Environmental economic instruments

Environmental economic instruments are those instruments that are introduced either in order to correct for negative effects in the environment caused by human activities (making environmental damage more expensive) or introduced in order to encourage environmentally friendly initiatives (making environmental friendly activities cheaper). The purpose of these instruments are to change todays production- and consumption patterns in line with the environmental- and climate change political goals in the least costly way. Examples of environmental economic instruments are taxes, fees, subsidies and other transfers, emission permits and reimbursement arrangements.

Environmental economic instruments do not include juridical instruments, i.e. rules and regulations or voluntary arrangements.

At the time being, the statistics on environmental economic instruments includes environmental taxes incl. purchase of emission permits.

An environmental tax is a tax levied on a market activity to internalize the cost of negative externalities associated with this activity. In the presence of negative externalities, the social cost of a market activity exceeds the private cost. Then the market outcome is not efficient, i.e. the market tends to over-supply. An optimal environmental tax is equal to the marginal negative externality. Environmental taxes are defined as a Pigouvian tax.

Taxes included in the statistics on Environmental economic instruments are based on those transactions that in the national accounts are defined as taxes.

The environmental taxes are systematised according to 5 main categories. See table.

As of2013, environmentally related taxes are included in the obligatory reporting to the European statistics agency, Eurostat. The definition of environmentally related taxes applied in the international reporting differs from that used for environmental taxes. Eurostat, the OECD and the UN define an environmentally related tax as "A tax whose tax base is a physical unit (or a proxy of it) of something that has a proven, specific negative impact on the environment" where a list of consumption, products and activities (tax base) are per definition considered environmentally harmful. This definition is primarily chosen in order to enable international comparisons. It is what is taxed that decides whether the tax is considered an environmentally related tax or not. This means that a tax that does not correct for negative effects on the environment can still be classified as an environmentally related tax. For example, tax on the consumption of electricity and use-independent car taxes as annual taxes and re-registration tax are included in the international reporting as consumption of electricity, and all transport activities by definition are considered harmful to the environment. The international reporting includes several individual taxes and is divided into categories other than environmental taxes.

Tax bases included in the environmentally related tax statistics framework

Energy products (including fuel for transport)

Energy products for transport purposes

• Unleaded petrol
• Leaded petrol
• Diesel
• Other energy products for transport purposes (e.g. LPG or natural gas)

Energy products for stationary purposes

• Light fuel oil
• Heavy fuel oil
• Natural gas
• Coal
• Coke
• Biofuels
• Electricity consumption and production
• District heat consumption and production
• Other energy products for stationary use

Greenhouse gases

• Carbon content of fuels
• Emissions of greenhouse gases (including proceeds from emission permits recorded as taxes in the national accounts)

Transport (excluding fuel for transport)

Motor vehicles import or sale (one off taxes)

Registration or use of motor vehicles, recurrent (e.g. yearly taxes)

Road use (e.g. motorway taxes)

Congestion charges and city tolls (if taxes in national accounts)

Other means of transport (ships, airplanes, railways, etc.)

Flights and flight tickets

Vehicle insurance (excludes general insurance taxes)

Pollution

Measured or estimated NOx emissions

Measured or estimated SOx emissions

Measured or estimated Sulphur emissions

Other measured or estimated emissions to air (excluding CO2)

Ozone depleting substances (e.g. CFCs or halons)

Measured or estimated effluents to water

• Measured or estimated effluents of oxydisable matter (BOD, COD)
• Other measured or estimated effluents to water
• Effluent collection and treatment, fixed annual taxes
• Non-point sources of water pollution
• Pesticides (based on e.g. chemical content, price or volume)
• Artificial fertilisers (based on e.g. phosphorus or nitrogen content or price)
• Manure

Waste management

• Collection, treatment or disposal
• Individual products (e.g. packaging, beverage containers, batteries, tyres, lubricants)

Noise (e.g. aircraft take-off and landings)

Resources

Water abstraction

Harvesting of biological resources (e.g. timber, hunted and fished species)

Extraction of raw materials (e.g. minerals, oil and gas)

Landscape changes and cutting of trees

For the industry breakdown, the Statistical Classification of Economic Activities in the European Community (NACE rev 2)is used.