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Economic Instruments in CEE:
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There are a variety of new economic instruments being discussed for introduction into CEE, primarily product charges and CO2/energy taxes. Many of these new instruments are seen as essential in the process of EU accession, given the large amount of investment that will be required for key EU Directives such as the Urban Wastewater Treatment Directive, the Landfill Directive and IPPC. There are also some new, more incentive based economic instruments being designed with the aim of reducing the overall costs of pollution abatement and thus reducing the amount of environmental financing required. Given this discussion, further evaluation of existing instruments will be necessary.
Assessing the effectiveness of these instruments remains difficult. In most cases, economic instruments have been introduced in conjunction with other policy measures, and a swiftly changing economic and social context make it further difficult to isolate the impact of economic instruments alone. Analysis of certain elements of the instruments has yielded some useful insights. The incentive effect of economic instruments is often overlooked while designing certain instruments. However, there is some evidence suggesting that the incentive effect of certain economic instruments applied in CEE has been successful in encouraging more environmentally-friendly behaviour and practices. For example, in Hungary, the introduction of a charge on packaging materials prompted some companies to start waste prevention and recycling measures, and in Estonia, a recently introduced excise tax on drink containers motivated a rapid growth or reuse of such packaging. Revenue raising is also a major objective of economic instruments applied in economies in transition countries. Revenue raising appears to be the dominant function of most economic instruments, and one of the current reasons for this is that some public authorities, especially in CEE countries preparing for EU accession, are under pressure to finance environmental investments and are looking to earmarked economic instruments as an important source of that finance. The revenue generated by economic instruments is used in different ways, with some of it going to general budgets of state and local governments to be used to finance public environmental service or other, non-environmental public expenditures. However, most revenues generated by the above instruments are strictly earmarked for environmental purposes and are channeled to environmental funds. These funds are used as mechanisms for managing earmarked revenues and financing environmental investments and have helped some CEE countries to overcome a number of problems during economic transition. However, the design of pollution charges and non-compliance fees caused a few un-intentional problems over the first part of the 1990’s. Firstly, charge rates were usually set at a low level, because of social and political reasons, and therefore only provided modest incentives for polluters to invest in pollution reduction instead of paying the charge. Also, high inflation levels destroyed much of the real incentive effect in a number of transition countries. Non-compliance fees have also been set too low, compared to the costs of the activities they would be designed to encourage. Over the past years solutions to some of these obstacles have been developed to improve charge systems in some countries. Modifications have been made: charge rates have been linked to inflation, charge rates have been increased increased to promote abatement measures, and penalty rates have been introduced with substantial multipliers to provide incentive for pollution reduction. In most cases, EU Accession continues to provide the policy context in which economic instruments are functioning. Harmonising strategies both to achieve environmental policy goals, as well as to raise revenues necessary for investments will continue to be a high priority. The earmarking of revenues from economic instruments and the role of environmental funds as institutions to manage this money will also be analysed at the national and regional level. Public acceptance of future environmental taxes will certainly also provide direction for these policy initiatives. This article was contributed by Nigel Jackson, SIEI Secretariat, Regional Environmental Center for Central and Eastern Europe.
References (these materials can be obtained by contacting the SIEI Secretariat):
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