PRICE-BASED MEASURES

Fees, charges and taxes

The most common form of price-based measure is a charge, fee or tax. Charges 'make attractive tools for managing the environment because they attach an explicit cost to polluting activities and because sources can easily quantify their savings if they reduce the amount of pollution they emit' (NCEE 2004: 3).

Effluent charges or fees

A charge or fee can be considered as a 'price' that is paid for polluting the environment. Effluent fees have been used mainly in the area of water­pollution control and are based on the quantity, and sometimes content, of a firm's discharges to waterways or sewers. A few countries also charge air emission fees.

Effluent fees are often charged for the purposes of raising revenue and to cover the administrative costs of the relevant regulatory agency and thus in most cases are too low to provide any sort of incentive for environmental protection. In some countries, such as Germany and the Netherlands, the fees are higher and supposed to cover the cost of treat­ment, but not to act as a disincentive to discharge. In some countries effluent charges are based on easy-to-measure parameters such as volume and weight of suspended matter or organic matter and in others, such as France, are based on parameters such as salinity, toxicity, nutri­ents, halogenated hydrocarbons and heavy metals (NCEE 2004: 9-10).

User charges

User charges are fees imposed for using a resource or for being provided with a service. They are commonly used for the collection and treatment of municipal solid waste.

Water-use charges are increasingly being introduced as well. Royalties on resource use - such as timber, minerals and oil - are another form of user charge. Royalties increase the price of resources and can encourage people to be more efficient in using them, because the less they use the less they will have to pay.

Product charges

These are charges added to the price of products. They are generally used to discourage disposal or encourage recycling. For example, a charge could be made according to how much packaging a product uses. Product disposal charges are also sometimes placed on items such as paper to encourage waste-paper recycling.

Levied in numerous industrialized countries, product charges are imposed either on a product or some characteristic of that product. Although some of these charges may discourage consumption, many of them are advance disposal fees intended to finance the proper dis­posal of the products after their use. (NCEE 2004: 20)

In Germany, charges are imposed on lubricating and other mineral oils to cover the costs of their collection and disposal. Other products that attract product charges in Europe and Canada include car air-condi­tioners, batteries, building materials, dry cleaning solvents, fertilisers and pesticides, lubricating oil, packaging and tyres. Energy taxes are also a type of product charge, and many countries, including Australia and the United Kingdom, have used a differential tax to encourage drivers to buy unleaded petrol (NCEE 2004: 20-1).

Sales and excise taxes

Environmental taxes are commonly used in Europe to discourage envi­ronmentally harmful activities or products (Robinson amp; Ryan 2002: 14). A sales tax is a percentage of the price of a purchase which is paid to the government. An excise tax is a fixed amount of money per product sold which does not depend on the price for which the product is sold. Both types of tax are often paid by consumers and can be used to provide incentives for consumers to buy environmentally friendly products. For example, some governments encourage people to buy solar water heaters by exempting them from sales tax.

The imposition of different amounts of sales tax on competing goods or services can ensure that environmentally friendly products have a price advantage over polluting products. For example, some govern­ments exempt refillable bottles from sales tax, thereby giving them an advantage over non-refillable bottles which add to the litter problem (Robinson amp; Ryan 2002: 14).

Subsidies

Subsidies are payments from governments to producers which effec­tively reduce the price of their goods or services, and therefore encourage their sale. Subsidies include payments to firms that reduce their pollution, and tax concessions and rebates for environmentally friendly products and technologies. Some environmentally beneficial activities - like investment in recycling schemes and donations to envi­ronmental groups - are tax deductible in a few countries.

Subsidies are also used to encourage resource conservation, particu­larly in the area of energy use. In Australia solar water heaters are sub­sidised. In Denmark there are grants for renewable energy generation and energy-saving measures. In Switzerland investment in energy savings can be a tax deduction. Reforestation is also subsidised in many countries. In several Asian nations taxes, tariffs or import duties are reduced for pollu­tion control and wastewater treatment equipment (NCEE 2004: 34-5).

Many countries provide subsidies or income tax concessions for agri­cultural practices that are less harmful to the environment than others. Canada has a Land Management Assistance programme. In Germany, Finland, Norway and Sweden, grants are available to farmers who convert to organic farming. In the United Kingdom, farmers are rewarded for not spraying near the perimeters of their crops, for maintaining hedges and woodlands, and for limiting the use of nitrogen-containing fertilisers and animal manure in nitrate-sensitive areas (NCEE 2004: 33).

Australia has a National Landcare Programme, and various states offer financial incentives to farmers for protecting areas of wildlife habitat on their properties. Farmers can also claim tax rebates and deductions for money spent on preventing land degradation, eradicating pests, reducing problems such as salinity and placing a conservation covenant on their land (ATO 1999; National Heritage Trust 2004: 6; Robinson amp; Ryan 2002: 22).

Deposit-refund systems

A potentially polluting product may be given a price that includes an amount which is refundable if it is returned. The aim is to discourage improper disposal. Deposit-refund systems combine product charges (the deposit) with recycling subsidies (the refund). Although these systems can be quite effective they can also be expensive to administer. For this reason '[d]eposit-refund systems appear best suited for products with high value, or whose disposal is difficult to monitor and potentially harmful to the environment' (NCEE 2004: 23).

The best-known deposit-refund system is that for soft-drink bottles, which often end up as unsightly litter. This traditional mechanism for encouraging people to return bottles for recycling is very common around the world. A German scheme, introduced in 2003, has resulted in a reduction in the use of non-refillable cans and bottles of 60 per cent (NCEE 2004: 25).

In South Korea, the producer or importer, rather than the consumer, pays a deposit on various types of food and drink packaging, detergents, batteries, tyres, household appliances and other items.

Scandinavian countries have mandatory deposit-refund systems for motor vehicles. A deposit is paid on purchase that is refunded when the vehicle is returned to an authorised scrap dealer (NCEE 2004: 25).

Financial enforcement incentives

Financial enforcement incentives include non-compliance fees for those who do not comply with regulations. In theory, the fee should be more than the profit made by not complying.

Performance bonds are enforcement incentives that seek to avoid the court costs usually associated with fines. Payments made by companies - often mining, timber, oil and gas companies - to the authorities are refunded if compliance is achieved. In this way they are like a deposit­refund system. If compliance is not achieved, the bond is forfeited and it is the company that has to go to court if it disputes the decision. Performance bonds aim to shift the burden of risk from the community and the government to the developer or business carrying out an activity that may harm the environment.

Performance bonds have been used in Australia, China, Indonesia and the Philippines. The Philippines has a Forest Guarantee Bond, for example, while mining companies in Indonesia have to post a reclama­tion guarantee to cover the environmental damage they might cause (NCEE 2004: 25-6).

Liability insurance schemes are also sometimes used to cover com­pensation for possible environmental damage. In this case the insurance is supposed to cover full rehabilitation costs. The incentive for potential polluters to clean up their production processes is that lower premiums will be charged if there is only a low probability of those processes causing damage.