| During the course of transition to a free market economy, economic instruments are playing an increasingly important role in the SILAQ countries in environmental policy. Compared with most West European countries, the rule of law as a fundamental principle of society is less well established, and as a consequence poor enforcement of environmental legislation results. At the same time, however, the majority of private and business entities in the SILAQ countries are becoming more responsive to monetary signals such as fees and fines and financial incentives (e.g. tax exemptions), that are proving economic instruments to be more and more efficient in achieving emission reductions. In this situation, economic instruments complement command and control mechanisms and allow for environmental problems to be addressed more quickly, more effectively and/or in a more cost-efficient manner. If the rates of economic instruments are set high enough, both a reduction in the level of pollution and the prevention of the over-exploitation of natural resources can be achieved.
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| Environmental Benefits | When further discussing the role of economic instruments in the SILAQ countries, it should be noted that the OECD definition will be used in the analysis. This stipulates that economic instruments are "instruments that affect costs and benefits of alternative actions open to economic agents, with the effect of influencing behavior in a way that is favorable to the environment." A list of selected economic instruments is provided in Box 14.
The following pages will focus only on those economic instruments that have been used or plan to be implemented in the SILAQ countries. Economic instruments have been in use in the region for several years. Today a mixture of new instruments are being introduced, while older instruments are being revised. Examples of these instruments include: pollution charges and taxes (air, water, waste); non-compliance charges ("environmental fines"); product charges (e.g., on gasoline); deposit refund systems; import tariffs (e.g., for old cars); and tax differentiation or exemption (e.g., lower taxes for unleaded gasoline/petrol and tax relief for environmental equipment or investment). Some countries are now considering the introduction of tradable pollution permits.
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| Environmental Costs | In most of the SILAQ countries, prices for resources (water and energy) have increased, but still remain well below the detrimental cost to the environment. Product charges have not been widely adopted, although one exception is the product charges on fuel in Bulgaria and Hungary. Energy taxation has been discussed in several of the transition countries, in Poland and the Czech Republic for instance, but it is not likely these taxes will be introduced in the near future. |
| Several examples are given below of the successful use of different economic instruments.
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| Fines | Environmental fines for non-compliance with emission standards are used in most of the transition countries. In the Czech Republic, Poland and Slovakia they are used in addition to emission charges. In Bulgaria, Hungary and Romania environmental fines are charged only for non-compliance with emission standards. Environmental fines are found to be the highest in Poland, some 10 times greater than the emission charge. Levels of emission charges are typically low in the SILAQ countries, but are now being revised in the process of legal approximation with the EU. The number of pollutants regulated and the levels of emission charges still vary substantially from country to country. In the Czech and Slovak Republics, 80 pollutants are subject to charge, while in Poland 60 are listed. With regard to the levels of charges made across the region, rates in Poland in 1993 for sulfur dioxide (SO2) and nitrogen oxides (NOx) were found to be several times higher than those in the Czech and Slovak Republics (Klarer, 1996).
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| Charges | Environmental charges for the use or pollution of air, water and waste, together with pollution fines and fuel taxes are common revenue raising tools for national and regional environmental funds in all the SILAQ countries except Romania where no fund has yet been established (see Box 17). Financing is provided for a number of priority areas including support for national environmental programs, the implementation of new environmental legislation and regulations through investments in end-of-pipe pollution abatement technologies.
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| Debt Swaps | In Bulgaria and Poland, funds have been used to support "debt-for-nature" swaps. This scheme frees up funds for investments in environmental protection that would otherwise be committed to clearing international debts. These new fundraising and investment mechanisms will facilitate the efforts of SILAQ countries in meeting more stringent environmental regulations and will assist them in pursuing their commitments to European Union accession. However, even with additional European Union finance and support, further schemes for generating new sources for domestic environmental finance (or re-designing existing methods) remains very important.
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