Value Extracted Tax would drive green business

Governments need to undertake a complete overhaul of the tax system if they are to ever promote environmental best practices, according to controversial new proposals from unconventional Dutch entrepreneur Eckart Wintzen.

Speaking to an audience of investors and entrepreneurs at the Library House CleanTech conference earlier this week, Wintzen insisted that current tax systems built around income and value added tax were contributing directly to " ridiculous" environmentally unsustainable business models and that government's should instead tax based on the value a product extracts from the planet.

According to Wintzen, who founded global IT services giant BSO Atos Origin and now runs Ex'tent Green Venture Capital, governments have developed an almost surreal tax system where the highest taxes are levelled on manpower, where there is a big and renewable surplus of resources, while scarce and finite resources, such as oil and other essential raw materials, are hardly taxed at all.

It is this scenario where "our most scare resources cost almost nothing" that has led to the astounding profligacy of western economies, Wintzen argued. "If you buy a camera and it breaks you throw it away, because it will almost always cost more to fix it rather than replace it," he observed. "But in other countries where the material costs are high and the repair costs low you would get it fixed… We need to move towards a more services-focused economy, or what I call an immaterial economy."

He also argued that the low cost of resources had enabled a potentially dangerous level of globalisation that pays no consideration to the environment – a system where tomatoes that could have been grown with limited environmental impact in America are instead grown in heated greenhouses in the Netherlands and then flown to the US.

To tackle these environmentally damaging business models Wintzen proposes that Income and Value Added taxes should be replaced by a Value Extracted Tax (VET) which would be levied on all products and services based on the damage they have done to the environment and the cost of repairing that damage. Under the scheme, "every element, every mineral going into a product will be taxed".

A proposal for such a wide reaching green tax would cause many to balk at the complexity of imposing such a system, but speaking to GBN after his keynote speech Wintzen insisted it was perfectly feasible. He pointed out that scientific calculations for measuring the financial cost to the environment of different resources and processes were already well established and that companies kept all the records and accounts required to levy the correct tax. " Yes, it would be complex," he admitted, "but VAT is bloody complex… it would be no more complex than VAT."

Wintzen, who has already presented his idea to the Dutch finance minister and is "trying to get in touch with Al Gore" to talk about the plan, proposed that governments should begin the transition towards a VET system by forcing all firms to calculate and report on the environmental damage they do each year - something growing numbers of companies are doing already through CSR reports.

A universal labelling system - similar to that currently being piloted by the Carbon Trust - would then ensure that the environmental cost of each product is communicated to customers, before VET would then be gradually introduced as VAT and income tax were phased out, ensuring that the overall tax burden remains the same.

Wintzen accepted that gaining widespread political support for his proposals will prove difficult, particularly given that it ideally needs to be imposed right across the EU if it is to prove successful. However, he insisted that if such a tax regime were imposed it would resolve many of our environmental problems at a stroke.

"If all the damage done to the planet is paid for we would have a totally different economy," he said. "Products would change and environmentally damaging products would simply become unaffordable… if you repaired products that were broken rather than throwing them away you would get taxed less."

Realistically, Europe's finance ministers are more likely to agree to replace the euro with magic beans than they are to adopt Wintzen's drastic proposals. However, his plans have plenty to recommend them and he is right to highlight the absurdity of a tax regime that completely fails to discourage the consumption of scarce and strategically important resources.

Politicians would be advised to take a good long look at the idea of VET and in particular the way in which properly proportionate green taxes offer arguably the simplest means of forcing organisations to adopt environmentally sustainable business models.