United States
Environmental Protection
Agency
Office of Enforcement and
Compliance Assurance
(2251A)
EPA/315IB-98I003
November 1998
www.inece.org
FINANCING ENVIRONMENTAL
PERMIT, COMPLIANCE, AND
ENFORCEMENT PROGRAMS
Capacity Building Support Document
International Training Workshop
BWIRONMENTAL
LAW-INSTITUTE
^*»**_«»^ _^*_^*^
Ministry of Housing,
Spatial Planning,
and the Environment
(VROM)The Netherlands
Environment Environnement
Canada Canada
EUROPEAN
COMMISSION
POLLUTION CONTROL DEPARTMENT
THAILAND
'**V
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FINANCING ENVIRONMENTAL
PERMIT, COMPLIANCE AND
ENFORCEMENT PROGRAMS
Capacity Building Support Document
April, 1996
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Financing Environmental Compliance and Enforcement Programs
PREFACE
This document, Financing Environmental Permit, Compliance and Enforcement Programs, was
originally prepared in 1996 as one of five Environmental Compliance and Enforcement Capacity
Building and Technical Support documents prepared to support the Fourth International
Conference on Environmental Compliance and Enforcement held in Chiang Mai, Thailand, April 22-
26, 1996 and ongoing international networking and capacity building under the auspices of the
International Network for Environmental Compliance Enforcement. It was maintained as a review
draft to accommodate additional country examples. This final version is reprinted unchanged for
use at the Fifth International Conference in Monterey, California, November 16-20, 1998 along
with several new capacity building documents. These documents are prepared as resource
documents to be used by government officials and others who have responsibility for developing or
enhancing environmental compliance and enforcement programs. The documents include:
Financing Environmental Permit, Compliance and Enforcement Programs
Source Self-Monitoring, Reporting, and Recordkeeping Requirements: an
International Comparison
Multimedia Inspection Protocols: International Examples
Communications Strategies for Enforcement Programs
Transboundary Trade in Potentially Hazardous (Waste, Pesticides, and Ozone
Depleting) Substances
International Inspector Training Compendium, Course and Program Comparison
Country Progress/Self Assessment Reports on Environmental Compliance and
Enforcement.
Citizen Enforcement: Tools for effective participation
Consistent with the goals of the Executive Planning Committees for the Fourth and now Fifth
Conferences, to build capacity internationally for environmental compliance and enforcement,
Financing Environmental Permit, Compliance and Enforcement Programs provides an overview of
the required resources and associated costs of compliance and enforcement programs, introduces
budgeting concepts necessary for effective program management, and discusses potential funding
sources applicable to the implementation of compliance and enforcement program activities. The
document also offers numerous examples of the use of specific funding mechanisms worldwide
as well as how to structure this financing in a manner which offers incentives for compliance to the
regulated community.
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Financing Environmental Compliance and Enforcement Programs
Financing Environmental Permit, Compliance and Enforcement Programs and the other documents
listed above are available on the International Network for Environmental Compliance and
Enforcement's (INECE) Internet site: http://www.inece.org. They also are available from the INECE
Secretariat at the addresses below. Finally, the INECE Secretariat seeks your comments as to whether
these documents serve their intended purpose and how they might be improved. Please send comments
in writing to the INECE Secretariat in care of Ms. Wasserman or Mr. Gerardu at the following
addresses:
Ms. Cheryl Wasserman
Associate Director for Policy Analysis
Office of Federal Activities
Office of Enforcement and Compliance Assurance
U.S. Environmental Protection Agency
401 M Street MC 2251-A
Washington, D.C. 20460
FAX 1-202-564-0070
PHONE 1-202-564-7129
E-MAIL wasserman.cheryl@epa.gov
or
Mr. Jo Gerardu
Head, Strategy, Planning and Control Division
Inspectorate for the Environment
The Netherlands Ministry of Housing, Spatial Planning and the Environment
IPC 680
P.O. Box 30945
2500 GX Den Haag
The Netherlands
FAX 1-31-70-339-1300
PHONE 1-31-70-339-2536.
E-MAIL gerardu@IMH-HI.dgm.minvrom.nl
u
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Financing Environmental Compliance and Enforcement Programs
ACKNOWLEDGMENTS
This document was developed with the support of Apogee Research Inc. Working under the direction
of Dr. Kenneth Rubin, President, Ms. Tamar Henkin, Ms. Jennifer Bing, and Ms. Karin DeMoors, staff
of Apogee Research, Inc., were principal authors of this document. Apogee Research staff prepared
this document under Environmental Law Institute Contract 9423B under a cooperative agreement with
U. S. EPA. Technical direction was provided by Ms, Cheryl Wasserman of the Office of Enforcement
and Compliance Assurance, U.S. Environmental Protection Agency, and Mr. Jo Gerardu of the
Inspectorate for the Environment, Ministry of Housing, Spatial Planning and the Environment
(VROM), in cooperation with the conference sponsors and Executive Planning Committee members.
111
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Financing Environmental Compliance and Enforcement Programs
TABLE OF CONTENTS
PREFACE i
ACKNOWLEDGMENTS ui
1 INTRODUCTION 1-1
1.1 PURPOSE AND SCOPE OF DOCUMENT 1-1
1.2 DOCUMENT OVERVIEW 1-2
1.2.1 General Concepts and Funding Mechanisms 1-2
1.2.2 Specific Funding Mechanisms 1-3
1.2.3 Budgeting for Environmental Compliance and Enforcement 1-6
1.2.4 Measures to Minimize Financing Demands 1-6
1.2.5 Sources of Additional Information 1-7
2 FUNDING MECHANISMS ? 2-1
2.1 PROGRAM FUNDING: GENERAL CONCEPTS 2-1
2.1.1 Cost Recovery 2-:?
2.1.2 Economic Principles : 2-1
2.1.3 Distinction Between Taxes and Fees 2-,:?
2.2 OVERVIEW OF FUNDING MECHANISMS 2-4
2.2.7 General Taxes 2~±
2.2.2 Special Taxes 2-5
2.2.3 User Fees and Charges 2-6
2.2.4 Fines and Penalties , 2-7
2.2.5 Loans and Other Debt Instruments 2-7
2.2.6 Grants 2-B
2.2.7 Voluntary Mechanisms 2-£
2.2.5 Public-Private Partnerships 2-9
2.2.9 Summary 2-I#
2.3 EVALUATING AND SELECTING FUNDING MECHANISMS . . 2-11
2.3.7 Mechanisms' Suitability to Financing Needs 2-11
2.3.2 Other Evaluation Criteria 2-H,
2.4 USE OF INSTITUTIONAL MECHANISMS TO SECUREFUNDING 2-13
2.47 General Funds 2-1J
2.4.2 Dedicated Funds 2-J5
2.4.3 Funds Transfer Between Levels Of Government 2-19
2.4.4 Public Authorities 2-28
2.4.5 Multilateral Organizations 2-28
3 BUDGETING FOR ENVIRONMENTAL COMPLIANCE AND ENFORCEMENT 3-1
3.1 ASSESSING FINANCING NEEDS 3-1
3.7.7 Type and Level of Costs 3-1
3.7.2 Operating/Programmatic Costs 3-2
3.1.3 Alternative Budgeting Methods for Operating Costs 3-3
3.1.4 Capital Costs 3.4
3.7.5 The Role of Capital Budgets in Program Planning 3-5
3.7.5 Tracking Revenues and Expenditures 3-7
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Financing Environmental Compliance and Enforcement Programs
4 MEASURES TO MINIMIZE FINANCES! G DEMANDS 4-1
4.1 ENSURING EFFECTIVE AND EFFICIENT USE OF SCARCE RESOURCES 4-1
4.1.1 Setting Priorities 4-1
4.1.2 Reviewing Existing Capabilities 4-2
4.1.3 Maximizing Resource Effectiveness 4-2
4.2 INCENTIVES To REGULATED COMMUNITY 4-2
4.2.1 Tradable (Marketable) Permits 4-3
4.2.2 Subsidies 4-4
4.2.3 Deposit-Refund Systems. 4-8
4.2.4 Industry Self-Compliance Monitoring and Reporting 4-9
4.3 CONCLUSIONS 4-10
APPENDIX A: INDIVIDUAL FUNDING MECHANISMS AND EXAMPLES OF USE A-l
A.1 GENERAL TAXES A-l
A.I.I Individual Income Taxes AI
A.1.2 Corporate Income Taxes A-2
A.1.3 Real (Ad Valorem} Property Taxes A-3
A.1.4 Personal (Tangible) Property Taxes A-4
A.1.5 Sales and Use Taxes. A-5
A.1.6 General Value Added Taxes A-6
A.1.7 Death and Gift (Inheritance) Taxes '. A-7
A.2 SPECIAL TAXES ; A-7
A.2.1 Fertilizer and Pesticide Taxes A-7
A.2.2 Import Taxes A-9
A.2.3 Selective Sales and Use Taxes A-10
A.2.4 Severance Taxes. .4-72
A.2.5 Feedstock (Front-End) Taxes A-14
A.2.6 Waste-End Taxes. A-14
A.2.7 Hard-to-Dispose Taxes. .4-75
A.2.8 Selective Value Added Taxes A-16
A.3 USER FEES AND CHARGES A-17
A.3.1 Fees Applied on a Fee for Service Basis. A-18
A.3.2 Fees Applied on a Quantified Impact Basis A-27
A.4 FINES AND PENALTIES A-35
A.4.1 Fines and Penalties A-35
A.5 LOANS AND OTHER DEBT INSTRUMENTS A-39
A.5.1 Loans A-39
A.5.2 Other Debt Instruments A-42
A.6 GRANTS ......A-45
A.6.1 Multilateral and Bilateral Grant Sources A-45
A.6.2 Infra-Country Grant Programs. A-47
A.7 VOLUNTARY MECHANISMS A-49
A.7.1 Donations A-49
A.7.2 Lotteries ,4-50
A.8 PUBLIC-PRIVATE PARTNERSHIPS A-50
A.8.1 Contract Services ,4-50
APPENDIX B: FOR ADDITIONAL INFORMATION. ..B-l
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Financing Environmental Compliance and Enforcement Programs
1 INTRODUCTION
Compliance and enforcement programs are integral components of environmental management
strategies established to prevent or control pollution. Such environmental strategies usually contain
legal requirements that must be met by members of the regulated community responsible for causing
pollution. Compliance is the full implementation of environmental requirements resulting in the
achievement of desired changes in behavior. Enforcement is the range of approaches governments
or others take to compel or encourage compliance within the regulated community and to correct or
halt situations that endanger the environment or .public health. Compliance and enforcement
program activities include:
Inspections to determine compliance status;
Negotiations with those who are out of compliance to develop plans and schedules for
achieving compliance;
Legal actions to compel compliance, where necessary; and
Compliance promotion to encourage voluntary compliance.1
As compliance and enforcement programs are newly implemented by some countries and vastly
expanded by others, funding for new program activities becomes critical. Countries must work to
both carefully plan, or budget, for their new and enhanced programs and to make financial resources
available either through development of new funding mechanisms or expansion of existing
mechanisms.
1.1 Purpose and Scope of Document
This Capacity Building Technical Resource Document, prepared for the Fourth International
Conference on Environmental Compliance and Enforcement, has two primary objectives. First, it
provides guidance on budgeting and financing methods that can be used to maximize resources
available for environmental compliance and enforcement programs. The scope of the document is
intentionally broad since any number of financing mechanisms may be applicable for a given country
or sub-national government. Second, through illustrative examples, the document describes how
compliance and enforcement programs are generally financed throughout the world. Country-
specific examples illustrate the use of various funding mechanisms and budgeting techniques. These
examples are not meant to be an all-inclusive catalogue of the use of specific mechanisms, but
instead represent the results of a comprehensive literature review and discussions with individuals
involved with environmental compliance and enforcement programs worldwide.
This financing technical resource document was designed specifically for use by government
officials and individuals associated with non-governmental organizations directly responsible for the
design and management of environmental compliance and enforcement programs. The document
also will be invaluable to others interested in how different budgeting approaches and funding
Page 1-1
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Financing Environmental Compliance and Enforcement Programs
mechanisms can be used to further both the development and implementation of compliance and
enforcement programs.
The process of budgeting for compliance and enforcement programs that is assessing funding
needs and designating sources of funding to meet those needs and the process of identifying and
securing funding should be addressed in a coordinated manner. As program goals and objectives
are established, preliminary budgets can be developed. These budgets often must be revised,
however, based on the ability to secure necessary funding. As such, the budgeting and financing
steps create an iterative process that also is closely linked to overall program development. While
many texts would address budgeting issues first and then tackle issues related to obtaining funding,
given the importance of first understanding the full range and scope of funding opportunities and
overcoming the perception that there are not enough good options, this document addresses
potential funding options first (Chapter 2) and then discusses approaches to budgeting for
environmental compliance and enforcement programs (Chapters 3 and 4).
1.2 Document Overview
This section provides a road map and overview of the remainder of the technical resource
document. The document is made up of three technical chapters and two substantive appendices, in
addition to this introductory chapter. A brief overview of each chapter follows.
1.2.1 General Concepts and Funding Mechanisms
Fundamental concepts related to the identification of alternative sources of funding for compliance
and enforcement programs are provided in Chapter 2. This chapter first describes funding available
from general revenue and special revenue sources and introduces common considerations regarding
the application of general and special taxes. The chapter then introduces economic principles that
relate to the question of who should pay for pollution control and highlights the role of cost
recovery in designing program finance approaches.
Following the introduction of basic funding concepts, Chapter 2 provides a general overview of
funding mechanisms relevant to the financing of compliance and enforcement programs. It presents
eight broad funding mechanism categories and discusses the applicability of each broad category to
compliance and enforcement programs. This section also includes a brief analysis of the
applicability of specific mechanisms to operating and capital costs and introduces general evaluative
criteria to consider when analyzing funding options for compliance and enforcement programs.
Chapter 2 concludes with a description of how different institutional mechanisms can be used to
secure funding for compliance and enforcement programs. Such mechanisms include:
General fund mechanisms and accounts.
Dedicated fund mechanisms and accounts.
Fund transfers between levels of government.
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Financing Environmental Compliance and Enforcement Programs
Public authority mechanisms.
Bilateral or multilateral mechanisms.
Table 1-1 highlights examples of institutional mechanisms employed by various countries and notes
where these examples can be found in Chapter 2.
Table 1-1. Institutional Mechanisms Employed: Country Examples
France
Germany
Hungary
Italy
Lithuania
Mexico
Nepal
The Netherlands
Nigeria
Philippines
Poland
Russia
Thailand
United States
General
Fund
Mechanisms
2-16,17
Dedicated
Mechanisms
2-16
2-16
2-17
2-16
2-17
2-16
2-17
2-18
2-16,17
2-17
2-18
2-16
Funds
Transfer
2-19
2-19
2-19
2-19
Public
Authorities
2-20
2-20
Bilateral/
Multilateral
Mechanisms
2-21
1.2.2 Specific Funding Mechanisms
Building on the introductory discussion of alternative funding mechanisms presented in Chapter 2,
this document provides an inventory of funding mechanisms, including an analysis of each
mechanism's general advantages and limitations (see Appendix A). Appendix A also contains
numerous examples of the application of each funding mechanism from countries worldwide (see
Table 1-2 for an index of country-specific examples). Neither Table 1-2 nor the examples presented
in Appendix A should be taken as a comprehensive list of which countries apply particular
mechanisms, but rather as illustrative examples of the use of various mechanisms.
Page 1-3
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Financing Environmental Compliance and Enforcement Programs
Table 1-2. Funding Mechanisms Employed: Country Examples
R&mA"&
pai>MjeMST/.
Burkina-Faso
Egypt
Ghana
Israel
Mauritius
Morocco
Nigeria
South Africa ;
Tunisia
&M;, '..,LL:::..^.
Australia
China
Hong Kong
India
Indonesia ^
Japan
Malaysia
Nepal
New Zealand
Pakistan
Philippines ;
Singapore
South Korea
Taiwan
Thailand
Vietnam
piv1 4 t*S at'uystt^ v s^
U&^iEvv/jr*?, ...",. <
Albania
Austria
Belgium
Czech Republic v
Denmark :
Estonia
Finland
France
Germany
Great Britain
Taxes
^YS*v
#&$.
s i .,* *,-M;
A-ll, 13
A-2
>m#^
A-15
A-9
A-13
A-17
A-ll
A-13
r"s ^"f''f ;
, "\'<<>,-: *:
A-8, 15
A-15
A-8, 10,
16,17
A-13
A-8, 9,
11,15
A-ll
A-10, 11
A-17
Fees
A' --5 ? »
-!T:r>;fCf
'> ,,- ,w-s »
A-19, 33
A-19,
24,34
'«'|' \<.
A-34
A-27, 28
A-19
A-30
A-30
A-26
A-21, 23
A-21
A-32
A-19
A-32
A-19
*,;Xj> "
A-26
A-34
A-29
A-18, 21
A-29
A-29
A-29
A-34
Fines
.-"; '/'4>v'^
j-v---' ",?..:
s\s' ^ ^-* ^ :
A-38
..r.A.:.:..A!
A-36
A-37
A-37
A-38
A-38
A-38
'"" ^% $'
A-36
Loans/
Debt
:':*Tfi
A-39
A-39
A-39
A-39
' «' r/
A-42
A-40, 42
A-40,
41,44
A-44
A-42
'f * '!!'''
^.', 'ft. '"'
A-44
A-44
Grants
X- % ..;
A-46
A-46
A-46
A-46
A-46
A-46
A-46
A-46
A-47
A-48
A-48
*" s ' "
A-46, 48
A-48
Voluntary
Mechanisms
-. f f
'' \
s ' ,\
''-'' '"- ^ '}
Public/Private
Partnerships
- '; -,- , ,,
A-52
i / ' ,
\ ' v , ,
A-51
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Financing Environmental Compliance and Enforcement Programs
Greece
Hungary
Ireland
Italy
Lithuania
The Netherlands
Norway
Poland
Portugal
Romania
Russia
Spain
Sweden
*! *£&. M^ j^fj£&i£'' "' " ' "? -I
jJCJIK t^Kl:- ""
Canada
Mexico. " s * - -
United States
^ """ ""
Argentina
Brazil ' "
Chile
Colombia
Uruguay
Taxes
p.A-ll
A-17
A-ll, 16
A-13
A-8, 9,
11
A-13
A-15
A-2, 3, 8,
11,16,
17
%%y. . % ^ :
A-16
A-2, 3, 4,
5,7,8,
9, 11, 13,
14,15
* ' '"\ \
A-2, 3, 4,
5,9
A-2, 3, 4,
5,9
A-2
Fees
A-19
A-34
A-30
A-21, 31
A-26, 31
A-31
A-21, 23
A-20,
23,24,
25, 26,
32, 33,
35
f "
A-18, 20
A-18,
20,21,
26,28
A-18, 20
A-26
Fines
A-36
A-37
A-37
A-38
^ ft ^ f J^VVW. *<
A-37
A-38
jfttftft f\
A-36
A-36
A-36
A-36
Loans/
Debt
A-44
A-44
v s, -
A-40,44
A-41, 45
'' '
A-39
A-40
A-40
A-40
Grants
A-48
A-47, 48
A-48
v,^v.-.v,-, ""°" ^
A-48
':>,< ' ' s ,\
A-46
A-47
Voluntary
Mechanisms
V.W.V. S\ V. -. ,
A-49, 50
r 'if '\
A-49
Public/Private
Partnerships
A-52
. s f
f
A-52
A-52
' t
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Financing Environmental Compliance and Enforcement Programs
1.2.3 Budgeting for Environmental Compliance and Enforcement
Chapter 3 provides information on how to assess the financial resources that are required to operate
compliance and enforcement programs and introduces approaches to developing budgets for these
programs. This chapter outlines ongoing activities for compliance and enforcement programs,
including both operating or programmatic costs and capital costs. Operating costs generally
include:
Personnel, including training.
Office supplies and publications.
Laboratory materials and chemicals.
Vehicle/fleet maintenance.
Maintenance for computers, laboratories, and publication equipment.
Field sampling material.
Funds for contractor support.
Capital costs include significant one-time expenditures that have useful lives of at least one year.
Examples include:
Central and regional laboratories.
Office space.
Computers.
Vehicles.
Other miscellaneous items.
There are distinct processes to conduct budgeting for operating costs and capital costs. These
budgeting processes result in an annual operating budget and a separate capital budget, which is
often a multi-year planning document. While the operating budget process is widely applicable to
all countries with compliance and enforcement programs, the capital budgeting process may be of
significant interest to countries which are either in the process of developing a new compliance and
enforcement program, or wish to implement large-scale improvements to their existing programs.
Chapter 3 provides a real-life example of a combined operating and capital budget.
1.2.4 Measures to Minimize Financing Demands
Following the discussion of general budgeting approaches in Chapter 3, Chapter 4 addresses
approaches to minimize the financial demands of compliance and enforcement programs, including:
Allocating existing resources efficiently.
Utilizing staff among various government agencies effectively.
Providing for the technical training of staff necessary for compliance and
enforcement programs.
Offering economic incentives to the regulated community supplementing the efforts
of traditional regulatory programs.
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Financing Environmental Compliance and Enforcement Programs
Together, these approaches help minimize the financial resources needed to run an effective
compliance and enforcement program and thus bridge the gap between funding currently available
and total resources needed to meet program objectives fully.
Table 1-3 summarizes examples of the use of economic incentives by various countries that are
provided as illustrative examples in Chapter 4.
Table 1-3. Economic Incentives: Country Examples
ffff-*/f> f
Austria
Canada
Czech Republic
Finland
France
^Germany
India .
Indonesia
Japan
The Netherlands
Philippines
Sri Lanka
Sweden
Taiwan
United States
' TradaMe f :
" Permits '
4-4
4-4
4-4
Siibsid^es ,, ;
, f h - - -- - v
f f » s :
4-8
4-7
4-6
4-7
4-6
4-6
4-7
4-6
4-7
4-5,6
4-8
. l>eposit~Refu nd
Systems
4-9
4-9
4-9
4-8
4-8
Industry Seif-
CjHapIif aee ,
Monitoring and
Reporting ^
4-10
4-10
1.2.5 Sources of Additional Information
Following the document text, two appendices offer additional information. As described earlier,
Appendix A provides an inventory of individual funding mechanisms that can be implemented to
secure funding for compliance and enforcement programs, as well as numerous country-specific
examples of where these mechanisms have been employed. Appendix B provides a targeted list of
reference sources for additional information on the general concepts presented in this technical
resource document. The nature of the resource document limits the depth to which each issue is
addressed. Therefore, as compliance and enforcement program managers move to incorporate the
budgeting and financing approaches presented here into their environmental management programs,
they will undoubtedly wish additional detail on many of the elements introduced.
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Financing Environmental Compliance and Enforcement Programs
1 Wasserman, Cheryl E. for the U.S. Environmental Protection Agency. Principles of Environmental Enforcement.
1992. pp. 1-1-1-2.
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Financing Environmental Compliance and Enforcement Programs
2 FUNDING MECHANISMS
The vast majority of compliance and enforcement programs have historically been funded by a
combination of own-source general revenues and intergovernmental and foreign grants. However,
as programs develop and the competition for traditional funding sources increases, new, more
innovative, approaches are required to maintain and expand traditionally limited programs. This
chapter introduces funding mechanisms that may be adapted to environmental compliance and
enforcement program funding and discusses general concepts related to the selection of funding
mechanisms. This chapter also discusses institutional approaches or mechanisms that can be
employed to help secure program funding (also see Appendix A for an in-depth inventory of specific
mechanisms and country-specific examples of their use).
2.1 Program Funding: General Concepts
To meet the goals and objectives of compliance and enforcement programs, it is important to
understand how to obtain program funding from both traditional funding sources, such as general
revenues, and from more innovative mechanisms, such as special taxes and user charges. This
section introduces fundamental concepts related to identifying alternative sources of funding for
compliance and enforcement programs. It also describes economic principles that relate to the
question of who should pay for pollution control.
2.1.1 Cost Recovery
Program managers are encouraged to consider cost recovery as an objective in designing new
program funding mechanisms. Since user fees and charges are implemented primarily for revenue
raising purposes, are not designed as incentives, and often go directly into a designated fund, they.
exhibit a high degree of cost recovery. A good example of where cost recovery objectives were
integrated into the preliminary design of an environmental program is the Untied States'
implementation of the Clean Air Act Amendments of 1990. This legislation called for recovery of
all costs related to the permitting and regulation of stationary sources of air pollution. States were
granted flexibility in structuring their cost recovery programs, with the default approach being an
emissions-based fee assessed on all emissions above pre-established thresholds. Enactment of this
new law resulted in all state air quality programs implementing new fee programs or revising
existing programs to meet the requirements of the federal law.
2.1.2 Economic Principles
Given the potential role of special dedicated revenue sources to augment funds available from
traditional general revenue sources, techniques to develop appropriate special revenue mechanisms
have an increasing importance in compliance and enforcement program development. Such
techniques have their grounding in several key economic principles that relate to the question of
who should pay for environmental improvements and pollution control.
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Financing Environmental Compliance and Enforcement Programs
This section describes the economic theory behind the polluter and beneficiary pays principles and
their role in developing special revenue sources. This section also provides a brief description of
mechanisms that encompass these principles. Additional examples of the application of both these
principles can be found in Appendix A to this document.
Polluter Pays Principle
The origins of the polluter pays principle can be traced to the welfare economic ideas expressed by
Pigou from as early as the 1920's, which state that prices of goods and services should reflect the
full social costs, including the environmental costs as related to pollution, resource exploitation and
other forms of environmental degradation. The polluter pays principle views the polluter as the
primary accountable agent, but the principle does allow polluters to pass on their environmental
costs to their customers to the extent feasible.1
Because of the growing severity of pollution in industrialized countries, the polluter pays principle
was adopted by the Organization for Economic Co-Operation and Development as a background
economic principle for environmental policy. The principle, as then adopted, implies that the
polluter should bear the cost of pollution reduction measures necessary to bring the environment to
an "acceptable state" as defined by public authorities.2 The recommendations adopted in 1974
specify that member countries should not assist polluters in bearing pollution reduction costs, with
some exceptions for industries where the polluter pays principle would create severe difficulties. As
a general rule, subsidies for environmental protection are not in conformity with the polluter pays
principle.
Polluter Pays Mechanisms
There are a wide range of mechanisms that build on the polluter pays principle. Fines and penalties,
for example, are methods that are directly linked to the violations of environmental regulations, and
thereby exhibit the polluter pays principle. The costs recovered through fines and penalties include
those associated with damage to human health or cleaning up the environment, plus the costs
incurred directly by the regulatory agency to conduct the enforcement response. Fines and penalties
can be punitive in structure in order to serve as a deterrent to current and potential violators.
Targeted special taxes, such as taxes on hazardous waste generation or resource consumption,
provide other examples of the polluter pays mechanism, where those who are responsible or most
likely to contribute to pollution must pay more than others (see Appendix A for specific examples
of funding mechanisms).
Beneficiary Pays Principle
According to the beneficiary pays principle, those who benefit from a cleaner environment should
pay for this benefit. Likewise, those who gain more than others from pollution prevention or other
public goods should pay more for such services.
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Financing Environmental Compliance and Enforcement Programs
The beneficiary pays principle is generally considered to be a second best alternative to
implementation of the polluter pays principle and appropriate in more limited circumstances. The
beneficiary pays principle is most applicable when an individual polluter or group of polluters
cannot be identified or where such individuals do not have the necessary resources to fund needed
environmental improvements. At the same time, application of the beneficiary pays principle
requires that program managers are able to identify a particular beneficiary or group of beneficiaries
who have adequate financial resources to help pay for necessary environmental improvements.
Beneficiary Pays Mechanisms
Special taxes and user fees can both be structured to incorporate the beneficiary pays principle.
Examples of mechanisms that encompass the principle include recreational fees for the use of
specific waterbodies or parks and special tax assessments imposed on property owners who will
benefit most from an environmental improvement such as a lake clean-up project. If beneficiaries
are defined broadly as the general public, then general taxes that are paid by the public also
encompass the beneficiary pays principle (see Appendix A for more specific examples).
2.1.3 Distinction Between Taxes and Fees ;
Theoretically, there is a distinction between special taxes and user fees. Taxes, according to, a
narrow definition, have revenue raising objectives for the public budget, whereas user fees are
intended to cover the costs associated with providing a service or as sources of dedicated funding.
Taxes also differ from user charges in that they are usually intended to alter the behavior of
producers and consumers, much like regulatory instruments.3 Special taxes can be levied on both
products and processes with the ultimate goal of shifting production or consumption away from a
product or practice toward a more environmentally friendly product or practice. Unlike taxes,
because user fees are payments made in exchange for a good or service rendered and are generally
set in proportion to the cost of the good or service, they are generally not intended to function as
incentives.
In reality, the distinction between taxes and charges is sometimes difficult to make and the terms
user charges, environmental charges, and environmental taxes often are used interchangeably.
Moreover, local laws sometimes make legal distinctions between taxes and fees and dictate
allowable applications for each.
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Financing Environmental Compliance and Enforcement Programs
2.2 Overview of Funding Mechanisms
For the purposes of this document, funding mechanisms are defined as any techniques that can
potentially be used to raise funds for environmental compliance and enforcement programs,
facilities, or services. Funding mechanisms fall into one of eight broad categories:
1) General Taxes.
2) Special Taxes.
3) User Fees and Charges.
4) Fines and Penalties.
5) Loans/and Other Debt Instruments.
6) Grants.
7) Voluntary Mechanisms.
8) Public-Private Partnerships.
This section describes each broad category and discusses general advantages and limitations of
each. As noted earlier, specific mechanisms are described in detail in Appendix A.
2.2.1 General Taxes
Governments generally rely on taxes as the ultimate source of funding for government service
delivery and collect most of their own-source revenue from taxes on income, sales, or property.
General revenues are a common source of funding for environmental compliance and enforcement
programs. Central governments also collect user fee and charge revenue and other miscellaneous
revenue, although the amount collected in general taxes is usually much greater. Increased funding
for such programs from general revenues, however, necessitates tax increases or reductions in
spending for other government programs.
Most general taxes are charged against either personal or corporate income, property, or sales of a
commodity. Income taxes are charged on a percent of the money earned by an individual or
corporation. Property taxes are based on a percentage of the value of the property owned.
Commodity taxes, or sales and use taxes, are charged as a percentage of the commodity's value, or
at a flat rate per transaction.
The primary advantage that taxes have over fees is that they typically have a broader revenue base,
and, therefore, can generate high revenues at relatively low rates. In addition, assessing charges to
the general public can foster a shared sensed of responsibility for the environment. Sub-national
governments also are often able to pass "piggy-back" taxes on existing taxes imposed at a higher
government level to generate additional revenue without substantial administrative cost.
Revenues from taxes, however, are still dependent upon the base income, property, or
commodity value on which they are levied. Also, unless the tax is targeted to a particular type of
property or income, there is only an indirect relationship between the tax base and the use of funds.
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Given this indirect relationship and public opposition associated with new taxes, passage of new or
increased general taxes is often difficult.
2.2.2 Special Taxes
In addition to general taxes, more and more countries are turning to a variety of special taxes to
fund their compliance and enforcement program activities. Through special taxes, those most
responsible for pollution can be targeted to fund the related regulatory programs.
Special taxes include those taxes that are not applied to the general public as a whole. Instead, they
are imposed upon the regulated community and, in the case of compliance and enforcement
programs, relate specifically to environmental protection. These include selective sales taxes that
are imposed on the sale of a particular product or service or severance or natural resource
extraction taxes charged on selected commodities at the point of extraction rather than point of sale.
Special taxes can be assessed as a graduated tax on the revenues of the regulated community. The
more productive or profitable companies would therefore pay a higher portion of the costs. It also
is possible to tax raw or processed materials that contribute to the need for environmental
regulation. An example would be a tax on petroleum products. Alternatively, special taxes can be
applied to stages of production. This would tax the processing of raw materials or manufacturing
of items that contribute to environmental pollution. Specific operations of the regulated community
also can be taxed, such as transportation and disposal of waste. Finally, the products produced by
the regulated community can be taxed before they are sold to consumers (see Appendix A for
specific examples of special taxes).
Special taxes can more easily be dedicated to a particular program than general taxes. Since the tax
is targeted to a particular type of property or income, there is a direct relationship between the tax
base and the use of funds. As a result, special taxes often are easier to administer than general
taxes.
However, the tax base for special taxes is much narrower than that of general taxes. Therefore, a
higher rate must be charged to generate the same amount of revenue. Special taxes also may have a
negative impact on the market for the product or service singled out for taxation, thereby reducing
potential revenues. This impact can take several forms:
The producer of the service or product can increase prices, passing along to the
consumer the cost of the tax. This could result in reduced competitiveness for those
affected by the tax and reduced profitability.
The consumer may choose to reduce their use of the taxed item. This would reduce
the tax revenue, but in some instances also would reduce the pollution caused by
production of the taxed item.
The producer may absorb the cost of the tax, rather than increase prices. However,
if the tax burden is too high some producers may go out of business or stop selling
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the product, which also would reduce potential tax revenues and possibly overall
pollution caused by production of the taxed item.
If too severe, these economic effects can weaken a country's ability to attract foreign or domestic
investment in private industry. Therefore, it is important to be aware of comparable taxes imposed
by other countries.
2.2.3 User Fees and Charges
As with special taxes, countries are moving toward a greater dependence on innovative charges and
fees to fund their compliance and enforcement program activities. Often, the revenues from these
charges are specifically dedicated to program operations or to the provision of subsidies to the
regulated community and, thus, directly returned to those who provided the revenue.
A user fee is generally a charge for services rendered. Fees establish direct links between the
demand for services and the cost of providing them. User fees are either charged for provision of a
service or on the environmental impact of an action. These are referred to as fees applied on afee-
for-service basis and fees applied on a quantified impact basis, respectively. As applied to
compliance and enforcement programs, user fees are designed to cover the regulatory agency's
costs for:
Permitting the operation of a facility. .
Conducting inspections to identify violations or ensure compliance.
Conducting other compliance or enforcement activities related to a specific facility.
Well-structured fees can be an equitable means of matching program costs to program beneficiaries,
or assigning cleanup costs to parties responsible for the original pollution. In contrast to a tax on
the general public, user fees reflect more directly the principle that the polluter should pay for
measures that ensure the protection of human health and the environment from risks resulting form
environmental damage. Additionally, fees often can be set administratively, requiring no legislative
action to impose the fee.
However, since they are targeted to a particular service or group, fees have a narrower revenue
base than most taxes. In fact, there are sometimes legal restrictions limiting fee levels to the costs
of providing the service. In addition, if no opportunities exist to reduce the payment of user fees,
the regulated community has few incentives to prevent or control pollution.
It is sometimes argued that fixed user fees do not allow the flexibility that the regulated community
needs to afford the cost of pollution control while promoting industrial development and economic
stability. To address potential conflicts between pollution control and economic development, the
regulatory agency can take several measures. The agency can consult with the regulated
community to assure them that the costs are not excessive. The agency also may bill a facility
directly for permitting and inspection activities, rather than apply a fixed fee that may not reflect
actual costs accurately. Last, the regulatory agency may choose to establish categories that
differentiate regulated facilities by levels of revenue, extent of contribution to environmental
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pollution, or investment in pollution prevention and control technologies. These categories would
allow adjustment of fees so that smaller facilities bear a smaller burden, facilities that pollute more
pay more, or relief is provided for efforts to reduce pollution.
2.2.4 Fines and Penalties
Fines and penalties have long been an important component of compliance and enforcement
programs throughout the world. In most countries, fines and penalties play a dual role. First, they
are meant to serve as a deterrent to non-compliance. Second, they are sometimes a very significant
source of revenue for program operation or special projects.
Fines and penalties require offenders to pay monetary damages for violating government laws or
regulations. Funds collected are often used to cover costs directly related to violations of
environmental regulations. The costs may be both those caused to human health or the environment
and the costs incurred directly by the regulatory agency to conduct the response. Alternatively, the
recovery may not be of full costs but, instead, may simply be set to serve as a deterrent.
Depending on the nature of the fine, fine and penalty revenue can be a large funding source suitable
for financing capital costs or setting up trust funds for future costs. If structured correctly, the fines
and penalties also will provide incentives to change polluting behavior.
Unfortunately, revenues generated by fines and penalties are unpredictable. Therefore, it is
inappropriate for regulatory agencies to rely too heavily on fines for ongoing program expenditures.
It also is possible that the government may not dedicate fines to a particular program, but instead
might direct them to general funds.
Enforcement programs that do dedicate fines to their continued operation are sometimes criticized
for a conflict of interest. It is commonly argued that the objective of fines and penalties should be
to increase compliance not to raise program supporting revenues. It has been argued that programs
that rely on fine revenues for operation may have incentives to take enforcement actions solely for
the purpose of raising revenue and thus may be tempted to increase enforcement actions when other
funding falls short of targets.
2.2.5 Loans and Other Debt Instruments
Both newly implemented compliance and enforcement programs and programs implementing
programmatic expansions or significant equipment replacement programs require substantial
funding for long-term capital investments. Such investments are best financed through long-term
financing mechanisms, such as government and commercial loans and debt.
Loans
A loan is money provided by a lending institution or individual that must be repaid in a set amount
of time at a negotiated interest rate. Loan programs typically provide capital at subsidized or
market rates for projects that meet specific eligibility criteria. Loans can be granted by state or
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national governments to local governments or they can be provided by commercial financial
institutions. Multilateral and bilateral organizations also are common sources of loans to finance
environmental compliance projects. These organizations are generally either multinational banks or
foreign governments.
The primary advantage of loan programs is that they sometimes provide loans at lower interest rates
than available for bond financing on the capital markets. In addition, arranging a loan may be a
quicker means of acquiring capital than issuing bonds, and involves lower transaction costs.
Multilateral and bilateral sources are especially advantageous to developing countries that lack
resources needed for environmental projects. By making loans for portions of a project, for
example, they enhance the credit-worthiness of projects and thus make them more attractive to
international investors.
The limitations of subsidized loan programs include the possibility of significant competition and
difficulty meeting criteria for low interest rate loans. Also, commercial loan programs will often
carry higher interest rates than most governments can command for bond issues.
Other Debt Instruments
Other debt instruments include a variety of types of bond issues. A bond is a certificate of
indebtedness issued by a borrower to a lender. Bonds usually take the form of securities issued by
governments, local authorities, or companies and come in many forms (e.g., fixed or variable rates
of interest, redeemable or irredeemable, short- or long-term, secured or unsecured). In each case,
however, the borrower repays a specific sum of money plus the face value or par value of the bond.
Bonds are a good way to raise capital when a long time period is needed to spread out repayment.
Bonds also are a viable alternative when loan and grant programs are too competitive or too limited
in the availability of capital. However, there are often limits on the amount of outstanding debt a
national or sub-national government can sustain. Where a mechanism does exist for issuing debt,
voter approval may be required for certain bond issues, making the process both time consuming
and politically difficult.
It should be noted that loans and bonds are mechanisms that merely spread out the costs of a
project; they do not generate revenues. The advantage of loans and debt issuance is that large sums
of revenue do not need to be generated upfront by the government. However, an ultimate revenue
source must be identified to repay the lender or bondholder.
2.2.6 Grants
Newly implemented compliance and enforcement programs of developing countries rely most
heavily on international funding organizations for start-up funds. These organizations often provide
incentive grants that are meant to encourage program development, but are generally not intended
to be long-term sources of program funding.
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A grant is a sum of money generally awarded to governments or non-profit organizations.
Typically, grants are awarded by the national government to the state or local governments, or by ^
state or provincial governments to local governments, for the purpose of financing a particular
activity or facility. Grants also are provided by multilateral organizations to individual
governments.
The primary advantage of grants is that the receiving country or sub-national government does not
have to use their own resources to pay the costs that the grant covers. However, applying for
grants can be costly and time consuming. Due to the intense competition for a limited pool of
fUnds, governments may find it difficult to acquire grant funding for projects. In addition, due to
eligibility limitations, only a percentage of the total project costs may be eligible for project
assistance. Some grant programs also specify that the grantee must provide a share of the funds (a
matching grant). Even if funding is approved, the grantee may need to seek short-term debt
instruments to cover cash shortages while awaiting the arrival of grant funds.
2.2.7 Voluntary Mechanisms
Voluntary mechanisms play a fairly limited role in the funding of compliance and enforcement
programs. They do, however, often have a side benefit of encouraging broad participation in and
knowledge of environmental programs.
Voluntary mechanisms include the acquisition of private donations and the voluntary purchase of
affinity products. Affinity products are items sold by a government, such as license plates, stamps,
and decals, that are closely related or associated with the environmental program for which they are
raising funds.
The primary advantages of voluntary mechanisms are that they encounter little or no public
opposition and simultaneously raise public awareness of environmental programs. However, both
donations and the purchase of affinity items will fluctuate with the economy, making them a
relatively unstable revenue source. Also, some voluntary mechanisms require substantial funds for
start-up costs.
2.2.8 Public-Private Partnerships
While they do not generate revenues directly, public-private partnerships can play a large role in
compliance and enforcement program activities. Through public-private partnership arrangements,
the burden on government of both implementation and funding of compliance and enforcement
related activities can be lessened.
Public-private partnership arrangements generally involve private participation in the design,
financing, construction, ownership, and/or operation of a public purpose facility or private provision
of a service that is traditionally provided by the public sector. For example, compliance and
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Financing Environmental Compliance and Enforcement Programs
enforcement program activities that lend themselves to private participation include, but are not
limited to:
Operation of scientific laboratories.
Completion of field sampling and on-site inspections.
Preliminary drafting of site-specific permits.
Care should be taken, however, in delegating any law enforcement related functions to outside
parties.
Public-private partnerships enable each party to do what it does best and can result in a "win-win"
solution to providing public services. Depending on the nature of the arrangement, a public-private
partnership may be able to capitalize on a number of private sector resources. These advantages
are:
Reduction in the burden of public debt, if private financing is used.
Possible efficiency savings, with private sector operation.
Provision of services that may be unavailable to the public sector and of higher quality,
with private sector specialized expertise.
A shorter implementation time, with private sector operations.
There are a number of concerns regarding private participation, however. The primary concerns of
governments who turn over services or facility operation and/or ownership to a private partner is
loss of public control over:
Compliance with all relevant standards.
Quality of the service provided.
Potential rate increases in cases where the partnership involves operation of a facility
which charges fees.
2.2.9 Summary
The preceding discussion of funding mechanism categories highlights general advantages and
disadvantages of the broad categories of mechanisms and other instruments and notes their
relevance to compliance and enforcement programs. However, individual mechanisms within a
category have distinct characteristics that make them either more or less applicable to certain
funding requirements (see Appendix A for a more in-depth discussion of advantages and
disadvantages of specific mechanisms). It also is often the case that several mechanisms are utilized
together to fund compliance and enforcement programs and projects. The next section of this
chapter discusses how to choose among mechanisms to meet particular funding needs.
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2.3 Evaluating and Selecting Funding Mechanisms
Before choosing funding mechanisms for a compliance and enforcement program, it is necessary to
evaluate each mechanism's suitability to the program's financing needs. The characteristics of the
mechanism and the composition of the program's funding demands should be matched as closely as
possible. This match will ensure that the compliance and enforcement program will receive the
proper amount of funding in the appropriate timeframe. This section discusses the general
suitability of funding mechanisms to various program costs, including both operating and capital
costs, and provides guidance on evaluating the appropriateness of specific funding mechanisms for
various program purposes.
2.3.1 Mechanisms' Suitability to Financing Needs
When choosing a funding mechanism or a combination of mechanisms, it is important to first
determine each mechanism's suitability to meet required financing needs. For example, some
mechanisms are more suitable for financing operating costs and others for capital costs. Generally,
those that are suitable for program operations financing provide a steady and predictable stream of
funds, while those that are best suited for capital costs provide a substantial one-time sum. Table 2-
1 relays the general suitability of each funding mechanism category to program operations financing
and/or capital cost financing. Several country-specific examples of each category's use for program
operations and/or capital cost financing also are noted.
2.3.2 Other Evaluation Criteria
Once the general appropriateness of a funding mechanism to the type of cost to be funded is
assessed, other evaluation criteria become critical. Below are evaluation criteria that should be
considered when choosing funding mechanisms for environmental compliance and enforcement
programs. These criteria create a structure by which to think critically about the categories of
funding mechanisms described in this chapter and the individual funding mechanisms detailed in
Appendix A. The criteria include:
Characteristics of the revenue stream. These characteristics primarily include
revenue potential and revenue stability. Estimates of revenue potential should be
based on the size of the anticipated revenue base, typical rates, and past experiences
with the funding mechanism. Revenue stability is based on the volatility of the
revenue base, methods of collection, and previous experience with the mechanism.
Ease of implementation and administration. This criteria provides a general
evaluation of the administrative feasibility of the funding mechanism. The feasibility
is based primarily on whether the implementing government can take advantage of
existing administrative structures. For example, if the institutional capacity for the
funding mechanism is previously established, then the administrative feasibility of
implementing the mechanism is higher.
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Table 2-1. Mechanisms' Suitability to Funding Needs
Mechanism Category
Suitable for
Program
Operations
Funding
TAXES
Generally applied taxes
Special taxes
Very
Suitable
Very
Suitable
Suitable
for
Capital
Cost
Funding
Examples of Mechanism's Use
Partially
Suitable
Partially
Suitable
United States:
One state (Ohio) in the U.S. dedicates 1.2 percent of its
corporate income tax to litter control and recycling.4
Sweden:
Since 1990, a selective value added tax has existed for
energy generating fuels in Sweden. The rate is set at
25 percent of the price.5
FEES
Fees Applied on a Fee-
For-Service Basis
Fees Applied on a
Quantified Impact,
Basis
FINES and
PENALTIES
LOANS /DEBT
GRANTS
VOLUNTARY
MECHANISMS
PUBLIC-PRIVATE
PARTNERSHIPS
Very
Suitable
Partially
Suitable
Less
Suitable
Less
Suitable
Very
Suitable
Very
Suitable
Very
Suitable
Less
Suitable
Less
Suitable
Very
Suitable
Very
Suitable
Very
Suitable
Partially
Suitable
Very
Suitable
Denmark:
Charges user fees for the public sewage treatment
system. Mandatory guidelines maintain uniform
charge systems across municipalities.6
China:
Imposes a system of pollution charges on polluters for
the discharge of wastewater, waste gas, noise, and
radioactive waste.7
South Korea:
Collects fines from industries that violate water
pollution standards. The money is then loaned to
industries for improvement of pollution control.8
South Korea:
Historically, sewage facilities have been financed by
compulsory, low interest municipal bonds that mature
in five years.9
Thailand:
One of the principal sources for the financing of a
wastewater treatment plant is grants from the
Environment Fund totaling US $388 million from
1996-1999.10
United States:
A number of states use a check-off box on their state
income tax return form to allow taxpayers to earmark
refunds for environmental initiatives.11
France:
Sixty percent of the total population is served by
privately operated water systems. It has been noted
that France has the most developed system of private
contracting for water safety and sanitation management
in the world.12
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Legislative/political issues. The evaluation of legislative and political issues
includes such areas as whether the funding mechanism would generally require voter
approval and which level of government would normally be capable of utilizing the
mechanism. Both of these factors affect the overall feasibility of particular
mechanisms.
Equity considerations. This criteria evaluates whether the burden of payment will
fall on parties that contribute to the environmental problem (i.e., the polluter), on
parties that benefit from cleanup of an environmental problem (i.e., the beneficiary)
or upon the general public. The economic impacts of the funding mechanism also
are evaluated under this criteria. It should be determined whether the mechanism
has any disproportionate impacts on an individual or group (e.g., small businesses)
or has a diffuse impact on a broad population.
Table 2-2 summarizes these evaluation criteria for each category of funding mechanisms. The
evaluation of an individual mechanism's revenue potential or stability, political or administrative
feasibility, equity, and incentive effects may be different from evaluations of the general mechanism
category provided here. Each mechanism also will have different characteristics depending on how
the mechanism is implemented. Public-private partnerships are not included in Table 2-2 because
they are institutionally different from the other mechanisms and thus cannot be evaluated using the
same criteria.
2.4 Use of Institutional Mechanisms to Secure Funding
Institutional mechanisms, including dedicated funds, public authorities, and multilateral
organizations, can be used to secure funding for compliance and enforcement programs. If
institutional mechanisms can secure a greater amount of targeted funding for compliance and
enforcement programs, then less financial resources are required from a central or sub-national
government's general fund for the funding of such programs.
This section describes the objectives and applicability of institutional mechanisms for the funding of
environmental compliance and enforcement programs. A number of country-specific examples of
each institutional approach also are provided.
2.4.1 General Funds
General revenue funds are typically the largest type of government fund, accounting for all financial
resources other than those accounted for in other government funds. Most current operations of
the government are recorded here. Property, income, and sales taxes will typically be recorded in
the general revenue fund, as will other sources of general program revenue. Compliance and
enforcement activities for environmental protection also have been traditionally financed from
general revenue funds of environmental agencies, although in recent years there is a greater
prevalence of dedicated funds for environmental program operations.
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Table 2-2. Evaluation of Funding Mechanisms
FUNDING MECHANISMS
CHARACTERISTICS:
Revenue Potential
=HQgh
4 = Moderate
O =Low
Revenue Stability
= Stable
4 = Partially Stable
O = Unstable
Political Feasibility
= Easy
41 = Moderate
O= Difficult
Administrative Feasibility
=Easy
4 = Moderate
O= Difficult
Equity (Who Pays?)
= Polluter
4 = Beneficiary
O = General Public
Incentive Effects
(e.g., Pollution Reduction)
" = Yes
4- = Maybe
O=No
General
Taxes
O
O
0
Special
Taxes
v
4
4
4
4
4
User
Fees and
Charges
4
4
4
4
4
Fines
and
Penalties
4
O
4
4
Loans/
Debt
- -
. 4
N/A
4
4
*
*
Grants
4
0
N/A
O
Voluntary
Mechanisms
0
O
O
O
N/A = not applicable.
* The equity and incentive effects of loans and debt instruments depend upon the repayment stream
designated.
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Many countries traditionally place the revenue from cost recovery mechanisms for compliance and
enforcement activities into a national treasury account. It is therefore likely that recovered costs
may fund items other than their intended purpose. The compliance and enforcement program's
funding is subject to the discretion of the legislature, and the regulatory agency may not be able to
control the amount of funding it receives. Therefore, a regulatory agency may not want its
recovered costs deposited into the government's general treasury. However, some economists do
argue that excess dedication of funds is not economically efficient and that compliance and
enforcement program functions should compete against other government program functions for
funding on an ongoing basis.
2.4.2 Dedicated Funds
Dedicated funds have been established to supplement general revenue funding for environmental
investments in various countries throughout the world. The revenue sources for dedicated funds
can vary, although fees and fines are the most common sources of funding. Dedicated funds can be
used to provide grants or low-interest loans for compliance and enforcement program functions, or
for general program activities.
Earmarking revenues for dedicated funds from environmental taxes and charges has been common
practice in many Organization for Economic Co-Operation and Development economies and serves
as an attractive option for policy-makers in transition economies. However, the Organization for
Economic Co-Operation and Development believes that earmarking may be inefficient because
these funds might be used for more pressing needs elsewhere in the government budget.13 As such,
the environment should compete with short-term political priorities to obtain funding. Therefore,
the Organization for Economic Co-Operation and Development believes that earmarking may be
acceptable as a transitional measure, but not for the long term.
Alternatively, those in favor of earmarking believe that it revolves revenue directly back into sectors
that raised them. Using earmarked funds to finance environmental investment also can enhance the
acceptance of tax instruments, as well as fees and charges, and may result in more timely clean-up
and more successful environmental protection programs.
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Country Examples General Revenue and Special Dedicated Program Funding
* . !
In the United States, most state air, water, drinking water, and solid waste
statutes require that recovered fines and penalties be deposited in special
environmental funds, in addition to state treasury or general funds. For
example, hazardous waste statutes require penalties to be deposited into special
environmental funds, such as emergency spill response funds, hazardous waste
trust funds, hazardous waste emergency accounts, or water pollution abatement
grant funds.
See Table 2-3 for a summary of the disposition of United States penalty
revenues between general and dedicated accounts and funds among the 50 states.
In the United States, state officials have come to rely increasingly on dedicated
revenues from permit fees, fines, trust funds, and other similar sources of
revenue that vary from state to state. For example, car owners pay for air
pollution control programs with a. portion of their license-tag'fees and factories
pay for water quality efforts with fees for permits to discharge waste water. This
trend has been most significant in six of the most populous states California,
Florida, Illinois., New Jersey,, New York, and Texas.I4
Environmental authorities in France, Germany, and The Netherlands have
eartnarked funds by setting tax rates in such a way as to generate the revenue
needed for various pollution control programs. These taxes are viewed as a
source of money to fund projects for water-quality management, not as incentives
for the regulation of waste flows.I5
In Central and Eastern European Countries^ most resources required to
improve environmental conditions come from the countries themselves.
However, difficulties in raising revenues, combined with continuing growth of
expenditures, have resulted in severe budgetary difficulties in Central and Eastern
European countries. As a result, projects supported by appropriate cost recovery
mechanisms can be financed most readily. Earmarked environmental funds,
which have been established in a number of Central and Eastern European
Countries, also are likely to provide an miportant source'of finance. For
example, national and regional funds accounted for more than 40 percent of
environmental investments in Poland in 199l.M
Lithuania has a State Environmental Protection Fund for the collection of
revenue to finance environmental protection measures. The Fund encourages the
effective management and supervision of compensatory policies for
environmentally related damages.17
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Financing Environmental Compliance and Enforcement Programs
Jj: >'"
Country Examples General Revenue and Special Dedicated Funding
(Continued)
* Hungary's Environment Protection Fund not only provides financing for
environmental investments, but is also tised as a method to set priorities. The
Fund collects revenue from economic instruments, including pollution charges
and product taxes. Subsidies from the water management fund serve as another
source of direct government assistance for environmental investments.18
* Jh Nepal, a Pollution Prevention Fund has been designed to assist industry to
come into compliance with. the environmental standards associated with
regulations. The fund is expected to consist of pollution charges and fees from the
issuance of environmental licenses. The fund may be used for the following
purposes: (1) earfy community-based monitoring of Environmental Impact
Assessment conditions; (2) low-cast loans and grants to industry for monitoring
equipment; (3) matching funds for shared wastewater treatment or other waste
treatment faculties for industry; (4) training courses in pollution management; (5)
Joans for spill remediation; and (6) education/awareness in pollution prevention.
The Ministry of Industry is expected to have responsibility for the management of
the Fund, with assistance from the Ministry of Finance,19
* At the federal government level in Nigeria, the Environmental Protection Fund
provides funding for recurring expenses of various programs at Uie federal and
state levels and for specific projects. The Environmental Protection Fund
receives funding directly from the federal budget20
« la Poland, 40 percent of Hie fees and fines collected are channeled to the
National Fund far Environment Protection and Water Economy for
environmental investments. The Fund makes direct grants, especially for water-
related investments, and provides low-interest loans?1
A Federal Environmental Fund was established HI Russia by the 1991
Environmental Law, The ^purpose of the Fund is to provide funding for urgent
environmental protection tasks, the restoration of environmental losses, and to
provide compensation for damages and other environmental protection measures.
The Fund collects revenue from pollution fees, iines for -violations of
environmental laws., and private contributions.22
* Ecological Funds also have been established in Russia to direct resources to
environmental protection and nature conservation programs, scientific studies,
technological development, and compensation for the health damage mat has
been caused by pollution. Revenues for Ecological Funds come from pollution
charges (both fees and fines), waste disposal fees, and other payments that
compensate for environmental damages. The Ecological Funds were designed as
a mechanism for financing environmental improvements which do not rely on
transfers from the government budget.25
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Financing Environmental Compliance and Enforcement Programs
Country Examples General Revenue and Special Dedicated Funding
(Continued)
* f s * \ *
An Environmental Trust Fund has been proposed in the Philippines, where
earmarked revenue raised from regulated enterprises for environmental
management purposes is intended to supplement the national budget for program
related costs.24 ' 1
In Thailand, The Enhancement and Conservation of National Environmental
Quality Act (B.E. 2535) calls for the establishment of an Environmental Fund
by the Ministry of Finance, Funding sources, described in Section 22 of this Act,
include: money from the Fuel Oil Fund; money transferred from the Revolving
Fund for Environmental Development and Quality of Life; service fees and
penalties collected from this Act; government grants; money or property donated
by the private sector, foreign governments, or international organizations; interest
and Benefits accrued from this Fund; and other funds received for the operation
of this Fund. ^ -
c
Section 23 outlines activities and purposes for fund disbursement, which include:
grants to government agencies or local administrations for investment in and
operation of the central wastewater treatment plant or waste disposal facility, or
to support any activity concerning the promotion and, conservation of
environmental quality as the Fund Committee sees fit and with the approval of
the National Environment Board; loans to local administrations, state enterprises
or private individuals for air pollution control, wastewater treatment or waste
disposal facilities; and expenditures for administering flie Fund.25
Table 2-3. Disposition of Penalty Money Collected: U.S. Summary26
Category
Air
Water/NPDES/Water
Quality
Drinking Water/UIC
Hazardous Waste
Solid Waste
Pesticides
Wetlands/Dredge and
Fill
Oil
State Treasury/
General Fund
29
27
22
21
19
15
5
7
Special
Environmental
Fund
11
15
10
28
9
4
4
6
Other Special
Funds
9
7
2
6
6
0
0
2
Note: Many states have provisions which split money between the general fund and a special fund, or
give it to one or the other depending on the statute, circumstances, court orders, etc. Those which are
split are not counted separately and may count in the total for one, two or all of the columns, where
appropriate.
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Financing Environmental Compliance and Enforcement Programs
2.4.3 Funds Transfer Between Levels Of Government
Since much of the day-to day functions of compliance and enforcement programs take place at the
provincial and local levels in various countries, the extent to which the central environmental agency
can distribute the proper types of funding in a timely manner to the provincial and local agency
levels can significantly influence the ability of compliance and enforcement programs to meet their
goals and objectives.
Intergovernmental assistance usually consists of grants or revenue sharing. Grants can be
distributed for specific program assistance in the form of categorical grants, or they can be
distributed as block grants according to a statutory formula to finance activities in a broad
functional area. With block grants, much of the expenditure is decided upon by the recipient.
Revenue sharing involves the formal distribution of funds according to a formula for general
governmental purposes with few or no restrictions on the use of funds provided.27
Country Examples Funds Transfer
In Italy, a portion of the funding for the Ministry of Environment is transferred
from the central to ihe regional level, then from ihe regional level to the local
level. Sixty percent of the local budgets come from successive transfers. Most
of the Ministry's funds are intended to be transferred to the regions, but if regions
do not prepare satisfactory plans, such funds cannot be transferred. Funds that
are not spent by the end of the year are lost, and the system by which ihey can be
recovered for use in other years is fairly unwieldy.28
la Nigeria, it has been proposed that state institutions could be responsible for
monitoring and enforcing federally established industrial regulations and
standards to complement federal functions. Such activities would be financed by
federal economic mechanisms, such as fines, licensing fees, and bonding and
insurance requirements,29
In Russia, the law requires that funds be distributed from the Federal
Environmental Fund to the local, republic, and federal levels at 60 percent, 30
percent, and 10 percent, respectively, in order to implement environmental
protection measures.
30
In the United States, state and local dependence on intergovernmental
assistance is significant. These intergovernmental grants also typically carry
substantial matching fund requirements, varying by program area (e^g,, air,,
water). Under these matching arrangements, states must devote substantial
resources to their environmental programs to capture available federal funds.
For example,, state and local air quality programs are eligible for up to 60 percent
funding from the federal government for eligible program costs, requiring at least
40 percent of total program costs to come from state and local sources. A recent
study found that, among fifteen representative state air quality programs, federal
funds provided between 8 percent and 52 percent of total program funding.31
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Financing Environmental Compliance and Enforcement Programs
2.4.4 Public Authorities
Public authorities are commonly created by state and local governments in order to raise funds for
specific projects or activities that benefit more than one local jurisdiction. In some countries, these
authorities can assess taxes or issue tax-exempt bonds to provide funding for projects. Public
authorities provide funding for a wide variety of environmentally targeted projects, such as water,
sewer, and utility services and, thus, may also be appropriate to raise revenues for compliance and
enforcement programs.
Country Example Public Authorities
In France, the Water Act of 1964 established regional water authorities that
could impose levies on polluters to finance the treatment of wastewater and
related activities. The levy is earmarked and accounts for only a small share of
the total water bill. It is a supplement to water tariffs and user fees for
wastewater treatment. Hie agencies created following enactment of the 1964
Water Act are special-purpose public agencies, governed by independent hoards.
These agencies serve as financing and technical advisory institutions; they do not
directly manage sewage treatment plants or water supply themselves, but rather
provide financing and technical support to communes and industries, which
contract with the agencies*32
in 1989, in the United States, Chicago, Dlinois created the Metropolitan Water
Reclamation District as a regional authority to control wastewater discharge.
The Metropolitan Water Reclamation District is an independent special purpose
government established to provide wastewater services to the city and 124
surrounding municipalities. The Metropolitan Water Reclamation District has
the authority to regulate local communities wife respect to required maintenance
or capital investments that mast be made to their sewer pipes. Metropolitan
Water Reclamation District's revenues come from state and federal grants, bond
proceeds, user charges, and property taxes. A portion of each property owner's
county property taxes are allocated to the Metropolitan Water Reclamation
District Industrial and commercial businesses also pay a residual user fee
directly to Metropolitan Water Reclamation District to cover the costs they
impose on the system.33
2.4.5 Multilateral Organizations
Multilateral organizations consist of two or more combined sources, such as foreign governments
or multinational banks, which provide financial assistance for a variety of environmental compliance
and enforcement-related projects. Multilateral organizations typically provide loans or grants to
recipient countries or sub-national governments, with permissible scopes for the uses of funds either
broadly or narrowly defined. Multilateral or bilateral organizations also can be established to take
joint action regarding an environmental problem or objective.
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Financing Environmental Compliance and Enforcement Programs
Multilateral Organization Examples
<.
The Global Environment Facility provides grant and concessional funds to
developing countries for projects and activities that seek to protect the global
environment. The World Bank has responsibility for investment projects and for
mobilizing financial resources from the private sector. Other Global
Environment Facility implementation responsibilities are shared by the United
Nations Development Programme and by the United. Nations Environment
Programme. Countries can obtain Global Environment Facility funds if they are
eligible to borrow from the World Bank or if they receive technical assistance
grants from United Nations Development Programme.34
Multilateral project financing continues to be important in Mexico, as both the
World Bank and the Inter-American Development Bank have; targeted
environmental infrastructure as key areas for investment., while the North
American Development Bank is also starting to explore this area.3S
In December 1994, the European Union rejected the idea of a multilateral,
Union-wide environmental tax on carbon dioxide (CO2) emissions. In March
1995, Environmental Minister Michel^ Barnfer stated that tiie European
Commission will "make new proposals shortly."36
Managing the
1 Organization for Economic Co-Operation and Development (OECD). OECD Documents.
Environment: The Role of Economic Instruments. Paris, France. 1994. p.41.
2 Organization for Economic Co-Operation and Development. (OECD). OECD Documents. Managing the
Environment: The Role of Economic Instruments. Paris, France. 1994. p.41.
3 Organization for Economic Co-Operation and Development (OECD). OECD Documents. Managing the
Environment: The Role of Economic Instruments. Paris, France. 1994. p. 168.
4 National Conference of State Legislatures, Earmarking State Taxes. Washington, DC. September, 1990.
5 Organization for Economic Co-operation and Development (OECD). OECD Documents. Environment and
Taxation: The Cases of The Netherlands, Sweden, and the United States. Paris, France. 1994. pp. 63-79.
6 Andersen, Mikael Skou. Governance By Green Taxes: Making Pollution Prevention Pay. Manchester University
Press. 1994.
7 National Environmental Protection Agency. Pollution Charges in China. December 1992.
8 U.S. Agency for International Development. Financing Wastewater Services in Developing Countries. Water and
Sanitation for Health Technical Report No. 80. October 1993. pp. 33-36.
9 U.S. Agency for International Development. Financing Waste-water Services in Developing Countries. Water and
Sanitation for Health Technical Report No. 80. October 1993. pp. 33-36.
10 Asian Development Bank. Wastewater Management and Pollution Control in Samut Prakarn Province Project.
Executive Report. 1995.
11 The California Coastal Conservancy. The Non-Profit Primer: A Guidebook for Land Trusts, Oakland, California.
1989.
12 U.S. Agency for International Development. "Financing Wastewater Services in Developing Countries."
Technical Report. Water and Sanitation for Health Project. Numbers. October 1993. pp. 29-33.
13 Organization for Economic Co-Operation and Development (OECD). OECD Documents. Managing the
Environment: The Role of Economic Instruments. Paris, France. 1994. p. 132.
14 The Bureau of National Affairs, Inc. "States Turn to Dedicated Funding for Environmental Budgets."
Environment Reporter. March 20, 1992. pp. 2580-2581.
Page 2-21
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Financing Environmental Compliance and Enforcement Programs
15 Organization for Economic Co-Operation and Development (OECD). OECD Documents. Environment and
Taxation: The Cases of The Netherlands, Sweden and the United States. Paris, France. 1994. p. 133.
16 Environment for Europe. Environmental Action Programme for Central and Eastern Europe. Switzerland, April
28,1993. pp. Vn-5- Vn-8.
17 Environmental Protection Ministry of the Republic of Lithuania. Lithuania: National Report. United Nations
Conference on Environment and Development 1992. pp. 106-122.
18 Schreiber, Helmut. The World Bank, Energy and Environment Operations Division, Central Europe Department,
Europe and Central Asia Region. Hungary. Environmental Strategy Study. September 1992.
19 Asian Development Bank. Nepal: Industrial Pollution Control Legislation. Final Report. December 1994.
20 The World Bank and the Federal Government of Nigeria. National Environmental Action Plan: Towards the
Development of an Environmental Action Plan for Nigeria. December 1990.
21 Chynoweth, Emma. "Poland Seeks Solutions to Environmental Nightmare." Chemical Week. May 27/June 3,
1992. pp. 55.
22 Asian Development Bank. Nepal: Industrial Pollution Control Legislation. Final Report. December 1994. pp. D-
10.
23 Environment for Europe. Environmental Action Programme for Central and Eastern Europe. Switzerland. April
28,1993.
24 The World Bank. Options for an Improved Institutional Framework, p. 6
25 Department of Environmental Quality Program Ministry of Science, Technology, and Environment, Enhancement
and Conservation of National Environmental Quality Act B.E. 2535 Bangkok, Thailand. Chuan Printing Press Ltd.
Part. 1994. pp. 8-9.
26 United States Environmental Protection Agency. State Civil Penalty Authorities and Policies. Prepared by the
Environmental Law Institute. Washington, DC. 1985. p. 52.
27 Mikesell, John L., Fiscal Administration: Analysis and Applications for the Public Sector, Third Edition.
Belmont, California. rooks/Cole Publishing. 1991. p. 393.
28 Organization for Economic Co-Operation and Development (OECD). OECD Documents. OECD Environmental
Performance Reviews: Italy. Paris, France. 1994. p. 99.
29 The World Bank and the Federal Government of Nigeria. National Environmental Action Plan: Towards the
Development oj'an Environmental Action Plan for Nigeria. December 1990. p. xi.
30 Brinchuk, Mikhail M. Enforcement of Economic Instruments in Russia. Center for Environmental Legal Studies,
Institute of State and Law. p. 4.
31State and Territorial Air Pollution Program Administrators/Association of Local Air Pollution Control Officials.
Federal Grants to State and Local Air Pollution Control Agencies: An Assessment of Needs. Prepared by Apogee
Research, Inc. September 1995.
32 Andersen, Mikael S., Governance by Green Taxes: Making Pollution Prevention Pay. New York. Manchester
University Press. 1994. pp. 97-117.
33 Apogee Research, Inc., Study of Institutional and Financing Options. Final Report. Submitted to Financial and
Institutional Arrangements Technical Advisory Group. July 1994. pp. 57-59.
34 Global Environment Facility. Quarterly Operational Report. April 1995.
35 Apogee Research, Inc. Innovative Financing of Water and Wastewater Infrastructure in the NAFTA Partners: A
Focus on Mexico and a Recommendation. Presented at PRO-ECO'94, Monterrey, Mexico. May 19, 1994. p. 22.
36 The Bureau of National Affairs, Inc. "French Socialist Candidate for President Calls for EU Tax, Stronger Noise
Controls." International Environment Reporter. March 22, 1995. p. 226.
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Financing Environmental Compliance and Enforcement Programs
3 BUDGETING FOR ENVIRONMENTAL COMPLIANCE AND
ENFORCEMENT
Proper budgeting for and financing of environmental compliance and enforcement programs helps
ensure that the goals and objectives of environmental programs are met. Successful budgeting
requires not only prioritizing program activities that need to be funded, but also determining the
best method to finance these identified priorities within limited resources and instituting measures to
effectively minimize financing demands, while maximizing program results.
This chapter introduces budgeting approaches applicable to both operating and capital costs and
discusses related needs for tracking revenues and expenditures on an ongoing basis. The following
chapter (Chapter 4) then discusses measures to minimize financing demands, including, for example,
the importance of efficient resource allocation and the potential application of economic incentives
to encourage voluntary compliance and thus lower traditional regulatory program costs.
3.1 Assessing Financing Needs
Expenditures to implement environmental compliance and enforcement programs are comprised of
operating or programmatic costs and capital costs. iThis section provides information on budgeting
methods for assessing both operating and capital needs, isolating and planning for expenditures
sufficient to meet projected needs, and tracking revenue dedicated to future operating and capital
expenditures.
3.1.1 Type and Level of Costs
To assess the financing needs for compliance and enforcement programs, budgets need to be
developed for operating expenditures that occur on an annual basis, and for capital expenditures
which require financing over relatively longer periods of time. Developing such budgets first
requires assessing staff and other resource needs and then estimating the costs associated with
identified needs. These expenditures are then compared to projected revenues in an iterative
fashion until projected expenditures mach projected revenues, including previous year fund balances
(see Exhibit 3-1 for an example of a budgeting process that assesses the costs and funding for an
emissions fee-funded air quality compliance and enforcement program).
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Financing Environmental Compliance and Enforcement Programs
Inputs
Exhibit 3-1. Budgeting Process
Data Personnel Costs
Revenue
- Rates
-Workload
Hours
- Personnel
Costs
Outputs
- Program Costs
- Program
Funding
- Personnel Costs
»»
- Units Per
Activity
- FTEs Per
Activity 1
-1995-2005
- Annual Costs
by Activity
Capital Costs
1995-2005
T
Revenue
Projections
Costs
Baseline Figures
Staffing Plan
3.1.2 Operating/Programmatic Costs
Funds for operational resources are generally required on an annual basis to ensure the continuity of
program functions. Ongoing tasks within compliance and enforcement programs typically include:
planning and developing environmental requirements; preparing and issuing permits; and conducting
compliance monitoring and inspections. A sufficient, staff is required to carry out these activities.
Therefore, personnel-related costs generally represent the most significant operating expenditure,
contributing as much as 80 to 90 percent of all program costs. Operational resources for
compliance and enforcement programs typically include:
Personnel, including training.
Office supplies and publications.
Laboratory materials and chemicals.
Vehicle/fleet maintenance.
Maintenance for computers, laboratories, and publication equipment.
Field sampling material.
Funds for contractor support.
Funding for the operation and maintenance of projects that have been approved in capital budgets
also are typically included in a compliance and enforcement department's operating budget.
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Financing Environmental Compliance and Enforcement Programs
3.1.3 Alternative Budgeting Methods for Operating Costs
There are several different methodologies to assess operating resource needs. Line-item budgeting
serves as the basic structure for budget preparation and is used as the starting point for all budget
classifications. With line-item budgeting, the budget structure is focused on the tangible resources
that are required to provide services, such as labor, buildings, and supplies. Alternative budget
formats include:
Performance budgets, which focus i on the cost of performing tasks or activities
during the budget year.
Program budgets, which examine the cost of the products or outputs that are used to
achieve governmental objectives.
Operating Budget Techniques
Operating budgets are most often developed arid considered on a single-year basis. Some
governments employ biannual budgets, whereby budgets are developed every two years. Different
techniques exist for estimating operational costs, especially for personnel and non-personnel costs.
Personnel services are typically the single largest cost element in a government agency budget. In
order to assess costs associated with staff resources, the type and amount of staff must be
determined first. Then, the prevailing wage and salary rates are used to compute the total cost. A
standard procedure works from personnel data on individuals in each pay step, adjusted for
anticipated movements to the next pay step in the budget year.1 The total cost of labor includes
fringe benefits, in addition to direct compensation. Fringe benefits include pensions, social security,
and insurance, which can represent substantial costs.
Non-personnel related costs are generally more difficult to estimate than personnel costs. Non-
personnel costs often are calculated by employing cost-estimating ratios that have been used in prior
year budgets. These ratios relate non-personnel related costs to a percentage of projected personnel
costs to estimate next year's non-personnel costs. Alternatively, a comprehensive bottom-up
inventory of expected expenditures may be created. A bottom-up approach is generally more
accurate when there is a comprehensive program plan to be implemented, for which associated non-
personnel costs can be readily identified. Such an approach, however, is more time-consuming than
an approach that relies on ratios and only more accurate when detailed program planning has been
initiated. An example of an operating budget from a state air program in the United States is
provided in Table 3-1 below.
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Financing Environmental Compliance and Enforcement Programs
Table 3-1. Operating Budget
Salaries
Benefits
Supplies
Travel
Agency Overhead
Total
1995
$5,948,660
$2,260,290
$416,406
$297,433
$1,805,969
$10,728,758
1996
$8,168,952
$3,103,926
$571,827
$408,447
$2,480,033
$14,733,185
1997
$10,379,175
$3,943,736
$726,542
$518,959
$3,151,040
$18,719,452
3.1.4 Capital Costs
Capital expenditures generally refer to the purchase of assets that provide services beyond a single
accounting period or a single year. A capital budget for compliance and enforcement programs
facilitates financial planning for projects that:
1) Require long-term financing.
2) Are relatively expensive.
3) Are generally non-recurring.
Following are examples of capital expenditures that are required for effective implementation of
compliance and enforcement program functions:
Central and regional laboratories are needed to conduct applied research and provide
reliable sample analysis. Sampling kits, sampling and clean-up mobile units and other
investments also are required for effective compliance monitoring and response to
emergencies if such services are not provided by the private sector. The availability of
reliable laboratory services is vital to a successful compliance and enforcement
program.2
Office space is required both for the headquarters and regional units. Office space may
be secured through rental arrangements, long-term leases, or through direct purchase or
construction. While rental arrangements are not considered capital expenditures, the
other methods warrant capital planning and financing.
Computers are necessary for information management and for other enforcement-
related functions. The purchase or lease of such equipment is a capital expenditure
warranting separate capital planning and budgeting.
Vehicles are needed to facilitate inspection and facility visits. The purchase or lease of
vehicles is another example of expenditures to be made within a capital budget.
Other capital miscellaneous items are libraries, furniture, inspection or sampling
equipment, and equipment for publication and education functions.
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Financing Environmental Compliance and Enforcement Programs
3.1.5 The Role of Capital Budgets in Program Planning
While many governments do not prepare and maintain a capital budget distinct from the current
expenditures in an operating budget, separate consideration of capital resource needs improves both
the efficiency and equity of providing non-recurring projects with long-term funding. Separate
capital budgets may be most applicable at the provincial and local levels of government. In general,
national government operations do not require the project-financing planning inherent in capital
budgeting. Nevertheless, capital budgeting still has a role in national government operations,
especially where the central government has responsibility for significant capital investments.
In addition to isolating capital costs from ongoing operating expenditures, capital budgets differ
fundamentally from operating budgets, which must be balanced on a regular basis. Capital budgets
can be used to designate funding mechanisms for long-term financing (i.e., borrowed funds) to
improve equity among taxpayers over an extended period of time. To illustrate this point, if a
laboratory facility with a twenty or thirty year service life is paid for in a single year, the full costs
are borne by the current residents. Individuals who move into the area after construction still obtain
the benefits provided by the facility but pay none of the construction costs. However, if the
construction costs are financed over twenty or thirty years, through the use of debt instruments, the
distribution of costs would be considerably more equitable on an intergenerational basis.
Capital budgets also can provide for protection against a reluctance to fund expensive items,
especially if there is already great pressure on operating budgets. By spreading out the resource
needs over the useful life of the items to be funded, separate consideration of capital budget items
apart from the operating budget may preserve the chances for financing expensive, but necessary
capital projects.
Capital Budgeting Techniques
Capital budgeting for the implementation of compliance and enforcement program functions must
address:
The selection of projects from different possible alternatives.
The timing of expenditures for the selected projects.
The impact on total government finances of various financial spending plans.
To do so, capital budgeting often involves the development of a capital improvement program. A
capital improvement program is a listing of capital expenditure projects for a specified time period
often, five to ten years. The list usually contains project proposals accompanied by justifying
narratives and cost data. These project proposals are typically screened by a government agency to
evaluate costs and establish initial priorities. The capital improvement program, present and
anticipated revenues, and existing debt are analyzed together to determine how much financing is
available for new projects. A comprehensive capital planning process typically 'involves the
evaluation of potential investments against program goals. Capital items are typically reviewed for
inclusion in the capital budget before they are proposed for legislative review and approval. The
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Financing Environmental Compliance and Enforcement Programs
approved projects in a capital improvement program then become part of the capital budget section
of an annual budget.
In sum, capital budgets can serve as valuable tools for managing limited fiscal resources. This is
especially important, given the long-term impact on resources that items in the capital budget may
have. Table 3-2 provides an example of a capital budget, as well as the full program budget for a
state air quality management program in the United States.
Table 3-2. Operating and Capital Budget
OPERATING BUDGET
PROGRAM DEVELOPMENT
MONITORING
Stationary Source Monitoring
Ambient and Toxics Monitoring
PERMITS-TO-CONSTRUCT
OPERATING PERMITS
PERMIT COMPLIANCE
ENFORCEMENT
MISCELLANEOUS
State Implementation Plan Activities
Emergency and Complaint Response
Special Programs
Tribal Lands
1NEL Coordination
Controversial Document Requests
PROGRAM ADMINISTRATION
Small Business Assistance Program
Emissions and Source Inventory
Public Involvement
Regional, Local, Other Agency Guidance
Other
TOTAL AIR PROGRAM WORKLOAD (FTEs)
Attrition
New Hires & New Hire Training Costs
TOTAL AIR PROGRAM FTEs & OPERATING
COSTS
CAPITAL BUDGET
Laboratory Services
Office Space
Computers
Vehicles
Miscellaneous
TOTAL NON-PERSONNEL & CAPITAL
COSTS
TOTAL AIR PROGRAM COSTS
FTEs
4.5
13.8
"4,0
9,8
10.8
22.8
7.5
4.7
16.4
11,9
1.6
1.7
0.7
0-JS
0.0
18.2
2,0
&6
5.6
0-4
6.6
98.7
3.7
56.6
116.6
1995
Costs
$442,467
$1,214,374
$372,405
$841,969
$1,048,708
$2,172,110
$719,275
$446,516
$1,550,324
$884,022
$147,330
$157,851
$82,418
$46,551
$4,DS3
$1,468,733
$186,203
$300,491
$487,054
$39,568
$455,441
$9,063,840
$1,234,711
$10,728,758
$239,208
$318,944
$119,604
$79,736
$39,868
$797,359
$11,526,117
FTEs
4.5
28.3
14.1
14.1
13.4
18.7
18.5
12.4
19.2
14,5
1.7
1.7
0.7
0.5
0.0
23.1
5.0
3,6
6.0.
0.4
8,1
138.0
9.2
0.0
148.7
1996
Costs
$512,941
$2,964,349
$1,524,612
$1,439,737
$1,498,509
$2,695,573
$2,049,358
$1,375,566
$2,096,501
$1,296,458
$181,634
$182,993
$95,546
$53,965
$4,698
$2,136,865
$539,650
$348,351
$600,459
$45,870
$602,597
$14,733,185
$0
$14,733,185
$153,797
$205,063
$76,899
$25,633
$25,633
$512,657
$15,245,842
FTEs
4.5
30.7
15.4
15.3
16.4
19.2
20.8
15.2
20.5
15.7
1,9
1.7
0.7
0.5
0.0
24.1
5,0
3.6
6.4
0.4
8.6
151.3
9.9
2.8
161.9
1997
Costs
$594,639
$3,729,059
$1,926,585
$1,802,473
$2,133,156
$2,492,000
$2,664,099
$1,946,714
$2,593,458
$1,623,095
$227,396
$212,139
$110,763
'$62,360
$5,447
$2,561,972
$625,602
$403,834
$751,742
$53,176
$727,693
$18,719,452
$986,950
$18,719,452
$197,373
$263,164
$98,687
$65,791
$32,896
$657,910
$20,364,311
**FTE = Full-time equivalent (personnel)
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Financing Environmental Compliance and Enforcement Programs
3.1.6 Tracking Revenues and Expenditures
The operating (and capital) budget, when approved, becomes the standard against which actual
operations can be controlled. Budgets are usually approved for an entire fiscal year, while
execution of the budget occurs on a day-to-day, week-to-week basis. From annual operating (and
capital) budgets, periodic (generally monthly) allotment schedules can be developed. The allotment
schedule must be consistent with both the approved budget and activity flow expectations if it is to
be useful for control and management. For this reason, activities that produce uneven expenditure
flows during the year to meet seasonal needs or the opening or closing of new facilities require
uneven allotments.
Comparisons of budget allotments with actual expenditures is useful to indicate:
Areas in which expenditures may need to be curtailed.
Areas in which surpluses may be available for use against deficits in other areas.
Patterns that may be helpful in preparation of future budgets.
A possible need to request supplemental appropriations.
In order to facilitate comparisons between actual and budgeted revenues and expenditures,
compliance and enforcement programs will want to implement systems to track revenues and
expenditures. Such a system can be as simple as monthly handwritten logs of expenditures and
revenues or can rely on more sophisticated technological approaches currently available. The scope
and scale of the tracking system depends most on the size of the overall program and the level of
integration with other government program areas.
Third Edition.
1 Mikesell, John L., Fiscal Administration: Analysis and Applications for the Public Sector.
Brooks/Cole Publishing. Belmont, California. 1991. p. 82.
2 United Nations Environment Program. Institutional Capacity Building in Industrial Environmental Compliance
and Enforcement Programs. Volume I Training Manual. Draft. April 1994. pp. 2-3.
Page 3-7
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Financing Environmental Compliance and Enforcement Programs
4 MEASURES TO MINIMIZE FINANCING DEMANDS
All governments face significant demands for scarce financial resources. Compliance and
enforcement programs must compete not only with other environmental program activities, but also
with schools, prisons, medical care, and other traditional government services for funding. The
extent to which governments can minimize the demands on financial resources through the efficient
use of government resources and the encouragement of private-sector participation in the provision
of traditional public sector services maximizes the effectiveness of all government programs.
This chapter introduces approaches to minimize the financial demands of compliance and
enforcement programs. It first discusses the importance of allocating existing resources efficiently,
utilizing staff among various government agencies effectively, and providing for the necessary
technical training of staff to ensure effective program implementation. It then discusses the
potential role of economic incentives to minimize program resource demands. Economic incentives
discussed include issuance of tradable permits, industry subsidies and deposit-refund systems, and
industrial self-compliance monitoring and reporting arrangements.
4.1 Ensuring Effective and Efficient Use of Scarce Resources
The ability to allocate available resources efficiently is an important step in minimizing overall
program resource needs and maximizing the effective use of scare financial resources. The costs of
obtaining resources need to be evaluated against the potential return from the use of such resources.
In general, the availability and limitations of resources determine which goals can be achieved and
which priorities can be set in order to meet those goals.1
4.1.1 Setting Priorities
Through evaluating and setting priorities, it is likely that efficiencies will result in the compliance
and enforcement program. Various priorities, such as overall priorities for the program, as well as
industry-specific or facility-specific priorities, can be established.
Several important objectives are considered when setting funding priorities, including:
Protecting and restoring environmental quality and public health.
Assuring the integrity of administrative and data-gathering aspects of the program.
Maintaining enforcement.
Leveraging program resources by determining where changes can have the greatest
impact in improving environmental quality.
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Financing Environmental Compliance and Enforcement Programs
4.1.2 Reviewing Existing Capabilities
A thorough review of existing capabilities can serve as a baseline for evaluating possible
inefficiencies as well as areas where additional resources are needed. To the extent possible,
existing structures and functions within the government should be utilized to assist with a
compliance and enforcement program's requirements. By sharing information and personnel,
various government agencies can determine links and similarities between functions to avoid
duplication of effort. Different government agencies can achieve common goals, leverage
resources, and reduce costs by increasing cooperation to conduct overlapping functions. The extent
to which government agencies can share and leverage resources reduces the amount of general
revenue funding required not only for compliance and enforcement programs, but for other
government program functions as well.
4.1.3 Maximizing Resource Effectiveness
A number of steps can be taken to ensure that compliance and enforcement programs gain
maximum effectiveness from fairly limited resources. Two examples of such techniques include:
Application of multimedia approaches.
Implementation of comprehensive training programs.
Some programs have found that having compliance and enforcement staff with the ability to address
multimedia programs is an effective way to conserve resources and funding. Utilizing staff with
multimedia expertise not only reduces additional personnel requirements, but also minimizes
duplication of effort.
Similarly, because compliance and enforcement programs are highly specialized, these programs
generally require the staffing of skilled technical experts. Integrated training, designed to develop
basic skills in a number of specialized areas, can be important to develop the interdisciplinary skills
often required for compliance and enforcement programs. In sum, a skilled, technical workforce
that can address multimedia programs can yield significant program efficiencies and cost savings,
which should also minimize the need for additional funding.
4.2 Incentives To Regulated Community
Economic incentives to encourage voluntary compliance and thus reduce enforcement costs can be
effective tools with substantial implications for program finance. Economic incentives work on the
premise that if environmentally more appropriate behavior is made more rewarding, then attitudes
and behavior will shift in favor of the more desirable alternatives. In contrast to direct regulations,
economic incentives allow industry to respond in a way that they themselves determine as most
beneficial, which should induce meeting environmental objectives in a cost-effective manner.
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Financing Environmental Compliance and Enforcement Programs
Economic incentives seem to operate best in combination with, or in support of direct regulation,
since such incentives usually cannot effectively deal with environmental problems on their own.2
Because economic incentives assist regulatory agencies in meeting their compliance and
enforcement program objectives without significant direct outlays for command-and-control
regulatory programs, the costs associated with compliance and enforcement programs of regulatory
agencies can be reduced through the effective application of incentives.
Examples of economic incentives that may be used as alternatives to traditional regulatory programs
include:
Permit trading.
Direct subsidies.
Deposit-refund systems.
Industry self-compliance monitoring and reporting.
These approaches can be used to achieve comparable environmental objectives to command-and-
control compliance and enforcement programs, at considerably less cost. Each is described below.
4.2.1 Tradable (Marketable) Permits
Trading describes any agreement between parties contributing pollutants to either a waterbody or
the air that affects allocation of pollutant control responsibilities among dischargers. The product
traded is pollution control or water/air quality improvements. The vehicle for executing the trade is
a marketable emissions permit.
Trading includes arrangements where one pollution source pays for pollutant control reductions
and/or other water/air quality improvements at another source that can achieve reductions at less
cost by purchasing their emissions credits. Essentially, a buyer and seller trade pollution reductions.
Trading allows sources to take advantage of differences in pollution reduction costs. Buyers
purchase reductions at a lower cost than they could achieve themselves. Sellers provide greater
reductions than required and receive a premium or profit. In general, trading often can achieve the
same level of pollution reduction at a lower cost than command and control regulations.
An important aspect of any trading scenario, however, is that all sources meet certain minimum
regulatory or other requirements before they can trade for loading reductions. In addition, through
constraining trading hi certain areas or by certain polluters, the government can control the level of
emissions in locations that suffer most from environmental and health effects of pollution.
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Financing Environmental Compliance and Enforcement Programs
Country Examples Tradable (Marketable) Permits
In January 1995, an international conference that focused on the use of economic
instruments to improve environmental quality was held in the Czech Republic,
A mam topic at the conference was the use of tradable permits to aid in the
reduction of carbon dioxide emissions. An international permit model discussed
at the conference introduced the concept of "joint implementation." Under this
concept, a country contributing to the decrease of CQ2 emissions in another
country would reap a reward, for example, additional pollutant permits.3 The
permit system was also discussed for controlling sulfur dioxide (SOj) emissions.
However, the foil cost-saving potential of S02 emission trading iix Europe's
electricity industry, which generates 65 percent of their total SO% emissions, is
considered to be significantly undermined by the structural and regulatory
diversity of that industry.
An Industrial Waste Exchange Program has been developed and administered by
the Philippine Business for the Environment in the Philippines since 1993.
Philippine Business for the Environment is an association of private industries
dedicated to responsible environmental management. The principal advantages
of establishing the Industrial Waste Exchange Program are the flexibiEty it
affords to industries in meeting pollution standards and the potential for reduced
direct regulation,4
m the United States, there is a national marketable permit trading program for
SO2; emissions. SO2 sources trade emissions allowances that are listed on the
Chicago Board Of Trade annually. There also are locally implemented trading
programs throughout the country. Southern California has the only air trading
program in the United States active enough to approximate a market, the
Regional Clean Air Incentives Market, where NO* emissions vouchers or credits
are traded/
4.2.2 Subsidies
Subsidies are financial incentives given to facilities that comply with specified requirements
usually by applying certain cleaner technologies in the production of goods or provision of services.
Subsidies can be in the form of tax relief, reduced interest rates on government provided loans, or
direct subsidies, as described below.
Tax relief is the reduction in taxes granted in exchange for capital investments made to
improve environmental quality (e.g., installing pollution control equipment, or changing
a process to prevent pollution). Forms of tax relief include tax credits, tax exemption,
tax deductions, and accelerated depreciation. A tax credit is simply a tax rebate or a
forgiveness scheme conditional on the beneficiary's meeting specified requirements. Tax
exemption is direct exemption from tax payment. Tax deductions enable the taxpayer to
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Financing Environmental Compliance and Enforcement Programs
deduct expenses associated with pollution abatement from their income statement. In
essence, tax deductions are gains to the taxpayer in unpaid taxes. Accelerated
depreciation allows the purchaser of pollution prevention equipment and "clean"
technologies to increase the rate at which the asset is written off, which increases
depreciation expense, thereby reducing the amount of taxable net income.
Interest rate reductions are reductions in the amount charged for a loan. Such
reductions are often offered for the purchase of pollution prevention equipment or
facilities. The reduced rate provides an incentive to utilize these financial resources for
the acquisition of the needed equipment or facilities.
Direct subsidies or grants are forms of financial assistance that can be obtained
without incurring an obligation to repay. Grants provide incentives to complete
pollution prevention projects or purchase needed equipment because they provide very
low or no cost alternatives to meet regulatory requirements.
Country Examples Subsidies
A range of subsidies are offered by the government of Taiwan. One form of tax
- relief is an exemption from import duties on macMnery and equipment for the
prevention of air pollution, water pollution, noise, vibration, and the monitoring
and testing of environmental pollution, and waste treatment. As of 1991, there
were 1,349 cases of exemption and the import value exempted was NT $6.6
million (US$246,000).6
* Investment tax credits also are available in Taiwan that range from five to
twenty percent of the investment on pollution control equipment and technologies
used for production automation, pollution control, personnel training, or the
establishment of international brand names. The minimum investment is NT
$600,000 (US $24,611} in the taxable year and &e total amount of credit
allowed in a given year is limited to 50 percent of the corporate income tax
payable in that year. If this is exceeded in a given year, the credit may be carried
over for a period of four years. The credit is applied as follows; 20 percent for:
pollution-control equipment procured domestically; 15 percent for pollution-
control equipment procured abroad; and 5 percent for pollution-control
technologies procured either domestically or abroad,7
The Taiwan Statute for Upgrading Industry also allows a corporation to liave
tax-exemption status on retained earnings. The Statute for Upgrading Industry
allows a corporation to retain undistributed-earnings (also called retained profits)
up to twice its accumulated paid-up capital, which is exempt from the 10 percent
profit-seeking enterprise income tax if the funds are used for the following
specified purposes: purchasing various classes of products, including pollution-
control equipment; repaying loans borrowed for the purpose of purchasing the
aforementioned equipment; and investing in certain important industries specified
by the government.8
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Financing Environmental Compliance and Enforcement Programs
Country Examples - Subsidies (Continued)
> ] ,
Taiwan's Sino-American Fund and the Development Fund of Executive Yuan
provide reduced interest rate loans to private sector companies investing in
pollution control equipment,9
^ Y ' *'
The 1970 Statute for Encouraging Industry in Taiwan permitted straight-line
accelerated depreciation for pollution-control equipment over two years. The
present Statute for Upgrading Industry allows the depreciation of certified
investments to be accelerated by up to half the number of years of normal service
life. Although the law is not explicitly drafted to include pollution-control
equipment, the wording is sufficiently broad to include such investments.10
fo Indonesia, subsidies include exemption from import duties for equipment
dealing with industrial waste treatment and "soft loans" (loans wife artificially
low rates of interest) for buying equipment for treating waste.11
Various forms of subsidies are utilized in India to provide incentives for
pollution prevention and controt These incentives include: a depreciation
allowance at 100 percent for installing pollution control devices; reduced rates
for customs and excise duties; and an exemption from corporate taxes for
installation of pollution control devices.12
To encourage the reuse and recycling of wastes in India, fiscal concessions, such
as exemption from excise or customs duty are granted. Fiscal concessions are
stipulated for prospective entrepreneurs to setup manufacturing units of building
materials and help in promoting environment-friendly technology for the building
industry. There is also a provision for obtaining loans at,reduced rates of
interest from financial institutions for installing pollution control devices,13
Germany has a number of subsidy programs for environmental protection. For
example, in 1990, approximately DM 1.4 billion (US $870 million) of interest
subsidized loans for environmental investments were granted under the European
Reconstruction Program, In the past, tax concessions were also used in
Germany. In 1989, DM 3,3 billion (US $1.76 billion) or 40 percent of the
overall environmental investment made by industry qualified for accelerated
depreciation schemes. Some of these created considerable incentive effects.
Those involving demonstration projects for state-of-the-art technology
improvements to older installations had especially noticeable incentive impacts,24
In The Netherlands, the Accelerated Depreciation on Environmental
Investment Scheme has been active since September, 1991. The goal of the
program Is to promote the use of environment-friendly equipment. Accelerated
depreciation allows the company to write off the cost of investing in a piece of
equipment fester than normally allowed. It is even possible to write off the total
investment in the year of purchase. In later years, there will be less to write off,
but the deferral of tax payments is beneficial to cash and interest position.15
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Findncing Environmental Compliance and Enforcement Programs
Country Examples Subsidies {Continued)
Japan has a complex special accelerated (initial) depreciation, method. This
method allows a certain percentage of the acquisition costs of eligible assets to be
deducted once during the year when Hie assets are first placed in use. Examples
include: qualified facilities to prevent pollution^ 25 percent of acquisition cost;
qualified plants equipped -with special anti-pollution devices and qualified
energy-efficient plants, 18 percent of acquisition cost; and certain energy-
saving machinery, 11? percent of acquisition cost. The scheme, set up by the
Japanese government, allows the investor to choose between immediate partial
expensing and the use of normal depreciation. Corporations also may carry
Josses forward over Jive years and back one; establish certain special tax-
incentive reserve accounts; and take certain tax- incentive deductions and
credits.16
IB France, accelerated depreciation is available for poUution-controI equipment.
For example., immovable installations for the purification of water and air can be
depreciated by 50 percent straight-Hne in the first year, la addition,, the French
law contains a number of incentives, such as regional tax concessions and
grants. These are not specifically slated lor 'pollution-control equipment
investment, but may reduce the effective burden of enyironmeatal regulation,17
" ' < s s .,",
The Canadian government's treatment of pollution-control equipment for capital
cost allowance purposes operates on a pool basisrwth'separate classes'for
various types of property. The capital cost o£ each asset is a,$de;d to the
appropriate pool or class. Each class is then reduced by the specific capital
allowance permitted. For both air and water'pollution, control equipment,
properties acquired after November 12, "1981, may be depreciated by claiming a
maximum capital cost of 25 percent in the year of acquisition, 50 percent in the
second year of ownership, and 25 percent in the third year. Therefore, eligible
equipment can usually be written off over three years.'8
As of 1994y Sri Lanka was currently developing two economic incentive
schemes targeted for environmental control. The first is the Control of Pollution
from Existing Sources, which attempts to provide incentives to existing industries
to enable them to meet pollution control standards. Incentives to be offered will
be available only to those Industries submitting pollution control plans within one
year of commencement of tine scheme and will include depreciation allowances
for pollution control equipment and civil works at twice the normal rate for
projects implemented -within two years of approval and one and a half the normal
rate for projects implemented within three years of approval, and exemption
from business turnover tax and import duty for pollution control equipment
The second incentive being implemented is the Pollution Control and Abatement
Fund. Pollution Control and Abatement Fund, which will provide soft loans
(loans with artificially low rates of interest) and technical assistance for pollution
control measures and is targeted primarily to existing industries,19
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Financing Environmental Compliance and Enforcement Programs
Country Examples Subsidies {Continued}
i
In Austria, bonuses for industrial investment in environmental protection have
been granted since 1982. Incentive bonuses include both cash bonuses {refunds)
and accelerated depreciation?^
' ' * ' ' '*;
In the United States, wastewater systems run by local governments are eligible
for low-interest loans provided by the Clean Water Act State Revolving Fund
(SRF) Program. Through this program, states are given capitalization, grants
from the federal government, which they in turn, use to provide loans at interest
rates ranging from 0% to market rate to local governments to meet their needs for
wastewater system improvements.
4.2.3 Deposit-Refund Systems
The use of deposit-refund systems can assist regulatory agencies in accomplishing their compliance
and enforcement program objectives by replacing command and control regulatory programs with
incentives for proper disposal. Deposit-refund systems provide refund payments to consumers
when they return a used product or container to a recycling center or otherwise properly dispose of
a product or by-product. With deposit-refund systems, consumers, not producers, generally bear
the economic burden. As an alternative to regulatory approaches, deposit-refund systems also have
been applied to containers that hold chemicals or other environmentally hazardous products.
Country Examples Deposit-Refund Systems
With a 1988 revision of the Waste Disposal Act in Taiwan, the Environmental
Protection Agency began to implement a recovery/recycling system for ten types
of solid waste, including polyethylene teraphthalate bottles, pesticide containers,
and others. In 1993, an impressive recovery rate of 80 percent,was achieved.21
'l'i/(' '',-''
In the United States, Maine, New York, and Rhode Island have established
deposti-rejund systems for various products. The state of Maine enacted a law
in 1985 requiring a deposit system for limited and restricted use pesticide
containers and approved an act in July 1989 to encourage the recycling of lead-
acid Datteries. A Return Incentive Program was established in New York based
on the Lead-Acid Battery Recycling Law. Customers pay a $5 deposit to
retailers when they purchase a new battery &r their vehicles if they cannot
provide a used battery and have up to one month to return an old battery to
receive their $5 back. In Rhode Island, Title 23, Chapter 60 of the Rhode Island
General Law provides &r a mandatory deposit system for automobile batteries,
As of January 1989, each battery sold in Rhode Island must have a $5 deposit
paid at the time of sale and have up to seven days to turn in their used battery to
receive their deposit back.22 ' ',
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Financing Environmental Compliance and Enforcement Programs
Country Examples Deposit-Refund Systems (Continued)
In the Philippines, deposit-refund systems presently apply to glass and plastic
soft drink containers and steel drums used for chemicals. Initiatives have been
attempted for channeling a portion of the fees collected to environmental
preservation activities.23
3h The Netherlands, there are deposit-refunds on glass botfles {soft drinks, beer
and milk) and on PET bottles. The system is instituted by the industry itself. As
of 1994, environmental legislation did not yet allow obligatory introduction of
deposit refund systems.24
The market-based incentive of a deposit-refund system has been successful in
Finland. For example, approximately 90 percent of all recyclable beverage
containers are returned.25
4.2.4 Industry Self-Compliance Monitoring and Reporting
Under self-compliance monitoring and reporting arrangements, industries track their own
compliance and record or report the results for government review. In general, self-compliance
monitoring and reporting provides much more extensive information on compliance than can be
obtained from periodic inspections. Self-compliance monitoring and reporting also can produce
significant cost savings for regulatory agencies because of reduced oversight and inspections.
However, the success of self-compliance monitoring and reporting programs depends on the
accuracy of the data reported, which requires a significant level of review, monitoring, and training.
Some level of continued government monitoring and clear enforcement also is necessary to conduct
an effective self-compliance monitoring and reporting program.
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Financing Environmental Compliance and Enforcement Programs
Country ExamplesIndustry Self-Compliance Monitoring and Reporting
In Sweden, companies receive instructions on now to monitor themselves once
they receive a "checking" permit that is initially drawn up by the company and
then reviewed and adjusted by the County Administrations. The permit stipulates
how the data are to be reported and to which particular authority (local, regional,
or the National Environment Protection Board). Private consultants may be hired
by industries to conduct inspections. If the inspections reveal negligence by
companies, sanctions can be imposed.26
In the United States, facilities of a certain size use continuous emissions
monitoring programs for industry self-monitoring monitoring and reporting.
WMx continuous emissions monitoring, facilities are required to have equipment
that monitors emissions on a continuous basis and records the amount of
pollutants emitted from a facility. Continuous emissions monitoring ensures
compliance with a facility's air permit by producing a signal if a facility exceeds
compliance standards which is reported to the state permitting agency .2?
4.3 Conclusions
To the extent that the measures presented in this chapter (efficient allocation of resources, careful
use of those resources, and appropriate use of incentives to and partnerships with the regulated
community) are effectively used to lower overall resource demands, compliance and enforcement
program managers will maximize the overall impact of their programs. Moreover, as these tools are
used to lower resource needs in one program area, managers will be able to expand into new
program areas needing their attention. Revisions to overall program goals and objectives can then
be made, updates to annual operating and multi-year capital budgets considered, and innovative
strategies for funding newly implemented program areas developed. In this way, the cycle of
program development, budgeting, and financing forms an iterative process, or continuous loop,
which, over time, leads to ever more effective compliance and enforcement program development
and implementation.
1 United Nations Environment Program. Institutional Capacity Building in Industrial Environmental Compliance
and Enforcement Programs. Volume I Training Manual. Draft. April 1994. pp. 2-5.
2 Organization for Economic Co-Operation and Development (OECD). OECD Documents. Managing the
Environment: The Role of Economic Instruments. Paris, France 1994, p. 48.
3 The Bureau of National Affairs, Inc. "International Conference Advocates Tradable Credits' to Cut CO2
Emissions." International Environment Reporter. January 25, 1995. pp. 46-7.
4 Environment Management Bureau and the Department of Environment and Natural Resources, Philippines, and
U.S. Agency for International Development. A Synopsis of Market-Based Instruments for Promoting Pollution
Reduction in the Philippines. Industrial Environmental Management Project. June 1994.
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Financing Environmental Compliance and Enforcement Programs
5 Environmental Defense Fund Emissions Trading in Nonattainment Areas: Potential, Requirements and Existing
Programs. June 1995.
6 Office of Science and Technology Advisors, Environment Protection Administration, Government of the Republic
of China, Taiwan ROC. "Taiwan's Current Institutional Framework, Economic Instruments and Legislation on
Environmental Protection and Management." Country Paper for Taiwan.
7 Office of Science and Technology Advisors, Environment Protection Administration, Government of the Republic
of China, Taiwan ROC. "Taiwan's Current Institutional Framework, Economic Instruments and Legislation on
Environmental Protection and Management." Country Paper for Taiwan.
8 Office of Science and Technology Advisors, Environment Protection Administration, Government of the Republic
of China, Taiwan ROC. "Taiwan's Current Institutional Framework, Economic Instruments and Legislation on
Environmental Protection and Management." Country Paper for Taiwan.
9 Office of Science and Technology Advisors, Environment Protection Administration, Government of the Republic
of China, Taiwan ROC. "Taiwan's Current Institutional Framework, Economic Instruments and Legislation on
Environmental Protection and Management." Country Paper for Taiwan.
10 Office of Science and Technology Advisors, Environment Protection Administration, Government of the Republic
of China, Taiwan ROC. "Taiwan's Current Institutional Framework, Economic Instruments and Legislation on
Environmental Protection and Management." Country Paper for Taiwan.
11 The World Bank. "The Costs and Financing of Environmental Protection." Indonesia: Environment and
Development. A World Bank Country Study. Washington, DC. 1994.
12 Environmental Information System, Ministry of Environment and Forests, Government of India. Annual Report
1994-95. New Delhi, India.
13 Environmental Information System, Ministry of Environment and Forests, Government of India. Annual Report
1994-95. New Delhi, India.
14 Organization for Economic Co-operation and Development (OECD). OECD Documents. OECD Environmental
Performance Reviews: Germany. 1993.
15 Ministry of Housing, Spatial Planning and Environment.; "Tax Incentive for All Entrepreneurs who Invest in a
cleaner Environment." A Better Environment Begins at, Home: Accelerated Depreciation on Environmental
Investment in the Netherlands. 1994. pp. 6.
16 Jenkins, Glenn and Ranjit Lamech. Green taxes and Incentive Policies: An International Perspective. Sector
Study Number 11. International Center for Economic Growth. Co-published with the Harvard Institute for
International Development. 1994.
17 Jenkins, Glenn and Ranjit Lamech. Green taxes and Incentive Policies: An International Perspective. Sector
Study Number 11. International Center for Economic Growth. Co-published with the Harvard Institute for
International Development. 1994.
18 Jenkins, Glenn and Ranjit Lamech. Green taxes and Incentive Policies: An International Perspective. Sector
Study Number 11. International Center for Economic Growth. Co-published with the Harvard Institute for
International Development. 1994.
19 Central Environment Authority. Country Paper: Sri Lanka. Singapore. September 14-16, 1994.
20 Austria Documentation. Protection of the Environment in Austria. Federal Press Service. Vienna. Austria. 1986.
21 Office of Science and Technology Advisors, Environment Protection Administration, Government of the Republic
of China, Taiwan ROC. "Taiwan's Current Institutional Framework, Economic Instruments and Legislation on
Environmental Protection and Management." Country Paper for Taiwan.
22 American Petroleum Institute. The Use of Economic Incentive Mechanisms in Environmental Management,
Research Paper #051. Washington, DC. June 1990. p. 42.
23 Environment Management Bureau and the Department of Environment and Natural Resources, Philippines, and
U.S. Agency for International Development. A Synopsis of Market-Based Instruments for Promoting Pollution
Reduction in the Philippines. Industrial Environmental Management Project. June 1994.
24 Organization for Economic Co-operation and Development (OECD). OECD Documents. Environment and
Taxation: The Cases of The Netherlands, Sweden and the United States. Paris, France. 1994. pp. 11-29,39.
25 A Synopsis of Market-Based Instruments for Promoting Pollution Reduction in the Philippines. June 1994.
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Financing Environmental Compliance and Enforcement Programs
26 Haigh, Nigel and Francis Irwin ed., Integrated Pollution Control In Europe and North America. The
Conservation Foundation, Washington, DC and Institute for European Environmental Policy, Bonn, Brussels,
London, and Paris. 1990. pp. 147-169.
27 Oregon Department of Environmental Quality. Air Quality Program Title V Workload Analysis. September
1992. p. 51.
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Financing Environmental Compliance and Enforcement Programs
APPENDIX A: INDIVIDUAL FUNDING MECHANISMS AND EXAMPLES
OF USE
This appendix details specific funding mechanisms that fall under each of the eight broad categories
defined in Chapter 2 of this document. For each mechanism, the appendix provides a classification
of the type of mechanism (general taxes, special taxes, user fees, fines and penalties, loans or other
debt instruments, grants, voluntary mechanisms, or public-private partnerships), offers a brief
description of the mechanism, and discusses advantages and limitations of the mechanism. In
addition, this appendix provides a number of examples of each mechanism's application by
individual countries worldwide. These examples are meant to illustrate the range of approaches
taken by various countries and are not meant in any way to be a comprehensive listing of which
countries employ particular mechanisms.
A.1 General Taxes
This section describes taxes that are placed upon the general public. General taxes include
individual and corporate income taxes, real and personal property taxes, general sales and use taxes,
general value added taxes, death and gift taxes, and generally applied import taxes. Each of these
tax mechanisms are discussed below.
A.I.I Individual Income Taxes
Type: General Tax.
Description: Taxes based on percentage of individual income earned.
Advantages: Relatively stable revenue base. It is possible to dedicate or earmark a percent of
income tax to environmental programs with broad impact.
Limitations: No direct correlation between environmental programs and individual income taxes.
In many areas, it is politically difficult to increase and/or dedicate income taxes to
specific programs.
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Financing Environmental Compliance and Enforcement Programs
Country Examples Individual Income Taxes
Brazil and Chile. Individual income taxes imposed in Brazil and Chile aid in the
financing of environmental compliance and enforcement programs.1
Sweden. JB 1991, Sweden implemented a tax reform that created a simpler and
more "neutral" tax system and diminished the perceived'disincentives of the very
high marginal income taxes in Sweden. The marginal income tax was redaced to
about 30 percent for some 80-90 percent of income earners and to about 50
percent for the remaining high income earners (as compared to a marginal tax
rate of 73 percent in 1989 and 85 percent a few years earlier). At the same time,
Sweden introduced a set of environmentally motivated taxes and increased their
role in order to allow for the reduction in income taxes,2
i '
South Africa. Several general taxes are used in South Africa for funding
environmental compliance and enforcement programs. Examples include
individual income taxes, corporate income taxes., real estate taxes, value added
taxes and death and gift taxes?
United States. States and counties in the United States typically use income
taxes for general fund support, which includes environmental compliance and
enforcement program management. Some states also earmark a share of the state
income tax to local governments.4
Uruguay. Environmental compliance and enforcement programs in Uruguay are
financed through the country's general budget Mechanisms used to fund this
budget Include general taxes on income.5
A.1.2 Corporate Income Taxes
Type: General Tax.
Description: Taxes on the net income earned by corporations in a given jurisdiction.
Advantages: Relatively broad revenue base; tax can be charged at a relatively low rate and still
generate significant revenues. Corporate income taxes could be dedicated to finance
environmental programs that stem from the corporate activity itself. Can spread
costs of environmental impacts of business activities to out-of-province/state
consumers, adding pollution control to the overall costs of production.
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Financing Environmental Compliance and Enforcement Programs
Limitations: Implementing or increasing corporate tax rates may be politically difficult, since
national and sub-national governments attempt to be competitive with other
governments in order to attract corporations. Net income may not serve as a good
measure of the actual size of a corporation, since many corporations have small
incomes relative to their gross receipts. Further, net income can vary widely from
year to year, so it may not be a suitable revenue source for funding environmental
programs that require a predictable stream of revenue. Finally, a corporate
headquarters may be located in a different country or sub-national jurisdiction from
its production activities, meaning that the revenues from the income tax may not go
to the area that experiences environmental damage from the production activities.
Country Examples Corporate Income Taxes
Brazil and Chile. Corporate income taxes imposed in Brazil and Chile aid in the
financing of compliance and enforcement programs,6
Sweden. Under the Swedish tax reform of 1991, Sweden reduced corporate
income taxes and individual income-taxes (see previous section). Between 1989
and 1991, the Swedish corporate income tax Ml fipm 2.8 percent of gross
x domestic product to 1,9 percent of gross domestic product To finance the
reduction in income tax, the value added tax rate was increased and taxes on
capitaiand energy were restructured and raised to higher average levels,7
United States. Normally Si the United States, corporate income taxes are limited
to state governments, but there Js a federal tax on corporate income that provides
funding for the federal Superfund for hazardous waste remediation. The State of
Ohio dedicates l>2 percent of its corporate income tax to litter control and|
recycling.8
A.1.3 Real (Ad Valorem) Property Taxes
Type: General Tax.
Description: Charged to owners of real property, based on a percentage of the assessed property
value.
Advantages: Large revenue base. A share of property taxes could be used for land-based
environmental protection programs, or for improving infrastructure services, such as
stormwater drainage or wastewater treatment, or those activities directed at bringing
industries and citizens into compliance with emissions requirements.
Limitations: No direct relationship between tax and polluting behavior. There also is generally
substantial competition for property tax revenues.
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Financing Environmental Compliance and Enforcement Programs
Country Examples Real (Ad Valorem) Property Taxes
Brazil and Chile. Seal properly taxes are imposed in Brazil and Chile to fund
environmental programs.2
United States. IB the United States, real property taxes are generally limited to
local, and to a lesser extent,, state governments. Some dedicate specific
percentages to environmental programs. For example, in June 1990, Dade
County, Florida, dedicated over $45 million in yearly revenues from a property
tax increase to funding for local natural areas.'0 Colorado's Cherry Creek Basin
project relies a direct increase in property tax assessments. 198& Legislation
authorized a 0,50 mill (a mill is equal to one-tenth of a United States cent) tax
increase on all property in the two counties and nine municipalities vvithin the
basin's boundaries. Revenue is to be used to construct artificial wetlands,
channels, and sediment holding ponds to address the reservoir's nonpoint source
pollution problems."
A.1.4 Personal (Tangible) Property Taxes
Type: General Tax.
Description: Charged on the assessed value of personal property. Sometimes limited to property
worth more than a specified monetary value or to specific types of property, such as
automobiles, large appliances, etc.
Advantages: Feasible to dedicate revenues from personal property taxes to mitigating negative
environmental impacts of personal property use. For example, the revenues from a
personal property tax on refrigerators could be used for freon disposal; revenues
from a tax on lawnmowers and small engines could be used for small source
emissions reduction. In addition, personal property taxes could be structured to
encourage emissions reduction by discounting tax rates on high-efficiency appliances
(e.g., heaters, refrigerators, air conditioners) and low-emissions vehicles.
Depending on the structure of the tax, it may provide incentives for taxpayers to
purchase higher efficiency appliances and low-emissions vehicles.
Limitations: Difficult to track ownership of personal property causing this tax to be hard to
enforce. In addition, few governments have such systems in place, with the possible
exception of automobiles, making the administrative costs of this tax high.
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Financing Environmental Compliance and Enforcement Programs
Country Examples Personal (Tangible) Property Taxes
United States. In the United States, the personal property tax is used by both
state and local governments. An example is the personal property tax on the
value of motor vehicles in Arlington, Virginia., The revenues from the tax are
used to sttpportih& general fond.
A.1.5 Sales and Use Taxes
Type:
General Tax.
Description: Taxes on the sale of all or most goods or services sold in retail stores. May also be
applied to sale of mail order goods.
Advantages: Potentially a relatively broad revenue base; a small percentage of the general sales
tax can bring in significant revenues. Possible to dedicate a specified percentage of
the sales and use tax for environmental programs. In addition, local levels of
government can charge riders on existing taxes and dedicate them to environmental
programs.
Limitations: No direct correlation between general sales tax and polluting behavior.
' Country Examples General Sales and Use Taxes , ,,, ?
,**"*** ' X
» Brazil and Chile. Sales and use taxes are imposed in Brazil and Chile, which
aid in the financing of environmental compliance and enforcement programs.12
* -' United States'. 'The'State of Missouri uses a portion of its general sales tax to
fund soil conservation measures that include programs to reduce nonpoint source
pollution. The money is placed in a soil tax fund and is used primarily for cost-
'share programs. Idaho also uses revenue from the state sales tax to fund a
portion of its water pollution control activities; The Water Pollution Control
Accoixnt is a dedicated, fund that finances point and nonpomt source pollution
programs. The majority of the money for the fund, $4,S million, comes from the
state sales tax. The money finances the construction of wastewater treatment
facilities and provides grants for agricultural pollution control projects.'5
Also see Selective Sales and Use Taxes under Special Taxes section for other
targeted examples.
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Financing Environmental Compliance and Enforcement Programs
A.1.6 General Value Added Taxes
Type:
General Tax.
Description: A form of consumption or sales taxation that is based on the addition to the value of
consumer goods or services at each stage of production or distribution (normally
rebatable, if exported). It is simply an alternative way of collecting a tax on
consumption expenditure and does not tax a base different from other consumption
taxes. Value added taxes resembles a sales tax in that each trader adds the tax to
sale invoices issued and accounts for the tax so collected. However, the trader is
permitted to deduct the amount of tax paid on invoices received for goods and
services (but not for wages and salaries).
Advantages: The value added tax is a multistage tax that produces a burden equivalent to that of a
single-stage retail sales tax. The tax is a constant proportion of the retail price of the
product; it does not vary according to the number of transactions in the production
process, as normally occurs under multistage taxes. The tax does not pyramid
because it depends on the value added at each stage, not the total transaction price at
each stage, and each firm receives credit for taxes paid in prior stages of the product
flow. Thus, the tax base for any firm, in the production-distribution process, will
equal its value-added the difference between the value of its sales and the value of
its purchases instead of the value of its sales (or gross receipts).
The value added tax is an appropriate consumption tax if tax evasion and lack of
vendor cooperation is a problem. Value added taxes induce purchasers to require a
documented receipt from vendors for taxes paid, because those receipts will be used
to pay part of the taxes vendors will owe when they make sales. Vendors will pay
the tax because persons purchasing those items will demand tax receipts for credit
purposes. The self-enforcing nature of value added taxes makes them attractive
when the tax-compliance climate is weak. The value added tax is also appropriate
for the easy removal of domestic taxes from items that will be sold in international
trade. The chain of tax documentation produced by value added taxes makes this
extraction simple, although it does not extract any taxes other than the value added
tax.
Limitations: The European experience with value added tax shows that tax evasion still exists and
delinquency continues to be a problem despite the self-enforcing nature of the tax.
With a value added tax, there is no direct correlation to polluting behavior.
Country Examples General Value Added Taxes
See Selective Value Added Taxes under the Special Taxes section for targeted
examples,
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Financing Environmental Compliance and Enforcement Programs
A.1.7 Death and Gift (Inheritance) Taxes
Type: General Tax.
Description: Taxes on inherited property or on gifts worth more than a set amount.
Advantages: Broad revenue base. As has been dome in some states in the United States, a
portion of death and gift taxes could potentially be earmarked for general
environmental programs, including compliance and enforcement programs.
Limitations: Limited correlation between tax and polluting behavior, except perhaps in relation to
land inheritance and land-based environmental programs.
Country Examples Death and Gift (Inheritance) Taxes
United States, in the United States, state death and gift taxes are often dedicated
to local government, pension funds, and local police and fire protection funds.
Idaho uses a percentage of inheritance taxes to fond sewage treatment projects,
agricultural nonpoint source pollution control, and part of the staters water
program activities.14
A.2 Special Taxes
Special taxes are those taxes placed upon a specified set of products or against producers or
consumers of a particular good or service. Examples of special taxes applied to environmental
programs include fertilizer and pesticide taxes, severance taxes, selective sales and use taxes,
selective value added taxes, import taxes, feedstock taxes, waste-end taxes, and hard-to-dispose
taxes. Each of these special tax mechanisms are described in this section.
A.2.1 Fertilizer and Pesticide Taxes
Type: Special Tax.
Description: Taxes on fertilizer or pesticides, generally levied as a retail sales tax.
Advantages: In some countries, the tax can generate significant revenues because of the relatively
large volume of fertilizers and pesticides used. The tax also may discourage
excessive use of fertilizers or pesticides. This tax could fund remediation and
enforcement of standards of agricultural nonpoint source pollution because of the
impact of fertilizer and pesticide use on agricultural nonpoint source pollution. It
could also be used to fund research into fanning techniques that have reduced
environmental impact, thereby increasing opportunities for voluntary compliance.
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Financing Environmental Compliance and Enforcement Programs
Limitations: Agricultural interests will oppose tax.
Country Examples Fertilizer and Pesticide Taxes
Denmark. As of April 1995, Denmark planned to introduce a 25 percent tax on
pesticides (to commence i» January 1996), The tax is designed to help Denmark
meet its goal of cutting pesticide use in half by 1997* The tax, however, will be
largely offset by a reduction in existing taxes on farmland. Ten percent of the
revenue will be earmarked for research into organic farming.15
Finland. In Finland, a tax is charged on the nitrogen and phosphorus content of
fertilizers. The rate varies between ECU 0.41 (US $0.49, as of 1994) and 0.27
(US $0.32., as of 1994) per kilogram and is equivalent to between 5 and 20
percent of the price of the fertilizer. The revenue collected from the tax is spent
on agricultural subsidies and the general budget. Since implementation, there has
been a decrease in the use of phosphorus, but this may be due to other policy
instruments as well.16
Organization for Economic Co-operation and Development Countries. The
Organization for Economic Co-operation and Development countries that levy
fertilizer charges include Austria, Finland, Norway, Sweden and the United
States. The charges range between 2.5 and 20 percent of the price. Norway and
Sweden also levy charges on pesticides.17
1
Sweden. Artificial fertilizers and pesticides used in agriculture have been subject
to a product charge since 1984, The rates on fertilizers are SEfc 0.60 (US $0.08,
as of 1994) per kilogram of nitrogen and SEK 1.20'(US $0.16, as of 1994) per
kilogram of phosphorus. This represents about 10 percent of the price of the
most widely used types of fertilizers. The Swedish Board of Agriculture
calculated that the optimum input level of nitrogen fertilizer fells by 10 to 15
percent at the prevailing 30 percent charge rate {the environmental charge plus
the price regulation charge). la reality, the use of nitrogen has fallen less.18 The
charge on pesticides is SEK 8 (US $1,04, as of 1994) per kilogram of active
substances. This is about 5 percent of the present price level. The revenues from
these taxes are earmarked for environmental research, agricultural advisory
service, counter-acidificalion measures, and other measures to reduce the overall
volume of fertilizers and pesticides used.19
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Financing Environmental Compliance and Enforcement Programs
A.2.2 Import Taxes
Type: Special Tax.
Description: Taxes on goods that are manufactured internationally and sold domestically.
Advantages: Import taxes can be increased for goods that are environmentally harmful and
lowered for goods that aid in environmental protection or pollution control.
Limitations: If set too high, import taxes may inhibit competition.
Country Examples Import Taxes
Brazil and Chile. Import tariffs aid in providing revenue for compliance and
enforcement programs m Brazil and Chile.20 -
India. In India, a customs duty is levied on a variety of equipment, machinery
and capital goods?1
Norway. In Norway, an import tax Is levied on road motor vehicles. To
encourage environmental conservation, electric vehicles are exempt. The average
import tax is approximately Nkr 70,000 (US $10,939, as of 1995) per car.22
Regional Europe. Import duties are uniform within the European Community,
The present situation, in -which a lower rate is imposed on raw materials than on
finished products, has a positive environmental impact, because production
processes in the West are usually cleaner than in developing countries. On the
other hand, a relatively low price for raw materials discourages recycling. In
January of 1994, Traa Van Thinh of France, Dean of European Union
Ambassadors to the General Agreement "on Tariffs and Trade presented the idea
of introducing a uniform levy of 0.25 percent ad valorem on all imports of goods
on which customs duties are collected. The money collected would be used to
help finance "green" programs in developing countries and promise the transfer
of environment related technology to those nations, Asian and Latin American
officials viewed this tariff as discriminatory because domestic goods would not
be taxed.23
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Financing Environmental Compliance and Enforcement Programs
A.2.3 Selective Sales and Use Taxes
Type: Special Tax.
Description: Taxes on particular goods and services (May also be applied to sale of mail order
goods.). In the case of environmental compliance and enforcement, taxed items
could include fuel, automobiles, fast food packaging, disposable beverage containers,
water, and oil.
Advantages: Potentially a relatively broad revenue base, depending upon the particular goods and
services that are selected to be taxed. Sales taxes on fuels discourages the use of
fuels with harmful emissions. Direct correlation between use of fuels and the
environmental impact. Possible to dedicate a specified percentage of the sales and
use tax for environmental compliance and enforcement programs. In addition, local
levels of government can charge riders on the existing tax and dedicate them to
environmental programs.
Limitations: Taxes often face strong political opposition. Instituting new taxes normally requires
legislative approval.
Country Examples Selective Sales and Use Taxes
Denmark. In the early 1990's, the Danish government introduced a CO2tax on
fuel. Then, in the spring of 1995, Hie Danish government proposed new taxes on
CO2 and S02. The taxes are waiting approval (as of April 19, 1995) by the
European Commission and will likely be challenged by Danish companies in the
European Court of Justice, The new CO2tax raises the already established levy
of 50 Danish Kroner (US $&.59) per ton to 90 DKR per ton (US $15,46) by the
year 2000. The proposed S02tax is 10 DKR (US $1J2) per kilogram and will
apply to ail fuels. It is intended that all money earned from the tax be returned to
industry in the form of investment credits.24
Germany. Germany currently imposes a differentiated taxation system on
leaded and lead-free (unleaded) gasoline. In addition, tax differentials are
imposed on cars that depend on emissions. The categories of emissions are low
emissions, reduced emissions, and regular emissions. The tax differential has
increased from DM 0.04 to DM 0.10 (US $0,03 to US $0,68, 1995). The
purpose of this tax was to increase the share of "clean cars" - both new models
and retrofitted "old" cars and to increase the use of lead-free gasoline use.25
Also, in June of 1995, the German Economics Minister, Gunter Rexrodt, was
quoted as saying that he would support a national CO2 energy tax if other leading
industrialized countries (European Union members, United States, and Japan)
could not agree soon on a global solution.26
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Financing Environmental Compliance and Enforcement Programs
Country ExamplesSelective Sales and Use Taxes
The City of Kassel in Germany implements a local tax on fast food one-way
packaging. In Germany, municipalities have no powers to levy environmental
charges, unless Federal laws and Lander (political equivalent of provinces or
slates) laws have not comprehensively regulated specific environmental problems
which may affect cities and municipalities. In the Federal Administrative Court
it was decided that this was the case for the City of KassePs one-way package
27
tax.
Greece, in Greece, the sale of cars are taxed differentially according to the
degree of compliance with emission standards.28
Israel. In Israel, a tax is imposed on the sale of all disposable beverage
containers. It constitutes 0,25 percent of disposable beverage sales. The
revenues are paid into the Cleanliness Fund and are used to finance cleanup
campaigns, educational programs, and the entire enforcement infrastructure of
the Maintenance of Cleanliness Law,29
Sweden. Since 1993, new vehicles have been subject to a sales tax that is levied
according to weight and differentiated according to environmental qualities, such"
as noise and emissions,30 The rate charged is between ECU 237 (US S282? as of
1994) and ECU 474 (US $563, as of 1994) depending upon the degree of
compliance with emissions standards.31^
A COatax also is levied on the average carbon content and calorific values of oil,
coal, natural gas, liquefied petroleum gas, gasoline, and fuel for domestic air
transportation. An SO2 tax is levied on the sulfur content in oil, coal, and peat.
The incentive is to discourage the use of fuels with CO2 and SOj emissions.32
Thailand. A differential excise tax on leaded versus unleaded gasoline is
charged in Thailand, The tax is designed to encourage drivers to choose the ao-
lead alternative,35
United States. In the State of Hew Jersey, a 1 cent per 1,000 gallon water tax
raises $3 million per year for research, program administration, and enforcement
of drinking water standards.34 \
Finland, France, Italy, Norway, and the United States. AH five of these
countries places taxes on lubricant oil. ^ In all, except Norway, the revenues are
dedicated to waste oil treatment, Norway places its revenues'in the general
budget The charge is generally too low to create incentive effects in any of the
countries. The taxes are intended as revenue raising instruments to finance waste
oil treatment only ,3? ;
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Financing Environmental Compliance and Enforcement Programs
A.2.4 Severance Taxes
Type: Special Tax.
Description: Taxes on natural resources extracted from the land or water. Examples of severance
taxes include the following:
Water/Groundwater Withdrawal Taxes (based on volume of water
withdrawn).
Oyster/Shellfish Taxes (based on volume or value of shellfish harvested).
Timber Taxes (based on volume of timber logged).
Fuel/Mineral Taxes (based on volume of oil, gas, or minerals extracted).
Advantages: Severance taxes can be directly dedicated to activities that will mitigate the
environmental impacts of natural resource extraction, such as habitat restoration.
Spreads costs of remedying impact of extraction activities to businesses that engage
in them, or to consumers; essentially, adds the cost of pollution control and
remediation to the cost of resource extraction.
Limitations: By definition, severance tax revenues depend on the level of extraction activity. If
the tax base fluctuates, the tax may not be suitable for funding environmental
programs that require a stable revenue source.
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Financing Environmental Compliance and Enforcement Programs
Country ExamplesSeverance Taxes
Estonia. Estonia has a system of taxes for using and protecting such natural
resources as water,, oil shale, timber^ sand, clay, gravel, and peat. After a 1991
assessment, the country decided that the tax system for these resources did not
reflect their true market value, Jn addition to restructuring the tax so that the true
market values of these resources were reflected, other resources (e.g.^ land) were
added to the system.36
Indonesia. Two primary fees on the logging industry in Indonesia have been the
"reforestation" levy., recently raised from US $30 per cubic meter to US $15, and
the forest products "royalty" payments, which, amount to about 6 percent of the
deliverable price of logs. Funds from the reforestation levy are earmarked for,
and managed by, the Ministry of Forestry. This fund has been used to support
the "re-greening" program for critical watershed areas and the reforestation of
logged-over land where the concession owner has not properly carried out a
replanting program,37
Israel Quarry operators pay a tax calculated according to the type and quantity
of material quarried and sold. Income from the levy is allocated to the Quarry
Restoration Fund and is administered by the Ministry of industry and Commerce.
This is a dedicated fund which finances restoration ofabandoned quarries,38
Lithuania. One of Lithuania's new practices is subjecting the use of natural
resources to a tax. Since all natural resources are, as stated in Article 45 of the
Provisional Basic Law of the Republic of Lithuania, "the national wealth and
exclusive property of the Republic of Lithuania," the use of these resources
requires compensation to the state in accordance with their assessed value.
Revenue accumulated from such taxes will serve to offset state expenditures
required to monitorthe use of the remaining supply of natural resources,35
Poland, Poland also places a charge on mined minerals. The charge is assessed
on industry at the input stage and is intended to encourage firms to recycle raw
materials or use them more efficiently. The tax aids in the reduction of
environmental hazards that are posed in the manufacture, use,, or disposal or*
certain raw materials.40
United States. Severance taxes are employed primarily at the state level in the
United States, Although severance taxes are levied in 38 states, they are not a
major source of revenue, accounting for only between one and two percent of
total state general revenues. However, severance taxes are a significant source of
revenue in a few states, such as Alaska, Louisiana, Texas, and Wyoming.41
Vietnam. In Vietnam, the exploitation of petroleum and gas is subject to a 0.5
percent tax on the volume extracted. Additionally, the mineral resources of metal
minerals, non-metal minerals, and coal and peat are subject to 0,4 percent, Q.3
percent, and 0.2 percent taxes on the volume extracted, respectively.42
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Financing Environmental Compliance and Enforcement Programs
A.2.5 Feedstock (Front-End) Taxes
Type: Special Tax.
Description: Taxes on the primary chemicals that produce hazardous products and ultimately
hazardous wastes.
Advantages: Since a large volume of petrochemicals are used in several countries, the tax can
generate significant revenues even at low rates. The tax is directly correlated to the
activities it will be used to finance, and may encourage manufacturers to substitute
less hazardous chemicals where possible. This encouragement fosters voluntary
compliance with pollution control regulations. The tax could be used to fund any
activities or enforcement measures that address problems or issues raised by the use
of these substances.
Limitations: If waste-end taxes are also charged on end products, generators could be taxed
twice.
Country ExamplesFeedstock (Front-End) Taxes
United States. In the United States, taxes on chemical feedstocks are a source of
revenue for Superfund, a national program to remediate hazardous waste sites.
The taxes on chemical feedstocks range from $0.24 to $4.87 per ton.43 Some
states also levy taxes on petroleum and chemical feedstocks, dedicating the
revenues to state hazardous water cleanup funds. An example is New Jersey.
A.2.6 Waste-End Taxes
Type:
Special Tax.
Description: Waste-end taxes are charged on hazardous waste after generation. They may be
assessed against waste generators, transporters, storers, treaters, or disposal facility
operators. The tax may be calculated based on a flat rate; on the volume of waste
disposed, stored, or transported; on a combination of volume and toxicity of the
waste; or the kind of disposal method.
Advantages: Encourages waste reduction. Tax also can be structured to encourage the use of
particular disposal methods. Waste-end taxes can be used to finance hazardous
waste compliance and enforcement programs.
Limitations: Depending on type of waste, waste-end taxes may have a small revenue base.
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Financing Environmental Compliance and Enforcement Programs
Country Examples5Vaste-End Taxes
Organization for Economic Co-operation and Development Countries. The
Organization for Economic Co-operation and Development countries that levy
charges on hazardous waste include Australia, Austria, Belgium, Finland,
Portugal, and the United States. In all countries, the charge is volume-based.
Generally., the rates are considered too low to produce significant incentive
effects,44
United States. It is estimated that hazardous wastes are generated in the United
States at a rate of 700,000 tons per day. To fund their hazardous waste
regulatory costs and their contribution to the clean up costs of abandoned sites,
many states have implemented hazardous waste disposal facility charges. Some
of these charges are structured to encourage preferred disposal methods.45
A.2.7 Hard-to-Dispose Taxes
Type: Special Tax.
Description: Taxes on hard-to-dispose items that contribute heavily to solid or hazardous waste
disposal problems, including tires, batteries, mattresses, fast food containers, new
cars, and oil. The taxes can be assessed at a flat rate per item, or as a percentage of
the value of the taxed items.
Advantages: Taxes could be imposed on any item contributing to a landfill problem, such as
diapers, or on surrogates for landfill use, such as plastic garbage bags. Encourages
consumers to conserve taxed commodities, which saves landfill space and reduces
impacts of hazardous waste disposal. A tax also could be structured to encourage
recycling of reusable commodities.
Limitations: May be administratively difficult to separate out specific commodities for taxation.
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Financing Environmental Compliance and Enforcement Programs
Country Examples Hard-to-Dispose Taxes
' * * J i :
Canada. Canada charges a 6 to 7 percent tax on disposable diapers. The
revenue is allocated to the general budget, not a dedicated fund. A tax is also
charged on car tires at a rate of ECU 1.1 to 2.8 per tire (US $L3i to $3.33, as of
1994). The revenue from this tax is allocated to both the general budget and
dedicated funds.46
* > '
Denmark. As of April 1995, Denmark planned to introduce a number of new
environmental taxes starting January 1, 1996. The government has received
approval from parliament for a tax on rechargeable nickel-cadmium batteries and
lead batteries for automobiles. The nickel-cadmium batteries will be taxed at 6
kroner per battery (US $1) and lead batteries at 20 kroner (US $3,30) each. The
revenue from both taxes will go towards a bonus system rewarding customers for
returning used batteries. This bonus system encourages voluntary compliance
with regulations governing the disposal of batteries,47
Italy. Italy places a tax on. lead batteries and lubricating oil at their time of sale.
The objective of the taxes is to finance the collection and recycling of the batteries
and oil.45 " ~""'\ * " '
>, "" f ' ' ' .,
Sweden. Since 19,87,, batteries have been, subject to a tax in Sweden. The levy is
based on the weight and type of battery. Batteries are exempt if the total content
of mercury oxides and cadmium is less than 0,025 percent of the battery weight.
The revenues from the tax are used to finance various activities to collect and
process scrapped batteries. The charge levels "were calculated so as to cover the
costs of final disposal as well as the costs of providing information to the public
regarding these charges.43 " ~" - ,, ,
A.2.8 Selective Value Added Taxes
Type: Special Tax.
Description: Selective value added taxes are similar to general value added taxes but are targeted
to particular products or services. Selective value added taxes are-a form of
consumption or sales taxation that is based on the addition to the value of particular
consumer goods or services at each stage of production or distribution. Selective
value added taxes resemble selective sales and use taxes in that the targeted trader
adds the tax to sale invoices issued and accounts for the tax so collected.
Advantages: Selective value added tax are multistage taxes that produce a burden equivalent to
that of a single-stage retail selective sales tax. The selective value added tax base for
any firm, in the production-distribution process, will equal its value-added to the
targeted goods and services the difference between the value of its sales of the
targeted goods and services and the value of its purchases of materials to produce
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Financing Environmental Compliance and Enforcement Programs
the targeted goods and services instead of simply the value of its sales of the
targeted goods and services. The selective value added tax on targeted goods and
services also enables at least an indirect correlation to polluting behavior.
Limitations: The European experience with imposition of selective value added taxes shows that
tax evasion still exists and delinquency continues to be a problem despite the self-
enforcing nature of the selective value added tax.
Country Examples Selective Value Added Taxes
Great Britain and Northern Ireland (United Kingdom), The United Kingdom
places a selective value added tax on fuel. It has not, however, been clearly
demonstrated in the United Kingdom that increasing the price of petrol reduces the
cars on the number of cars on the road.5a,
* Sweden. Since March of 1990, a selective value added tax has existed for energy
generating fuels in Sweden. The rate is 25 percent of the energy price, including
excise taxes. Fuels used in air transportation are exempted from the value added
tax. The base of the value added tax is frequently broadened to increase tax
revenues.51
Organization for Economic Co-operation and Development Countries. Many
Organization for Economic Co-operation and Development countries, with the
exception of Australia and the United States, impose a value added tax on motor
fuel. The value added tax ranges from three percent in Japan to 25 percent in
Sweden and Denmark.52
A.3 User Fees And Charges
User fees and charges can be divided into two categories:
1. Fees and charges applied on a fee for service basis.
2. Fees and charges applied on a quantified impact basis.
Within each category, there are a number of specific mechanisms. These mechanisms are described
below.
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A.3.1 Fees Applied on a Fee for Service Basis
Examples of fees applied on a fee for service basis include utility charges, connection fees, facility
permit and monitoring fees, application processing fees, inspection and certification fees,
recreational fees, license fees, and product registration and inspection fees.
Utility Charges
Type:
User Fees and Charges Fees Applied on a Fee for Service Basis.
Description: Fees charged to customers for the receipt of a specific service, such as drinking
water, wastewater treatment, or stormwater drainage.
Advantages: Potentially broad revenue base; most utilities provide services that all residents
require. As a result, small increases in utility rates can raise significant revenues
while imposing a relatively small burden on households. Can be used to cover the
full cost of providing the service in question or government may subsidize the cost of
such service (and hence maintain low rates), for example, by using general revenues
to cover capital costs. User fees can then be set to cover operating costs only. If,
instead, laws allow fees to be charged to cover the full cost of service provision then
utility fees can be raised to cover the capital costs associated with such services.
Limitations: Some areas may be accustomed to a subsidized rate, making rate increases difficult.
In small or economically disadvantaged communities, reliance on user charges for
capital financing and operations and maintenance costs may not be affordable.
Country Examples Utility Charges
Argentina, Brazil, and Chile. Environmental compliance and enforcement
programs are generally financed by the polluter in Argentina, Brazil., and Chile.
Utility charges are imposed for the use of water and sewer systems,53
Denmark. Since passage of the 1907 Sewer Act, Denmark has charged user fees
for the public sewage treatment system. However, since there were no mandatory
guidelines established, the system evolved in differing ways across municipalities.
In some municipalities, the user fee system was abolished and general taxes cover
the cost of public sewage treatment. The approval of the Plan for the Aquatic
Environment, in 1987, replaced optional guidelines with mandatory guidelines.
The Pollution Council, however, found the system of user fees for provision of
sewage treatment insufficient to provide incentives. The lack of incentives meant
that industries discharging into fresh or niarine waters obtained substantial
advantages compared with firms served by public sewage networks.54
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Financing Environmental Compliance and Enforcement Programs
Country Examples Utility Charges (Continued)
\
* Hong Kong. The government of Hong Kong has decided to impose waste
disposal charges incorporating the "polluter pays principle" to cover costs
associated with sewage, chemical waste, and solid waste disposal. As of
September 1994, it was determined that initial charges would be set to achieve
partial cost recovery. After producers have become accustomed to the charge
arrangements, gradual increases in charges to full cost recovery may be
considered.55
Hungary. User charges are imposed on both water and wastewater in Hungary.
These charges apply to both households and companies. Companies., however,
are charged 30 percent more. Moreover, many multiple household buildings lack
meters and therefore there is no incentive to conserve,56
« Israel. Israel has implemented user fees to coyer sewage treatment and garbage
collection. The sewage fee is based on the amount of water used by each
consumer and is included in the water bill. The revenues are used,for maintaining
Hie sewage system. By law, Hie lees are set at a level appropriate for running the
sewage, system as a closed system; however, the fees are often used to finance
other municipal activities, The garbage collection fee is usually incorporated into
tae'annual municipal tax assessment. As a result, the consumer cannot attach a
specific value to the service and'there-is no iticehtive for reducing,waste volume or
recycling.57 ' ' "-,,,,.,
» ' South Korea. In South Korea, user charges cover the costs of operation and
maintenance for water supply and sewage treatment. These charges are referred
to as water tariffs and sewerage tariffs. Supplemented by foreign and local loans,
revenues from water tariffs have allowed the sector to satisfy increasing water
demand so* that only a few cities now have water shortages. In 1987., sewerage
tariffs were being used in over 52 cities but averaged only 30 to 40'percent of
water tariffs- However, by January 1992, these tariffs were expected tq, generate
a large enough rate of return to also finance a portion of capital expenditures.5S
* South Africa. In South Africa.,, utility charges are imposed to aid in the financing
of environmental compliance and enforcement program activities .5S
Thailand. Provincial and local agencies in Thailand are authorized to develop
and operate wastewater systems and to assess service charges in the areas affected
by these systems.60 At a May 1995 seminar, reports were presented that conclude
that increasing fees to pay for improved environmental management has mixed
support from the Thai public. The studies showed that most Thai people surveyed
were ready to pay higher entrance fees for national parks if the money were used
to preserve the park and improve facilities, but the majority of people said they
were willing to pay only a fraction of the true costs needed to supply homes with
potable drinking water and wastewater services,61
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Financing Environmental Compliance and Enforcement Programs
Connection Fees
Type:
User Fees and Charges Fees Applied on a Fee for Service Basis.
Description: Charged to property owners for connection to a municipal utility. Possible uses
include hook-up fees and new connection fees to water supply services and
wastewater collection systems.
Advantages: Requires new residents to pay for extension of services to them. Charging
connection fees allows general revenues that often subsidize these activities to be
used for other purposes.
Limitations: Provides funds only at time of new customer's arrival or upon system development,
not in advance of the need for capacity.
Country Examples Connection Fees
Argentina, Brazil, and Chile. Connection, fees are imposed to aid in the
financing of environmental compliance and enforcement program activities in
Argentina,Brazil, and Chile.*21 ...,-'.... ,, ,,, , , ,
United States. The State of New Jersey's Bureau of Safe Drinking Water charges
a connection fee to industries for connections to their own source of water. The
fee is a flat $200 for all types of industries, ,3tyfassachusetts also assesses a
connection fee of $25 per device. The fee, in Massachusetts, raised $261,000 in
1990,11 percent of the state's total drinking water budget. Revenup jaised from
the connection fee is considered to be equal to the cost of administering the
program. However, fee revenues are not earmarked for the'program, but are
deposited into the general fund. ,,,.,/
Facility Permit and Monitoring Fees
Type:
User Fees and Charges Fees Applied on a Fee for Service Basis.
Description: Charged to a company or individual for the privilege of operating a facility or for
associated monitoring activities. Examples include drinking water monitoring fees,
solid waste facility fees, hazardous waste facility fees, and underground storage tank
facility fees. In addition, governmental monitoring of privatized water supply plants,
solid waste disposal facilities, vehicle emissions inspection facilities, and other
privately operated facilities could be financed by facility permit fees.
Advantages: In addition to revenues, such fees provide a means of tracking which facilities are
engaged hi environmentally-sensitive activities.
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Financing Environmental Compliance and Enforcement Programs
Limitations: If set too high, fees may discourage private companies from owning and operating
environmental facilities. In some countries, this may discourage successful
privatization of wastewater treatment plants, for example.
Country Examples Facility Permit and Monitoring Fees
Brazil, Facility and permit monitoring fees are imposed to aid in the financing of
environmental compliance and enforcement program activities in Brazil.64
Canada, On July 1, 1992, in British Colombia, Canada, the Waste Management
Permit Fee Regulation was amended to incorporate flie principles of equity,
polluter pay, cost recovery, and reinvestment These principles ensure all
dischargers are treated equally; higher fees are charged for discharges of higher
.. environmental risk; administrative costs of the permit fees program are covered;
and funds are available for initiatives that address environmental problems.
The permit fee system consists of an annual permit fee and a variable permit fee.
The annual fee covers administrative costs for applications, approvals, and
amendments to permits. The variable permit fee is calculated based on the
quantity of discharge and its risk to the environment. Amendments to the Waste
, Management Permit Fee Regulation developed a contaminant weighting scheme
for mis purpose. In addition, because of uncertainty in the contaminant
weightings, fee caps were established to moderate the fee per ton on more
hazardous compounds.65
Denmark. Denmark's 1949 Water Course Act subjected direct industrial
dischargers to a permit procedure. In 1973, Denmark's Environmental
Protection Act required that every discharger obtain a permit. Permits under the
1949 Act still remained in force. In 1972, fewer than ten firms were responsible
for 80 percent of the direct industrial discharges of organic pollutants, and
several of these were already licensed under the 1949 Act.66
New Zealand. In New Zealand, regional councils recover flie full cost of any
consent (permit) compliance monitoring programs from consent holders. The
councils have a policy to recover the full cost of enforcement wherever possible
in order to implement a "polluterpays" concept67
Philippines. In the Philippines, a fee is applied to construct and operate the
following facilities:
Wastewater treatment facilities.
Air pollution sources and control facilities (dust collectors, washers,
scrubbers, bag filters and other similar equipment).
Steam boilers.
Oven roasters., incinerators, furnaces* and other similar equipment
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Financing Environmental Compliance and Enforcement Programs
Country Examples Facility Permit/Monitoring Fees (Continued)
i
The fee to construct varies from P100 (OS $3,86) to P50G (US $19.31) for the
facilities mentioned above. The fee to operate varies from P100 (US $3,86) to
P2QO (US $7.82) for the facilities mentioned above. These fees vary depending
on discharge (m^/day - wastewater treatment facilities), emissions (cu.m./minute -
air pollution sources and control facilities), horsepower (steam boilers), and area
(squaremeters -ovens, roaster, etc.).
Most industries are subject to the fees. Exemptions apply to some septic and
drainage field systems, air conditioning systems,, transportation sources, some
incinerators in family dwellings, and some specified equipment.68
The Netherlands. The Surface Waters Pollution Act requires permits for
dischargers be Issued by rejgional water authorities based on national standards.
There is central supervision of the permitting procedure and all permits issued by
the water authorities are based on national standards. BIZA, the National
Institute of Sewage Technology, accumulates an overview of the available
abatement technologies In the country and can provide a basis for approving
permits for similar firms. However, R1ZA does not formally partake in the
permit decision making by the local water authorities.&
Application and Processing Fees
Type: User Fees and Charges Fees Applied on a Fee for Service Basis.
Description: Application and processing fees are charged for processing costs associated with the
initial permitting of a facility or other permitted location.
Advantages: Environmental programs can use permit application fees to cover the initial
administrative costs associated with permit writing and issuance. The fees may
cover some or all of the start-up costs associated with the permit application
process.
Limitations: Unless permit renewal fees are also charged, revenues will drop off when most
facilities or businesses have been permitted.
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Financing Environmental Compliance and Enforcement Programs
Country Examples Application and Processing Fees
9 - - -v -
Canada, Under previous regulations, an. application fee equal to one year's
annual permit fee was required at the time of application for the operating
permit Under amendments to the Waste Management Fee Regulation that
became effective in My of 1992 (see Panada, Facility Permit and Monitoring
Fee section), the application fee is $100 plus 10 percent of the annual variable
fee, as detennmed by the quantity and quality of the discharge in the application.
The application fee is capped at $50,000. The purpose of an application fee is to
prevent unnecessary work for the Ministry of Environment, Land and Parks on
frivolous applications, and to recover some of the costs incurred in administering
and processing applications, Howeverj the Ministry notes that the 90 percent
reduction and the $50,000 cap in the application fee results in permit applicants
being subsidized by existing permittees,70
New Zealand. The regional councils charge consent (permit) applicants the full
costs (plus expenses) for processing consent applications, including
investigations^, hearings, and any legal costs. The councils also have a policy that
they recover the Mi cost of enforcement wherever possible in order to implement
a "poEuter pays" concept71 -
* United States, In the United States, both state and local governments use
permitting lees to cover the initial administrative costs associated with permit
writing and issuance. Examples of this type of fee include state implemented
National Pollutant Discharge Elimination System permit application fees, state
air emissions source permit application fees, and wetlands permit application fees
(in Maine,. New Jersey, Wisconsin, Maryland, and other states).72
Inspection and Certification Fees
Type:
User Fees and Charges Fees Applied on a Fee for Service Basis.
Description: Charged for certifying or inspecting construction plans, operators, or outputs of
facilities which have an impact on the environment. Governments can charge a
variety of inspection and certification fees. Examples include:
Construction Permit/Plan Review Fees.
Solid and Hazardous Waste Facility Operator Certification Fees.
Underground Storage Tank Installer Certification Fees.
Septic Tank Installer Certification Fees.
Laboratory Certification Fees.
Emissions Inspection Fees.
In addition to planning, reviewing and processing costs, construction inspection fees
can pay for public notification or mitigation of runoff/erosion problems associated
with the construction process. Laboratory fee revenues can pay for oversight of
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Financing Environmental Compliance and Enforcement Programs
privately operated environmental monitoring facilities, such as private air emissions
inspection contractors.
Advantages: Construction certification fees give advance warning of potentially damaging
construction, as well as the funds to analyze the extent of the potential impact.
Laboratory and operator certification fees allow the government to maintain some
oversight of privately-owned and/or operated environmental facilities.
Limitations: Certification fees may have a disproportionate impact on small businesses, who may
not be able to afford operator licensing or the costs of a construction permit.
' .:. Country Examples Inspection and Certification Fees
South Africa. la South Africa, inspection/certification fees are imposed and
utilized for the financing of environmental compliance and enforcement program
73
activities.
United States. The State of Arkansas charges water system plan review fees.
The fee is equal to 1 percent of construction cost and is a one-time fee to review
construction plans for all public water systems, Ohio also makes extensive use
of these fees to fund its drinking water program. The state's program fees
include plan review, lab certification, and operator certification. Revenue
generated defrays the costs of administering each program component. In 1990,
these fees generated $378,000 and accounted for nearly 13 percent of the total
drinking water program budget.74
Recreational Fees
Type:
User Fees and Charges Fees Applied on a Fee for Service Basis.
Description: Examples of recreational fees include charges for the privilege of mooring boats on
provincial/state waters, or for using regional parks and campgrounds. Mooring fees
can be used to finance port operations, boat safety programs, and pumpout facilities.
Advantages: Untapped revenue source in many countries. Allows the government to use general
funds for remediation and other activities, instead of recreational provisions; allows
general revenues to be used for other purposes.
Limitations: May be difficult to institute recreational fees if use of province/state water and park
use has historically been free. May have a disproportionate impact on lower income
segments of the population, who may have few other low cost recreational
opportunities.
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Financing Environmental Compliance and Enforcement Programs
Country Examples Recreational Fees
United States. Both state and local governments in the United States use
mooring fees for a variety of purposes. Some local governments charge mooring
fees., only at municipal marinas operated by regional port authorities, where fee
revenues finance port operations. For .example, Delaware charges a $1.50 per
square foot fee for private docks on state waters, which partially funds the state's
boat safety program. Both state and local governments also charge fees for park
use, with Arizona's park user fees generating over SI million in yearly revenue
for park operating costs.75
License Fees
Type: User Fees and Charges Fees Applied on a Fee for Service Basis.
Description: Fees charged to a company or individual for the privilege of engaging in an activity.
Examples include business license fees and pesticide applicators' license fees.
Advantages: Most license fees have a built-in enforcement mechanism; the licensing government
can revoke the privilege granted with the license if fees are not paid. License fees
can be used to finance administrative and enforcement costs associated with related
government activities. License revenues could also be used to cover the costs of
environmental programs associated with the licensed activity.
Limitations: Since they generally apply only to a limited population, most license fees have a
small revenue base, and it may be difficult to raise significant revenues if fees are set
at low levels.
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Financing Environmental Compliance and Enforcement Programs
Country Examples License Fees
Albania. In January of 1993, Parliament: approved a new law on environmental
protection, which compels those who develop economic and social activities
which influence the environment to get licenses from the responsible authorities.76
Brazil. License fees are imposed in Brazil to assist in ihe financing of
environmental compliance and enforcement programs.77
Nepal. The Ministry of Industry in Nepal charges license fees to facilities that
use finite natural resources in aid of industry's industrial process (e.g., either
water or as a waste disposal sink). All money collected is deposited in the
Pollution Prevention Fund which is used to assist industry in achieving
environmental standards. During the 18-month term of tKe license, the owner or
operator of each facility that is not in compliance with the generic standards must
develop a compliance plan, reflecting steady progress toward the goal of meeting
the generic standards. Following ihe 18-month period and approval of a
compliance plan, a license is issued for a 3-year period. Those fecuities in
compliance at.the end of the 3-year period receive a tax reduction of up to 50
percent of the cost of installed pollution prevention equipment78
Poland. As of 1991, Poland charges a license fee for the temporary right to mine
minerals from a given deposit or designated area,79 ;
United States. The State of Maryland charges $5 per individual and $250 per
boat for sport fishing license fees. The fee raises $600,000 per year for fisheries
management.80 ' , .,;,,; ,/ ^ f<
Uruguay. In Uruguay, licensing fees aid in the financing of environmental
enforcement and compliance programs .?I
Product Registration and Inspection Fees
Type:
User Fees and Charges Fees Applied on a Fee for Service Basis.
Description: Charged for the registration and/or inspection of particular products that have some
environmental impact, such as fertilizers and pesticides.
Advantages: Discourages polluting behavior; any environmentally-sensitive product could be
registered. For example, a registration fee could be charged for each quart of motor
oil sold, with a rebate if recycled motor oil is brought in at time of purchase. The
rebate aids in enforcement through encouraging voluntary compliance.
Limitations: May face opposition from agricultural lobbies.
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Financing Environmental Compliance and Enforcement Programs
Country Examples Product Registration and Inspection Fees
{*
China. China's Environmental Protection Bureau is planning to collect registration
fees for chemical imports as part of the country's environmental controls (as an
alternative to an import tax). The Bureau is considering charging US $200-$ 10,000
in "chemical products quality provision" fees for each chemical imported. The fees-
were part of China's environmental control rules, written in June 1994. The three
fee categories include: *
$10,000 for aerylonitrile and other highly toxic chemicals,
$2,000 for non-toxic chemicals, such as ethylene oxides, printing ink, dyes,
. and cosmetic ingredients.
$200 - $1,500 for solutions, additives, sptays, and other chemical products.
In order to collect the fees, the Bureau requires that exporter's register data for the
manufacture of chemicals, their properties, and specifications. The import fees for
Chinese companies are discounted by one-tenth of the fee structure.82
A.3.2 Fees Applied on a Quantified Impact Basis
Fees applied on a quantified impact basis are those that are assessed according to the effect.,
measured by either quantity or quality, that the pollutants have on the environment. Examples of
these fees include emissions/discharge-based fees, impact fees, disposal fees, and transport fees.
Emission/Discharge-Based Fees
Type:
User Fees and Charges Fees Applied on a Quantified Impact Basis.
Description: Charged on the volume of pollutants emitted into the atmosphere or discharged into
waterbodies. Includes emissions fees where permitted sources are charged per ton
of pollutant emitted and fees are charged based on volume and/or toxicity of
discharges. Fees also can be charged to users of municipal wastewater systems for
pretreatment of particular types of waste. In addition, emissions-based permits
could be extended to small sources that are not generally covered by permit
regulations, but because of overall volume, represent a large share of overall
emissions. The concept of discharge-based permits could also be extended to
agricultural nonpoint source control, estimated by land size or other measures of
each property owner's contribution to the runoff problem.
Advantages: Provides incentive to reduce emissions or discharges. The charge is proportional to
pollution caused.
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Financing Environmental Compliance and Enforcement Programs
Limitations: Although sources can be required to monitor their own emissions, cost of
compliance and enforcement can be high. Depending on the structure of the fee, it
may not always represent a polluter's contribution to the environmental problem.
Country Examples Emission/Discharge-Based Fees
1 ' t "" j"* j :
Brazil. Emissions/discharge-based fees are imposed in Brazil and assist in the
financing of environmental compliance and enforcement programs.85
China. Since the late 1970s, China has implemented a system of pollution
charges. In the mid 1980s, the system of pollution charges became a
comprehensive and nationwide system. The system of pollution charges has
more than one hundred charge rates for five categories of pollution: sewage,
waste gas, noise, radioactive waste, and solid waste. The charges are imposed in
accordance with established standards. The system of pollution charges is an
economic means to make polluting enterprises manage, prevent, abate or
eliminate the discharge of pollutants.
There are two types of pollution charges designated by the pollution discharge
standards, namely, the exceeding-standard pollution charge, the most common
type, and the general pollution charge, an auxiliary type.84 The system of
pollution charges is based on exceeding-standard pollution charges that are:
- Set slightly higher than the operating costs of pollution reduction equipment
and include the depreciation of the lump sum investment for equipment. This
prevents the polluter from paying the charge rather than taking pollution
reduction measures. -, , , , ',
_ ,; "*' , \">: J '
- Based on the quantity and quality of the discharge.
' ' -^ ,!.,<,,
- Scientifically rational and easily enforceable.
The Interim Procedures on Pollution Charges stimulates thatihe pollution charges
levied must be brought into the budget and managed as a special fund., which
cannot be shared. The pollution charges should be mainly expended on
subsidizing key polluting units for controlling pollution sources and
comprehensive control measures of the environmental pollution.85
From 1979 to 1992, 15.7 billion Yuan {US $L9 billion)' was collected in
pollution charges. However, in the past 18 years (from 1992), only 3
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Financing Environmental Compliance and Enforcement Programs
Country Examples Emission/Discharge-Based Fees {Continued)
Czech Republic. Previously, wastewater charges and air pollution fees were
assessed in the Czech Republic and deposited into earmarked funds (State Water
Management Fund and the Air Protection Fund). The funds were established to
stimulate air pollution abatement by changing technologies; reduce water
pollution and support end of pipe solutions; and centralize financial means and
use them to finance activities in all sectors of the economy.87 However, in, 1991,
the State Fund for the Environment was created and substituted for the previous
funds:* This single fund handles the support of investment and non-investment
measures for the protection of the environment. It includes water, air, nature,
landscape and soil purity, and waste handling,**
t
Estonia. Estonia charges fees for regular confirmed emissions of wastes, based
on health standards. The fees are based on the volume and toxicity of the
emissions, and size and type of land use of the polluted area. The fees collected
from polluting enterprises, agricultural farms, the army, etc. form the revenues of
the Estonian Environmental Fund, The fund is used for compensating damages
caused by pollution on the regional level, for investments to, environmental
technology, scientific research, training, grants, international cooperation, and
other environmental protection activities,*9
France. France introduced its effluent fee system in 1976 with Act 76-663. The
system covers both municipal and industrial dischargers. The system also
includes indirect dischargers mat do not discharge directly to a sewage treatment
center. They pay according to the amount of water consumed as opposed to the
amount of waste discharged. Hie effluent charges are based on suspended solids,
oxidizable matter, toxic substances, nitrates, phosphates, and soluble salts that
are in the discharge. France's six river basin agencies set fees to cover costs for
each year by adjusting rates to cover full system costs.50
Germany. Germany's Wastewater Charges Act of 1990 is a combination of
effluent permits, wastewater charges, and the use of the proceeds for water clean-
up. " The charge is determined on an individual basis - with the permit - and
according to quantity and quality of units of pollution. Rates are set on the basis
of emissions permits. In order to determine the charge,, for each unit of pollution
as determined for every group of noxious substances, ihe rate (set by law) is
multiplied by the total amount of units.
The uses of revenues collected include:
Wastewater treatment plants.
Rainwater retention and purification.
Sewerage systems.
Sewage sludge treatment,
Improving quality of water bodies,
Basic and further training,
Research and development.9*
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Financing Environmental Compliance and Enforcement Programs
Country Examples Eimssion/Disckarge-Based Fees (Continued)
",' '* ''< \ , ,*
The charge is designed to promote compliance to the permit standard. The
charge is implemented by the states and is based on various polluting substances.
If plants institute updated technological standards and comply with these
standards before they are obligated to do so, the charge rate is diminished by 75
percent.92
India. The Water Cess Act of 1977 provides for the levy and collection of cess
on water consumed. The rate varies depending upon the purpose for which the
water is consumed. The Act also provides rebates to any industry or authority
which installs a plant for the treatment of industrial effluent or sewage.33
« i
Lithuania. In 1992., a system of pollution fees and fines was introduced in
Lithuania. The rates are determined by the degree of deviation from the
standards and are defined by basic, increased, or reduced levels:
Basic Rate: A. base fee is set according to a basic tate that is charged for not
exceeding the established normal level of pollution.
' T
Increased Rate: When the established norms are exceeded, a fine based on an
increased rate is imposed. This fine is exacted from profits after taxation and
therefore influences the activities of enterprises, providing the incentive to
construct treatment facilities rather than pay extra fines.
At lj . , t
Reduced Rate; Fees based on a reduced tariff are paid when the level of
pollution emissions are less than maximum permissible emissions.
The revenue collected serves the needs of environmental protection ,in the form of
subsidies. The state, therefore, performs environmental protection functions that
are not accomplished by the producers. Subsidies are iised to finance specific
environmental protection measures which cannot be prompted by other economic
activities. Revenue collected from the basic fee is equal to budgetary resources
assigned to finance environmental protection measures,94
Malaysia. Malaysia imposes fees under the Environmental Quality (Sewage and
Industrial Effluents Regulations of 1979. Fees Apply to both conventional and
toxic pollutants. Dischargers located on inland waterbodies specified in the
regulation are charged 10 times the amount that an identical discharger located
on inland waterbodies that are not specified in the regulation^ Some industries
are exempted from this effluent related fee schedule. Most notable is the
processing of crude palm oil which is the largest polluting industry in Malaysia,
This industry does, however, have its own effluent related fee schedule. Fees are
imposed on discharges of biochemical oxygen demand at concentrations both
above and below the standards.95
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Financing Environmental Compliance and Enforcement Programs
Country Examples Emission/Discharge-Based Fees (Continued)
* The Netherlands. The Surface Waters PoHution Act prescribes a detailed
system of levies to finance water pollution control. The primary principle of the
Surface Waters Pollution Act is to treat all polluters in the same manner
regardless of whether they discharge to a treatment plant or directly to a
waterbody. Thus, if a company or household discharges into a water course or
canal, it will have to pay the same levy as if it were connected to the public
sewerage system. Water boards are allowed to impose levies only to cover their
costs for public sewage treatment., and the amount of the levy depends on the
historical costs and depreciation rates for water pottution control. The levies
must be paid according to the quantity of pollution discharged, although fixed
values are used for calculating the levy for dwellings and smaller firms.9*3
Poland. Poland has charged air emission fees since before the political
transitions that began in 1989. Since 1989, Poland has raised its emission fees.
In 1990, Poland's Ministry of the Environment passed the Ordinance on the
Protection, of the Air Against Foliation. Under the ordinance, environmental
standards govern both overall air quality (ambient standards) and the discharges
of large factories.
t
However, several problems have been noted with Poland's: air pollution fee
system. First, fees remain low in many cases, indicating that they are more
effective in raising revenue than in inducing polluters to reduce emissions.
Second, emission fees and fines are not enforced in many instances because of the
practical difficulty of imposing additional costs on firms already struggling.
Last, the ordinance does not properly outline the legal basis for permit trading,
As currently interpreted, the ordinance allows trading among pollution sources
within enterprises. However, it leaves unsettled the scope of trading among
polluters,97 r "
Poland also implements a non-compliance charge on discharges into surface
water (under state ownership) and into soils. Discharges include sewage and
mining waters contaminated with chlorides and sulfates/8
Russia. In 1991, the Russian Federation initiated a pollution charge system to
curtail pollution. The pollution charge system marks the first time Russia has
used economic incentives or a market-based approach to promote environmental
policy. The system involves pollution charges for air emissions, water effluents,
and waste disposal within the determined acceptable limits (fines are imposed on
emissions that exceed the umifs),
fa 1991, maximum permitted concentration standards applied to 479 air
pollutants, 2,675 water pollutants, and 109 soil-polluting substances. The charge
program specifies nearly 300 base rates for air pollutants and nearly 150 for
water pollutants. To calculate the base rate the amount of every pollutant is;
measured in equivalent pollution tons, which are equal to the amount of the!
pollutant in metric tons divided by the maximum permitted concentration values.
PageA-31
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Financing Environmental Compliance and Enforcement Programs
Country Examples Emission/Discharge-Based Fees (Continued)
r \ '
The maximum permitted concentration values are assumed to reflect the relative
health risk to humans caused by the corresponding pollutants.
, i
-f , " i
The government collects the charges and deposits 10 percent in the general
federal treasury and 90 percent into special non-budgetary "environment" funds
at tine central (10 percent), regional (30 percent), and local (60 percent) levels.
These funds are then used to finance environmental cleanup and abatement
technologies." '
Singapore. Under Singapore's Trade Effluent Tariff Scheme!, a variable fee is
applied to effluent discharges to public sewers that exceed the standards for
biochemical oxygen demand and total suspended solids. The fee for exceeding
standards progresses upward with the concentration level, up to a concentration
of 1800 milligram per liter. At this level, the effluent rnust be treated to below
this standard at the factory prior to discharge. Biochemical oxygen demand fees
range irom SS0.12 (US $0.08) to SSO.S4 (US $0.59) per cubic meter. TSS fees
range from SS0.10 (US $0.07) to S$0.70 (US $0.49) per cubic meter, Singapore
also applies a feed fee to the disposal of organic sludge at designated Sewage
Treatment Works. The rate for disposal is set at S$5.00 (US $3.50) per cubic
meter. The same fee schedules apply to all industries and there is no
differentiation in standards or fees betweennew and old facilities,'"''
100
Taiwan. In 1992, the government passed the Air Pollution Control Act which
authorized the levying of an Air Pollution Prevention fee. The Air Pollution
Prevention Fee takes the dual form of a surcharge on petroleum products and an
emission charge on stationary sources of air pollution. One proposal for the use
of the Air Pollution Prevention Fee's revenues was to earmark them for
environmental uses, including the expansion of trie air quality monitoring
network, investments in environmental infrastructure, and compensation of
pollution victims, A similar system to the Air Pollution Prevention Fee is
included in the 1992 Water Pollution Control Act for effluent charges.'01
101
In the United States, Title V of the Clean Air Act of 1990 requires that states
impose emissions fees on stationary sources at levels sufficient to finance the
Title V permit program. States mast charge at least $25 per ton per regulated
pollutant unless they can prove that a smaller charge will'eover the fUB direct and
indirect costs of the permit program.102
' > - '"- ' '*"'", '"*'' I
Also in the United States, the State Water Resources fcontrol Board in
California charges fees for National Pollutant Discharge Eumination System
permits, Non-Chapter 15 Waste Discharge Requirements, 'and Chapter 15 Waste
Discharge Requirements. Annual fees are calculated on the basis of total flow,
volume, number of animals, or area involved ranging from $200 up to a
maximum of $10,000, Fees are deposited into the Waste Discharge Permit Fund
which partially funds their permitting programs, including enforcement.103
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Financing Environmental Compliance and Enforcement Programs
Impact Fees
Type: User Fees and Charges Fees Applied on a Quantified Impact Basis.
Description: Impact fees are charged to new users of government services to pay for the
expansion of the services that they require. They are an alternative, therefore, to
connection fees.
Advantages: Beneficiaries pay for the extension of local government services to them, rather than
having current users subsidize new customers. Impact fees could be used to finance
any service or additions that an increase in the local population makes necessary.
For example, local governments could use impact fees to finance water, natural
resources, wastewater, landfills, and solid waste management facilities.
Limitations: Impact fees provide funding only after, not in advance of the need created by new
residents. Thus, local governments will need some alternative means of raising
capital before new residents actually move in, or necessary expansion may not be
completed in time to serve new residents upon arrival.
Country Examples Impact Fees
I
Israel. Municipalities collect a one-time fee from new home owners to pay for
the construction of sewers and sewage treatment plants.w
United States. In the ttaited States, many cities charge developers' fees; for
wastewajer treatment, drinking wafer, stormwater control, and other public
services as conditions of building permits.105 ^
Disposal Fees (Tipping Fees, Septage/Siudge Fees)
Type: User Fees and Charges Fees Applied on a Quantified Impact Basis.
Description: Charged on volume of solid or hazardous waste disposed at management facilities.
The fee may be charged only on particular products, such as tires or cars, or on all
wastes.
Advantages: Disposal fees are most likely to be used to finance solid waste management costs and
sludge management programs. However, they could be more broadly applied as an
incentive mechanism to encourage participation in recycling programs, thus lowering
overall waste management costs by decreasing the volume to be disposed. When
solid waste disposers do not bear full costs of disposal, disposal is encouraged, since
it becomes cheaper than recycling. Tipping fees should remove this disincentive if
set at appropriate levels.
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Financing Environmental Compliance and Enforcement Programs
Limitations: Fees based solely on volume may not adequately capture revenue from the most
toxic or least degradable waste. Very high fees could encourage illegal dumping of
wastes. If significant waste reduction occurs in response to the fees, revenues will
similarly decline.
Country Examples Disposal Fees
Australia. In Australia, fees on waste disposal are levied on waste disposed of at
landfills and incinerators. The fee is set at ECU 123 (US $14.62 as of 1994) per
ton and the revenue is allocated to the general budget. The province of New
South Wales reports increased recycling fates due to the charge.106
Belgium. Belgium charges a fee of ECU 3.1 to 18.9 (US $3.68 to $22.50, as of
1994) per ton on waste disposal at landfills and incinerators. The rates of the
Belgian waste fee depend on 1he type of treatment and waste origin. The revenue
collected is used to finance a broad range of environmental projects,107
Great Britain and Northern Ireland (United Kingdom). On August 2, 1995,
the government of the United Kingdom announced that the tax on landfills will
now be levied on the basis of the weight of'waste disposed of, rather than the
price paid for disposal. The tax will »se market forces to deter ihe landfilling of
waste, which will encourage recycling and help fee environment. The tax rates,
due to be introduced in October 1996, will b'e announced in the next budget. The
tax will be levied on two different tonnage rates; one for conventional waste and
another for inert waste that does not decay, Likely charges will be between UK
5-7 (US $7.90-$11) per metric ton of conventional waste and between UK 2-3
(US $3.15-$4.75) per meiricton for inert waste.108
South Africa, hi South Africa, disposal fees are imposed and assist in the
financing of environmental compliance and enforcement program activities.109
Transport Fees (Hazardous Wastes, Septic Hauler, Petroleum Product Transfer Fees)
Type: User Fees and Charges Fees Applied on a Quantified Impact Basis.
Description: Fees charged to company or individual for hauling solid or hazardous wastes,
septage, or petroleum products. Can be charged on volume of waste transferred, or
as a flat fee per hauler. Can be used to pay cost of hazardous waste monitoring and
spill response.
Advantages: The fees could capture revenue from transporters who are responsible for some
waste spillage. Revenues could finance operating costs of a monitoring or
enforcement program for hazardous waste transport.
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Financing Environmental Compliance and Enforcement Programs
Limitations: Small revenue base. Depending on the structure of the fee, it may have a
disproportionate impact on small businesses.- The fee might encourage polluters to
dump wastes illegally to avoid the costs of transportation to a legal site.
Country Examples Transport Fees
United States. In the OnitecJ States, hazardous waste transporter fees are used to
pay the cost of" hazardous waste jnonitoring and spill response in a number of
states. Examples include New Jersey and Missouri.*'°
A.4 Fines And Penalties
Fines and penalties include all funds collected from entities that have violated government laws or
regulations. Fines are always monetary payments, while penalties may include both monetary and
non-monetary assessments, such as required actions to be taken by violator as a result of violation.
A.4.1 Fines and Penalties
Type:
Fines and Penalties.
Description: Fines and penalties require offenders to pay monetary (and sometimes non-
monetary) damages for violating government laws or regulations.
Advantages: Fine revenues can serve as a large funding source suitable for financing capital costs.
However, since fine revenues are collected only on deviant behavior, revenues are
erratic. Therefore, fine revenues are generally not suited to fund program operating
costs on a regular basis, but can be used to set up trust funds for future operating
expenses, to fill unexpected gaps in yearly budgeting, or for one-time capital
expenditures. Additionally, fines serve as incentives to change polluting behavior.
Limitations: Revenues are unpredictable. If program funding relies heavily on fines, changes in
polluting behavior will decrease revenues. The government may not dedicate fines to
particular programs. Instead, they might direct them to their general fund.
Programs that do dedicate fines are sometime criticized for conflict of interest, since
the program will benefit from any fines it levies. As a result, there is at least the
appearance of an incentive to take enforcement action simply for the money.
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Financing Environmental Compliance and Enforcement Programs
Country Examples Fines and Penalties
Argentina, Brazil, and Chile. Fines and penalties levied by Argentina, Brazil,
and Chile aid in the financing of environmental compliance and enforcement
programs.1" ' "" '" ~"?
' ' '" i
Colombia. The Colombian Ministry of Environment announced in late April,
1995 that it will fine or apply other sanctions to a number of private sector and
state agencies. The actions will make use of the new punitive powers granted to
it under Law 99 that was passed in 1993. Law 99 also created the Environment
Ministry.112 " ~' "
\ < 'J
Czech Republic, The budgets of local governments fund a large portion of
environmental protection in the Czech Republic. A portion of the funds for these
budgets come from air and water pollution fines.113
Hong Kong. Hong Kong imposes fines for air pollution, noise control, water
pollution, waste disposal, and dumping at sea. The average fine for breaches of
environmental law concerning air pollution range from $860 - $11,000. Fined
offenses include use of prohibited fuel, dark smoke emission, and breach of Horig
Kong's ozone layer protection ordinance.
Water pollution control is exercised through a system of licensing. Each
discharge license specifies the conditions for emitting the discharge. Fines
imposed under this category range from $100,000 to $200,000. Offenders may
be charged under the following sections: industrial, commercial, domestic,
sewage treatment plant, and institutional.
f \
Under the Dumping at Sea Act of 1974, an offender is Sable to a maximum fine
of $5,000 or to imprisonment for not more than 6 months or to both. Upon
conviction or indictment, the offender is liable to a fine or to imprisonment for
not more than 5 years. In 1993, the average fine was $6,383 per court case or
$3,737 per convicted offender.114 I
Hungary, Fines are imposed in Hungary for emissions in excess of allowable
amounts for defined pollutants. The following example involves water
pollutants, but similar fines are imposed on other pollutants. Wastewater fines
are imposed where concentrations in the wastewater exceed nationally established
limits for 19 polluting components and 12 toxic substances. There is a separate
penalty for each pollutant levied in proportion to the increment of the
concentration above the limit, but is higher for very large increments. The total
fine is the sum of the individual penalties. The penalties vary regionally and
increase over time for continuing offenses,115 ,
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Financing Environmental Compliance and Enforcement Programs
Country Examples Maes and Penalties (Continued)
,, : - -J-. M!>-
Lithuania. In 1992, a system of pollution fees and fines was introduced in
Lithuania. The rates are determined by the degree of deviation from the
standards, "When the established norms are exceeded, a fine based on an
increased rate is imposed. This fine is exacted from profits after taxation and
therefore influences the activities of .enterprises, providing the incentive to
construct treatment facilities rather than pay extra fines. The revenue collected
serves the needs of environmental protection in the form of subsidies. Subsidies
are used to finance specific environmental protection measures which cannot be
prompted by other economic activities .11<5
Mexico. As of 1991, the Secretaria de Desarrollo Urbano y Ecologia or the
Ministry of Urban Development and Environment planned to rely heavily on
fines to discourage future violations of environmental regulations and standards.
The law, as of 199 L, allows the imposition of fines up to the equivalent of US
$80,000. Even a substantially lower amount would be a significant charge to a
medium-sized Mexican company. An increased reliance on fines was expected
by the Secretaria de Desarrollo Urbano y Ecologia to function as a deterrent
The Secretaria de Desarrollo Urbano y Ecologia also intended, through these
charges, to pass along the costs of facility mspection.
In addition, Mexico has adopted a series of strict hazardous waste disposal
regulations and standards and adopted strong administrative sanctions to enforce
them. Fines may be imposed on a daily basis for non-compliance; and, in
extreme cases, an operator's business; license may be revoked. Of the 4,850
industrial inspections conducted in 1992, 3,963 resulted in citations for non-
compliance. Of these, 3,144 resulted in fines or other enforcement actions,1'7
New Zealand, In 1967, the Water and Soil Conservation Act came into force
and the maximum, penalty for discharging waste into natural water was set at
$200, for a continuing offense; further fines were not to exceed $10 per day.
Over the years, these penalties have been increased'through various amendments.
Most recently, through the Resource Management Act of 1991, the maximum,
penalty was set at $200,000 and the continuing offense fines at $10,000 per day,
tremendously more significant than earlier fines levels,ns
Philippines. The Industrial Efficiency and Pollution Control Program cites the
collection of fines as a means of securing public financing. Presently, all funds
generated by agencies that collect fines are directly remitted to file National
Treasury's General Fund.119
Poland, m 1992, fee Environment Ministry partially exempted (for up to 6
years) chemical industries from fines to encourage compliance with legislation.
The fines and penalties that are collected are put into the National Fund'for
Environmental Protection and Water Management. In 1991, the fund was worth
$350 million and accounted for over 35 percent of Poland's environmental
spending.120 ' ' i
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Financing Environmental Compliance and Enforcement Programs
Country Examples Fines and Penalties (Continued)
South Afriea. In South African-there is a system of fines and penalties in place
for water pollution. While the fines are a revenue source for environmental
compliance and enforcement program activities, they are set relatively low and do
not provide an incentive for pollution reduction.l21
," - ,., ' / f ! A> *>
South Korea. Since 1983, the Seoul Pollution Control Service Corporation has
been collecting fines from industries that violate water pollution standards. The
revenues collected are then placed into the Environmental Control Fund to be
loaned to industries for acquisition or improvement of pollution control
equipment.
122
Sweden, Fines are levied against companies that are caught violating the terms
of a permit during an inspection. The fines correspond to the money made by the
company while avoiding compliance with the permit and its operating conditions.
However, the fines are not automatic. The National Environment Protection
f f- ' f J
Board has to prove that the company generated income by violating the permit.
While the actual control and enforcement is left principally to county boards for
environmental protection and health, the levying of fines and the determination of
compensation for damages caused by a'given industry's non-compliance with the
terms of its operating permit is decided upon by the national courts,173
Taiwan* Non-comph*ant polluters of air and water face stringent punishment in
Taiwan. For example, a maximum fine of one million HT dollars (US $40,000)
per day can be levied on serious violators. The fine can be charged consecutively
on a daily basis until the violation is corrected.124
' f j 'rt *" f s f
' < \
Thailand. In June of 1995, the Thai government set up two committees to hand
down fines against firms that fail to adhere to industrial pollution control
regulations. The committees are intended to speed up the process of penalizing
firms when violations are deemed unintentional by avoiding drawn out legal
proceedings. The Thailand Factory Act requires industrial sites to obtain a three
year operator's license. Plant managers who operate without a license are
subject to fines up to 200,000 baht (ITS $80,000) and a two-year prison sentence.
The act also gives the Ministry of Industry the authority to set limits on air
pollution discharges and factory effluents.125
United States. Fines and penalties are imposed for violations of laws, rules and
regulations related to environmental compliance and enforcement programs
throughout the United States. Typically, environmental laws authorize the
Environmental Protection Agency to impose administrative penalties. The
Environmental Protection Agency also may ask the courts to impose additional
civil and criminal penalties.126 Federal statutes also give states similar authority
to impose fines and penalties.127 Most states establish dedicated funds for the use
of fine and penalty revenue, in Some instances dedicated to the relevant
environmental program or to a special project or education fund.128
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Financing Environmental Compliance and Enforcement Programs
A.5 Loans And Other Debt Instruments *'
A.5.1 Loans
Loans are funds provided by a lender to a borrower for a specified rate of interest. The following
forms of loans are described below: multilateral and bilateral loans; commercial loans; and intra-
country loans. The next section describes other debt instruments, such as general obligation and
revenue bonds.
Multilateral and Bilateral Loan Sources
Type:
Loans/Debt.
Description: Multilateral loans consist of money lent from two or more combined sources
(foreign governments) often through a multilateral organization to a single country
to finance a variety of projects. Bilateral loans are between a single donor and a
recipient. Loans are made on the condition that they are repaid, either in
installments or all at once, on agreed dates and usually that the borrower pays the
lender an agreed rate of interest (unless it is an interest-free loan).
Advantages: Suitable for financing projects that require large amounts of capital up-front. Can be
used where lower interest financing is unavailable. Enhances credit worthiness of
projects, making projects more attractive to private international investors. Assists
developing countries that lack resources for needed environmental projects.
Limitations: Money borrowed must be repaid to the lender and therefore a revenue stream must
be identified. There also are administrative costs associated with the use of a loan
that can further increase the costs of the project that is being undertaken.
Country Examples Multilateral and Bilateral Loans
Africa. Thirty countries in Africa have National Environmental Action flans,
but only one-third of these countries; have an investment program and an
implementation plan. Pour of these countries are Ghana, Nigeria, Burkina-
Faso, and Mauritius. Approximately '60-SO percent of their financing comes
from loans and grants from multilateral and .bilateral sources. The remaining 20
percent comes from the general budget, funded mostly through taxes,*29
Argentina, Currently, in Argentina, environmental compliance and enforcement
programs, as well as other environmental projects, are financed through
international funds. The mechanisms that are used are loans and grants from
multilateral and bilateral sources.130
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Financing Environmental Compliance and Enforcement Programs
Country Examples Multilateral and Bilateral Loans (Continued)
' ' ' >
f 4t ^ ] l n !^, ,, ^ 'I* '
Brazil and Chile. In Brazil and Chile, multilateral and bilateral loans are used
to finance environmental compliance and enforcement program activities.131
China. Multinational banks and foreign governments had loaned nearly US $1.3
billion to China through 1994 for environmental program activities.132
/ j ' f I V
Mexico. Multilateral and bilateral project financing are two traditional financing
approaches that have been used extensively and will probably continue to be
important in. Mexico. Both tine World Bank and the Inter-American Development
Bank have targeted infrastructure as key areas for investment, and the North
American Development Bank is starting to explore this area. Although
traditional financing methods will continue to be useful to Mexico, they will not
be sufficient to meet the goals of the national program, since the financing needs
are too large. Instead, the World Bank and Inter-American Development Bank
could use fheir resources to enhance the credit-worthiness of individual water
projects, making these projects more attractive to international investors. The
World Bank would not do this on an individual project basis, but rather through a
central Mexican facility that packaged and possibly pooled the water projects.133
In 1992, the World Bank approved a "$50 million loan to Mexico for
" improvement of the country's environmental regulatory efforts. This loan was
designed to strengthen the operations of the former Secretaria de Desarrollo
Urbano y Ecologia, Several new environmental regulatory and environmental
mfirastructure loans have also recently been approved by the World Bank or are
being processed. One category of loans ibr industrial pollution control {$200
million) involves the improvement of environmental regulation, the strengthening
of enforcement, and the promotion of clean technology.134
Philippines. Funding sources for the Industrial Efficiency and Pollution Control
Program include project loans and technical assistance from three multilateral
sources and several bilateral sources. Bilateral ^sources include project loans,
commodity loans, soft Ioans7 and export credit from the lapan. Overseas
Economic Cooperation. Fund, KFW (German Line), Italy, France, Spain, the
Korea Economic Cooperation Development Fund, and Canada.135
Uruguay. In Uruguay, multilateral and bilateral loans routinely aid in the
financing of environmental compliance and enforcement programs.155
Regional Europe. The World Bank is loaning money to aid in the cleanup of the
Baltic Sea area. It is part of a $23 billion 20 year plan that began in 1990 by the
Helsinki Commission to improve the Baltic. Various bordering countries have
received and are receiving money for wastewater treatment and water and
wastewater infrastructure.137
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Financing Environmental Compliance and Enforcement Programs
Commercial Loans
Type: Loans/Debt.
Description: Private banks or financial institution^ offer governments loans to finance a variety of
capital projects.
Advantages: Commercial loans can be used where lower-interest financing is unavailable. The
application process for commercial loans can be faster than for government loan
programs. Commercial lenders alsp have no pre-set eligibility criteria and no pre-
established limits on the total funding available.
Limitations: Generally higher interest rates and less favorable pay back terms than government-
funded loan programs.
Country Examples Commercial Loans
Philippines. Sources of financing for the Department of Environment and
Natural Resources include commercial bank borrowings. Interest rates on
commercial bank borrowings have averaged at levels between 15 and 20
percent,B8
United States, la tne United States* most commercial banks have public finance
departments that will provide loans to state and local governmentSv States and
local governments normally use commercial loans where lower-interest financing
is unavailable or to fill short-term financing needs in anticipation of other
revenues.139
Intra-Countrv Loan Programs
Type:
Loans/Debt.
Description: A sum of money lent to a private industry, province/state or local government, or
non-profit organization from the national government. Generally, funds are lent for
the purpose of financing a particular activity or facility. The scope of funding uses
can be broadly or narrowly defined depending upon the government's desired role.
Advantages: Since the loan funds can be relent after they are repaid, larger projects can be
undertaken without reducing the overall pool of funds. This enables more projects
to be completed overtime than under grant programs.
Limitations: Some low income areas may find they are unable to meet the repayments
requirement without imposing economic hardship on their community.
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Financing Environmental Compliance and Enforcement Programs
Country Examples Intra-Country Loan Programs
Australia. The Industrial Waste Management Policy of the Environment
Protection Agency in Victoria includes a clause to provide financial assistance, or
loans, to industry for waste minimization research and development, and
installation of waste^feducing technologies. Since" 1988., Victoria's
Environmental Protection Agency has administered a Clean Technology Incentive
Scheme that provides secured, interest-free loans to selected small and medium-
sized companies wanting to invest in technologies that reduce or eliminate waste.
Such loans cover up to 50 percent of capital spent directly on waste minimization
technology. The Clean Technology Incentive Scheme program has provided
nearly $2 million in loans since its inception to help Victoria industries implement
waste minimization and clean-production techniques.
140
China. Through revolving loan funds, China provides below-market financing
for pollution control efforts by local mostly small and medium-size firms.
The loans are financed by proceeds from waste discharge fees. Loans are
extended for 50 percent to 80 percent of project cost, with 10 percent to 30
percent covered by grants. In the early 1990s, it was recognized that thelevies
did not generate funds significant enough to provide the large grants needed for
meaningful environmental improvements. Under the loan system, larger projects
can be undertaken and the capital can be allowed to accumulate with the addition
of annual waste discharge fees. Loans are made at market rates with maturity in
three to seven years. The availability of funds earmarked for environmental
improvements provides a significant incentive for such projects, because of the
difficulty of obtaining credit with current rapid economic growth.141
Thailand. With the creation of its Environmental Fund in 1992, Thailand
included a policy of loan funding as an element of wastewater project financing.
The fund also provides loans^to local administrative bodies or state enterprises
for pollution control equipment and treatment or disposal facilities* Fund loans
also are made available to private persons if such persons have a legal duty to
install and operate on-site pollution treatment or control equipment. ^
A.5.2 Other Debt Instruments
In general, other debt instruments are distinguished from loans by the form of indebtedness. Debt
instruments (other than direct loans) provide for periodic repayment over a pre-established period
of time, with both an interest and principal component to the repayment stream. Two forms of
debt, general obligation bonds and revenue bonds, are described below.
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Financing Environmental Compliance and Enforcement Programs
General Obligation Bonds
5 >- H'- -.
Type: Loans/Debt Bonds
Description: General obligation bonds are bonds backed with the guarantee that the issuing
government will use its taxing power to repay the bond.
Advantages: General obligation bonds, backed by the full taxing power of a government, are
regarded as safer than bonds backed by a single revenue source, and generally
command lower interest rates and lower reserve fund requirements. General
obligation bonds also have structural flexibility since the issuing government can
repay the bond with a variety of revenue sources. General obligation bonds could be
used to finance capital projects related to environmental programs. In general,
general obligation bonds are suitable for financing any project that requires large
amounts of capital up-front.
Limitations: Formal approval, either from a governing body or a vote of the citizenry, is
frequently required for general obligation bonds. Frequently, limits are placed on
total outstanding general obligation debt. Because general obligation bonds commit
the borrower to repay the bonds hi a pre-established timeframe, a steady revenue
stream must be secured.
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Financing Environmental Compliance and Enforcement Programs
Country Examples General Obligation Bonds
Mexico. Credit-pooling is an idea that has been considered for financing the
required water projects along the Mexican-United States border. With credit
pooling, local governmental units with limited access to capital or that lack the
required size, financial expertise, or credit history pool their resources to make
themselves more attractive to investors. The goal is to achieve economies of
scale, easier access to capital, and ultimately, lower borrowing costs. Two of the
many ideas that have been considered for Mexican projects include bond banks
and revolving loan funds.143 ,
Philippines. In the Philippines, the Cebu Equity Bond Unit is one example
where a local government has attempted to raise funds in the local bond market.
However, this is generally an expensive way to raise funds. Moreover, the under
developed state of the local capital markets in the Philippines hinders further
development of a secondary market for government debt issues.144
Vl l ,,
Regional Europe. European nations are beginning to experiment with sub-
sovereign debt, which is debt or bonds issued by regional or municipal
governments. New issues have been brought to market in Germany, Sweden,
France, and Spain. .These issues are backed by direct and indirect guarantees of
tax revenues of the parent sovereign.145
South Korea. Historically^ sewage facilities have been financed by compulsory,
low interest municipal bonds that mature in five years. This results in high levels
of subsidization by the government to prevent-excessive burdens on city
revenues. In recent years, the Ministry of Home Affairs' Water and Sewerage
Fund has provided an additional source of financing for sanitation through the
issuance of bonds in each province, although the funds' resources are limited to
approximately$200million.'46 ,' ,
Revenue Bonds
Type:
Loans/Debt.
Description: Revenue bonds are generally backed by user fees or other dedicated revenue streams
paid by users of a government service. A utility enterprise revenue bond is a
example of a specific type of revenue bond that is backed by user charges generated
from a utility.
Advantages: Revenue bonds can provide capital for projects that will ultimately generate
revenues. Examples include solid waste landfills, wastewater treatment plants,
drinking water utilities, and stormwater management districts. Beneficiaries of
services ultimately repay revenue bonds through fees, taxes, or other dedicated
revenue streams.
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Financing Environmental Compliance and Enforcement Programs
Limitations: Revenue bonds are regarded as less secure than general obligation bonds, and
therefore have less market acceptance, higher interest rates, and higher reserve
requirements. Because of strict repayment terms, revenue bonds require a stable
revenue source for bond redemption.
Country Examples Revenue Bonds
United States. In the United States., both state and local governments routinely
use revenue bonds to finance environmental projects, including renovation of
wastewater treatment plants and start-ttp capital for storowater districts,147
A.6 Grants
Grants are sums of money typically awarded for the financing of a particular facility or activity,
without any requirement for repayment. Multilateral and bilateral grant sources and intra-country
grant programs are described below.
A.6.1 Multilateral and Bilateral Grant Sources
Type:
Grants.
Description: A multilateral grant is a sum of money awarded from two or more combined sources
(foreign governments) often through a multilateral organization to a single country
to finance a variety of capital projects. Bilateral grants are awarded from a single
government or organization. Generally, multilateral and bilateral grants are awarded
for the purpose of financing a particular activity or facility. The scope of eligible
fund uses can be broadly or narrowly defined and no repayment is required.
Advantages: The primary advantage of multilateral and bilateral sources is that the government
does not have to use its own resources to pay the costs that the grant covers.
Limitations: Intense competition for a limited pool of funds may make it difficult to finance many
needed projects with grants. ;
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Financing Environmental Compliance and Enforcement Programs
Country Examples Multilateral and Bilateral Grant Sources
.. * *" *f<
Africa. Thirty countries in Africa have National Environmental Action Plans,
but only one-third of these countries have an. investment program and an
implementation, plan. Four of these countries are Ghana, Nigeria, Burkina-
Faso, and Mauritius. Approximately 60-80 percent of their financing comes
from grants and loans from multilateral and bilateral sources. The remaining 20
percent comes from the general budget, funded mostly through taxes.148
Argentina. Currently, in Argentina, environmental compliance and enforcement
programs as well as other environmental projects, are financed through
international funds. The mechanisms that are used are loans and grants from
multilateral and bilateral sources.149
\
> ' ^ '
, , i ,.., <,
Austria. Austria's East-Eco Fund may help reduce a Czech power plant's 'sulfur
emissions by as much, as 95 percent The Fund is designed to reduce
environmental damage in Austria^ neighboring nations. The Fund receives its
money from the Austria national budget, which has contributed $70 million for
81 projects since 1991. Austria helps curb pollution that crosses boundaries by
helping its neighboring countries., which include the Czech Republic, Slovakia,
Hungary., and Slovenia. As of May 1995, each of these countries had received
US $36 nuMon, $19 million, $13 million, and $1 million, respectively.'50
i
Egypt, Morocco, and Tunisia. In Morocco, Tunisia, and {more recently)
Egypt, bilateral grants are being used for capacity building. Also in Tunisia,
grants for monitoring have come from bilateral sources. Funding for
environmental programs comes mostly from general taxes and grants in Middle
Eastern and North African countries. These grants, which are currently being
used for pilot projects, are used to build environmental capacity and must
eventually be replaced with traditional budgetary sources,151
Pakistan. The annual Portfolio of Aid-Worthy Projects for the Pakistan
Consortium totals US $12.75 billion, consisting of on-going, approved, and
unapproved projects for implementation over a two to three year period. Annual
commitments total approximately US $2.5 billion.ia
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Financing Environmental Compliance and Enforcement Programs
Country Examples Multilateral and Bilateral Grant Sources (Continued)
* Philippines, hi 1992, an environmental grants program was proposed to fund a
package of projects including training, information programs, demonstration
projects and community-based waste/industrial treatment facilities. Grant
assistance from both multilateral and bilateral sources was an important
component of the package.1*3
« Poland. The forest lands where Poland, the Czech Republic, and Eastern
Germany meet will receive funding from the Global Environmental Facility, The
Global Environmental Facility is managed by the World Bank and financed
largely by the United States, Western Europe, and Japan. The fund has four
areas for support; (1) biodiversity; (2) the ozone layer; (3) greenhouse gas
emissions and adoption of cleaner fuels and technologies in the energy agriculture
and industry sectors; and (4) international waters. An initial $4.5 million grant
from the Global Environmental Facility will support Poland's efforts to protect
its endangered forest ecosystems. Some of this forest is known as the Black
Triangle, The Black Triangle is where 13,000 hectares of forest are dead and
another 8,000 are dying because of air pollution.134
Uruguay, hi Uruguay, multilateral and bilateral grants routinely aid in the
financing of environmental compliance and enforcement programs.155
A.6.2 Intra-Country Grant Programs
Type: Grants.
Description: An ultra-country grant is a sum of money awarded to a provincial/state or local
government or non-profit organization from the national government. Generally,
these grants are awarded for the purpose of financing a particular activity or facility.
Eligible fund uses can be broadly or narrowly defined depending upon the
government's desired role and do not require repayment.
Advantages: The primary advantage of grants is that provincial/state and local governments do
not have to use their own resources to pay the costs that the grant covers.
Limitations: Applying for grants can be costly and time-consuming for the province/state or local
government. The national government also may find it too costly to grant the
needed amount of money. Intense competition for a limited pool of funds may make
it difficult to acquire funding for most projects.
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Financing Environmental Compliance and Enforcement Programs
Country Examples Intra-Country Grant Programs
Austria. The Ministry of Health and Environmental Protection administers an
environmental fund to aid domestic industries in complying with regulations. The
fund provides credit financing and investment subsidies for the modernization of old
installations, implementation of pilot projects to develop soft technologies, and for
hazardous waste disposal projects. The fund has been in operation since 1984, with
annual funding from the federal budget.156
Great Britain. Under the Department of Environment's Environment Protection
Technology Scheme, the government may provide up to 50 percent of the costs of
industrial research projects to improve environmental standards.157
Hungary. The Hungarian government invests one percent of its gross domestic
product in the environment. Over one-half of this amount is used to finance the
protection of water supplies. Sources of government assistance include: direct
"targeted support" to municipalities for water protection; direct transfer with
investment support from the Central Environment Protection Fund; and subsidies
from the Water Management and Central Environment Protection funds.15S
Poland. Grants from the National Fund for Environmental Protection and Water
Resources Management finance environmental projects throughout Poland. $9
Romania. According to the 1992-2000 strategy plan of the Romanian Industry
Ministry, the government will provide LeiSGbn (US $909 million)' and 'US'$175
milHon in grants to restructure its industry. However, as of 1992, Lei300bn (alone)
was known to be required for environmental protection measures within industry,
leaving a shortfall to be filled by other sources, such as UNBP, the EC's Phare
program, the World Bank, and private sector investment.160
South Korea, Central government grants are one component used for the financing
of sector investments. Each municipality receives a grant, or share of tax revenues
that has been collected by the national government and is redistributed to
municipalities based on their financial position.16
Thailand. Grants from fee Environment Fund, totaling US S3 88 million over a
three-year period (1996-1999), serve as one of the principal sources for the financing
of the Samut Prakam Wastewater Management & Pollution Control Project.162
Grants will be made to local administrative bodies for investment in and operation of
central wastewater treatment or waste disposal facilities,
United States. Major pieces of environmental legislation provide grant funds to
support development and to some extent operating costs of state and local
environmental programs where state and local governments seek approval to
implement programs according to federal law. Usually, these programs have match
requirements whereby state and local governments must provide a designated
percentage of total program funding to receive federal funding. In addition, receipt of
federal grants for environmental program management is generally premised on states
entering into contractual agreements regarding performance of specified activities.
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Financing Environmental Compliance and Enforcement Programs
A.7 Voluntary Mechanisms
Voluntary mechanisms are funding mechanisms that are not directly imposed upon individuals, but
are established to collect funds if an individual or. entity volunteers them. Two examples of
voluntary mechanisms, donations and lotteries, are described below.
A.7.1 Donations
Type: Voluntary Mechanisms.
Description: Donations are the voluntary giving of funds by individuals or foundations (in this
way, they are similar to grants). They can either be solicited by an associated non-
profit foundation or as a line item on a provincial/state or local tax return. Normally,
foundations provide supplemental funding for cleanup efforts in particular media or
geographic areas. !
Advantages: Little public opposition to voluntary mechanisms. Can also raise public awareness of
environmental programs. Best suited to finance environmental programs that could
attract significant public interest.
Limitations: Donations will fluctuate with economy. Therefore, the revenue stream is not stable
and should not be relied upon to finance essential ongoing items.
Country Examples Donations
United States. In the United States, many states Bave associated foundations
that provide supplemental funding for cleanup efforts in particular media or
geographic areas. For example, in Maryland, protection of water qualify in
Chesapeake Bay is partially funded, by individual donations to the Chesapeake
Bay Foundation. Many states also use a check-off box on state income tax
return to allowtaxpayers to earmark tax refunds for environmental purposes, in
Virginia, for example, there is a program that encourages a voluntary donation
from an individuaFs income tax refund to finance the protection of wildlife and
habitat. Other states use the sale of special edition license plates to finance
environmental protection. Maryland has a "Save the Bay" license plate program
that,, as of 1989, had generated over $1 million in funds for Chesapeake Bay
cleanup efforts,163 :
Uruguay. In Uruguay, donations routinely aid in the financing of environmental
compliance and enforcement programs.1^
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Financing Environmental Compliance and Enforcement Programs
A.7.2 Lotteries
Type: Voluntary Mechanisms.
Description: Lotteries are the sale of tickets with a chance to win a sum of money or prize. The
funds that are raised (beyond those given to lottery winners) can be dedicated to
finance environmental programs that could attract significant public interest.
Advantages: Little public opposition to lotteries. Can also raise public awareness of
environmental programs.
Limitations: Lotteries are a regressive source of income, placing a disproportionate share of the
funding burden on lower income individuals. Also will require capital for start-up
costs.
Country Examples Lotteries
f "',: t ' "
" J ,. f '
I s >
United States. Minnesota uses state lottery proceeds to finance the protection
and improvement of the natural resources and environment of the state. In 1990,
Minnesota voters approved a referendum that requires not less than 40 percent of
the net proceeds from any state lottery to be credited to the iuncl through the year
200L165 - > ''" ,""'/''; ,,'.-<<-
A.8 Public-Private Partnerships
Public-private partnerships involve private participation in the design, financing, construction,
ownership, and/or operation of a public purpose facility or service. One form of public-private
partnerships relevant to environmental compliance and enforcement programs, contract services, is
detailed below. Other public-private arrangements are discussed in Chapter 4 of this document.
A.8.1 Contract Services
Type:
Public-Private Partnerships.
Description: A private partner is contracted to provide a specific municipal service. These
services can include environmental regulation and standard enforcement, water and
air quality monitoring, lab analysis, solid waste removal and disposal, or maintenance
and operation of a publicly-owned facility, such as a wastewater treatment plant,
hazardous waste facility, or drinking water facility.
Advantages: Depending on the nature of the activity, it has been shown that in the United States,
private sector operators can achieve efficiency savings of 10-30 percent over public
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Financing Environmental Compliance and Enforcement Programs
sector operation. Under some agreements, risk of operations is transferred to
private partner.
Limitations: In some cases, the transfer of formerly public services to private companies can
cause labor difficulties among public employees. Additionally, legal issues can arise
if the service being contracted for is the provision of enforcement of environmental
standards and regulations.
Country Examples Contract Services
France. Jh France, which has probably the most developed system of private
contracting &r water safety and sanitation management in the world, 60 percent
of the total population is served by privately operated water systems. The three
general types of contracting anangements made between French municipalities
and private management firms are:
Concession contract^ in which the private firm builds and operates water safety
and sanitation facilities. The firm is compensated by fees collected directly from
the water safety and sanitation consumers., as stipulated in the contract between
the mtroicipality and the private firm.
Farm lease, in which the municipaHty builds the water safety and sanitation
fecilities with the firm managing the facilities and collecting fees. The firm,
however, keeps only a portion of the fees collected to cover its management
costs^ the remainder is paid to die municipality to cover capital investment costs.
Management contract, in which the municipality retains control of the facilities
and contracts out only certain parts of the management operation..
In France., most municipal governments retain ownership of the water safety and
sanitation assets, with the private contractor operating under a long-term
contract. Given their extensive experience within the country, French water
management companies have grown quite large. They are now exporting their
expertise to industriahzed countries, such as the United States, and increasingly
developing countries as well?66
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Financing Environmental Compliance and Enforcement Programs
Country Examples Contract Services (Continued}
Mexico. A public-private arrangement for the provision of drinking water in
Mexico City is structured ia a series of phases, each of which increases the level
of private-sector participation. General contracts were awarded by la
Commission de Agua del Distrito Federal, Hie city agency in charge of water, for
a ten-year period which may be extended. Awards were based on a competitive
bidding process to operate the city water supply system. The city will retain
ownership of all facilities. Under Phase I, which is expected to last about two
years, contractors will map out the system, determine the condition of the
facilities, measure the quantity of unaccounted for water, identify repairs
required to prevent water loss, and install meters for all users. In Phase fl,
contractors will develop a billing system and bill customers, investments in the
first two phases are underwritten by BANOBRAS, the Mexican public works
bank. Under Phase IDE, it is expected that "the contractors will purchase bulk
water from the city and distribute it to users. Payment will consist of a portion of
the rates collected.167
"" 1 j
Russia. In Russia, privatization of state and municipal enterprises can be
considered one of the largest sources of financing for environmental protection
activities. A law covering privatization was adopted in June 1991.16S
South Africa. Contract services'are commonly used for waste disposal purposes
: in South Africa.169 . ^ ; !
United States. In the United States, local governments have used contract
services to operate wastewater treatment plants, water utilities, and other
municipal services. State governments have contracted out various portions of
their environmental programs, including laboratory sources, inspection activities,
and evea permit writing. For example, monitoring of wastewater discharges is
Contracted oat to a private laboratory by the Wisconsin water quality program."0
1 Facsimile from Jachim von Amsberg, Economist, The World Bank, Natural Resources, Environment and Rural
Poverty Division to Jennifer Bing, Apogee Research regarding Environmental Financing in Argentina, Brazil, and
Chile. October 31,1995.
2 Organization for Economic Co-operation and Development (OECD). OECD Documents. Environment and
Taxation: The Case of The Netherlands, Sweden, and the United States. 1994.
^cVenzie, Craig. Associate Director DBSA. Fax to Apogee Research. October 1995.
4 Apogee Research, Inc. A Compendium of Alternative Financing Mechanisms for Environmental Programs. Draft
Report. October 1995.
5 Interview with Dr. Marcelo Cousillas, Legal Advisor, National Directorate of the Environment, Uruguay. October
1995.
6 Facsimile from Jachim von Amsberg, Economist, The World Bank, Natural Resources, Environment and Rural
Poverty Division to Jennifer Bing, Apogee Research regarding Environmental Financing in Argentina, Brazil, and
Chile. October 31,1995.
7 Organization for Economic Co-operation and Development (OECD). OECD Documents. Environment and
Taxation: The Case of The Netherlands, Sweden, and the United States. 1994.
8 National Conference of State Legislatures. Earmarking State Taxes. Washington, DC. September 1990.
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Financing Environmental Compliance and Enforcement Programs
9 Facsimile from Jachim von Amsberg, Economist;: The World Bank, Natural Resources, Environment and Rural
Poverty Division to Jennifer Bing, Apogee Research regarding Environmental Financing in Argentina, Brazil, and
Chile. October 31, 1995.
10 The Nature Conservancy, State Funding for Natural Areas, Progress Report. Arlington, Virginia. June 1990.
11 National Conference of State Legislatures. States as Water Quality Financiers: Legislative Options for the 1990s.
May 1991. pp. 19-22.
12 Facsimile from Jachim von Amsberg, Economist, The World Bank, Natural Resources, Environment and Rural
Poverty Division to Jennifer Bing, Apogee Research regarding Environmental Financing in Argentina, Brazil, and
Chile. October 31, 1995.
13 National Conference of State Legislatures. States as Water Quality Financiers: Legislative Options for the 1990s.
May 1991.
14 United States Environment Protection Agency. Program Evaluation Division, Office of Management Systems and
Evaluation, Office of Policy, Planning and Evaluation. ; State Use of Alternative Financing Mechanisms in
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15 The Bureau of National Affairs, Inc. "Danish Government Proposes New Taxes on Carbon Dioxide, Sulfur
Dioxide Emissions." International Environmental Reporter. Washington, DC. April 19, 1995.
16 Organization for Economic Co-operation and Development (OECD). OECD Documents. Managing the
Environment: The Role of Economic Instruments, Paris, France. 1994.
17 Organization for Economic Co-Operation and Development (OECD). OECD Documents. Managing the
Environment: The Role of Economic Instruments. Paris, France. 1994. p. 76.
18 Organization for Economic Co-operation and Development (OECD). OECD Documents. Managing the
Environment: The Role of Economic Instruments. Paris, France. 1994.
19 Organization for Economic Co-operation and Development (OECD). OECD Documents. Environment and
Taxation: The Cases of The Netherlands, Sweden and the United States. Paris, France, pp. 63-79. 1994.
20 Facsimile from Jachim von Amsberg, Economist, The World Bank, Natural Resources, Environment and Rural
Poverty Division to Jennifer Bing, Apogee Research regarding Environmental Financing in Argentina, Brazil, and
Chile. October 31,1995.
21 Ministry of Environment and Forests. Government of India. Annual Report 1994-95. New Delhi: Environmental
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22 Organization for Economic Co-operation and Development (OECD). OECD Documents. Environmental Taxes in
OECD Countries. 1994.
23 Zarocostas, John. "Import Tax Proposed to Protect Environment." Journal of Commerce and Commercial.
November 22, 1994.
24 The Bureau of National Affairs, Inc. "Danish Government Proposes New Taxes on Carbon Dioxide, Sulfur
Dioxide Emissions." International Environment Reporter. Washington, DC. April 19, 1995.
25 "Economic Instruments In German Environment Policy: Principles and Practice: An Overview."
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Fails." International Environment Reporter. Washington, DC. June 14, 1995.
27 "Economic Instruments In German Environment Policy: Principles and Practice: An Overview."
28 Organization for Economic Co-operation and Development (OECD). OECD Documents. Managing the
Environment: The Role of Economic Instruments. 1994.
29 Gabbay, Shoshana. Ministry of the Environment. The Environment In Israel: State of Israel. Jerusalem, Israel.
1994.
30 Organization for Economic Co-operation and Development (OECD). OECD Documents. Environment and
Taxation: The Cases of The Netherlands, Sweden and the United States. Paris, France. 1994. pp. 63-79.
31 Organization for Economic Co-operation and Development (OECD). OECD Documents. Managing the
Environment: The Role of Economic Instruments. 1994.
32 Organization for Economic Co-operation and Development (OECD). OECD Documents. Environment and
Taxation: The Cases of The Netherlands, Sweden and the United States. Paris, France. 1994. pp. 63-79.
33 Ministry of Science, Technology and Environment. Country Report on Thailand's Environmental Protection
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Financing Environmental Compliance and Enforcement Programs
34 Apogee Research, Inc., Environmental Policy Course for the Environmental Law Institute and the International
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35 Organization for Economic Co-operation and Development (OECD). OECD Documents. Managing the
Environment: The Role of Economic Instruments. 1994.
36A Synopsis of Market-Based Instruments for Promoting Pollution Reduction in the Philippines. June 1994.
37 The World Bank. "The Costs and Financing of Environmental Protection." Indonesia: Environment and
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38 Gabbay, Shoshana. Ministry of the Environment. The Environment In Israel: State of Israel. Jerusalem, Israel.
1994.
39 Environmental Protection Ministry of the Republic of Lithuania. "Lithuania: National Report." United Nation
Conference on Environment and Development. 1992. pp. 106-122.
40 European Association of Environmental Resource Economists Polish Division. Economics and Legal Instruments
of Economic Policy in the Market Economy. Selected Papers. 1991. pp. 98-109.
Organization for Economic Co-operation and Development (OECD). OECD Documents. Environment and
Taxation: The Cases of The Netherlands, Sweden and the United States. Paris, France. 1994. p. 117.
42 Ministries of Finance - Science, Technology and Environment. Guidance on Financial Collection and
Management in Environmental Protection Activities. Inter-Ministerial Circular. 1995.
4326USC54611(b).
44 Organization for Economic Co-Operation and Development, Managing the Environment: The Role of Economic
Instruments. Paris, France. 1994. p. 63.
45 Apogee Research, Inc. A Compendium oj'Alternative Financing Mechanisms for Environmental Programs. Draft
Report. October 1995.
45 Organization for Economic Co-operation and Development (OECD). OECD Documents. Managing the
Environment: The Role of Economic Instruments. 1994.
47 The Bureau of National Affairs, Inc. "Danish Government Proposes New Taxes on Carbon Dioxide, Sulfur
Dioxide Emissions." International Environmental Reporter. Washington, DC. April 19, 1995.
48 Organization for Economic Co-operation and Development (OECD). OECD Documents. OECD Environmental
Performance Revie^vs: Italy. 1994.
49 Organization for Economic Co-operation and Development (OECD). OECD Documents. Environment and
Taxation: The Cases of The Netherlands, Sweden and the United States. Paris, France. 1994. pp. 63-79.
50 Rich, Motoko. "Sizing Up the Chancellor's Shade of Green: Motoko Rich on the Environmental Options Business
and Lobbyists would like to see in Budget." Financial Times. Tuesday, November 22, 1994.
51 Organization for Economic Co-operation and Development (OECD). OECD Documents. Environment and
Taxation: The Cases of The Netherlands, Sweden and the United States. Paris, France. 1994. pp. 63-79.
52 Organization for Economic Co-operation and Development (OECD). OECD Documents. Environmental Taxes in
OECD Countries. Paris, France. 1995. p. 17.
53 Facsimile from Jachim von Amsberg, Economist, The World Bank, Natural Resources, Environment and Rural
Poverty Division to Jennifer Bing, Apogee Research regarding Environmental Financing in Argentina, Brazil, and
Chile. October 31,1995.
54 Anderson, Mikael Skou. Governance By Green Taxes: Making Pollution Prevention Pay. Manchester University
Press. 1994.
55 Wong, Lawrence. Hong Kong's Approach to Environmental Protection. Environmental Protection Department.
Hong Kong Government. Asia-Pacific Regional Workshop on Environmental Protection Strategies. September 14-
16,1994.
56 Schreiber, Helmut. The World Bank, Energy and Environment Operations Division, Central Europe Department,
Europe and Central Asia Region. "Hungary." Environmental Strategy Study. September 1992.
57 Gabbay, Shoshana. Ministry of the Environment. The Environment In Israel: State of Israel. Jerusalem, 1994.
58 United States Agency for International Development. Financing Wastewater Services in Developing Countries.
Water and Sanitation for Health Technical Report No. 80. October 1993. pp. 33-36.
59 Facsimile from Craig McKenzie, Associate Director, Development Bank of Southern Africa to Jennifer Bing,
Apogee Research. October 19,1995.
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60 Asian Development Bank. Waste-water Management and Pollution Control in Samut Prakarn Province Project.
Executive Report. 1995.
61 The Bureau of National Affairs, Inc. "'Green Financing' Gets Mixed Support from Public According to Recent
Studies." International Environment Reporter. Volume 18, No. 14. July 12, 1995. p. 548.
62 Facsimile from Jachim von Amsberg, Economist, The World Bank, Natural Resources, Environment and Rural
Poverty Division to Jennifer Bing, Apogee Research regarding Environmental Financing in Argentina, Brazil, and
Chile. October 31, 1995.
63 National Conference of State Legislatures. States as Water Quality Financiers. Denver, Colorado. May 1991. p.
11.
64 Facsimile from Jachim von Amsberg, Economist, The World Bank, Natural Resources, Environment and Rural
Poverty Division to Jennifer Bing, Apogee Research regarding Environmental Financing in Argentina, Brazil, and
Chile. October 31, 1995.
65 British Columbia Environment. Consultation Summary For Waste Management Permit Fee Regulation. Province
of Canada, Ministry of Environment, Lands and Parks Environmental Protection Division.
66 Anderson, Mikael Skou. Governance By Green Taxes: Making Pollution Prevention Pay. Manchester University
Press. 1994.
67 Ministry for the Environment. Resource Management Ideas No. 6: The Business of Consents, Monitoring and
Enforcement in Taranaki.
68 Professional Regulation Commission. Republic of the Philippines - Rules and Regulations of National Pollution
Control Commission. Official Gazette Volume 74, Number 23. June 1978. p. 4482.
69 Anderson, Mikael Skou. Governance By Green Taxes: Making Pollution Prevention Pay. Manchester University
Press. 1994.
70 British Columbia Environment. Consultation Summary For Waste Management Permit Fee Regulation. Province
of Canada, Ministry of Environment, Lands and Parks Environmental Protection Division.
71 Ministry for the Environment. Resource Management Ideas No. 6: The Business of Consents, Monitoring and
Enforcement in Taranaki.
Apogee Research, Inc. A Compendium of Alternative Financing Mechanisms for Environmental Programs. Draft
Report. October 1995. p. 43
73 Facsimile from Craig McKenzie, Associate Director, Development Bank of Southern Africa to Jennifer Bing,
Apogee Research. October 19, 1995.
74 National Conference of State Legislatures. States as Water Quality Financiers. Denver, Colorado. May 1991. p.
11.
75 Apogee Research, Inc. A Compendium of Alternative Financing Mechanisms for Environmental Programs. Draft
Report. October 1995.
76 The World Bank, Albania Ministry of Health and Environmental Protection, Committee of Environmental
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Plan. Tirane, Albania. July 1993.
77 Facsimile from Jachim von Amsberg, Economist, The World Bank, Natural Resources, Environment and Rural
Poverty Division to Jennifer Bing, Apogee Research regarding Environmental Financing in Argentina, Brazil, and
Chile. October 31, 1995.
78Asian Development Bank. 'Nepal: Industrial Pollution Control Legislation. Final Report. December 1994.
79 European Association of Environmental Resource Economists Polish Division. Economics and Legal Instruments
of Economic Policy in the Market Economy. Selected Papers. 1991. pp. 98-109.
80 Apogee Research, Inc., Environmental Policy Course for the Environmental Law Institute and the International
Institute for Economics. March 1994.
81 Interview with Dr. Marcelo Cousillas, Legal Advisor, National Directorate of the Environment, Uruguay October
1995.
82 The Bureau of National Affairs, Inc. "China to Impose 'Registration Fees' on Chemical Imports Beginning in
May." International Environment Reporter. April 5, 1995. pp. 266-67.
83 Facsimile from Jachim von Amsberg, Economist, The World Bank, Natural Resources, Environment and Rural
Poverty Division to Jennifer Bing, Apogee Research regarding Environmental Financing in Argentina, Brazil, and
Chile. October 31, 1995.
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Financing Environmental Compliance and Enforcement Programs
s* Environmental Management Bureau and the Department of Natural Resources, Philippines and the United States
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85 National Environmental Protection Agency. Pollution Charges in China. December 1992.
8S Apogee Research, Inc. National Environmental Agency of Vietnam: Programs of Environmental Fees and
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87 Infrastructure Operations Division, Europe Department. Czechoslovakia: Environmental Economics and Finance.
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88 Environmental Year-Book of Czech Republic. 1991. pp. 270-77.
89 European Association of Environmental Resource Economists Polish Division. Economics and Legal Instruments
of Economic Policy in the Market Economy. Selected Papers. 1991. pp. 98-109.
^ Anderson, Mikael Skou. Governance By Green Taxes: Making Pollution Prevention Pay. Manchester University
Press. 1994.
91 "Wastewater Charges in Germany."
92 Organization for Economic Co-operation and Development (OECD). OECD Documents. Managing the
Environment: The Role of Economic Instruments. Paris, France. 1994.
93 Malhorta, Rajeev. India's Current Institutional Framework: Economic Instruments and Legislation on
Environmental Protection and Management. Ministry of Environment and Forests, Government of India, pp. 7-16.
94 Environmental Protection Ministry of the Republic of Lithuania. "Lithuania: National Report." United Nation
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9S Professional Regulation Commission. Republic of the Philippines - Rules and Regulations of National Pollution
Control Commission. Official Gazette Volume 74, Number 23. June 1978. p. 4482.
96 Anderson, Mikael Skou. Governance By Green Taxes: Making Pollution Prevention Pay. Manchester University
Press. 1994.
97 Toman, Michael A., Pollution Abatement Strategies in Central and Eastern Europe. Washington, DC. Resources
for the Future. 1994. pp. 25-47.
98 European Association of Environmental Resource Economists Polish Division. Economics and Legal Instruments
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99 National Academy of Public Administration. The Environment Goes to Market: The Implementation of Economic
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100 Professional Regulation Commission. Republic of the Philippines - Rules and Regulations of National Pollution
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101 Office of Science and Technology Advisors, Environment Protection Administration, Government of the Republic
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102 The Environmental Financial Advisory Board. The Clean Air Act of 1990: A Guide to Public Financing Options.
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103 Memorandum from Kurt Wasserman, Chief, Regulation Branch, Division of Water Quality, State Water
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2,1993.
104 Gabbay, Shoshana. Ministry of the Environment. The Environment In Israel: State of Israel. Jerusalem, Israel.
1994.
105 Apogee Research, Inc. A Compendium of Alternative Financing Mechanisms for Environmental Programs. Draft
Report. October 1995.
106 Organization for Economic Co-operation and Development (OECD). OECD Documents. Managing the
Environment: The Role of Economic Instruments. 1994.
107 Organization for Economic Co-operation and Development (OECD). OECD Documents. Managing the
Environment: The Role of Economic Instruments. 1994.
108 The Bureau of National Affairs, Inc. "Government Gives in to Pressure, Bases Landfill Tax on Weight of Waste."
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109 Facsimile from Craig McKenzie, Associate Director, Development Bank of Southern Africa to Jennifer Bing,
Apogee Research. October 19,1995.
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110 Office of Underground Storage Tanks, U.S. EPA, Funding Options for State and Local Governments. August
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111 Facsimile from Jachim von Amsberg, Economist, The World Bank, Natural Resources, Environment and Rural
Poverty Division to Jennifer Bing, Apogee Research regarding Environmental Financing in Argentina, Brazil, and
Chile. October 31,1995.
112 The Bureau of National Affairs, Inc. "Environment Ministry Cracks Down on Industrial Pollution with Fines,
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113 Infrastructure Operations Division, Europe Department. Czechoslovakia: Environmental Economics and
Finance. July 1990. pp. 36-41.
114 Country Paper for Hong Kong.
115 Schreiber, Helmut. The World Bank, Energy and Environment Operations Division, Central Europe Department,
Europe and Central Asia Region. "Hungary." Environmental Strategy Study. September 1992.
116 Environmental Protection Ministry of the Republic of Lithuania. "Lithuania: National Report." United Nation
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117 Office of General Counsel, Office of Enforcement, United States Environmental Protection Agency. Mexican
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118 Cameron, Karemaza J.L. "Enforcement." Paper 22. NZWWA Annual Conference. 1994.
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121 Facsimile from Craig McKenzie, Associate Director, Development Bank of Southern Africa to Jennifer Bing,
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122 United States Agency for International Development. Financing Wastewater Services in Developing Countries.
Water and Sanitation for Health Technical Report No. 80. October 1993. pp. 33-36.
123 Haigh, Nigel and Francis Irwin ed., Integrated Pollution Control In Europe and North America. The
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London, and Paris. 1990. pp. 147-69.
124 Office of Science and Technology Advisors, Environment Protection Administration, Government of the Republic
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125 The Bureau of National Affairs, Inc. '"Green Financing' Gets Mixed Support From Public, According to Recent
Studies." International Environment Reporter. Volume 188, No. 14. July 12,1995. p. 548.
126 Clean Water Act, Section 309, 33 USC s 1319 and Clean Air Act, Section 113(d), 42 USC s 7413(d).
127 Clean Water Act, Section 402(b)(7), 33 USC § 1342 (b)(7) and Clean Air Act, Section 110 (a), 42 USC § 7410(a).
128 42USCs11046(f).
129 Interview with Jean Paul Mercier, Africa Environment Assessment Department, The World Bank. October 10,
1995.
130 Interview with Professor Sheila Arrega, Fundacion Educambiente, Argentina. October 12, 1995.
131 Facsimile from Jachim von Amsberg, Economist, The World Bank, Natural Resources, Environment and Rural
Poverty Division to Jennifer Bing, Apogee Research regarding Environmental Financing in Argentina, Brazil, and
Chile. October 31, 1995.
132 Lian, Zhang and Zhong, Professor, MA. "Research Project on Establishing China National Environmental
Fund."
133 Apogee Research, Inc. "Innovative Financing of Water and Wastewater Infrastructure in the NAFTA Partners: A
Focus on Mexico and a Recommendation." Presented at PRO-ECO '94, Monterrey, Mexico. May 19, 1994.
134 Kelly, Mary E., "World Bank Loans for the Mexican Environment: A Help or Hindrance?" EnviroMexico.
Volume II. Issue 11. December 1993/January 1994. pp. 2-3,
135 James M. Montgomery, Consulting Engineers, Inc. Section 9: Investment Plan. Final Report. Industrial
Efficiency & Pollution Control Program. Department of Environment and Natural Resources, Department of Trade
and Industry, Republic of the Philippines. The World Bank. August, 1992.
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136 Interview with Dr. Marcelo Cousillas, Legal Advisor, National Directorate of the Environment, Uruguay. October
1995.
137 "Baltic Buzzing with Cleanups." Engineering-News Record. May 29, 1995.
138 James M. Montgomery, Consulting Engineers, Inc., Section 9: Investment Plan. Final Report. Industrial
Efficiency & Pollution Control Program. Department of Environment and Natural Resources, Department of Trade
and Industry, Republic of the Philippines. The World Bank August 1992. pp. 4-9.
139 Apogee Research, Inc. A Compendium oj'Alternative Financing Mechanismsfor Environmental Programs. Draft
Report. October 1995.
140 Connor, Michael A. and Reeve, D. "Financial Incentives Help Australian Industry Minimize Waste." Hazmut
World. March 1994. pp. 39-42.
141 The World Bank. "The Costs and Financing of Environmental Protection." Indonesia: Environment and
Development. A World Bank Country Study. Washington, DC. The International Bank for Reconstruction and
Development. 1994.
142 Asian Development Bank. Wastewater Management and Pollution Control in Samut Prakarn Province Project.
Executive Report and Ministry of Science, Technology and Environment. Country Report on Thailand's
Environmental Protection Strategies. September 1994.
143 Apogee Research, Inc. "Innovative Financing of Water and Wastewater Infrastructure in the NAFTA Partners: A
Focus on Mexico and a Recommendation." Presented at PRO-ECO '94, Monterrey, Mexico. May 19, 1994.
144 James M. Montgomery, Consulting Engineers, Inc. Section 9: Investment Plan. Final Report. Industrial
Efficiency & Pollution Control Program. Department of Environment.and Natural Resources, Department of Trade
and Industry, Republic of the Philippines. The World Bank. August. 1992.
145 Apogee Research, Inc. "Innovative Financing of Water and Wastewater Infrastructure in the NAFTA Partners: A
Focus on Mexico and a Recommendation." Presented at PRO-ECO '94, Monterrey, Mexico. May 19,1994.
146 United States Agency for International Development. Financing Wastewater Services in Developing Countries.
Water and Sanitation Health Technical Report No. 80. October 1993. pp. 33-36.
147 Apogee Research, Inc. A Compendium of Alternative Financing Mechanisms for Environmental Programs. Draft
Report. October 1995.
148 Interview with Jean Paul Mercier, Africa Environment Assessment Department. The World Bank. October 10,
1995.
149 Interview with Professor Sheila Arrega, Fundacion Educambiente. October 12,1995.
1JOThe Bureau of National Affairs, Inc. "Austria Helps Neighboring Countries Curb Pollution Through East-Eco
Fund." International Environment Reporter. Washington, DC. May 3, 1995.
151 Interview with Tony Garvey, Coordinator, METAP, The World Bank. October 1995.
152 Environment & Urban Affairs Division, Government of Pakistan. National Environmental Action Plan: The
Pakistan National Conservation Strategy. Volumes I and U. Karachi, Pakistan. 1993.
153 James M. Montgomery, Consulting Engineers, Inc. Section 9: Investment Plan. Final Report. Industrial
Efficiency & Pollution Control Program. Department of Environment and Natural Resources, Department of Trade
and Industry, Republic of the Philippines. The World Bank. August 1992.
IS4 Land, Thomas. "Environment Project in Poland." Nature. Volume 355. February 13, 1992. pp. 580.
155 Interview with Dr. Marcelo Cousillas, Legal Advisor, National Directorate of the Environment, Uruguay. October
1995.
156 Austria Documentation. Protection of the Environment in Austria. Federal Press Service. Vienna, 1986.
157 Jenkins, Glenn and Ranjit Lamech. Green Taxes and Incentive Policies: An International Perspective. Sector
Study Number 11. International Center for Economic Growth. Co-published with the Harvard Institute for
International Development. 1994.
I5S Schreiber, Helmut. The World Bank, Energy and Environment Operations Division, Central Europe Department,
Europe and Central Asia Region. "Hungary." Environmental Strategy Study. September 1992.
159 European Association of Environmental Resource Economists Polish Division. Economics and Legal Instruments
of Economic Policy in the Market Economy. Selected Papers. 1991. pp. 98-109.
160 "Romanian Government Funds Below Industry's Needs." European Chemical News. Volume 57. Number 1517.
April 27,1992. pp. 10.
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161 United States Agency for International Development Financing Wastewater Services in Developing Countries.
Water and Sanitation Health Technical Report No. 80. October 1993. pp. 33-36.
162 Asian Development Bank. Wastewater Management and Pollution Control in Samut Prakarn Province Project.
Executive Report. 1995.
163 Apogee Research, Inc. A Compendium of Alternative Financing Mechanisms for Environmental Programs. Draft
Report. October 1995.
164 Interview with Dr. Marcelo Cousillas, Legal Advisor, National Directorate of the Environment, Uruguay.
October 1995.
165 Apogee Research, Inc. A Compendium of Alternative Financing Mechanisms for Environmental Programs. Draft
Report. October 1995.
166 United States Agency for International Development. "Financing Wastewater Services in Developing Countries."
Technical Report. Water and Sanitation for Health Project. Numbers. October 1993. pp. 29-33.
167 Apogee Research, Inc. "Innovative Financing of Water and Wastewater Infrastructure in the NAFTA Partners: A
Focus on Mexico and a Recommendation." Presented at PRO-ECO '94, Monterrey, Mexico. May 19, 1994.
168 Brinchuk, Mikhail M., "Enforcement of Economic Instruments in Russia." Center for Environmental Legal
Studies, Institute of State and Law.
169 Facsimile from Jachim von Amsberg, Economist, The World Bank, Natural Resources, Environment and Rural
Poverty Division to Jennifer Bing, Apogee Research regarding Environmental Financing in Argentina, Brazil, and
Chile. October 31,1995.
170 Apogee Research, Inc. A Compendium of Alternative Financing Mechanisms for Environmental Programs. Draft
Report. October 1995. p. 107.
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APPENDIX B: FOR ADDITIONAL INFORMATION
This section provides a reference list of sources that contain more information on particular topics
covered in the support document.
Andersen, Mikael Skou. Governance By Green Taxes: Making Pollution Prevention Pay. Manchester
University Press. 1994.
Apogee Research, Inc. A Compendium of Alternative Financing Mechanisms for Environmental Programs.
Draft Report. October 1995.
Haigh, Nigel and Francis Irwin ed., Integrated Pollution Control In Europe and North America. The
Conservation Foundation, Washington, DC and Institute for European Environmental Policy. Bonn,
Brussels, London, and Paris. 1990.
Jenkins, Glenn and Ranjit Lamech. Green Taxes and Incentive Policies: An International Perspective.
Sector Study Number 11. International Center for Economic Growth. Co-published with the Harvard
Institute for International Development. 1994.
Lovei, Magda. Financing Pollution Abatement: Theory and Practice. World Bank Pollution and
Environmental Economics Division, Environmental Economics Series. October 1995.
National Conference of State Legislatures. States as Water Quality Financiers. Denver, Colorado. May
1991.
Organization for Economic Co-operation and Development (OECD). OECD Documents. Environment and
Taxation: The Cases of The Netherlands, Sweden, and the United States. Paris, France. 1994.
Organization for Economic Co-operation and Development (OECD). OECD Documents. Environmental
Taxes in OECD Countries. Paris, France. 1995.
Organization for Economic Co-Operation and Development (OECD). OECD Documents. Managing the
Environment: The Role of Economic Instruments. Paris, France. 1994.
Toman, Michael A., Pollution Abatement Strategies in Central and Eastern Europe. Washington, DC.
Resources for the Future. 1994.
United Nations Environment Program. Institutional Capacity Building in Industrial Environmental
Compliance and Enforcement Programs. Volume I Training Manual. Draft. April 1994.
U.S. Agency for International Development. Financing Wastewater Services in Developing Countries.
Water and Sanitation for Health Technical Report No. 80. October 1993.
Wasserman, Cheryl E. for the U.S. Environmental Protection Agency. Principles of Environmental
Enforcement. 1992.
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