The waste tax 1987-1996

1. Introduction

Introduction of waste tax in 1987

The Danish waste tax took effect on 1.1.1987, and the rate was originally DKK 40/tonne waste collected under municipal waste collection schemes and delivered to public incineration plants or landfills. The tax has been increased in several steps, and as of 1.1.1997 it amounts to DKK 335/tonne for waste delivered to landfills and DKK 260/tonne for waste delivered to incineration. Waste to incineration plants with a minimum of 10 per cent power generation (in addition to heat generation) is taxed at DKK 210/tonne. Furthermore, the taxable base of the tax has been extended several times, and since 1990 landfills for inert waste and private landfills etc. are also covered by the tax.

Environmental objective

The effect of the waste tax as an environmental policy instrument is of interest, as it was among the first real environmental taxes introduced in Denmark. Already in the 1970s, taxes had been introduced on electricity, single-use packaging and sales packaging, but the waste tax had a more direct environmental policy objective: to stem the increasing waste amounts. It was expected that the tax in itself would give an incentive to reduce waste generation. The incentive was enhanced by increases in the tax rate in 1990 and 1993, and again through the green tax reform adopted in 1993 and taking effect in 1997. In Budget negotiations for 1997, the tax was increased further.

Internalisation in market transactions

With regard to environmental economics, the waste tax is interesting as it is a "true" emission charge, i.e. a charge seeking to internalise environmental costs in market transactions, and which is expected to have an effect only by virtue of its price signal. According to an outline of environmental taxes in OECD countries, many economic instruments are much more complex in their design, and the yield is often earmarked for environmental purposes (OECD, 1989, 1994). This is not the case for the waste tax; the yield is a general revenue in the Finance Act. Part of the yield in the first years was used for financing a subsidy scheme for recycling projects, but also in this period the tax was not earmarked.

Policy instrument

This report gives an evaluation of the waste tax as a policy instrument, and especially environmental results are described. This task has proved to be very extensive, partly because no good and coherent data were available to assess developments in waste amounts. As a consequence, it has been necessary to use many resources for collecting and analysing available data. The report analyses developments in taxable residual waste. Residual waste means waste which is not recycled, or waste which is left over after recycling and subsequently incinerated or landfilled.

No cost-benefit analysis

The evaluation takes its starting point in the objectives laid down for waste and recycling, and it analyses whether the waste tax can ensure that these objectives are achieved. The evaluation does not carry out a cost-benefit analysis of the efforts in waste and recycling, neither does it analyse whether the tax reflects a correct valuation of the pollution deriving from landfilling or incineration. These questions are interesting, but certainly difficult to answer. This would require a more comprehensive study than the present one.

The evaluation has been prepared by associate professor Mikael Skou Andersen, Centre for Social Science Research on the Environment at the University of Aarhus, and research assistants Niels Dengsø and Stefan Brendstrup. The evaluation has been financed by the Danish Environmental Protection Agency under an appropriation from April 1996.

Results of the evaluation have been regularly reported to a steering committee which has given valuable comments and ideas to the work. Steering committee members were:

Jens Balslev, Danish Environmental Protection Agency, Industrial Waste Division (Chair),
Jens Holger Helbo Hansen, Danish Ministry of Taxation,
later replaced by
Thomas Larsen, Danish Ministry of Taxation,
Hanne Grøn, Central Customs and Tax Administration,
Lilja Kristjansson, Central Customs and Tax Administration,
later replaced by
Thea Sand, Central Customs and Tax Administration
Henrik Duer, MSc (Eocnomics),
Michael Bundgaard, Danish Environmental Protection Agency, Information Resources Division,
Katrine Bom Hansen, Danish Environmental Protection Agency, Household Waste Division,
later replaced by
Peter Kjær Madsen, Danish Environmental Protection Agency, Household Waste Division,
Jørgen Schou, Danish Environmental Protection Agency, Economy Division,
Lisbeth Strandmark, Danish Environmental Protection Agency, Economy Division,
Jørgen Nielsen, Danish Environmental Protection Agency, Economy Division

Special thanks are due to Hanne Grøn for her extensive and always careful and efficient effort when answering questions on tax statistics.