Experience With Environmental Taxation Of Economies In Transition

Data on environmental taxation of economies in transition, which are being collected for the first time, show that there are even more gaps than with OECD countries. As a starting point, Tables 2, 3 and 4 provide what basic information is available on environmental taxes in Estonia, Latvia, Lithuania, Poland and Russia. Since the structure of environmental charges are so different in Hungary, they are presented separately in Tables 5 and 6. Unfortunately, the documents available on Russia did not provide any data on the actual rates. Furthermore, these countries are in the midst of drafting new regulations, hence the tables need to be continuously updated.

Table 2: Environmental Tax Rates in Economies in Transition (Charges are in ECU/Ton)
Air Pollution

Pollutant Estonia Latvia Lithuania Poland Russia
Sulphur Dioxide 0.046 N.A. 0.291 63.49 N.A.
Carbon Monoxide 0.006 N.A. 0.013 17.46 N.A.
Non Toxic Dust 0.033 0.1 N.A. 34.92 N.A.
Soot 0.065 N.A. N.A. N.A. N.A.
Nitrogen Oxides 1/ 0.104 N.A. 0.545 63.49 N.A.
Medium Toxic Discharge N.A. 0.15 N.A. N.A. N.A.
Toxic Discharge N.A. 0.325 N.A. N.A. N.A.
Highly Toxic Discharge N.A. 325 N.A. N.A. N.A.
RESTRICTIONS AND METHODS OF APPLICATION Charges apply when concs. are below MPC and land is agric. Following factors apply
Agric=1
Industrial=20
Recreational=50
Residential=20-30		 Charges are for concs. below MPC. Charges are for concs. below MPC. Rates are linked to ex ante inflation since 1987. Rates for Katowice and Krakow are double. Charges vary according to local factors, based on expected damage and polluters expenditure on abatement.
OTHER POINTS Above MPC charges are a multiple of 500 for agric., 50 for ind. and 5 for residential. Total revenue in 1992 was ECU 0.04 mn. Above MPC charges are 3 times higher. 47 pollutants on list. Above MPC charge is a function of level; e.g. if level is 25% higher, rate on excess is 5 times normal rate. Approx. 30 categories. Non compliance fees are 10 times tax rates. 300 pollutants on the list. Revenues divided as:
10% Federal Budget
9% Federal eco-fund
54% Regional eco-fund
27% local eco-fund


Table 3: Environmental Tax Rates in Economies in Transition (Charges are in ECU/Ton)
Water Pollution

Pollutant Estonia Latvia Lithuania Poland Russia
BOD7 15.873 0.1 0.614 102.3-111.7 N.A.
Suspended Solids 9.524 0.1 0.122 50.794 N.A.
Fats 412.698 N.A. N.A. N.A. N.A.
Phosphorous 57.143 0.8 2.087 N.A. N.A.
Oil Products 76.19 250 24.55 N.A. N.A.
Nitrogen 31.746 0.8 0.614 N.A. N.A.
Phenols 266.667 250 1227.513 2351.587 N.A.
Non-toxic Waste N.A. 0.1 N.A. N.A. N.A.
Toxic Waste N.A. 0.8 N.A. N.A. N.A.
Highly Toxic Waste N.A. 250 N.A. N.A. N.A.
Very Highly Toxic Waste N.A. 1500 N.A. N.A. N.A.
RESTRICTIONS AND METHODS OF APPLICATION Charges apply when emissions are below MPE, which is individually determined. Releases not always measured but based on technology. Charges apply when emissions are below MPE, which is individually determined. Releases not always measured but based on technology. Charges apply for levels below MPC. Charges also apply to COD, Chloride and sulphate ions and heavy metals. Non compliance fees are 10 times tax rates. Charges vary according to local factors, and polluters expenditure on abatement.
OTHER POINTS Above MPE rates are 7 times the above. Expected revenue is ECU 0.23 mn in 1992. Above MPE rates are 3 times the above. Highest rates apply to cyanides, heavy metals and pesticides. Above MPC, charge depends on level. E.g. if level is 25% higher charge is five times on balance. List extensive with 51 items. Charges for BOD/COD vary by industry, e.g. low figure is for rural sewerage and high figure is for power, chemical, metallurgical and light industries. 150 pollutants on the list. Revenues divided as:
10% Federal Budget
9% Federal eco-fund
54% Regional eco-fund
27% local eco-fund


Table 4: Environmental Tax Rates in Economies in Transition (Charges are in ECU/Ton)
Solid Waste Pollution

Pollutant Estonia Latvia Lithuania Poland Russia
Inert Wastes (I) 0.006 0.015 N.A. 1.175 N.A.
Toxic Wastes (II) 0.019 0.050 N.A. 2.349 N.A.
Highly Toxic Wastes (III) 0.19 0.5 N.A. 5.881 N.A.
Very Highly Toxic Wastes (IV) 1.905 1.5 N.A. 18.5 N.A.
RESTRICTIONS AND METHODS OF APPLICATION AND OTHER POINTS Charges apply to sites with no problems. Also maximum amounts exist for each party. If site is near town rates are 3 times. If site does not meet sanitary requirements, rates are 2 times. If amounts exceed max. rates are 5 times for class I/II, 50 times for class III, 500 times for class IV. Special rates for oil shale waste (0.1-0.3 EEK/ton). Revenue in 1992 was ECU 0.07 mn. Further information is needed on details.
25% state budget,
75% local government budget.		 No information is available for this country on solid waste taxes. None exist?
30% state budget,
70% Municipal Environmental Fund.
In case of fine 100% of the State Fund.		 Categories contain:
Group I - 71 items,
Group II - 35 items,
Group III - 40 items,
Group IV - 60 items,
Non compliance fees 10 times tax rates.		 No information available on solid waste charges.


Table 5: Economic Instruments in Hungary
Product Charge

Structure/ description Revenue impact
Use of revenue		 Incentive impact Other regulations Other issues
HUF 0.5/l (ECU 0.005/l) on all types of fuel; it is 0.7-1% of the price; the purpose is revenue raising for transport related pollution control programs. HUF 1.5 billion (ECU 15 million)/year is expected (For the first 9 months it was HUF 0.86 billion). It goes to the Central Environmental Protection Fund (CEPF); earmarked for yearly program on transport related pollution, abatement measures and raising public awareness. Direct incentive impact not intended and spending has not much taken place, yet. Stricter emission standards for vehicles, and requiring yearly environmental (green) inspection. It is levied on the same producers and importers as the consumption tax but it is collected separately by the CEPF.


Table 6: Economic Instruments in Hungary
Fines

Structure Pollutants fines Use of revenue Total revenue Other issues
Air pollution
levied on enterprises - fixed sources
Each air pollutant for which measuring standard is defined (appr. 200 pollutants)
30% is not earmarked revenue to effected municipal budget; 70% goes to the Central Environmental Protection Fund
1990: ECU 4.2 million
1991: ECU 8.5 million
1992: ECU 3.7 million
Based on self reporting. Individual emission limits are calculated for each source according to a formula. Reported quarterly emissions are compared to that limit and fine is calculated based on the difference in each pollutant.
levied on vehicles owned by enterprises (mobile sources) Pollutants for which vehicle standards are defined (CO, NOx) It goes to the Central Environmental Protection Fund Not known. The fine is defined by the monitoring authority between ECU 15-50/vehicle. It is basically not enforced.
Noise and vibration
levied on enterprises

It goes to the Central Environmental Protection Fund
1990: ECU 0.1 million
1991: ECU 0.3 million
1992: ECU 0.1 million
The noise and vibration standards vary by regions. The fine is calculated according to a formula.
Sewage
levied on enterprisesemitting their effluent into the public sewage system
Polluting substances, as BODd, salt, suspended material, detergents, Cl, ... (14 pollutants). Toxic substances, as metals (17 pollutants)
It goes to the company which operates the related waste water treatment facility.
1991: ECU 2.1 million
Concentration limit is set for each pollutant; a basic fine is defined for a unit quantity of each pollutant. Based on these individual fine is calculated according to a formula that takes into account regional factors and number of limits that are violated by the polluter.
Waste water
levied on sources emitting effluent into the surface (natural) waters
Polluting substances, as BODd, salt, suspended material, detergents, Cl, ... (19 pollutants). Toxic substances, as metals (13 pollutants)
30% is not earmarked revenue to effected municipal budget; 70% goes to the Central Environmental Protection Fund earmarked for subsidies in sewage and waste water treatment.
1991: ECU 1.7 million
1992: ECU 1.5 million
Concentration limit is set for each pollutant; a basic fine is defined for a unit quantity of each pollutant. Based on these individual fine is calculated according to a formula that takes into account regional factors, number of limits violated.
Hazardous waste
levied on producers of hazardous waste; except health facilities (hospitals)
Substances that are classified by standards as hazardous (appr. 230)
30% is not earmarked revenue to effected municipal budget; 70% goes to the Central Environmental Protection Fund
1990: ECU 0.1 million
1991: ECU 0.6 million
1992: ECU 0.4 million
Fine is levied if
- reporting requirement is violated;
- standard for collecting and pretreatment standards are not met; - transport requirements are violated;
- standards for treatment or temporary storage are violated.
Fine is calculated according to a formula.
Hazardous waste import
levied on illegal import of hazardous waste
Substances that are classified by standards as hazardous (appr. 150)
It goes to the Central Environmental Protection Fund
N.A.
The fine is ECU 1.000 for each ton of illegal waste.
Ozone protection
levied on ozone depleting substances (ODS)

It will go to the Central Environmental Protection Fund
---
It is connected to the ODS phase-out program. It will take effect from 1995.


The following features are worth noting from Tables 2-6.

  1. There is a wide variation in the tax rates, with Poland having much higher rates than the Baltic countries, in some cases by more than one order of magnitude.

  2. The structures of the taxes are more comprehensive than in most OECD countries, with sophisticated effluent taxes for a large number of items. Perhaps in some cases they are too complex, given that there is little information on differences in damages from different compounds.

  3. Where the rate structure has a two tier tariff, with a higher rate for pollution above the permitted amounts, this feature has some advantages. It allows the policy maker to correct for any errors in setting the MPCs and MPEs and/or in setting the tax rates. However, the whole procedure would benefit from more information on the damages caused by the different pollutants.

  4. Virtually nothing is known about the incentive effects of these taxes. The income that they provide is very small, and it is unlikely that they have much in the way of an incentive effect. However, much higher rates are now applied in Poland and they could have a significant impact. That will, of course, depend on the industrial structure. If enterprises are simply able to pass the tax on to the consumers, there will be no incentive effect. In the process of transition, the market discipline in the industrial sector will vary. The discipline in the state sector is still weak and that sector is responsible for a large part of the pollution.

  5. The Hungarian set of instruments consists mostly of fines covering a wide variety of media. The product charge on gasoline and the user charges for waste water are exceptions. The total annual value of fines amounts to about 6-8% of the annual expenditure on environmental investment in the country. The real revenue from the fines is rapidly declining, partly due to inflation, partly due to a high level of evasion. In most cases, the collection and enforcement of fines are designed assuming few large polluters. The actual level of fines is based on self reporting on a long list of pollutants. With the increasing number of small and medium sized enterprises it is difficult to check those self reports. Therefore, a major overhauling of the system is long overdue.

  6. The product charge on gasoline in Hungary raises more than twice as much revenue as the fines. However, it is still a very small fraction of the price of gasoline, and the annual revenue is not comparable to, for example, the general fuel charge in the Netherlands. The design of this product charge provides an example that the incentive and the revenue raising function of an instrument does not always lead to the same design. Originally, there was a higher level charge (HUF 1.1/l) suggested as the baseline and a differentiation that would have favored the unleaded gasoline. The reduced rate which resulted from long consultation with interest groups and other ministries does not allow for a lower rate (basically exemption) for unleaded fuel without seriously reducing the revenues.

  7. The effectiveness of fines in Hungary is generally acknowledged as minimal due to their low level. Since the product charge is designed to raise revenue, its effectiveness must be judged on the basis of the expenditure from the fund. The charge is too new to evaluate the spending at this time. However, an interesting feature of the implementation is how difficult setting up a meaningful program seems to be. The past habits still have brought about privately negotiated and agreed deals between "powerful" officials and company managers. It is not obvious for many policy makers and officials why it is important to have subsidy allocation procedures in place which are open to the public.

  8. User charges are applied in water and waste water management in Hungary. They are so-called "regulated prices" set by the Ministry of Transport Telecommunication and Water Management. The principle behind defining the level is to cover the full cost of an efficient enterprise, including reasonable profit and calculating the subsidies and taxes as well. The variation is quite large, the lowest value is ECU 0.12 /m3 (HUF 11/m3), the highest is ECU 0.86/m3 (HUF 84.3/m3). The problem is that in those rare cases where the effluent is properly treated the cost, and correspondingly the charge, is high. Waterworks with no treatment cost and charge less. They pay sewerage fines for their high level of pollution, but the level of that fine is far too low to provide any incentive to lower the pollution content of the effluent.

  9. Poland is the only country that has tackled the problem of inflation eroding the tax rates. This has been a big reason why the revenues are so small in the Baltics.

  10. The Tables do not show many of the pollutants which are taxed. They are generally allocated to groups, but the process by which that is done is not clear. Again, information on damages needs to be assessed, preferably in monetary terms.

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