Economic Instruments in Chemicals Policy

Past Experiences and Prospects for Future Use

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This report investigates the potential for increased use of economic instruments, not the least taxes and charges, in chemcials policy. It provides a conceptual discussion of the role of different market-based instruments in controlling pollution based on chemicals production and use, and outlines a comprehensive overview and analysis of the European experiences of taxes and charges in chemicals policy during the last decades. A final chapter evaluates a set of carefully selected economic instruments targeted at specific chemical compounds and products. The cases have been chosen so as to illustrate different types of challenges in relying more extensively on economic instruments in chemicals policy, and they include the use of: (a) different types of two-stroke oils, (b) the substance nonylphenol (NP) and its ethoxylates (NPEs), which break down into NPs, and (c) ethylene glycol. The report has been commissioned by the Working Group on Environment and Economics under the Nordic Council of Ministers.




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.


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