Economic Instruments in Environmental Protection in Denmark

7. User fees

7. User fees
7.1. User fees for water supply and sewage
7.1.1. Purpose
7.1.2. Basis for calculation
7.1.3. Collection and revenue
7.1.4. Assessment
7.2. Municipal waste fees
7.2.1. Purpose
7.2.2. Basis for calculation
7.2.3. Collection and revenue
7.2.4. Assessment
7.3. Road toll
7.3.1. Purpose
7.3.2. Tax-base
7.3.3. Collection and revenue
7.3.4. Assessment

7. User fees

This chapter describes the user fees that are in effect in Denmark and that relate to the provision of environmental services. In addition to the municipal user fees, the chapter also describes the road toll.

Municipalities bear most of the direct environmental expenditures in Denmark, paying around 65% of the direct environmental expenditures. The major part of these expenditures is, however, recovered through municipal user fees. This chapter describes the municipal user fees that apply to tap water, sewage, and waste.

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, the act states the obligations of the municipalities, including the obligation to draw up local regulations.

Economic neutrality is a common principle governing all municipal user fees. This principle obliges municipalities to balance income and expenditures, and consequently, to aim at a 100% cost recovery when setting the fees. The principle, however, allows municipalities to consolidate the municipal service in question by means of building up sufficient equity to cover future investments. Further, the principle of economic neutrality also implies that user fees must not be used for economic redistribution among different user groups.

7.1. User fees for water supply and sewage

Water supply

The Water Supply Act of 1978 governs the relation between waterworks and their clients (users). The Act thus provides the overall principles that should be applied when drawing up the specific local regulation. The waterworks draw up the local order. For municipal water works, the Danish Environmental Protection Agency must approve the order. For private waterworks, the orders are approved by the relevant municipal authority.

Sewage

Stipulations governing the sewage user fee are contained in a Statuary Order from 1993 and in the Consolidate Act from December 1997. The regulations build on similar overall principles as those governing other user fees. The order obliges all municipalities to have a payment bylaw to stipulate, in detail, the scheme and setting of the user fees.

7.1.1. Purpose

The user fees aim to ensure that the costs of water supply and sewage treatment are fully and directly covered by the users. There is thus to be 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 use of the distribution system.

7.1.2. Basis for calculation

Water

Water user fees are paid by the ultimate users to the public and private waterworks that supply the water. As a general rule, the fees must be the same for all user groups connected to the same water supply or sewerage system. The water user fee consists of two items:

1. Water connection fee. A once-and-for-all payment that covers the costs of being physically connected to a waterworks. The fee varies from one waterworks to the other.
2. Tap water fee. A fee that is based on the actual use of water (measured in m³). The fee varies from one waterworks to the other. For households with no meters, the fee is based on an assumed water consumption of 170 m³.

Sewage

The sewage fee is collected by the municipal sewage plant. This system also includes a one-time connection fee and an annual fee:

1. Sewage connection fee. In the case of houses, the fee covers the connection to a double sewerage system that consists of two separate systems: one for sewage; and one for gutter and runoff. There are cases, for example, some summer cottages, where the house is only connected to one sewage system. In that case, the fee is lower. For enterprises, the fee is calculated based on the area of the premises.
2. Annual sewage fee. The annual sewage fee is based on water uses rather than actual amounts of sewage. The motivation being that measurement and control is much easier. The fee should be the same for all user groups connected to the same system. The system, however, allows for a specific surcharge to be imposed on enterprises. The surcharge should be based on a pre-defined formula, which could take into account, for example, the content of phosphorus or lead in the sewage. The sewage fee to be collected from enterprises is the net of the water that enters the products produced (for example in the production of beverages). In this case, separate meters are required. For households without meters, the fee is based on an estimated water use of 170 m³. However, since January 1, 1999, all households have been obligated to install meters with certain minor exceptions.

Table 7.1 provides an illustrative example of average levels of user fees in 1997. The exact level and composition of the combined water and sewage price in Denmark varies from municipality to municipality.

It should be noted that standards are established for the connection fee. If a house is connected to a sewage system only, the connection fee to be imposed is DKK 18,000. Otherwise, it is DKK 30,000.

Table 7.1

Illustrative example of fee levels and composition of water price in Denmark. 1997

Source: Interview with Statistics Denmark and the National Association of Local Authorities in Denmark

The water connection fee is collected when a property is connected to a water supply system. Connection fees vary across the country. Typically, the fee would amount to about 50,000 DKK.

There is also an annual water service fee. This fee is an administrative fee, and it does not apply in all municipalities. Currently it is DKK 288.

The annual water fee exhibits substantial variations. In 1997, the size of the fee varied between 0.50 and 10.34 DKK/m³. The average level lies around 4 DKK/m³. The average sewage fees are in the order of 11,50 DKK/m³, and also exhibit substantial variations^[1].

Table 7.2 shows the development in the average user fees in the period of 1995-1997. Developments prior to 1995 showed significant increases in the sewage fees, attributable mainly to the implementation of the Action Plan for the Aquatic Environment. Compliance with the Plan necessitated a number of sewage treatment plants to undertake major investments, the costs of which were recovered through user fees.

Table 7.2

Average user fees for water and sewage. 1995-1997. DKK/^m3

Source: Interview with the National Association of Local Authorities in Denmark

7.1.3. Collection and revenue

In most cases, the water fee and the sewage fee is collected simultaneously on an annual basis. Fee levels and the total amounts are explicitly stated on the bill.

Total revenues from the water fee amounts to about 2 billion DKK annually. Total revenue from the sewage fee amount to 4.4 billion DKK.

7.1.4. Assessment

Comparing 1986 to 1996, the use of water has actually declined by more than 20%.

The user fee system serves its basic purpose, namely to ensure that the costs of tap water supply and sewage services are covered by the users of the service. Furthermore, the rapid increases in total water prices (covering water and sewage) which have occurred during the 1990s, can be an important explanation for the decline in water consumption that can be observed in the same period (described in chapter 5.4). There are two main reasons for the rapid significant price increases:

The taxes are described in sections 5.4 and 6.5. The Action Plan had a purely environmental purpose. As a consequence of the principle of full cost recovery, the accomplishment of this purpose (as far as sewage treatment is concerned) can be said to have been user financed.

Further, the mere size of the total water (water and sewage) price is fairly large. Consequently, it provides a significant incentive to avoid unnecessary water use and to install water meters. Finally, information campaigns further support the trend of reduced water consumption.

The legislation governing the user fees is very specific on the principles to be applied. The mandatory use of similar rates for all user groups is explicitly stated in the legislation. It serves to ensure that cross-subsidisation from one group to the other is avoided. Further, the setting of maximum limits for connection fees to sewerage systems serves to ensure that new users will not come to bear too high a share of the costs. Prior to the introduction of these limits, connection fees could be as high as DKK 65,000.

7.2. Municipal waste fees

Waste management is the responsibility of the municipalities. This obligation is stipulated in the Environmental Protection Act. The obligation, among other things, includes the obligation to organise the collection and treatment of waste. Each municipality must work within the framework legislation on waste. Some of the obligations of the municipalities include:

To comply with the above, most municipalities form municipal waste companies. In most cases, these companies are inter-municipal. The municipal waste companies constitute the organisational framework for the provision of the necessary waste plants (i.e. plants that receive and treat the waste) and collection arrangements for municipal waste.

The user fee scheme aims to ensure that the costs of the collection of municipal waste and the costs of waste treatment are fully recovered from the users.

7.2.1. Purpose

The waste user fee basically serves to ensure that the costs of municipal waste collection and treatment are borne by the users of the system.

Municipal waste collection is the responsibility of the municipalities. They are thus obligated to ensure that municipal waste is collected in an environmentally sound manner, and that it is delivered to a registered waste company that handles the waste. The costs of providing this service are to be fully recovered from the users. All households must be connected to the system.

Industry is responsible for its own delivery of waste to a registered waste company. The municipality is, however, obligated to assign to any waste producer that is located in the municipality, a location where it can hand in its waste.

In the case of hazardous waste, collection schemes must, however, be established.

7.2.2. Basis for calculation

The user fees are imposed on and collected from all users. For households, the fee levels are typically independent of the quantities produced^[2]. Fees may vary from one municipality to the other. The fees are based on the principle of full cost recovery. The costs covered by the system are those that relate to the collection and delivery of the waste to a registered waste plant, together with the costs of administration, planning, and control. Further, the fees should also cover the costs of providing any additional collection schemes. For example, it is mandatory for municipalities in Denmark to establish separate collection schemes for paper and glassware waste, and for households’ hazardous waste. Further, the municipalities are also obligated to arrange for the collection of construction waste.

Municipal waste is delivered to a waste plant. The waste plants are typically owned and operated by the municipalities. They receive and handle other types of waste. The waste plants establish the user fees based on the principle of full cost recovery. All waste delivered, is weighed and categorised. Based thereupon, and upon the fees that the plant has established, the fees are collected from the deliverer of the waste.

Waste plants must comply with the principle of full cost recovery, but they are free to establish their own fee structure. Typically, they would apply a higher fee for unsorted waste than for sorted waste. Many plants also apply different levels for different types of waste. The fee structure applied, may reflect the capacity and options for waste treatment available at the specific plant. Further, the fee structure may have been set up to support the objectives and priorities of the specific municipal waste plans. All fees are calculated in terms of DKK/ton of waste.

Hazardous waste is handled at the inter-municipal hazardous waste treatment plant “Kommunekemi”. The treatment of hazardous waste is also subject to full cost recovery. On average, the fee amounts to some 2,500 DKK/ton, however, there are large variations depending on the type of hazardous waste.

7.2.3. Collection and revenue

The municipalities are entitled to establish their own schemes for the collection of fees, including the frequency of payments. Delayed payments result in a special charge. The waste plants typically collect the payment (the user fee) when the waste is delivered to them.

The municipal user fees are collected from all households and others that are connected to the municipal collection scheme. The fees cover the collection of municipal waste and other mandatory or compulsory collection schemes (which can therefore be used without any further specific payments). In regard to the latter, the municipality may also choose to establish specific additional fees for the use of some of the additional collection services. This option may be used, for example, in the case of the collection of garden refuse and of construction waste.

Among other things, the user fees are to cover the costs of delivering the waste to a waste plant. All waste plants must be registered in order to be allowed to receive waste. As general rule, the municipalities collect the fees from households, and compensate for the waste plants their expenses.

Table 7.3

Revenue from the collection of waste fees. Billion DKK

Source: Statistisk tiårsoversigt 1997. Tema om miljø. Danmarks Statistik, 1997.

7.2.4. Assessment

The user fees for waste have been in force for several years. It is, however, difficult, if not impossible, to assess the specific environmental effects from the scheme, as it must be seen in conjunction with the waste tax described in section 6.4.

In principle, evasion would constitute a prime area of concern in regard to waste user fees. The problem is, however, estimated to have been significantly reduced, if not completely eliminated. There are three major reasons for this:

7.3. Road toll

A road toll has been in force in Denmark since 1994. In October 1993, the EU adopted a Directive that obliges the member states to levy a tax on heavy trucks. The Directive has been implemented differently in the EU-member states. The greatest difference is between member states that have toll roads (especially Southern Europe) and member states that have not. The latter group includes the Northern European member states: Denmark, Sweden, Germany, Holland, Belgium, and Luxembourg. These 6 countries have negotiated an agreement (of 9. February 1994) to implement the stipulations of the Directive. In Denmark, the legislation that implements the agreement entered into force on December 1, 1994.

7.3.1. Purpose

The tax aims to make the users pay for the use of the road infrastructure within the EU. The Directive originates from the implementation of the Single European Market, which was expected to lead to an increase in transit-transportation.

The purpose is not explicitly environmental, but rather to introduce a principle of user payment for the wear and tear on the roads.

7.3.2. Tax-base

The road toll applies to all trucks (heavy vehicles) above 12 tons that use the roads. It is the same in all EU-member-states. The toll is paid annually to the state in which the truck is registered. In Denmark, the toll is DKK 5,523 for trucks with a maximum of 3 axles, and DKK 9,205 for trucks with 4 or more axles. The toll applies to the use of all roads in Denmark. In some other EU member states, the toll only applies to the use of highways.

7.3.3. Collection and revenue

Collection schemes vary depending on whether the truck in question is registered in one of the six countries that have negotiated an agreement of the implementation of the Directive, or not.

In the former case, the toll is paid once a year by the owner of the truck or the truck fleet in question. The Department of Central Registration of Motor Vehicles collects the toll. It is collected together with the annual weight-based vehicle tax (see chapter 5.2). A certificate is issued in proof of the payment, and allows the truck to drive in all of the 6 countries that are partners in the agreement. The countries have established a method to bilaterally counter-balance payments between them, implying that each country keeps track of the extent to which trucks from all the six countries have used their road infrastructure. This is done on the basis of statistics. Countries may bilaterally agree to abstain from counter-balancing.

In the case of vehicles, the basis for the calculation of the tax – that originate from other countries than the six that have entered a common agreement – is the time the truck spends in Denmark. There are certain pre-fixed periods and the tax rate varies for each period. The period may vary from 24 hours up to 1 year. There is a discount for longer periods of time. These trucks also receive a certificate in proof of their payment, which may be obtained at the border of any of the 6 countries. In Denmark, the distributors of the certificate have obtained the right to distribute it from the Ministry of Taxation. The certificate may be obtained at the borders, but also at gas stations, transport companies, or ferries. The distributors may only charge a price that corresponds to the agreed size of the toll. Control is effectuated as part of the general traffic control. Consequently, it is the responsibility of the police. Non-payments are sanctioned with fines.

Revenue of tax collected in 1998:

7.3.4. Assessment

The road toll is a fixed amount per day for each vehicle. The road toll is not determined by the level of actual transport activities. This feature substantially weakens the performance of the toll as a user fee. On the other hand, in the absence of toll roads, it does contribute to generate a user-based revenue for road maintenance.

Environmental effects occur as a result of actual transport, rather than as a result of possessing a truck. In this sense, the tax is not fully effective in environmental terms. Furthermore, the toll rate is set only with a view to the weight and the size of the truck. While this makes sense in regard to road maintenance issues, it is a less optimal criterion in an environmental context. If the toll was to be more environmental-friendly designed, it would have to be based on a more appropriate indicator of the environmental pressure. This could include a differentiation between combustion techniques and cleaning installations. Still, it should be noted that the toll was not designed to pursue an environmental objective.

Notes:

1. Interview with the National Association of Local Authorities in Denmark.

2. However, if the weekly quantities of waste exceed this level, an additional, but still fixed, fee must be paid.