Water and sewage disposal - What does it cost?
Service charges and environmental levies share the common feature that public behaviour is influenced when something has to be paid for. The distinction is primarily legal in character, one set of regulations applying in the case of service charges and another in the case of levies.
Service charges are payments made for specific services, e.g. the disposal of sewage or waste or the supply of tap water. Service charges can be demanded if they are legally warranted, perhaps even just by a Statutory Order promulgated pursuant to the power of an Act. Service charges may not be greater than the cost of providing the service.
The primary function of service charges is to share the cost of the activity in question in a reasonable manner. Service charges can also serve an environmental function, however. Firstly, the mere fact that something costs money can inspire people to be more resource-conscious with for example tap water or to produce less sewage or waste. Secondly, the rules on how the costs are to be shared can be formulated in such a way as to influence public behaviour.
Levies are sums collected by the public authorities in connection with certain goods or activities, without something specific being provided in return. Under the provisions of the Danish constitution, taxes and levies can only be collected when specified by law. This means that levies must be precisely formulated in an Act that specifically states who is liable to pay the levy and how high the levy shall be. Only pure details (e.g. the wording of the form used to collect the levy) can be left to the Minister.
Environmental levies are levies that are in some way or other related to the environment. The reason behind the selection of things on which levies are imposed is usually that the levy shall provide an incentive for people to behave in a more environmentally sound manner, i.e. that people should use less/undertake less of whatever the levy is imposed on. At the same time, however, environmental levies serve as a source of income for the Treasury. It is open to discussion what can be defined as environmental levies. The levies that I will discuss are the core environmental levies. As yet, they only yield approx. DKK 5,000 million per year.
In addition, it has become popular to refer to the levies traditionally imposed on energy and new cars as "green levies". They yield a total of DKK 30,000 million. These levies were originally imposed with other purposes in mind. Thus the energy levy was imposed as a source of income (for the Treasury) and to encourage households to economize on energy, while the levy on new cars was originally thought of as a tax on luxury goods. However, the policy concerning these levies has had some environmental impact, as is especially apparent with the levy on energy; the latter is largely responsible for the fact that household energy consumption in Denmark has fallen since the 1973 and 1979 energy crises.
The reason for mentioning the service charges and the core environmental levies here is partly to provide the reader an insight into how they are put together, and partly to draw attention to the most important administrative problems associated with the existing environmental levies.
An important point is that service charges and levies are not a purely economic means of control. Every single service charge and every single levy is tied to a set of regulations. If the regulations are simple and sensibly formulated, one hardly thinks about them and only concentrates on the economic aspects of the service charge/levy. The practice so far has been that environmental levies are drawn up in close cooperation with experts from the Ministry of Taxation. As a consequence, the existing environmental levies are fairly easy to administer. However, if one lets environmental officials or economists formulate the levies themselves, one can rapidly run into destructive administrative problems.
I have divided the remainder of the chapter such that I first discuss service charges for municipal supply services, i.e. sewage disposal, water supply, refuse collection and the disposal of hazardous waste (Sections 12.1.1-12.1.4). These areas resemble each other in many important points. This part of the chapter closes with an examination of charges for environmental authorization and supervision (Section 12.1.5). The authorities also refer to these charges as service charges, but enterprises look at them differently. The second part of the chapter (Section 12.2) comprises an examination of the most important environmental levies. They have been gradually introduced since 1986 and comprise a rather varied bouquet.
12.1. Service charges
The first four subsections (12.1.1- 12.1.4) concern municipal supply services.
The term municipal supply services covers the areas sewage disposal, water supply, refuse collection and the disposal of hazardous waste. This term has arisen because these areas are normally attended to by the Municipalities. It also includes the private waterworks, however, since they have to follow basically the same regulations as the municipal waterworks.
There are two important elements that are common to all the above-mentioned areas.
One of the common elements is the principle of two-level regulation: The regulations governing the charges are legally justified by an Act that in greater or lesser detail stipulates how the Municipalities are to draw up the local regulations. The next level is the local regulations, which can vary somewhat from municipality to municipality. If a user considers a specific bill to be unjustified, it is necessary to investigate both whether the local regulations have been correctly applied, and whether the local regulations are legally justified by the Act in question.
The second common element is the principle of economic neutrality. This entails that the individual municipal supply services must balance their income and expenditure. Thus the charges must not be so low that the service has to be subsidized via income taxes, and they must not be so high as to yield a profit that can be used to hold income taxes down. However, it is considered natural to consolidate the service by building up sufficient equity to cover future investments in plant, facilities, etc.
The principle of economic neutrality also entails that the regulations governing the charges must not be utilized for economic redistribution among different groups. For example, it is not allowed to "milk" owners of summer cottages in order to provide cheaper services for permanent residents, nor to redistribute in such a way as to provide hidden subsidies to commercial enterprises.
12.1.1. Charges for sewage disposal:
Charges collected for sewage disposal amount to approx. DKK 4,000 million annually. The regulations governing these charges are stipulated in a special Act that requires each Municipality to have a payment bylaw, i.e. a set of local rules. The bylaw has to be within the bounds of the law and is rather detailed. The law distinguishes between a connection fee and an annual service charge:
The connection fee is a one-time sum that is charged when the property is or can be connected to the sewerage network. In the case of private houses the charge has to be the same throughout the municipality, and may not exceed DKK 30,000. Houses are now normally serviced by double sewerage systems, i.e. one sewerage system for sewage and another for gutter water, runoff, etc. For those summer cottages that are only connected to the system for sewage, and not to the rain water system, the connection fee may not exceed DKK 18,000. In the case of commercial enterprises the charges are based on the area of the premises.
The annual charges shall cover both construction, plant and running expenses, and are collected from all properties connected to the sewerage system. In Denmark, the sewage disposal service charges are based on water consumption rather than sewage output, because most of what enters a building as tap water leaves it again as sewage. It is easier to measure the water consumption. In the case of private housing, the charges are based on actual household water consumption if this is metered, otherwise on estimated consumption of up to 170 m3 per year, with the same figure being used for all houses in the municipality. In the case of commercial enterprises, the charges are based on measured water consumption except that water incorporated in the product (e.g. beer, soft drinks, etc.) is deducted. The charge per m3 water consumed must be the same for one and all. The average charge in Denmark is just over DKK 10 per m3 (1992 prices), but can vary from a third of this to just over the double. The charge is on the increase because of the investments necessary to comply with the requirements of the Action Plan on the Aquatic Environment. Commercial enterprises can in addition be charged a surcharge if they discharge particularly polluted sewage. In some places the surcharge is collected for sewage with a high content of organic matter, in other places for sewage with a high content of heavy metals. The number of municipalities in which the surcharge is collected is hardly very great, however.
The Municipality’s ruling in a case concerning sewage disposal service charges cannot be appealed to the Danish EPA. In the case of illegal acts on the part of the Municipality it is possible to fight this in court or by other means.
Progress in this area is outlined below together with that relating to water.
12.1.2. Charges for the supply of water:
Water supply charges amount to approx. DKK 2,000 million annually. The regulations governing the relationship between a waterworks and its consumers are stipulated in the Water Supply Act of 1978. The regulations are older than those on sewage disposal service charges and therefore somewhat differently formulated: The local regulations are stipulated in an Ordinance drawn up by the individual waterworks, but which has to be approved - by the Municipality in the case of private waterworks, and by the Danish EPA in the case of municipal waterworks. In practice, a distinction can also be made here between a connection fee and an annual service charge. However, there is no equalization scheme for the connection fee, and the cost of having a property in the country connected to the water supply can therefore be rather expensive, often about DKK 50,000.
The annual water supply service charge varies, but the most usual price is around DKK 4 per m3.
Water and sewage disposal - What does it cost?
Progress arising from the service charge policy is reflected in the decline in water consumption (and hence sewage output) in recent years. Copenhagen is typical, water consumption having fallen 10% from an annual average of 60 m3 per person in 1989 to 54 m3 in 1992. Among other things, this is attributable to water meters having been installed in many homes such that the total cost of water supply and sewage disposal have become more apparent in the family budget. Information campaigns to promote water economy have also played a role.
In the case of industry, the situation prior to around 1990 was that sewage disposal was subsidized in a hidden, albeit more or less legal manner, only around 50% of actual treatment costs having been charged for4. With the new regulations the subsidies have probably disappeared. The impact of this on industrial water consumption has not yet been reckoned up. In the case of Copenhagen, however, it seems that industry has reduced consumption by 20% over the period 1989-92.
12.1.3. Charges for refuse collection:
Payments for refuse collection amount to approx. DKK 3,000 million including the levy on refuse (see Section 12.2.2).
The Municipalities collect annual service charges. Some make a combined charge covering refuse collection and all the other waste disposal schemes provided, while others differentiate. There is no "connection" fee so the whole service is financed by the annual charge. The average household refuse collection charge is approx. DKK 1,400 per year, although it is usual to graduate the charge according to the number of dustbins a household uses. The Municipalities have now started to use other ways of graduating charges according to quantity, for example such that households that compost their organic waste are charged less. The Municipalities can also require households to sort their waste and can penalize deficient sorting either by imposing surcharges on unsorted or incorrectly sorted waste or by reporting the matter to the police, which results in a fine.
Progress in this area is mainly reflected by the increasing number of households that sort their waste. However, it is probably the positive general attitude towards the environment rather than sanctions that is the decisive impetus. Although household expenses for refuse collection are increasing, it can be questioned whether this has any impact on the trend since service charges are still largely independent of the quantity of waste.
12.1.4. Charges for disposal of hazardous waste:
This is administered through a separate scheme, the responsibility for which lies with the Municipalities (see Section 5.3.6). The charges depend on the expenses of the municipal waste processing firm Kommunekemi A/S. Commercial enterprises normally pay directly to Kommunekemi A/S. Annual turnover is DKK 200 million, corresponding to DKK 2,500 per tonne hazardous waste.
Progress is starting to become apparent, and the high charges for the processing of hazardous waste can possibly be the explanation for the apparent long-term decline in the quantities of such waste (cf. Section 5.3.6).
12.1.5. Charges for environmental authorization and supervision:
From 1994, polluting commercial enterprises have to pay a fixed annual charge for authorization and supervision.
The introduction of the charge was to some extent inspired by the fact that foodstuff control had been subject to a similar charge for 2 years, and that both Norway and Sweden charged for environmental authorization and supervision. While the Ministry of Environment and Energy regards this service charge as being consequent to the Polluter Pays Principle, the trades and industries regard it as a new form of tax. In Denmark one is not otherwise accustomed to paying for administrative work by the authorities.
Charges are graduated according to branch or according to the amount of work involved for the authorities. Enterprises in each class pay a fixed annual charge that covers both authorization and supervision. At present, however, the sums collected only cover approximately half of the expenses incurred by the authorities. The two extremes of the classes are livestock farms, which pay DKK 300 per year, and particularly time-consuming (a)-listed enterprises such as large chemical plants, which pay DKK 150,000 per year. These service charges are expected to yield approx. DKK 100 million annually.
The most important environmental levies
There is a special system of charges for the genetic engineering area. A production permit can cost up to DKK 150,000 and an authorization to release a GMO into the environment can cost up to DKK 200,0007. The high charges have resulted in applicant demand for rapid processing of applications - a demand that has been acceded to.
The introduction of partial charges for the processing of complaints and appeals has been the subject of political discussion, but has been rejected on the grounds that it would in practice deter the little man - the neighbour - from complaining, but would not deter enterprises from using the complaints system.
