Copenhagen 1996

ENVIRONMENTAL ISSUES SERIES NO. 1

ENVIRONMENTALTAXES Implementation

and EnvironmentalEffectiveness

Cataloguing data can be found at the end of this publication

Luxembourg:

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© EEA, Copenhagen, August 1996

Printed in Luxembourg

European Environment AgencyKongens Nytorv 6DK-1050 København KDenmarkTel: +45 33 36 71 00Fax: +45 33 36 71 99E-mail: EEA@EEA.DKHomepage: http://www.eea.dk/

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English editing:David Gee

Printing:

Luxembourg

The work of the EEA relating to the review andevaluation of environmental policy instruments

was accelerated in early 1996 when the Committeeon Environment, Public Health and Consumer Pro-tection of the European Parliament asked the EEAto quickly produce two overview reports on ‘greentaxes’ and on ‘voluntary environmental agree-ments’.

The ‘Mission’ of the EEA includes the ‘provision oftimely and targeted information’. This report on En-vironmental Taxes is targeted on policy-makingagents and the public and is timed to coincide withthe on-going work of the Commission on the ‘Com-munication on Environmental Levies used in Mem-ber States’. The report on ‘voluntary agreements’will be published towards the end of 1996.

Both reports are examples of the Agency’s state ofthe art and prospects reports which are intended tofeed the policy debates with the best available infor-mation. They are also intended to be accessible soas to encourage the wider involvement of Europeancitizens in policy development and implementation,thus enriching the ‘prior consultation process’ re-quested by Parliamentarians.

A great deal has already been written about greentaxes, particularly by the OECD, the Nordic Coun-cil and the European Commission, and the EEAneeds always to add value to existing work. Thisbrief report therefore focuses on the environmen-tal effectiveness of green taxes and on political bar-riers and solutions to their implementation. It alsotries to emphasise the value of non-energy taxes andto be accessible to non-experts.

One of the key advantages of environmental taxesis that they correct false price signals in the marketplace by incorporating the costs of pollution andother environmental costs into prices - a process ofboth ‘getting the prices right’ and implementing the‘Polluter Pays Principle’. This advantage of greentaxes was recognised by the Council in the conclu-sions of the Environment Council of 12 December

1991 which addressed a Community common plat-form for the UNCED 1992 :

“In order to reach the necessary reallocation of eco-nomic resources to achieve sustainable develop-ment, full social and environmental costs shouldbe integrated into economic activities so that envi-ronmental externalities are internalised. Thismeans that environmental costs and others relatedto the exploitation of natural resources in a sustain-able way and borne by the supplier country shouldbe reflected in economic activities. Economic andfiscal instruments could be among the measuresused to achieve this.”

Since then there has been an increase in the use ofenvironmental taxes but there is still considerablescope for their much wider use. We hope that thisreport will encourage more policy development andpolicy evaluation in this area. If the structuralchanges required by sustainable development areto be achieved then more comprehensive fiscal re-forms are needed to encourage ‘goods’ like employ-ment and to discourage ‘bads’ such as pollution andenvironmental degradation.

However, progress with environmental taxes re-quires changes at the EU level to allow greater har-monisation and compatibility between fiscal meas-ures, the internal market and key sectors like en-ergy, transport, and agriculture. There also needsto be easier means of getting majority political sup-port for fiscal measures, and perhaps the currentIGC process can provide the opportunity for this.

The Agency produced this report based on ini-tial drafts provided by Paul Ekins (Forum for theFuture, United Kingdom), Mikael Skou Andersen(University of Aarhus, Denmark) and Hans Vos(DHV Environment and Infrastructures, TheNetherlands). The project was co-ordinated byTeresa Ribeiro (Project Manager). Substantial ad-ditions and editing were provided by David Geeand Kai Schlegelmilch with support from KeimpeWieringa.

PREFACE

PREFACE 3

The report was reviewed by an Advisory Groupconsisting of two Members of the EEA ScientificCommittee - Frank Convery (University CollegeDublin), and Knut Alfsen (Statistics Norway) -and Jos Delbeke (EC-DG XI), Jean-PhilippeBarde (OECD) and representatives of the Secre-tariat of the Committee on Environment, PublicHealth and Consumer Protection of the European

Parliament. Additional technical consultation wasundertaken with the EEA National Focal PointEIONET Group and Klaus Thostrup (DG XXI).

I would like to thank the EEA project team andthe other contributors for their efforts in produc-ing this report in such a short time.

Domingo Jiménez-BeltránExecutive Director

4 PREFACE

PREFACE ................................................................................................................. 3EXECUTIVE SUMMARY ................................................................................................. 7Main Conclusions ...................................................................................................... 7Key Points ............................................................................................................... 8

1. INTRODUCTION ..................................................................................................... 13

2. WHY ENVIRONMENTAL TAXES? .................................................................................. 15

3. TYPES OF ENVIRONMENTAL TAXES ............................................................................. 21

4. WHO IS USING ENVIRONMENTAL TAXES? ...................................................................... 23Trends in the Introduction of Environmental Taxes ............................................................ 23Environmental Tax Revenues and General Trends of Taxation ............................................... 24Green Tax Reforms ................................................................................................... 25

5. DO ENVIRONMENTAL TAXES WORK? ............................................................................ 28Definitions of Effectiveness ....................................................................................... 28Review of Studies on Effectiveness .............................................................................. 29Findings................................................................................................................ 29Future Evaluation .................................................................................................... 32

6. IMPLEMENTATION: BARRIERS AND SOLUTIONS ............................................................... 33Competitiveness ..................................................................................................... 33Equity and the existing price and tax system. .................................................................. 36Legal, institutional and administrative aspects................................................................ 37The ‘Package’ approach to Competitiveness and Employment .............................................. 39Statements of some key stakeholders ........................................................................... 42

7. RECOMMENDATIONS FOR FUTURE ACTION AND RESEARCH ................................................. 43REFERENCES .......................................................................................................... 45ACRONYMS AND ABBREVIATIONS .................................................................................. 50

ANNEX I - General Trends in Taxation 1970-1990 ............................................................... 51

ANNEX II - Summary Details of reviewed taxes ................................................................. 52

ANNEX III - Some non-energy, environmental taxes............................................................ 62

TABLE OF CONTENTS

TABLE OF CONTENTS 5

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List of tablesTable 1 Summary of an assessment of selected environmental taxes ........................................ 10Table 1a Checklist for the successful implementation of environmental taxes ........................... 12Table 2 Estimates of the total external costs of road transport ................................................... 16Table 3 An indication of multiple environmental impacts of some environmental

taxes on 5th EAP environmental themes ........................................................................... 20Table 4 Evaluated taxes, their functions and effectiveness .......................................................... 31Table 5 Linked policy process and evaluation procedure ............................................................. 32Table 6 Carbon (or carbon/energy) taxes in five European countries and effective

tax rates after exemptions/reimbursements .................................................................... 35Table 7 Illustrative statements of some stakeholders on environmental taxes.......................... 42Table II.1 The reviewed taxes .............................................................................................................. 52Table II.2 Net payments and emissions reductions, by sector ........................................................ 57Table III Some non-energy, environmental taxes ............................................................................ 62

List of figuresFigure 1 A general illustration of the chronological development of environmental taxes ........ 22Figure 2 Taxes on Production Factor/GDP ..................................................................................... 25Figure 3 Taxes on Production Factor/Total Taxes ......................................................................... 25Figure 4 Taxes on Environment/Total Taxes .................................................................................. 26Figure 5 Taxes on Energy/Total Taxes ............................................................................................ 26Figure 6 Factor Taxes per Total Taxes ............................................................................................. 51

Although the 5th Environmental Action Pro-gramme of the EU in 1992 recommended thegreater use of economic instruments such as envi-ronmental taxes, there has been little progress intheir use since then at the EU level. At MemberState level, however, there has been a continuingincrease in the use of environmental taxes over thelast decade, which has accelerated in the last 5-6years. This is primarily apparent in Scandinavia,but it is also noticeable in Austria, Belgium,France, Germany, The Netherlands and the UnitedKingdom.

Evaluation studies of 16 environmental taxes havebeen identified and reviewed in this report. Withinthe limitations of the studies, it appears that thesetaxes have been environmentally effective (achiev-ing their environmental objectives) and they seemto have achieved such objectives at reasonable cost.Examples of particularly successful taxes includethose on sulphur dioxide and nitrogen oxides inSweden, on toxic waste in Germany, on water pol-lution in The Netherlands, and the tax differentialson leaded fuel and ‘cleaner’ diesel fuel in Sweden.

Most barriers to implementation, especially of en-ergy taxes, such as the potential negative impactson competitiveness; on employment, (particularlyon specific sectors or regions); and on low incomegroups can be overcome by:

careful design,the use of environmental taxes and respectiverevenues as part of policy packages and greentax reforms;gradual implementation;extensive consultation; and information.

The mitigation of potential negative impacts canbe ensured through the above measures, as recentexperience in Scandinavia has demonstrated. Theoverall competitiveness of countries may be im-proved by well designed taxes which can spur in-novation and stimulate structural change, thoughthe latter remains speculative.

EXECUTIVE SUMMARYMain Conclusions

As environmental concerns move from point-sourceemissions and problems, such as industrial emis-sions from pipelines and chimneys, to include moredif fuse and mobile sources of pollution, such assolid waste, or from the agricultural and transportsectors, there is increased scope for the greater useof taxes, as well as other market based instruments,at both Member States and EU level.

If environmental taxes are well designed and im-plemented to exploit the advantages describedabove, they could deliver improvements in fourkey areas of public policy:

the environment;innovation & competitiveness;employment, andthe tax system.

These are the main conclusions of a report on envi-ronmental taxes by the European EnvironmentAgency (EEA), requested by the European Parlia-ment. The report provides an overview of the mainissues involved in environmental taxes, with a par-ticular focus on their environmental effectivenessand on the political barriers to their implementation.It provides illustrative examples of environmentaltaxes only; comprehensive reviews are availablefrom OECD (1995).

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EXECUTIVE SUMMARY 7

Why environmental taxes?The main reasons for using environmental taxesare:

they are particularly effective instruments forthe internalisation of externalities, i.e., the in-corporation of the costs of environmental serv-ices and damages (and their repairs) directlyinto the prices of the goods, services or activi-ties which cause them; contributing to theimplementation of the Polluter Pays Principleand to the integration of economic and envi-ronmental policies;

they can provide incentives for both consum-ers and producers to change their behaviourtowards a more ‘eco-efficient’ use of resour-ces; to stimulate innovation and structuralchanges; and to reinforce compliance with re-gulations;

they can raise revenue which may be used toimprove environmental expenditures; and/orto reduce taxes on labour, capital and savings.

they can be particularly effective policy toolsto tackle current environmental priorities fromsuch ‘dif fuse’ pollution sources as transportemissions (including air and maritime trans-port), waste (e.g. packaging, batteries), andchemicals used in agriculture (e.g. pesticidesand fertilisers).

Types of environmental taxesIn order to facilitate measuring the effectivenessof environmental taxes they have been classifiedinto three main types, according to their main po-licy objectives:

cost-covering charges - e.g. designed to coverthe costs of environmental services and abate-ment measures, such as water treatment (usercharges) and which may be used for relatedenvironmental expenditures (earmarked char-ges);

Key Points

incentive taxes - designed to change the behav-iour of producers and/or consumers; and

fiscal environmental taxes - designed primarilyto raise revenues.

In many cases a mixture of these three functionscan be observed in practice.

The development of environmental taxes has ge-nerally been from cost-covering charges in the’60s and ‘70s, to combinations of incentive and fis-cal environmental taxes in the ’80s and ‘90s, andthen their more recent integration into ‘green taxreforms’, where taxes on ‘bads’ such as pollutionreplace some taxes on ‘goods’ such as labour.

Who is using environmental taxes?The current trends concerning environmental ta-xes (here divided into taxes on energy and otherenvironmental taxes) can be summarised as fol-lows:

environmental taxes, (non-energy taxes accor-ding to the European Commission classificati-on of DGXXI), represented only 1,5% of totalEU taxes in 1993; in only a few countries do en-vironmental taxes represent a larger proporti-on (Netherlands 5.1%; Denmark 4%); taxesclassified as energy taxes, however, represen-ted a larger proportion (5,2% for the EU on ave-rage) and up to around 10% in Portugal andGreece and 6-7% for Italy and the UK);

general trends of taxation since 1980 show anincrease in labour taxes and a decrease of capi-tal taxes, while the share of energy and envi-ronmental taxes remained relatively stable, witha slight increase in energy taxes;

although there has been little progress in im-plementing environmental taxes at EU level,considerable progress has been made at Mem-ber State level, particularly in northern Euro-pean countries;

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8 EXECUTIVE SUMMARY

several countries are currently implementingenvironmental taxes in ‘green tax reforms’, us-ing the new tax revenues to lower other taxes,such as labour taxes.

Do environmental taxes work?Table 1 summarises the results of the review andqualitative assessment of the small number ofevaluation studies available on environmentaltaxes. The main conclusions are:

the taxes evaluated revealed environmental be-nefits and, in most cases appear to be cost effec-tive within the constraints of the evaluationperformed;

Examples of particularly effective taxes arethose on Swedish air pollution; on Dutch wa-ter pollution; and the NOx charge and tax dif-ferentiation schemes for vehicle fuels in Swe-den.

incentive taxes are, in general, environmen-tally effective when the tax is sufficiently highto stimulate abatement measures;

a significant contribution to the environmen-tal effectiveness of the cost-covering chargesis provided by the use of revenues for relatedenvironmental expenditures.

Taxes can work over relatively short periodsof time (2-4 years), and so compare favourablywith other environmental policy tools, thoughwith energy taxes (as with some regulations),they can take 10-15 years to exert substantialincentive effects.

Evaluating a tax and its environmental impactis not easy. Taxes are often part of a policypackage that is hard to disentangle: thereforethe effectiveness of the tax ‘per se’ cannot al-ways be clearly identified.

In addition, taxes can have multiple environmen-tal effects and secondary benefits that could im-prove policy in four key areas - the environment,innovation and competitiveness, employment andthe tax system.

Political BarriersThere are several important political barriers tothe introduction of environmental, particularlyenergy, taxes:

the perceived impacts on competitiveness, andoften on employment, particularly in some sec-tors/regions;the perceived impacts on low-income groups(i.e. the poor may pay proportionally morethan the rich);perceived conflicts between national taxes andEU, or world trade, rules;the EU unanimity rule when voting on fiscalmeasures;perceptions that the taxes have to be high ifthey are to work;the perceived conflict between changing beha-viour (i.e. less tax) and maintaining revenues;existing subsidies and regulations etc. that pro-vide environmentally perverse effects; andother policies and cultures which negate or in-hibit environmental taxes.

This report finds that most barriers to implemen-tation can be overcome by:

the removal of environmentally perverse sub-sidies and regulations;careful design of the taxes and of mitigationmeasures;the use of environmental taxes and their rev-enues as part of policy packages and green taxreforms;gradual implementation;extensive consultation; andinformation.

EXECUTIVE SUMMARY 9

Instrument Environmental Incentive Remarks on overall effectivenesseffect effect

Fiscal environmental taxes

Sulphur tax (S) +++ +++ Average S-content of fuels dropped considerably (40 %) over 2 years and consequentlysignificant S emission reductions were achieved. Although being a fiscal environmentaltax, it had strong incentive effect, probably due to high tax rate.

CO2-tax (S) ?/+ ? Shift in district heating from fossil fuel to bio-fuels over 2 years; increased competitive-ness of combined heat and power production.

CO2-tax (N) + + ? Partial analyses indicate some effects such as reduction of total CO2 emissions of 3-4%in 2-3 years from a rising trend.

Tax on domestic + ? Some impact on acceleration of replacement of combustion chambers by one airlineflights (S) and on emissions generally over 1-3 years.

Waste charge (DK) ++ ? Evaluation ongoing; dramatic increase of reused demolition waste from 12-82% over 6-8 years ; and decrease in waste production; tax rate nearly doubles cost of waste disposal.

Incentive charges

Tax differential on +++ +++ Tax differential substantially contributed to phasing out of lead over 5-7 years;unleaded petrol (S) differential apparently covered additional costs of unleaded petrol production - strong

incentive effect.

Tax differential on +++ +++ Tax differential induced dramatic increase of market share of ‘cleaner’ fuel complying‘cleaner’ diesel (S) with stricter environmental standards in 3-4 years. Tax rebates for such fuels provide

strong incentives as they reduced production costs to a level lower than those ofstandard fuels.

Toxic waste ++ ++ Reduction in waste production of at least 15% in 2-3 years. Planned capacities forcharge (D) incineration were consequently reduced.

NOx-charge (S) +++ +++ Design and tax rate provided incentive for monitoring and abatement measures in liableplants contributing to reduction of NOx emissions by 35% in 2 years; successfulstrengthening of permit policy.

Fertiliser + ? One of the factors, within context of the agricultural reform policy, contributing to de-charge (S) creased use of artificial fertilisers over 5-10 years

Water pollution + + Tax-bounty system and sector contracts may have had some positive environmentalcharge (F) impacts over 10-12 years; revenues of charge are modest.

Water pollution + + Positive impact on applying for and issuing of lower-pollution permits. Earlycharge (D) announcement contributed to stepping up construction of wastewater treatment

capacity.

Cost-covering charges: user charges

Water pollution +++ + Charge created funds for rapid increase of treatment capacity; although the taxcharge (NL) incentive was low, use of the revenue for extending treatment capacity contributed to a

substantial improvement of water quality over 10-15 years.

Household waste + ?/+ Fairer distribution of costs of household waste management; variable rates may havecharge (NL) provided incentive for reduction of waste (10-20% less waste/head).

Cost-covering charges: earmarked charges

Battery charges (S) ++ 0 Charge renders recycling of Pb-batteries feasible; collection rate in 1993 was 95%(60% in 1989),; for other batteries effect is still unclear.

Aircraft noise + 0 Satisfactory in terms of fund-raising; allowed for covering cost of sound insulationcharge (NL) measures around airport

Legend: +/++/+++ = small/medium/high effect0 = absent or negligible effect? = unknown effect

1) The incentive effect evaluation is based on the evidence found on tax payers being encouraged to reduce pollution, mostly due to significantdifferentials between the tax rate and the cost of abatement measures (or a proxy). The environmental effectiveness is based on the evidence onenvironmental benefits derived from the tax. The question marks indicate lack of evidence.2) Brief details of each tax reviewed are included in Annex II.

Table 1: Summary of an assessment 1) of selected environmental taxes2)

EU compatibility and unanimity voting need to beaddressed.

The overall competitiveness of countries may beimproved by well designed taxes which can spurinnovation and possibly encourage structuralchange.

Recommendations1 Greater use of environmental taxesWhile the need to change production and con-sumption patterns has gained wide acceptancesince the Rio Summit in 1992, the report for thereview of the Fifth Environmental Action Pro-gramme (5th EAP) ‘Environment in the EuropeUnion 1995’ published by the EEA at the end of1995, concluded that, three years after the publi-cation of the 5th EAP “… most production and con-sumption trends remain unchanged…”. Environ-mental taxes, among other policy instruments,can help achieve such structural changes, bycorrecting price signals and market distortions.They should therefore be used more extensively.

The use of environmental taxes can be expandedin 3 main ways:

their extension to more European countries;

increasing their harmonisation and compatibil-ity at the EU level;

developing new tax bases, increasingly based oninput materials as well as on emissions, and ex-tended to new or expanded tax bases such aswater resources, minerals, hazardous chemi-cals, transport (air and maritime), land useand tourism. The physical resource flowsthrough the economy like energy, mineralsand the profits from land use could yield sub-stantial tax revenues for green tax reforms.

2 Careful design and implementationThe benefits of environmental taxes and the po-tential for their increased use is considerable, but

careful design and implementation is necessaryto realise these gains in practice. The box below,without pretending to be exhaustive, summarisessome points for the successful implementation ofenvironmental taxes.

3 More and better evaluationWhile the theoretical evaluation of environmen-tal taxation is a well developed field, adequateevaluations of practical experiences with such ta-xes is still comparatively rare. Consequently, deci-sion making processes may be impaired by lackof feedback information on the performance ofdifferent policy options. Improving this situationimplies increased evaluation efforts, greater avail-ability of reliable data, and evaluation mecha-nisms designed into the policy package. The needto integrate evaluation with tax design has beenrecognised by OECD, which has agreed on meth-odological guidelines for economic instrumentevaluation. (OECD 1996 forthcoming).

4 More research - especially of policypackages and externalitiesEnvironmental taxes often work best when partof a policy package aiming at addressing one (ormore) environmental problems, but the interac-tion of several policy tools is then complex. Fur-ther analysis and understanding of these issuescould be extremely helpful for future policy mak-ing. Particularly worthwhile would be the devel-opment of a framework addressing the potentialapplicability of different policy tools according toa typology of environmental problems.

Finally, in order to improve the design of environ-mental taxes, research is needed in areas suchas economic modelling and the evaluation of ex-ternalities, in particular in relation to their distri-butional aspects.

More research is clearly needed, but sufficient isalready known to justify much further policy de-velopment on environmental taxes.

EXECUTIVE SUMMARY 11

Checklist for the successful implementation of environmental taxes:

Studies in advance investigating the potential effects of the tax/policy package, in particular the calcula-tion of the abatement costs in each sector, equity implications; and the benefits and costs of improvingeco-efficiency.

Early and greater involvement of tax/fiscal authorities;

Extensive consultations with stakeholders and the public;

Early announcement of environmental taxes;

Their introduction within a policy package of complementary measures;

Gradual imposition of the tax;

Recycling of revenues to:- tax payers, e.g. for environmental measures, via rebates or investment incentives,provision of information and training;

- related sectors (e.g. some revenues of a waste tax going to the waste sector);

- reduce other taxes such as taxes on labour.

Increasing incentive effect, via:- gradually increasing the real price signal over long periods;

- gradually reducing exemptions;

Evaluation measures designed into the tax system.

12 EXECUTIVE SUMMARY

Table 1a

Environmental policy in the 1970s and early1980s was mainly driven by regulations - of

emissions, environmental quality, processes andtechnologies. Such regulations are often de-scribed as instruments of ‘command and control’.However, during the later 1980s and the 1990s theinterest of policy makers in more market-basedinstruments of environmental policy (for exam-ple, environmental taxes, tradable permits anddeposit refund systems) was stimulated by anumber of factors:

a new orientation towards markets and de-regulation in public policy;increasing recognition of the limitations ofgovernment in general, and of traditional‘command and control’ systems of environ-mental regulation in particular;increasing concern that regulations might notadequately cope with emerging environmen-tal problems despite imposing substantial eco-nomic costs;a desire to further implement the polluter paysprinciple and to ‘internalise’ such environmen-tal costs as pollution into the prices of goodsand services; and the need to integrate envi-ronmental policy into other policy areas suchas agriculture, transport industry, tourism andemployment;a need to find more cost-effective and flexibletools for achieving environmental progress.

These factors led to increasing official support forenvironmental taxes.

The purpose of this report is to provide an over-view of the use and implementation of environ-mental taxes, in particular in Europe. It brieflysets out the rationale for environmental taxes andidentifies the environmental themes towardswhich they are directed (Section 2). They arethen classified by purpose and motivation (Sec-tion 3). The report only looks at environmentaltaxes, and not at subsidies or other taxes that mayhave unintended impacts on the environment.

The report then provides an overview of the na-tional applications of economic instruments inindustrialised countries mainly within the EU(Section 4) based largely on the OECD reportsand surveys on economic instruments in 1987,1992 and 1994 (OECD 1989, 1994c, 1995).

Increasing support forenvironmental taxes

Some EU views on environmental taxes:

• The 5th Environmental Action Programme(EAP) ‘Towards Sustainability’ in 1992: “In orderto get the prices right and to create market basedincentives for environmentally friendly economicbehaviour, the use of economic and fiscal instru-ments will have to constitute an increasingly im-portant part of the overall approach. The funda-mental aim of these instruments will be to inter-nalise all external environmental costs incurredduring the whole life-cycle of products fromsource through production, distribution, use andfinal disposal, so that environmentally friendlyproducts will not be at a competitive disadvantagein the market place vis-à-vis products which causepollution and waste.” (EC 1992).

• The Commission’s Communication EconomicGrowth and the Environment: Some Implicationsfor Economic Policy Making (COM(94) 465 final):“In our economy, economic decisions are to alarge extent taken on the basis of price signals.As consumers adjust their purchase decisions toprice changes and companies determine productdesign, technological development and the or-ganisation of their production processes to a largedegree as a function of market prices, it is essen-tial that these prices correctly reflect the full costsand benefits to individuals and to society. ... En-vironmental taxes will prove to be one of the moreeffective policy responses in a significant numberof cases.”

• The Delors’ White Paper on Growth, Competi-tiveness and Employment in 1993: ”Finally, if thedouble challenge of unemployment/environmen-tal pollution is to be addressed, a swap can beenvisaged between reducing labour coststhrough increased pollution charges.” (EC1993,p.150)

1. INTRODUCTION

INTRODUCTION 13

Many economic instruments are still of recentorigin, so there are few systematic evaluations oftheir effectiveness. However, the relevant stud-ies are reviewed in Section 5. There may be con-siderable difficulties involved with the introduc-tion of environmental taxes and Section 6 ad-dresses these major issues such as the effects oncompetitiveness and equity, the possibility ofachieving a ‘double dividend’ through green taxreform, and related issues of design and admin-istration. Section 7 makes recommendations forfuture work on policy and research.

This report does not provide a comprehensivesummary of all green taxes, as they are well de-scribed in reports from the OECD and the Nor-dic Council (Nordic Council 1994 and 1996 forth-coming). However, it does provide an accessibleoverview of both the potential, and the implemen-tation difficulties, of environmental taxes, basedon some illustrative examples. Comments on theReport would be welcomed.

14 INTRODUCTION

The five main reasons for using environmentaltaxes are summarised below.

1. Bringing ‘Externalities’ into PricesThe main economic reason for using taxes inenvironmental policy is to bring the costs of pol-lution and other costs of using the environment-called externalities- into the prices of the goodsand services produced by economic activity. Suchpollution costs are called ‘externalities’ becausethey are side effects of the economic activity andtheir costs are not part of the prices paid by theproducers or consumers directly involved. Forexample, pollution from coal fired power stationshelps cause acid rain which damages soils, veg-etation, water and buildings belonging to peopleand countries who do not directly benefit from thepower station. And because the prices paid by thepower producers and consumers do not includethese ‘external’ costs, they give incorrect marketsignals, encouraging power production beyondthe level of economic efficiency for the economyas a whole. Similarly, the full costs of using a car,which include the use of land, air pollution, noise,accidents, congestion etc. are ‘external’ to the cardriver and not fully included in the price of carsor fuel.

When such externalities are not included inprices they create large distortions in the marketby encouraging activities that are costly to soci-ety even if the private benefits, for example, of cardriving, are substantial. Estimating the economicvalue of externalities is not easy but recent esti-mates of the external costs of road transport showthem to be large and rising, costing the EU anaverage of 4.2% of GNP (see Table 2).

An environmental tax tries to bring these externalcosts into prices (the ‘internalisation of externali-ties’) so that both social and private costs arebrought closer together. The better prices allow themarkets for say, transport or power production,to work more efficiently. This internalisation ofexternal costs will lead to a re-allocation of re-

2. WHY ENVIRONMENTAL TAXES?

sources of an economy according to ‘fair and ef-ficient’ prices by re-distributing the costs. (EC1992; EC 1995).

Environmental taxes also help to implement thepolluter pays principle, as they confront polluterswith the full costs of their polluting activity.

The externalities discussed so far are all negativeexternalities, being costs, but there are also posi-tive externalities where there are beneficial sideeffects of an economic activity enjoyed by thosenot directly involved in that activity. For example,forestry produces direct benefits for those invol-ved in planting trees, but forests also providebenefits to society in general by retaining rainfall,by absorbing the greenhouse gas, CO2, by bind-ing and maintaining the soil, by providing habi-tats for other species, and by providing beauty forsome people. And just as taxes can be used to in-ternalise negative externalities, so a subsidy to sayforestry can be used to internalise positive exter-nalities. (This kind of environmentally positivesubsidy, such as the Forestry Credits in The Neth-erlands, is very different from the negative subsi-dies on environmentally damaging activities suchas intensive agriculture or commuter car use).

It is important to analyse the distribution of exter-nalities i.e. who pays them, as well as who causesthem, in order to maximise economic welfarewhen designing environmental taxes. As with cartransport, it often appears that the poor, or leastadvantaged, pay most of the external costs of eco-nomic activity.

In practice, there is usually little or no agreed dataon the economic cost of externalities, or their dis-tribution, so policy makers fix the environmentaltax rate at levels they think will achieve their policyobjectives. (Baumol & Oates 1975/1988). In addi-tion to bringing full costs into prices, these policyobjectives can include encouraging ‘greener’ be-haviour and innovation, and raising revenue.

WHY ENVIRONMENTAL TAXES 15

16 WHY ENVIRONMENTAL TAXES

Table 2: Estimates of the total external costs of road transport (in billion ECU)

Country (year) Cars Buses M/cycles Freight Total Total (% Authorof GDP)

and Switzerland (1991) 164.2 9.1 20.9 56.4. 250.6 4.2 INFRAS/IWW 1994

Austria (1991) 4.9 0.2 0.5 1.0 6.6 5.0 INFRAS/IWW 1994

Belgium (1991) 6.5 0.2 0.6 1.3 8.7 5.4 INFRAS/IWW 1994

Denmark (1991) 2.1 0.2 0.4 1.0 3.4 3.2 INFRAS/IWW 1994

Finland (1991) 2.2 0.2 0.2 0.7 3.3 3.3 INFRAS/IWW 1994

France (1991) 22.8 1.2 1.8 15.0 40.8 4.2 INFRAS/IWW 1994

Germany (1991) 45.8 1.7 5.0 9.4 61.9 4.5 INFRAS/IWW 1994

(1994) <8.8 to 24.6 1.9- 9.9 10.7- 34.5 0.8- 2.5 Friedrich 1995

Greece (1991) 1.7 0.3 0.2 1.0 3.2 5.6 INFRAS/IWW 1994

Ireland (1991) 1.0 neg3) neg3) 0.5 1.5 4.2 INFRAS/IWW 1994

Italy (1991) 19.7 1.6 6.8 6.7 34.8 3.8 INFRAS/IWW 1994

Luxembourg (1991) 0.2 0.01 0.02 0.07 0.3 4.0 INFRAS/IWW 1994

Netherlands (1987) van der Kolk 1987

(1990) 2.9 < 0.7> 1.3 4.9 2.2 Bleijenberg 1994

(1991) 5.3 0.2 0.5 1.9 7.9 3.3 INFRAS/IWW 1994

Norway (1991) 1.6 0.1 0.2 0.4 2.3 2.7 INFRAS/IWW 1994

Portugal (1991) 4.2 0.3 0.5 0.4 5.4 9.8 INFRAS/IWW 1994

Spain (1991) 11.8 1.2 1.4 6.3 20.7 4.9 INFRAS/IWW 1994

Sweden (1991) 3.8 0.2 0.6 1.0 5.6 3.0 INFRAS/IWW 1994

Switzerland (1991) 3.8 0.1 1.0 0.8 5.7 3.1 INFRAS/IWW 1994

(1992) 2.0 1.1 Jeanreanaud 1992 1)

UK (1991) 26.6 1.5 1.4 9.0 38.5 4.7 INFRAS/IWW 1994

(1991) 30.0 3.7 Pearce 1993

USA (1992?) 110 2.1 Mackenzie 1992

(1994) (USD) 778 12.32) Litman 1994

1. Accidents, noise and air pollution damage to buildings only. Estimate of 7.7. Swiss centimes per vehicle kilometre multiplied by 50.3 billionvehicle km = 3.87 billion CHF.

2. This figure is much higher than the others because more externalities are taken into account.

3. Negligible

Source: Maddison et al. 1996, p.220.

Europe 17 inc. Norway

2. Incentive EffectAn environmental tax provides an incentive toavoid the tax by using, or generating less of, thesubstance being taxed. For example, if sulphuremissions are taxed then producers have an incen-tive to reduce the emissions by filtering etc. orby using materials and processes that create lesssulphur pollution. The tax that is paid will raiseprices to the consumer who also gets an incentiveto use less of the taxed product. Environmentaltaxes may be targeted directly on consumers,such as the tax differentials for leaded/unleadedpetrol, or on producers, such as carbon taxes, butin all cases they affect both consumers and pro-ducers by changing relative prices and thereforebehaviour. This is called the incentive effect ofenvironmental taxes.

However, because the price is only one factor thatdetermines economic behaviour, the success ofan environmental tax in achieving behaviourchange depends on the particular market for thesubstance being taxed. For example, if the use ofdomestic energy cannot easily be reduced be-cause of a lack of information and money for ener-gy efficiency measures, then raising the price ofdomestic energy with a tax may not induce much,if any, of the desired behaviour change. Similarly,if the use of cars cannot easily be reduced be-cause of the absence of competitive, safe and reli-able alternatives, like public transport or cycling,then raising the price of petrol with an environ-mental tax may not lead to reduced car use. Thisfailure of behaviour to respond to a price change(called an ‘inelastic demand’ by economists)means that either the tax has to be huge in orderto have an incentive effect (and this can then redu-ce economic welfare by over-taxing some groups),or that other measures are needed to tackle themarket resistance to behaviour change, such as

support for energy efficiency, for public transportor for cycling.

This is why environmental taxes work best whenthey are part of a policy package that addressesall of the main aspects of a market, and whichallows a modest price ‘signal’ from the tax to workwell. For example, the unleaded petrol taxes inEurope have been successful because they wereaccompanied by consumer awareness campaignsabout the brain damage to children from leadedpetrol, and by regulations, and sometimes tax in-centives, on catalytic converters, which only workwith unleaded petrol. However, disentangling thetax effects from the other elements in a policypackage is very difficult (see Section 5).

A key change in behaviour is to reduce pollution,and taxes can be a more cost effective tool for re-ducing pollution than regulations. This is becausemany polluters, even those with low pollutant re-duction costs, will often pay tax on the pollutionremaining after all their cost effective reductionmeasures have been taken. However, the tax pay-ments will provide a continuous incentive to lookfor new ways of reducing pollution, unlike regu-lations which provide no such incentive once theregulatory standard has been met. This dynamicincentive of taxes is one of the ways in which en-vironmental taxes help to minimise pollution con-trol costs and to encourage innovation.

3. Minimising pollution control costsA regulation on pollution control usually expectsall polluters to reduce their pollution by the sameextent, irrespective of their costs of doing so. Anenvironmental tax allows each polluter to decidewhether its cheaper to pay the tax or to reducepollution. Those polluters who face the highestcosts of pollution reduction will tend to pay moreof the tax whilst those facing low reduction costswill reduce pollution instead. The costs of achiev-ing any given level of overall pollution reductionwith a tax will therefore be cheaper than with aregulation. (In theory, a regulation could be ap-

‘Cars are not fair’“Yet the present system is also unfair: to thosewho cannot afford cars and who are driven on toinadequate public transport; to millions who livenear busy main roads and motorways; to childrenwho breathe in car fumes; to people who preferwalking or cycling; to our grandchildren who mayhave to cope with the effects of global warming.Changing our attitudes to the car will requireenormous political courage. But we cannot go onas we are” (The Independent, Extract from anEditorial, 19 May 1996 p. 20).

WHY ENVIRONMENTAL TAXES 17

plied differently to each polluter but the informa-tion and administrative costs of doing so wouldusually be too high.)

A review of studies comparing the expected costsof pollution reduction via regulations or via econo-mic instruments concluded that “these studiesgenerally show that there are substantial econo-mic gains from using a policy instrument whichwould efficiently allocate emissions reductionsbetween polluters, rather than the type of ‘equalabatement’ rule which frequently results fromconventional command and control regulation”(Tietenberg, 1990, quoted in OECD 1996 forthco-ming, p.27). The studies reviewed were theoreti-cal (or ex ante) studies and there is very little re-search on pollution control in practice (ex poststudies) to see if regulations are indeed morecostly than taxes. However, a forthcoming reviewof the efficiency and effectiveness of economic in-struments concludes that “Whilst the ex post evi-dence available cannot conclusively prove the effi-ciency of economic instruments, it is clear that itwould be substantially more difficult to demon-strate the alternative thesis, that regulatory ap-proaches are more efficient than economic in-struments” (OECD 1996 forthcoming, p.134.).Our review of the environmental effectiveness ofenvironmental taxes reinforces this conclusion(see Section 5).

Taxes may not always be as effective as regulati-ons. If the environmental effects of pollution arelocal to particular eco-systems, then even highpollutant reduction cost producers in that areamay need to be controlled, and a tax is a less cer-tain way of doing this than a regulation. And if agiven quantity of pollutant reduction is neededthen a regulation can usually deliver this morecertainly than a tax can.

However, in some cases tradable permits can alsodeliver given quantities of pollution control moreefficiently than regulations. This report does notcover tradable permits but the OECD review con-

cludes that the use of such permits to control airand water pollution in the US, or to manage fishstocks in New Zealand, Canada and Iceland, canbe effective (OECD 1996 forthcoming, p.134).

4. Encouraging InnovationIf the prices of fossil fuel energy, or water, orwaste are increased through environmental taxesthen this can encourage new ways of meeting ourneeds. Such innovation can lead to new technolo-gies, processes and products. For example, theUS tax on CFCs helped to encourage the devel-opment of substitute chemicals that were thenexported. Similarly, the Swedish tax on sulphur-ous diesel helped to encourage the developmentof new, less polluting fuels. Environmental taxescan therefore help to move our economies to-wards the more ‘eco-ef ficient’ use of energy andresources by raising the price of nature(Weizsäcker 1994 & 1996). Sustainable develop-ment seems to require large increases in ‘eco-effi-ciency’ (e.g. by a factor 10 - see the Carnoules De-claration, 1994). Such large scale structural chan-ges in production and consumption can be encou-raged by environmental taxes, especially if theirprice signals are gradual and predictable over thelong planning periods required by industry.

Given the uncertainty about the human and en-vironmental effects of many of our chemicals andother products, any increase in eco-efficiency thatenvironmental taxes encourages also helps to im-plement the ‘precautionary principle’. i.e. the re-duction of exposures to substances before thereis conclusive evidence of serious harm.

Any innovations that are encouraged by taxes canalso help improve competitiveness. The OECDconsiders these dynamic efficiency gains to be oneof the main advantages of environmental taxes(OECD 1996a, p.12).

5. Raising RevenueGiven that producers and consumers will prob-ably not cease entirely the activities that are be-

18 WHY ENVIRONMENTAL TAXES

ing taxed, the taxes and charges will raise revenu-es. These may be used to address environmen-tal problems directly; or they may be used to sub-sidise producers or consumers to shift to moreenvironmentally-benign activities, providing asecond incentive for environmental improve-ment; or they may be applied to other govern-ment purposes, allowing, for the same level of go-vernment expenditure, other taxes, for instanceon labour, to be reduced. In general, taxes on la-bour, capital and savings are often more costly interms of economic welfare than environmental ta-xes, so that a shift of tax burden from these acti-vities to environmental taxes increases economicefficiency and welfare.

This is because the taxes reduce incentives towork, save or invest. US data for example, showsthat each dollar raised in taxes costs about 20-30cents in lost economic output (Ballard, Shovenand Whalley, 1985). Environmental taxes are theonly taxes that do not have this ‘tax burden or dis-tortionary’ effect, and they actually increase ratherthan decrease economic welfare (Repetto 1992).This means that environmental taxes could beused to replace revenue from other more costly ta-xes on labour or capital. Shifting taxes from whatcan be called economic ‘goods’ such as labour andcapital, onto ‘bads’ such as pollution, is called eco-logical, or green tax reform (See Section 3).

Multiple Environmental Gains,Secondary BenefitsEnvironmental problems are inter-related. Oftena single pollutant will contribute to several differ-ent environmental problems. Reducing this pollu-tant is therefore likely to ameliorate several prob-lems, although exact effects will be hard to pre-dict with certainty. The 5th Environmental ActionProgramme (EAP) grouped key environmentalconcerns into environmental themes such as cli-mate change, ozone depletion, acidification, etc.In reviewing the 5th EAP, the EEA Report asses-sed environmental progress, and the key EU en-vironmental measures, against these themes

(EEA 1995, Chapter 4, pp.45-116, and Appendix1, pp.145-147). It will therefore be useful to seehow the main environmental taxes which havebeen introduced relate to these environmentalthemes.

Table 3 illustrates in a very general way some ofthe multiple effects which can be expected froma range of environmental taxes. Specific taxes aredescribed in more detail in the annexes II and III.

The level of an environmental tax should reflectthe severity of the environmental problem towhich it is directed. The fact that an environmen-tal tax can have beneficial effects on a number ofenvironmental problems should be taken into ac-count when the rate of the tax is being set, andwhen cost effectiveness is being evaluated. The‘multiple pollutant effect’ approach to environ-mental policy making, currently being developedby the EU and UNECE, is particularly amenableto such an integrated analysis of the impacts ofpolicy tools like environmental taxes. Of course,regulations too can have multiple impacts on se-veral environmental themes, but as mentionedabove, their incentive effects are usually more li-mited.

The Main Advantagesof Environmental TaxesIf environmental taxes are well designed and im-plemented to exploit the advantages and second-ary benefits described above, they could delivera ‘Double, Double Dividend’ for policy-makers byachieving improvements in:

the environment;innovation & competitiveness;employment; andthe tax system.

However, realising these gains in practice is of-ten difficult, as Section 6 illustrates.

WHY ENVIRONMENTAL TAXES 19

Table 3: An indication of multiple environmental impactsof some environmental taxes on 5th EAP environmental themes

5th EAP Themes Carbon/ CFC tax NOx tax SO2 tax Waste tax Tax on Tax Waste waterenergy/ Fertilisers differential chargefuel tax on leaded

petrol

Climate change • • • • • •Ozone depletion • •Acidification • • • • • •Air pollution /quality • • • • • •Waste management • • •Urban issues (noise) •Inland waters • • • • • • • •Coastal/ marine waters • • • • • • •

Legend: • • The main target of the environmental tax• Other environmental themes where the tax will have secondary benefits

For producers they may act as a spur to in-novation. When energy, water and raw ma-terials, as well as solid, fluid or volatile emis-sions become taxed, taxpayers will developnew modes of production, transportation, hou-sing, energy use and general consumption toreduce their tax liability. This helps to achievemore ‘eco-efficiency’; to implement the pre-cautionary principle; and to improve both sus-tainability and international competitiveness,where tomorrow’s products depend on to-day’s innovations.

They raise revenues which can be used directlyto improve the environment; to give others in-centives to do so; or to reduce other, morecostly taxes, such as labour taxes, with theobjective of increasing employment and over-all economic welfare.

Internalising external environmental costs isthe main reason for using environmental ta-xes instead of regulations. They incorporatethe costs of environmental services and dama-ges directly into the prices of the goods, ser-vices or activities which give rise to them. Thisalso helps to implement the Polluter Pays Prin-ciple and to integrate economic, fiscal andenvironmental policies.

They create incentives for producers and con-sumers to shift away from environmentally-damaging behaviour, especially if they are re-inforcing controls/permits and other ele-ments of a policy package.

They can often achieve more cost-ef fective pol-lution control than regulations.

1

2

3

4

5

Why environmental taxes?

20 WHY ENVIRONMENTAL TAXES

3. TYPES OF ENVIRONMENTAL TAXES

Policy instruments that rely for their effect onfinancial incentives rather than regulation are

often called economic instruments. The OECD(1989) survey, Economic Instruments for Environ-mental Protection, distinguished five categoriesof economic instruments: 1) taxes and charges,2) subsidies, 3) deposit-refund systems, 4) mar-ket-creation, and 5) financial enforcement incenti-ves. The 1989, 1994 and 1995 OECD surveysidentified taxes and charges as a major categoryof economic instrument in terms of impact andfrequency of application.

The definition of the terms charges, taxes, fees,duties and levies may differ between countriesand may even be seen as arbitrary. OECD (1995,p.7) says: “Defining the scope of the work is inevi-tably imprecise. Similar measures in differentcountries may be variously defined as taxes, char-ges, levies, fees or duties, and it is not the intenti-on to enter into semantic discussions of the bor-derline between these concepts.” Hence, this re-port adopts a simple classification of environmen-tal taxes that is based on their policy objectivesand which distinguishes between the main usesto which the revenues can be put. This classifica-tion is similar to that of OECD, 1989.

Types of Environmental Taxes

1. Cost-Covering ChargesThe earliest experience of environmental taxesarose from the implementation of traditional re-gulatory environmental policy. Regulating emissi-ons to land or water costs money. In accordancewith the polluter pays principle, it seemed appro-priate that the cost of regulation should be paidby those being regulated. Hence, the first categoryof environmental taxes, still important today, is thatof cost-covering charges, whereby those makinguse of the environment contribute to or cover thecost of monitoring or controlling that use.

Cost-covering charges can be of two types:

User charges, where the charge is paid for aspecific environmental service. Example:treating waste-water or disposing of waste.E.g.: the Dutch pollution charge.

Earmarked charges, where the revenue fromthe charge is spent on related environmentalpurposes but not in the form of a specific ser-vice to the charge-payer. Example: revenuesto finance recycling services. E.g. the Swedishbattery charge.

2. Incentive TaxesAn environmental tax may be levied purely withthe intention of changing environmentally dam-aging behaviour, and without any intention toraise revenues. Such a tax may be termed an in-centive tax. The level of an incentive tax can beset according to estimates of:

the cost of the environmental damage (Pigou1920);

what price signal will be needed to achieve theenvironmental objectives (Baumol & Oates1988).

Revenues are often used to further encourage be-haviour change via grants or tax incentives. Ex-amples are the Swedish tax on NOx and the Ger-man toxic waste charge.

3. Fiscal environmental TaxesIt may be that a tax will change, and be intendedto change, behaviour but will still yield substan-tial revenues over and above those required forrelated environmental regulation. Such revenuesmay be used to finance budget deficits; or shifttaxes away from high income taxes, or high non-wage labour taxes, towards taxes on the con-sumption of resources and environmental pollu-tion: here called ‘Green Tax Reform’. TheseGreen Tax Reforms often consist of energy taxes

TYPES OF ENVIRONMENTAL TAXES 21

and several other non-energy taxes like taxes onwaste, waste water, pesticides, fertilisers, and sul-phur etc. Environmental taxes designed mainlyto raise significant revenues are here called fis-cal environmental taxes. Examples are the CO2-taxes in Sweden and Norway.

Clearly these three types of environmental taxesare not mutually exclusive: a cost-covering chargemay have incentive effects, as may a fiscal envi-ronmental tax, or the revenues from a fiscal en-vironmental tax may be partially used for relatedenvironmental purposes. The motivation for thetaxes may even alter over time.

However, classifying by main intention helps withthe evaluation of effectiveness. Figure 1 illustratesthe general chronological evolution of taxes usedfor environmental purposes.

This report is concerned with taxes that are inten-ded to benefit the environment. However, many

taxes which were not introduced with the envi-ronment in mind nevertheless have an effect onit. Often this effect is unintended but it is no lessreal. For example, the taxation of energy that wasvery common in European countries before theenvironment was of concern, and which was mo-tivated purely by considerations of revenue, willhave reduced air pollution all the same. Similarlythe subsidies of the EU Common Agricultural Po-licy may be intended to support farming in mem-ber countries, but insofar as these subsidies bringabout the increased use of agricultural chemicals,and extend agriculture onto previously uncultiva-ted lands, they are a cause of environmental de-struction or degradation. Such taxes or subsidiesthat cause unintended effects are not the focusof this report. However, before considering new,environmentally motivated taxes it makes senseto see whether the environment can be improvedby rationalising the current tax and subsidy sys-tem. The OECD has recently reviewed the envi-ronmental impacts of subsidies (OECD, 1996b).

1970 1980 1990 2000

Figure 1:A general illustration of the chronologicaldevelopment of environmental taxes

Cost-c

overi

ng us

er ch

arges

Earm

arked

user

charg

es

Incen

tive t

axes

Fisca

l env

ironm

ental

taxe

s +

Green t

ax re

form

22 TYPES OF ENVIRONMENTAL TAXES

4. WHO IS USING ENVIRONMENTAL TAXES?

This section briefly reviews trends in the useof environmental taxes and in the share of la-

bour, capital, energy and environment taxes intotal taxes and GDP; and reviews recent experi-ences with ‘Green tax reforms’.

The rather limited progress in the use of econo-mic instruments at the EU level since the FifthEnvironmental Action Programme, 1992, and theDelors’ White Paper on Growth, Competitivenessand Employment, 1993, can sometimes give theimpression that these instruments have been mo-re characterised by discussion and rhetoric thanpractice. However, such an impression underesti-mates the significance of the developments thathave taken place at the national level during thelast 5-6 years.

In a number of countries the use of economic in-struments has spread widely, in particular in theScandinavian and the Benelux countries, but alsoto some extent in larger European countries suchas the UK, France, Italy, Austria and Germany.They have also started to be used in the transitio-nal economies in Eastern Europe, as well as inthe more advanced industrialised economies inAsia. The command-and-control approach estab-lished in the early phase of environmental regula-tion, following the Stockholm conference of 1972,is gradually giving way to a mixed policy ap-proach including the use of incentive- and mar-ket-based policy instruments. In transitional eco-nomies, such as Poland, Hungary and Estonia,environmental charges and taxes, despite manyimplementation problems, are seen as a promis-ing mechanism to integrate economic and envi-ronmental policies (OECD 1994a). However theircurrent, quite extensive use in Eastern Europe ishampered by inflation, economic disruption andweak enforcement (REC 1994). In Asian econo-mies with rapid industrialisation, such as Taiwan,Korea, Malaysia, Thailand and Singapore, market-based instruments have become frequently ap-plied, over the last five years, alongside traditionalcommand-and-control regulations (OECD 1994b).

At the EU level the Packaging Waste Directivehas provided scope for individual member statesto apply economic instruments in this field, untila more harmonised EU approach is defined. Har-monising tax policy in the EU is difficult. The EUis a supra-national institution in which the harmo-nisation of taxes requires unanimity among Mem-ber states, and while common environmental ta-xes, such as a Europe-wide CO2/energy tax,would represent a step forward in the integrationprocess, they have not received unanimous sup-port. The present efforts at the EU-level are thustargeted towards improving the conditions formember states that wish to use economic instru-ments (EC, 1996 forthcoming). However, the EUhas agreed upon minimum excise rates, and the-se are to be reviewed in 1996/1997 and this willprovide an opportunity for further harmonisation.

Trends in the Introduction ofEnvironmental TaxesThe OECDs’ first review of the use of environ-mental economic instruments in member countri-es (OECD 1989) identified about 150 instrumentsin use in 1987, or 100 if subsidies, purely admini-strative charges and liability are excluded (OECD1994c, p.22). However, the significance of theseinstruments was not very great. Only about athird may have had some incentive impact andthe OECD 1994 review concluded: “Basically,then, in 1987 environmental policies in the OECDMember countries were command-and-controlpolicies with some financial and economic add-ons” (p.177).

By 1994 the number of instruments had increa-sed by over 50%, with the most growth in productcharges and deposit-refund systems (the latterbeing outside the scope of this report). Moreover,five countries had introduced carbon or carbon-energy taxes (Denmark, The Netherlands, Nor-way, Finland and Sweden); four countries hadconducted a limited green tax reform (all previ-ously mentioned except Finland); eight had setup official Task-forces or Commissions to explore

WHO IS USING ENVIRONMENTAL TAXES? 23

further opportunities for such reform (e.g. Belgi-um, Denmark, Finland, Netherlands, Norway,Sweden, Canada); or for implementing environ-mental taxes in general; and a further six had an-nounced an intention to make an increased useof economic instruments in environmental policy(OECD 1994c, p.188). And the United Kingdomhad introduced a road fuel ‘escalator’ in 1993, ris-ing duties by an average of at least 5% per year inreal terms until further notice.

The purpose of the economic instruments waschanging too, with an increase in the incentivefunction. In 45% of cases, the instruments appear-ed to have been designed for an incentive effect,although in most cases there was little or no evi-dence about whether the incentives were work-ing.

It is clear that, at the national level in OECD coun-tries, economic instruments in general, and en-vironmental taxes in particular, are commandingmuch greater attention than they were 5 or 6years ago. Given that the factors described inSection 2 which stimulated consideration of envi-ronmental taxes are as relevant now as they werethen, further action on environmental taxes maybe expected.

For example, the introduction of environmentaltaxes on a regional and local level appears to beincreasing. This has happened for example in ma-ny German towns, where a levy on packing mate-rial was introduced (the first was Kassel in 1994).Other examples are the reported water charge inthe Netherlands (and also elsewhere, see Section5), a tourism tax in Tyrol/Austria, and seweragecharges in Catalonia/Spain.

Environmental taxes might also play a more im-portant role in future because of the erosion of ot-her tax bases, such as capital, that has taken placeduring recent decades and which is likely to con-tinue. Meanwhile expenditures have increaseddue to an increasingly costly and ageing populati-

on and the tasks of a welfare state. Governmentsare seeking ways of compensating for these ten-dencies, having recognised the limitations of fur-ther taxes on labour.

The other major developments since 1989 are thefailure of the US Government to introduce its pro-posed BTU tax in 1994, and the failure so far tointroduce the EU-wide carbon-energy tax, propo-sed in 1992.

Environmental Tax Revenuesand General Trends of TaxationThe following figures show the development oftaxes on the four production factors of labour, ca-pital, energy and environment in the 15 MemberStates of the EU. Data are available for 1980 and1993 only.1) The figures give an impression of thepotential for the introduction of green tax re-forms.

In the period 1980-1993 total taxes in the EU 15(as percentage of GDP) have increased from 38%to 42% (see Figure 2). What were the main under-lying trends? As shown in Figure 3 taxes on la-bour is the main source of taxation (about 50%):this share has have been stable during the period1980-1993. Capital was the second importantsource for taxation (almost 20%), but this hasbeen declining. The share of taxes on energy andenvironment was relatively small in 1993 (5.2%and 1.5% respectively, Figure 3) but it is risingslowly.

1) The taxes were assigned to the production factors labour,capital, energy and environment. The assignment was dis-cussed and agreed upon in several meetings of experts andacademics from all Member States in 1994 and 1995, co-or-dinated by the Task Force on statutory contributions andcharges within DG XXI (Customs and Indirect Taxes). Thistask force publishes its results in Eurostat 1996. These tab-les are based on statistics provided by Eurostat 1995. Butsignificant shifts in taxation took place after 1992/3, whichwill not be reflected in the figures.The work is based on a study by Jarass/Obermair 1993/4(see Annex I).

24 WHO IS USING ENVIRONMENTAL TAXES?

Two general observations can be made.

It is too early to appraise the Delors’ White pa-per (1993) recommendation on shifting taxesoff labour and on to energy and pollution.

The increase of energy and environment taxesis significant compared to labour and capitaltaxes. The latter two are directly linked withgeneral GDP growth, which means that GDPgrowth will normally lead to higher taxes oncapital and labour. This is not the case for taxes

1

2

on energy and environment due to their de-coupling from GDP. For example energy con-sumption and waste production - two impor-tant sources for taxation - show a smaller in-crease than GDP growth. A more active fiscalpolicy is needed just to keep their shares of to-tal taxes. In addition, environmental taxes areoften based on quantity instead of on pricesand can erode in real terms, due to inflation.Linking these taxes to an index, e.g. the consu-mer price index, would give more predictableand less arbitrary price signals.

The following Figures 4 and 5 show the share ofenvironmental and energy taxes as against totaltaxes for each Member State of the EU 15. Asfar as any conclusions may be drawn from thesefigures southern countries had sharp increasesof energy taxes, while those of other countries in-creased only moderately or even declined. Withenvironmental taxes the picture is more varied.

As indicated earlier the work of DG XXI is basedon a study by Jarass/Obermair 1993/1994. Sincesome inconsistencies and contradictions appearbetween the figures of DG XXI and Obermair/Jarass (Annex I) a manual has been developed byJarass/Obermair (1996) on behalf of DG XI (En-vironment) and Eurostat, in which a consistentway of assigning the taxes to the various produc-tion factors is proposed. This manual was devel-oped in co-operation with experts from DG II, DGXI, DG XXI, Eurostat and several Member States.It may serve as a common basis for future assess-ments of tax developments.

Green Tax ReformsThe general trends in taxation show no or only asmall increase of taxes on energy and the environ-ment. However, several countries aim to shift partof the tax burden away from distorting taxes onlabour or capital, and onto on energy and the en-vironment. The recent experiences of Sweden,Denmark, Netherlands and Norway are brieflydescribed on page 27.

Figure 2

Figure 3

WHO IS USING ENVIRONMENTAL TAXES? 25

Figure 4 Figure 5

26 WHO IS USING ENVIRONMENTAL TAXES?

DenmarkAn essential part of a major tax reform passed in 1993 was the redistribution of taxes from labour to natural re-sources and pollution. The reform provided for marginal income taxes to be lowered by about 8-10 per cent from1994-1998, and for the phasing in of new green taxes worth DKK12 billion. Increased gasoline and energy taxesaccount for the greater part of the increased revenue, but about 1/3 arise from an increase of the waste chargeand a new water supply tax (Andersen 1994b).

Denmark had already introduced a CO2 tax in 1992, also on industries, and with effect from 1996 this tax is in-creased considerably. The new tax shift is based on the principle of revenue neutrality, and the revenue from theincreased CO2 tax is returned to industries, e.g. by means of a lowering of social security contributions and forenergy savings purposes. The government has signalled its intention to analyse the possibilities for a further taxshift (MOF 1995).

SwedenSweden was the first country to implement a tax shift from income taxes to taxes on energy and pollution. Al-though an energy tax had been imposed since 1974, a new CO2 tax was introduced in 1991 together with the im-position of VAT on energy. In addition environmental taxes on NOx and SO2 were introduced (Sterner 1994, OECD1994d).

The tax shift was an important component of a larger tax reform. The total redistribution of the tax burden wasequivalent to 6 per cent of GDP, while the tax shift between labour and energy accounted for 4 per cent. The back-ground for the tax reform was first of all the need to lower high marginal tax rates on labour income, but climatechange also played an important role. With the CO2 tax Sweden intended to set a good example for other coun-tries to follow.

At the time when the reform was undertaken it was expected that more countries would soon introduce carbon-energy taxes or similar measures on industrial energy use. The Swedish government gradually realised that thiscould take a long time, and in 1992 the energy tax burden was partly shifted from industry to households. TheCO2 tax was reduced to 25 per cent of the normal rate and the energy tax component was abolished, but the taxburden was not shifted back to labour. Instead carbon-energy taxes on households were increased. Reflecting therecent more widespread practice of carbon-energy taxation, the Swedish parliament has recently proposed toincrease the CO2 tax to 50 per cent of the original level.

But also several non-energy taxes have been applied like taxes on fertiliser and pesticides, beverage containersand batteries. A tax on HC and NOx has been levied on domestic air transport since 1989.

In spring 1995 a parliamentary commission was established to evaluate the existing system of energy taxes andenvironmental charges, and to see whether there is potential for another revenue-neutral shift of the tax burden.

The NetherlandsThe Netherlands’ Green Commission was established by the State Secretary of Finance in 1995, to prepare pro-posals for a greening of the tax system which could come into effect within the next two years. The Green Com-mission consists of senior politicians, high-ranking civil servants, university professors and representatives fromtrade, industry and non-governmental organisations (NGOs).

The Commission has prepared three reports, of which two already have been released. The first report, releasedin late 1995, reviewed existing tax arrangements in particular in the transport sector, and recommended to changethese, e.g. by reducing the purchase tax on fuel efficient private vehicles. The second report, released in spring1996, investigates the possibilities for raising existing environmental taxes, and concluded that the role of energytaxes is pivotal in this respect. It also recommends deductions for environmentally friendly investments. In thisrecent report, it was evaluated that the CO2-tax, in existence since 1980 in several forms, reduced the nationallevel of CO2-emissions by 1% in 1994 (Dutch Commission 1996). A third and final report, to provide a more long-term proposal for a greening of the tax system, is expected in autumn 1996.

NorwayA Green Tax Commission, established by the government, has been working since 1994 to review the relation-ship between different systems of taxation, and will submit its final report in mid-1996. The intention is to pro-pose changes in the present tax system, giving it a more ‘green’ profile. The Commission consists of high-rankingcivil servants, the social partners, NGOs and members of the academic community. Statistics Norway is also rep-resented and plays a key role in modelling the effects of a tax-shift.

The Commission has applied a broad approach, and analysed distortions of present taxes as well as ‘green’ taxesproper. Subsidies, also termed ‘negative green taxes’, have been under particular scrutiny. Norway’s CO2 tax whichwas introduced in 1992 is presently one of the highest that is applied to industries, and the ‘first mover’- role of Nor-way is also under discussion in the Commission. Preliminary calculations produced for the Commission indicatethat there may well be further room for unilateral action (a NOK220 increase of the CO2 tax per ton) in terms of arevenue-neutral tax shift, without harming the employment or competitiveness situation. Measures assume a bind-ing climate agreement and that other countries sooner or later follow suit. The Commission is also analysing thepossibilities for a ‘double dividend’ from unilateral action (Moe 1996 forthcoming).

5. DO ENVIRONMENTAL TAXES WORK?

This section defines effectiveness; summarisesthe findings of the 16 available studies of en-

vironmental effectiveness, and recommends im-provements to the evaluation of taxes.

Definitions of EffectivenessTaxes might be called effective if they do whatthey are supposed to do. In theory, environmen-tal taxation should attempt to improve the mar-ket efficiency of the environmental goods and ser-vices by imposing a price on such goods equal tothe marginal costs of their use (marginal environ-mental damage costs). If authorities manage tocalculate these costs, environmental taxation isinherently effective, provided that no other majorimperfections distort the relevant markets. Goodknowledge of marginal environmental damagecosts is an exception, however. Only one exampleis known where authorities are explicitly basingthe tax rate on an estimate of these costs2).

As shown in the definitions in Section 2 environ-mental taxes can have different functions:

cost-coveringincentive effects; andrevenue raising.

For these functions, the concept of ‘environmen-tal effectiveness’ needs to be defined. For asses-sing the effect of taxes, two criteria may be sub-stituted for the theoretical criterion of equality oftax rate and marginal environmental damagecosts:

The effect of the tax on environmental pollu-tion or the use of scarce resources (environ-mental ef fect);A comparison of the tax rate with the marginalpollution abatement costs, or, as a proxy, av-erage abatement costs of measures, taken bytax payers (incentive ef fect).

1

2

2) The UK landfill tax, to be introduced in October 1996

These criteria can be used to assess a similar im-pact in different ways. The first criterion directlyattempts to trace the contribution of the tax to themonitored pollution reduction, whilst the secondcriterion endeavours to establish incentives forthe taxpayer to change their behaviour in a waymore favourable to the environment often byadopting abatement measures or by saving onscarce resources.

Pollution reduction goals are often not set expli-citly, or price incentives are not explicitly inten-ded. This may be the case for all types of taxes,but especially for fiscal environmental taxes andfor cost-covering charges. This makes evaluationmore difficult, and qualitative rather than quan-titative.

Assessing the cost-effectiveness of policy instru-ments is even more difficult. As data is usually de-ficient, no such evaluation is attempted in this re-port. However, some overall observations on po-licy effectiveness are made in Table 1 (see Execu-tive Summary). In evaluating the environmentaleffectiveness of taxes their functions need to betaken into account.

The main function of fiscal environmental taxesis raising income for government expenditures.Environmental effects are a side effect. However,positive environmental impact may be expectedbecause of the price effect on behaviour. Conse-quently, evaluating the environmental effective-ness of this type of tax involves examining the en-vironmental effects, e.g. in terms of pollution re-duction.

Incentive taxes are designed to achieve a specificenvironmental impact. So the evaluation of envi-ronmental effectiveness includes comparing pol-lution reduction targets. It also involves measur-ing the incentive effect by comparing the differen-tial between the tax rate and the cost of pollutionreduction.

28 DO ENVIRONMENTAL TAXES WORK?

Cost-covering charges are primarily designed toraise funds for financing specific environmentalsystems, measures or programmes. Two typeshave been defined:

the user charge andthe earmarked charge.

In both cases, funds raised are a major objective,so effectiveness evaluation involves assessing themoney available for carrying out the environmen-tal measures or programmes. However, cost-co-vering charges may also have an incentive impactif charge rates for cost recovery reach substan-tial levels3). Incentive effects are sometimes ai-med for in cases where formerly fixed rates forcertain environmental services were differenti-ated according to the level of the service ren-dered4).

Review of Studies on EffectivenessDrawing firm conclusions about actual environ-mental effectiveness of green taxes depends onthe availability of ex post policy evaluation studi-es. The study for the OECD concludes that thereis little tradition in policy evaluation (OECD 1996forthcoming). A practical reason is its complexi-ty. These studies normally have to cope with diffi-cult methodological problems as well with prob-lems of data availability. Ideally they should alsobe independent of the institutions responsible forthe design and use of the taxes.

Methodological issues include disentangling thetax effects from other elements in the baselineand the policy package and answering and thecounter-factual question ‘What would have happe-ned without the tax?’. For these purposes a recon-struction is needed of all the relevant economic,

3) This has been reported by several authors who examinedthe Dutch water pollution charge.4) Variable charge rates for household collection (e.g. “pay-per-bag” schemes) are an example.

environmental and societal factors and their mu-tual relationships in a quantitative or qualitativedynamic model. The reinforcing or possibly coun-teracting effects of other regulations on the taxscheme must be taken into account. New taxschemes almost always enter a policy field al-ready crowded with other players: permits, stan-dards, bans, agreements, etc., so isolating the ex-act contribution of the tax scheme requires an in-depth study which is rarely done: An exceptionis water pollution charges (Andersen 1994a).More such studies are needed.

Data availability plays a crucial role in policy eva-luation. Data is often difficult to retrieve retro-spectively; it may not have been kept longenough, or is not detailed enough, or is simplynot suitable because it has been collected for ot-her purposes, such as tax registers. Reconstruc-tion can be a laborious job.

The time factor is also crucial in evaluation. Bothtaxes and regulations can take up to a decade ormore to be effective so the time periods estima-ted, and needed in practice, to achieve a given le-vel of impact need to be included in tax design andimplementation.

Despite these difficulties a number of evaluationstudies of environmental taxation have been con-ducted, of varying quality and independence, butcovering sixteen environmental taxes, applied inat least six countries. However, judgements aboutthe performance of green taxes remain at thelevel of best guesses.

FindingsTable 4 summarises the main findings in termsof effectiveness of the taxes/charges (environ-mental effectiveness and incentive effectiveness).Within the limitations discussed earlier, Table 1(see Executive Summary) tries to give an additio-nal qualitative assessment of the effectiveness ofthe taxes, and adds some remarks on the functio-ning of the taxes.

DO ENVIRONMENTAL TAXES WORK? 29

The diffusion of taxes over various environmen-tal policy fields is wide-spread. Such instrumentsare found in water and air quality policy and inwaste management. Their role in noise abate-ment policy is marginal. Annex II provides moredetails on the reviewed taxes.

Half of the taxes/charges considered in this re-port were reviewed in a Swedish policy evalua-tion study. Water pollution charge systems(France, Germany, the Netherlands) have beenreviewed quite thoroughly. A number of studies- on the Danish waste charge, the Dutch wasteand groundwater taxes and the Swedish environ-mental taxes - are pending.

As far as environmental effects are concerned, in-centive charges and fiscal environmental taxes onair quality in Sweden, and on water pollution char-ge in the Netherlands have worked well. The taxdifferentiation schemes for fuels have been par-ticularly successful, as has the Swedish NOx char-ge. For the CO2 taxes reviewed to date (Swedenand Norway) positive impacts have been found.

The incentive ef fect of taxes has been studiedin a few cases only. It appeared from the Swe-dish evaluation study that the tariffs on sul-phur dioxide and nitrogen oxides were at lev-els which encouraged less polluting coursesof action. In the water pollution charge sche-mes provisions for financial assistance werereported to be of great importance for adop-

ting wastewater treatment measures (France,Germany, the Netherlands). In the Dutch casethe charges themselves were found to exertan incentive effect due to high charge levels.

Incentive charges are of a variable nature. Asshown in table 4 several taxes like the SwedishNOx charge and the German toxic waste char-ge, are functioning quite well. Most of theschemes also have a fund raising capacity. En-vironmental effectiveness then is the resultantof incentive and revenue raising effects. Thisis reported to be positive to variable degreesfor the water pollution charge systems. Theimpact of the fertiliser charge (Sweden) is lessclear.

The overall effectiveness of environmental ta-xes seems to be positive and even high in so-me cases. Policies on air quality in Sweden andwater quality in the Netherlands have beenwell supported by taxes.

As regards their functions the performance ofthe various types of taxes is variable. The mainfunction of fiscal environmental taxes has notbeen studied. However, most of these taxeswere reported to have a positive environmen-tal effect.

Most cost covering charges served their objecti-ves, collecting money for pre-set purposesquite well.

5) Incentives for producers and consumers.6) Not all sulphur emissions are taxed in this way Thepercentage reduction of the lower, taxed emissions of

sulphur is much higher, but a figure is not available.

Table 4 Evaluated taxes,their functions and effectiveness

30 DO ENVIRONMENTAL TAXES WORK?

Instrument

Sulphur tax (S)

CO2-tax (S)

CO2-tax (N)

Tax on domesticflights (S)

Waste charge(DK)

Taxdifferentiationon leaded petrol(S)

Taxdifferentiationfor diesel (S)

Toxic wastecharge (D)

NOx-charge (S)

Fertiliser charge(S)

Water pollutioncharge (F)

Water pollutioncharge (D)

Water pollutioncharge (NL;non-State)

Householdwaste charge(NL)

Battery charges(S)

Aircraft noisecharge (NL)

Environmental function

To increase penetration of low-S fuelsand adoption of S-abatementmeasures

To reduce CO2 emissions

To reduce CO2 emissions

To reduce emissions by nationallyoperated air transport

To reduce waste generation andincrease recycling and reuse

To increase penetration of unleadedpetrol

To increase penetration of low-pollution diesel fuels

To reduce the amount of toxic waste

To speed up reduction of NOxemissions form large combustionplants

To reduce the demand for fertiliser

To stimulate adoption of in-plantwastewater treatment measures andbuilding of treatment plants

To support adoption of water pollutionabatement in permit applicationprocess

To finance wastewater treatmentplants

To promote a fair distribution of wastemanagement costs over users

To cover costs of collection anddisposal and of information

To finance insulation and redevelop-ment programmes around airports

Environmental effects

Reduction of 6,000 tons of S corres-ponding to 6% reduction of total Semis- sions6); reduction of S contentof oil by 40% on average; ¼ of taxpayers reduced S emissions by 70%on average

Hard to evaluate due to short periodof operation; possible shift in fuelsand in- creased competitiveness ofcombined heat and power plant

CO2 emissions dropped by 3-4% in1991-1993 from a rising trend

Unknown, but most likely very small

Reused fraction of demolition wasteincreased from 12% to 82%;contributed to an increase in reuseand recycling rate of 20-30% between1985-93

Emissions of lead dropped by about80% between 1988-1993

75% reduction of S emissions bydiesel cars; 95% in cities; reducedemissions of particles, smoke, NOx,Hydrocarbons and PAC expected butnot quantified.

Reduction of toxic waste productionof 20-45% between 1991-93.

Main cause of the reduction by 9,000tons in 1992 (35% of liableemissions)

N down by 25%; P down by 65%between 1980 and 1992; charge wasone of the factors

Modest

Early announcement contributed tostepping up construction ofwastewater treatment capacity

Water pollution (BOD) down to 5% ofhouseholds and to 4 million i.e. fromindustry

10-20% less household waste supplyin ‘pay-per-bag’ villages

Collection rate of lead-batteries 95%;decreasing share of small Hg andNiCd batteries

Insulation of buildings around airportareas

Incentive effects5)

Average abatement costs were aboutSEK 10, lower than the tax rate of SEK40 therefore strong incentive effect.

Unknown

Price of heating oil increased 15%and price of petrol increased 10%;otherwise unknown

Unknown

Tax rate doubles average cost ofwaste dumping and increases costof incineration by 70% on average;otherwise unknown

Tax differential exceeds additionalproduction costs of unleaded petrol

Tax differential higher than additionalproduction costs of classes I and II

Tax rate increased average dumpingand incineration costs by at least5-15%.; rate doubled in 1993increasing this cost to 10-30%;otherwise unknown.

Charge rate of SEK 40 exceedsaverage abatement costs of SEK 10

Unknown

Charge rate considerably lower thanaverage pollution abatement costs

Original relation between charge rateand marginal abatement damagecosts were not implemented

Average charge slightly lower thanaverage pollution abatement costs

Unknown

Charge renders recycling of PB-batteries feasible

Very low

Fiscal environmental taxes

Incentive charges

Cost-covering charges: user charges

Cost-covering charges: earmarked charges

Future EvaluationIt is clear from this brief review of the evidenceon the evaluation of environmental taxes that eva-luation needs to be build into the process of de-signing and implementing the taxes so that bothmethodological and data availability problemscan be minimised. The OECD has recently consi-dered this question in some depth (OECD 1996,

forthcoming) and Table 5 summarises some ofthe information and design features that will helpimprove future evaluation studies. A checklist forsuccessful implementation can be found in theExecutive Summary. Effectiveness depends ofcourse on successful implementation and this is-sue is discussed in the next section.

Source: OECD 1996, forthcoming, table 9.1., p.115.

Table 5: Linked policy process and evaluation procedure

Policy process

Identifying and defining the environmentalproblem

Discussing the need for policy interventionand setting objectives

Designing and assessing effective andefficient options (instruments or instru-mentmixes)

Selecting, discussing and adaptinginstrument chosen

Introduction of instrument (mix), imple-mentation of control and enforcement

Possible modification of instrument (mix)after evaluation

Evaluation procedure

Description of the instruments and of the institutionalcontext, definition of relevant internal and external factors;(baseline inventory)

Definition of evaluation criteria

Construction of evaluation model and definition of all datato be gathered

Continuous collection of data and reassessment ofinfluential factor, and ex post evaluation

Possible adaptation of the evaluation model, evaluationcriteria and data

Conclusions, recommendations and feedback into thepolicy process

Stage

1

2

3

4

5

6

Link Stage

1

2

3

4

5

6

➞➞

➞

➞

➞

32 DO ENVIRONMENTAL TAXES WORK?

6. IMPLEMENTATION: BARRIERS AND SOLUTIONS

This section deals with the main barriers to im-plementation such as competitiveness, im-

pacts on low-income groups, and legal aspects.Potential means to mitigate negative impacts, e.g.via policy packages are discussed.

CompetitivenessThe impact of previous environmental taxes andregulations on competitiveness has been review-ed by OECD, who concluded that: “The trade andinvestment impacts which have been measuredempirically are almost negligible” (OECD 1996a,p.45). However, most taxes implemented so farhave been relatively small and insignificant in re-lation to regulations, and future taxes, particularlyenergy taxes, may damage competitiveness if theincrease in costs from the tax has to be absorbedby price increases, or by profit reductions. Inhighly competitive markets even small increasesin costs can be damaging, particularly for specificsectors, firms or regions.

Taxes on emissions will mainly affect the compe-titiveness of domestic companies compared toforeign companies whilst taxes on products canalso affect foreign producers, and therefore mayconflict with the internal market of the EU or withthe World Trade Organisation rules.

The impact of taxes on competitiveness may alsoaffect the environment. For example, if the taxleads to the relocation of production, with its asso-ciated environmental impacts, it could just shiftthe environmental damage elsewhere. Of course,if the taxed environmental effect is purely local,then the country levying the tax and possibly lo-sing the business through relocation will experi-ence local environmental improvement, and thecountry to which the activity is relocated may ex-perience environmental deterioration. If theenvironmental effect is global (e.g. climate changefrom CO2 emissions) then the reallocation of emis-sions from one country to another may mean thatthere is no environmental gain from the tax at all.Indeed, there could be environmental losses if the

non-taxed (‘free rider’) country’s CO2 efficiencyis worse than the taxed country’s.

The impact of new and significant energy taxeson competitiveness has been extensively review-ed, with the results of ex ante studies varyingfrom small and positive to large and negative, de-pending mainly on the modelling, how the reve-nues are recycled, and the extent of exemptionsand delayed implementation for energy intensivesectors. The OECD has concluded that: “Probab-ly all that can be said with confidence is that theeffect of a carbon tax policy on competitivenesscould be substantial” (OECD 1996a, p.42).

Many studies have shown that whilst well desig-ned energy taxes can improve the overall compe-titive position of a country, the impact on particu-lar sectors and regions can be negative. Countriesintroducing carbon or energy taxes have takenthis possibility seriously.

Competitiveness for Whom?The existing price and tax systems in OECDcountries are generally very favourable to the fos-sil fuel industries because of the failure to incor-porate environmental externalities into prices(World Energy Council, p. 7). This puts renewab-le sources of energy at a competitive disadvanta-ge, although some countries have introduced ‘in-fant industry’ help to stimulate their develop-ment, such as in the UK where a levy on fossilfuels helps to support renewable energy indus-tries. However, 92% of this levy finances the de-commissioning and some other costs of the nu-clear industry. In many countries energy suppliesare obliged to buy electricity produced by inde-pendent producers mainly based on renewables,(Eursolar 1996, p. 7).

Many firms involved in the energy efficiency andrenewable energy sectors, and those firms whoare not energy intensive, such as telecommunica-tions, retail and personal services, would be netgainers from energy tax schemes with revenue

IMPLEMENTATION: BARRIERS AND SOLUTIONS 33

recycling7). So any analysis of competitivenesshas to address the question of winners and los-ers.

Innovation and CompetitivenessEnvironmental taxes, like regulations, may en-hance competitiveness, via the spur to innovationmentioned in Section 2. Several authorities consi-der that environmental regulations and other sti-mulants to technical change, enhance innovation.(Porter, 1995). If the direction of change is to befollowed elsewhere in the world then the countri-es and companies that tax or regulate first mayachieve ‘first mover’ advantages. The Delors’White Paper in 1993 argued that a tax shift fromlabour to the environment would secure impro-ved competitiveness: “The Community would im-prove the overall strength of the economythrough optimal use of its resources and the pre-vention of costly clean-up operations, while a first-mover advantage can be exploited; the latter ele-ment is not to be underestimated as the new tech-nology is not only a necessity in the industrialworld but also in the NICs and LDCs” (EC 1993,p. 147).

It may be significant that Denmark, Norway andThe Netherlands which has significant environ-ment taxation are the top three most competitiveEuropean countries, according to a recent report.(Institute for Management Development, 1996).

Mitigating adversecompetitiveness effectsThere are usually trade-offs between minimisingthe potential negative impacts on competitive-

7) E.g. crafts sector would profit twice: 1) by the use of rev-enues for lowering labour taxes and 2) by the increasingneed to insulate houses and install new energy technolo-gies . But many studies as well as public discussion seemto overemphasise the potential loses of only a few sectorsinstead, the potential benefits arising for winning sectorsmay appear to be underestimated. A lack of awarenesstherefore and a general fear of new taxes (even if others aredecreased) may be an explanation for this unbalance.

ness, maximising the environmental gains, andimproving overall welfare. For example, the worstpolluters may be exempt from say energy taxeswhilst less polluting sectors are taxed. Althoughthis may be necessary from a political or welfarepoint of view, it is likely to be less environmental-ly satisfactory.

1. ExemptionsThe European Commission’s 1992 proposal for aCO2-energy tax exempted the six most energy in-tensive sectors and was made conditional on a si-milar energy tax being imposed in other majorOECD states. In the amended proposal in 1995the exemptions remained, but the condition-clau-se was dropped. Four of the five European coun-tries which have introduced carbon-energy taxessince 1990 (Denmark, Finland, the Netherlands,Norway, Sweden) have exempted or partially-exempted their energy-intensive industries fromthese taxes. The Finnish CO2-/energy tax doesnot include any exemptions from the general taxrate of energy intensive industries. Table 6 showsthe year of introduction of the carbon taxes andthe level of revenues that either have been or areexpected to be raised by them. It also shows thesubstantial difference, except in the case of Fin-land, between countries’ nominal carbon tax ra-tes, and the effective rates once the various ex-emptions, mainly for industry, have been takeninto account. The nominal rates give the rate thathas to be paid by the tax payers , whilst the effecti-ve rates are taking into account exemptions anddifferent tax burdens on sectors.

Great care must be taken in interpreting Table 6,because the overall taxation of energy in thosecountries is far more complex than it suggests.This makes it very difficult to compare countries’overall taxation of energy and impacts on compe-titiveness.

Some exemptions from energy taxes are conditio-nal upon investments in energy efficiency, as inDenmark and The Netherlands.

34 IMPLEMENTATION: BARRIERS AND SOLUTIONS

2. Border Tax AdjustmentEnvironmental tariffs can ensure that imports paya similar level of tax to domestic products, there-by neutralising any competitiveness effects in thedomestic market, while export rebates can en-sure that the taxed domestic industries’ ability tocompete abroad does not suffer. However, calcu-lating appropriate tariffs on imports, especiallywhen the environmental tax base is an industrialinput, such as energy, rather than a final product,is difficult, and easily interpreted, rightly orwrongly, as protectionism.

Border tax adjustments may run counter to inter-national trade rules (designed to prevent protecti-onism), especially where, because of a focus onindustrial inputs or processes, they end up treat-ing domestic and foreign products differently.However, the US tax on chloroflourocarbons

(CFCs) is levied on imports on the basis of calcu-lations of CFCs used as content as well as in theimports’ manufacture, (Hoerner 1995 p.185-199).CFCs may be a special case both because theyare the subject of a widely supported multilateralenvironmental agreement, and because they aredue to be phased out rapidly anyway. It is likelythat import tariffs based on carbon or energy con-tained in imported products would not be so readi-ly accepted.

3. Tax-free thresholdsInitial consumption of energy or water can be freeof tax, but with rising taxation of higher levels ofconsumption. This can lessen the impact of thetax on small firms whilst increasing the incentiveto be more efficient with the taxed commodity.The Netherlands energy tax has been designedthis way for both small firms and households.

Table 6: Carbon (or carbon/energy) taxes in five European countries and effective taxrates after exemptions/reimbursements

CO2 taxes First year of introduction Revenue raised 1993 carbon tax rate, USD/tonne CO2million ECU (year)

nominal effective

Denmark 1992 441 (93) 57 25

Finland 1990 415 (95)1 13 13

Netherlands 19902 672 (95) 1 na na19963 1008 (98, est.)1 6-16 na

Norway 1991 744 (94) 205 74

Sweden4 1991 1397 (95) 192 120

1 This revenue comes from a combined energy/CO2 tax.2 This is the fuel (50% carbon/energy) tax.3 This is the small users’ energy tax.4 Apart from domestic air travel. Sweden is the only country to levy a tax on fuel use in domestic flights,

although it is reconsidering this.na not available

Sources: EF 1996 forthcoming, except nominal and effective carbon tax rates from Haugland 1993, Figure 13, p.30

IMPLEMENTATION: BARRIERS AND SOLUTIONS 35

4. Recycling of RevenuesThe tax revenues may be used to support envi-ronmental expenditure by tax payers throughgrants, other payments or tax incentives, as withSwedish NOx tax, or they may be used to financereductions in other taxes on labour or capital, asin The Netherlands and Austrian energy tax pro-posals, or the UK landfill tax. This then providesthe ‘carrot’ of revenues as well as the ‘stick’ of thetax. This targeted recycling of revenues ‘earmark-ing’ is crucial to the success of ‘green tax re-forms’, and explains much of the difference be-tween the results of studies into such reforms.

The detailed study of the experience of watercharges in four countries by Andersen (1994a)supports the view that earmarking is important .Andersen (1994a, p.210) concludes: “A closerexamination of the differences between these twoinstruments (fiscal and earmarked taxes) oughtto be high on the agenda of the environmental re-search community. On the basis of the Dutch andFrench experiences we can conclude that evenmodest earmarked taxes are in practice signifi-cantly more effective than the conventional viewwould lead us to assume.”

5. Reforming energy cost provisions in Busi-ness taxationIn theory, the business tax system could be refor-med to provide incentives to use less energy bynot allowing energy costs to be exempt from taxas a business expense, except for high energyusers, and by providing a tax free portion of totalcosts to all other firms. If, for example, the taxfree amount was 5% of total costs and the averageenergy cost was 2.5% of total costs, then mostfirms would gain and have a continuous incentiveto further reduce energy costs since profits fromenergy savings would be tax free (Bund-Laender-Arbeitskreis-BLAK,1993). This may be a moreelegant way of exempting high energy users,whilst providing incentives to other firms, thanby using an energy tax. However, government re-venues may be needed to finance this reform.

6. International HarmonisationMany of the measures needed to mitigate compe-titiveness impacts would be unnecessary if therewere harmonisation of environmental taxes at EUand even OECD or global levels. However, thisseems difficult to achieve, though action to impro-ve EU co-operation is recommended below.

Equity and the existingprice and tax systemLow income consumers and households are po-tentially vulnerable to environmental taxes be-cause they spend proportionately more of their in-come on some environmentally sensitive goods,such as energy or water, than do richer groups.For example, studies by Pearson & Smith (1991)have shown that the EC carbon-energy tax wouldbe regressive unless compensatory measures we-re taken. However, this study only showed re-gressive effects in Ireland and the UK; in France,Germany, Italy, the Netherlands and Spain theproportion of carbon tax payments to householdtotal expenditures is hardly related to income, ifat all (Pearson & Smith 1991, Figure 5.2, p.43).

These possible distributional effects on low in-come groups warrant serious political attentionwhen taxes on energy, water or similar essentialtaxes are being designed, if public support for the-se taxes is to be secured. The inability of the Bri-tish Government in 1994 to raise VAT on domes-tic fuel from 8% to 17½ % was at least partly due toconcerns about the impact of this tax increase onthe poor. In retrospect, a policy package that in-cluded more measures to offset the regressive ef-fects of the tax and which accompanied the an-nouncement of the tax might have made the taxeasier to introduce. An impressive compensatorypackage was only offered when opposition to thetax was already strong.

The means of mitigating any regressive effectsof energy or water taxes, or transport taxes in ru-ral areas, are varied and are very specific to thetax and benefit systems of particular countries,

36 IMPLEMENTATION: BARRIERS AND SOLUTIONS

but two examples will illustrate the potential forovercoming these problems.

The Dutch small energy users’ tax , introducedin 1996, was designed specifically to addressthe distribution of the tax burden. Revenuesare recycled separately to businesses andhouseholds, corresponding to their respectivetax payments. For businesses, the recycling ismainly achieved through a reduction in em-ployers’ non-wage labour costs and corporati-on tax. For households (but also for busines-ses), a tax-free threshold of energy use hasbeen introduced, which avoids a regressiveburden on low-income households. In additi-on, households get income tax relief such thatan average energy user in each of four incomegroups will be made no worse off from the tax(higher and lower than average energy usersin each group will be worse and better off re-spectively). This transparent and specific reve-nue-neutrality, with regard to particulargroups as well as overall, seems to have contri-buted substantially to the tax’s acceptability inThe Netherlands.

Similar tax free thresholds could be introdu-ced for the initial consumption of other ‘essen-tials’ such as water, with taxes on higher con-sumption serving to stimulate more efficientuse, e.g. the water tax at Setúbal in Portugal.This has a progressive scale for charginghouseholds for both water consumption andwaste-water treatment. For a monthly waterconsumption of 25 cubic metres (m3), the first5 m3 are charged at PTE67.5 per m3, the next10 m3 at PTE102.5 per m3, and the next 10 atPTE 162.5 per m3 (EF 1996 forthcoming).Such a progressive scale clearly prevents char-ges bearing too heavily on the essential use ofwater. These measures are also applied inmost parts of Portugal.

The design of environmental taxes needs to takeinto account the existing price and tax systems.

a

b

As we have seen in Section 2, the distribution ofenvironmental externalities is often uneven, withlow income groups, or children, bearing propor-tionately more of the costs of environmental pollu-tion than other groups. A well designed environ-mental tax could help remove some of these in-equities and improve overall economic welfare.Similarly the existing tax systems could be re-gressive, once evasions, exemptions, tax avoidan-ce and the actual take-up of allowances are takeninto account, thus enabling environmental taxesto improve overall equity. For example, a recentanalysis of the commuting tax allowance in Den-mark indicated that the lion’s share of the tax al-lowance fell in metropolitan areas (Krawack1995). Despite the existence of reasonably goodfacilities for public transport, many wage earners,especially in the more affluent districts, prefer togo to work by car. In the suburbs of Copenhagenmore than 30 per cent of the wage earners bene-fit from the tax allowance, while only 14-17 percent of the wage earners in the rural western partof Denmark do so. One third of the total tax allow-ance, which amounts to DKK3,5 billion annually,benefits company managers and higher rankingsalaried workers, while low-income workers re-ceive only 16 per cent of the total allowance.

Legal, institutionaland administrative aspectsMarket failures, market structures and subsidiesand cultures and EU-rules can provide counter-vailing pressures, or perverse environmental in-centives, that can undermine or even neutralisethe intended effects of environmental taxes.

1. Market FailuresMarkets for environmentally sensitive goods areoften complex, involving much more than theprice. For example, the market for energy effici-ency can fail to work well because of informationgaps; a demand for short pay-back periods; tariffstructures that encourage energy supply ratherthan energy saving; poor access to capital; and thelandlord/tenant problem, where neither party

IMPLEMENTATION: BARRIERS AND SOLUTIONS 37

gains sufficiently from energy efficiency to makeit worth-while to invest in it. If most of these fac-tors are working to discourage energy efficiencythen a tax to encourage it would need to be unne-cessarily high. A comprehensive approach tomarket failure, which addresses these ‘transac-tion’ and other costs, is therefore needed.

2. Environmentally perversesubsidies and tax allowancesAny subsidies on intensive agriculture, fossil fuels,or road and air transport will act to counteract theeffect of a tax designed to improve the environmen-tal impact of those activities. The aviation indus-try, despite its significant environmental effects,is exempt from both VAT and energy taxes. Themaritime industry is similarly exempt, but its en-vironmental impact is less than that of aviation.Current studies are pointing to the need to bringthe aviation industries within the field of environ-mental taxation (Stichting Natuur en Milieu &Delft University, 1996 forthcoming; Swiss Envi-ronmental Transport Association 1996; Barret1991). The size of these perverse subsidies couldmean that their reform would often be the mostcost effective place to start improving the envi-ronment. Similarly tax allowances that encour-age, say, car commuting, will undermine a fuel taxdesigned to discourage commuter car use.

A recent study by the OECD gives a comprehen-sive overview of problems, in particular for theenvironment, that occur from subsidies. It maybe useful looking closer at subsidies before imple-menting environmental taxes. The OECD con-cludes: “there is reason to believe that there ex-ist some subsidies/tax concessions whose reformor elimination could lead to both environmentaland economic benefits.” (OECD 1996b, p.19-20).

While in some member states the full costs of pub-lic sewage treatment plants are passed on to thepolluters by means of user charges, other mem-ber states offer a considerable discount on the usercharges through state subsidies (RIZA 1995).

While the use of state subsidies might be justifiedin cohesion countries, which, as newcomers in theEU, have an implementation gap, the need seemsless obvious in member states with a more maturerecord of membership. Nevertheless funding fromthe Cohesion, the Structural or the Regional Fundshould not be taken as an excuse for not chargingpolluters with full costs.

In particular the study found that there are statesubsidies in Belgium and Germany. Prices for dis-charging waste water vary considerably acrossEurope. For two similar industries the waste wa-ter charge bill (advanced treatment) with a locati-on in the Netherlands is 15500 ECU, while in Ger-many it is 4458 ECU. In Portugal subsidies aresignificant. Irish local authorities have been morekeen on covering the actual costs by means of thecharges (Convery & Rooney 1996 forthcoming).

The study concludes that countries with full cost-coverage tend to have better extended sewagetreatment systems, whereas countries that de-pend on state subsidies are more behind.

3. EU CompatibilityTaxes at Member State level may be incompatib-le, or perceived to be so, with the Internal Mar-ket or other EU rules (see e.g. Borgsmidt 1996,forthcoming). This is a complex area which DGXIis planning to produce guidelines on shortly, inthe proposed ‘Communication on EnvironmentalLevies used in Member States.’ This should helpMember States to take unilateral action thatwould be compatible with EU rules.

4. The EU UnanimityBarrier to HarmonisationArticle 130s of the Treaty of the European Unionprovides that “provisions primarily of a fiscal na-ture” are to be adopted by the Council “acting un-animously on a proposal from the Commission”.Article 130s goes on to provide that the Councilmay “define those matters referred to in this para-graph on which decisions are to be taken by aqualified majority”.

38 IMPLEMENTATION: BARRIERS AND SOLUTIONS

In theory, the Council of Ministers could decideto vote by Qualified Majority on, say, taxes thatare primarily environmental but in practice thisis unlikely to happen, even if definition problemscould be overcome. More promising is the pos-sibility of amending the Treaty to allow for Qualifi-ed Majority Voting in all fiscal and environmentalmatters. If improvement is to be made concerningimplementation of Taxes at EU and Member Stateslevel this issue should be seriously addressed anddiscussed at the Intergovernmental Conference(IGC), revising the Treaty. Furthermore, theTreaty needs to facilitate harmonised economicpolicies in sectors such as energy and transport.

5. Administrative and Implementation CostsThe costs of introducing and administering envi-ronmental taxes depend on many factors andthere is no simple way of comparing them to thecosts of administering alternative instruments.Where an environmental tax can be easily inclu-ded in already established systems of taxes, suchas excise charges, this will reduce its administra-tive burden. Where, on the contrary, either newsystems of taxation need to be set up, or specialsystems of monitoring (emissions, for example)need to be established, the burden is likely to begreater. For example, the Swedish NOX tax (seeTable 4) is payable on measured emissions butthe measurement of emissions is expensive. Ithas been estimated that the monitoring of theNOX emissions costs SEK350,000 per plant, orSEK4,000 per tonne of NOx abated (OECD 1996,forthcoming, p.41).

However, regulations may already require moni-toring, as they do for some of the Swedish NOxtaxed plants, so the monitoring costs are actuallyrather lower than the above figures suggest(OECD 1996, forthcoming, p.41).

It is important when considering the administrati-ve cost of a policy instrument to include all costs,and not just those to the public administration.Thus, with deposit-refund systems, although the

public administrative costs may be very low, thecosts to consumers of returning the articles to re-tailers, and of retailers storing them, and of produ-cers collecting and transporting them to theirpoint of re-use, recycling or disposal should all betaken into account.

In general, the administrative costs of environ-mental taxes compare favourably with otherpolicy tools.

6. Other Institutional Barriers to TaxesEnvironment Ministries are used to regulationsand to the range of stakeholders they need to con-sult. Regulations also can deliver more certainpollution reduction, though at uncertain cost,compared to taxes. Environmental Taxes involvenew stakeholders, such as Finance Ministries andTax Collecting authorities, and new issues, suchas tax rates, tax bases, revenue recycling, mar-ket failures etc. (e.g. in Scandinavian countriesFinance Ministries often took the initiative). Thefamiliar is usually preferable to the unfamiliar.These cultural barriers to taxes can be significant,but can be overcome by extensive consultation,education, the sharing of experience, experimen-tation and political will.

Political barriers can also be minimised by wide-ning the appeal of environmental taxes to thoseinterested in improving competitiveness, employ-ment and the tax system through a comprehen-sive package of tax and related reforms.

The ‘Package’ Approach toCompetitiveness and EmploymentEnvironmental taxes seem to work best whenthey are part of a package of measures designedto address market failures, equity, competitive-ness and employment via a tax shift from labourto pollution, and other measures.

A considerable number of studies have been car-ried out in recent years to analyse and model theeconomic effects of a tax shift from labour to en-

IMPLEMENTATION: BARRIERS AND SOLUTIONS 39

vironmental resources. A major study carried outfor the European Commission by DRI et. al.(1994) showed that assigning a more ambitiousrole to environmental taxes, and the integrationof environmental aspects in other policy areas,would leave the EU GDP in 2010 some 1-1.5%higher compared to a continuation of current po-licy approaches, while employment would in-crease by 2,2 million. This, and other studies, ha-ve indicated the benefits of reducing employers’social security contributions rather than redu-cing direct income taxation (Bureau de Plan1994).

Most studies on macro-economic effects havebeen carried out in a national context, under theassumption of a more or less unilateral tax shift.These circumstances are less favourable to thetax shift, because the increased taxation of energyand other resources may reduce competitivenessof energy intensive industries, and cause the dis-location of jobs to ‘free rider’ countries. Neverthe-less, studies carried out at the national level gene-rally point to the possibilities of achieving a mode-rate ‘double dividend’ even in the case of unilate-ral measures, provided that the tax shift is de-signed to avoid excessive effects on competitive-ness.

There is no space in this report to review in de-tail the large number of studies of this issue thathave been carried in recent years. (For overviewssee De Wit 1994, Ostertag/Schlegelmilch 1996,Ekins 1996 forthcoming). However, some exam-ples of recent ‘package’ approaches are summa-rised below.

SwedenIn 1991 Sweden unilaterally introduced a level ofcarbon-energy taxation almost equivalent to theCommission proposal (for the year 2000) ofUSD100/ton CO2 but with some exemptions forenergy-intensive industries. However, in 1992 itdecided to lower the carbon-energy tax on indus-try, following a study by an official commission

which studied energy prices and taxes in the indu-strialised countries, and found that Sweden hadthe highest level of taxation. (Finansdepartemen-tet 1991). The commission calculated the expec-ted employment benefits from a lowering of car-bon-energy taxation. Since the model used did nottake into account the possibilities for adapting tocarbon-energy taxation through technologicalchange and in-plant measures to improve energy-efficiency, it represented a worst-case scenario interms of employment losses due to the carbon-energy taxation. The commission found that about10,000 new jobs could be created, especially inenergy-intensive industries, by giving up carbon-energy taxation.

The Swedish recession created a sense of urgen-cy to do something to improve competitiveness,and the energy tax on industry was dropped,whilst the tax on households was increased. Ac-cording to the Swedish Ministry of the Environ-ment and Natural Resources, energy consumpti-on in industry increased considerably in early1993, following the abolition of the energy-carbontaxation, despite declining industrial output.(MENS 1994, p.31). The Swedish governmenthas recently proposed to re-impose the carbon-energy tax on industry again.

The NetherlandsIn the Netherlands the work and reports of theWolfson Committee (1992) formed the basis forthe recent introduction of a carbon-energy tax onsmall users. The conclusions about the costs ofunilateral carbon-energy taxation were based ona study by the Central Planning Bureau (CPB1992), which showed clear effects on competitive-ness if energy intensive industries were includedin the tax, and also substantial petrol purchasesacross the border if petrol was included. The re-port also showed that there were only few princi-pal differences between the macro-economic ef-fects of a unilateral Dutch tax and an OECD-widetax, because production and jobs in energy-inten-sive industries could shift location, outside the

40 IMPLEMENTATION: BARRIERS AND SOLUTIONS

OECD area even in the latter case. The WolfsonCommittee thus recommended the introductionof a unilateral Dutch tax and to allow exemptionsfor energy-intensive industries. Such a tax couldbe introduced without damaging the domesticeconomy, and with slightly positive effects on em-ployment (+15,000 jobs in 2000), provided that re-venue was used to lower social security contribu-tions. Recent calculations of the CPB which havejust been published assess positive employmenteffects of about 3,000 additional jobs in 2010 inthe case of an additional tax within the small-scaleenergy tax scheme. This calculation was re-quested by the Dutch Commission for Greeningthe Fiscal System (Dutch Commission 1996).

The work of the Wolfson Committee is particular-ly valuable because it identified the institutionaland other failures in the energy market describedabove, and recommended ways of improving the‘elasticity’ of responses to price signals.

DenmarkIn Denmark the inter-ministerial Dithmer Com-mittee calculated the impact of the recent in-crease of the CO2 tax on industries, and found thata unilateral introduction would have a neutral ef-fect on employment (in fact +1,000 jobs), while itwould at the same time secure an additional 5 percent decrease in CO2 emissions, so that Den-mark’s 20% reduction target could be attained(Finansministeriet 1994). The revenue from theCO2 tax is recycled to industries, but a smallershare of it is earmarked for investment subsidies.The standard rate of the Danish tax is DKK90 perton CO2, but it operates with a special low rate forenergy-intensive industries and is to be phasedin gradually from 1996 to 2000 (MOF 1995).

In this case the recycling of revenues for invest-ment purposes is less significant for employmenteffects, but the Danish study used a more conven-tional method to model the socio-economic ef-fects of the increased CO2 tax than models usedin more recent work, such as in Austria.

AustriaIn a recent study from the Austrian Institute ofEconomic Research, commissioned by the mini-stry of environment, youth and family affairs, theministry of science and the ministry of agricultu-re, a similar problem of relatively small elasticiti-es in different energy markets is acknowledged(BmU 1995). The report provides an overview ofmajor international and national studies of theeconomic impacts of a tax shift, and discusses theweaknesses of the modelling techniques applied.

In the Austrian study 10 different scenarios havebeen modelled, which investigate different taxmodels and reimbursement methods for revenueneutrality. The main scenario, ‘Labour cost reduc-tion and technology support by subsidies’ is onein which part of the tax is recycled through reduc-tions in social security contributions, and partused for environmental investment purposes. Inparticular the targeted recycling of part of the re-venue to investment support for specific, moreenergy-efficient technologies (that would other-wise not be introduced because of transactioncosts and institutional rigidities) plays an impor-tant role for employment effects, especially incase of a unilateral Austrian tax. According to thestudy the main scenario will have a positive effecton employment (11-34,000 jobs), while a scenariowithout technology support yields a slightly nega-tive impact on employment: “The positive invest-ment- and growth-impulse from the partial ear-marking is explained by the fact that the marketmechanism under institutional constraints func-tions insufficiently (...) A partial support of the de-sired adjustment measures by revenues from the taxbridges the market failure. Investments, which inthe case of zero transaction costs would be profit-able, are stimulated by use of these funds. Anotherimportant advantage, which should not be under-valued, is that such measures prevent energy priceincreases resulting in a decrease in energy services,in particular in the sector of households which isrelevant for welfare considerations (lower tempera-tures; less mobility). Instead energy services - e.g.

IMPLEMENTATION: BARRIERS AND SOLUTIONS 41

heating - are produced with a changed factor com-bination: the supported insulation measures reducethe energy flow, while increasing the use of capital(..) Finally there are also positive innovative andtechnological ef fects of such support” (BmU 1995,p.161, EEA translation).

In May 1995 Austria increased some tax rates andintroduced a set of taxes on energy from June1996, and a share of the funds has been targetedon environmental technology support measures.

It is clear from this section that there are signifi-cant political barriers to achieving the consider-able theoretical gains from environmental taxes.However, it is also clear from the experiences ofseveral member states that these can be over-come (Gee, 1996 forthcoming).

There is no one model way of introducing envi-ronmental taxes, but the ‘checklist for success-

ful implementation’ in the Executive Summary isbased on a synthesis of experience to date andmay be of use to countries wanting to use environ-mental taxes more widely.

Success with environmental taxes depends on po-litical support. Although the whole issue of envi-ronmental taxation is still very controversial, it isclear from the statements by some key stakeholderssummarised below that support for environmen-tal taxes is already substantial and increasing. Inaddition political parties and EU-institutions areincreasingly supporters of environmental taxes.

Illustrative statementsof some stakeholdersThe statements above have been selected to re-present a summary of the general views of somestakeholder groups on environmental taxes (seeTable 7).

Table 7: Illustrative statements of some stakeholders on environmental taxes.

Some illustrative positions

“Possibly the most important factor in an effective pursuit of sustainable development is getting theprices right. Unless prices for raw materials and products properly reflects the social costs, and unlessprices can be assigned to air, water and land resources (…) resources will tend to be used inefficiently andenvironmental pollution will likely increase” (World Business Council for Sustainable Development, 1992)

“The Swiss Economy endorses the introduction of emission levies to conserve the environment”(Society for the Promotion of the Swiss Economy [Wf], 1993, p.21)

“A continuous price rise for non-renewable energies which must be predictable for the economy in thelong run, and a concurrent and equivalent reduction in other taxes.” (Federal Young Entrepreneurs’Association in Germany, 1995)

“Start the introduction of a tax on energy, e.g. on non-renewable fuels, by quickly announcing the dateof the first price increase by 4 or 5 % above inflation. Also announce to continue this annual increaseindefinitely” (European Business Council for a Sustainable Energy Future, 1996).

“With well-designed economic instruments, government can help industry turn good environmentalpractices into good business practices. (European Roundtable of Industrialists, 1994).

“The revised Commission proposal for an energy/CO2 tax is inadequate to promote better control of CO2emissions in the industrial sector”. (Union of Industrial and Employers’ Confederation of Europe, UNICE,1995, p. 13)

“The internalisation of all costs is the sole means to guarantee the setting of realistic prices; (we)support the request presented by eight countries to the Commission, asking for it to take the initiativeagain to introduce environmental taxes, (The European Environmental Bureau EEB and The EuropeanTrade Union Confederation ETUC, 1996).

“It is necessary to phase out energy subsidies (…), the full-cost pricing of energy must reflect the longterm marginal costs (…) and should ideally incorporate the costs of environmental detriments” (WorldEnergy Council, 1995, p.7)

“All governments should adopt policies that make maximum use of environmental taxes and the ‘polluterpays principle’ of charging” (Commission on Global Governance, 1995, p.208)

73% agree (17% disagree) with both green taxes and “Green tax reform” (Eurobarometer Poll, 1995)

Stakeholder

Advanced / Small and Mediumsized Enterprises

European employersassociation

Trade Unions and NGOs

Global Institutions

The public

•

•

•

•

•

•

•

•

•

•

7. RECOMMENDATIONS FORFUTURE POLICY ACTION AND RESEARCH

Policy:

more environmental taxes should be introdu-ced in circumstances described in the ‘Check-list on Implementation’ and based on more andbetter evaluations.

the potential of environmental taxes to streng-then regional taxation and harmonisation(both between and within countries) and tobroaden tax bases should be explored further.

as environmental policy-making moves to-wards ‘multiple pollutants/multiple effects’ stra-tegies, where the inter-connections in natureare exploited to devise cost-effective strategiesfor dealing with several environmental prob-lems caused by the same few pollutants (e.g.acid rain, eutrophication, low level ozone andglobal warming from SO2, NOx and VOCs), soenvironmental taxes become even more appro-priate as policy tools. Regulations can also havemultiple effects on several environmental pro-blems, but eco-taxes are more flexible; are ap-plicable to many economic actors; and are cap-able of affecting complex resource flowsthrough the economy.

more revenues from environmental taxescould be ‘earmarked’ for environmental expen-ditures, such as environmental technologyand public transport than has been the practi-ce in the past. The positive incentive effects onproducers and consumers can be greatly en-hanced if both the tax and the revenues areproviding both ‘sticks’ and ‘carrots’. And thepolitical acceptability of environmental taxesis usually higher when the revenue is visiblyearmarked for environmental services. How-ever, if such taxes are to become significantsources of revenue within a comprehensivebudget neutral green tax reform, then muchrevenue will need to go into general treasuryfunds in order to help finance normal govern-ment expenditure on health care, education

etc. There are therefore strong political limita-tions to ‘earmarking’.

The issues of the compatibility of environmen-tal taxes in Member States with EU rules, andthe EU unanimity vote on taxes, should be ad-dressed.

Measures should be taken to facilitate harmo-nised economic policies in sectors such as ener-gy and transport.

Research:

more independent studies which evaluate boththe environmental impacts and overall cost-ef-fectiveness of the 4 main environmental policyinstruments (voluntary agreements, environ-mental taxes, tradable permits and regulati-ons) are urgently needed. They should be de-signed and built into the policy process when thepolicy instruments are being developed. TheOECD has recently agreed some methodolo-gical guidelines on this for economic instru-ments (OECD, 1996, forthcoming)

more research into the economic modelling ofenvironmental taxes is needed, especially tohelp reconcile model differences, and to inte-grate dynamic and multiple effects into theanalysis of policy packages.

studies should particularly address the issueof earmarking; and the potential for develop-ing new tax bases in areas such as aviation, ha-zardous chemicals, tourism and land use.

the developing field of externalities evaluation(both ‘negative’ and ‘positive’) needs to be ex-panded to cover priority areas such as aviation,chemicals, intensive agriculture, organic farm-ing and forestry; and in particular to developdistributional (or equity) analyses of externali-ties, which are usually unevenly distributedthroughout society

RECOMMENDATIONS FOR FUTURE POLICY ACTION AND RESEARCH 43

trends in the main tax bases of labour, capital,energy and environment should be harmo-nised on the new definitions recently agreedby OECD, Eurostat, DG XXI and DG XI(Jarass/Obermair 1996), so that comparisonsare available on the same basis for both EU

and other main OECD countries from 1970,and updated every 3-5 years.

more research into the political economy of taxadministration; the role of interest groups inpolicy development; and the public acceptabil-ity of green tax reforms.

44 RECOMMENDATIONS FOR FUTURE POLICY ACTION AND RESEARCH

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OECD 1996b: Subsidies and Environment: Explor-ing the Linkages, OECD, Paris

Ostertag, K./Schlegelmilch, K. 1996 Saving TheClimate - That’s My Job! The Potential EmploymentEffects of Achieving the Toronto Target, study onbehalf of WWF, Wuppertal Institute, Wuppertal

Pearson, M. & Smith, S. 1991 The European Car-bon Tax: an Assessment of the European Commis-sion’s Proposals, Institute for Fiscal Studies, Lon-don

Pigou, A. C. The Economics of Welfare, 1920, Lon-don.

Porter, M.E., Vanderlinde, Claas 1995, Green andCompetitive: Ending the stalemate, Harvard Busi-ness Review Sept./Oct., p. 120-134

Regional Environmental Centre (REC) 1994, Useof Economic Instruments in Environmental Policyin Central and Eastern Europe, Budapest

Repetto, R. et al., 1992, Green Fees - How a TaxShift can work for the environmental and the eco-nomy, World Resources Institute, Washington

48 REFERENCES

RIZA 1995 Waste Water Charge Schemes in theEuropean Union, Parts 1-2, RIZA, Lelystad

Schlegelmilch, K./Görres, A. 1996, ÖkologischeSteuerreform: Pro und Kontra, eine Antwort aufdie häufigsten Einwände der Kritiker (EcologicalTax Reform: Pros and Cons, a reply to the majorarguments of the critics), in: Zeitschrift für ange-wandte Umweltforschung, No. 1, p.121-133

Schuurman J. 1988, De Prijs van Water, GoudaQuint BV, Arnhem

Smith, S., Vos, H., Evaluating the efficiency andeffectiveness of economic instruments: a conceptualand empirical analysis, in: OECD 1996 forthcom-ing

Smith, S. 1996 Financing Regional Government inBritain, Institute for Fiscal Studies, London

Society for the Promotion of the Swiss Economy(Wf) 1993, Oekologierung des Steuersystems (Gree-ning the tax system), Zurich

Sterner, T. 1994 ‘Environmental Tax Reform: TheSwedish Experience’, European Environment,Vol. 4, No. 6, pp. 20-25

Stichting Natuur en Milieu & Delft University1996, A European Aviation Charge - PreliminaryStudy.

Swiss Environmental Transport Association1996, How substantial is the involvement of Euro-pean airports in the environmental sector? Bern.

Union of Industrial and Employers’ Confederati-on of Europe (UNICE) 1995: UNICE Commentson Revised Commission Proposal for an Energy/CO2-Tax (COM 95-172 Final), 11 October 1995,Brussels

Weizsäcker, E.U. von 1996 (forthcoming) FactorFour - doubled welfare and halved resource con-sumption, London (it is already available in Ger-man: Faktor Vier: doppelter Wohlstand - halbier-ter Naturverbrauch, München 1995).

Weizsäcker, E.U. von/ Jesinghaus, J. 1992, Eco-logical Tax Reform, London/New Jersey

Wit, G. de 1994, The Effects on Employment of aShift in Taxation from Labour to the Environment,Centre for Energy Conservation (CE), Delft

Wolfson Committee (Steering Committee on re-gulating energy taxes) 1992 ‘Report of the inde-pendent research into the administrative possibi-lities, as well as the energy and economic impactsof the introduction of regulating energy taxes’, Sci-entific Council for Government Policy, Den Haag

Wuppertal Bulletin on Ecological Tax Reform1994, 1995 and 1996, several issues of the quar-terly newsletter, published by the Wuppertal In-stitute for Climate, Environment and Energy,Wuppertal

Öko-Institut 1994, Bericht über die Auswirkungender Abfallabgabe in Baden-Württemberg (Reporton the effects of the charge on toxic waste inBaden-Württemberg), Öko-Institut, Darmstadt

REFERENCES 49

A Austria

B Belgium

BOD Biological Oxygen Demand

Cd cadmium

CFC chlorofluorocarbons

CPB Central Planning Bureau (in the Netherlands)

D Germany

DK Denmark

E Spain

EAP (5th) 5th Environmental Action Programme

F France

FIN Finland

GR Greece

GWh Giga-Watt-hour

I Italy

IRL Ireland

LDC Less developed countries

MgOx Mercury Oxygen

N Norway / Nitrogen

NGO non governmental organisation

NIC Newly Industrialised Countries

NiCd nickel-cadmium

NL Netherlands

NOx nitrogen-oxides

P Portugal / Phosphor

Pb lead

PPP Polluter Pays Principle

RIVM National Institute of Public Health and the Environment

S Sweden

SO2 sulphurdioxide

UK United Kingdom

VAT Value Added Tax

VOC volatile organic compounds

ACRONYMS AND ABBREVIATIONS

50 ACRONYMS AND ABBREVIATIONS

The figures are taken from Jarass/Obermair1993/1994, p.48, who were the first to assign

taxes according to these production factors cove-ring the period from 1970 to 1990, during whichthe increase of taxes on labour was sharp and tax-es on the environment decreased in comparisonto total taxes. The study compared trends of taxa-tion in six main EU-countries (D, DK, F, I, NL, UK)with those in some main competitors like the USA,Japan and Switzerland. The message of the figures

ANNEXESAnnex I - General Trends in Taxation 1970-1990

below is clearer than that available from the 1980-1993 data (p. 25): Taxes on labour have risensharply, mainly due to increases of social securitycontributions; taxes on capital decreased slightly;and taxes on natural resources and environmenthave decreased even more.

Note: The peak of levies on natural resources and environ-ment in UK 1985 is due to royalties for domestic crude oilconsumption (...). Different scales are used!

Figure 6: Factor levies per total levies

Taxes on labour plus social sec. contr. / total taxes plus soc. sec. contr.

Taxes on capital / total taxes plus social sec. contr.

Taxes on natural resources and environment / total taxes plus social sec. contr.

Taxes on labour plus social sec. contr. / total taxes plus soc. sec. contr.

Taxes on labour plus social sec. contr. / total taxes plus soc. sec. contr.

Taxes on labour plus social sec. contr. / total taxes plus soc. sec. contr.

Taxes on labour plus social sec. contr. / total taxes plus soc. sec. contr.

Taxes on labour plus social sec. contr. / total taxes plus soc. sec. contr.

ANNEXES 51

Annex II - Summary Details of reviewed taxes

1. Sulphur tax (Sweden)In 1991 a sulphur tax was introduced in Swedenin order to further the decrease of the emissionsof sulphur. The tax applies to fuels (coal, oil, peat)that contain 0.1 % of weight of sulphur or higher.The tax amounts to SEK 40 per kg of S. If sulphuremissions are abated, the tax might be reim-bursed. For light oils a tax differentiation schemecompensates the cost of producing oils of class I

(maximum S-content of 0.001%) and class II(maximum S-content of 0.005%) through tax re-bates. The maximum allowable S-content in lightoil is 0.2% (class III) (see also under “tax differ-entiation diesel”, below).

The sulphur tax should promote the use of clea-ner fuels and the cleaning of flue gases from theuse of fuels with a high S-content. An evaluation

Table II.1: The reviewed taxes

Instrument Country Number and types of studies

Fiscal environmental taxes

Sulphur tax Sweden 2

CO2-tax Sweden 1Norway 1

Tax on domestic flights Sweden 1

Waste charge Denmark (1)Netherlands (1)

Incentive charges

Tax differentiation petrol Sweden 2International survey (1)

Tax differentiation diesel Sweden 2

Toxic waste charge Germany 1

NOx-charge Sweden 2

Fertiliser charge Sweden 1

Water pollution charge France 2

Water pollution charge Germany 2

Cost-covering charges: user charges

Water pollution charge Netherlands (non-State) 3

Household waste charge Netherlands 1

Cost-covering charges: earmarked charges

Battery charges Sweden 1

Aircraft noise charge Netherlands 1

(..) = study not yet finalised, and thus not included in the review of these studies (except for the Danish waste charge, where preliminaryfindings are available).

52 ANNEXES

study of economic instruments in Swedish envi-ronmental policy 8) indicates that the tax may havehad a considerable impact. The average S-contentof fuel oil decreased from about 0.65% in 1990 (thelegal maximum allowable content was 0.8% at thattime) to 0.4% recently 9). The S-content of light oilsis lower than 0.1% on average which correspondswith levels for which no tax is due. Policy effec-tiveness is high.

About a quarter of the tax subjects have takenmeasures to clean flue gases and are receiving taxrefunds. The reduction of sulphur emissions is70% on average.

It is concluded that the tax has had an impact onthe emissions of SO2. The Swedish evaluation stu-dy assumed an environmental impact of 6,000 ton-nes. Total SO2 emissions where approximately110,000 tonnes in 1991, but the share of emissionsthat could be influenced by the tax is considerablylower, as a consequence of the tax base - fuels forcombustion purposes - and the tax threshold. Theaverage costs of the measures taken after the in-troduction of the S-tax was about SEK 10 per kg,which is considerably lower than the tax rate ofSEK 40, and indicates a large incentive effect ofthe tax.

2. CO2 tax (Sweden)In Sweden a special CO2 tax was introduced in1991 as part of a fiscal reform. At the same timeVAT on energy was introduced and general ener-gy taxes were reduced. In 1993 the tax burdenswere differentiated according to economic sec-tors: the total burden for industry was reducedthrough a decrease of the CO2 tax and completeabolishment of the general energy tax, and theburden for other sectors was increased through

10) Ministry of the Environment and Natural Resources,199411) B.M. Larsen, R. Nesbakken, Norwegian Emissions ofCO2 1987-1994, Statistics Norway , Oslo, 1996 (mimeo)

an increase of the CO2 tax. Bio-fuels are exemptedfrom these taxes.

The impact of the CO2 tax is difficult to determinesince this tax is part of a broader tax reform pack-age. Furthermore, the period of application of thetax is rather short. In 1994, an evaluation studyof applied economic instruments in Sweden waspublished 10). This study concludes that some in-dications about the steering effects of the tax canbe given. In many cases energy production plantsare said to have shifted fuels as a consequenceof the tax. The tax relief for bio-fuels has lead toan increased interest to convert existing plants.The use of wood fuel in district heating continuesto grow. Combined heat and power productionhas become more competitive, especially whencoal and oil are used.

The report finds a tendency to a higher consump-tion of fuel oils in industry, while industrial pro-duction slightly decreased in the same period.This might be attributed to the tax relief for thissector after 1992. The consumption of fuels in theenergy-intensive paper and pulp industry increa-sed by more than 30% in one year, compared withabout 20% for industry as a whole, illustrating theenvironmentally perverse effect of exemptions.

3. CO2 tax (Norway)The CO2 tax in Norway, in place for 5 years, hasbeen evaluated 11). The analysis is carried out forselected sectors on a sub-macro level. The focusis on emissions from stationary sources in main-land manufacturing industry and services andfrom stationary and mobile sources of house-holds. In total it covers about 40% of taxable CO2emissions.

The methodology implies a comparison of the ac-tual economic developments (with the CO2 tax)8) Ministry of the Environment and Natural Resources, The

Swedish Experience - Taxes and Charges in Environmen-tal Policy, Stockholm 19949) See also S. Smith, Evaluating the efficiency and effective-ness of economic instruments: a conceptual and empiricalanalysis, in: OECD 1996 forthcoming.

ANNEXES 53

and the fictitious developments (without the CO2tax). The price of heating oil and petrol increasedabout 15 and 10% as a result of the tax. The totaleffect of the tax was a reduction of CO2 emissionsof 3-4 per cent for the period 1991-1993.

The largest effect was calculated for the paper in-dustry. Oil consumption would have been 21%higher without the tax. The impact in the interme-diate products sector and the government serv-ices was 11 and 10% respectively. The impact wasmuch lower in other sectors.

The effect of the tax on the household use ofenergy for heating was low because of a low shareof oil for this purpose (less than 10 %). Private cartransport by households would have been 2-3%higher per year without the tax.

4. Tax on domestic flights (Sweden)Domestic flights are subject to a tax based on theemissions of hydrocarbons and nitrogen oxides.The tax rate is SEK 1 per kg for both pollutants.These taxes are additional to the CO2-tax of SEK0.32 per kg for aviation fuel used in domestic airtraffic. The calculation of the taxes is based onstandard emissions figures for types of aircraftand on average flight distances.

The report that evaluates the tax scheme 12) thatthe tax has resulted in “thorough analysis of avia-tion procedures and exhaust emissions from theaircraft”. The tax is also said to have acceleratedthe change of combustion chambers of the air-crafts by one of the airlines subject to the tax. Thedirect impact of the tax on aircraft emissions isunknown.

5. Waste charge (Denmark)Denmark applies a charge on the disposal (dump-ing and incineration) of non-hazardous waste sin-

12) Ministry of the Environment and Natural Resources,1994

ce 1986. Current tariffs are DKK 195 per ton fordumping and DKK 160 per ton for incineration.The difference in tariffs reflects the aspiration toincrease the share of waste incinerated and to de-crease the share of waste for dumping. Tariffs willbe further raised and differentiated in 1997. Wasteincinerated in installations that recover heat orgenerate electricity will be charged DKK 160 perton. Otherwise a charge of DKK 210 per ton is due.Landfilled waste will cost DKK 285 per ton.

Exemptions exist for certain types of waste. Char-ge paid for waste that is shipped off the waste siteis reimbursed. The revenues from the Danishwaste charge go into the general budget. Since1993 they have been used as a part of the greentax reform.

This fiscal tax has an explicit regulatory function.The intended environmental impact includes re-duction of waste generation, increase of reuse andrecycling and a larger share of waste incinerated.Reuse and recycling of waste increased from 21%to 50% of the total amount of waste offered for col-lection in the period 1985 to 1993. Dumping de-creased from 57% to 26%. The share of waste inci-nerated remained constant.

The financial effect of the waste charge is conside-rable. 80% of the landfill tariffs (waste charge ex-cluded) are between DKK 150 and DKK 250 per ton.The waste charge of DKK 195 results on averagein doubling the costs of waste dumping. The tariffsfor incineration are between DKK 150 and DKK 300per ton. The charge of DKK 160 increases the costsof incineration by 70% on average.

Currently, the charge scheme is under evaluati-on. The purpose of this study is to investigate theimpact of the tax scheme on the changes in thedisposal of waste mentioned above.

No results of this study are available to date. How-ever, the Danish Environmental Protection Agen-cy is of the opinion that the tax scheme has signi-

54 ANNEXES

ficantly contributed to a substantial increase of dereuse of demolition and construction waste. Totalwaste supply only slightly increased in the period1988-1993, by 2%. In 1985, 12% of the demolitionwaste was reused. The reused fraction increasedto 82% in 1993. This results by far exceeds the tar-get for the year 2000 which is 60% reuse. TheAgency has based its opinion on statements madeby representatives of the construction sector 13).

6. Tax differentiation onleaded petrol (Sweden)In order to facilitate and accelerate the penetrati-on of unleaded petrol, a tax differentiation of un-leaded and leaded petrol was introduced in 1986in Sweden, like in many countries. Phasing outleaded petrol was necessary for reduction of thelead emissions and to facilitate the use of carsequipped with catalytic converters. The tax diffe-rential increased from SEK 0.10 in 1986 to SEK0.51 in 1992. The share of leaded petrol decreasedfrom 100% in 1986 via 40% in 1992 to practicallyzero in 1993.

This instrument was rather aimed at producersof car fuel than at consumers. Producers shouldbe persuaded to start producing unleaded fuel by(partial) compensation of the additional producti-on costs. Drivers of cars suitable for this fuelwould follow quite easily provided that the priceof unleaded petrol would be lower.

Originally, the tax differential was too small to co-ver the additional costs. After the increase to SEK0.51 the differential appeared to be sufficient 14).Another reason for the dramatic fall of the shareof leaded petrol after 1992 (40%) was the replace-ment of leaded fuel for cars that continue to requirethis type of fuel by a fuel containing an alternativelubricant, sodium. Total emissions of lead droppedby about 80% between 1988 and 1993.

As to incentive impact of the tax differential, oilproducers stated that the differential was an im-portant reason for starting to produce unleadedpetrol. Whether announced regulations, necessa-ry in the framework of promoting cars with cata-lytic converters, also meant an important incen-tive is unknown, but not improbable.

7. Tax dif ferentiation for diesel (Sweden)Reduced tax levels apply for types of diesel fuelthat comply with environmental characteristicswhich are stricter than those required accordingto environmental regulations. Three classes havebeen distinguished. Class III is the standard typeof diesel for which a maximum allowable contentfor sulphur of 0.2% was set. Classes II and I com-ply with stricter requirements, not only for thecontents of sulphur but also for the emissions ofaromatics and other environmentally relevantcharacteristics.

Tax rebates were introduced for classes I and IIin 1991. In 1994 the levels of the rebates amountto SEK 457 per m3 and SEK 260 per m3 for classesI and II respectively. The tax rebates should en-courage the production and market penetrationof the cleaner fuels by compensating higher costsof production.

The Swedish evaluation study 15) describes the im-pact of the tax rebates scheme on the diesel mar-ket as “dramatic”. In 1990 less than 1% of the die-sel sold in Sweden would have qualified for clas-ses I or II. In 1994, 60% of all diesel fuels compliedwith class II and 15% with class I requirements.The emissions of sulphur from diesel cars decrea-sed by 75%, and even by 95% in cities. The studyattributes this apparent success to the combinati-on of the tax rebates scheme and lower than ex-pected production costs for the cleaner dieselfuels. It appeared that, rebates included, the costsof production of classes I and II were lower than13) Danish Environmental Protection Agency, The Danish

Waste Charge Act (note, 1995)14) Ministry of the Environment and Natural Resources,1994

15) Ministry of the Environment and Natural Resources,1994

ANNEXES 55

the production cost of standard fuel. This inducedproducers to concentrate production and market-ing on the cleaner products. A conclusion thatcould be drawn from this: In some cases marketsand the exploration of efficient solutions mightneed the help by government to be discovered.

8. Toxic Waste Charge (Germany,Baden-Württemberg)A charge on toxic waste was introduced in April1991 in the south-western Land Baden-Württem-berg of Germany, in order to cope with the increa-sing amount of toxic waste. Hence, the tax maybe classified as an incentive tax, though also rais-ing substantial revenues. The tax rates weredoubled in 1993 up to a level of 100, 200 or 300DEM per ton depending on the potential dangerand the expenditures for treatment.

In terms of environmental pollution it can be re-garded as successful. The amount of toxic wastedeclined from 605,000 tons in 1991 via 430,000 tonsin 1992 to 354,000 tons in 1993. At the same timethe revenue rose from 19,8 million DEM in 1992up to 36,7 million DEM in 1993. According to anevaluation study carried out by the Eco-Institutein Darmstadt (Öko-Institut 1994) only half of the250,000 tons of reduced toxic waste may be clas-sified as abated. The other half may be explainedby using other terms, evasion or the recession.The tax has even led to a reduction of plannedcapacities of incineration. The consultants discov-ered a still large potential for abatement. Thus,they ask for residual substances also to be taxedin order to prevent attempts of evasion.

9. NOx-charge (Sweden)First of January 1992 a charge on emissions ofNOx was introduced in Sweden. About 185 largecombustion installations for generation of energyare subject to the charge system. The charge isimposed on emissions which are being calculatedon the basis of continuous monitoring. Tax sub-jects may apply for a fixed charge rate. It is assu-med in those cases that emissions amount to 600

mg NOx per MJ input of fuel for gas turbines and250 mg NOx per MJ of fuel input otherwise. Sincethese parameters by far exceed actual emissionfactors (amounting to 112 mg/MJ on average forall fuels), subjects are encouraged to install moni-toring equipment and pay the charge on the ba-sis of actual emissions.

Plants with an input energy capacity of at least 10MW and a total annual energy production of atleast 50 GWh are subject to the charge. The pro-duction threshold is decreased to 40 GWh in 1995and is intended to be further decreased to 25GWh in 1997.

The charge scheme is additional to the system ofpermits and its purpose to accelerate the reducti-on of NOx-emissions. A reduction of 5000 to 7000ton per year was originally aimed at. Total emissi-ons of the liable plants amounted to 24.000 tonsof NOx in 1990, 21.000 tons in 1992 and 15.300tons in 1993.

The tax rate is SEK 40 per kg NOx emitted. Therevenues (SEK 600 million in the first year of ope-ration) are refunded to the payers on the basis ofa proportional share of the total energy producedby the plants.

According to an evaluation 16) the charge has hadan environmental impact that was noticeable from1990 when the system was adopted by the Parlia-ment. The main portion of the reduction of 9,000tons of NOx, realised in 1992, is reported to be at-tributable to the charge. The average emission ofNOx per unit of energy input dropped from 159mg per MJ to 103 MJ. Based on adopted projectsby the liable subjects, emission reductions are ex-pected to continue.

16) Ministry of the Environment and Natural Resources,1994; S. Smith, Evaluating the Efficiency and Effectivenessof Economic Instruments - Lessons from InternationalExperience, in: OECD 1996 forthcoming.

56 ANNEXES

Reactions of subjects to the charge could be tra-ced by comparing net payments with emissionsreductions, by sector. Table 7 shows the redistri-butive impact of the charge and NOx reductiondata for five sectors (figures for 122 plants).

The largest net payer is the waste incinerationsector. This sector managed to bring about aemission reduction of 40%. The largest net recei-ver is the metal industry. Their emissions slightlyincreased. The results for the other three sectorsare not conclusive in this respect.

The charge rate was set at SEK 40 per kg of NOxfor incentive reasons. The costs of reducing emis-sions in the installations under the charge sche-me were estimated varying from SEK 20 to SEK80 per kg. Many measures are reported to becheaper than SEK 20 per kg, however. An averagecost figure of SEK 10 per kg is considered to belikely by the Swedish Environmental ProtectionAgency. This implies that the charge provides astrong incentive for tracing and applying cost-effective solutions.

Since the primary objective of the charge systemwas to strengthen the permit policy, it can be con-cluded that the policy effectiveness was high.

10. Fertiliser charge (Sweden)A charge on nitrogen and phosphorus content offertiliser has been applied in Sweden since 1982.This charge was a “price regulating” chargeaimed at providing financial support for the ex-port of agricultural products (and skimmingsome of the farmers’ rent due to low fertiliser pri-ces). In 1984, an environmental charge on fertili-ser containing P and N was introduced. The dualpurpose of this charge is to raise the price anddiscourage the demand of fertiliser, and to crea-te funds for financing measures to mitigate negati-ve environmental effects of agriculture, such asmanure treatment plants, counselling and infor-mation. The rates of both charges were raised toa level of about 30-35% of the sales value of fertili-sers in 1991. The “price regulating charge” wasdropped in 1992; the level of the environmentalcharge was about 10-13% in that year 17). The ratesare SEK 0.6 per kg for N and SEK 1.2 per kg for P.

The use of fertiliser has been reduced significant-ly since 1984. Even though, the impact of thecharge systems on these reductions is hard to as-sess as a large agricultural reform programme

17) Ministry of the Environment and Natural Resources,1994

Table II.2: Net payments and emissions reductions, by sector

Number of installations Net payment (reception) per NOx emission reduction,GWh of energy produced 1992-1993 (%)(SEK/GWh)

Waste incineration 5 9763 42

Energy generation 53 (878) 23

Chemical industry 23 (94) 17

Pulp and paper industry 39 1304 13

Metal industry 2 (9168) -2

Total 122 176 20

Source: OECD 1996 forthcoming.

ANNEXES 57

was undertaken during the same period. TheSwedish evaluation report states that the impacton the use of nitrogen and phosphorus was noti-ceable. The reduction of N was largest when thecharge rate reached a high level (1990). The useof P shows a continuous decrease during the pe-riod 1984-1992, of 50% in total. The report statesthat this result was caused by the charge systemand by growing awareness about the negative ef-fects of phosphorus on the environment. The lat-ter factor was assumed to be influenced by infor-mation campaigns financed from the chargefunds.

11. Water pollution charge (France)The purpose of the French water pollution chargesystem is to stimulate and partly subsidise theconstruction of wastewater treatment plants ope-rated by municipal and industrial dischargers.The responsibility for purification of wastewaterremains with the polluters themselves; they paythe charge if they discharge to open water, andthey are supported financially if they undertaketreatment measures. The charge system is admi-nistered by the six Agences de l’Eau. These pub-lic bodies formulate objectives, decide about thenecessary funds and calculate the charge rateson that basis.

According to an in-depth evaluation study of thesystem 18), the French charge is best described asearmarked. A major feature of the system is a tax-bounty scheme for firms and local authoritiesconcluded in sector contracts and river contracts.

The amount of wastewater treated in public purifi-cation plants rose from 21 million i.e. in 1980 (30%of total wastewater emissions) to 32 million i.e.in 1992 (42% of total emissions). Industrial emissi-ons of oxygen binding substances, suspended so-lids and heavy metals decreased by 28%, 38% and39% respectively in the period 1980 - 1992.

18) M. Skou Andersen, 1994a

Assessing the impact of the charge on pollutionbehaviour is difficult since the charge system ispart of the French water quality policy that is do-minated by permit issuing. This can be illustratedby some figures. Total expenses for water quali-ty policy in France amounted to FRF 44,000 milli-on in 1992 (42% of total environmental expensesof FRF 105,000 million) 19). The funds created bythe proceeds of the water pollution chargesamounted to FRF 3,600 million, or 8% of the totalwater quality expenses. Investments for preventi-on and treatment of wastewater were FRF 19,000million in 1992. These figure indicate that mostof the measures taken for a better water qualityare geared by the permit policy, and by the willing-ness of local authorities to undertake water treat-ment projects and pass (92% on average) of thecosts on to the inhabitants 20). Of course, the sec-tor and river contracts may have been the decisi-ve factor in starting treatment works in individualcases.

The charge rates are modest, compared with thecharges in Germany and the Netherlands. Conse-quently, the incentive impact of the charge onadoption of pollution control measures - a refundtakes place upon proof of adequate measures - issmall (less than 10% of that in Germany and theNetherlands). The charge rate has also neverbeen related to the marginal costs of abatementcosts, and appears to be much smaller than theaverage costs of pollution control.

12. Water pollution charge (Germany)The German water pollution charge system wasintroduced to reinforce the water quality policywhich mainly is the competence of the GermanLänder. Although originally intended to be purelyincentive, the actual system has been weakened,

19) P. Chapuy, Evaluation de l’Efficacité et de l’Efficience desSystemes de Redevance de Pollution de l’Eau: Etude de Casde la France, OECD Paris 199520) M. Skou Andersen, 1994a; A. de Savornin Lohman, Syn-thesis report, 1995

58 ANNEXES

as a compromise between Federal authorities andthe States 21). The system contains some incentiveelements, such as reductions for best availabletechnologies (BAT) and lowered rates in expecta-tion of investments. As the charge bill is basedon discharge values in the permits and not on ac-tual emissions, the objective of the charge couldbe described as to encourage applicants for a low-discharge permit. Funds of the charge accrue tothe Länder and are added to their budgets for wa-ter quality policy, financing monitoring and admi-nistrative structures.

As to the objective of the charge, the German sy-stem is probably best rated as an incentive char-ge, when it came into effect from 1981 on. Dueto several changes, in particular after the GermanUnion it may now also be characterised as an ear-marked charge.

Although lack of data impedes a proper evalua-tion of the charge system in terms of environmen-tal impact, some evidence exist that the earlyannouncement of the system induced municipali-ties and industry to undertake action aimed atreduction of wastewater discharges by treatmentof effluent. One evaluation studies observes thatthe decline in water pollution discharges beganin 1981, the year of the actual introduction of thecharge, though minimum requirements for dis-charges were also introduced around that time 22).

The charge rate was calculated against the back-ground of marginal abatement costs of differentindustry sectors. But the rate was then set ratherto limit the financial consequences for the charge

subjects than to reflect marginal pollution abate-ment costs.

13. Water pollution charge (Netherlands)The Dutch water pollution charge system is pri-marily geared towards financing collective waste-water treatment plants. It was introduced in 1970in order to facilitate the building of wastewatertreatment capacity for discharges into the large wa-ter bodies managed by the State (big rivers, estu-aries, Ijssel Lake). The charge rates, as far as thenon-State part of the system managed by the Wa-ter Boards is concerned (the other part is the statepart of the charge, which is not evaluated here),is calculated on the basis of funds required forexpenses for investment in and running of theplants in the coming period. The charge systemaccompanies a system of permit-giving.

Available evaluations observe that the Dutch wa-ter quality policy has been quite successful 23).Treatment capacity increased from 52% in 1975to 95% in 1992, in terms of households connectedwith a public sewage treatment plant. Of all dis-charges 74% was treated in 1991, against 51% in1980. Emissions from the manufacturing indus-try went down from 19 million i.e. to 4 million i.e.in the period 1975 - 1991.

The discharges from large emitters in the manu-facturing industry decreased by 80% in the periodbetween 1975 and 1991. Two studies attemptedto disentangle the impact of the charges from theimpact of the Dutch water quality policy at large.One study 24) found a strong relationship betweenvariations in charge rates of Water Boards and therate of reductions of discharges within their juris-diction. Another study 25) found that the majority

23) A. de Savornin Lohman, The Effectiveness and Efficiencyof Water Effluent Charge Systems: Case Study on theNetherlands, OECD Paris, 1995; M. Skou Andersen, 1994a.24) J. Bressers, Beleidseffectiviteit en waterkwaliteitsbeleid,diss., Enschede 1983, cited by A. de Savornin Lohman,Synthesis report, 1995

21) R.A. Kraemer, The Effectiveness and Efficiency of Wa-ter Effluent Charge Systems: Case Study on Germany,OECD Paris, 1995; A. de Savornin Lohman, The Efficiencyand Effectiveness of Water Pollution Charges in France,Germany and The Netherlands: a Synthesis of AvailableEvidence, OECD Paris 1995.22) M. Skou Andersen, Governance by Green Taxes: Mak-ing Pollution Prevention Pay, Manchester University Press,1994a.

ANNEXES 59

of interviewed industry representatives (54%)claimed that the charge has been the decisive fac-tor in decisions in favour of water pollution abate-ment measures, whereas only 20% pointed at thepermit policy to be of main importance. This stu-dy also stated that the average charge rate - whichvaries substantially across Water Boards - wasonly slightly lower than average pollution abate-ment costs. Consequently, in some individual ca-ses, the charge rate would exceed the averageabatement costs.

14. Household waste charge (Netherlands)Collection and removal of household waste andwaste from small municipal enterprises is the re-sponsibility of the Dutch municipalities. Many ci-ties and villages have boarded out waste manage-ment tasks to private firms, but they remain re-sponsible for financial aspects. The majority ofmunicipalities pass on (part of) the costs of wastecollection to the inhabitants by annually issuingfixed rate waste bills. Increasingly, especially thesmaller, rural cities are introducing variablecharge rates. Three main systems are found. Oneor two municipalities actually weigh the contentsof the dustbin at the moment of collection. A fewvillages apply a “pay-per-bag” system. Finally, anumber of municipalities are basing the chargebill on the size of the household or the frequencyof collection.

The motivation for variable charge rates primarilyincludes the wish for a fairer distribution of thecosts across households, in the framework of ra-pidly increasing charge bills. Explicit referenceto the “polluter pays principle” is made. Further-more, variable rates may have an incentive impacton households.

An evaluation study analysed a number of “pay-per-bag” systems and observed that indications for apositive impact on the waste supply by households25) J. Schuurman, De Prijs van Water, Gouda Quint BV,Arnhem, 1988, cited in A. de Savornin Lohman, Synthesisreport, 1995

can be found 26). Municipalities operating a “pay-per-bag” system produced 10-20% less waste percapita than comparable municipalities with tradi-tional systems. Illegal dumping or dumping ofwaste in adjacent villages was reported to be of nomajor problem, provided that the price per wastebag did not exceed the level of DFL 2. This find-ing is similar to US studies of “pay-per-bag” sys-tems, (OECD, 1996 forthcoming).

15. Battery charges (Sweden)In 1991 charges on the sales of lead batteries over3 kg and of small batteries containing over 0.025%of mercury and cadmium were introduced. Thefunds of the charges are allocated to finance col-lection and final deposition, which is not economi-cally feasible without financial support, and infor-mation campaigns 27).

Lead batteriesThe charge rate is SEK 40 per kg. A special com-pany was established to administer the fundsfrom the charge. As a consequence of producerresponsibility, sellers of lead batteries have totake them back. The target for collection was 95%.In 1991 and 1992 the number of used batteriescollected exceeded the number of sold batteries.In 1993 the collection rate was 95%.

Since the charge only amounts to 6 - 8% of the pri-ce of batteries and since consumers have no alter-natives, the demand for lead batteries is hardly ifat all influenced by the charge. The policy effecti-veness of this user type of charge has to be mea-sured in terms of the success of the collection sy-stem which is very good.

26) DHV Milieu, Differentiatie van Tarieven voor Inzamelingvan Huishoudelijk Afval, Ministerie van VROM, Publicati-ereeks Afvalstoffen nr. 1993/9, Den Haag27) Ministry of the Environment and Natural Resources,1994

60 ANNEXES

Mercury (Hg) andnickel-cadmium (NiCd) batteriesThe charge rates for Hg-batteries and NiCd batte-ries are SEK 23 per kg and SEK 25 per kg respec-tively. The funds from the charges are used forfinancing final deposition of the collected batteri-es and for information, and to support recyclingof NiCd batteries. The storage facility contains lar-ge unsorted amounts of old batteries with highHg and Cd contents and many batteries are stillin use. The funds from the charge are decreasingbecause Hg and Cd contents in today’s batteriesare falling below the level above which the chargeis due. A deficit is expected.

The collection rate for batteries containing Hgwas 89% in 1991, and only 49% for NiCd batterieswhich is below the target of 75% set by the govern-ment. NiCd batteries have a long durability anda significant number of these batteries built-in inconsumer goods are sold outside the system ofregistration. A collection premium for this typeof batteries is under discussion.

The charge rates are too low to have a noticeableimpact on the demand for batteries. The decrea-

28) Berenschot, Rapport Audit Sanering Woningen inverband met Geluidshinder Schiphol, 1991

sing contents of heavy metals is attributable to en-vironmental awareness and international develop-ments, rather than to price incentives. The policyeffectiveness is good at the moment, but fundsmay fall short of the costs of disposal of batteriesin the future due to less harmful substances innew batteries.

16. Aircraft noise charge (Netherlands)Since 1983 a surplus is imposed on landing feesfor aircraft landing on Dutch airports. This air-craft noise charge is differentiated according tonoise characteristics of the aircraft. The proceedsare earmarked for financing measures to reducethe noise annoyance caused by airports (insula-tion and redevelopment).

The impact of the charge system in the Schipholarea was evaluated in 1991 28). Main conclusionswere that the charge was rather effective in termsof raising money for the purposes intended. Theimpact on noise annoyance by aircraft was as-sessed to be “very limited”. The relationship be-tween the charge level and the actual noise pro-duction of the aircraft appeared to be very weak.

ANNEXES 61

62 ANNEXES

Annex III - Some non-energy, environmental taxes

Revenue

AUD 0.15 millionin 1989

Estimated reve-nue loss lessthan AUD 0.15million

DKK 120 millionin 1993

DKK 305 millionin 1993

n.a.

DKK 58 million in1993

DKK 11 million in1993

DKK 5.1 millionin 1993

DKK 7.8 millionin 1993

Country

Australia(Common-wealth)

Austria

Belgium

Canada

Denmark

Item

CFC

Recycled paper

Some solar power equip-ment used for heatingpurposes and goods usedto convert internalcombustion engines onLPG or natural gas.

Tires

Disposable razors

Beverage containers

Paper, pesticides, batteri-es, packaging of ink, glue,oil and solvents

Disposable cameras

Ontario, Manitoba

Certain provinces

Manitoba

Prince Edward Island

British Columbia

Raw materials

Certain retail packaging

Carrier bags of plastic andpaper

Disposable tableware

Pesticides

CFC and halons

Rechargeable batteries

Description

AUD 0.23 per kg levy introduced in 1989 on production and import tocover costs of administering CFC phase-out. (The States also havelicensing and quantity based charges for CFCs).

Certain paper products made from 100 % recycled paper are exempt fromWholesale sales tax.

Exempt from Wholesale Tax.

(under discussion)

BEF 10 per razor (from 31 January 1994)

Since 1 April 1994, a tax of BEF 15/litre (minimum BEF 7) is levied on con-tainers of beer and some soft drinks if they are not submitted to a deposit-refund system and if they are not reusable or an annually increasing percent of them is not being recycled, BEF 380 if not recycled (1 July 1994)

Dates of coming into force are under discussion

BEF 300 if not recycled (1 July 1994)

Alcohol beverage containers: CAD0.05 to CAD 0.10 on non-refillablecontainers

Tyres: CAD 2 to CAD 4 per tire

Quarry minerals: CAD 0.10 per tonne

Newsprint and promotional material (under discussion)

Lead-acid batteries: CAD 5 per battery

The excise duty is levied on extraction and export of sand, gravel etc. at therate of DKK 5 per cubic metre.

The excise duty is levied on containers for beverage, soft drinks, fruit juice,spirits, vinegar and oils etc. The tax rate is between DKK 0.38 - 2.28 percontainer depending on the size and the type of the container.

An excise duty on carrier bags of plastic and paper with a possible contentof minimum 5 litre was introduced 1 January 1994. For bags of paper thetax rate is DKK 9 per kilo and for bags of plastic the tax rate is DKK 20 perkilo.

The excise duty is levied on plastic and paper cups, plates, cutlery etc. Thetax rate is one-third of the wholesale value including the tax rate butexcluding VAT. In connection with imports the tax rate is 50 per cent.

The retail sale of pesticides sold in containers less than 1 kg or 1 litre issubject to a tax. The rate is 1/6 of the whole sale value including the tax butexcluding the VAT. When the tax is paid in connection with imports the ratesis 20 per cent of the producer price. Pesticides sold in larger quantities thanmentioned above are subject to a tax of 3 per cent of the wholesale priceexcluding discounts and VAT. When the tax is paid in connection withimports the rate is 20 per cent of the producer price.

The excise duty is levied on the use of CFC’s and halons or productscontaining these. The tax rate is DKK 30 per kilo of the products.

A charge is levied on rechargeable nickel/cadmium batteries. The revenue ofthis excise duty is earmarked for covering the costs of a collectionarrangement for used rechargeable batteries. The rate is DKK 2 per singlebattery and DKK 8 per battery attached to technical devices or apparatus

Table III

Finland

France

Iceland

Italy

Mexico

Norway

Portugal

Sweden

United States

Light bulbs

Beverage containers

Lubrification oil

Fertilisers

Paper, pulp and board

Tax in billboards,advertisements and signsor advertising sites

Plastic bags

Polyethylene

-

Beverage containers

Batteries, packaging,glass, plastic, coal ashes,mining and tyres

Mineral oils obtained fromrecycling of used oils

Beverage containers a)

Batteries

Ozone-depletingchemicals

An excise duty on ordinary light bulbs exists while energy saving light bulbsare exempt from this duty. This difference in taxation between ordinary andenergy saving light bulbs is a measure taken in order to encourage the use ofenergy saving light bulbs.

“Surtax” levied since 1976 on beer and soft drinks in non-reusable glass,metal and other containers. Rates are 3 FIM/litre on soft drinks in non-returnable metal or glass containers, 2 FIM/litre on soft drinks in other non-returnable containers. Approved return systems allow exemption from thesurtax. Surtax of 1 FIM/litre applied to beer in non-returnable containers.

Amendment in June 1994: beer and other alcohol beverage containers 4FIM/litre.

For approved system:- refillables: exempt- use as raw material: 1FIM/litre

Waste oil charge at the rate of 0.25 FIM per kg

Excise tax on fertilisers: 2.60 FIM/kg N + 1.70 FIM/kg P (repealed as of16.6.1994)

Revenues partly used for promoting waste paper recovery

Fixed by municipal councils

8 ISK per ba

Levied on polyethylene as primary product of carrier bags (since March 18,1994)

-

Also levied since 1988 on disposable beverage containers per litre:Liquor and wine:NOK 2.50 (1991)

NOK 3.00 (1993)

Beer:NOK 3.50 (1991)

NOK 3.00 (1993)

Carbonated drinks:NOK 9.50 (1991)

NOK 9.30 (1993)

Non-carbonated drinks:NOK 9.50 (1991)

NOK 9.30 (1994)

Non-reusable beverage containers:(since 1994) NOK 0.70

These products are subject to different protocol for collection and recyclingbetween the authorities and the related industry

Not subject to Excise Duty on motor fuels

Levied since 1973 on beverage containers, per container depending onvolume (paper and cardboard exempt): Returnable SEK 0.08 DisposableSEK 0.10 - 0.25

Levied on batteries per kg:HgOx SEK 23NiCd SEK 25Pb SEK 32

Ozone-depleting chemical excise tax imposed on CFCs, halons, carbontetrachloride, and methyl chloroform. The rates are proportional to theozone-depleting potential of each chemical and range from USD 0.137 toUSD 13.70 per pound (in 1991) also imposed on imported productscontaining (or manufactured with) these ozone-depleting chemicals.

n.a.

Surtax revenues:- soft drinks;FIM 35 million in1990FIM 19 million in1993- beer;FIM 30 million in1990FIM 16 million in1993

FIM 21 million in1993

FIM 516 millionin 1993

n.a.

n.a.

-

NOK 41 million in1991NOK 48 million in1993

NOK 13 million in1991NOK 11 million in1993

NOK 60 million in1991NOK 24 million in1993

NOK 59 million in1991NOK 65 million in1993NOK 95 million in1994

SEK 110 millionfor 1991-1992

SEK 17 millionfor 1991-1992

USD 886 millionin FY 1991USD580 millionin FY 1992

Table taken from OECD 1995, p.86-89. Notes: a) Abolished in May 1993

European Environment Agency

ENVIRONMENTAL TAXESImplementation and Environmental Effectiveness

1996 - 64pp. - 21 x 29,5cm

ISBN: