyesore towers will be eliminated, and the devices, which look like giant balloons, will be far enough from the earth so that noise pollution will be minimal or nonexistent. The new turbines are not yet ready for commercial use, but they could eventually be used both as individual units to replace diesel generators in remote areas and as components in multi-unit wind farms. By using the new high-altitude turbines, power companies could decrease the costs of living near wind farms, making wind power more available for all of us.

In the meantime, if we cannot lift the costs of wind power generation from the shoulders of those living near wind farms, we can at least ensure that those who bear the costs also receive a fair share of the benefits. Communities that play host to wind farms should receive monetary bonuses that can be used to improve area schools and other services. Providing this sort of local benefit can offset the not-in-my-backyardism that snarls and strangles many projects.

We need a way to ensure that benefits and costs fall in the same place, so that they can be fairly weighed against one another. Since we all benefit from a cleaner environment, it's up to the bodies that represent all of us, governments, to make sure that costs and benefits are fairly shared. We cannot simply give resources that belong to everyone, like the wind, to private companies without requiring that they do their part to pay the costs.

I think it is only a matter of time before governments get into the business of licensing (and taxing) the wind (and the sun, for use in solar energy farms). Though it may sound strange at first, this government control of public resources is a well-established way to allocate a fair share of development’s benefits, as well as its costs, to society.

Governments already license and allocate such public resources as radio frequency spectrum, wildlife (think of hunting and fishing licenses), and water. Severance taxes are charged for mining fossil fuels and other minerals. Proponents of wind and solar energy development should be among the strongest advocates for a similar tax and regulatory scheme in those industries. While it may add costs, it will provide a broader constituency to see that these resources are exploited sooner rather than later.

The true cost of making a product includes its disposal, and the true cost of generating wind and solar power includes compensating those who live near the generation and transmission facilities. Once we acknowledge those costs, we will be one step closer to finding innovative ways of reducing them and compensating those who bear their burden.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

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