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Samfundsøkonomisk analyse af spildevandsafgiften

Summary and conclusions

Main conclusions
Background and objective of the analysis
Data and method of the analysis
The results of the analysis
Financial costs
Welfare-economic costs
Value of environmental effects
Welfare-economic net result
Concluding remarks on the principle of full cost recovery

Main conclusions

This is a cost-benefit analysis of the wastewater tax with emphasis on the reactions to the tax from wastewater treatment plants and separate industrial dischargers. The purpose of the analysis is to determine the environmental effects and the costs that have resulted from the tax and whether the tax has yielded a welfare-economic benefit for Danish society.

The wastewater tax is paid by wastewater treatment plants, separate industrial dischargers, and users of scattered buildings in rural areas and is paid on discharges of nitrogen, phosphorus and organic matter into the aquatic environment. Certain separate industrial dischargers, however, pay a reduced tax in order to protect the competitiveness. In 2000, the wastewater tax revenues were DKK 276 million.

The analysis shows that the wastewater tax has, in general, had some environmental effects. The discharges have been reduced by an annual 5 per cent for nitrogen, 17 per cent for phosphorus and 3 per cent for organic matter. This corresponds to 298 tonnes, 120 tonnes and 382 tonnes per year, respectively. Wastewater treatment plants account for approx. 90 per cent of the reductions for nitrogen and phosphorus and for approx. half of the reductions for organic matter. The relative effect of the tax is greatest with regard to phosphorus.

Please note that this is a conservative interpretation, the effect is probably greater. The analysis only covers the four-year period up to and including 2000. It takes a long time for the effect of the tax to show, especially for the wastewater treatment plants. Thus, several players have probably not had the time to react in full to the tax from 2000. Perhaps they have not been sufficiently aware of the tax, and they may have a protracted decision-making process. Therefore, further environmental benefits have probably been realised because of the wastewater tax, however they are not included in this analysis. This is also supported by the trend in discharges after 2000. In addition, conservative estimates have been applied for several aspects of the analysis.

The effect of the tax is ambivalent. Very few wastewater treatment plants and separate industrial dischargers have reacted to the tax. However, those that have reacted have achieved very great effects in the form of large tax savings and considerable reductions in their discharges. On the aggregate, the effect has been relatively modest.

Only 16 per cent of wastewater treatment plants have taken initiatives aiming at tax savings. They represent 17 per cent of the total wastewater load from wastewater treatment plants. With regard to separate industrial dischargers, all three enterprises receiving a 70 per cent tax discount (the so-called 30-per-cent enterprises) have reacted to the tax, and it has thus had a significant effect at this tax level. With regard to the enterprises paying the full tax and the enterprises receiving a 97 per cent discount, the figures for reacting to the tax are only 14 and 20 per cent respectively.

Why has the reaction not been greater? The tax came on top of an administrative regulation that was already relatively restrictive. In addition, the wastewater treatment plants are subject to the principle of full cost recovery and are therefore not necessarily cost-effective. However, there is, of course, a group of wastewater treatment plants that are already cost-effective and thus have not reacted to the tax. As regards separate industrial dischargers, the 100-per-cent enterprises typically have relatively small discharges and consequently often quite modest tax payments, while the tax seems to be too low for the 3-per-cent enterprises to see an economic incentive to react.

The wastewater tax provided the state with net revenues of DKK 269 million in 2000. This covers revenues of DKK 276 million less administrative expenses and a revenue loss of DKK 5 million from the water tax caused by households consuming less water because the wastewater tax causes the price of water to increase. The wastewater treatment plants had net expenses of DKK 274 million and the separate industrial dischargers had net expenses of DKK 11 million in 2000. The additional expenses consist of wastewater tax payable to the state, expenses for initiatives to save on the tax, and administrative expenses. If wastewater treatment plants and separate industrial dischargers had not reacted in order to save the wastewater tax, the state revenues would have been DKK 21 million higher. Households and industry attached to wastewater treatment plants are financing the additional expenses of the wastewater treatment plants through the price of water. However, as mentioned above, households saved DKK 5 million on the water tax to the state.

It is estimated that the tax cost society approx. DK 19 million in expenses for measures to save tax, administration, etc. These expenses should be compared to the value of the environmental effects of the tax in order to assess, from a welfare-economic point of view, whether the tax has been beneficial for society.

The value of the environmental effects of the tax is highly uncertain. A conservative estimate of the value is about DKK 25 million per year, but the value varies according to the prices used. On this basis, a prudent estimate is that the tax has resulted in a welfare-economic surplus of approx. DKK 5 million per year.

Background and objective of the analysis

Discharge of organic matter and the nutrient salts phosphorus and nitrogen can cause damage to the ecosystem. In order to limit wastewater discharges of the relevant pollutants and in order to finance general reductions in personal income taxation, wastewater treatment plants, enterprises with direct wastewater discharges into the sea, lakes or streams, and users of scattered buildings in rural areas have, since 1997, paid a wastewater tax based on the amount of discharges of the three substances.

The wastewater tax was introduced on 1 January 1997 and imposed on three substances: Nitrogen (N), Phosphorus (P) and Organic matter (O). The tax was part of the 1994 tax reform and of the financing of the reform. The tax was phased in at halved rates in 1997 and full rates from 1998. The rates are DKK 20 per kg of nitrogen, DKK 110 per kg of phosphorus and DKK 11 per kg of organic matter. The revenues were expected to be DKK 540 million. The actual revenues have been around DKK 300 million per year from 1998.

The tax is imposed on discharges of nitrogen, phosphorus and organic matter from wastewater treatment plants, separate industrial dischargers and users of scattered buildings in rural areas (outside the sewerage system). Most separate industrial dischargers pay the full tax (referred to in this text as 100-per-cent enterprises). However, in order not to adversely affect the competitiveness of certain trades, a few industries pay a tax that is 97 per cent lower (3-per-cent enterprises) than the general tax, while a very few enterprises pay a tax that has been reduced by 70 per cent (30-per-cent enterprises).

The purpose of this analysis is to elucidate the effects of the wastewater tax. What have the environmental effects of the tax been, what costs has the tax resulted in, and has the tax yielded a welfare-economic benefit for Danish Society?

Data and method of the analysis

The effect of the tax has been studied through an analysis of how wastewater treatment plants and separate industrial dischargers have reacted to the tax - the effect of the tax on their behaviour. This includes the measures taken by wastewater treatment plants and separate industrial dischargers to save the tax, the cost of these measures and their environmental effects. Users of scattered buildings in rural areas are not included in the analysis.

The wastewater treatment carried out by the wastewater treatment plants is subject to the principle of full cost recovery, and the additional expenses of the plants caused by the tax are therefore passed on to the water price through the wastewater discharge levy payable by the connected households and industry. Therefore, the tax will also have an effect on the water consumption of households and industry and thus both economic and environmental consequences.

The wastewater area is already regulated in various ways, and the wastewater tax is only part of the overall regulation. Therefore, it is difficult to ascertain the isolated effect of the wastewater tax. On this basis, the Danish EPA and NERI assessed that the best way of ascertaining the isolated effect of the tax was to enquire directly at wastewater treatment plants and separate industrial dischargers.

In 2001-2002, the Danish EPA carried out a questionnaire study where all treatment plants larger than 5,000 PE ^[4] received a questionnaire. The responses received cover about half of the wastewater treatment plants. However, they represent a greater proportion of the pressures (63 per cent), since primarily large plants responded to the questionnaire.

In the autumn of 2001, NERI sent out questionnaires to the 108 enterprises with direct industrial wastewater discharges of the three relevant substances in the period 1996-1999. The questionnaire study had a response rate of 69 per cent. In 2000, the enterprises that responded to the questionnaire and paid wastewater tax in 2000 represented 56 per cent of nitrogen discharges from enterprises paying wastewater tax, 63 per cent of phosphorus discharges and 29 per cent of discharges of organic matter.

The results of the analysis

The wastewater tax has given the wastewater treatment plants an economic incentive to improve treatment and thus reduce discharges. A total of 22 plants have reacted to the wastewater tax in one way or another. These plants represent 11 per cent of the total pressures. Both small and large plants are represented in this group.

This analysis shows that it takes some time before the full effect of the wastewater tax is apparent. This is also related to the fact that the tax was implemented gradually over two years with full rates from 1998. Not until 2000, was the full effect apparent after a certain adaptation period. An even greater effect is to be expected in the years following 2000, since some of the plants did not react until 1999. In addition, it cannot be ruled out that some plants will react after 2000.

In 2000, when the tax must be assumed to have taken full effect, the 22 plants reduced their discharges by 167 tonnes of nitrogen, 72 tonnes of phosphorus and 142 tonnes of organic matter. This corresponds to a reduction in the group's discharges by 32 per cent for nitrogen, 62 per cent for phosphorus and 41 per cent for organic matter. Thus, the individual wastewater treatment plants have reduced their discharges rather significantly. These reductions have primarily been achieved through an increased use of a chemical precipitate for bonding phosphorus in particular and through investment in measurement and control systems for the treatment process.

Table 1. The environmental effects of the wastewater tax for wastewater treatment plants

Source: Responses from the Danish EPA questionnaire study 2001-2002.

The reductions have been scaled up to national level, ie. for all plants. The scaling up has been carried out on the basis of the plants' pressures measured in PE, and it is assumed that the proportion of plants that have reacted to the tax among the respondents is constant for all plants - also for plants that have not responded. This assumption also applies to the smallest wastewater treatment plants with a capacity of less than 5,000 PE and which were not included in the study. With regard to these plants, the assumption is not necessarily correct, but they only represent 7 per cent of the total pressures.

At national level (ie. for all plants) in 2000, the tax had reduced discharges by approx. 264 tonnes of nitrogen, 115 tonnes of phosphorus and 224 tonnes of organic matter. This corresponds to a reduction in the total discharges from wastewater treatment plants of 5 per cent, 17 per cent and 4 per cent for the three substances respectively.

Thus, there was significantly smaller relative reduction of discharges at national level than for the 22 plants. This was due to the fact that a large group of plants had not reacted to the tax at all.

For the separate industrial dischargers, the analysis shows that 43 per cent of these enterprises implemented measures in the period 1996-2000 in order to limit discharges of nitrogen, phosphorus and organic matter. These include measures in general and not only measures taken due to the tax.

All three 30-per-cent enterprises (receiving a 70-per-cent tax discount) have implemented measures. The same applies for 70 per cent of the 3-per-cent enterprises (receiving a 97-per-cent discount) and for 41 per cent of the 100-per-cent enterprises (paying the full tax). Finally, 30 per cent of the enterprises not paying the tax have implemented measures. On the face of it, it is surprising that so few (41 per cent) of the enterprises paying the full tax have implemented measures.

Motivation research indicates that the primary incentive to limit discharges can be ascribed to regional authorities' requirements for dischargers, since 72 per cent of the enterprises having implemented measures have done so because of regional authorities' requirements for dischargers. Particularly enterprises paying a reduced tax mentioned these requirements as an important factor. The enterprises' wish to strengthen their environmental profile has also played an important role, while the costs related to the wastewater tax have played a smaller role. This does, however, cover great variations between enterprises. Thus, we can establish that all three 30-per-cent enterprises have implemented measures to limit contamination because of the wastewater tax, while only 14 per cent of all 100-per-cent enterprises and 20 per cent of all 3-per-cent enterprises have reacted to the tax. In other words, it seems that the wastewater tax works best at the middle tax level.

The evaluation of the environmental effect of the wastewater tax is subject to some uncertainty due to lack of data. However, we can ascertain that the measures implemented have resulted in rather large reductions in discharges if they are seen in relation to the individual enterprise.

With regard to the effect of the wastewater tax, we can conclude that the results are ambivalent: on the one hand, not many separate industrial dischargers have generally changed their behaviour because of the tax; but on the other hand, those that have been motivated by the tax have been able to reduce their discharges relatively significantly. The isolated effect of the wastewater tax in 2000 alone is estimated conservatively at 28 tonnes of nitrogen, 5 tonnes of phosphorus and 151 tonnes of organic matter for the enterprises that have responded to the questionnaire. This means that the annual aggregate discharges from all separate industrial dischargers are 3 per cent lower for nitrogen, 8 per cent lower for phosphorus and 3 per cent lower for organic matter in 2000 than they would have been without the wastewater tax. It should be noted that this is a very conservative estimate, since uncertainties have meant that no attempts have been made to estimate an effect for the enterprises that have not responded to the questions about the environmental effect of the measures.

Households have the tax passed on in the price of water (through the wastewater discharge levy) because wastewater treatment is a fully user-financed area. This leads to reduced water consumption which again leads to reduced wastewater discharges and consequent environmental impacts. In relation to the reactions of wastewater treatment plants and separate industrial dischargers however, these are modest reductions.

The environmental effect of the wastewater tax is summarised in table 2. In 2000 (when it reached full effect after an adaptation period), the tax removed 298 tonnes of nitrogen, 120 tonnes of phosphorus and 382 tonnes of organic matter. The main part of the effect of the tax results from the wastewater treatment plants which represent approx. 90 per cent of the reduction of nitrogen and phosphorus and approx. half of the reduction of organic matter.

The tax has reduced the total discharges by 5 per cent for nitrogen, 17 per cent for phosphorus and 3 per cent for organic substances, cf. table 2.

Table 2. Environmental effect of the wastewater tax

Source: Danish EPA (1998), Danish EPA (1999), Danish EPA (2000), plus own calculations

Financial costs

The financial costs show the direct financial consequences for each party affected by the tax. The effect is shown for the most affected parties, ie. revenues and expenditure for the state, wastewater treatment plants and separate industrial dischargers respectively. The calculation is shown for 2000.

The state revenues before reactions to the tax - the fictive "original" revenues - constitute approx. DKK 297 million, cf. table 3. Wastewater treatment plants and separate industrial dischargers, however, changed their behaviour in order to save tax. This amounts to a total of DKK 20.6 million with DKK 20.3 million from wastewater treatment plants and DKK 0.3 million from industry. In this way, the state's actual revenues constitute approx. DKK 276 million. The main part of the revenues originates from the wastewater plants.

Table 3. Financial costs following from the wastewater tax, DKK million, 2000.

Note: Expenses are shown as negative figures and revenues as positive figures. It is not possible to allocate all expenses to the households and industry attached to wastewater treatment plants. Therefore, these expenses have been treated as a group in the table.

On the other hand, the state has had administrative expenses etc. for the collection of the wastewater tax of approx. DKK 2 million. Furthermore, the state suffered a revenue loss from the water tax in that households reduced their water consumption due to the wastewater tax (which is added to the water price). The overall net revenues for the state thus become approx. DKK 269 million.

Originally, the wastewater treatment plants should have paid approx. DKK 287 million in taxes to the state before they reacted to the wastewater tax. Their reaction to the tax cost them approx. DKK 7 million and saved them taxes of approx. DKK 20 million, making their net saving approx. DKK 14 million. The actual tax payments are thus reduced (by approx. DKK 20 million) to approx. DKK 267 million. The net expenses of the wastewater treatment plants consist of an actual tax payment to the state of DKK 267 million, the marginal expenses to save tax of approx. DKK 7 million, and administrative expenses of approx. DKK 1 million - a total of approx. DKK 274 million.

The income and expenses of the separate industrial dischargers can be calculated in a similar manner. However, they do not have a net saving, but net expenses in order to save tax, because the expenses for measures to save tax exceed the tax actually saved. The net expenses consist of an actual tax to the state of approx. DKK 10 million plus marginal expenses of DKK 0.7 million and expenses for administration etc. of approx. DKK 1 million - a total of approx. DKK 11 million.

The wastewater tax area is subject to the principle of full cost recovery and is therefore fully user-financed. Therefore, the expenses of the wastewater treatment plants of DKK 274 million will be fully passed on to the households and industry attached. On the basis of the existing data material, it is not possible to ascertain whether the separate industrial dischargers pass their expenses on to the prices of their products. Households save expenses of DKK 4.8 million per year on the water tax, because households reduce their water consumption because of the wastewater tax, cf. above. On the aggregate, households and industry attached to wastewater treatment plants had net expenses of DKK 270 million.

Welfare-economic costs

The welfare-economic analysis covers the welfare-related consequences for society as a whole as opposed to the financial analysis which dealt with the financial effect on each of the individual parties. The welfare-economic costs indicate the welfare-related loss from a reallocation of society's scarce resources caused by the tax.

The welfare-economic costs related to the wastewater tax consist of four parts:

• Marginal costs to wastewater treatment plants of saving wastewater tax
• Marginal costs to separate industrial dischargers of saving wastewater tax
• Administrative expenses of the state, wastewater treatment plants and separate industrial dischargers
• Distortion loss

The marginal welfare-economic costs of the wastewater treatment plants were calculated at DKK 7.7 million per year in 2000, cf. table 4. The welfare-economic costs of the separate industrial dischargers in 2000 constituted DKK 0.8 million. The welfare-economic administrative expenses of the wastewater tax were DKK 4.8 million per year. In addition, there is a welfare loss as a consequence of the fact that the wastewater treatment plants pass their additional expenses on to the water price for households. In this way, the water price goes up and households reduce their water consumption. The smaller water consumption also causes a loss of revenues for the state from the water tax. These effects cause a total loss of welfare (also called the distortion loss) of DKK 6.0 million per year. The loss of welfare following when the separate industrial dischargers pass the tax on to prices and following the effect of industries attached to wastewater treatment plants is not included, but the loss is probably relatively modest.

Table 4. Welfare-economic costs, 2000, DKK million per year

Source: responses to questionnaire for wastewater treatment plants and separate industrial dischargers.

The total welfare-economic expenses caused by the wastewater tax thus become DKK 19.4 million per year, cf. table 4. Only the expenses of the wastewater treatment plants have been possible to analyse between the three substances. Therefore, this is not shown in the table.

Value of environmental effects

We have also attempted to express the monetary value of the environmental effects of the wastewater tax. For this, different prices have been used for nitrogen, phosphorus and organic matter.

For this analysis, NERI has carried out an international literature study in order to find applicable prices ^[5]. On the basis of a Swedish-Polish study, this study found an estimate for discharges of nutrient salts (nitrogen and phosphorus) in Denmark of about DKK 141 per kg. This gives a total value of the environmental effects of the tax of approx. DKK 60 million in 2000, cf. table 5. It should, however, be stressed that this estimate is subject to great uncertainty and that it can therefore merely be used as a calculation example. Merely the fact that respondents mention their willingness to pay under the precondition that discharges into the Baltic Sea are reduced by as much as 50 per cent makes it difficult to use the estimate correctly. As a prudent comment to the calculation, it could be pointed out that we are dealing with an extremely large welfare benefit, even considering that the most conservative estimate (the lowest price) is used.

Table 5. Value of the environmental effects of the wastewater tax, DKK million per year

Source: Own calculations

The rates of the wastewater tax used as prices result in a value of the environmental effects of approx. DKK 23 million. The price of nitrogen from the Action Plan for the Aquatic Environment III for the measure regarding wetlands combined with prices of phosphorus and organic matter corresponding to the rate of the wastewater tax result in an annual value of approx. DKK 26 million. Sensitivity calculations have also been carried out with other prices from the Action Plan for the Aquatic Environment III and these result in values lying in the interval between DKK 20-83 million per year.

The calculations carried out as to the value of the environmental effects of the wastewater tax at various prices of nitrogen, phosphorus and organic matter and various combinations of these prices indicate that the value lies in the interval between DKK 20-83 million. However, particularly the prices of nitrogen and phosphorus from the literature study and the prices of phosphorus from the Action Plan for the Aquatic Environment III are subject to extremely great uncertainty. Therefore, the values calculated on the basis of these prices should be described as optimistic estimates. The prices based on the measure for catch crops from the Action Plan for the Aquatic Environment III are, conversely, rather conservative. On the basis of this, we assess that the value of the environmental effects of the wastewater tax lies at the lower end of the interval, ie. approx. DKK 25 million per year.

Welfare-economic net result

The welfare-economic costs of the tax are compared to the value of the environmental effects of the tax. In this way, we can assess whether the tax is a welfare-economic benefit for society. In this analysis, the tax revenues are not included since this is merely a transfer of money from one account (wastewater treatment plants and industry) to another (the state) and not an overall expense for society as a whole.

When analysing the welfare-economic result, we look at the behavioural reactions to the tax. These include the reactions to save tax (wastewater treatment plants, separate industrial dischargers, households and industries attached to wastewater treatment plants) as well as the administrative expenses of the tax.

The welfare-economic costs related to the wastewater tax have been calculated at DKK 19.4 million, cf. table 6. These costs should be compared to the value of the environmental effect of the tax in order to assess the welfare-economic net surplus of the tax.

Table 6. Welfare-economic surplus, 2000, DKK million per year

The prices of DKK 141 per kg of both phosphorus and nitrogen from the international literature study yield a welfare-economic surplus of approx. DKK 40 million per year. These prices should, however, been described as highly uncertain. Thus, it should be noted that this is merely a calculation example.

Prices corresponding to the rates of the wastewater tax result in a welfare-economic surplus of approx. DKK 4 million per year.

The surplus based on prices of nitrogen and phosphorus from the Action Plan for the Aquatic Environment III combined with a price of organic matter corresponding to the rates of the wastewater tax lies in the range of DKK 0.5-63 million per year.

The calculations for the welfare-economic surplus of the wastewater tax range between DKK 0.5 million per year and approx. DKK 63 million per year. The surplus based on the prices from the literature study and the prices of phosphorus from the Action Plan for the Aquatic Environment III is subject to extremely great uncertainty. These calculations should rather be seen as sensitivity calculations with optimistic prices. Similarly, the prices based on the measure for catch crops are sensitivity calculations showing rather conservative prices.

We assess that the most realistic interval for the welfare-economic surplus lies between DKK 4-7 million. On this basis, we conclude conservatively that the wastewater tax has resulted in a welfare-economic surplus of approx. DKK 5 million per year.

Please note that this figure expresses an actual surplus (and it should not be confused with the value of the environmental effects of the wastewater tax) in that the expenses caused by the wastewater tax have been subtracted. In other words, this is a welfare-economic net surplus.

It should also be noted that the surplus is a conservative estimate in that the environmental benefits of the wastewater tax have probably been assessed at the lower end of the scale. The analysis only covers the years up to and including 2000, when the tax had only been in effect for four years - the first year of which was at half rate. The analysis showed that it takes time before the full effect of the tax shows and the behavioural changes for eg. wastewater treatment plants are built up gradually over an adaptation period. Thus, several wastewater treatment plants had not reacted to the tax until 1999-2000. Therefore, further environmental benefits have probably been realised because of the wastewater tax but not included in this analysis.

This is also supported by the trend in discharges of nitrogen and phosphorus after 2000. For separate industrial dischargers, the discharges have been reduced from 2000 to 2003 by 17 per cent for nitrogen and 15 per cent for phosphorus. The corresponding figures for wastewater treatment plants are 3 and 6 per cent respectively ^[6].

The cost side has been thoroughly elucidated while the analysis of the value of the environmental effects of the tax is subject to great uncertainty. This indicates that there is a need for well-founded Danish pricing analyses in the field of the aquatic environment. This applies not least because there are great uncertainties attached to benefit transfer from existing international studies. Danish studies could perhaps also reveal whether discharges into the North Sea ought to be priced differently than eg. discharges into Mariager Fjord. These studies could perhaps also reveal whether the different pricing methods yield different values for the same case.

Concluding remarks on the principle of full cost recovery

As mentioned above, wastewater treatment is subject to the principle of full cost recovery. The wastewater treatment plants therefore do not have a direct economic incentive to reduce discharges because of the tax - they can just forward the bill. There has, however, been increasing focus on prices from both local politicians and consumers. The responsible players, ie. the local councils, ought to be interested in having people's wastewater treated as cheaply as possible. However, there is probably not as much focus on cost efficiency in the full-cost-recovery areas as there is in tax-financed areas. Nevertheless, it appears that a group of wastewater treatment plants do consider cost efficiency. The purpose of this analysis is also to reveal the size of this group and the size of the potential for further cost-efficiency reductions. In addition, the analysis could show the local authorities that it would be profitable for the wastewater treatment plants to clean the wastewater more thoroughly because of the tax.

The wastewater treatment plants are already heavily regulated with rules and legislation that do no take cost efficiency into account. When a new instrument is introduced that gives/could give an economic incentive to clean the wastewater further, several things should be considered:

• Are wastewater treatment plants rational economic players?

Most wastewater treatment plants are owned by local authorities. An operations manager is responsible for daily operation, and the expenses of the plant are passed on to households and industry in accordance with the principle of full cost recovery. Any possible saving comes back to the users. No pressure is likely to be exerted by users on the operations manager. There may be pressure from local politicians, but it is only natural that they focus more on tax-financed expenses than on user-financed expenses.

Therefore, it is possible that a number of wastewater treatment plants do not act in an economically rational manner and that there is thus a possibility of savings and increased wastewater treatment to benefit both people and the environment.

The users are not always aware of the composition of the wastewater tax. Therefore, they cannot react to the tax by affecting the composition of the wastewater. The tax is paid on the plant's discharges of nitrogen, phosphorus and organic matter, but it is passed on to households and industry according to water consumption (wastewater discharge levy). The individual household/industry can therefore only save on the tax by reducing its water consumption.

• What are the current marginal costs of wastewater treatment? If these costs are higher than the tax, nothing will happen. Obviously, wastewater treatment plants treated wastewater before the introduction of the tax. As a starting point, it is not possible to assess the marginal costs of wastewater treatment. If the wastewater treatment plants act in an economically rational manner, we would assume that their marginal costs of wastewater treatment are at the same level or higher than the tax. However, nothing indicates this since the cost functions do not seem to be systematically different for the plants that have not implemented measures than for the plants that have.

Committee work has recently been initiated regarding service checks in the water sector. This includes considerations about cost efficiency for wastewater treatment plants and the realisation of the potential for saving.

Fodnoter

[4] PE = person equivalent. The amount of easily degradable organic matter, nitrogen and phosphorus disposed of by one person into the wastewater during one year: 21.9 kg of organic matter (BI₅), 4.4 kg of nitrogen and 1.0 kg of phosphorus, cf. the Danish EPA (2000).

[5] Cf. Pedersen, A. Branth (2003).

[6]Danish EPA (2003a).

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Version 1.0 November 2004, © Miljøstyrelsen.