Economic Instruments in Environmental Protection in Denmark

Foreword

The merits of economic instruments in environmental protection are acknowledged increasingly on a world-wide scale. Western countries, including the US, apply economic instruments on an increasing scale. Also 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 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. In Central and Eastern Europe there is also a growing interest in an enhanced use of economic instruments in environmental protection. Consequently, the use of economic instruments exhibits an increasing trend in these countries.

During the late 1980s and the 1990s, the use of economic instruments in environmental protection has also increased in Denmark. There has been a steady increase in the number of environmental taxes and charges in use. In addition, environmental concerns have lead to revisions and changes in existing schemes for user fees, charges and taxes to improve their environmental effect. The enhanced use of economic instruments is a significant development per se, but it should also be seen as part of the effort to develop and implement more preventive and effective environmental policies in general. To pursue this, the spectrum of applied environmental measures has been widened in general to include, for example, also voluntary agreements, subsidy schemes to support cleaner technologies and eco-labelling schemes. The tax reform that entered into force in 1994, presented a major break-through in the Danish use of economic instruments. The reform was fully implemented in 1998, and it involved substantial increases in existing instruments as well as the introduction of new instruments. Among other things, the reform aimed to increase the revenue from green taxes, and in turn to lower the income taxes.

This report provides a comprehensive and up-to-date status on the current use of economic instruments in Danish environmental protection. The report focuses on the implementation and enforcement aspects of the Danish experience. Thereby, the report is intended to provide a contribution to the international efforts to collate and disseminate such experience, and to provide a means of experience sharing and example sharing. It is envisaged that the report may be of use also to countries in Central and Eastern Europe and in the Newly Independent States where the emerging market economies offer an opportunity for an enhanced use of economic instruments. Lastly, the report’s emphasis on actual implementation and enforcement aspects renders it highly applicable also to undergraduate and postgraduate students in environmental and/or economic disciplines.

The report supplements other publications, including different national surveys, in the area of economic instruments in environmental protection. Other recent survey publications include the “Sourcebook on Economic Instruments for Environmental Policy – Central and Eastern Europe” (REC, 1999), and “Economic Instruments for Pollution Control and Natural Resources Management in OECD Countries” (OECD, 1999). Other work undertaken by the OECD in this field includes more theoretical publications that provide general recommendations related to typological and conceptual discussions. The European Union, more specifically the European Environment Agency (EEA), also emphasises the issue of economic instruments in its research and publications. While the present report has been prepared independently from such other studies, it should, nevertheless, be seen as highly supplementary with its emphasis on the provision of a thorough and detailed description of implementation and enforcement aspects of instruments that are in actual use.

The report is intended to be used as a hand-book or a source-book. It has been structured accordingly to ensure that the individual sections can be read independently from the others. The inevitable effect from this approach is, however, that repetitions do occur, although substantial efforts have been put into the task of reducing their occurrence to a minimum.

Provided in the report is a thorough description and assessment of all economic instruments that are currently in use in Danish environmental policy. This includes taxes, charges, user fees, deposit refund systems, and subsidies. The report gives a brief description of the overall Danish context in which the instruments are applied, followed by a conceptual delineation, typological definitions, and a general overview of the instruments covered by the project. The bulk of the report is devoted to a thorough description of the implementation and enforcement of each specific instrument. The descriptions include also a summary of the original objective of the instrument in question and an explanation on core features of its design. Finally, the description of each instrument has a brief assessment of the efficiency and the effectiveness of the instrument. The report provides further a separate chapter that explains important features of the Danish systems and procedures for implementation and enforcement.

Data and developments in Denmark are presented in the report for the period up till August 1999. The primary basis for the report is the substantial amounts of relevant analyses, assessments and evaluations that have been undertaken in Denmark, particularly in recent years. Further, the report has been reviewed by relevant experts from the Danish administration, notably the Danish Environmental Protection Agency, the Danish Energy Agency, and the Danish Customs and Tax Department.

It is my firm belief that the report provides a very useful and highly comprehensive overview of the Danish use of economic instruments in environmental protection. The scope and structure of the report, and its emphasis on summarising the practical experience gained in Denmark from the implementation and enforcement of economic instruments in environmental protection, ensures that the report truly supplements other work done, such as the reports mentioned above. As to the details of the report, I refer to the Executive Summary.