An attempt to answer this question was made by the authors of two Environment Discussion Papers of the Harvard Institute for International Development. The weaknesses of the current system are known. The system is too complex and too costly: more than 200 various substances are charged - no other country has such a voluminous system - and the standards are set for each pipe. Controlling such an extensive system properly is simply impossible. This is one reason why enforcement is very insufficient and there are enough possibilities for companies to avoid paying charges and penalties. Pollution charge levels are too low to provide much incentive to polluters to reduce emissions and to invest in pollution abatement.In fact there was a large reduction in pollution in recent years in Russia, but this is considered to be rooted mostly in the drop in production and not in investment in pollution abatement. Will the emission volume grow as rapidly as the economy when economic performance picks up or will economic growth be coupled with technical refurbishment and a de-coupled growth of emissions?
Alexander Golub and Evgeny Gurvich based their analysis on an economy projection model, which was created for economies in transition by World Bank consultant Gordon Hughes. When studying the results of this analysis one has to keep in mind some basic assumptions of the model. For example, the model assumes that with the market reforms, a gradual replacement of outdated technologies with more efficient modern technologies which can meet environmental standards will take place.
The authors came to the conclusion, that the low rate of fees and the indexation to inflation are the key problems. They recommend to increase the charges (fines) for emissions above the limits 100 times and to remain the charge rates for emissions within the limits at the current level. In addition, indexation to inflation is a must in order to guarantee that charges will not be devaluated from the very beginning. Such a reform would provide stable revenues for environmental funds. In the opinion of the authors, an introduction of an assumed CO2 tax in Russia does not make sense, because its effect on CO2 emissions is expected to be lower than that of the option of increased charges for emission above the limits, and, the resulting tax load would be several times higher. Such a proposal could politically hardly be accepted.
The authors emphasize that the system of charges has to be simplified. One option is to introduce the bubble principle, so that one standard for a specific pollutant is valid for the whole factory. This can be combined with reducing the number of pollutants being charged. The study reveals also that the existing system is inefficient in charging the transport sector. Cardinal changes are required here. A main question still remains for further discussion: should Russia have standards that correspond to the European or US standards, or, should it have distinctive ones, which are much more strict?
Michael Kozeltsev and Anil Markandya consider, that a major overhaul of the system in the next 2-3 years is unreasonable given the present economic circumstances. So they recommend for the short-term to make the system more transparent and formal:
Also for them, indexation to inflation is an important issue. They even propose that charge levels could increase faster than inflation as economic growth starts again. Real charge levels in some CEE countries could potentially provide an indication of what is possible.
For the medium and long-term, they propose to search for other types of charges. For example to combine the pollution charges and regulations with charges on key inputs such as fuels, chemicals, etc., levied at the point of manufacture or distribution.
For the authors a crucial issue is the weakness of the institutions that implement environmental regulations. Sometimes authorities lack the funds and capacity to act in the most adequate way and fulfill their tasks most effectively. Also the responsibilities between different agencies involved, and, between federal, regional and local authorities have to be clarified.
Although the pollution charge system in Russia did not fully achieve its determined goals, nevertheless, both studies found that the system played an important role for the Russian environmental policy:
Kozeltsev, Michael and Markandya, Anil: Pollution Charges in Russia: The Experience of 1990-1995, Environment Discussion Paper No.15, January 1997, Harvard Institute for International Development, p.14, price US$5. International Environment Program, Harvard Institute for International Development, One Eliot Street, Cambridge, MA 02138, USA. Tel: +1-617-4965176, Fax: +1-617-4968040, http://www.hiid.harvard.edu/pub/ddps90no.htm
Golub, Alexander and Gurvich, Evgeny: Options for Revising the System of Pollution Charges in Russia: Results of an Aggregate Modeling Analysis, Environment Discussion Paper No.21, July 1997, Harvard Institute for International Development, p.31. International Environment Program, Harvard Institute for International Development, One Eliot Street, Cambridge, MA 02138, USA. Tel: +1-617-4965176, Fax: +1-617-4968040, Internet: http://www.hiid.harvard.edu/pub/ddps90no.htm