Extending the Environmental Tax Base Prerequisites for Increased Taxation of Natural Resources and Chemical Compounds REPORT 5416 OCTOBER 2004
Extending the Environmental Tax Base Prerequisites for Increased Taxation of Natural Resources and Chemical Compounds 3DWULN6 GHUKROP Associate Professor of Economics Luleå University of Technology THE SWEDISH ENVIRONMENTAL PROTECTION AGENCY
2UGHUV Order by telephone: + 46 (0)8-505 933 40 Order by fax: +46 (0)8-505 933 99 E-mail: natur@cm.se Address: CM-Gruppen, Box 110 93, SE-161 11 Bromma, Sweden Internet: www.naturvardsverket.se/bokhandeln 7KH6ZHGLVK(QYLURQPHQWDO3URWHFWLRQ$JHQF\ Telephone: +46 (0)8-698 10 00, fax 08-20 29 25 E-mail: natur@naturvardsverket.se Address: Naturvårdsverket, SE-106 48 Stockholm, Sweden Internet: www.naturvardsverket.se ISBN 91-620-5416-3.pdf ISSN 0282-7298 Naturvårdsverket 2004 Elektronisk publikation Cover photo: Helt Enkelt / Johnér
Preface This is the final report from the project Prerequisites for increased use of taxes on raw materials and chemicals ³) UXWVlWWQLQJDUI U NDGDQYlQGQLQJDYVNDWWHUSn UnYDURURFKNHPLNDOLHU ). The report has been commissioned and financed by the Swedish Environmental Protection Agency and Joakim Skottheim has been the contact person throughout the project. Today Sweden has almost 70 market-based instruments in use. According to OECD s country review, this means that Sweden probably has PRUHHFRQRPLF LQVWUXPHQWVLQXVHWKDQDQ\RWKHUFRXQWU\. However, environmental externalities are in most cases not fully reflected in the prices due to the fact that the taxes are too low. This also means that significant changes in behaviors are difficult to achieve. The economic instruments have so far not been introduced on a large scale to internalize external effects resulting from product use. The EU has discussed the importance of introducing market-based instruments on a larger scale in connection with various processes, e.g. IPP and the Thematic Strategy on the Sustainable Use of Natural Resources. This report can be seen as being an input to the ongoing work. The opinions expressed in this report do not necessarily reflect those of the Swedish Environmental Protection Agency. Stockholm in October 2004 The Swedish Environmental Protection Agency 3
Author s preface This final report is the result of information from various people, from which this final report has benefited. I would first of all like to acknowledge the support and the valuable inputs gained from Joakim Skottheim at the Swedish Environmental Protection Agency, who energetically has pushed the project forward. A number of people have contributed with background reports. During the summer of 2003, Anna Christiernsson, Luleå University of Technology, and Gunnar Lindberg, Swedish Environmental Protection Agency at the time, finalized two comprehensive literature reviews. In addition, during the fall of 2003, five students associated with the Division of Social Sciences at Luleå University of Technology were recruited to write their Bachelor and Master s theses on the different topics covered in this project. This resulted in five theses (three in economics, one in environmental law, and one in political science), authored by Linda Andersson (economics), Anna Christiernsson (environmental law), Henrik Gåverud (economics), Peter Sjöberg (economics), and Charlotta Söderberg (political science). The above reports and theses have together made this final report possible, and I would like to express my sincere gratitude to all these students and their respective supervisors. Finally, comments on the work from colleagues at the Division of Social Sciences at Luleå University of Technology are gratefully acknowledged. Any remaining shortcomings are of course solely mine, and should not be attributed to any other individuals. Luleå in June 2004 Patrik Söderholm Associate Professor of Economics Luleå University of Technology Sweden 4
Table of contents Preface 3 Executive Summary 9 Summary in Swedish/ Sammanfattning 13 1 Introduction 17 1.1 Background and Motivation 17 1.2 Purposes of the Study 18 1.3 Scope and Definitions 18 1.4 Approach 19 1.5 Outline 20 2 Existing Taxes on Natural Resources and Chemical Compounds in the OECD Countries 23 3 Taxing Natural Resources and Chemical Compounds: A Theoretical Discussion 29 3.1 Introduction: Basic Motives for Taxing Goods 29 3.2 Taxing Natural Resources for Non-environmental Reasons 29 3.3 Taxing Natural Resources and Chemicals for Environmental Reasons 31 3.3.1 The Economy-Environment Relationship 31 3.3.2 The Economics of Taxing Natural Resources for Environmental Reasons 32 3.3.3 The Economics of Taxing Chemical Compounds 36 3.4 Final Remarks 38 4 Evaluations of Natural Resource Taxation 39 4.1 Introduction 39 4.2 Taxing Virgin Materials to Reduce Waste and Emissions: Some Relevant ([$QWH Evaluations 39 4.3 Taxing Aggregates: The Experiences in Sweden, Denmark and the UK 41 4.3.1 The Swedish Tax on Natural Gravel 41 4.3.2 The Danish Tax on Certain Raw Materials 44 4.3.3 The UK Aggregates Tax 45 4.3.4 Summarizing Remarks 45 4.4 Taxing Water Extraction 46 4.4.1 ([$QWH Evaluations of Water Taxes 46 4.4.2 Experiences with Water Taxes and ([3RVW Evaluations 47 4.4.3 Summarizing Remarks 49 4.5 Final Comments on Natural Resource Taxation 50 5 Evaluations of the Taxation of Chemical Compounds 51 5.1 Introduction 51 5.2 Taxes on Fertilizers 51 5.2.1 ([$QWH Evaluations of Taxes on Fertilizers 52 5.2.2 The Experiences of Fertilizer Taxation in Selected European Countries 53 5.2.3 Summarizing Remarks 58 5
5.3 Taxes on Pesticides 59 5.3.1 ([$QWH Evaluations of Taxes on Pesticides 59 5.3.2 The Experiences of Pesticide Taxation in the Nordic Countries 61 5.3.3 Summarizing Remarks 67 5.4 Taxing Ozone-depleting Chemicals: The Case of the U.S. Tax 67 5.4.1 The Aim and Design of the U.S. Tax 67 5.4.2 The Effectiveness of the U.S. ODC Tax 68 5.4.3 Environmental Benefits and Costs of ODC Reduction 69 5.5 Taxes on Solvents 70 5.5.1 ([$QWH Evaluations of Solvents Taxation 70 5.5.2 Experiences of Solvents Taxes and ([3RVW Evaluations 72 5.6 Final Comments on Chemical Taxation 74 6 Taxing the Environment in a Small Open Economy: Overcoming the Obstacles 77 6.1 Introduction 77 6.2 Environmental Policy and Competitiveness: Empirical Evidence 78 6.3 Overcoming the Impacts of Environmental Taxes on Competitiveness 79 6.3.1 Recycling of Revenues 79 6.3.2 Sectoral Exemptions 80 6.3.3 Border Tax Adjustments 81 6.3.4 Pre-announcing and Gradual Phase-in of a Tax 82 6.4 Final Remarks 82 7 European Community Policy and Law 83 7.1 Introduction 83 7.2 EC Policy Developments in the Environmental Tax Field 83 7.3 Legal Prospects for Implementing National Environmental Taxes 86 7.3.1 National Environmental Taxation when Community Measures are Absent 86 7.3.2 National Environmental Taxation when Community Measures Exist 88 7.4 EU Law and the Recovery of Production Residues 89 7.4.1 The Definition of Waste in EC Law 90 7.4.2 Relevant EC Waste Legislation 92 7.4.3 Summarizing Comments 94 7.5 Concluding Remarks on EC Law and Environmental Policy 95 8 Additional International and National Prerequisites for Policy Change 97 8.1 Brief Reflections on the Process of Policy Change 97 8.2 The Role of International Institutions and Organizations 98 8.2.1 The United Nations (UN) 98 8.2.2 The Organisation for Economic Co-operation and Development (OECD) 99 8.2.3 The World Trade Organization (WTO) 100 8.2.4 Summarizing Remarks 101 8.3 The Swedish Environmental Policy Arena 101 6
8.3.1 The Role of Environmental Taxes in Swedish Environmental Policy 101 8.3.2 Do Potential Policy Coalitions Exist? 103 8.4 Summarizing Remarks 105 9 Concluding Remarks and Implications 107 9.1 Are Taxes on Natural Resources and Chemicals Desirable? 107 9.2 Are Taxes on Natural Resources and Chemicals Politically Viable? 109 10 References 113 Appendix A 125 7
8
Executive Summary There is a growing interest among analysts and policymakers towards extending the environmental tax base to include new taxes on natural resources and chemical compounds. The main purposes of this report are to: (a) evaluate the effectiveness and the efficiency of environmental taxes on selected natural resources and chemical compounds; and (b) analyze the future potential for increased implementation of such taxation policies in Sweden. In line with theses objectives, the report comprises two major parts. The ILUVW part outlines the current use of natural resource and chemical taxes in the OECD area, and provides a survey of previous evaluations and studies of these types of taxes. This survey discusses the results from both H[DQWH and H[SRVW evaluation studies. Emphasis is put on aggregates and water taxes and on chemical taxes on pesticides, fertilizers, ozone-depleting chemicals and solvents. The VHFRQG part of the report analyzes the potential for increased use and implementation of taxes on natural resources and chemical compounds. Here we recognize that the process of policy change very seldom is straightforward; it is a dynamic process in which policy makers must overcome a number of domestic and international obstacles. For the Swedish case it is particularly relevant to analyze the potential conflict between a unilateral environmental policy on the one hand, and international competitiveness on the other. The roles of important international institutions, such as the EU, OECD, UN and the WTO, are also scrutinized. From an economic efficiency point of view, taxes on natural resources are typically motivated by both fiscal and environmental reasons. The ILVFDO motive can be explained by the fact that the demand and the supply of many natural resources are price-inelastic, thereby creating a stable tax base for the government. It is possible to define four different but closely related HQYLURQPHQWDO motives for taxing the output or the use of natural resources. These include: (a) resource depletion; (b) negative environmental externalities at the extraction stage; (c) downstream negative externalities; and (d) the substitution of recycled for virgin materials. Still, in all these cases, taxing outputs or use is generally a second-best alternative, which can be used when, for instance, the monitoring of non-point source emissions and/or efficient property rights regimes are hard to implement. The taxation of chemical compounds is typically motivated by the desire to target downstream external costs in the form of harmful exposures affecting humans and/or the natural environment. These non-point source emissions are difficult and costly to control, and therefore it may be more efficient to tax the production or the use of chemical compounds upstream. However, the presence of major uncertainties about the marginal costs of reducing chemical use combined with sharply rising marginal damages above certain critical levels, imply that command-andcontrol regulations (and even bans) could be more efficient for controlling chemical use than would a tax regime. The above suggests that natural resource and chemical taxes provide no universal solution to be applied in all types of situations; 9
their effectiveness must be assessed and compared to those of other regulatory instruments on a case-by-case basis. The practical experiences of taxing natural resources such as aggregates and water are mixed. In some cases the taxes are reported to have had significant impacts on resource use and on resource substitution behavior; the Swedish tax on natural gravel and the German water extraction taxes are examples of this. Low tax levels combined with low price elasticities of resource demand and sectoral exemptions explain why many other taxes have had only limited impacts on resource use (e.g., the Danish water supply tax). An important problem is that many natural resource taxes have multiple objectives; they combine fiscal and environmental goals and they also target a number of different environmental goals at the same time (e.g., UK aggregates tax). This not only weakens the incentive effects of the taxes, but it also makes it hard to evaluate the impacts of the taxes H[SRVW. Both existing aggregates and water taxes are largely motivated for resource depletion reasons although the issue of poorly defined property rights is likely to be a bigger problem in the case of water use than in the extraction of aggregates. There exists thus a strong case for targeting taxes at specific environmental goals (i.e., employ one policy tool for each environmental policy objective), and to make a clear distinction between fiscal and environmental taxes. Two different groups of chemicals are reviewed in the report; chemicals used in agriculture (fertilizers and pesticides), and hazardous chemicals (ozonedepleting chemicals and chlorinated solvents). A number of H[DQWH analyses of taxes on chemical compounds show that they can be effective means of reducing the environmental impacts from chemical use, even in areas where such taxes currently are uncommon. These studies also illustrate, though, the trade-offs involved in either achieving a cost effective reduction in environmental damages by taxing close to the damage caused on the one hand, or employing a simple tax system with low administrative and monitoring costs by taxing inputs on the other. In practice the latter approach is the one most frequently used. The taxation of chemical compounds in Europe illustrates the importance of and the practical problems involved in designing the tax so as to target the environmental damages as closely as possible. Most of the taxes implemented are truly second-best instruments as they focus on the consumption or sales of the respective chemicals. Still, the Dutch tax on fertilizers and the Norwegian taxes on pesticides show that there exist ways in which the tax system can be designed to achieve a closer proportionality to damage done. An optimal differentiation of taxes is however unlikely to ever be achieved, especially since the damages caused by chemical use and disposal tend to vary a lot depending on the receiving environment conditions. In practice the volumes of chemicals used have decreased in the European countries which have implemented such taxes, but the H[SRVW evaluations that have been made indicate that the taxes impact on this development has been modest. Just as in the natural resource case this can be explained by relatively low tax rates as well as low own-price elasticities of demand. In fact, often the effectiveness of the chemical taxes has not rested on their incentive impacts, but rather on the uses of the tax revenues. This is particularly evident when the revenues have been redi- 10
rected to research and information in which the concerned industries have an interest. Often there exists a conflict between international competitiveness and the use of domestic environmental taxes. The magnitude of this conflict is often debated, but overall it is still likely to be severe enough to motivate the use of strategies to overcome any negative competitive impacts. Only for industries for which markets are spatially confined due to bulky transports (e.g., aggregates), such measures may not be needed. We discuss the pros and cons of four different strategies that can be used to address the adverse competitive impacts of environmental taxes: (a) revenue recycling; (b) sectoral exemptions; (c) border tax adjustments; and (d) preannouncing and gradual phase-in. Regardless of the strategy chosen there exists always a trade-off between achieving the highest environmental effectiveness and, as far as possible, avoiding negative competitive impacts. The extent to which these types of trade-offs have to be made and thus the choice of strategy depends largely on the characteristics and the causes of the environmental problem that the tax is designed to address. This illustrates the importance of evaluating the environmental and competitive impacts on a case-by-case basis. The prospects for implementing new taxes on natural resources and chemicals require not only that such a tax policy represents an efficient environmental policy instrument, but also that it: (a) gains support from international organizations (not the least from those which Sweden are members); (b) is not in serious conflict with international agreements; and (c) will be pushed forward by strong policy coalitions. For these reasons, the report reviews the policy stances of a number of important international organizations and institutions not the least the European Community (EC) towards the use of environmental taxes in general and natural resource and chemical taxes in particular, as well as the existence of potential domestic policy coalitions that may propel the use of such taxes in Sweden. Taxation measures to improve environmental quality are promoted within the EC, but few concrete measures have been taken at the Community level given the requirement on unanimity. The member states discretion to adopt national environmental taxes and charges is, however, quite large. There seems to be few reasons why environmental taxes and charges at the national level could not be implemented in those areas where there is no harmonization, as long as the tax its rate and the method of collection is non-discriminating. In areas of law where there is explicit harmonization, however, it can be more difficult for one nation to have separate legislation. However, regardless of the distribution of competence EC law may restrict the ambition level of the tax i.e., the tax policy must be proportionate as well as the use of measures to avoid negative competitive impacts on the domestic industry. The legal preconditions for the recovery of production residues within the European Community, especially the wide scope of the definition of waste, may restrict such recovery operations. By defining a production residue as waste, a number of obligations will follow (e.g., permitting procedures), and some of these impede the use of such substances and encourage the use virgin raw materials that are not subject to similar obligations. 11
Overall there is substantial support for the use of economic instruments (taxes, fees, etc.) in environmental policy among both international organizations (UN, OECD, and WTO) and among the Swedish political parties. International trade (WTO) rules set limits on the implementation of environmental taxes especially with respect to process taxes but as long as foreign products are not discriminated (through higher taxes on imports than those on domestic products), these limits should not provide a major hindrance. The analysis also shows, though, that it is hard to identify any strong policy coalitions on the Swedish political arena that may initiate and push for the introduction of natural resource and chemical taxes. Taxation of natural resources is only explicitly promoted by the Green Party and the Center Party, and proposals for taxes on some natural resources (e.g., taxes on raw materials that are traded internationally) are likely to be challenged by relatively strong interest groups. The fact that such taxes typically address rather diffuse not to say unimportant environmental problems also make them hard to promote and thus easier to argue against. Taxes on chemicals should be easier to promote from an environmental and health perspective but they do not appear to be on the agenda of any of the political parties and few of the (national and international) organizations reviewed. 12
Summary in Swedish/ Sammanfattning Många aktörer på den miljöpolitiska arenan visar ett ökat intresse för en utökning av den svenska miljöskattebasen och mer specifikt för införandet av miljöskatter på naturresurser och kemikalier. Syftet med denna rapport är: (a) att utvärdera effektiviteten i utvalda naturresurs- och kemikalieskatter såväl teoretiskt som empiriskt; samt att (b) analysera potentialen för en utökad framtida användning av sådana skatter i Sverige. Rapporten är indelad i två huvudsakliga delar. Den I UVWD delen redogör kort för den nuvarande användningen av naturresurs- och kemikalieskatter i OECDområdet, och ger en översikt av tidigare utvärderingar av dessa skatter. Översikten bygger på sekundärdata och på tidigare studier som utvärderat effekten av såväl hypotetiska som faktiskt implementerade skatter. Empiriskt ligger fokus på mineral- och vattenskatter samt på kemikalieskatter som lagts på bekämpnings- och gödselmedel i jordbruket samt på ozonförtunnande kemikalier och lösningsmedel. Rapportens DQGUD del analyserar den framtida potentialen för en utökad användning av naturresurs- och kemikalieskatter. Här betonas att den politiska process som krävs för ett sådant införande sällan är okomplicerad; det är snarare en dynamisk process där en rad internationella och nationella hinder måste hanteras. I det svenska fallet är det speciellt viktigt att analysera den potentiella konflikten mellan en ensidig miljöpolitik å den ena sidan, och internationell konkurrenskraft å den andra. Internationella organisationer och institutioner såsom EU, FN, OECD och WTO och dessas roll i sammanhanget analyseras också. Utifrån ekonomisk effektivitet kan det vara motiverat att beskatta naturresurser av såväl miljömässiga som fiskala skäl. Det ILVNDOD motivet bygger i hög grad på att utbud och efterfrågan på de flesta naturresurser är prisokänsliga, och detta gör naturresurser till en stabil skattebas för staten. Det finns åtminstone fyra olika men nära relaterade PLOM PlVVLJD skäl till att beskatta användningen eller uttaget av naturresurser. Sådana skatter kan delvis motiveras av förekomsten av: (a) resursuttömning; (b) negativa externa effekter vid uttaget av resursen; (c) negativa externa effekter i andra delar av produktionskedjan; samt av (d) viljan att åstadkomma substitution från jungfruliga råvaror till återvunnet material. I alla dessa fall kommer dock beskattningen av användning eller uttag att vara s.k. näst-bästa lösningar, som exempelvis kan användas i de fall då det är svårt att etablera väl fungerande äganderätter för resurser eller för att kontrollera diffusa miljöeffekter där utsläppsskatter inte är tillämpliga. Beskattning av kemikalieanvändning motiveras i huvudsak av förekomsten av negativa externa effekter längs produktionskedjan. Dessa diffusa och utspridda effekter är svåra att kontrollera direkt, och det kan därför vara motiverat att i stället beskatta användningen eller produktionen av de kemikalier som orsakar problemen. Osäkerhet om marginalkostnaden för att reducera kemikalieanvändningen kombinerat med en ofta brant stigande marginella skadefunktioner ovanför en kri- 13
tisk nivå, innebär dock att kvantitativa regleringar (t.o.m. förbud) kan vara ett mer effektivt styrmedel än skatter för att påverka kemikalieanvändningen. Ovanstående innebär sammantaget att varken naturresurs- eller kemikalieskatter erbjuder några generallösningar på miljöproblematiken; deras effektivitet måste bedömas från fall till fall och då också jämföras med effektiviteten hos andra styrmedel. De praktiska erfarenheterna av beskattning av naturresurser såsom mineraler och vatten varierar från fall till fall. I vissa fall har dessa skatter haft betydande effekter på resursanvändningen samt stimulerat till substitution; den svenska naturgrusskatten samt de tyska vattenuttagsskatterna representerar sådana fall. Låga skattenivåer kombinerat med en låg efterfrågepriselasticitet för resursen samt förekomsten av undantagsregler för vissa användare förklarar varför många andra skatter (t.ex. den danska skatten på vatten) endast haft blygsamma effekter på beteendet. Syftena med många naturresursskatter är såväl fiskala som miljöstyrande, och de riktar dessutom in sig på ett antal olika miljöeffekter (t.ex. den engelska mineralskatten). Detta faktum försvagar dock ofta skatternas incitamentseffekter, och gör det svårt att utvärdera effekterna H[SRVW. Existerande mineral- och vattenskatter motiveras ofta utifrån resursuttömningsargument, men problemet med dåligt väldefinierade äganderätter är i de flesta fall ett större problem för vatten än för uttaget av mineraler. Det finns således starka skäl för att inrikta skatterna på uppfyllandet av specifika miljömål d.v.s. tillämpa ett policyinstrument för varje miljömål samt göra en tydlig distinktion mellan fiskala och miljöstyrande skatter. Skatter på två kategorier av kemikalier utvärderas i rapporten: kemikalier som används i jordbruket (gödsel- och bekämpningsmedel) samt farliga kemikalier (ozonförtunnande medel och lösningsmedel). Modellanalyser visar att skatter på kemikalier kan vara effektiva medel för att reducera de negativa miljöeffekterna från kemikalieanvändning, också inom områden där sådana skatter sällan förekommer. Samma analyser visar dock också att det finns en tydlig målkonflikt mellan att å ena sidan ha en beskattning som så nära som möjligt reflekterar miljöproblemet, och att tillämpa en enkel skattepolitik med låga kontrollkostnader å den andra sidan. I praktiken används oftast den senare strategin. Den europeiska beskattningen av kemiska ämnen illustrerar betydelsen av och de praktiska svårigheter som är involverade i att utforma skatterna så att de så långt som möjligt fokuserar på miljöskadan. De flesta (för att inte säga alla) existerande kemikalieskatter är näst bästa alternativ eftersom de läggs på konsumtionen eller försäljningen av respektive kemikalier. Den holländska beskattningen av gödselmedel samt den norska skatten på bekämpningsmedel visar dock att det finns sätt på vilka kemikalieskatter kan utformas för att uppnå en starkare koppling till miljöskadan. En fullt ut optimal differentiering av skatter på kemikalier kommer dock aldrig att kunna uppnås, inte minst eftersom de miljöskador som följer av kemikalieanvändning tenderar att vara starkt beroende av geografiska naturförhållanden. I de länder där kemikalieskatter använts har försäljningsvolymen minskat, men de utvärderingar som gjorts tyder på att skatternas inverkan på dessa minskningar varit blygsamma. Precis som i naturresursfallet kan detta förklaras av relativt låga skattesatser och en låg egenpriselasticitet för efterfrågan på kemikalier. Ofta har kemikalieskatternas effektivitet inte varit ett resultat av deras 14
incitamentseffekter, utan snarare av hur intäkterna från skatterna använts. Detta är speciellt tydligt i de fall där intäkterna slussats vidare för att finansiera forskningsaktiviteter och informationsåtgärder där den berörda industrin har ett intresse. Det finns ofta en målkonflikt mellan internationell konkurrenskraft och introduktionen av inhemska miljöskatter. Konfliktens omfattning är omstridd, men överlag är den oftast tillräckligt stor för att motivera införandet av strategier för att undvika negativa konkurrenseffekter. Endast i industrier där marknaden är geografiskt koncentrerad på grund av dyra transporter (t.ex. naturgrus) kommer sådana åtgärder inte att behövas. Rapporten analyserar fördelar och nackdelar med fyra sådana strategier: (a) skatteväxling och öronmärkning av skatteintäkter; (b) sektoriella undantag och skattesänkningar; (c) gränsskattejusteringar; samt (d) förannonsering och gradvis infasning av skatter. Oberoende av vilken strategi som väljs existerar det alltid en trade-off mellan att uppnå högsta möjliga miljöeffektivitet och att, så långt som möjligt, undvika negativa konkurrenseffekter. Betydelsen av detta övervägande - och således även valet av strategi beror i hög grad på orsakerna bakom och egenskaperna hos de miljöproblem som skatten är utformad för att reducera. Sammantaget visar detta hur viktigt det är att utvärdera H[DQWH såväl miljöeffektiviteten som konkurrenseffekterna av en skatt innan den implementeras. Utsikterna för att införa nya naturresurs- och kemikalieskatter beror inte bara på deras eventuella effektivitet i förhållande till andra styrmedel, utan också huruvida den föreslagna politiken: (a) får stöd från internationella organisationer (inte minst från de vilka Sverige är medlemmar av); (b) inte kommer i konflikt med internationella överenskommelser; samt (c) kommer att kunna stödjas och förespråkas av starka policykoalitioner. I rapporten granskas inställningen till miljöskatter i allmänhet och naturresurs- och kemikalieskatter i synnerhet hos viktiga internationella organisationer (inte minst den Europeiska Unionen, EU) samt hos svenska riksdagspartier. Vi försöker också analysera den eventuella förekomsten av inhemska policykoalitioner som uttrycker ett gemensamt mål om att införa sådana skatter. Användandet av miljöskatter premieras inom EU, men på grund av kravet på enhälliga beslut i skattefrågor har mycket få EU-gemensamma miljöskatter införts. Medlemstaternas möjligheter att anta och tillämpa nationella miljöskatter är dock stora. I de fall där det inte finns någon harmonisering finns det få hinder mot nationella miljöskatter så länge dessa nivåerna och indrivningsmetoderna är ickediskriminerande. På de områden där det finns explicit harmonisering kan det vara svårare för ett land att anta en separat lagstiftning. Överlag gäller också att EUlagstiftningen kan sätta gränser för skattepolitikens ambitionsnivå d.v.s. skattestyrmedlet måste vara proportionellt samt även för tillämpandet av åtgärder för att undvika negativa konkurrenseffekter på den inhemska industrin. De legala förutsättningarna för återvinning av produktionsrester inom den Europeiska Unionen, främst den vida definitionen avfall, tenderar att begränsa sådan återvinning. När en produktionsrest definieras som avfall följer en rad bestämmelser om exempelvis tillståndsgivning, och vissa av dessa bestämmelser verkar snarare för en ökad användning av jungfruliga råvaror. 15
De internationella organisationer (FN, OECD, WTO) som studerats samt flesta av de svenska politiska partierna uttrycker ett starkt stöd för användandet av miljöskatter. Internationella handelsöverenskommelser (inom WTO) sätter dock gränser på införandet av miljöskatter speciellt i fallet med s.k. processkatter men så länge som utländska produkter inte diskrimineras (t.ex. genom högre skatter på importerade varor) kommer dock dessa regler inte att utgöra betydande hinder. Analysen visar dock också att det är svårt att i Sverige identifiera starka policykoalitioner, som skulle kunna initiera och verka för introduktionen av naturresurs- och kemikalieskatter. Beskattning av naturresurser främjas endast explicit av Miljöpartiet och Centerpartiet, och propåer om nya skatter på exempelvis mineraler och/eller skog skulle med stor sannolikhet mötas av mycket hårt motstånd från starka intressegrupper. Eftersom naturresurskatter ofta inriktar sig på ganska diffusa dock ej oviktiga miljöproblem, gör också att de är svåra att marknadsföra på ett effektivt sätt och därmed också lättare att argumentera mot. Skatter på kemikalier borde vara lättare att argumentera för politiskt, men sådana skatter tycks inte finnas på någon av de svenska partiernas policyagendor. 16
1 Introduction 1.1 Background and Motivation Environmental policy in the 1970s was mainly based on command-and control regulations, such as firm-specific emission limits and technology requirements. However, since the late 1980s policy makers have given increased attention to market-based instruments in environmental policy. These include environmental taxes and charges, tradable permit schemes, and deposit refund systems. The growing interest in such economic instruments stems partly from the fact that the traditional systems often failed to provide cost-effective and flexible tools for emissions reductions. Another reason is that environmental policy today puts a greater emphasis on non-point source emissions (e.g., emissions from road traffic), and these types of pollutants are hard (or at least very costly) to control on a source-bysource basis. Instead taxes on, for instance, the carbon content in fuels used have been implemented. Moreover, falling costs for measuring end-of-pipe discharges have facilitated the use of pollution charges and emissions-based tradable permit systems (e.g., the Swedish charge on nitrogen oxides, the U.S. sulfur trading program). Many of the market-based instruments in use reveal clear positive environmental outcomes, and appear to be cost-effective compared to command-andcontrol regulations (e.g., Ellerman et al., 2000; Stavins, 2000). Still, in spite of this progress in some selected areas (in particular abatement of air pollution from stationary sources), threats to overall environmental quality and human health are, it is argued, growing worldwide. Industrial production and usage of natural resources to promote economic growth are important contributing factors. Water scarcity is a threat to agriculture in many countries, threats to marine and coastal ecosystems, depletion of forestry and soil degradation cause losses of biodiversity and creates risks for the sustainability of the food chain, toxics accumulate in the food chain and the ozone-layer is degraded by emissions from ozonedepleting chemicals, to name a few examples (UNEP, 2002). These negative trends have led many analysts and policy makers to ask whether it would be desirable to extend the scope of the use of market-based instruments in environmental policy. In this way one would achieve better environmental quality, while at the same time benefiting from the effectiveness of market-based policies. Taxes on natural resource use and chemical compounds are often mentioned as potential candidates. For instance, the Swedish Environmental Protection Agency emphasizes that new taxes on raw materials and natural resources should be considered and evaluated (Naturvårdsverket, 2002), while Slunge and Sterner (2001) suggest that a tax would be a more effective means of phasing out the use of the solvent Trichloroethylene in Sweden than the current prohibition. The most common environmental rationales for taxing natural resources and chemical compounds, respectively, concern the internalization of negative externalities in the form of emissions and waste disposal. Taxes on the extraction of natural resources and virgin material inputs may be a second-best alternative to emission taxes. Since all materials extracted eventually become emissions to nature, current 17
rate of extraction equals future amount of emissions or waste. Taxing natural resources is thus a mean of preventing transformation of materials into waste and emissions. Natural resource taxation may also be compatible with so-called LQWH JUDWHGSURGXFWSROLFLHV (IPP), which aim at encouraging the diffusion of environmental management techniques along the entire supply chain of a product (rather than focusing on end-of-pipe solutions) (Lamming and Hampson, 1996). 1 Similarly, in the case of chemical compounds the argument is that their use gives rise to hazardous emissions and waste products. However, also here it is difficult to regulate the damage at the point where it arises. Taxes on chemical inputs (or the production of chemicals) may therefore be a good second-best alternative. Before extending the scope of the environmental tax base with an increased focus on natural resources and chemical compounds one needs, though, to raise and attempt to answer a number of questions. )LUVW, what motivates the use of such taxes and are there alternative regulatory approaches that would be more efficient? 6HFRQG, what is the current use of natural resource and chemical taxes in the western world, and what can we learn about their efficiency and effectiveness from these experiences? 7KLUG, what are the potential legal, institutional and attitudinal obstacles towards increased implementation of taxes on natural resources and chemicals in Sweden? The last question concerns issues such as the EU legislation on the use of economic instruments and the internal market, the World Trade Organization s (WTOs) rules on international, attitudes towards the proposed taxes among key international institutions (e.g., OECD) as well as among Swedish political parties and interest groups. In this paper we attempt to shed some light on these questions, and thus investigate whether increased taxation of natural resources and chemical compounds in Sweden is a GHVLUDEOH and a SROLWLFDOO\YLDEOH environmental policy. 1.2 Purposes of the Study The main purposes of this report are to: (a) evaluate the effectiveness and the efficiency of taxes on selected natural resources and chemical compounds; and (b) analyze the future potential for increased implementation of natural resource and chemical taxation in Sweden. 1.3 Scope and Definitions Before proceeding two important limitations of the study need to be stressed. )LUVW, the use of taxes is motivated for several reasons. These include: (a) the raising of revenues to finance public consumption and investment; (b) the redistribution of incomes (e.g., from the poor to the rich and/or over the lifetime of a person); and (c) the desire to affect behavior in any way (i.e., incentive taxes). Many taxes on natural resources (in particular in developing and post-communist countries) can be 1 There are also other (however sometimes less convincing) arguments for why environmental incentive taxes on natural resources and chemical compounds should be implemented. In chapter 3 we provide a more detailed discussion of the potential effectiveness of natural resource and chemical taxation in environmental policy. 18
related to the first and the second motive, but in this report we focus on the third motive, and more specifically on environmentally related taxes which aim at influencing environmentally damaging behavior (e.g., reducing pollution, waste etc.). 2 Still, the distinction between environmental taxes and revenue-raising (fiscal) taxes is not always clear-cut. Taxes for which fiscal and environmental objectives are combined or inseparable are therefore also included in the report. 6HFRQG, the above also implies that our geographical focus is limited. We devote most attention to the use of natural resource and chemical taxes in developed countries (primarily in the OECD area). In other countries the use of environmental taxes on natural resources and chemical compounds is more limited. In addition, since this report aims at drawing on the lessons learnt in other countries for implementation in Sweden, we find it relevant to focus on western-world countries (e.g., western Europe, USA) with similar economic systems. 3 Finally, a distinction should also be made between WD[HV and IHHV. Taxes are essentially compulsory unrequited payments to the state budget, while fees are earmarked in the sense that the revenues are spent on related (typically environmental) purposes and often recycled back to the sector on which the fees were levied. 1.4 Approach In line with the purpose of the study, this report comprises two major parts. The ILUVW part outlines the current use of natural resource and chemical taxes in the OECD area, and provides a survey of previous evaluations and studies of these types of taxes. There are two important issues that need to be stressed in relation to the evaluation overview. We follow OECD (1997) and make an important distinction between H[ DQWH and H[SRVW analyses of environmental taxes. ([DQWH evaluations are made in advance based on economic modeling and simulations, and are best described as conditioned scenarios (Skou Andersen et al., 2001). The H[DQWH analyses referred to in this report are in most cases based on economic models that capture the essence of an economy or a market, and with whose help one can identify possible outcomes if specific tax policies are implemented, and compare these to some predetermined criteria. An important feature of H[DQWH evaluations is that they permit a consistent comparison between different policy designs and instruments. ([SRVW evaluations, on the other hand, are based on historical analyses of the actual effects of existing or previously implemented tax policies. 2 It is worth noting that a group of experts from the European Commission, Eurostat and the OECD defines an environmental tax as: a tax whose tax base is a physical unit (or proxy of it) that has a proven specific negative impact on the environment, (ECOTEC, 2001). However, for the purpose of this report this definition is too wide as it refrains from considering the motive behind the tax. See chapter 3 for a more detailed discussion. 3 See, for instance, Söderholm (2003) who analyzes a number of institutional obstacles to environmental taxation in the Former Soviet Union (e.g., little knowledge among polluters about pollution abatement technologies, poorly functioning capital markets, lack of legitimacy and trust for environmental legislation among polluters). These obstacles are either non-existing and/or are less constraining in western European countries and in the USA. 19