Table of Contents

  • The Nordic Council of Ministers regularly publishes reports on the use of economic instruments in Nordic environmental policy. The present report investigates the potential for increased use of economic instruments, not the least taxes and charges, in chemcials policy. It discusses some theoretical aspects of such policy instruments, and reviews the practical experiences of existing chemicals taxation in the Nordic and other European countries. A final chapter analyzes the potential role of economic instruments in phasing out three different chemical substances and products.

  • The objective of the report is to analyze the potential for increased use of market-based policy instruments in chemicals policy. Specifically, the report: (a) provides a conceptual discussion of the role of different market- based instruments in controlling pollution based on chemicals production and use; (b) outlines a comprehensive overview and analysis of the European experiences of taxes and charges in chemicals policy during the last decades; and (c) proposes and evaluates a set of carefully selected economic instruments targeted at specific chemical compounds and products. The cases chosen include the use of: (a) different types of twostroke oils; (b) the substance nonylphenol (NP) and its ethoxylates (NPEs), which break down into NPs; and (c) ethylene glycol.

  • Environmental policy in the 1970s was mainly based on “command-and control” (CAC) regulations, such as firm-specific emission limits and mandatory technology requirements. However, since the late 1980s policy makers have paid increased attention to market-based policy instruments, such as environmental taxes and charges, tradable permit schemes, deposit refund systems etc. In some policy areas, though, the use of these incentive-based policy instruments is still limited. Chemicals policy represents one of those areas. In Europe about 6–7 per cent of the total tax revenues are environmentally related and over 90 per cent of the environmentally related taxes are applied within the energy and transport sectors (EEA, 2000). Less than 5 per cent of total environmental tax revenues are in turn taxes on chemical substances, products, waste, emissions and virgin natural resources. There exists however a growing interest among policy makers towards extending the environmental tax base, and many of the proposed schemes include taxes on chemical compounds. One example includes the OECD Environmental Outlook study (OECD, 2001), which investigates a policy mix that would include taxes on chemical use and that shows that this policy mix could deliver important environmental benefits (e.g., significantly reduced nitrogen loadings) at relatively low economic costs. Proposals for the introduction of environmental taxes on chemicals have also been put forward by, for instance, the European Commission (CEC, 2002) and organizations and government authorities in Canada (Green Budget Coalition, 2005), Denmark (DEPA, 2005), Sweden (SEPA, 2004) and New Zealand (ERMA, 2004). In some countries the political interest in finding new environmental tax bases is spurred by the presence of a general green tax shift policy, but overall the interest in other types of market-based instruments (e.g., deposit- refund systems, tradable allowance schemes) as complements to the existing regulations in chemicals policy has been limited.

  • Economic instruments targeted at chemical compounds and products are often perceived controversial, and traditionally the use of chemicals has mainly been subject to command-and-control regulations (including bans) and information-based policy instruments. In the introduction to this report, though, we noted that during the last decade the policy interest in environmental taxes on chemical compounds has increased. Nevertheless, the present policy suggestions are still strongly characterized by traditional regulations.

  • In chapter 2 we argued that economic instruments for selected chemical compounds and products can represent relatively efficient policy instruments to reduce negative health and environmental impacts. In this chapter we review and survey the experiences of such instruments in different European (and in particular the Nordic) countries. Two groups of chemicals are covered by the analysis; chemicals used in agriculture (fertilizers and pesticides) (sections 3.2–3.3), and hazardous chemicals (in particular chlorinated solvents) (section 3.4). In practice the most commonly used economic instrument is an input tax (or fee). Such a tax represents one way of reducing pollution from non-point sources when direct emission control measures are difficult and costly and the implementation of firstbest instruments thus becomes unfeasible (e.g., Romstad, 1999). In the analysis we devote quite a lot of attention to the case of fertilizer taxes, partly since this represents a case where the impacts of earmarking, signalling effects and earmarking of tax revenues are well illustrated. Section 3.5 provides some summarizing remarks and implications for the future use of economic instruments on chemical compounds and products.

  • In this chapter we discuss and evaluate the scope for using economic instruments to manage the risks associated with the production and use of specific chemical compounds and products. We identify three cases for which economic instruments possibly could successfully complement other regulations restricting use and reducing any negative impacts on both health and the natural environment. These cases include the use of: (a) substance nonylphenol (NP) and its ethoxylates (NPEs), which break down into NP (section 4.2); (b) different types of two-stroke oils causing, for instance, marine pollution (section 4.3); and (c) 1,2-ethanediol (ethylene glycol) which primarily is used in the cooling water system of automobiles to prevent it from freezing (section 4.4).

  • In this report we have analyzed the potential for increased use of economic instruments – primarily taxes and fees – in chemicals policy. The report has discussed some theoretical aspects of such instruments, and reviewed the practical experiences of chemicals taxation in the Nordic and other European countries. A last chapter has discussed three proposals for extended use of economic instruments in Sweden and the Nordic neighbours.