Economic Instruments in Environmental Protection in Denmark

6. Effluent taxes

6. Effluent taxes
6.1. CO₂ tax
6.1.1. Purpose
6.1.2. Tax base
6.1.3. Collection, agreements and revenue
6.1.4. Assessment
6.2. SO₂ tax
6.2.1. Purpose
6.2.2. Tax base
6.2.3. Collection and revenue
6.2.4. Assessment
6.3. Tax on waste and raw materials
6.3.1. Purpose
6.3.2. Tax base
6.3.3. Collection and revenue
6.3.4. Assessment
6.4. Sewage tax
6.4.1. Purpose
6.4.2. Tax base
6.4.3. Collection and revenue
6.4.4. Assessment

6. Effluent taxes

The first two sections in this chapter provide descriptions of the CO₂ tax and the SO₂ tax respectively. Chapter 11 provides a thorough and comprehensive description of the energy sector in Denmark, and of the use of economic instruments in this sector.

6.1. CO₂ tax ^[1]

One of the prominent objectives of the current Danish energy policy is to reduce CO₂-emissions. CO₂ emissions/capita in Denmark are among the highest in the world. Among other things, this is due to the relatively high use of coal in electricity production. The Danish CO₂-policy aims to reduce the emissions of CO₂ by at least 20% before year 2005. This corresponds to an emission level of 48.9 million tons in 2005, compared with the 1988 level of 61.1 million ton.

The CO₂-tax is an increasingly important element in the overall Danish CO₂-policy. It first went into force in 1993, and it was further expanded in 1995. The expansion was effectuated as a part of a comprehensive “CO₂-package” of green taxes and additional CO₂ measures. The package included 11 laws (8 laws prepared by the Ministry of Taxation, and 3 laws prepared by the Ministry of Environment and Energy).

A new policy instrument was introduced as part of the CO₂-package. It is a subsidy scheme that is 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 given a tax deduction, whereby the CO₂ tax levels are lowered.

6.1.1. Purpose

The CO₂ package aims to reduce Danish CO₂ emissions. The CO₂ tax is one of the measures contained in the package, hence, the tax aims to contribute in pursuing the overall reduction objective. The package is expected to lead to a 4.6% reduction in CO₂ emissions. The CO₂ tax is expected to contribute a reduction in the order of 1.6%, while the CO₂ agreements are expected to result in a reduction in the order of 1.8%.

The CO₂ package has been designed to ensure that the competitive power of Danish enterprises is not significantly weakened. Further, the design of the package emphasises the provision of appropriate incentives for enterprises to substitute towards less energy intensive production.

The CO₂ taxation does not have a fiscal purpose per se. In 1995, the tax mainly applied to households and to energy use in light production processes (see Table 6.1). In 1995, the tax rates for the latter purpose were increased, and other uses became subject to the tax as well. Since 1995 only cost-neutral changes have been implemented, in the sense that all revenue in excess of the 1995, level is recycled to trade and industry. The scheme for recycling is described in section 11.5. It provides a mechanism for recycling that involves changes in the cost structure, so that a further incentive is established for enterprises to undertake behavioural changes that lead to reduced CO₂ emission.

6.1.2. Tax base

The tax base is the energy use. The current level of the tax has been set at 100 DKK per ton of emitted CO₂. The tax is differentiated to ensure that all energy types become liable to a tax that corresponds to this level. The differentiation is based on the carbon content of the different fuels.

Fuels for sea-borne carriage and air transport are exempted from the CO₂-tax. Fuels for production of electricity and gas are also not covered.

In the case of electricity, the CO₂ tax is imposed on the output measured in kWh. This is motivated mainly by concerns over competitiveness. The fact that the tax is levied on the output provides for the use of a scheme for export refunds. Otherwise, this would be difficult, because it is not possible to trace the fuels that were applied to produce one specific kWh. The applied rate is equivalent to electricity production based on the use of coal. It is then combined with a refund scheme (described in the chapter on subsidies) which ensures that electricity production based on natural gas and renewable energy sources is not overtaxed.

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. The scheme differs between energy used for space heating, for heavy processes, and for light processes.

Figure 6.1
Categories for differentiation of the CO₂ tax

The tax is implemented gradually, providing a certain adjustment time for the enterprises. Table 6.1 shows an overview of the taxes and the scheme for their phase-in.

Table 6.1
CO₂ tax rates 1995-2000 for different categorises of energy use
(DKK per ton CO₂)

The table demonstrates that:

The table also illustrates that the full tax rate of 100 DKK per ton of CO₂ only applies in two cases: 1) to households; and 2) for energy used for space heating and hot water in industry.

Enterprises are entitled to enter an agreement if they meet one of two criteria:

1. “Process list enterprises”. These enterprises undertake energy intensive processes that are categorised in the appendix to the law as heavy processes. Enterprises have the option of entering an agreement with the Energy Agency, which obliges them to undertake certain behavioural and investment actions to reduce energy use. In turn, they are given a tax reduction. By the year 2000, the reduction will be 22 DKK/tons – almost 90%, or
2. “Proms-enterprises”. These enterprises fulfil the so-called “Proms-criterion”. The criterion implies that the total financial strain of the taxes must exceed 3% of the value added generated in the enterprise. If these enterprises enter an agreement, they are given a reduction in their CO₂ tax. By the year 2000, the reduction will be 22 DKK/ton – 32%.

6.1.3. Collection, agreements and revenue

The tax is levied on the fuels that are used in energy production. It is collected through the same mechanisms as the traditional energy taxes. This mechanism is described in section 5.1.

Two bodies are primarily involved in the implementation of the CO₂-tax (including also the refund mechanisms) and the corresponding system of agreements. The bodies involved are the regional departments of Customs and Excise, and the Energy Agency. The roles and responsibilities of these two authorities are illustrated in Table 6.2.

Table 6.2
The CO₂ tax and associated agreement scheme. Roles and responsibilities of the involved authorities.

Tax collection

All enterprises must install measurement equipment to measure the energy use within the three categories (space heating, heavy, and light process). They have a good incentive to comply with this obligation, because all non-specified energy consumption is considered as space heating. Hence, it is liable to the highest CO₂ tax and energy tax.

The enterprises report on the consumption of energy to the Department of Customs and Excise following their VAT payments, and in connection with their VAT reporting. The accounts constitute the basis for calculating the amount of refund that the enterprise is entitled to. If there are doubts about the accuracy of the accounts, the department is entitled and obligated to investigate this further.

The tax authorities also control whether the enterprises have installed the correct measurement equipment, and monitor that enterprises pay according to the actual consumption of energy.

Figure 6.2
Use categories and tax rates by year 2000

(scan the print)

Enterprises that submit incorrect information, or suppress relevant information can be fined. However, conflicts are first sought to be solved through negotiations.

Contracting of agreements

The entry of an agreement entitles an enterprise for a tax reduction, and obliges it to undertake certain energy saving actions. The agreements are entered between the Energy Agency on one hand, and either the single enterprise or a branch organisation on the other.

The specific contents of an agreement (i.e. the obligations of the enterprise) are established through negotiations with the Energy Agency. Prior to these negotiations, the enterprise must:

1. carry out an energy audit;

2. make a report on its energy management; and

3. submit to the Agency a proposal for an action plan (where the above audit and report constitute important inputs).

The above constitute inputs into the subsequent negotiations with the Energy Agency. The negotiations will result in decisions on the specific actions that the enterprise must carry out, in order to be entitled to the tax deduction. An action plan is an important outcome of the negotiations.

The CO₂ package will be fully implemented in 2000. By that time, it is estimated that the tax revenue from trade and industry will be close to DKK 2.1 billion. From the 1995 tax, it is expected that the revenue will amount to MDKK 800-1,000. The remaining MDKK 1,000 will be fully recycled to industry and trade, with the exception of a small amount to be used to cover administrative costs.

Two mechanisms have been established to accomplish a recycling scheme that supports the intentions of the CO₂ package:

1.    financial support to new investment in enterprises; and
2.    lowering of labour costs.

Table 6.3
The expected CO₂-tax revenue for 1999 divided on main sources (MDKK)

Source: Finanslov for finansåret 1999

6.1.4. Assessment ^[2]

The CO₂-tax is an example of a case where conflicting concerns must be balanced to reach an acceptable outcome for the parties involved, and which to a reasonable extent, targets the environmental objectives.

On one hand, substantial tax reductions are awarded to industry. This significantly weakens the environmental accomplishments of the tax. On the other hand, industry’s competitiveness could be substantially hampered if the industry was imposed with the full tax. The resulting design of the tax, together with the recycling scheme, presents a compromise between these conflicting concerns.

The fact that electricity production is taxed at the output level does not, per se, provide an incentive to reduce CO₂ emissions, because it does not provide an incentive to switch to fuels that contain less CO₂. However, the CO₂ tax on electricity production should be seen in conjunction with the subsidisation scheme that is described in chapter 11. This scheme leads to tax neutrality for natural gas, and to a factual reduction in the case of renewable energy sources.

Although the CO₂ tax is 100 DKK/ton the effective taxation of CO₂ is much larger. This is, because the effects from the energy taxes on price structures are quite similar with regard to CO₂.

The linkage of the CO₂ tax to the agreement scheme supports its innovative effects.

6.2. SO₂ tax

Sulphur emissions result from the burning of fuels with a high content of sulphur like oil and coal.

In accordance with international agreements, Denmark is obligated to reduce its emission so that it by year 2000 correspond to no more than 80% of the 1980 level. Several measures are applied to achieve this reduction. These measures include, among others: the use of emission quotas for power plants; mandatory desulphurisation units in new power plants; and limit values for the sulphur content in fuels.

Emissions have declined significantly during the 1980s. However, it became apparent in 1994 that additional measures were needed if the 80% reduction target was to be met. This spurred interest in the potentials of economic instruments. Consequently, the tax on SO₂ (sulphur) went into force on January 1, 1996.

6.2.1. Purpose

The purpose of the tax is to contribute to reducing Danish SO₂ emissions, and thereby to contribute to achieving the 80% reduction target. The SO₂ tax may be considered as a green tax in the sense that it has been developed solely to achieve an environmental target. Specifically, the tax is expected to lead to an emissions decline in the range of 25,000-30,000 tons of SO_2. This will result in an emission level by the year 2000 of about 73,500 tons, compared with the 1980 level of about 100,000 tons.

The following four mechanisms are expected to lead to this reduction. The exact effects are, however, somewhat uncertain. More accurate estimates would require in-depth studies on the cost structures and options inherent in each of the four mechanisms:

1. the tax will increase the cost of energy where the production is based on the use of fuels that contain sulphur. Consequently, total energy consumption would decline;
2. the tax will change the energy price structure, thereby providing an incentive to substitute high sulphur content fuels (like coal and oil) with fuels with a lower sulphur content (like gas and gas oils), as the latter become relatively cheaper;
3. the tax will provide an economic incentive for the development of new low sulphur fuels within each of the various fuels types; and
4. the tax will promote improvements of the existing end-of-pipe cleaning equipment.

The tax may lead to reductions in the overall energy use. This effect is further reinforced by the fact that there is a positive correlation between the sulphur content and the CO₂ content of fuels.

The tax is recycled to industry until the year 2000. During that period, taxes are only imposed on sulphur contents above specific lower limit values. The limit values are shown in Table 6.4^[3]. For very energy intensive coal-based enterprises, there is a scheme for further deductions in general terms. This implies that the enterprises are entitled to deductions for all sulphur contents below 0.2 (the 1996 limit value). Hence, these enterprises are liable to a tax which continues to apply for sulphur content above 0.2, whereas other enterprises are liable to taxes that apply to steadily lower sulphur content (as shown in Table 6.4)

To be entitled to this further relief, which applies also after year 2000, the enterprise must, however, comply with three conditions: 1) the fuel must be applied in processes that are defined by law as heavy processes; 2) the enterprise must have entered an agreement with the Energy Agency on energy efficiency issues; and 3) the enterprise should have constructed or renovated its boiler or oven for an amount of at least 10 MDKK during the last twenty years.

Table 6.4
Limit values for deductions in liable SO₂ taxes

6.2.2. Tax base

The SO₂ tax differs from other environmental taxes in the sense that it contains an optional feature. Industry liable to the tax may thus choose between two options for being levied by the tax. The provision of this option is motivated by the fact that it is possible to clean flue gas, thereby, it is technically possible to actually remove the sulphur. Industry is provided with a choice between:

1. a product tax. This tax is levied on the sulphur content of the applied fuels; and
2. an emission tax. This is a tax that is charged according to the actual emissions of sulphur dioxide. The tax is not imposed on sulphur that is either cleaned, detained in the ash, or detained in other products.

Moreover, the following features apply to the SO₂ tax:

The tax has been phased in gradually during the period of 1996-1999. Tax levels increase gradually over this period, and the tax will take its full effect by the year 2000.

Table 6.5
The two options for the SO₂ tax

6.2.3. Collection and revenue

The tax is calculated and paid by the oil companies and the coal importers, as well as other importers and producers. The number of entities liable to the tax is quite small. The oil companies and the coal importers must register with the Department of Customs and Excise. The obligation to register applies to both optional tax bases.

In some cases, plants have their fuels delivered directly. In these cases, the tax is not due until the actual use of the fuels has taken place. The plants must specify the use of each fuel. The tax is calculated according to standard values for the sulphur content in the different fuels.

The registered enterprises pay the tax to the Department of Customs and Excise. The enterprises must keep track of the amount of dutiable products that has either left the enterprises, or which they have consumed.

The taxation authorities may ultimately withdraw the registration of an enterprise in the case of delayed, omitted, or wrong tax payments. Other possible sanctions include the imposition of rent payments and fines.

The national taxation authorities are entitled to perform unannounced inspections of the enterprises to check, for example, the relevant accounts and the measurement systems applied.

The revenue from the SO₂ tax is fairly small, but continues, however, to increase during the phase-in period. The tax is expected to generate revenues in the order of MDKK 575 in 1999^[4], whereas it was MDKK 375 in 1998^[5]. In the first year of operation (1996), the tax generated revenues of MDKK 296.5.

6.2.4. Assessment

The SO₂ tax applies similarly to households and industry with a uniform rate of DKK 20 per kilo of SO₂. However, industry is awarded some reductions as described above.

The optional approach where plants may choose to be levied an emission tax, rather than a product tax, represents a move towards a stronger relation between the tax and the environmental issue to be tackled. In principle, the emissions tax would allow more flexibility to the individual plant. This follows from the fact that the emissions tax allows the plant in question to apply the most efficient combination of fuel switches, use of fuels with lower sulphur content, and end-of-pipe solutions. By contrast, the product tax does not provide an incentive to also consider the last option.

Administratively, the tax is closely linked to existing systems and procedures, therefore, limiting the administrative costs. However, the emissions tax is a fairly new type of tax. Its performance will, therefore be monitored in order to identify possible needs for changes in its design.

All in all, experience indicates that emissions have declined while the tax has been in effect.

6.3. Tax on waste and raw materials

The tax on waste and raw materials has been in force since January 1, 1990. Since then, revisions have been undertaken and the rates applied have increased. Originally, the tax replaced an administrative charge that entered into force in 1987. The tax was last revised in 1997.

The tax applies to the extraction and import of raw materials, and to waste. This is, because of the need to define in a common law, the distinction between recovered waste and raw materials.

6.3.1. Purpose

The purpose of the tax is to reduce resource use and to support the Danish waste hierarchy. The Danish waste hierarchy is in line with the EU priorities. It emphasises first, and foremost, recovery and recycling. Further, incineration with heat recovery and a minimum of 10% electricity production is preferred over other incineration which is again preferred over depositing. The Danish waste hierarchy also emphasises the need to reduce resource use. Danish priorities are:

1.    prevention;
2.    recovery and recycling;
3.    incineration with CHP production;
4.    other incineration; and
5.    final disposal.

Waste management is the responsibility of the municipalities. The municipalities are obligated to establish and operate municipal waste companies, and to take care of the collection of municipal waste. To fulfil this obligation, waste companies are established. In some cases the waste companies are inter-municipal where one or more neighbouring municipalities join together to solve this task.

The waste tax provides these companies with an incentive to recover as much waste as possible (recovered waste is liable to a tax rate of 0). The tax further favours incineration to disposal. Consequently, there is incentive to establish incineration (with heat recovery and preferably also with power production) facilities.

The tax is fully recovered at the end user level. This means that ultimately industry and households come to pay the tax. As opposed to many other economic instruments in environmental protection in Denmark, the waste tax thus applies 100% to industry. Consequently, industry has an incentive to minimise its waste production, and to sort the waste according to the categories for tax differentiation. Households on the other hand do not, in most cases, pay in full accordance with the specific amounts of waste they produce.

6.3.2. Tax base

The tax applies to raw materials and waste delivered to a waste plant. Hazardous waste destined for incineration is exempted from the tax. Enterprises that extract and/or import raw materials are liable to the raw materials tax.

Table 6.6

Waste taxes (excluding sludge). 1996-1998. DKK/kg

Raw materials that are used in production are taxed with a rate of 5 DKK/m³. In the case of imported semi-final or final products that contain the raw materials, a comparable tax is calculated and levied. The raw materials tax does not apply to materials that are used for beach nourishment or the beneficial use of dredged material.

If, for a specific enterprise, the amount of extracted or imported raw materials is less than 200 m^3/year, its liability to the tax is cancelled.

Sludge is liable to the tax structure described in Table 6.6. Legislation stipulates a specific method for converting the amounts into applicable quantities. The inclusion of sludge, provides an incentive to use as much sludge as possible for productive purposes. This could, for example, be as fertiliser.

Facilities that deposit waste products from the combined production of heat and power (CHP) are exempted from the tax. The recent revision also excluded deposited waste from heat and power production based on biomass. The waste tax has thus been revised to contribute to fulfil the CO₂ emissions reductions target, because the revision has removed the previous preferential position of the coal-based CHPs.

6.3.3. Collection and revenue

Producers or importers of raw materials must register with the Department of Customs and Excise. Further, all waste plants must register. The obligation to register also applies to plants that incinerate sludge solely (sewage treatment plants), importers of waste, and enterprises that dispose of, or incinerate waste by themselves.

Enterprises that sell raw materials, either unprocessed, or simply processed (in terms of, for example, crushing) must keep accounts of their sales.

The tax is collected on a quarterly basis where registered enterprises calculate the chargeable amounts. The Department of Customs and Excise is in charge of control. Possible sanctions include fines and the ultimate withdrawal of registration.

All waste is weighed upon delivery to a waste treatment plant. The registered weight of the waste constitutes the basis for the calculation of the tax. The tax is paid to the waste treatment plant in question upon the delivery of the waste.

The applied tax rate and the total tax that have been paid, should be clearly identifiable on the weight sheets.

Initially, the waste tax was only 40 DKK/ton. Over time it has been substantially increased. The present levels range between 210 and 335 DKK/ton; an increase of between 400% and 700%. Furthermore, tax differentiation has been added to the scheme. The latest revision included a new differentiation between incineration plants that produce power and heat, and plants that only recover heat. As a result of the steady increases in the tax rates, revenues from the tax have increased substantially over the years.

Table 6.6
Revenue from the waste tax and from the tax on raw materials. MDKK. 1996-1998

Source: Finanslov for finansåret 1999 and Statsregnskab for finansåret 1998

6.3.4. Assessment

Developments since 1993 indicate that that waste volumes have remained stable, or have even increased slightly. By contrast, waste volumes declined during the late 1980s and the early 1990s. Positive economic developments in Denmark during the last five years, presumably explain the fact that waste volumes have not declined during this time. Evidence from many countries suggests a strong positive correlation between waste production and economic developments.

From 1987 to 1996, there was a 26% reduction in the amounts of waste delivered to municipal waste treatment plants. Deliveries to smaller landfills and private waste sites declined by 39 % from 1990 to 1996. The main reason for the latter is mainly, that increasing amounts of waste are delivered to the municipal plants at the expense of the smaller sites and the private ones. Waste recovery plants outside the municipal ones have also received increasing amounts of waste.

The current structure of the waste tax strongly encourages recycling and reuse, and provides a fairly strong incentive to minimise waste production. Furthermore, the structure is in accordance with the priorities of Danish waste management:

It should be noted that almost all incineration in Denmark is combined with heat recovery. The main motivation being that heat recovery is a precondition for the economy of the incineration plant.

The relatively high tax rates and the tax structure thus support the Danish waste priorities. The incentive to minimise waste production and to recover and recycle as much as possible, is further reinforced by other environmental taxes, such as the tax on certain retail containers, and the tax on disposable tableware. The priority of incineration of waste is in accordance with EU priorities and the tax system supports this hierarchy.

While providing a fairly strong economic incentive to act according to the above priorities, the high tax rates also provide an incentive for evasion. Consequently, a key parameter in the efficiency of the tax is the extent to which evasion can be avoided. In this regard, the Danish waste management system has become fairly efficient. The efficiency of the system is further supported by a rather high degree of self-discipline, supported by public opinion. Companies that seek to avoid the tax by means of illegal disposal of waste, will, if discovered, experience strong negative public attention with a consequent loss of goodwill and sales.

The exception of hazardous waste (destined for incineration) from the tax, serves to ensure that all hazardous waste is incinerated properly.

The waste tax and the tax on raw materials, to some extent, affect the competitiveness of Danish industry.

The new tax rates of 1997 were envisaged to lead to an increase in the total revenue in the order of 210 MDKK if the waste amounts would remain unchanged. About 130 MDKK would come from households, and the remaining 80 MDKK from businesses (industry, construction, and other businesses).

The tax is not earmarked. The revenue thus enters the general budget. However, there are subsidy schemes to support initiatives that aim to increase waste recovery and recycling, and to reduce waste production.

Table 6.7
Revenue changes caused by 1997 tax increases. The waste tax.

6.4. Sewage tax

Most sewage is cleaned at common (typically public) sewage treatment plants before it is discharged into watercourses, seas, and lakes. Further, smaller amounts are discharged from: industrial enterprises that have their own discharge system (with a discharge permit); sparsely built-up areas with no sewerage systems; and fish farms.

Sewage discharge and treatment are fully financed by the dischargers (users of the system), and has been so since 1989. Prior to entry into force of the tax, there was no payment associated with the environmental pressure which discharged treated sewage imposed on fresh and marine waters.

The tax is a result of the 1994 tax reform. It has been in effect since 1997. The tax is designed to take account of the quantities of polluting substances in the discharged sewage:

6.4.1. Purpose

The purpose of the tax is to reduce the amount of polluting substances in the discharged treated sewage. Reductions may be achieved inter alia through:

The tax aims to provide an incentive to undertake the above actions when the associated costs do not exceed the tax.

The tax further aims to contribute to the lowering of income taxes by means of taxing environmental goods and the use of natural resources.

6.4.2. Tax base

The tax is highly complex in its design. Therefore, the below description does not aim to be fully exhaustive, but rather it aims to identify and describe the main features of the tax base.

Liable entities

Liable to the tax are:

1. sewage treatment plants;

2. industrial dischargers; and

3. units located in sparsely built-up areas, which are not connected to a sewer system.

There are, however, a number of exceptions and modifications to this. They are primarily motivated in concerns over competitiveness and sectoral distributional effects. Consequently, the tax has been designed so that certain particularly affected industries are either excluded from, or in most cases, subject to reduced payments.

Table 6.8
Sewage tax levels. 1997 and 1998. DKK/kg

Tax base

The basis for calculating the tax, is the multiple of the amount of discharged treated sewage and the measured concentrations (content) of the above substances in the discharged treated sewage.

The amounts of discharged treated sewage may be calculated directly through the use of meters. The use of meters is mandatory for; 1) units where the discharge permit includes an obligation to measure the discharged amounts of water; and 2) individual discharges where the annual discharge exceeds 50,000 m³.

In other cases, the discharged amounts may be assessed based on the water consumption of the connected properties. This can be based on either metered consumption, or estimated consumption following the rules for estimation that apply to user fees (also in the cases where user fee schemes do not apply).

For the calculation of the concentrations, the system distinguishes between the following treatment plants:

In the former case, there are two alternatives. The concentrations may either be measured, or the tax can be calculated using certain standard rates. In the latter case, the standard rates vary according to the treatment technology and processes applied. The rates vary between DKK 0.50/m³ and DKK 1.90 DKK/m³ for various specified treatment facilities and methods. In other cases, the standard rate is 3.80 DKK/m³.

When more than 85% of the sewage comes from industry, the calculation of the tax is based on actual measurements. There is one exception to this. Plants that discharge less than 50,000 m³ of treated sewage per year have the option of applying the standard rate of 3.80 DKK/m³.

Exceptions

Among the most important exemptions from and modifications to the tax are:

1. Complete exemption. Sea water, fresh water and salt water fish farming are fully excluded from the tax, although these activities do give rise to an environmental pressure on the aquatic environment;
2. 97% refund. VAT registered enterprises where at least 80% of the liable tax can be attributed to: fish processing; cellulose production; and the production of cane and beet sugar. These enterprises are entitled to a 97% refund of the share of their liable tax that exceeds DKK 20,000; and
3. 70% refund. VAT registered enterprises where at least 80% of the tax can be attributed to the production of: organic pigments and related preparations; pectin substances and other equal substances extracted from certain vegetable substances; and vitamins. These enterprises are entitled to a 70% refund of the share of their liable tax that exceeds DKK 20,000.

6.4.3. Collection and revenue

The tax is collected from the liable entities (sewage treatment plants; industrial dischargers with their own discharge permit; and units located in sparsely built-up areas which are not connected to sewer systems).

Liable entities must register with the national Customs and Tax authorities, and they obtain a certificate in proof of the registration. There are a few exceptions from this rule, and in these cases, the tax is paid to the municipal authorities who will then settle with the Customs and Tax authorities.

The tax is calculated and collected on a quarterly basis from all the registered dischargers. They are obligated to keep records in proof of both the measurements of concentrations and the basis for the estimated amounts of discharged water.

In the case of exemptions and modifications, such as those listed in section , the registered dischargers shall not pay the tax for which the enterprise in question is entitled to a refund. This means that part of the tax is settled directly by the enterprise in question and the Customs and Tax authorities.

The total revenue from the tax was MDKK 273 in 1998^[6], and it is expected to be MDKK 275 in 1999^[7].

6.4.4. Assessment

Table 6.9 compares the expected and the realised revenue from the tax in 1997 and 1998. It should be noted that the tax entered into force on January 1, 1997. The rates that were applied in 1997 were half of those applied in 1998.

The table mentions the Action Plan for the Aquatic Environment. This is a comprehensive plan to improve the aquatic environment. The plan is briefly described in chapter 2. The plan, among other things, imposes environmental requirements onto sewage treatment plants, and it specifically emphasises the need to reduce emissions of nitrogen, phosphorus, and BI5.

The table illustrates that the realised revenue falls short of the expected revenue. This may indicate that quantities are less than expected or that the quality of the discharged water may be better than anticipated.

Table 6.9
Comparison of expected and realised revenue from the waste water tax

Source: Lovforslaget

The exceptions and rules for tax reductions for specifically affected industries are motivated in concerns over competitiveness and difficulties in measurements (in the case of fish farming). The latter sector is, however, subject to numerous other regulations that seek to control its environmental pressure.

The tax is an effluent tax, and as such, it is more difficult to administer and control than most product taxes. It is not possible to measure exactly how many polluting substances are discharged into the environment. The tax authorities need to exercise control of tax payments by making samples. Apart from the samples, the control is based on the treatment plants’ self-reporting of the amount of polluting substances to the tax authorities.

Notes:

1. The section draws on different newsletters from the Department of Customs and Excise and interviews with representatives of the Environmental Protection Agency, the Energy Agency, and representatives for the regional Customs and Excise offices.

2. This section builds heavily on Chapter 12 of this report.

3. AKF Rapport, October 1997

4. Finanslov for finansåret 1999

5. Statsregnskab for finansåret 1998

6. Statsregnskab for finansåret 1998

7. Finanslov for finansåret 1999