Monday, August 25, 2008
By Dr.Edward Kutsoati
By the end of a typical business day in Accra, Ghana’s capital, tons of waste is generated, mostly from the plastic sachets that held drinking water at the beginning of the day. A large fraction of this waste ends up on the streets and in the gutters, creating huge sanitation problems. The cost of cleaning up the city of waste is growing, as is the business of producing water in plastic sachets. It seems that the best efforts of the Accra Metropolitan Authority to manage the problem – e.g., provision of waste bins, periodic clean-up exercises, and an occasional, non-credible threat to ban the sale of water in plastic sachets in the metropolis – have not been enough. A good solution to the problem remains elusive.
But interestingly, it is almost impossible to find a 50, 20 or 10p coin on the streets. And the reason is simple: It is money, and the first person to see the coin will pick it up. But will they also pick up the plastic sachet (or drop it on the street) if it had value? I think the answer is pretty obvious. The question however reminds me of the gentleman who took great pains to retrieve a 50p coin from a stinking gutter around Danquah Circle at Osu, Accra. I asked him if he would have bothered to pick up an empty plastic sachet from the gutter. His answer was clear: "No way, why would I do that?" But would he do it if that plastic was worth, say 10p? "Sure, if I were broke enough," he responded.
In an ideal world, with enough recycle capacity, this problem can be solved away by paying anyone who collects and returns the plastic waste to a recycle facility. In fact, I am told that such a facility exists in Accra, but it is woefully inadequate to handle the volume of plastic waste generated each day. An alternative approach is to levy an instant tax on those who litter the street. The idea is simple, and easy to implement. Basically, this will translate to a 2-tier price for sachet water: (i) a lower price of 5p (the current retail price) will apply if one drinks at the point-of-sale and leaves the empty sachet with the retailer; and (ii) a higher price of, say, 25p will be charged if you buy on-the-go. The difference of 20p represents the price of the "right to litter" the streets with an empty plastic sachet.
Working this price up the production chain will provide an incentive for retailers to charge the higher price, and not buck the policy. So, for example, at the top of the chain, a "pure" water producer shall be made to pay a refundable deposit of 20p to the city council for each sachet-water produced. The 20p will be refunded when the empty sachet has verifiably been returned to a city council approved waste site. In practice, however, the amount refunded will be determined by the weight of the plastics returned. To ensure that they can retrieve the empty plastics and pick up deposits, producers will in turn pass the 20p refundable surcharge to the retailer, who will in turn pass it on to those who buy to go. For those who drink and deposit the empty sachet at the spot, the retailer gets 5p plus an empty sachet which can be exchanged for a 20p cash when the producer’s delivery truck picks up the empty sachet. This way, even the young men and women, who hawk sachet water in the city, will carry larger bags along to retrieve the empties so they too can collect their refundable deposits. But those who buy to-go, pay the full 25p.
Elsewhere, a variant of such a tax has been used to successfully reduce the problem of plastic waste. For example, plastic grocery bags have been completely eliminated in Ireland with a small tax, and plenty of social stigma. Writing about the Irish experiment in the New York Times (Feb 2, 2008), Elisabeth Rosenthal notes that: "In 2002, Ireland passed a tax on plastic [grocery] bags; customers who want them must now pay 33 cents per bag at the register. There was an advertising awareness campaign. And then something happened that was bigger than the sum of these parts. Within weeks, plastic bag use dropped 94%. Within a year, nearly everyone had bought reusable cloth bags, keeping them in offices and in the backs of cars. Plastic bags were not outlawed, but carrying them became socially unacceptable — on a par with wearing a fur coat or not cleaning up after one’s dog."
A fundamental lesson in Economics 101 is that: People respond to incentives; everything else is commentary. Imposing a levy on littering the streets with plastic sachets will help to reduce the plastic waste in and around our cities. Put differently, the proposed policy cleverly shifts the cost of plastic waste management on to producers, who in turn pass it on to the final consumer. The more trash we reduce, the more money refunded to the producer, then the retailer, and ultimately, the consumer.
Dr.Edward Kutsoati, is Professor of Economics at Tufts University and a columnist of www.AfricanLiberty.org His email is edward.kutsoati@tufts.edu