REC: Paper Series, Number 1, Experience With Environmental Taxation In OECD Countries

Experience With Environmental Taxation In OECD Countries

Table 1 below summarizes the main findings on environmental taxes in OECD countries. Details can be found in Opschoor and Voss [1989], OECD [1992a], OECD [1992b]. Information is given for emissions charges, user charges, product charges and tax differentiation. In each case, the tables record the country in which the tax is imposed; a brief description of the tax including the rates at which it is imposed (if available); the amount of revenue raised; the use to which it is put; who is responsible for collecting the tax; what, if anything is known about the incentive impacts of the tax; what other regulations are in place alongside the tax; and other relevant issues that should be noted.

Table 1: Environmental Taxes In OECD Countries

Sources: Opschoor and Voss [1989], OECD [1992a], [1992b]
Country	Structure/ Description	Use of Revenue Revenue Impact	Incentive Impact	Other Regulations and Activities	Other Issues
AIR
France	ECU 19/TONNE for SO2 plants with discharges of 2500 tons or generation capacity of over 50 MW	Yearly revenue = ECU 13 mm. 90% used for subsidies for control equipment; 10% for technological innovation.	None observed. Required level of tax for incentive effects would be much higher.	Several technology directives apply.	Only 400 plants affected. Distributional impact small. National level tax.
Sweden	ECU 4000/TONNE of sulphur on coal and peat from 1992.	Anticipated revenue is ECU 66 mm.	Not known but expected.	Yes.	If control measures applied all or part is rebated. National level tax.
Water
France	Charges cover suspended matter; BOD/COD, soluble salts, ammonia/nitrogen, phosphorous	Yearly revenue in 1986 = ECU 240 mm. Used to finance operating expences of river basin agencies and subsidise pollution abatement equipment.	None intended but reductions in organic waste observed. Cost saving is about 12% over direct regulations.	Restrictions on maximum releases exist and are important.	Impact has been eroded by inflation. Financing of pollution abatement tied to revenues from this charge. Regional level tax with funds going to river basins authorities.
Germany	In 1990 charge was ECU 24,4 per unit of toxicity. Toxicity defined by pollutant e.g. for COD one unit equals 50 kg oxygen. A threshold is defined for each pollutant. No charge below threshold.	ECU 135 mm in 1986. Revenues used for administration and subsidising pollution abatement. 50% used up in administration.	Generally believed to be small. Improvement in water quality attributed to strict controls and low limits. Perhaps there was more incentive effect in earlier stages when reductions to meet minimum standards resulted in rebates.	Maximum releases restricted. Significant rebates on pollution abatement equipment. If state of the art then 75% discount on charges. If reduction in effluent > 20% then full cost is deductible from charge.	Charges announced in advance to 2000. Exemptions on grounds of hardship offered. Estimated reductions in costs relative to uniform charges was 33% (based on data to 1985). A regional level tax.
Netherlands	BOD/COD charge for releases into 'State Waters'. Pollution charges for release into waste water collection systems with charges for small firms based on average releases for the technology used, and on actual releases for large firms. Rates in 1985 were ECU 12.3/34 per pollution unit.	Revenues in 1985 were ECU 473 mm. Management costs were only 2% for state charges and 4-9% for other charges. Abatement expenditures were financial from charges.	Believed to be strong. Between 1969 and 1986 estimated reduction in effluent was 64%. Gain was greatest for organic matter. For heavy metals gains came from regulations. Also negotiations were important.	Discharge permits issued by water boards were important.	Heavy metal charges difficult to enforce. No charge on phosphates (political reasons). Some evidence that too much abatement resulted as charge revenues had to be allocated to abatement. Tax both at water board level and state level.
Waste
Belgium	ECU 0.02/2.15/Ton or M3 depending on type of waste and treatment before dumping. Incinerated waste has a lower rate. Recycled materials exempt.	Revenues used for general purposes.	Not known.	Restrictions on waste dumped exist.	.
Denmark	ECU 5.2/Ton. "Harmless" waste, such as painted wood, straw, demolition waste exempt.	Revenues used for general purposes.	Not known.	Restrictions on waste dumped exist.	National level tax.
France	Chemical waste, ECU 0.8 m in 1985.	.	Low.	.	High administrative costs. Now similar tax in Belgium.
Netherlands	Sulplus manure charge based on phosphate content of manure beyond what can be dumped on farmland. Above 125 kg has a charge of ECU 0.25/kg to 20 kg and ECU 0.50/kg over that.	Goal is revenue raising. Estimated revenue ECU 19 mm in 1985. Funds are used for research and development.	Believed to be strong. Between 1969 and 1986 estimated reduction in effluent was 64%. Gain was greatest for organic matter. For heavy metals gains came from regulations. Also negotiations were important.	Discharge permits issued by water boards were important.	Heavy metal charges difficult to enforce. No charge on phosphates (political reasons). Some evidence that too much abatement resulted as charge revenues had to be allocated to abatement. Tax both at water board level and state level.
Noise
France	Fee ranged from 0.9 to 1.2 times avarage landing fee depending on noise levels.	ECU 6 mm in 1985, part of airport income. Some use for insulation but limited on legal grounds.	Not effective.	Yes, several on landing times etc.	Only at Paris airports. Cancelled in 1987 on legal grounds.
Netherlands	For aircraft, based on noise characteristics. For industry, based on noise of operations.	ECU 4.4 mm in 85 used for insulation. ECU 10 mm.	Unlikely. Not known.	Yes, several on landing times etc. Yes, several.	Strong objections by airlines. System complex and diffucult to enforce. Replaced by general fuel charge.
Switzerland	Charge is doubled every 10dB noise increase.	Approximately 10% of landing fees, about ECU 4 mm.	None observed.	Yes.	Now extended to small aircraft.
USER CHARGES
Water collection several countries	All countries charge for water collection but only in some is pollution load reflected in the charge - Belgium (firms); Italy (household & firms); UK (firms); USA (firms).	Charges vary per kg of COD ECU 0.49 (Germany) to 0.91 (UK). They cover operating and capital costs but not always on a marginal cost basis.	Depends on the extent to which charges reflect pollution load and what other alternatives exist to get and of waste (see text).	Restrictions on amounts and types of waste are applied widely.	Relation to effluent charges is weak. Charges are generally based on average costs of treatment, although some countries have greater differences according to waste (see structure column).
PRODUCT CHARGES Beverage Containers
Finland	ECU 0.07 for beer 0.58 for glass or metal 0.20 for other materials.	ECU 1.65 mm in 1985.	Strong shift to returnable containers for glass but not plastic bottles which remain a problem. Strong incentive impact. Too low for incentive impact.	.	Revenues go to public budget in all these cases.
Denmark	ECU 0.06 to 0.28 per container.	ECU 35 mm in 1987.	Strong incentive impact.
Norway	ECU 0.08 to 0.52 per container.	ECU 11 mm in 1987.	Too low for incentive impact.
Sweden	ECU 0.014 to 0.035 by size.	.	.
Lubricant Oils
France	ECU 6/ton	ECU 4 mm.	20% motor oil collected.	Several regulations on collection and disposal of oil.	Charge is earmarked and used to enforce proper collection and encourage recycling and less use of oils. In Netherlands replaced by general fuel charge.
Finland	ECU 29/ton	ECU 3 mm.	Better collection resulted.
Germany	ECU 96/ton	ECU 63 mm.	Oil disposal reduced.
Italy	ECU 3/ton	ECU 2 mm.	Oil collected doubled.
Netherlands	ECU 6/1000 Liters	ECU 1 mm.	Impact not known but likely to be small.
Mineral Oils
Norway	General tax of ECU 2.7/100 liters. Additional tax of ECU 1.9/1000lt. if sulphur contents is 0-0.25%; ECU 3.9 if content is 0.25-0.5%; and ECU 5.85 if content is 0.5-75%	ECU 27 mm estimated for 1988.	Tax is too low to have an incentive impact.	.	This tax is not really an environmental tax in the sense that the polluter is paying for the damage. Revenue is collected from one source and used for a range of environmental expeditures.
Sweden	ECU 17.76/M3 of which ECU 1.26 is for measures against acidification.	85% of costs come from acidification tax. Rest used for general environmental measures.	Not primary concern.	.
FEED STOCK
USA	ECU 0.1-0.7 per barrel of petroleum. ECU 0.02-0.09 per ton of base chemicals & derivatives.	ECU 487 mm from first tax; ECU 296 mm from second. Revenues used to clean up hazardous waste sites.	Not concerned with incentives as funds clean past pollution.	.	Not really an environmental tax as polluter is not paying for the damage.
FERTILIZER & PESTICIDES
Norway	Fertilizer tax was ECU 0.13/kg of N and 0.25/kg of P in 1992.	Revenue in 1992 was ECU 19 mm from fertilizer tax and 2.5 mm from pesticide tax. Aim is revenue raising.	Not expected.	.	Pesticide taxes amounted to 13% of purchase price. All revenues were used to finance environmental programs in agricultural sector.
Sweden	ECU 0.08/kg of nitrogen and 0.04/kg of phosphorous. Pesticides ECU 0.64/kg active ingredient and ECU 4/ha.	ECU 24 mm in 1992 from fertilizer and pesticide taxes.	Not expected.	.	Revenues used for environmental, ag. and forestry programs.
Austria	Low level of tax introduced in 1986.	Raised about ECU 66 mm.	Although low use seems to have been affected.	.	Revenues earmarked.
BATTERIES
Norway	ECU 0.26 in 1989, and ECU 3.27/kg of batteries with mercury or cadmium.	ECU 5 mm from general batteries and ECU 2.4 mm from cadmium batteries.	Not known.	.	Should reduce demand especially for the more highly taxed batteries. National tax.
PLASTIC BAGS
Italy	Tax of ECU 0.06/bag costing 0.012 to make, on bags with biodegradability of less than 60%.	Not known.	Not known.	Yes, at disposal.	Charge encourages less use and more recycling.
CARBON TAXES
Finland	In 1991 tax was levied at ECU 5 per tonne of carbon on all fossil fuels except motor fuel. Tax on motor fuel was increased separately in 1990.	Revenue from this tax was approx. ECU 61 mm in 1991. In addition ECU 173 mm was raised from higher motor fuel taxes.	Primary goal is revenue tasting.	.	Tax is indexed to inflation. Levied at point of import or production. Carbon tax amounts to 5% of all taxes on energy products. Higher motor fuel taxes amount to about 15% of such taxes.
Sweden	Tax of about ECU 33/tonne of carbon introduced in 1991 on all fossil fuels in 1991.	Expected revenue in 1992 is ECU 1.4 bm.	Not known but could be substantial.	.	Part of major tax reform.
Norway	Similar carbon tax in Norway.	Not known.	Not known.	.	.
OTHER AIR TAXES
Sweden	ECU 5300/tonne on NO2 from large furnaces with production of over 50 Gwh.	Not known.	Not known.	.	.
TAX DIFFERENTATION Leaded/ Unleaded fuels
Denmark	ECU 0.045 per liter	There is a loss of revenue as a result of the lower taxes on unleaded fuels. Estimates not available.	Some evidence for positive effect. Market share of unleaded gasoline is going up. In Germany from 11% in 1986 to 28% in 1987. Similar changes in other countries. However, this may not be due to the tax. Gasoline dealers are narrowing the tax differential in some cases.	.	.
Finland	ECU 0.047 per liter
Germany	ECU 0.030 per liter
Netherlands	ECU 0.071 per liter
Norway	ECU 0.041 per liter
Sweden	ECU 0.022 per liter
Switzerland	ECU 0.029 per liter
UK	ECU 0.070 per liter
Car Prices
Several countries	The cleaner the car the greater the tax advantage. Finland, Germany, Netherlands, Norway, Sweden and the UK have some car tax differential.	As above, this is a case where there is a loss of revenue to support an environmental damage.	Little information is available to date. Percentage of cars meeting higher standards is increasing.	.	Lower taxes are based on size of car, and year of purchase. Measure is intended as a temporary one, until all cars meet the pollution standards.
Various Tax Allowances
Several countries	There are various tax allowances permitted in OECD countries for investments in pollution abatement equipment. There are not covered here as they effectively amount to subsidies.	All such schemes imply a cost in term of revenue to the government.	Incentive effects vary, but the intention is clearly to encourage a reduction in pollution.	.	.

There are several conclusions that follow from these summary tables.

Almost all cases of emissions and product charges are accompanied by some restrictions on emissions, either in the form of maximum releases, or in the form of technology that can be used. Thus there are no cases of pure charges in any of the OECD countries, where an environmental tax is levied without any other restriction.
The bases for the tax rates is never clear. They are certainly not systematically based on an estimate of the damages. In most cases, there does not appear to be any particular goal in terms of a reduction in pollution levels. Furthermore, the tax structure does not address the issues raised earlier about relating the tax rates across different media, or relating user charges to effluent charges.
The predominant goal is to raise revenue for environmental abatement activities. Incentive goals are stated to be significant in some cases, particularly with regard to beverage containers, plastic bags, some of the recent air emissions taxes, and the tax differentials for leaded gasoline. But, by and large, these are exceptions rather than the rule. For water pollution taxes, a range of product charges, and the bulk of the user charges, the incentive impacts are low.
The revenues collected are frequently used to support the installation of abatement technologies in the enterprises from which the taxes were raised in the first place. Thus, the taxes do not amount to as much of a case of the polluter pays principle as would seem at first glance.
In some cases, the 'environmental taxes' are collected from activities that may only be slightly polluting, but which are used as sources of revenue for other environmental abatement activities. This applies to the feedstock taxes in the United States and the mineral oil taxes in Norway and Sweden.
Although it is not possible to see from this table, the amounts collected in environmental taxes remain a small share of total taxes. For example, in the Netherlands, which is one of the countries with a number of environmental taxes, the revenues from effluent taxes amounted to ECU 487.8 million in 1985. This was about 0.27% of GDP. Total tax revenues of the government in that year were ECU 86.5 billion, which would make the environmental effluent taxes a mere 0.56% of all taxes. Adding the product taxes would increase this figure but it would still remain small. This indicates that there is considerable scope for restructuring the tax system to reduce some of the other sources of revenue and increase the environmental taxes, a point that has been made earlier.
The level of authority responsible for the environmental tax varies considerably. As a general rule, product charges are levied at the national level. Effluent charges are also frequently collected at the national level in the case of air pollution but at the local or regional level in the case of water and solid waste pollution taxes. User charges are almost always collected at the local or regional level. The Table does not give details on which bodies are responsible for deciding on the environmental expenditures, but in most cases, the environment ministry or its equivalent would be expected to take a major role. For energy related items the energy ministry would clearly be important and for agricultural items the agriculture ministry would be involved.

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