Economic Instruments in Environmental Protection in Denmark

2. The overall framework

2. The overall framework
2.1. Basic information about Denmark
2.2. State of the environment
2.2.1. Climate and nature
2.2.2. Air
2.2.3. Water
2.2.4. Waste
2.3. Legislative and institutional framework
2.3.1. The legal framework
2.3.2. Legislative relations to European Union (EU)
2.3.3. Institutional framework
2.4. Trends and challenges

2. The overall framework

This chapter provides a brief description of the overall context in Denmark for the use of economic instruments in environmental protection. The chapter briefly considers a number of features such as economy, state of the environment, legislative and institutional framework, and trends and challenges in Danish environmental policy^[1].

2.1. Basic information about Denmark

Area and population

Denmark is a rather small country with an area of 43,094 km² distributed among 405 islands. The population counts 5.3 million people. The population density is 122.4 persons per km².

Administratively, Denmark is divided into 14 counties (“amter”), which again are divided into 275 smaller municipalities (“kommuner”). The administrative structure is illustrated in Figure 2.1.

Labour force and employment

The Danish labour force counts 2.9 million people, of which 46% are women.

The unemployment rate is at a level of 7%-8%.

Economy and trade

Denmark is among the 10 richest countries of the world. The GDP per capita is 202,000 DKK^[2]. The economic rate of growth is 2.7%. After decades of deficit, the current account has on average been in surplus since 1990.

Foreign trade is substantial in Denmark. In 1996 the value of imports equalled 25% of GDP, while the value of exports equalled 28% of GDP. The most important trading partners are other EU countries. Almost 70% of trade is effectuated within the EU.

Figure 2.1.
Map: Counties and municipalities in Denmark

By tradition, agriculture plays an important role in Denmark. However, its importance has declined steadily for many years. Today, it makes up 5% of the total value of production in Denmark. The secondary sectors (which, among others, include manufacturing) account for 36%, and tertiary sectors contribute the remaining 59%. The latter figure includes service, trade, and the public sector.

Among the most important manufacturing industries in Denmark are the chemical and medical industry, and the furniture industry. Despite its low production share, agriculture is still an important export business. 15% of the value of Danish export consists of agriculture products.

Public revenue

The total revenue from all taxes and duties corresponds to 52% of GDP. Income taxes contribute 55% of the total revenue. The bulk of the remaining revenue comes from indirect taxes (33%). In this group, the major contribution comes from the VAT. The Danish VAT is 25%. Excluding VAT, direct taxes and charges account for 13% of the total public revenue.

More than 60% of public expenditures accrue to public services and social purposes. The major share is used for transfer incomes. These expenditures account for more than 25% of total expenditures. About 10% of total expenditures are used for educational purposes, and another 8% for health services. Slightly less than 10% of the total public expenditures are used for purposes aimed at business and industry.

A substantial share of the total revenue is collected directly by the counties and municipalities. Of the total income tax, the counties receive about 10%, and the municipalities another 20%. There is a division of responsibilities in Denmark between the municipalities, the counties and the state. The municipalities thus conduct many of the social tasks, whereas the counties attend to the bulk of the tasks related to health services. A system of settlements of payment ensures that, for example, the municipalities obtain either a refund or a specific payments from the state or other municipalities in return of the provision of the social services that they are legally obligated to provide. The counties and the municipalities are not entitled to introduce taxes themselves, but they may set the levels of some income taxes within certain limits.

2.2. State of the environment

2.2.1. Climate and nature

The climate in Denmark is characterised by a relatively large variation during the year. The annual average temperature of the year is 7.7 degrees Celsius. The coldest month is February with an average temperature of 0 degrees Celsius, and the warmest month is August with a temperature of 15.7 degrees Celsius. The average annual precipitation is 712 mm., and the number of sunny hours is 1670 per year. It is often very windy in Denmark, especially during winter.

The landscape is flat with no mountains at all. The highest point in Denmark is only 175 m above sea level. The coastline is long; around 7,300 km and there are many small watercourses and numerous small lakes.

Much of the land in Denmark is cultivated. Thus, 62% of the area is utilised for fields, market gardens, orchards, and similar agricultural purposes. Today, about 12% of the country is covered by forests. This share is slowly but steadily, increasing as a result of a determined effort. During the next 100 years it is the intention to double the forest area from the current 12% to 25%.

2.2.2. Air

In general, the air quality in Danish towns and cities is good compared with other industrialised countries. The air quality in Denmark has improved slightly during the 1990s. During this period, emissions of sulphur dioxide (SO₂), nitrogen oxides (NO_x), and particles have either remained constant or slightly declined. Denmark continues to emphasise the need to reduce these emissions.

SO₂ , NO_x , and ammonia

The gases SO₂, NO_x, and ammonia are the main contributors to acid rain. Typically, acid rain occurs thousands of kilometres away from its source. By using a weighted index of acid contributors, called Potential Acid Equivalents (PAE), it has been estimated that Denmark is a net exporter, exporting almost twice as much as the import of PAE.

Lead

Since the early 1990s, there has been almost no lead emissions in Denmark. This is mainly due to the complete phaseout of leaded petrol, which has not been sold in Denmark at all since 1994.

CO₂

CO₂ emissions in Denmark exhibit a slightly increasing trend. Presently, about 11.7 tons/capita^[3] are emitted annually. By and large, this corresponds to the OECD average. The government has launched a comprehensive action plan to reduce CO₂ emissions.

ODS

The consumption of ozone depleting substances (ODS) has declined dramatically since 1986. It has been estimated that the consumption declined by 98% from 1986 to 1996^[4]. Today, almost all types of ODS are phased out in Denmark. This has been achieved through a very determined effort to comply with international obligations in regard to ODS phaseout.

2.2.3. Water

Action Plan for the Aquatic Environment

In order to improve the water quality, the Danish government launched a far-reaching Action Plan for the Aquatic Environment (I) in 1987. The plan aimed, among other things, to reduce the discharge of nitrogen and phosphorus in Danish watercourses, lakes, and seas. The Plan has led to a substantial improvement in the conditions for the aquatic environment. In 1998, a political agreement on a new Aquatic Environment Plan (II) was reached.

Ground water

Danish ground water is generally of a good quality. Only very simple treatment is needed before it is used as tap water. 99% of the tap water comes from ground water resources^[5]. However, there are threats to the maintenance of the current good situation. Discharges of pesticides and nitrate from agricultural production thus constitute a potential threat. The quality of the ground water has been monitored carefully since the implementation of the first Action Plan for the Aquatic Environment.

Surface water

There are many watercourses and lakes in Denmark. The majority of the watercourses are protected. An index has been constructed to measure their state. It shows that the quality has been rather stable during the period of 1993-96, and a small improvement in recent years. Similarly to other industrialised countries, the lakes in Denmark suffer from emissions of, for example, phosphorus and phosphate. These emissions are gradually declining, but the resulting improvement in water quality occurs only with a significant time lag.

The marine areas of Denmark are more than twice the size of the land area. Therefore, fisheries have, by tradition, been an important industry in Denmark. For this, and for other reasons, the quality of the sea is important to the country. Denmark emphasises and takes an active role in the international efforts to improve the marine environment in the North Sea, as well as in the Baltic Sea.

2.2.4. Waste

Around 13 million^[6] tons of waste is produced each year in Denmark. 80% of this comes from commercial sources and the remaining 20% from private households^[7]. Waste quantities have increased slightly in recent years. In accordance with the EU waste hierarchy, Denmark attaches the highest priority to prevention and recycling, followed by waste recovery. In 1996 approximately 60% of the waste was recycled or reused^[8]. This may be compared with1985 when it was only 30%. The treatment of the rest of the waste is almost equally distributed between incineration and landfills. Incineration is a common method for the treatment of waste in Denmark, and it is prioritised over landfills. All incineration is combined with heat recovery.

2.3. Legislative and institutional framework^[9]

This section provides a brief overview of the Danish legislative and institutional set-up. The section focuses on features that are relevant to the use of economic instruments in environmental protection. A more detailed description is provided in Chapter 10 on implementation aspects. The section first considers the legal framework and legislative relations to the EU. This is followed by a brief overview of important relevant national authorities and their prime tasks and responsibilities.

2.3.1. The legal framework

There are four main basic environmental Acts in Denmark:

In the present context, the Environmental Protection Act is the most important. The first Environmental Protection Act dates back to 1974 and was revised in 1991 as a part of a major legislative reform in the environmental area. The new Environmental Protection Act went into force January 1, 1992, and has been revised frequently since then.

The Environmental Protection Act aims to prevent and combat pollution of the environment. It sets up the conditions and main principles for the pursuit of this objective. It is an Enabling Act that provides the Minister of Environment with the authority to implement the provisions of the Act through the issuance of orders and regulations. Guidelines are also an important means of implementation.

The Act emphasises the concept of cleaner technologies as the governing principle and the major objective of Danish environmental protection. This concept implies that enterprises should ensure that manufacturing is undertaken in such a way that all waste production is minimised, so that the solutions applied are advantageous for both the environment and the enterprise. The concept of BAT (Best Available Technology) is closely related to this. Danish rules define BAT as “the technology which is technically and financially feasible for the enterprise in question”. In support of the implementation of BAT, the Danish EPA (Environmental Protection Agency) has developed specific Guidelines that stipulate the room for complying with BAT requirements. The guidelines have been developed through consensus-like negotiations with involved parties. The Danish EPA, as well as the Danish Board of Appeals, attaches a considerable weight to the Guidelines.

Another important principle in the Environmental Protection Act is the polluter pays principle. The polluter pays principle^[10] has been an integral part of the Danish Environmental Act right from the very first Act, and it is a principle shared by other Western countries.

Furthermore, the Act emphasises the need for a life-cycle approach in environmental protection. This means that the environmental pressure caused by a specific product should be assessed with a view to all the phases of the product’s life; from production and use, to final recycling and disposal.

Finally, the precautionary principle has been included in the Act since 1991. The Act states that in cases of threats of serious or irreversible damage, lack of full scientific certainty shall not be used as a reason for postponing the implementation of cost-effective measures to prevent environmental degradation. The principle shall be applied when stipulating rules and guidance levels, but not in individual cases.

The Act lays down the administrative responsibilities and powers. One of the important virtues of the first Environmental Protection Act of 1974, was that it lead to the building up of an effective administrative apparatus. This comprised of the EPA as the national administrative body, and the technical administrative divisions in the counties and municipalities as the implementing bodies. Among other things, this implies that counties and municipalities are in charge of control and monitoring.

Figure 2.2. shows the current structure of the Danish Ministry of environment and Energy.

Figure 2.2.
The Danish Ministry of Environment and Energy. Organisation Diagram.

According to the act, fines and imprisonment are the possible means of sanctioning. Legal proceedings are handled in the Danish court system. Denmark has no environmental court, and complaints are settled in the administrative bodies shown in Figure 2.2.

Complaints

Individuals, as well as enterprises, may complain about decisions taken according to the Act which involve them directly. Furthermore, certain organisations have the right to complain on behalf of those likely to be affected by possible pollution.

The Environmental Appeal Board settles cases of a principal importance. Other complaints are settled centrally by the Ministry of Environment and Energy. The Environmental Appeal Board also deals with complaints about decisions taken by the Minister of Environment and Energy.

The principle of freedom to information is included in the Danish Freedom of Information Act^[11]. The Act was first introduced in 1970. It has, among other things, lead to a high degree of openness towards the press. This has, in turn, been to considerable benefit to the Danish environmental administration in terms of enhancing the credibility of the administration, in the view of the public.

2.3.2. Legislative relations to European Union (EU)

Denmark has been a member of the EU since 1973. Consequently, the environmental policy in Denmark is also governed by EU stipulations. Until 1988, environmental issues were not a major concern of the EU. Therefore, until ten years ago, the prime Danish concern mainly consisted of ensuring that EU legislation would not prevent Denmark from carrying out what it considered to be a sound environmental policy.

Since 1988, however, the European Union has increasingly focused on environmental issues. Today, the EU is a major actor in the international environmental policy-making, and also plays a pro-active role in the framing of environmental policies, strategies, and laws within its borders.

During the whole period, Denmark has been at the forefront with regard to the question of implementation. This means that EU stipulations have rapidly been implemented in Denmark. There have only been minor delays with relation to the deadlines.

Today, the EU emphasises and recommends the use of economic instrument in environmental policy. The factual developments in the EU member states, however, exhibit substantial variations. In some member states the concept is fairly new and only applied to a highly limited extent. Other member states, such as Denmark, the Netherlands and Sweden, have implemented tax reforms that include green taxes. Other countries (including Austria, Germany, Belgium and France) apply economic instrument on a significant and increasing scale, but not yet as part of a tax reform. Only few EU harmonised taxes are applied. The use of harmonised taxes throughout the EU requires unanimity at the EU level.

2.3.3. Institutional framework

Tripartition of power

In order to ensure a stable democracy and to prevent misuse of power, the supreme power in Denmark is, like in most other Western democracies, divided into three independent organs which control one another: 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^[12]. The executive and the legislative powers are balanced in the sense that a majority among the 179 Members of the Folketing can overthrow a Cabinet or a Minister. On the other hand, the Prime Minister can dissolve the Folketing, at any time. The Ministers have extensive competence, but are under the control of the Folketing, and might, in rare cases, be impeached. The courts of justice and the Ombudsman are entitled to represent the interests of the citizens in relation to the authorities.

In carrying out their executive powers, ministers are individually responsible to the Parliament. Ministry staff is permanent in the sense that newly appointed ministers do not replace ministry staff at any level.

Ministry of environment and Energy

The Ministry of Environment was established in 1973 (expanded to the Ministry of Environment and Energy in 1994). Over time, the Ministry has acquired an increasing amount of issues and regulations under its responsibility. This has been a natural consequence of a growing interest in environmental issues, and a growing recognition of the need to address such issues in a comprehensive and integrated manner. Recent developments illustrate this trend. Today, the environmental effects of all new laws, as well as the fiscal budget, must be evaluated.

The Ministry of Environment and Energy has a number of agencies and institutions (Figure 2.2), including the Danish Environmental Protection Agency (DEPA). DEPA serves the Minister. Among the most important tasks of DEPA are: the responsibility to control and advise local authorities, negotiate at the EU level, and to deal with appeals in cases of complaints about the ruling of local authorities.

The framing of policies is the responsibility of the Ministry. The administration of the environmental law is, however, highly decentralised. It is the municipalities and counties (the latter in the case of particularly polluting enterprises for whom specific obligations and stipulations apply) that issue permits and monitor the regulated enterprises. The counties (amter) are the prime bodies responsible for observing and monitoring the quality of the environment.

Actors involved in taxes and charges

The key actors in framing and promoting environmental legislation are the following: the Ministry of Environment and Energy; the Ministry of Finance; the Ministry of Taxation; and other relevant sector Ministries. The overall responsibility lies in the hands of the Minister of Taxation. In the case of economic instruments, the Ministry of Environment and Energy interacts to a great extent with the Ministry of Taxation. This interaction has become more pronounced in recent years. This may be viewed as a reflection of the increased appreciation of the potentials of economic instruments in environmental protection.

The typical process in the preparatory steps of legislation consists of four prime steps. First, the Danish Environmental Protection Agency elaborates a memorandum, which is submitted to the Ministry of Environment and Energy. The Ministry thereafter develops its memorandum. In the third step, these memoranda constitute the background for bringing the issue onto the agenda of the Danish Parliament (Folketinget). A positive reaction from the Danish Parliament thereafter results in the initiation of the fourth step: the legislative work.

Municipal user fees

Municipal user fees are implemented by the municipalities in accordance with the overall principles and regulations stipulated, for example, in the Environmental Protection Act.

Subsidy schemes

Most environmental subsidy schemes are administered by the Ministry of Environment and Energy (through its agencies). A few schemes are administered by the Ministry of Food, Agriculture and Fisheries. A number of Ministries co-finance and co-administer the National Environmental Research Programme.

2.4. Trends and challenges

Past trends

Environmental policy in Denmark dates back to the early 1970s. The first Ministry of Environment, previously called the Ministry of Pollution Abatement, was established in 1971. It was replaced by the Ministry of Environment in 1973.

In its early years the environmental administration was fragmented and uncoordinated, and there was a limited public awareness of environmental issues. However, with an increase in public awareness of environmental problems, the environmental agenda has changed significantly.

Danish environmental policy has changed its focus from pollution abatement to control and prevention. A key driving force in this development has been the Brundtland Report of 1987, which introduced the concept of sustainable development.

Developments over the last decade are characterised by a substantial widening of the range of instruments applied in environmental policy. By tradition, Danish environmental policy has largely been based on direct or administrative regulations. During the last decade, however, these command-and-control regulations have been supplemented by an increased use of economic instruments, and by a number of other measures, such as awareness building measures and voluntary agreements. Awareness building measures are applied vis-à-vis the public, as well as in a more targeted manner towards specific branches of industry or enterprises. Awareness building measures include, among other things, eco-labelling schemes and information campaigns.

Policy packaging has become a dominant feature in Denmark. Policy packaging implies that a set of measures is launched at the same time in order to increase their overall effect. Policy packaging thus may consist of the simultaneous launching of several of the following actions: stricter environmental regulation, the announcement of future stricter regulations, information campaigns, taxes, and subsidies.

The 1994 tax reform presented a major break-through in the increased use of economic instruments. The reform among other things explicitly aimed to introduce elements of green taxation into the Danish tax system. Consequently, the tax reform aimed to lower income taxes by means of, among other things, increasing the use of green taxes.

Future Challenges

In the coming years, the improvement of the state of the environmental media, namely air, water, and soil, will continue to be a prime area of concern in Denmark. Consequently, the current trend of increasing waste volumes will be sought to be reversed, or at least stabilised. The efforts to safeguard the aquatic environment will continue, for example, through the implementation of the second Action Plan for the Aquatic Environment. Environmental and health impacts from energy use and from transportation will be sought to be reduced. A success in this will also contribute to achieve compliance with Danish CO₂ and SO₂ reduction targets. The preventive approach in Danish environmental policy will be sought to be further promoted, and efforts to develop integrated policies will continue.

Agenda 21

Sustainable Development will continue to be a priority area in Denmark in the future. In the UNGASS^[13] Statement of Commitment of June 1997, governments committed themselves to pursue and strengthen the efforts to implement Agenda 21. Participants thus committed themselves to ensure that the next comprehensive review of Agenda 21 in the year 2002, demonstrates greater measurable progress in achieving sustainable development. Further, Denmark has implemented several national initiatives to further the local Agenda 21 implementation.

International co-operation

Denmark strongly emphasises the need to recognise that many environmental problems are to be tackled internationally. Denmark seeks to take an active part in promoting international efforts inter alia in its role as an EU member. Consequently, a major challenge in the coming years is the fulfilment of the requirement of the international agreement on the reduction of CO₂ emissions. According to the Third Party Conference in Japan in December 1997, the industrialised countries must reduce the greenhouse gas emissions by 5 % in the period of 2008-2012 compared to the level of 1990. Generally, Denmark seeks to play an active role at the EU level, and internationally to support the reductions of Green House Gases Emissions. Denmark strongly advocates the framing of a CO₂ tax (as a general tax) at the EU level.

Notes:

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

2. Currency rate as of 19 May 1999: 0.143 DKK/USD

3. Source: Mogens Moe, 1995

4. Source: Statistics Denmark, Miljøstatistik, 1998

5. Source: Statistics Denmark, Miljøstatistik, 1998

6. All the figures mentioned in this section apply to 1996. This is the most recent year for which a comprehensive survey was made.

7. Source: Statistics Denmark, Miljøstatistik 1998

8. Source: Statistics Denmark, Miljøstatistik 1998

9. This section draws heavily on Moe, Mogens: “Environmental Administration in Denmark”, DEPA, 1995.

10. In the Act the principle implies that environmental requirements can be imposed upon enterprises and that they have to pay whatever the costs these entail (Moe, 1995).

11. The EC Environmental Information Directive 90/313 is in many regards quite close to the Danish freedom of information rules.

12. In practice, the Monarch is beyond the tripartition of power, but does exert formal authority, e.g. in terms of appointing or dismissing Ministers, and in terms of assenting Laws.

13. United Nations General Assembly Special Session to review implementation of Agenda 21 (23-27 June 1997).