Selected Emission Taxes/Charges in European Countries (situation 2000)

TABLE 5.1

Romanian non-compliance fees go into the central budgets. Because of the direct link between pollution charges and the environmental financing system in these countries, pollu-tion charges play a fundamental role in environmental policy and in implementing the PPP.

Furthermore, emission charges ranging from 0.5 EUR/tonne (Estonia) to 23.4 EUR/tonne (Slovakia) are levied on carbon monoxide (CO) emissions in five CEECs (see Annex 1).

Other key pollutants subject to air emission charges/non-compliance fees include solid par-ticles and heavy metals. This situation attracts some attention when compared with devel-opment in EU member states, where emission taxes are only introduced in five countries including an autonomous region in Spain. However, the assessment of the effectiveness and efficiency of these instruments in CEE is complex, as their administration is less optimal in certain cases. Among other factors, this situation is due to the large number of chargeable pollutants and exemption schemes available for polluters.

While charge rates in CEECs are, generally speaking, too low to produce an incentive effect, it should be noted they are comparable to the rates in Western European countries in some cases (see Table 5.1). Penalty rates play an additional incentive role to reduce emis-sions to, or below, permitted levels. Charge rates were increased in a number of countries over the recent years — most notably in Slovakia — where the SO₂rate was doubled from 1,000 SKK/tonne (22.7 EUR/tonne of SO₂) in 1999, to 2,000 SKK/tonne (46.7 EUR/tonne SO₂) in 2000. The NO_xcharge rate was increased from 18.2 EUR/tonne in 1999, to 35 EUR/tonne in 2000 — an increase of more than 50 percent.

The comparison of the rates applied in CEECs with the situation in the EU member states shows that the Polish and the Lithuanian charge rates in particular are higher than charge rates in France, Italy and Spain. In the context of transition economies, these charge rates are high enough to play an incentive role in reducing air pollution. The tax rates in the Scandinavian countries (shown in Table 5.1) are still significantly higher, but they are rather exceptional as there is only a limited number of EU member states that have introduced any specific economic instruments for air pollution.

Changes introduced in the emissions charging scheme in Slovakia (effective from January 2000) are of some interest, especially when considering the incentive function of pollution charges and their possible impact on industry’s competitiveness. Under the new scheme, large and medium pollution sources are classified into two groups, dependent on whether they are able to meet emission limits after January 1999. All emissions generated by polluters unable to comply with the emission standards²⁵due to their technical status are subject to a progressive multiplier, which increases dramatically after 2004. On the other hand, a multi-plier of four is applied to pollutants coming from the sources able to meet the emission lim-its only in cases of excess emissions. The scheme also allows for the adjustment of charges for inflation, and envisages the introduction of emission quotas for SO₂(after 2003) and NO_x (Annex 1 and Thalmeinerova-Jassikova 2000).

In Hungary the energy and transport sectors have been identified as heavy emitters of SO₂, NO_x, CO and solid particles. While taxes on these emissions have been foreseen in the 1995 Act on Environmental Protection, the Ministries of Environment and Finance have not been able to agree on the allocation of revenues from such taxes. Because of the lack of agreement on the issue the taxes have not been implemented (Zalatnay 2000), although Hungary did introduce a fine system to enforce compliance with emission standards.

Bulgaria has also set a system of penalizing air emissions above the permitted level, and levy-ing charges on fuel products. Furthermore, non-compliance fees for sulphur content of diesel are in place in Romania, with the aim of stimulating producers to comply with a lower (0.2 percent) sulphur content.

These are only a few examples of the ongoing attempts to increase the environmental effectiveness of air emission charges throughout the region; other efforts include a reduction in the number of chargeable pollutants, an increase of rates and introduction of new charges.

5.2 CO

TAXES/CHARGES

Economic instruments levied on carbon dioxide are not as widespread as other emission charges in CEECs. In 1997, Slovenia introduced the first non-earmarked CO₂ tax in the region. The tax applies to all liquid fuels based on their carbon content, and its extension to coal used for electricity production is planned for 2004. Introduced at a rate of 2.2 SIT/litre (0.01 EUR/l) of petrol, 2.6 SIT/l (0.01 EUR/l) of diesel, and 3.1 SIT/l (0.02 EUR/l) of heavy

fuel oil, the tax was tripled in 1998. The current tax rate is equivalent to about 14 EUR/tonne of CO₂, and the tax raised EUR 77.9 million in 1999, representing an additional 30 percent of the revenue generated by excise taxes. The Slovenian rate of about 14 EUR/tonne of CO2is in the same range as the CO₂taxes implemented in Denmark (13.4 EUR/tonne of CO₂) and Finland (17.1 EUR/tonne of CO₂).

Poland has also listed CO₂ as a chargeable pollutant, but low charge rates (0.045 EUR/tonne of CO₂) have rendered the instrument ineffective for CO₂emission control. A new economic instrument aimed at limiting CO₂emissions — a CO₂emission charge on combustion plants — was introduced in Estonia in 1999. The charge was being phased in (0.32 EUR/tonne of CO₂in 2000, and 0.48 EUR/tonne from 2001), and is levied on pollution sources where power of combustion plants exceeds 50 megawatts (the charge is not applied to combustion plants using renewable resources). Polluters liable to this charge pay EUR 0.8576/kilolitre of diesel or petrol, or EUR 0.063/1,000 cubic meters of natural gas (BEF 2000). This instrument is the first CO₂related instrument to be applied in the energy-pro-ducing sector in the region.

5.3 CONCLUSIONS

The use of economic instruments to control air emissions varies between CEECs and EU Member States. Taxation schemes for SO₂and NO_xair emissions have been implemented in many countries in CEE. This largely reflects the priority environmental policy goal of improv-ing local air quality throughout the region over the past decade, and the need for earmarked funds for environment-related investments. These charges have generated substantial revenues earmarked for environmental funds and play an important role in financing environmental investments in the region. There have been relatively few CO₂related taxes and charges in the region. Exceptions include Slovenia, which introduced a tax on liquid fuels in 1997, and Estonia, which introduced a charge on CO₂emission from large power plants recently.

The introduction of SO₂and NO_xemission taxes in Western Europe is more limited when compared to CEE, but CO2taxes have been introduced in a range of countries during the 1990s, namely in Denmark, Finland, Norway, Sweden and the Netherlands. These taxes are not earmarked for environmental investments and are representative of the fact that the reduction of CO₂emission is very high on the political agenda in many Western European countries. All of the EU member states and CEECs (with the exception of Albania, Bosnia and Herzegovina, FYR Macedonia and Yugoslavia) have assumed reduction obligations under international agreements (targets under the Kyoto Protocol on Climate Change). Depending on the future of international cooperation for reducing global CO₂emissions, CO₂reductions may become increasingly important in the region.

The revenue-raising potential of vehicle taxation is of great importance considering that more than 90 percent of all revenues generated by environment-related taxes are being raised by motor fuel taxes and motor vehicle taxes in OECD countries (Braathen 2000). Table 6.1 shows that vehicle taxation is widespread in the region. However, there is no unique scheme adopted in the countries covered in this study and taxes range from import, sales and excise taxes, to annual vehicle taxes (including registration charges and road charges) and toll roads (road pricing).

Some of the vehicle taxes implemented in the region reflect environmental concerns.

Sales and import taxes are, for example, reduced for cars equipped with catalytic converters in Hungary. In a number of other countries, there is a differentiation of sales/import taxes dependent on the age of the vehicle. Annual vehicle taxes are usually differentiated accord-ing to the engine capacity and/or weight of the vehicles, which can be considered as a proxy for their environmental impact. Excise/sales taxes on vehicles have been introduced in eleven of the CEE countries, sometimes at a level that has a significant impact on car sales.

In Poland for example, the significant increase of excise tax rates (from 2.3-11.1 percent in 1999, to 6.4-17.6 in 2000) is viewed as one of the reasons for a considerable drop in car sales last year. In 2001, the Polish vehicle excise tax will again be increased. Another aspect of regional policies on the sales of vehicles is worthwhile to mention: the import of old vehi-cles is banned in some countries (for example Hungary, Slovakia and FYR Macedonia, Yugoslavia). Such a ban is important from an environmental point of view because older vehicles generally have a bad environmental performance.

Further examples of environment-related vehicle taxation could be found throughout the region, although the question of their effectiveness remains open. In the year 2000, Poland imposed a company car fee linked to the fuel consumption rate, but due to poor enforce-ment, collected revenues were negligible. In Bulgaria, there is a 50 percent reduction in the annual vehicle tax for buses and trucks with environmentally friendly motors, and a similar scheme is applied in Hungary. A constituent part of the vehicle registration fee in Bosnia and Herzegovina is a water protection fee, the revenue of which is transferred to the public water management agency.

The introduction of road pricing via toll roads can also be found in several countries. The rev-enues generated from these tolls are often used for road infrastructure programmes. In Albania, Hungary and Lithuania, special road use taxes are levied on vehicles registered in other countries.

Lithuania also levies additional road taxes for vehicles exceeding standard dimensions.

The latest development in the vehicle taxation scheme in Romania deserves some atten-tion, as the annual vehicle tax is now based on the pollution category of the vehicle. The Romanian Auto Register determines pollution category — low, normal or high — for all vehicles, based on regular annual or bi-annual vehicle check-ups (Popovici 2000). Tax rates are then differentiated based on the pollution category - a scheme that clearly has environ-mental advantages over vehicle taxation that only indirectly reflects environenviron-mental concerns.

However, this scheme is not being applied in other CEECs for the time being.

The linking of vehicle taxation to their environmental performance (e.g. pollution cate-gory) is on the political agenda in some EU member states, for example Austria, Denmark and Germany, and will be introduced in the UK in 2001 (EC 2000a). Moreover, differentia-tion of annual vehicle taxes based on the type of fuel (petrol vs. diesel), which is applied in Western European countries, is not a practice found in CEECs.

The transport sector represents a growing environmental concern in the region, and it is recognised that motor vehicle taxes could, in principle, induce a shift to less polluting vehi-cles (Nordic Council of Ministers 1999). A number of opportunities remain for the

applica-6. Vehicle Taxation in Central

and Eastern European Countries

TABLE 6.1