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SO2, NOX, and CO2 taxes
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The development and implementation of air pollution charges, the primary pollutants being SO2, NOx, and solid particles, varies both in comprehensiveness and success throughout the region. On a regional basis, more attention continues to be given to the revenue raising function of economic instruments rather than their ability to provide incentives to polluters to reduce environmental pollution. This can be attributed to budgetary pressures in most countries which have severely restricted the public financing of environmental investments. For this reason, economic instruments have now become the main revenue source for state/municipal environmental funds which exist in most countries in the region. Because of the direct link between pollution charges and the environmental financing system in these countries, pollution charges play a fundamental role in environmental policy and implementing the Polluter Pays Principle.
SO2 and NOx charges have been introduced in conjunction with a permit system: a base charge rate is applied to all pollution within the permitted level and a penalty rate is added for pollution above that level (the so-called non-compliance fee). Large point source polluters (combustion plants, heavy industry) are the primary subject of these instruments. The charges are intended to raise revenues and encourage cost-effective abatement below the permitted level. The fines, non-compliance fees, are intended to provide incentive to reduce pollution to permitted levels and therefore play a compliance function. Such a system is in place in Poland, Czech Republic, Estonia, Latvia, Lithuania, and Slovakia. While in general charge rates in CEECs are too low to produce an incentive effect in most cases, it should be noted that, with the exception of countries with advanced eco-tax programs, some tax rates in CEE are in some cases comparable with rates in the west in real terms (see Supplement 1 for a brief comparison). Penalty rates play an additional incentive role to reduce emission above permitted levels. In particular, Polish charge rates are higher than charges rates in several western countries and play a large role in Polish environmental expenditures which reached up to 1.6% of GDP in 1997 and 1998. In Hungary, the energy and transport sector have been identified as the heavy emitters of SO2, NOx, CO and solid particulates. While taxes on these emissions have been foreseen in the 1995 Act on Environmental Protection, the Ministries of Environment and Finance have not been able to agree on the allocation of revenues from such taxes. Without agreement on this issue, the taxes have not been implemented. Hungary did introduce a fine system to enforce compliance with emission standards and a motor fuel product charge in 1996, though not specifically linked to carbon content of the fuels. The current value of the charge is 3% of the excise on motor fuels, and is now earmarked as an environmental credit of the annual central budget. In 1997, Slovenia introduced the first CO2 tax in the region. The tax is applied to all liquid fuels based on their carbon content, and it is planned to be extended for coal used for electricity production in 2004. Introduced at a rate of 2.2 SIT/l of petrol, 2.6 SIT/l of diesel, and 3.1 SIT/l heavy fuel oil; the rates were tripled in 1998. The current tax rate is equivalent to about 14 EUR/ton CO2 which is comparable to some taxes in Western Europe in real terms.
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