Wind Turbine Hush Money

In Oregon, the “whoosh, whoosh, whoosh” of wind turbines is being partly drowned out by another sound: “Hush, hush, hush….”

What are we to think when a company starts paying people substantial sums of money not to complain about the effects of their projects? Is that illicit hush money, or is it a company facing up to its impact and paying due compensation?

Here’s the story, by William Yardley, for the New York Times: Turbines Too Loud? Here, Take $5,000.

IONE, Ore. — Residents of the remote high-desert hills near here have had an unusual visitor recently, a fixer working out the kinks in clean energy.

Patricia Pilz of Caithness Energy, a big company from New York that is helping make this part of Eastern Oregon one of the fastest-growing wind power regions in the country, is making a tempting offer: sign a waiver saying you will not complain about excessive noise from the turning turbines — the whoosh, whoosh, whoosh of the future, advocates say — and she will cut you a check for $5,000.

“Shall we call it hush money?” said one longtime farmer, George Griffith, 84. “It was about as easy as easy money can get….”

The effects that a production process (such as a wind farm) has on people other than its paying customers are what are called “externalities” — effects that are external to some voluntary transaction. And in principle, compensating those who suffer externalities is the right thing to do — it means that a company (and its customers) are paying something closer to the full cost of production. Otherwise, externalities amount to a cost foisted on someone else involuntarily.

OK: so far, so good. The company involved here is attempting to (as an economist would put it) internalize its externalities, by compensating those affected by noise from its windmills. But what about the price set? Note that the price was an apparently invariable $5,000. Why? After all, different people are likely to be affected differently, and some will be more noise-tolerant than others.
So, why one price? According to the company, the reason is fairness:

“What we don’t do in general is change the market price for a waiver,” [Caithness Energy’s] Ms. Pilz said. “That’s not fair.”

Of course, equal payment for all is one version of fairness, but it’s not the only one.

One last theme to pick up on is the tension between what’s good for the individual and what’s good for society. The company involved, here, attempted to play the “social good” card:

Some people who did not sign said that Ms. Pilz made them feel uncomfortable, that she talked about how much Shepherd’s Flat would benefit the struggling local economy and the nation’s energy goals, and that she suggested they were not thinking of the greater good if they refused.

It’s a good rhetorical move on the company’s part, not least because there’s more than a grain of truth to it. A project of this size is bound to benefit the local economy (though perhaps not as much as locals might hope). Add to that the fact that this is, after all, clean energy that’s being produced, the kind of energy that most people now figure is essential to weaning us off our collective addiction to petroleum products.

So, let’s put this on the table as a fundamental truth: there are no centralized forms of energy production, clean or otherwise, that will not have a negative impact on anyone, and that hence won’t be subject to someone’s objections. So the question is not whether anyone will be negatively affected (or even merely inconvenienced), but rather who will be negatively affected, and how much, and what to do about it.

14 comments so far

  1. Wayne Norman on

    In other words, noise pollution is still pollution. Because clean energy *sounds* dirty, it is; to some extent. Bring on the noise-cancelation technology!

  2. Ray on

    So is the issue that the company is offering less compensation than the residents might be able to obtain from the company (or another interested party) in the future?

    If so, then doesn’t this come down deciding if the company and residents are on comparable footing to put a present value on their future interests/liabilities? The question of “who will be negatively affected, and by how much…” is tough to answer definitively, so in the absence of an authoritative answer, it seems that the main concern is that a weaker party isn’t being taken advantage of by a stronger (due to expertise, access to information, etc).

  3. nilknarf1940 on

    It would seem that the company in giving $5000. for a waiver is admitting possible liability and just because the person signs the waiver doesn’t mean that at some time in the future the person can say that the company was aware that there were negative effects of the noise, but that the person signing the waiver was not aware at the time of the long term effects of the noise and therefore has an action against the company.

    It’s sort of like hitting another car and saying that you were at fault and paying the other driver money on the spot to compensate for their loss, inconvenience, etc. Your insurance company and defense lawyer would roll over in their grave if you were to do such a thing.

  4. Chris MacDonald on

    I’m not a lawyer, so I won’t comment on the legal ramifications. But my own rule of thumb is never to assume that a large company that can afford good lawyers has simply done something stupid. Interesting question, though!

  5. Megan on

    I am a bit confused… The $5k is not compensation, it’s a bribe to ensure that Caithnes’ new 900 mega-watt wind farm that they hope is working within the next few years does in fact get approved. They are using the harsh economic conditions to practically steal farmers’ (and residents’)right to complain about any noise annoyances.

    How is this not illegal? I think it’s one thing to give them the money because they are suffering externalities or nuisances, it’s another to buy their right to voice complaints in the future regarding a wind farm that will be almost 10 times the amount of Mega-Watts produced.

    Beyond the obvious ethical issue here, I don’t understand how a company is legally allowed to pay a meager 5k when the value of their complaint is there future revenue stream…I must be missing something here, since it’s apparently not illegal

  6. Chris MacDonald on

    Megan:

    I’m not a lawyer, but my understanding is that giving people money is not generally illegal, except under specific circumstances — if they are judges or politicians or if you are giving them money to get them to do something wrong (e.g., to betray their employers). I don’t think the practice described here comes anywhere near the legal definition of bribery.

    As for ethics: well, it’s voluntary. No one is forced to sign. And the $5,000 doesn’t seem enough to count as coercive.

    Chris.

  7. […] Ethics Blog Round Up – 8/7/2010 In Capitalism, business ethics on August 7, 2010 at 5:33 pm Chis MacDonald has a new post about “wind turbine hush money.” Sounds like a catchy title to me. It seems that turbines are noisy and complaints could stifle the industry’s growth, so they are paying people what I consider a good amount of money to keep their complaints to themselves. You should read the post. […]

  8. Anil Kohli on

    On the face of it this cannot be a legal hand out. Handing out 5k should be seen as small change for a big corporation, which hope to rake in huge profits from this alternative source.

    Besides this noise level cannot be brought down, since wind striking the blades will emit this noise. Either the corporation can offer to relocate the affected families from that area, which again would entail higher costs.

    In the context of the country that I live in I would say this is better, than the option that we would face. Which is “Shut UP” or “Shift Out”

  9. […] working as waiters and the ethics of soccer balls. I’ve written about the auto industry, the wind industry, and the donut industry. I’ve written things that were pretty uncontroversial, as well as […]

  10. […] article here from Chris McDonald’s business ethic blog about companies voluntarily paying for […]

  11. John Prevoost on

    The hush money is not enough to buy the rights of a citizen to speak out about his condition. The writer of this blog erroneously assumes too much in his statement that this is for the “greater good.” He bases this assumption on the size of the project, which has nothing to do with benefits. The first question is whether industrial wind actually produces a beneficial product at any size. We know it does not. The fact that we have allowed a few “wise” men in a board room (the government) to pick the winners and losers is a dangerous proposition given the likelyhood they are making mistakes that will make us all suffer the consequences.

    Another issue is “internalization” of externals. That is all well and good when a company actually has to compete in a real world economy. Wind companies don’t compete, as they receive massive tax subsidies, so they don’t have any costs that are real. They live in a fantasy world of forced markets and gigantic government grants. The example of paying for the “real” costs doesn’t even apply since the companies don’t even have to foot the capital costs (66% paid by the government). That is not a real free economy by any stretch.

    Unfortunately most younger people do not recognize that greater good statement as a direct tenet of communism.

    America was built for the individual good not the collective. The Soviet Union was built as a collective. Americans have what we call individual sovereignty, as enshrined by Chief Justice John Jay in two supreme court decisions at the beginning of our country that set the entire scope of our juris prudence. We believe that when an individual rises to the top of his or her abilities, it is the best benefit for society.

    To allow the collectivist mentality to destroy the tenets of private property rights and use will be another destruction of the freedoms that allow us to prosper. People who are forced to live near these industrial zones are losing their property use and rights.

    A better solution to the private property use “externalization” argument would be to admit the true cost and force these companies to buy the property outright.

    • Chris MacDonald on

      John:

      Thanks for your comment, but I’m afraid you’ve misread my blog entry. I never said this project was for “the greater good.” I did note, however, that the company involved played that card. Perhaps that’s what you’re thinking of.

      As for internalizing externalities: as far as I can see, that is a good thing regardless of how competitive the market in question is. Foisting costs onto others, without their consent, is always prima facie a bad thing. Compensating people for imposing on them is good.

      Chris.

  12. John on

    If these mills produce similar Kilowatts as those in Bowling Green Ohio, that will be 6.9 Million KW per year per tower. Anyone look at their Electric Bill lately? What is it now, 9 or 10 cents per KW? That’s $689,000 per year. And they are paying landowners $7,000 per windmill? I think landowner’s should seriously consider just exactly how shrewd they are signing away their wind rights for 30 years or more for ONE stinking percent.

    • Chris MacDonald on

      John:

      You’re right that it’s good to do the math. But “ONE stinking percent” is the amount *per landowner.* A handful of landowners each getting 1% would quickly add up to a very substantial payout.

      Chris.


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