| Policy Elements | Although lead phase-out is expected to be a highly cost-effective measure (particularly in terms of the impact on health), strong commitment and the appropriate policy intervention is required. The core of such policy intervention includes the following four aspects (Lovei, 1997):
It is not only the technical capacity of refineries that restricts the use of unleaded gasoline within the domestic market. The lack of regulations and incentives also serves as a barrier. For example, Bulgaria and Romania export significant amounts of domestically produced unleaded gasoline; however, if the policy measures would be effective, are the domestic consumption of unleaded gasoline could be significantly increased.
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| Regulations | World-wide experience shows that strong political commitment at the highest government level is necessary to introduce and enforce regulations aimed at alleviating human exposure to lead. Such regulations fall into two major categories: (i) environmental regulations that limit the maximum permissible concentrations of lead and other pollutants in the air, and (ii) regulations ensuring compliance with environmental objectives. The latter category includes for example, the reduction of the maximum permissible lead content in gasoline; setting specific deadlines for the complete ban of leaded gasoline sales; other fuel specifications to ensure that lead in gasoline is not replaced by substances harmful to health; and regulations concerning the pollution characteristics of vehicles. As for the latter, it is important to stress that there should be a distinction in the policy between the phase-out of lead from gasoline as an objective in itself, and the requirement for the use of catalytic converters which primarily aims at reducing other pollutants such as nitrogen oxides, carbon monoxide, and hydrocarbons. The phase-out of lead can be achieved without the introduction of the catalytic converter.
5.2.1 Emission Standards |
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| Use of Catalytic Converters | Central and East European countries (including all the SILAQ countries) seeking membership to the EU have started to harmonize their emission standards with those of the EU. These standards can be satisfied through the use of catalytic converters. Catalytic converters in Slovakia have been required for both imported and domestically produced cars since 1993. Similar requirements have been introduced in Slovenia (1994), in Poland (1995) and in Hungary (1996) and are forthcoming in Bulgaria (1998) and in Romania (1998 for imported cars, and 2000 for those produced domestically).
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| Country Study | In Slovakia, legislation was introduced to set standards for the technical condition of vehicles on the roads. At present, all gasoline-engined vehicles must fulfill the following conditions:
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| Vehicles that do not fulfill the above conditions cannot be registered. All gasoline vehicles in operation are subjected to regular pollution inspection in authorized pollution test centers. Table 23 shows Slovakia's emission standards for gasoline vehicles.
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| Emission Standards | Hungary, Poland, Slovakia and Slovenia also report the adoption of stricter emission standards that require the installation of catalytic converters on new cars. Bulgaria and Romania have yet to introduce such regulations. Bulgaria is currently preparing new emission standards which will include limits on hydrocarbons and NOx emissions, and which will be in line with EU standards. Although the new regulations introduce stricter exhaust emissions requirements, they correspond only to the first US standard enforced in 1966/1967. Therefore, SILAQ countries should prepare for the adoption of EU standards, i.e., by using more rigorous testing procedures including test cycles and by limiting permissible concentrations.
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| EU Harmonization | In all SILAQ countries the harmonization of regulations with those of the EU is a high priority, and most countries have already adopted EU gasoline specifications. Accelerating the phase-out of lead as part of the harmonization process would facilitate the acceptance of these countries as a part of the European Union. Since 1985, Directive 85/210/EEC allows for exceptions in the adjustment period during which for example, 0.4 g/l limit is permitted (e.g., in Romania 0.32 g/l has been adopted). The EU also requires the sale of only one grade of leaded gasoline, with an octane number rating of at least 95. A recent European Commission proposal recommended that a Directive requiring the total lead phase-out be adopted by the year 2000. Environmental regulations related to lead have been introduced in all the SILAQ countries. The reduction of the maximum permitted lead content in gasoline to levels of 0.15 g/l (EU standard) or less was the first step. As shown earlier in Tables 6 and 7, all the SILAQ countries, with the exception of Romania, have already adopted the 0.15 g/l limit for leaded gasoline. The maximum permissible lead content regulation was combined with other gasoline quality specifications, such as the octane rating; volatility; aromatic content, benzene and oxygenates.
5.2.2 Enforcement of RegulationsRegulations can only be effective if proper enforcement is available to ensure compliance. Governments should ensure that: (i) refineries and importers comply with specifications; and (ii) distributors and retailers do not mismanage the various gasoline brands.
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| Proper Enforcement | While the control and enforcement of gasoline specifications may be considered relatively simple with regard to production and at the wholesale level, it may require more significant administrative effort at the distribution and retail levels, especially if there is no punishment for gasoline taxation abuse. All countries use different pump nozzle sizes which helps to maintain the correct use of leaded and unleaded gasoline. Additionally, vigorous enforcement of vehicle air emission standards will be necessary to ensure that new regulations are complied with. This can be best achieved in practice by including emission measurements in the mandatory periodic technical testing of vehicles.
5.2.3 Economic Incentives |
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| Tax Incentives | Economic incentives influence supply and demand by changing the price structure for the alternative products. For instance, preferential tax rates can be applied to unleaded gasoline, thus causing refineries (or importers, for that matter) to adapt production to meet the change in demand. Differentiate taxes can also alter the "pump" price of leaded and unleaded gasoline grades which will allow, for comparable octane numbers, lower prices for unleaded gasoline in comparison with leaded gasoline prices. This creates an incentive for the buyer to choose unleaded gasoline (provided the use of unleaded gasoline is technically feasible with a particular brand of car). Overall, the trend seems to be that the closer the country is to complete phase-out, the wider the price gap between leaded and unleaded gasoline carrying the same octane number. Incentive policies could play a key role in smoothing the transition period during the phase-out of lead by influencing gasoline supply and demand. Table 24 shows data on the applicable taxes and the tax differentiation applied in 1996 in the SILAQ countries, while Table 25 provides further data on prices and price advantages of leaded and unleaded fuel.
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| TABLE 24: Applicable Taxes and Tax Differentiation (1996) | |||||||
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| Taxes | Bulgaria | Czech Republic1 | Hungary | Poland | Romania | Slovakia | Slovenia |
| Tax differentiation for unleaded gasoline; leaded gasoline; prices and different RON quality | Taxes 110/100 Prices100/100 |
0% | 0% | RON 95 unleaded: 2.5% | RON 95: 0% | Only unleaded gasoline is produced | n.a. |
| Taxation on crude oil | - | none | none | none | none | - | none |
| Excise duty on gasoline Leaded |
70% for low octane, 110% for higher octane | none | 43.4% | 876 zl1, Leaded containing ethyl alcohol: 743 zl1 | 10% | - | 15%, RON 86 129.2%, RON 98 SIT 44.7 117% |
| Unleaded | 60% for low octane, 100% for higher octane | none | 43.4% | 791 zl1 | 13.5% | - | RON 91 SIT 32.6 85.7%, RON 95 SIT 36.5 91.8% |
| VAT | 22% | 22% | 25% | 22% | 18% | - | Not yet adopted |
| Road tax | 15% (added to gasoline price) | All cars for business purposes | 16% | none | 25% | - | Road tax depends on lorry capacity |
| Other kinds of transport taxation | environmental tax of 5% (added to gasoline price) | Highway tax for passenger cars and trucks | 1.7% | taxation depending on the engine capacity, and a local tax | - | - | - |
1. zl=Polish zloty |
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| TABLE 25: Gasoline Prices in the SILAQ Countries | |||||
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| Country | Leaded | Unleaded | Price advantage of unleaded | ||
| Brand | Price (USD/liter) | Brand | Price (USD/liter) | ||
| Bulgaria | Eurosuper 98 | 0.65 | Euro 95H | 0.60 | Approx. 4% |
| LEADED 93 (limited availability) |
0.40 | ||||
| LEADED 91 | 0.46 | ||||
| Czech Republic | SPECIAL 96 | 0.73 | NATURAL 95 | 0.69 | Approx. 5% |
| SPECIAL 91 | 0.68 | NATURAL PLUS 98 | 0.84 | ||
| Hungary | EUROSUPER 98 | 0.79 | SUPERPLUS 98 | 0.79 | 0% |
| EURO 95 | 0.74 | ||||
| EURO 91 | 0.72 | ||||
| Poland | Leaded 98 | 0.57 | Unleaded 98 | 0.60 | -5% |
| Leaded 95 (limited availability) |
0.55 | Unleaded 95 | 0.55 | ||
| Leaded 94 | 0.55 | ||||
| Romania | Premium Super Plus 98 | 0.54 | |||
| Premium 95 | 0.52 | Fara Plomb 95 | 0.50 | 4% | |
| Slovakia | UNI 91 | 0.62 | 98 Super Plus | 0.66 | |
| 95 Super | 0.65 | 95 Super Natural | 0.62 | 5% | |
| Slovenia | Eurosuper 98 | 0.71 | RON 98 | 0.69 | 3% |
| RON 95 | 0.62 | ||||
| RON 91 | 0.60 | ||||
Note: Average prices in capital cities, as of mid-May 1998. |
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| Country Studies | In Bulgaria, gasoline prices are regulated by price formulas which reflect international world market prices. The excise duty on unleaded gasoline is 10 percent lower than that for the same grade of leaded gasoline. However, one of the reasons why the market share of unleaded gasoline is so low in Bulgaria is a result of the current tax system, where the pump price of unleaded gasoline at some stations is about 15 percent higher than that of the leaded equivalent. Until July 1996, when sales of REGULAR leaded gasoline were discontinued in Hungary, the differentiation in excise taxes for REGULAR leaded (RON 92) and unleaded (RON 91) gasoline resulted in an approximate difference of 5 percent in the retail prices of the two gasoline brands. In Poland, the retail price difference between PREMIUM leaded (RON 94) and unleaded (RON 95) gasoline was close to 4 percent in 1995, and to 2.5 percent in 1996. In Slovakia, where a complete and relatively smooth transition to unleaded gasoline took place during the course of just 18 months, the retail price difference between leaded and unleaded gasoline was some 13 percent. Retail price differentiation favoring unleaded gasoline not only creates economic incentives for its use, but also helps to prevent the use of leaded gasoline in vehicles equipped with catalytic converters.
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| Long-term Prospects | In the longer term, the improved availability and lower prices of unleaded gasoline will lead to a growth in demand for cars using unleaded gasoline, while stricter emission control requirements will increase demand for vehicles equipped with catalytic control devices.
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| 'Lead-credit' Trading | Interestingly, other market-based incentive mechanisms could also be considered in countries with large gasoline markets and several refineries (e.g., Poland and Romania). For example, under a lead credit trading system (employed in the US between 1983 and 1987) refineries producing gasoline with a lead content lower than the standard requirement obtained "lead credits." These credits, in turn, could be sold to refineries which were unable to meet the standard, or whose costs in doing so were relatively high. Whether such a system could be successful in SILAQ countries is open to question. Drawing conclusions on the matter requires an in-depth study of the regulatory and legal institutions in the respective countries.
5.2.4 Public Awareness RaisingRaising public awareness and understanding forms part of a broad, consensus-building effort. For instance, a recent sociological study in Hungary showed that many people were unaware as to the severity of health hazards resulting from lead. More importantly, the lack of information and misconceptions concerning the use of unleaded gasoline in older passenger cars presents one of the largest obstacles to changing consumer behavior.
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| Information Campaigns | Despite a degree of success achieved in the SILAQ countries in terms of public awareness raising, greater efforts need to be concentrated on informing the public of the health and environmental risks posed by lead. Taking advantage of the mass media, an education campaign directed toward the general public can inform individuals about the respective health hazards. Additionally, it is crucial to educate consumers with regard to the feasibility of using unleaded gasoline. In Denmark, for instance, awareness building was effectively used to reduce consumer reluctance towards unleaded gasoline that was caused by uncertainties regarding its possible negative effects on cars. Significant effort is also needed to reach those consumers whose cars can use both leaded and unleaded types of fuel. At the very least, there should be clear information at all gas stations with respect to the applicability of unleaded gasoline for a particular brand of car and/or engine.
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