Transcript Use of market-based instruments for restricting and

Use of market-based instruments for
restricting and controlling
air pollution
- The case of Sweden -
Miriam Markus-Johansson
Content:
• Introduction and overview of MBI
• Pollution charges (Swedish NOx charge and SO2 tax)
• Pollution tax
• CO2 and energy tax
• Environmental Tax Reform
• Emission Trading Systems
• MBIs applicable to the transport sector
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Congestion charges
Environmental zones
Green car subsidies
Fuel and vehicle tax
• Recommendations
www.rec.org
Some thoughts…
not a question of "either the environment
or the economy," but of
"both the environment and the economy.“
www.rec.org
Market-Based Instruments (MBI)
The EU has increasingly favored economic or market-based
instruments in environmental protection:
• indirect taxation,
• targeted subsidies or
• tradable emission rights
as they provide a flexible and cost-effective means for
reaching given policy objectives.
Use of MBI is advocated in:
• the EU´s 6th Environment Action Programme
• renewed EU Sustainable Development Strategy
• Lisbon Strategy for Growth and Jobs
www.rec.org
Market Based Instruments:
• Improve price signals by giving a value to the external
costs and benefits of economic activities, so that
economic actors take them into account and change their
behavior to reduce negative – and increase positive environmental and other possible socio-economic
impacts.
• Allow industry a greater flexibility in meeting objectives
and thus lower overall compliance costs.
• Provides an incentive to companies, in the longer term, to
pursue technological innovation (“dynamic efficiency”).
• Support employment when used in the context of
environmental tax or fiscal
www.rec.org
Barriers to implementation of MBIs can be
overcome by:
• progressive removal of subsidies and regulations that
contribute to environmental damage
• use of ear marked revenues to provide incentives for ecoefficiency and eco-innovation;
• better design of instruments and mitigation measures to
deal with inequities;
• progressive implementation supported by broad
consultation and information so that people build up
confidence in the measures
• integration of MBIs in environmental policy with those for
economic and social policy so that revenues can be used
to support broader tax reforms and contribute to win-win
outcomes.
www.rec.org
EU legislation and measures promoting
MBI
• EU CO2 Emission trading scheme established through
Directive 2003/87/EC (amended through Directive
2004/101/EC and Directive 2008/101/EC)
• 2 supplementing Decisions on monitoring
• GREEN PAPER on market-based instruments for
environment and related policy purposes {SEC(2007)
388}
• COMMISSION STAFF WORKING DOCUMENT
Accompanying the GREEN PAPER {COM(2007) 140}
www.rec.org
Taxes vs Charges
To steer resource use in the desired direction
• Tax - general income for the national
treasury/state (budget)
• only the legislature (Parliament) can impose or adjust
taxes
• Charges - should be earmarked for a specific
purpose and should be reimbursed to the payers
• environmental charges can be decided by the
Government and by local authorities
www.rec.org
Pollution Charges
Builds on
The Polluter Pays Principle
Those who cause environmental damage should
bear the costs of avoiding it or compensating for it.
Public financing of environmental policy should in
most cases be avoided, as it should be financed by
the polluters as far as they can be identified.
www.rec.org
Charge on Nitrogen Oxides Emissions from
Energy Production (Sweden)
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Problem: Acidification of soil and water due to NOx damaging
ecosystems - wiping out sensitive organisms in at lakes and forests
Introduced in 1992 based on regulation SFS 1990:613 on charge on
NOx
Charged for NOx emissions from stationary combustion plants for
energy production (heat/electricity)
Charge calculated for each production unit (boiler, gas turbine,
combustion engine)
Levied at EUR 4.5/kg NOx for plants above a an output of 25 GWh.
(before 1997 50 GWh)
Objectives:
• reduce NOx pollution
• stimulate investment in advanced combustion and pollutionabatement technologies
• supplement existing regulatory measures
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www.rec.org
Net payers and receivers in relation to the refunded NOx
charge - Production units in different industrial sectors
•The revenues from the
charge are distributed
through refund payments
to the most energy
efficient units .
 Boilers at power and heating plants and incineration plants are often
"winners" (their refund is greater than the charge); industrial boilers and the
pulp and paper are often "losers" (net payers into the system).
Boilers with end-of-pipe treatment and improved efficiency made a net gain
www.rec.org
NOx charge - Why does it work?
Specific emissions (kg NOX per
MWh) for all boilers 1992-2001
Emissions per unit of energy
produced by the plants are now
less than 50% of 1992 levels
•The charge is very high (4.4 EUR per kg NOx emitted ) and has
therefore strong environmental effectiveness
•provides an impetus for technological development
•increase the incentives for accurate monitoring of emissions.
• Has led to more efficient reduction of NOX emissions than with policy
instruments such as emission guidelines and environmental permits
www.rec.org
Product Charge - Sulphur “Tax” in Sweden
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Introduced 1991 aiming to decrease sulphur emissions, promote use
of clean fuels and the cleaning of flue gases
Regulated by the Energy Tax Act (SFS 1994:1776)
Levied with 3 EUR on the sulphur content of fuels and heating oil that
exceeds a threshold of 0.05 %.
The tax rate for oils, 27 SEK per m3 for every tenth per cent sulphur
content by weigh
The tax is in the form of a product charge
Refund is given if a taxpayer can demonstrate reduction of emissions
of sulphur oxides, through treatment or absorption in any product or
in ash.
The refund for certain industrial processes concern only some
dozens of companies. About 100 companies benefit from tax
refunds due to achieved emission reductions.
Exemptions: households, commercial shipping, rail and aviation
transport. Fuels with lower sulphur content that 0.05%
www.rec.org
Sulphur “Tax” in Sweden
• The tax contributed to the 30 % of the total reduction of
sulphur emission in Sweden which was over 80%
1989-1995. Emissions from burning coal and peat has
considerably decreased.
• Tax worked through 3 main channels:
1) Increasing efficiency- technological progress - in industries.
2) Reduce sulphur content in fuels
3) Substitution between heavy and light fuel oil,
• Introduced in parallel with the CO2 tax which provides for
an additional incentive for substitution to e.g. renewable
energy sources.
• Administrative costs are less than 1% of revenue.
www.rec.org
Sulphur “Tax” in Sweden
Why does it work?
• High tax level (compared to other countries)
• A transparent rebate scheme strengthens the
incentive effect of the tax.
• Large incentive for taking mitigating measures which
costs approx. 1 EUR/kg compared to 3 EUR/kg tax
rate
• The design of the program provides for easy
implementation and low public administrative costs.
• The burden of proving the actual emissions level is
imposed on polluters.
www.rec.org
Swedish Sulphur tax
Combination of regulation and tax
• Since its peak in 1970, SO2 emission has decreased
by more than 95 %.
• Sweden long used a command and control approach
to regulate sulphur emissions. Based on permits.
• 1991 SO2 tax introduced as additional measure.
• Implementation has been related to a green tax shift.
Energy taxes were raised and income taxes lowered
• In addition, government gave financial support to
stimulate innovation to address emissions
www.rec.org
Use of instrument Mix
Why?
• Environmental problems are usually multi-faceted
• Instruments strengthen each other, increases environmental
effectiveness – synergies, spin-offs
• Reduce or reallocate administrative costs
• Combination with voluntary mechanisms can improve political
acceptability
How?
• Combining with information instruments.
• Instrument should address problems as broadly as possible.
How many instruments?
• Lack of instrument can jeopardise the environmental effect.
• Too many instruments can reduce the flexibility
• Overlapping reduces the economical cost effectiveness
www.rec.org
Swedish CO2 and Energy taxes
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The energy tax on fossil fuels part of the Swedish tax system since
1950s.
The energy tax system was reformed in 1991 to be based on a CO2
tax and an energy tax on fuels
The aim of the tax is to reduce CO2 emissions and to spur innovation
of industry.
It is levied as a specific tax on oil, coal, natural gas, bottled gas and
petrol
As the carbon tax was introduced, the general energy taxes were
reduced by 50%.
Until 1993, industry and households were charged with the same
energy and CO2 taxes, but competitive concerns led to these taxes
being lowered for industry.
Industry, agriculture, forestry and fisheries are entirely exempt from
the energy tax and pay only 21% of the CO2 tax
Exemptions:
• Bio fuels
• Industry is exempt from energy tax and subject to only 50% of the CO2
tax.
• Plans to reduce CO2 tax on fuels for industries covered by the EU
ETS
www.rec.org
CO2 and Energy Tax
• Emissions are now 20-25 % lower than it would have been
without a tax.
• Emissions from road transport has been reduced with 1.5-3.2
tons CO2/year since the introduction of the tax. The main
reduction has been with private cars.
• Lowered emissions from heating, both district and individual.
• Energy production plants have shifted fuels, increased use of
bio-fuels, increased use of wood/bio fuel in district heating, and
‘combined heat and power production has become more
competitive.
• Drawback: Low taxation on industry has resulted in small
improvements in energy efficiency in this area.
• The government plans to reduce the CO2 tax on fuels used by
factories and cogeneration plants covered by the EU's carbon
emission trading system
www.rec.org
Environmental Tax Reform (ETR)
• The Swedish government launched a 10-year programme
(2001–2010) for tax reform with a total of EUR 3.3 billion
being shifted from personal income tax and social
security contributions to environmental and energy
taxes, including on CO2 and SO2.
• Nordic countries were first to embrace the concept and
strategy of ETR, launch new taxes or strengthen existing
(energy) taxes:
• Finland (1990), Sweden (1991) and Denmark (1993)
• The Nordic examples have been followed by
developments in other European countries, such as the
Netherlands (1996, 2001), Germany (1999) and the
United Kingdom (1996, 2001 and 2002).
www.rec.org
Environmental Tax Reform (ETR)
•shift of the tax base away from taxing 'good' activities (such as
investment and labour), towards taxing 'bad' activities (such as
pollution and inefficient use of resources).
•provide signals to consumers and producers towards a more
sustainable development as well as it lead to a better functioning of
markets and increased welfare
New measures including:
• Environmental taxes
• Environmental charges
(SO2, NOx)
• Tradable permits (e.g.
CO2)
Offsetting reductions in:
•taxes on labour
•taxes on capital
www.rec.org
Developments of the effective tax rates on
labour and energy at the EU-15 level, 1995–
2002
• Energy tax revenues
have risen and the
average effective tax rate
on labour has dropped,
• Overall energy
efficiency in the EU has
improved, in parallel with
increased energy
taxation.
• Energy taxes make the
largest contribution to
total revenues (5%).
www.rec.org
MBIs applicable to the transport sector
•Congestion charges
•Green car rebate
•Environmental zones
•Vehicle tax
•Fuel tax
www.rec.org
EXAMPLES:
Congestion Tax, Stockholm, Sweden
•Since 2006, all vehicles, with a
few exceptions (e.g emergency
vehicles, buses, taxis), that enter
or exit the inner area of
Stockholm daytime on weekdays
are charged
•The aim of the tax was to reduce
traffic volume by 10-15%
•The charge is between 1-2 EUR
depending on the time of day, The
upper limit is 6 EUR/day.
•The fee is in the form of a tax and
is thus not earmarked. Goes to the
national budget.
•Results:
- Traffic decreased with 22 %
in central areas.
- Less time in traffic jams and
reduced travelling time
-Increased use of public
transportation: 4.5 %
•To meet the expected increase
in commuting by bus and tube,
public transport was been
extended new buses and new
bus lines.
www.rec.org
Congestion Tax, Stockholm, Sweden
•A referendum was held in
the city of Stockholm and
neighbouring municipalities,
after a 6 month trial period.
•51,5% voted in favour for
the charge and 45,8 %
opposed. The level of
participation was 74,7%.
•As the second city, after
London, Stockholm
introduced the charge.
www.rec.org
London Congestion Charge
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Revenues is used to improve transport and road network in
London.
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Vehicles entering central London, or those parked in the streets
during daytime, weekdays are subject to a GBP 8 daily charge
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Traffic entering the charging zone has reduced by 21% (70 000 fewer
cars.
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£137m being raised, in the year 2007/08
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Bus services in the zone have improved
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The evidence suggests that the charge has had little direct negative
impact on business
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www.rec.org
Now ongoing consultation whether to double the area of the zone
subject to congestion charge
EXAMPLE:
Green car discount
• Green Car Premium (Sweden) – Governmental
subsidy introduced in April 2007 to allow rebates
of €1,000 to consumers who purchased a
environmentally-friendly car.
• 1/3 of cars sold in Sweden is “green”
• Either fulfilling conditions in Env Class 2005
(small C02 or PM emissions and energy efficient)
or hybrid
• Green car exempt from
vehicle taxes the first 5 years.
• Too popular – now has to end
www.rec.org
EXAMPLE:
Environmental zones, Sweden
• Used in 4 cities in Sweden: Stockholm, Göteborg, Malmö
and Lund.
•The zones aims at improving the environment locally in
populated areas and to guarantee a certain level of air quality.
• Applies to trucks and diesel-busses categorized according
to EU standardisation. To enter the environmental zone the
vehicles have to meet certain environmental standards.
• All heavy diesel vehicles are allowed to enter the zone for 6
years from registration. Euro class 2 and 3 for 8 years. Euro
class 4 until 2016 and Euro class 5 until 2020.
•Purpose is to stimulate early purchases of new vehicles
with better environmental standards.
•Stockholm’s zone was implemented in 1996 – local
www.rec.org
regulation of municipalities.
Environmental zone in Stockholm
During 2007, the zone in Stockholm is
estimated to have reduced emissions with:
•3-4 % NOx
•16- 21 % Hydro Carbons
•13-19 % particular matter
www.rec.org
EXAMPLE:
Motor Vehicle Tax, Denmark
• Introduced in 1997 and applied to new vehicles registered
after 1997. Two types:
• Registration tax paid when the vehicle is purchased (trucks
excluded)
• Annual “green owners tax” based on the fuel economy
(consumption) of the vehicle (not based on the weight)
• Objectives:
• Reduce the number of vehicles,
• Provide an incentive for smaller vehicles with better fuel
economy Ensure that vehicle owners cover part of road
maintenance and construction costs
• The taxation of motor vehicles is being shifted gradually
from the registration tax to annual taxation, which should
influence the fuel economy of vehicles purchased
www.rec.org
EXAMPLE:
Vehicle Fuel Tax, Denmark
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Started in 1986 when unleaded petrol was taxed at a lower rate than leaded.
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Households and VAT-registered entities are liable to the vehicle fuel taxes,
whereas public transport receives a 100% refund.
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The revenue enters into the overall government budget.
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A tax differentiation in favour of petrol with low content of benzene entered into
force 1998.
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This scheme was supported by other measures including lowering the content
of lead in unleaded petrol, stringent emission limits promoting use of catalytic
converters and awareness building.
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For consumers, the tax constitutes about two-thirds of the price of petrol and
one third of the price of diesel.
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The tax creates an incentive to purchase vehicles with good-fuel economy and
the fuel economy in Danish vehicles is generally high compared to other
European countries
www.rec.org
Recommendations for using MBI in
combating air pollution - 1
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Take advantage of opportunities for introducing new economic
instruments
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Make an assessment of the current air pollution in general (polluting
sources, geographic dispersion, problematic zones)
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Integrate the use of MBI in strategic documents such as programmes,
action plans required under EC ambient air legislation
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Try to quantify the gains and burden for some of the MBIs (NOx,
SO2 tax, vehicle taxes etc.) and prioritise an MBI which has good
chances for success (introduction, implementation and enforcement)
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Ensure that objectives are clearly specified and achievable
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Systematic monitoring and evaluation of currently used instruments
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Strengthen existing instruments (could be more efficient than
introducing new ones)
www.rec.org
Recommendations for using MBI in
combating air pollution - 2
• Involve key stakeholders (including industry and other
direct stakeholders) early in the process in the design and
implementation
• Early announcement facilitate implementation and
enforcement
• Combine the MBI with regulatory measure or as one
component of a policy package to increase efficiency
• Gradual introduction e.g. phased in charge/tax rate to
allow adaptation and innovative steps from industry
• Establish “green budget” commission to spearhead
more environmentally sustainable economic and fiscal
reform.
www.rec.org
Thank You For Your Attention!
Miriam Markus-Johansson
[email protected]
www.rec.org