Economic Instruments in Environmental Protection in Denmark

Executive summary

Background

The merits of economic instruments in environmental protection are increasingly acknowledged world-wide. The European Union emphasises their potentials, and EU Member States have intensified the use of economic instruments in their environmental policies. In some member states, the concept is still fairly new and in limited use. Other member states such as Denmark, the Netherlands, and Sweden, have all implemented tax reforms that include green taxes. Other countries (including Austria, Germany, Belgium, and France) apply economic instruments on a significant and increasing scale, but not yet as part of a tax reform. At the level of the EU, only a few harmonised green taxes are applied. The use of harmonised taxes throughout the EU requires a unanimous decision within the EU.

During the late 1980s and the 1990s, an increasing number of economic instruments have been put to use in Denmark. A tax reform was initiated in 1993 and came into force in 1994. The tax reform presented a major break-through in the Danish use of economic instruments in environmental protection. Among other things, the reform explicitly aimed to increase the revenue generated from green taxes, and in turn to lower, for example, taxes on incomes. The tax reform was implemented gradually during the years of 1994-1998. After the full implementation of the reform, the use of economic instruments has continued to increase.

This report provides a comprehensive and up-to-date status on the use of economic instruments in environmental protection in Denmark. The report aims to provide a practical and comprehensive description of the instruments in use, focusing on their specific design, and the practical means of implementation and enforcement.

It aims to facilitate experience sharing and example sharing vis-à-vis other countries. Furthermore, it is intended to provide a substantive contribution to the international efforts to develop, refine and enhance the use of economic instruments in environmental protection. The report should, thus, be seen as supplementary to other on-going or completed work in international organisations such as the OECD and the EU, as well as at the national level. Through its emphasis on the collation and assessment of the practical experience with the use of economic instruments, the report may supplement other surveys as well as provide a possible input into the framing of research and policies at national, regional or international levels. In this regard, the report may be of particular use to CEE countries in the process of increasing the use of economic instruments.

Contents of report

The report provides a description of most of the individual economic instruments in environmental protection currently in force in Denmark. This includes product taxes and charges, effluent charges, user fees, and deposit refund systems. The objective and design of each instrument is described together with the specific means of collection and enforcement. A brief assessment concludes each instrument-specific description. In addition, the report also provides a description of the environmental subsidies that are in force in Denmark.

Prior to the description of the specific individual instruments, the report has an introductory part that consists of three chapters. First, it provides a brief introduction to the overall Danish context in which the instruments are applied. This is followed by a general introduction to the use of economic instruments in environmental protection: their merits and typological issues. The final chapter in this part provides an overview of the instruments in use in Denmark.

A description of important implementation aspects follows the instrument specific chapters. The purpose is to provide an understanding of the practical means of implementation and enforcement in Denmark.

Finally, the report provides a comprehensive assessment of the use of economic instruments in the energy sector. It aims to describe and assess the use of economic instruments in the sector, through considering the instruments in their overall organisational, institutional, competitive, and regulatory context.

Background and context of the use of economic instruments

Background

The overall framework

The land-based area of Denmark is 43,000 km² and there are 5.3 million inhabitants. The country is administratively divided into 14 counties, which are again divided into 275 municipalities.

The supreme power in Denmark is divided into three independent organs: the legislative, the executive, and the judicial power. The legislative power rests with the Parliament (“Folketinget”); the executive power with the government (the Ministers); and the judicial power rests with the courts of justice.

Denmark is among the ten richest countries in the world. The gross domestic product (GDP) of Denmark is DKK 202,000 per capita^[1]. The total revenue from taxes and duties are 52% of the GDP. About half of the revenue comes from income taxes. The other major source of income is the Value Added Tax (VAT, which is 25%). Direct charges and taxes contribute 13% to the total revenue. More than 60% of public expenditures are used for public services and social purposes.

The counties and the municipalities receive a substantial share of the income taxes: 10% and 20% respectively. There is a division of responsibilities and tasks between the state, the counties, and the municipalities. A fixed system of settlements of payments ensures the equalisation between the different levels. Municipalities and counties can establish tax levels individually, and are subject to the overall stipulations, but they cannot define the taxes.

State of the environment

Air monitoring in Danish towns and cities shows that the air quality is quite good compared to other industrialised countries. Denmark is a net-exporter of regional air pollution. Using the Potential Acid Equivalent index (PAE) it can be estimated that Denmark exports twice as much sulphur (SO₂), nitrogen oxide (NO_x), and ammonia as it imports. Carbon dioxide (CO₂) emissions exhibit a slightly increasing trend with a current level of 11.7 tons/capita. This corresponds to the OECD average. The government has launched an action plan to revert this development. Emissions of ODS and lead have declined substantially to a level of virtually zero today^[2].

As a result of a steadily worsening state of the environment in watercourses and lakes, the government launched a comprehensive Action Plan for the Aquatic Environment in 1987. The Plan, among other things, aimed to reduce discharges of nitrogen and phosporus. As a result of the Plan, the surface water quality is steadily improving, and a second Action Plan for the Aquatic Environment was adopted in 1998. Danish groundwater is of good quality and 99% of the tap water used in Denmark comes from groundwater. The groundwater is only treated with simple means before it is supplied as tap water. Discharges of pesticides and nitrate from, among others, agriculture production is a potential threat to the future quality of the groundwater.

Waste volumes in Denmark are fairly stable, showing a slightly increasing trend in recent years. Denmark attaches a high priority to the implementation of the EU waste hierarchy (prevention, recycling, incineration, and disposal). About 60% of waste is recycled or reused today, whereas the share was only 30% in 1985. Approximately 20% is incinerated, and the remaining 20% is disposed off in landfills. Incineration with heat recovery is thus, a commonly applied method of disposal in Denmark. Most hazardous waste is treated at the inter-municipal company “Kommunekemi”.

Legal framework

The major acts governing environmental policy in Denmark are:

In the context of economic instruments, the Environmental Protection Act is most important. This Act which was part of a legislative reform in 1991, emphasises the use of cleaner technologies and the best available technologies. Furthermore, the Act emphasises “the polluter pays principle” as a governing principle in Danish environmental policy. The recent revision of the Act further stipulates that the precautionary principle should be used in the framing of rules and guide levels, but not in individual cases.

Administration and implementation

The Danish Environmental Protection Agency is the prime national administrative body of the Environmental Protection Act. The counties and the municipalities are the prime implementing bodies in charge of control, monitoring, and the issuing of permits to enterprises. Complaints of principal importance are settled with the Environmental Appeal Board. Other complaints are settled by the Ministry of Environment and Energy. The Appeal Board also settles complaints about decisions made by the Ministry.

The Danish Environmental Protection Agency is a body under the Ministry of Environment and Energy. The Ministry is responsible for the framing of policies and the conduction of associated tasks.

Actors involved in economic instruments in environmental protection

There are several ministries involved in the framing and promotion of environmental taxes and charges, including the Ministry of Environment and Energy, the Ministry of Finance, and the Ministry of Taxation. Relevant sector ministries are also involved. For environmental taxation, the Ministry of Environment and Energy interacts to a great extent with the Ministry of Taxation. It is solely the Ministry of Taxation that is responsible for the administration of environmental taxes and charges.

The municipalities implement the municipal user fees in accordance with the overall principles and regulations. The Ministry of Environment and Energy administers most of the environmental subsidy schemes.

Economic Instruments in environmental protection

The merits of economic instruments

Economic instruments in environmental protection can promote economic efficiency through their impact on relative prices and through their stimulation of innovate behaviours. They present a means to incorporate the costs of environmental services and pollution directly into the costs of goods, services, and activities. This internalisation of social costs in turn affects price structures, thereby providing an economic incentive to consumers and producers to change the production and/or consumption patterns in order to save money. Further, environmental taxes and charges present a good option to manage pollution from diffuse sources, where regulatory measures may be more complex to implement and enforce. Lastly, they raise revenue that may be used for other purposes, including environmental purposes.

Overview of possible economic instruments in environmental protection

The categorisation in this report only considers types of instruments in use in Denmark. It distinguishes between the following types of economic instruments in environmental protection:

In this report, tax differentiation is not considered separately, but as an integral part of the instrument in question.

Overview of economic instruments in Denmark

Economic instruments in environmental protection were explicitly introduced into Danish environmental policy in mid 1980s. Since then, the use has increased. Command-and-control instruments are, however, still the most widely used means of protecting the environment. The increased use of economic instruments in environmental protection also reflects the more general trend of widening the range of measures in use. Thus today, the range of measures also includes, for example, eco-labelling schemes and voluntary agreements.

Revenue

Environmental taxes and charges contribute 18% of the total government tax revenue. This share includes the revenue generated from energy taxes and vehicle taxes, which are the major contributors. Energy taxes contribute almost half of the 18%, and vehicle taxes around one third. Income taxes and other indirect taxes (in particular VAT) are the other major sources of government revenue.

Vehicle taxes and energy taxes are the single most important of the environmental taxes and charges in terms of revenue contribution. The remaining environmental taxes and charges contribute 15% of the total revenue from economic instruments. This corresponds to a contribution in the order of 3% to the total government revenue.

The revenue from environmental taxes and charges is never earmarked. However, subsidies may accompany them, for example through policy packaging, but never with an explicit and direct relation between the revenue on the one hand and the cost of the subsidies on the other.

Environmental and economic sectors

Typically, a particular environmental tax or charge would affect more than one environmental medium and more than one economic sector. For example, waste taxes affect households and industry, and to the extent that they affect waste volumes this may impact positively on the quality of air, soil, and groundwater. Still, it is worth noting that among the many environmental taxes and charges in use, it is only the sewage tax and sewage user fee that directly aims to affect surface water. The bulk of the instruments are targeted at either air, or soil and groundwater.

Most of the economic instruments in environmental protection have the largest effect on households. A major reason for this is that they are typically designed with a view to avoid negative effects on competitiveness. Further, the few economic instruments applied vis-à-vis other sectors may often be shifted on to consumers.

The figure overleaf provides an overview of the economic instruments in environmental protection that are currently in force in Denmark, and that are described in this report. In regard to the table, it should be noted that almost all of the instruments to some extent do have a fiscal purpose in addition to their environmental or other purposes.

Overview of economic instruments (excluding subsidies)

Incidence and distribution effects

It is generally recognised that the economic instruments in environmental protection tend to be of a degressive nature. Thus, lower income groups are typically affected more than higher income groups. Notable exceptions from this observation are the taxes on vehicle fuels. This tax is more or less neutral. Further, the vehicle registration tax actually takes a progressive effect. Degressive effects of taxes are often taken into consideration in the overall Danish policy developments. For example, as done in the 1994 tax reform, or through the joining of the environmental taxes with social security payments, retired persons are in some cases entitled to a subsidy to reduce their heating costs. These methods may thus indirectly reduce the financial burden imposed on them from the energy taxes.

The collection system

It is the Department of Customs and Excise under the Ministry of Taxation that collects the taxes and charges. Taxes are typically levied on the higher levels of the distribution system, as for example on importers and producers, and in certain cases on retailers. The number of units from whom the taxes are to be collected is thereby limited, and the administrative costs are consequently reduced.

Furthermore, liable entities are typically obligated to register, either as traders in or suppliers of the specific item at hand. The liable entity must keep records of the relevant movements of the items at hand. This would typically be records of in- and outgoing quantities, and would constitute the basis for the calculation of the amount of liable taxes.

Taxes and charges are typically collected and paid on a monthly basis, but sometimes the period can be longer.

The Customs and Excise Department and its regional offices always have the right to make unannounced on-the-spot checks at the premises of the liable entities. Further, all commercial entities are obliged to register for VAT. The VAT register and the individual VAT accounts can thus be used for cross-checking of the calculations of the tax base. Further, tax payments or refund schemes may in some cases be effectuated together with VAT payments.

Product taxes and charges

Energy taxes

Energy taxes were first introduced in Denmark in 1977 as a response to the oil crisis that started in 1973. They applied to oil products and electricity with the aim to promote energy savings and to provide an incentive to substitute away from oil to other energy sources. In recent years, there has been an increased emphasis on the wish to reduce the use of coal and to promote the use of renewable sources of energy. These priorities have, among other things, been reflected in the changes in the energy tax structure.

Total energy consumption has remained fairly constant during the last two decades, while the various primary energy sources’ share of the energy supply has changed significantly. Denmark has gone from being almost totally dependent on imported oil, to the present situation with a diversified energy supply and a position as a net-exporter of oil. The current supply is based on oil (45%), coal (26%), natural gas (20%), and renewable sources (9%).

Another important purpose of the energy taxes is to raise revenue, and to reduce imports through lower private energy consumption. In 1998, the total revenue amounted to MDKK 10,330^[3] of which the electricity taxes contributed almost 50%.

Energy taxes are levied on bottled gas, fuel oil, gas oil, coal, electricity and natural gas. The taxes are set, based on the energy content of the fuel in question. Energy taxes are input taxes. They are levied on the fuels used for energy production. For electricity production, the energy tax is, however, an output tax. As a consequence, the tax on electricity in itself does not provide an incentive to shift to less polluting fuels in electricity production. The energy taxes are levied on the oil companies that produce and import the fuels. Electricity taxes are levied on the power companies that produce and supply electricity. In the case of industry, the energy taxes are largely refunded (with the exception of space heating). The Customs and Excise Department also administers the refund that is combined with the collection of VAT.

The tax rates on energy have been steadily increasing. Total taxation (including VAT) today, amounts to about two thirds of the consumer price.

The energy taxes should also be seen in connection with the CO₂ and the SO₂ tax. Below, the total current and planned level of taxation for the various energy sources is shown. The CO₂ tax and the SO₂ tax are described in the section on effluent taxes. In addition, subsidy schemes and regulatory measures are also in effect, which aim to further promote the overall priorities of Danish energy policy. They include the further development of renewable energy sources, improving energy efficiency, and reduction of CO₂ emissions in accordance with international agreements.

Current and future rates for energy and environmental taxes

*) Natural gas is priced at a level equal to the price of competing oil products, including applicable taxes, implying that the consumer also pays a “shadow tax” to the gas companies equal to the difference between the applicable energy taxes levied on oil and natural gas.

As such, the energy taxes are relatively high in comparison with European standards. Their mere size thus provides an incentive for energy savings, particularly in households. Energy for process purposes is exempt of energy taxes, and certain heavy process industries can be partly exempted from the CO₂ tax by entering into agreements on energy savings. This lower level of net payment of taxes significantly reduces the incentive for energy savings for the most heavy energy users. Energy taxes are not levied on fuels used for electricity production, because an output tax is levied on the electricity. This means that the energy tax does not provide incentives for shifting to cleaner fuels in energy production, but only an incentive for end-users to reduce their consumption of electricity.

Taxes on vehicles

The vehicle tax system consists of two components: an annual tax and a registration tax. The annual tax used to be weight-based, but in 1998 it was changed into a fuel-economy determined tax. In 1998, the taxes on vehicles generated revenues in the order of DKK 24 billion. Of this amount, the registration tax contributes an annual DKK 18 billion.

The registration tax is differentiated according to the value of the vehicle in question, and it is further differentiated between different types of vehicles. Heavy duty vehicles are not liable to the registration tax, and light duty trucks, vans, taxis, and other specified vehicles are liable to differentiated and reduced registration taxes. The basis for the calculation of the registration tax is the value of the vehicle including 25% VAT, and with a deduction for ABS and air-bags. The tax is 105% of the value below DKK 50,800 and 180% of the value above DKK 50,800. For an average new passenger car with an import price of about DKK 80,000, the final consumer price, including all taxes, would be in the order of DKK 230,000.

The annual tax used to be based on weight, and this is still the case for vehicles that were registered before 1997. Other vehicles are liable to an annual tax, which is determined by the fuel economy. For this purpose, the Ministry of Taxation has established specific standards. On average, the annual tax amounts to DKK 2,900 per year.

The registration tax is collected from the dealers of vehicles. The dealers, in turn, collect the tax from the purchasers of the vehicles. Liability to the vehicle tax only occurs the first time that the vehicle is registered in Denmark. The annual tax is collected directly from the vehicle owners based on the Central Register of Motor Vehicles in which all vehicles and their owners must be registered.

The high level of registration taxes has a mitigating effect on the development in the number of vehicles in Denmark. It may be argued that the high level provides a disincentive to replace older vehicles with new ones. However, on the other hand, the relatively high fuel prices provide an incentive to shift to new vehicles with better fuel economy. This effect is further reinforced by the new “owners’ green tax”, where the annual tax is lower for vehicles with good fuel economy. Lastly, concerns over safety matters also incite the shift to new vehicles.

The vehicle taxes are progressive in the sense that they burden the low income groups less than the higher income groups.

Vehicle fuel taxes

Vehicle fuel taxes have been in effect in Denmark since 1927. While the taxes aim to provide revenue and limit fuel imports, they are nevertheless also being more and more influenced by environmental concerns. The revenue is, however, substantial, amounting to MDKK 12,634, which includes taxation of petrol (MDKK 8,834) and diesel fuels etc. (approximately MDKK 3,800).

The increasing environmental focus is reflected in an increased use of tax differentiation. A differentiation that resulted in a typical consumer price difference of 7% was used as an important measure to phase out lead in petrol in the late 1980s and early 1990s. Today, tax differentiation is applied to encourage use and production of petrol with low content of benzene and low-sulphur diesel. There is a further differentiation depending on whether the station has vapour recovery installations. During the period of 1994 to 1998, vehicle fuel taxes increased quite substantially, by about 20% totally, as a result of the 1994-tax reform.

The petrol tax varies between 3.70 and 3.78 depending on the content of benzene^[4]. Diesel taxes vary between 2.07 and 2.63 DKK/litre depending on its sulphur content. LPG is used in limited amounts in Denmark, and is taxed with 2.63 DKK/litre. The final consumer price including the fuel taxes, VAT, and profits, amount to above DKK 7 per litre.

The vehicle fuel taxes are collected from distributors of the fuels (importers and retailers).

During the 1990s, vehicle fuel taxes have increased, but this is not reflected in corresponding reductions in the demand for fuels. A major reason for this is the better fuel economy for new vehicles. The better fuel economy means that the price per kilometre driven may not have increased as a result of the tax increases, and it may actually have declined.

The vehicle fuel taxes have been an important source of revenue for many years. However, there is a steady development towards a more intensified use of tax differentiation as a means to support the development and use of cleaner fuels. Experience from the phase-out of lead in petrol suggests that tax differentiation was very important in achieving the complete phaseout of lead in petrol during the period of 1986-1994. Today, tax differentiation is applied to stimulate demand and supply of petrol with lower benzene content and low sulphur diesel. At the EU level (through the Auto Oil Directives) the limit values for these parameters will decrease, and consequently, the tax differentiation supports the necessary adjustment to these new conditions.

Tap water tax

The provision of tap water in Denmark is subject to full user-based cost-recovery. Consequently, the tap water tax puts an additional price of tap water on top of the cost recovery based tax. The revenue amounts to MDKK 1,544. As part of the 1994-tax reform, the tax was phased in gradually, and reached its ultimate level of 5 DKK/m³ in 1998. Its aim is to encourage water savings, which in turn, will reduce the amounts of pollutants that are discharged from sewage plants into watercourses, seas, and lakes. The latter effect will occur, because sewage treatment plants typically treat the sewage down to pre-specified concentrations.

The tax is levied on the water companies and is based on the amounts of abstracted water. The water companies, in turn, collect the tax from consumers. The collection is based on the actual water consumption measured by water meters. The tax should be explicitly stated on the water bills in order to make it clearly identifiable for consumers. Industry and agriculture are exempted from the tax, which is effectuated through a tap water tax refund, balanced in the VAT payments. The motivation for the exemption is to be found in concerns over competitiveness vis-à-vis foreign producers.

The environmental motivation for the tax is to be found in concerns over the need to protect a scarce resource, namely ground-water resources. However, ground-water resources are fairly abundant in most areas in Denmark. To properly reflect this environmental motivation, the tax would need to be nil in some areas and high in other areas. Compared to this, the environmental rationale for the tax is fairly weak. However, it does have other environmental merits. Most importantly, the tax increases the water price, and consequently it provides an incentive to reduce water consumption, thereby contributing to reduced sewage amounts. All discharge water in Denmark is subject to similar treatment, and all treatment plants treat the sewage down to specific concentrations. Thus, the lower the inflow of sewage, the lower is also the discharges of treated sewage into watercourses, seas and lakes.

Tap water supply in Denmark has declined during the last five years. While the tap water tax may have had some influence on that, other factors are likely to have been equally important. Awareness building measures have been applied extensively, and water user fees have also become quite high. Furthermore, the calculation of the fees is based on an estimated consumption in cases where water meters are not installed. The applied estimates have been quite high thereby providing an incentive for households to install meters. Consequently, meters have been installed on an increasing scale, providing a strong incentive to reduce water consumption, because this is immediately reflected in the total water costs for the individual households.

Tax on certain retail containers

The tax on certain retail containers has been in force since January 1, 1999. It replaced another, much more narrowly defined, tax on containers that only applied to bottles and jars. The tax was introduced to reduce the amounts of waste from used packaging material. Revenue from the tax was MDKK 809 in 1998.

The tax consists of two different systems. There is a volume-based tax that applies to retail containers used for beers, carbonated soft drinks, and wine. For all other applications, the tax is weight-based. The system has established different taxes to apply for different materials (13 different weight-based levels and 6 different volume based levels), and it has defined a total of 18 applications (commodity groups) that are covered by the tax. However, tax rates are not differentiated according to applications, but only with regard to the materials.

The tax is levied on enterprises that bottle, fill up or pack goods within the commodity groups that are covered by the tax (the applications), enterprises that import goods that were packed abroad, and enterprises that act as intermediaries and/or trade in unused packaging materials. The liable enterprises have to keep accounts on the use of the materials in question, because they are only liable to the tax for materials used for the mentioned applications.

Compared to the previous tax, the current tax on certain retail containers provides a much stronger incentive to reduce amounts of material used for packaging. It has, however, only been in effect since January 1, 1999, and hence it is still early to assess its realized effects. The weight-based tax is, however, quite ambitiously designed, and its efficiency would need to be assessed in order to identify possible areas of improvement. For example, it must be assessed whether it properly reflects the actual substitution and reduction possibilities, and whether it does in all cases provide an incentive to shift to less environmentally harmful materials. Furthermore, its effect on the competitiveness of Danish industry, and the extent to which it imposes significant administrative burdens on the industry would need to be assessed as well.

Tax on disposable tableware

The tax on disposable tableware has been in effect since 1982, and aims to promote recycling and reduce waste volumes. Modest revenues of MDKK 56 are provided by it. The tax is 1/3 (33%) of the wholesale price of the product. This corresponds to 50% of the price exclusive of VAT. The tax is levied on producers of disposable tableware and on those who trades or imports it.

Revenue from the tax is steadily declining. This could indicate that the tax has lead to a reduced demand, but it could also be an indication of a change in consumer preferences.

CFC tax

The CFC tax constituted part of the governmental action plan to reduce the use of ozone-depleting substances of 1988. The plan was quite comprehensive, and included, among other things, specific use bans (exact future timing of the ban on specific applications). The tax applies to CFC and halon and is still in effect. However, CFC has been almost completely phased out in Denmark, and its use is generally forbidden except in certain limited cases. The revenue in 1998 was only MDKK 0.2. The uniform tax of DKK 30 per kilo of the substance in question applied to 5CFC types and 3 halon types that were used in certain specified applications.

While the tax may have had some impact on the substantial phase-down in the use of CFCs and halons, the use of future bans has had the largest impact. This is, because the exemptions that were introduced later meant that many of the important applications became exempted from the tax, thereby diminishing its effect. The bans were announced in advance, and they were effectuated according to the announcements. The pre-announcement provided industry with time to develop and implement new technologies and substitutes. However, the tax has supported this development, and further it constituted an important signal to the industry.

Chlorinated solvents

The tax on certain chlorinated solvents has been in force since 1996. It aims to reduce the use of chorinated solvents, and to provide an economic incentive to intensify efforts to develop less environmentally harmful alternatives. Further, the tax aims to ensure that the ban on the use of CFC does not result in an increase in the use of chlorinated solvents instead. A revenue of MDKK 2.3 was provided in 1998.

The tax rate is a uniform level of DKK 2 per kilo of chlorinated solvent. This corresponds to a consumer price increase of about 25%. It applies to three different applications that in total account for 95% of the total current use of chlorinated solvents. It only applies to the chlorinated solvents in their pure form, and when they are contained in other products. The tax is levied on producers and importers of chlorinated solvents, and importers of products that contain the solvents.

Since its implementation, and comparing to preliminary estimates for the revenue in 1998, there are strong indications that the use of chlorinated solvents has been substantially reduced since the tax was implemented.

Data on net-imports of the chlorinated solvents indicate a strong effect from the tax. The import of trichlorethylene has declined from a level of 796 tons in 1996 to a level of 356 tons in 1998. The decline is less outspoken for tetrachlorethylene: from 760 tons to 463 tons. This could indicate that there are stronger substitution barriers in the latter case. Imports of dichlormethane have declined, but the substance is still used in significant amounts as a component in lacquer removers.

Pesticides

The tax on pesticides is motivated in the Pesticides Action Plan from 1986. The plan, among other things, aimed to halve the pesticides use in 1997 compared to the period from 1981 to 1985. The tax was expected to result in a total decline in the pesticides use by 20%. In 1998, revenue amounted to MDKK 298. Taxes were increased in late 1998, and revenues are thus expected to be higher in 1999.

The tax applies to three important groups of pesticides and is calculated as 33.33% of the retail price exclusive of taxes. For insecticides the tax is 53.85% of the retail price due to the lower price of these products. This necessitates a higher tax in order to provide a significant demand reduction. Additionally, the tax applies to wood preservatives, where it is 3% of the product’s gross value. In order to enforce the tax, maximum selling prices are set by the government. The maximum prices are the basis for the calculation of the tax. Simultaneously with the introduction of the tax, property taxes were lowered for agriculture properties, and in late 1998, a subsidy to promote organic farming was introduced. These actions may be considered as deficiency payments to agriculture.

The tax has lead to a significant reduction in treatment frequencies. The amount of pesticides used has almost been halved since 1990, where the level was about 6,000 tons. Treatment frequency was around 2.7 in 1995/1996, and already in 1997 it had dropped to 2.45. The Pesticides Action Plan aims to reduce treatment frequency down to a level of 1.34. It should be mentioned that the achieved reductions are attributable not only to the tax, but also to a number of other initiatives taken to reduce pesticides use in Denmark. These initiatives include stricter environmental standards for the use of pesticides, education schemes for farmers, and supervision of pesticides application equipment. Pesticides are developed and sold by international large companies. Consequently, the tax is not likely to have affected the behaviour of suppliers, but seems mainly to have worked through its effect on the users of pesticides.

Tax on growth promoters

The tax on growth promoters took effect on September 1, 1998. Growth promoters are used as fodder additives in animal production. The tax aims to reduce the use of growth promoters by 60%-70%. The tax implies that production costs per porker or piglet will increase by about DKK 4. The level has been set to fully eliminate the economic incentive to use growth promoters in porker production. There is still an economic gain to be achieved in the production of piglets in the order of DKK 4-6. The tax is levied on producers and importers of growth promoters.

The expected revenue for 1999 is MDKK 45. The realised revenue is likely to be lower due to the initiation of other and more far reaching initiatives including voluntary agreements between agriculture and slaughterhouses. These more far-reaching initiatives were rooted in the emotional public debate that took place in early 1998. The debate incited the sector to initiate actions on its own to reduce the use of growth promoters in order to avoid loss of public goodwill. The Danish farmers’ association “Landbrugsraadet” estimates that the use of growth-promoters will have vanished by year 2000. The fact that the sector knew that a tax was underway further accelerated the pace of phase-out, in particular, because the tax completely eliminate the economic gain from the use of growth promoters in the production of porkers.

Tax on NiCd batteries

NiCd batteries contain the harmful substances nickel and cadmium. They are potentially harmful to soil and groundwater. The tax on NiCd batteries has been in effect since 1996. The tax is indirectly joined with a collection scheme of used NiCd batteries. It is essential to ensure that NiCd batteries are safely disposed of and that they are collected in a controlled manner. All other types of batteries may be disposed of together with the other municipal waste, because other harmful substances have been phased out of the batteries. The tax aims to reduce the use of NiCd batteries, and to increase recovery rates by means of a refund system. Enterprises that participate in the collection scheme are entitled to the refund. The tax is DKK 6/battery, and the refund is DKK 120/kilo of returned batteries. The latter, by and large, corresponds to the level of the tax. The tax is levied on producers and importers of NiCd batteries. The collection scheme is financed through the budget of the Ministry of Environment and Energy and administered by the Danish EPA. In 1997, revenue was MDKK 47, and allocated refunds amounted to MDKK 12.

Prior to the initiation of the tax, there was a clear trend in Denmark of a steadily increasing use of NiCd batteries. This trend has been reversed since the introduction of the tax, and today the use appears fairly stable. Since the introduction of the tax, the households’ direct purchase of the batteries has substantially decreased. Today, the NiCd batteries are mainly used in wireless hand tools and for industrial purposes. This development means that collection rates are likely to increase in the future.

Effluent taxes and charges

The CO₂ tax

One of the prominent objectives of the current Danish energy policy is to reduce CO₂-emissions, which are fairly high in Denmark. The CO₂-tax is an increasingly important means to attain the reduction objective. It first went into force in 1993. Then it was substantially expanded in 1995, where a comprehensive “CO₂-package” of green taxes and additional CO₂ measures was launched. The CO₂ package is expected to reduce CO₂ emissions by 4.6%. The tax is expected to contribute to a reduction in the order of 1.6%, and the voluntary agreements to another reduction of 1.8%.

The package contains a specific subsidy scheme labelled the “CO₂ agreement”. It implies that a specific enterprise can enter a voluntarily agreement with the Energy Agency, in which it obliges itself to undertake a number of energy conservation measures that are specified in the agreement. In return, the enterprise is awarded a reduction in the CO₂ tax levels. Enterprises entitled to use the agreement scheme are those who undertake energy intensive processes and those whose CO₂ tax payments exceed 3% of the value added of the enterprise.

The package also implies that all revenue in excess of the 1995 level is to be recycled to trade and industry. The revenue is recycled through either lowering of labour taxes or through subsidies to new investments. The CO₂ package will be fully implemented in 2000. By that time it is estimated that revenue from trade and industry alone will be about DKK 2.1 billion, where the 1995 revenue was about MDKK 800-1,000. The difference of about MDKK 1,000 will thus be fully recycled to industry and trade.

The total revenue in 1998 was in the order of MDKK 4,140, where households contributed the largest share.

The tax base is the energy use. The current level of the tax has been set at 100 DKK per ton of emitted CO₂. It is differentiated to ensure that all energy types become liable to a tax that corresponds to this level. Differentiation is based on the carbon content of the different fuels. In the case of electricity, the CO₂ tax is imposed on the output measured in kWh. The CO₂ tax scheme contains a further differentiation that applies to industry and trade. For these sectors, the tax is differentiated according to the specific use.

CO₂ tax rates 1995-2000 for different categories of energy use (DKK per ton CO₂)

The fact that electricity production is taxed at the output level does not per se provide an incentive to reduce CO₂ emissions. However, subsidy schemes are in effect which lead to tax neutrality for natural gas and to a factual tax reduction in the case of renewable energy sources.

The tax is implemented gradually. This provides a certain adjustment time for the enterprises.

The joining together of the tax with a scheme for the recycling of revenue presents a compromise between environmental interests and concerns over competitiveness. The agreement scheme is likely to stimulate innovative behaviour and energy saving measures in general^[5]. Although electricity is taxed at the output level, the sector still has an incentive to reduce its CO₂ emissions. This incentive comes from the subsidy schemes that are in effect vis-à-vis the electricity sector. Lastly, it is worth mentioning that the energy taxes and the CO₂ tax have quite a similar effect. Consequently, the energy taxes assist to further enhance the CO₂ reducing effect from the CO₂ tax.

In March 1999, a majority in Parliament agreed upon a major restructuring of the power sector. This agreement involves a further opening of the electricity market for competition, and by the year 2002 all consumers will be allowed to freely choose their supplier of electricity. The agreement also introduces some new mechanisms for environmental protection. A market for “green electricity” will be created, and by the year 2003 all consumers must cover at least 20% of their electricity production by “green electricity”. Another new mechanism is, that the large power producers will be subject to quotas for CO₂ emissions and a payment to the state will be levied on emissions in excess of the quota.

SO₂ tax

In accordance with international agreements, Denmark is obligated to have reduced its SO₂ emissions by the year 2000 by 80%, compared to the 1980 emissions level. This corresponds to an emission level of just below 100,000 tons/year by year 2000. The SO₂ tax is one of several measures applied to achieve this reduction. Other measures include: the use of emission quotas for power plants; mandatory use of desulphurisation units in new power plants; and limit values for the sulphur content in fuels. The tax on SO₂ (sulphur) went into force on January 1, 1996, and it is considered as a purely environmental tax.

Enterprises that are liable to pay the tax can choose between two options for how the tax is levied: either as a product tax that is based on the sulphur content in the fuels, or as an emissions tax based on the actual emissions of sulphur dioxide. The tax is only applicable for fuels with a sulphur content in excess a certain minimum. This implies that no tax is levied on, e.g. petrol, kerosene, and light diesel. For electricity production, the SO₂ tax will, until year 2000, be levied on electricity as a product tax. However, from the year 2000, the tax will be levied according to actual emissions, i.e. as an emissions tax.

The tax is phased in gradually during the period of 1996-2000. In that period, the tax is only levied on sulphur content in excess of a certain fuel specific threshold. The thresholds are lowered year by year, and they will reach zero by the year 2000. To further limit the negative impact on industrial competitiveness, certain energy intensive enterprises are partially exempted for the sulphur tax for a period of up to 20 years. This exemption is subject to the conclusion of an agreement with the authorities on energy efficiency measures.

The revenue from the SO₂-tax is fairly small at present, however, it will increase during the phase-in period. The tax is expected to generate revenues in the order of MDKK 575 in 1999, whereas the revenue was MDKK 375 in 1998. In the first year of operation (1996), the revenue amounted to MDKK 296.5.

The product tax (based on the sulphur content in the fuel) is calculated and paid by the oil companies and other fuel importers, i.e. the same companies that also pay the general energy taxes. If an enterprise chooses to pay the emissions tax instead, it must ensure adequate measurements of the emission. Based on the achieved emissions reduction, a part of the sulphur tax will be reimbursed to the enterprise.

The optional approach where industry may choose between an emission tax and an input tax, provides a stronger relation between the tax and the environmental issue at hand. Contrary to CO₂ emissions, it is possible to affect the amount of SO₂ emissions from the combustion of a particular fuel type. Consequently, investments in good end-of-pipe solution are rewarded through the emissions based tax.

Tax on waste and raw materials

The tax on waste and raw materials has been in force since 1990, and has been increased and changed several times since then. The tax on raw materials aims to reduce the use of these materials, and the waste tax is designed to support the Danish waste hierarchy. The latter emphasises, first and foremost, prevention and recycling. Incineration that produces electricity is preferred over other types of incineration and landfill disposal. The raw material tax is 5 DKK/m³, and the waste tax is as follows: waste for landfills is taxed with DKK 375/kg, and waste for incineration is taxed with 280-330 DKK/kg. The lower rate applies in the case of significant power production. All incineration plants in Denmark produce heat. Recovered waste is not taxed. The tax does not apply to incinerated hazardous waste. In 1998, the waste tax provided revenue in the order of MDKK 889 and the raw materials tax provided another MDKK 157.

The raw material tax is levied on producers or importers of raw material, and the waste tax is levied on the waste companies that receive the waste. Both taxes are fully recovered at the end-user level, be it industry or households. Industry is thus also liable to the taxes. There is, however, an independent subsidy in effect to promote recycling, waste recovery, and waste prevention.

Waste volumes have actually remained stable, and even increased a little, since 1993. By contrast, waste volumes did decline during the late 1980s and the early 1990s. This change is likely to be attributable to the good economic conditions that have existed in Denmark since 1995.

The taxes are, however, designed in full accordance with the EU and the Danish waste priorities, and the levels are quite high. Consequently, the tax is likely to have provided industry in particular to consider carefully its waste strategies. Given the fairly high level of the taxes, the incentive for evasion is also likely to be strengthened. However, the Danish system has gradually become quite efficient in this regard. Households are confronted with the tax as a highly uniform tax, which is, only in rare cases, dependent on the waste generation of a specific household. Consequently, households’ incentive for evasion is weak.

Sewage tax

The sewage tax was a result of the 1994-tax reform. It has been in effect since 1997 and it aims to reduce the amounts of pollutants discharged into the aquatic environment. Its current levels are a doubling of the 1997-levels. Revenue in 1998 was MDKK 273. The tax is calculated on the basis of a multiple of the amounts of discharged sewage and its concentrations of nitrogen, phosphorus, and organic substances. The tax rates for the substances are DKK/kg 20, 110, and 11 respectively. The tax is levied on sewage plants, industrial dischargers, and units that are not connected to a sewer system. There are some partial or full exemptions from tax liability motivated mainly in competitive and distributional concerns. They include, among others, fish farming, fish processing, and the production of cellulose, cane and beet sugar, organic pigments, pectin substances, and vitamins. Liable taxes are mainly calculated on the basis of metered amounts of sewage discharges. For concentrations, the calculation may either be based on measured concentrations, or on the use of certain standard rates stipulated in the law.

The realised revenue from the tax has fallen short of the expected revenue. This may indicate either that discharged amounts are less than expected, or that the quality of the sewage is better than expected. Both of these developments could be attributable to the tax having a larger effect than anticipated. The tax is an effluent tax, and therefore it is more difficult to administer and control than a product tax. The control of tax payments is sometimes done through sampling, and otherwise it is based on the treatment plants’ self-reporting of amounts of polluting substances.

User fees

Municipal user fees are applied in the cases of water supply, sewage treatment, and waste collection and treatment. Further, Denmark also has a road toll, which may be considered as a user fee.

Municipalities bear most of the direct public environmental expenditures in Denmark, accounting for 65% of the direct environmental expenditures. Most of the expenditures are, however, recovered through the above municipal user fees.

The municipal user fees are motivated in legal acts. The acts stipulate the overall principles that should govern the setting and collection of user fees. Furthermore, they state the obligations of the municipalities, which also includes the obligation to draw up local regulations. Economic neutrality is a common principle governing all municipal user fees. This principle, among other things, obligates municipalities to balance income and expenditures, and consequently aims at a 100% cost recovery when setting the fees, and prohibits the compensation of specific user groups at the expense of others.

Water and sewage user fees

The user fees aim to ensure that the costs of water supply and sewage treatment are fully and directly covered by the users. This assumes a full correspondence between the price to be paid (the user fee) and the service provided. The latter includes the provision of tap water and the treatment of sewage, as well as the connection to and the use of the distribution system.

The fees are independent and separate. They both consist of a connection fee and an annual fee. Standards are established for the connection fee and amount to DKK 30,000 and 50,000 for sewage and water respectively. The annual fees vary substantially as they are set individually by the waterworks and the sewage plants. The average levels are in the order of 11.5 and 4 DKK/m³ for sewage and water respectively.

Metered water use constitutes the basis for the calculation of both the sewage fee and the water fee. For industry, the basis for the sewage fee could be the net sum of the amount of water that enters the production. This is relevant in the case of beverage production. For industry, the sewage plants are entitled to apply an additional surcharge determined by a pre-fixed formula that could take into account, for example, the content of phosphorus or lead in the sewage.

The municipalities operate the waterworks, the sewage plants, and collect the fees. The tax amount is explicitly stated on the bills. Total revenue in 1997 amounted to about DKK 2 billion from water fees, and another DKK 4.4 billion from sewage fees.

From 1986 to 1996, the use of water in Denmark has declined by more than 20%. In the same period, consumer prices of water have increased substantially, first of all, because compliance with the Action Plan for the Aquatic Environment necessitated substantial investments to be implemented at the treatment plants. Given the principle of full cost recovery, these investments were reflected in the considerable increases in user fees. Secondly, the tap water tax and the sewage tax were implemented as part of the 1994 tax reform.

The legislation contains specific stipulations that assist to avoid cross-subsidisation from one user group to the other. Furthermore, the legislation sets an upper limit for the connection fee to avoid new users from bearing a disproportional share of the costs.

Waste fee

The waste fee aims to ensure a full recovery of costs associated with the collection of municipal treatment, and the costs of the treatment of waste. The municipalities must organise collection schemes and treatment in accordance with their overall obligations, although they may out-source the actual operation.

Fees are set in accordance with the general rules and stipulations. The municipality collects municipal waste fees from households, and the fees typically would not be fully quantity-dependent. Fees are collected from both households and others that use the municipal collection scheme. Industry delivers its waste to the treatment facilities, and pays the fees upon delivery. Fee levels and fee structure vary from one municipality or facility to the other. Hazardous waste to be incinerated must be delivered to the inter-municipal treatment plant “Kommunekemi”. The average hazardous waste user fee is DKK 2,500 per tons. Total revenue from the collection of waste fees amounted in 1996 to 6.2 billion DKK.

The functioning of the waste fee should be seen in conjunction with the waste tax.

Road toll

In compliance with an EU Directive adopted in 1993, a road toll has been in effect in Denmark since 1994. The Danish system is set-up and operated in co-operation with the other five EU countries that do not have toll roads (Sweden, Germany, the Netherlands, Belgium and Luxembourg). The aim of the tax is to have some of the costs associated with the road infrastructure paid by the users. The road toll applies to all heavy duty vehicles (above 12 tons) that use the roads. The level in Denmark is DKK 5,523 for trucks with a maximum of 3 axles, and DKK 9,205 for the others. The toll is paid in the country in which the truck is registered and entitles the truck in question to drive in all the six countries. For trucks from other countries, the tax is calculated on the basis of the amount of days spent in the country. The six countries have established a system of settlements of payments. Revenue in 1998 was MDKK 288.

The environmental effects from the road tool are likely to be very small, if observable at all. But the tax was not designed with this view, as it is considered as a user fee connected to the use of road systems in a particular country. If environmental concerns were to be more prominent in the design of the tax, it could be further refined to consider, for example, combustion techniques and cleaning devices.

Deposit refund systems

Sales of beers and carbonated soft drinks are only allowed in Denmark provided that there are in reusable containers that can be either refilled or recovered. The sale of beer and carbonated soft drinks in metal containers is not allowed. The purpose of the system is to maximise the reuse of beverage containers. On average, a glass bottle may be re-used 35-40 times^[6]. The system has been in effect since 1981. The system implies that a deposit is paid upon purchase of beer and carbonated soft drinks. The deposit is repaid upon return of the container in question. Typically, it is the retail outlets that collect the containers. The current deposit for small containers (< 50 CL) is DKK 1.25/container, and for large containers it is between 2.5 and 4 DKK/container.

The system has been successfully applied for many years. The return rates are as high as 99% for containers of carbonated soft drinks and beers, and 90% for containers of wine and spirits. The use of refillable wine containers implies that about 60,000 tons of waste is avoided each year. For the other containers, the system is estimated to imply the avoidance of about 390,000 tons of waste per year. Further, the reuse of containers means a reduced need to produce new containers.

Subsidies

Scope and targets

The Danish use of subsidy schemes has a wide scope. Subsidy schemes serve many different purposes and are targeted at different groups in society. Some of the subsidies applied in Denmark relate to the environmental media directly, while others are targeted at specific economic sectors. For example, schemes that aim to improve the state of the aquatic environment are currently in effect, while other schemes are specifically targeted at the agricultural sector. In addition, there are subsidies with a very general scope, such as those that aim to promote cleaner technology.

Subsidies are authorised in a large number of programmes. There is no overall formal policy to provide the general principles and overall guidelines. However, principles have evolved on a more pragmatic and ad-hoc manner throughout the thirty years, during which, environmental subsidies have been used in Denmark.

Features and trends

New environmental regulations are thus often accompanied by the launching of subsidy schemes to offset part of the negative financial implications of the regulations in question. In recent years, subsidies have tended to be framed in a steadily more strategic and pro-active manner, such as the subsidies to promote organic agriculture and environmental friendly lifestyles. Further, most subsidies in Denmark are characterised by being temporary with a lifetime of 5-10 years. The time constraint is considered important to accelerate the effects. Subsidies are also sometimes coupled with overall environmental policy targets and macro-economic objectives. Among those, are energy subsidies that assist to enhance Danish self-sufficiency. Subsidies also often constitute part of a policy-package, where environmental taxes are introduced simultaneously with related subsidy schemes. Such packages will often contain other measures as well. Policy packages have been applied, among other things, to reduce emissions of CO₂ and to phase out ODS. Denmark, however, never applies a direct coupling, in the form of earmarking of revenue from taxes and charges on the one hand, and the provision of subsidies on the other hand.

Sectors

The energy sector is the most important receiver of subsidies, accounting for 68% of the total budget allocation for subsidies. The rest is almost evenly distributed among the various sectors. Water, however, is the smallest single sector accounting for only 3% of the total allocation.

Implementation of economic instruments in Denmark

Once a specific law or regulation has been adopted, its stipulations are implemented. In this report, the implementation covers the processes and procedures involved in: announcement, supervision, calculation, collection, control, and sanctions. Consequently, enforcement aspects are also covered.

Taxes and charges

Taxes and charges are formally announced in the Danish legal gazette (Lovtidende). This announcement is stipulated by the law, but it is always accompanied by supplementary, and more targeted means of announcement that may include media-campaigns and direct letters to the entities affected. The Ministry of Taxation is responsible for the announcement of taxes and charges.

The Ministry of Taxation is also responsible for the elaboration of specific guidelines on each law in order to provide supervision, and thereby enhance compliance at the lowest costs. If relevant, the affected industry is often involved in this process. The more specific supervision is the responsibility of the regional customs and excise departments that provide the daily supervision. To pursue this, the departments, among other things, organise information meetings, seminars, and enterprise visits.

The principle of self-reporting is a corner stone in the calculation of taxes. Taxes are typically levied at the highest possible level of the distribution chain. This would typically mean importers and producers. The entities, on which the tax or charge is levied, are obliged to register with the department of customs and excise. Liable taxes are calculated on the basis of the accounts of the entities in question. They report typically on a regular monthly basis on the amounts of dutiable articles that have entered and left, and pay the tax accordingly.

The regional customs and excise departments collect the taxes. These bodies are responsible for the collection of all excise duties and VAT in Denmark, and hence, they provide a well-functioning and effective structure for the collection of the environmental taxes and charges. Through the VAT collection, the departments have a comprehensive and up-to-date register of all commercial entities in Denmark, because VAT registration is a pre-condition to carry out commercial activities.

Control is also the responsibility of the regional customs and excise departments. The obligation of the liable entities to make specific accounts for the calculation of a specific tax or charge, and the obligation of all entities to also provide accounts for VAT payments, constitute a cornerstone in the Danish system of control. Through cross-checking of the two accounts, mis-reporting and failures can often be detected. Further, the departments of customs and excise are entitled to, and do, undertake unannounced on-site visits to liable entities. Another important features of the Danish system of control is its reliance on the existence of good moral and a willingness to co-operate with public authorities.

Sanctions, in the case of falsified, omitted, or delayed payments, vary from one law to the other. They can include the imposition of additional interest payments (1.3%/month) or fines, imprisonment for up to two years and (in severe cases) the withdrawal of the entity’s registration.

User fees

The number of user fees in Denmark is limited and stable. Hence, announcement relates more to the possible increases or revisions in existing levels and structures. This would typically be done through media-based campaigns and/or direct information letters. To provide the appropriate supervision to households and enterprises, the laws on user fees stipulate that information on the fee levels and the dutiable amounts should be clearly and explicitly provided to the liable entities once a year. In addition, municipalities may undertake further actions to provide supervision, such as the contracting of waste consultants to provide advice and guidance to enterprises free of charge or at reduced costs.

The municipal user fees are calculated by the company “Kommunedata” based on the submission of relevant information from the municipalities and the enterprises providing the public service in question. The main basis for the calculation of the user fees is the metering of the actual use. In the case of waste from households, the fee is often a uniform rate that is independent from the actual use of the service. However, there are some deviations from this general feature. Another important input into the calculation is the existence of comprehensive municipal registers of households and enterprises in the municipality. User fees are typically collected simultaneously with the collection of the municipal proper taxes. The registers also constitute a cornerstone in the effective control of payments. Further, fees are designed with a specific view to limiting the possibilities and incentives for evasion.

Possible sanctions include the imposition of interests or surcharges, debt recovery, and the taking out of mortgage in real property. The municipalities are not, however, entitled to interrupt the provision of the services.

Main actors

The responsibility of the implementation of environmental taxes and charges rests mainly with the Ministry of Taxation and its relevant departments. The ministry is involved in the framing of legislation, the administration of complaints from citizens and enterprises, and the general administration and implementation of taxes and charges in Denmark. The Department of Customs and Excise is an agency in the Ministry of Taxation. Formally, the Department is the prime implementing body. However, it has delegated substantial powers in this field to the 31 regional Customs and Tax Departments.

Thus, the Ministry of Environment and Energy has little formal power in the implementation of environmental charges and taxes. However, there is a strong co-ordination between the Ministry of Environment and Energy, and the Ministry of Taxation. This relates to the preparation of the relevant laws and to their implementation.

Administrative efficiency and costs

It is estimated that about 95% of enterprises can be expected a priori to comply with laws on environmental taxes and charges. This fairly high collection rate substantially assists to reduce control and enforcement costs. Part of the reason for the high level of compliance relates also to the general moral and willingness to comply. Among the driving forces behind the development of this moral is the general perception that Danish authorities are legitimate and competent bodies that do not misuse their power, and the dominating use of a co-operative approach in the framing of policies and legislation. The latter is not a negotiation. Rather, it is a process that aims to ensure that unintended or unpopular side-effects are avoided, and that the law is designed with a view to easing the administrative burden of those affected.

As a rule of thumb, there is a general requirement that taxes and charges should be designed so that the administrative costs are less than 5% of the revenue. This is part of the reason why effluent charges are only used to a limited extent in Denmark although they would, in most cases, be more directly related to the environmental issue at hand.

Notes:

1. Statistics Denmark, 1998

2. In 1996 the consumption of ODS was 108 tons compared with almost 6,800 tons in 1986

3. For stations with vapour recovery installations

4. The voluntary agreements are currently being evaluated.

5. The European Commission argues that the above requirements conflict with the stipulations of the European Packaging Directive, while Denmark argues that the system can be seen as a natural extension of the environmental intentions of the Directive. If a solution is not found, the European Commission can bring the case to the European Court of Justice.

6. All figures applied in this chapter stem from the homepage of Statistics Denmark and from the publication by Statistics Denmark: Statistisk Tiårsoversigt 1997