United States
Environmental Protection
Agency
Offica of
Policy Anaivsis
Washington, O.C. 2C460
EPA-23fK»7-85-011
July 1385
The Effluent Charge
System in the Federal
Republic of Germany
U.S. EPA Headquarters Library
Maii code 3201
1200 Pennsylvania Avenue NW
Washington DC 20460
EPA
230-
07-
85^011
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United States
Environmental Protection
Agency
Office of
Policy Analysis
Washington. D.C. 20460
EPA-230-07-8S-Q11
July 1985
c/EPA
The Effluent Charge
System in the Federal
Republic of Germany
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THE EFFLUENT CHARGE SYSTEM IN THE
FEDERAL REPUBLIC OF GERMANY
Gardner M. Brown, Jr.
Department of Economics DK-30
Ralph W. Johnson
School of Law JB-20
University of Washington
Seattle, Washington 98105
June 25, 1983
Research for this study was funded hy the Environmental Protection
Agency, the German Marshall Fund of the United States, and the
Federal Republic of Germany Ministry of Interior. Inquiries
about research on other market oriented approaches to environmental
management can be addressed to Mr. Mahesh Podar, PM=M1, EPA,
401 M Street, S.W., Washington, D.C. 20460.
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PREFACE
In 1982, the United States Environmental Protection Agency and the Ministry
of Interior of the Federal Republic of Germany approached the German
Marshall Fund of the United States with an unusual request. Each government
was making some progress cleaning up the air and public waters by using
a distinct, new regulatory approach based strictly on cost-saving incentives,
rather than stringent and cumbersome regulations. Each government wanted
to learn more about the other's unique methodology, successes and problems.
Both governments asked the German Marshall Fund to facilitate a cooperative
project to develop information on the U.S. emissions trading policy and
the German effluent charge system. The bilateral project—set up under
the terms of the U.S.-FRG Environmental Agreement of 1974—developed two
extensive research reports, identified below.
As facilitator, the German Marshall Fund of the United States provided
financial support to cover travel and meeting expenses and helped coordinate
research activities and interactions with Advisory Panels on both sides
of the Atlantic. The Fund is an independent, American organization
established in 1972 by a gift from the Federal Republic of Germany as a
Memorial to the Marshall Plan; this project is one example of the special
role it has played in furthering the exchange of practical policy experience
among industrialized countries.
The members of the Advisory Panels:
United States
Joseph Gannon, Associate Administrator
for Policy and Resource Management,
U.S. EPA, Washington, D.'C.
Christopher DeMuth, Administrator for
Information and Regulatory
Affairs in the Office of Management
and Budget, Washington, B.C.
Allen Kheese, Senior Economist, Resources
for the Future, Washington, D.C.
Marvin Rosters, Director, Center for the
Government Regulations, Anerican Enter-
prise Institute, Washington, D.C.
Federal Republic of Germany
Gerhard Feldhaus, Director, Office
of Environmental Policy and
Emissions Control, Federal
Ministry of the Interior, Bonn
Walter Loetz, Deputy Director,
Federal Ministry of Economics,
Bonn
Franz-Josef Dreyhaupt, Deputy
Director, Ministry of Labor,
Health, and Welfare, Land
Nordrhein-Westfalia, Dusseldorf
Jurgen Salzwedel, Director, Study
Institute for Public Policy,
university Bonn
U.S. EPA Headquarters Library
Mail code 3201
1200 Pennsylvania Avenue NW
Washington DC 20460
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- 2 -
Charles Malloch, Regulatory Management
Director, Monsanto Corporation,
St. louis, Missouri
Michael DeBusschere, Air Pollution
Control Officer, Louisville, Kentucky
Horst Siebert, Professor, University
Mannheim
Malte Faber, Professor, University
Hiedelberg
Martin Uppenbrink, Director,
Department of Environmental
Planning, Umweltbundesamt
(ex officio), Berlin
Two research reports were produced:
The Emissions Trading Policy in the United States of America-. An
Evaluation of its Advantages and Disadvantages and Analysis of its
Applicability j.n the Federal Republic of Germany, Eckard Rehbinder,
Professor of Law, at the J.W. Goethe University, Frankfurt; Rolf-
Ulrich Sprenger, Senior Fellow, Institute for Economic Research
(IFO Munich).
The Effluent Charge System in the Federal Republic'of Germany,
Gardner M. Brown, Professor of Economics, and Ralph W. Johnson,
Professor of Law, University of Washington, Seattle.
Copies of these publications can be obtained in the United States through
the EPA and in Germany through the Federal Ministry of Interior and the
Institute for Economic Research (IFO Munich). Both documents are available
in English and German.
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TABLE OF CONTENTS
1. Executive Summary 1
2. Introduction 1
3. The History of Water Management in the FRG 2
k. Political Background of the 1976 Federal Water ACt and
Effluent Charge Law 3
5. The 1976 Federal Water Act 7
6. The Effluent Charge Law 8
6.1 The Hardship Clause 12
6.2 Magnitude of the Charge and the Minimum Standard. . . 13
a) Industries 13
b) Municipalities 13
7. Task Force Groups to Establish Minimum Requirements. ... 15
8. The Polluter-Pays Principle and Effluent Charges • 17
9. Uniform Standards are Costly Unless Required Waste Treat-
ment Levels are High 19
10. Low Effluent Charge Levels Reduce but Do Not
Eliminate Incentives to Economize 20
11. Effluent Charge Revenues: A Potential Substitute Source of
Subsidies 23
12. More Policy Instruments are Better Than Less 23
13. Effluent Charges Change the Costs of Enforcement 25
]k. The Costs of institutional Change 26
1^.1 Federal Level 26
14.2 Local Level 28
lA-3 Uniform Policies Reduce Some Costs of Institutional
Change 30
I5j. Effluent Charges: A Stimulus for Improved Professionalism. 31
16. Implementation Pitfalls 31
17. • The Effluent Charge: A Potential Cause of Resource
Inefficiency ..... 33
18. Incorporating Effluent Charges into U. S. Water Pollution
Control Law.'''* 3*»
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19- Congress's Power Under the Federal Constitution to
Enact an Effluent Charge Law 36
20. Constraints on Congress's Power to Legislate 39
21. State Authority to Enact Effluent Charge Laws ...... 39
22. Variations in Effluent Charge Levels by State or Region. . k2
23- Collection and Disbursement of the revenues from an
effluent charge system .... 42
24. Could an Effluent Charge System Be Grafted Onto
the Present Technology-Based Standards System? 43
25- Synopsis 45
TABLES
1. Selected Pollution Parameter Values for a Hypothetical
Firm . . . .- 10
2. Criteria to be used for assessment of damage of discharges,
national effluent charge system of the Federal Republic
of Germany 11
3. Federal Minimum standards for municipalities 16
APPENDICES
A. Probable Count of Direct-Dischargers According to
industrial Production Groups3 51
B. Figure B.I Marginal Cost Curves for Expansion of Purifica-
tion Facilities of Various Orders of magnitude 53
Figure B.2 Marginal Costs for the Avoidance of One
Equivalent 54
C. The Legal and Institutional Setting in the FRG 55
Footnotes 56
FOOTNOTES 58
ii
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1 . Executive Summary
In response to growing public demand for environmental
quality in the early 1970s, the Federal Republic of Germany (FRG)
in 1976 enacted an effluent charge law for controlling water
pollution. This law, operating in combination with the existing
standards/regulatory system, is based on the polluter-pays
principle adopted by the OECD (Council of the Organization for
Economic Cooperation and Development) in 1972. Firms, cities and
others must pay for the cost of pollution control when they
discharge wastes into public waters. The charge is levied on 5
significant pollutants and generally is proportional to the
amount of the waste discharge. Although the actual charge is
lower than abatement costs in many instances, it has proven to be
high enough to provide an incentive to reduce substantially waste
discharges into public waters. As a consequence, compliance as
well as water quality has improved and the costs of enforcement
have decreased. j
The revenues from the federal effluent charge system accrue
to the states (Laender) and are available to pay the costs of
water pollution administration, research, construction of
pollution control facilities, and for related purposes.
This charge system has brought about increased efficiency in
water quality administration among the states, which has led to
more equitable treatment for industrial branches and
municipalities across the FRG. The new system has met with
considerable enthusiasm in the Federal Republic of Germany, even
among firms and administrators initially skeptical about the
practicality of the "economic point of view."
The German experience is especially relevant in the United
States because: (1) The FRG is a federation with the states
reserving substantial powers—even more than in the United
States; (2) The FRG had an existing standards/regulatory system
as the United States now does and enacted the effluent charge law
to work in tandem with that system; and (3) an effluent charge
system is consistent with the Reagan administration's "user pay"
philosophy, i.e., those who use the rivers and lakes of the
nation for waste disposal should pay for the costs imposed on the
public by such use.
2. Introduction
The 1976 enactment in the Federal Republic of Germany of an
Effluent Charge Law (ECL) has rekindled interest in this concept
in the United States. Long touted by economists, the effluent
charge notion has never received much political support in this
country. The German law and experience is particularly
interesting to the United States because both nations are highly
industrialized, both have continuing water pollution control
problems, and both are federal nations with substantial powers of
government held by the states.
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This study is designed to describe the FRG effluent charge
law and the political and legal background that permitted such a
law to be enacted there. We also evaluate the impact of that
law, although our assessment is necessarily tentative in view of
the short experience with the law there to date.
The study then analyzes the economic and legal implications
of enacting an effluent charge law in the United States. We
consider the advantages and disadvantages of state vs. federal
enactment, the constitutional objections that might be raised to
such a law, and how it might be related to and coordinated with
existing pollution control laws in the United States.
3. The History of Water Management In The FRG
While the United States has been united as a nation-state
since 1779, Germany was not united until 1871. Even after the
1871 unification many important areas of domestic policy,
including water quality management, remained in the local
governments where they had been traditionally. During the 1800s
and early 1900s the few water quality laws that were enacted in
Germany appeared at the city and town level. Water laws passed by
the Laender such as the Badische Water Law of 1899, the Bavarian
Water Law of 1907, and the Prussian Water Law of 1913, primarily
regulated ownership of water, the right to use water, the
maintenance and development of water resources, and flood
control; they were not concerned with pollution control.
Neither the Imperial nor the Weimar governments had
authority to enact uniform water management laws at the national
level. This field was exclusively within the jurisdiction of the
Laender, whose water laws had continuing validity even after
1945.
Shortly after the turn of the century the growth of
population and industry with its accompanying pollution caused
catastrophic outbreaks of disease in the Ruhr and Emscher river
basins. As a result, several special-purpose water management
entities were created in the early years of that century for
these two river basins: the Emschergenossenschaft, the
Ruhrverband, and the Ruhrtalsperrenverein. These were designed
to control pollution, build reservoirs and generally to control
water supply and quality.
In the ensuing years many other similar, special-purpose
water associations were created in other Laender. Their
diversity, limited competence, and overlapping jurisdictions,
however, caused problems and suggested the need for a more
coordinated national approach to water management. In 1937 the
National Socialist government, as part of a general policy of
centralizing power at the national level, enacted the "Realm Law
on Water and Land Association," which applied to all of Germany.
The law established a uniform approach to the creation of water
associations, and empowered the federal Minister of Nutrition and
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Agriculture to standardize the method of formation, structure,
and powers of all water associations in Germany. Exempted were
eight of the larger and more powerful water associations in the
Ruhr region, which had a long history of successful water
management and were politically powerful enough to be excepted
from the general statute.
After the Second World War, the new 1949 Basic Law reversed
the trend toward centralization that had prevailed prior to the
war. The Laender were able to reestablish themselves as the
primary managers of the water resources within their borders.
The movement toward decentralization was reinforced by the allied
policy of dividing and decentralizing political and legal power
so that Germany would not again pose a major military threat. At
present there are over 12,000 water associations in the FRG.
With the exception of the eight noted above in the Ruhr district,
which deal with water quality and in some cases quantity, most of
these associations are small and are concerned with rural and
domestic water supply, drainage, irrigation, waterway
improvement, and maintenance.
The continued existence and viability of these numerous
local water management agencies reflects the continuing strong
tradition of local control of water management in the FRG. As we
see below, this tradition played a critical role in shaping- the
debate on the 1976 Federal Water. Act and Effluent Charge Law.
4. Political Background of the 1976 Federal Water Act
and Effluent Charge Law
By the start of the last decade, environmental quality was
badly in need of improvement. Years of rapid industrialization
had placed an excess demands on the self-purifying capabilities
of receiving waters. In many regions traditional uses of water
bodies, for example, as a source of drinking water, had been
precluded by the deterioration of water quality. It was apparent
to all that existing water, quality legislation was inadequate for
the task. New water law in particular and new environmental law
in general was required. The pressure to improve water quality
was both internal and external. Switzerland and the Netherlands,
downstream from the FRG, were increasingly concerned about the
deterioration of water quality in mutually shared water bodies
such as lake Constance and the Rhine.
The heightened concern for environmental quality led to the
creation of a Cabinet committee for Environmental Problems to
coordinate environmental actions of all federal ministries. In
addition to its coordination functions this Committee produced
recommendataions that were published in a major policy document
entitled, "A Program for the Protection of the Human Environment"
(PPHE) published in 1971.J
The PPHE came out strongly for a market-oriented approach to
environmental control. While it recognized that some standards
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and regulations might continue to be necessary, especially for
more dangerous substances, it argued that the adoption of an
effluent charge concept would decrease the misdirection of
resources and the diminution of economic efficiency which result
from imposing the cost of waste discharge on the community at
large rather than on the producers of the goods or services which
cause the discharge. The document also recommended that a
constitutional amendment be adopted giving the federal government
preemptive power over the Laender to enact appropriate
environmental legislation to implement these recommendations.
Constitutional amendments to accomplish this purpose were
proposed in 1973, 1974, and 1975, but failed to pass. The
failure of these amendments did not, however, mean a rejection of
the recommendations of the PPHE concerning a market approach to
environmental control. It simply meant that the Federal
government would have to share legal authority over this subject
with the Laender, as required by the 1949 Basic Law.
An earlier and fundamentally important precondition for the
support of market economic principles for environmental control
was the FRG's remarkable recovery under a market economy during
the postwar era. In June, 1948, Ludwig Erhard, then director of
Economic Administration in the Adenauer government, had pushed
through an economic reform abolishing the pervasive rationing,
permits, and price controls that had been in place since the war
under the caretaker government (with Allied High Commission
approval) and switched virtually overnight from a
state-controlled economy to one that depended on the free market
for its signals. This policy choice, hotly contested at the time
as too risky, released within a few short months the exceptional
creative energy of the German people and produced some 30 years
of unprecedented economic growth. The success of this policy was
so great that it understandably encouraged consideration of
market principles for solution of water pollution and other
environmental problems.
The recommendations of international organizations also
encouraged the FRG to consider application of market principles
to control environmental degradation. During the early 1970s the
Organization for Economic Cooperation and Development (OECD) and
the European Community (EC) were both urging member nations to
adopt the polluter-pays principle for environmental control. In
1972 the United Nations-sponsored World Environmental Conference
was held in Stockholm, Sweden, and the FRG's Minister of Interior
Hans-Dietrich Genscher took a strong stand there in favor of the
polluter-pays principle, a position that was supported by two
important studies by FRG.authors, "The Polluter-Pays Principle
and Its Instruments," by Bullinger, Rincke, Oberhauser and
Schmidt, and "The politics of the Polluter-Pays Principle," by
Rehbinder.4
The political support for a market approach for pollution
control was so strong during the early 1970s that initial
proposals looked very much like the "ideal" systems urged by
economists. Charges would be levied on waste dischargers in
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direct proportion to the damage caused by their use of public
waters. However some of the Laender, especially Bavaria and
Baden-Wuerttemberg in the south, opposed such a radical departure
from the traditional pollution control system of standards and
regulations and insisted on modifications. They initially argued
that their water quality control systems, including
administrative and compliance procedures, were adequate for the
task, and that a charge system was unnecessary. When it became
clear that a charge system of some kind was going to be enacted
by the Bundestag and Bundesrat, they recommended a more moderate
effluent charge system, to operate in tandem with the existing
standards/regulatory system. By 1976 the idea of a combined
system had become dominant. Such a system would levy charges
high enough to give signals to the market, but at the same time
would continue an administrative management regime for pollution
control.
The idea of a national effluent charge system was
strengthened by the existence of the much publicized effluent
charge systems in the Ruhr region, e.g., the Ruhrverband and the
Emschergenossenschaft. Moreover, the Ruhr systems had provided
some technical ideas, for example the "toxicity to fish" criteria
as a measure of damage. The basic goal of the Ruhr systems,
however, was quite different than that of the proposed national
effluent charge system. The goal of the Ruhr systems was to
collect money to meet a predetermined budget for the construction
and operation of pollution control facilities, whereas the goal
of the proposed national system would be to create an incentive
for industries and others to reduce their waste discharges into
public waters. The collection of a pool of revenues would be only
an incidental byproduct of this system. Indeed, one measure of
success of the new national system of incentives would be low
revenues.
Industry initially opposed the idea of any effluent charge
system whatsoever. However as political support for the system
gained momentum, this opposition shifted onto implementation
issues, such as the criteria for setting charges, the level of
charges, and the dates when the system would go into effect.
Some industrialists actually supported the effluent charge
concept. The two main sources of industrial enthusiasm for
effluent charges were the newer plants that had new waste-saving
production processes and the latest pollution control technology
and those older plants which had recently installed new pollution
control equipment. These companies believed their own charges
would be relatively smaller, thus giving them a competitive edge
over industrial facilities with less up-to-date equipment.
Conversely, a few other industrialists supported the idea because
they believed that the levying of charges would even-out the
serious inequities caused by variations in the water quality
regulatory systems among the Laender.
Four developments illustrate that the new Federal Water Act
and Effluent Charge Law reflect compromise, middle ground
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resolutions of divergent views. First, instead of a charge
replacing a standard, as recommended by some experts in the.early
1970s, a charge and a standard was the only serious option.
Second, later proposals were simplified compared to earlier
versions. To make the system more workable, simplicity was a
major consideration. In the early 1970s biochemical oxygen
demand (BOD) was thought to be one criterion on which the charges
would be based. BOD, however, is difficult to measure
accurately. Some argued too that the BOD criterion was likely to
be outdated by the time the law went into effect because by then
most water would be subjected to secondary treatment. The
consensus about the best criteria to use gradually moved to "BOD
plus COD (chemical oxygen demand) divided by two," and ultimately
evolved simply to COD. Toxicity to fish became a criterion
partly because of its long usage by the Ruhr water agencies. The
adoption of the cadmium and mercury criteria was influenced by
international concern, especially from the Netherlands, because
waters polluted with these metals then flowed from the FRG into
or through other countries.
Third, in 1981 the charge was established at an initial
level of 12 DM although a panel of experts recommended a charge
of 80-100 DM in 1974, a 1972 federal government draft proposed a
40 DM charge, and industry and municipalities asked for no charge
or one under 20 DM in the early 1970s. Pressure from the
industrial sector, and from some of the Laender which felt they
needed more time to develop implementation programs, led to a
slow progression of the rate from 12 DM per damage unit to 40 DM
by 1986. 5
Between the March and April final versions of the draft
laws, the charge schedule was halved again, provided the federal
standards were met. This result reportedly emerged as a
compromise between the Federal Ministry of Interior, which wanted
a 100 percent charge, and representatives from municipalities and
industries, which wanted no charge if the minimum was achieved.
The evolution of the charge, not surprisingly, was toward a
compromise solution.
Fourth, the federal government failed to obtain the full
competence to manage water quality, and explicit goals in the
federal government's draft law in 1972 were excised in the 1976
Federal Water Act. The Laender retain their power to determine
the uses and consequent quality of a river (with due regard for
the need to maintain friendship with bordering countries by
exporting acceptable quality water in international rivers).
Noteworthy also, in the federal draft of March 21, is the
amputation of paragraphs by the Bundestag, which, in effect,
decreased potential federal power and retained more power in the
Laender* As a further sign of Laender importance, the Laender.
were allowed to determine how the effluent charge revenues are to
be spent. Earlier drafts gave the dischargers an explicit voice
in revenue allocation. Now they may be included in revenue
allocation decisions at the discretion of the Laender.
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5.
The 1976 Federal Water Act
The 1976 Federal Water Act (FWA) sets forth the conditions
governing the granting of permits to use public waters for the
discharge of effluents. The federal government is empowered to
establish uniform discharge standards for certain major
pollutants and can determine the level of technology that must be
achieved by municipalities and industries.
The federal government has authority under the Act to
establish a minimum national water quality goal for receiving
waters, and did so by setting this goal at quality level II
(Guetezustand II). Quality level II is moderately polluted
water with a good oxygen supply which is capable of supporting a
large variety of algae, crayfish and insect larvae, and capable
of supporting a fishery.
The Act continues the operation of the permit systems that
were in effect in the Laender under the 1957 law. Effluent
discharge permits can be refused, limited or conditioned.
Existing permits may also be modified to make room for new or
additional discharges by others.
The FWA made an important change in existing, law by banning
future issuance of any "licenses" by the Laender. Licenses,
which were used extensively by some Laender, created vested
rights for 20 years or longer and required compensation when
revoked. Now all waste dischargers must operate under permits,
which are for shorter periods of time and are subject to change.
and even revocation as water quality demands change over time.
Under the FWA even present license holders are subjected to
reasonable regulations to conform with the licensed discharges
with the federal minimum standards under Art. 7a(2). More
important, license holders are also subject to the same charges
under the Effluent Charge Law as permit holders.
While the federal government establishes the overall
national water quality level (i.e., Level II) the Laender
establish definite water quality targets, and programs for
achieving those targets. The Laender draw up three types of
plans for the management of water, including estuaries. "General
water plans" provide the framework for water management,
describing present conditions and projecting future possibilities
for the region. "Use plans" are essentially ambient water
quality standards; they describe the anticipated uses of the
water9and the quality that must be achieved to permit those
uses. "Waste disposal plans" establish a waste discharge
program designed to permit achievement of the ambient water
quality standards and form the basis of the issuance of permits
by the Laender.
None of the plans, classifications of waters, or permits is
permanent or creates vested rights. All are subject to change
as conditions change over time.
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The most important provision in the FWA is Art. 7(a) which
authorizes the federal government to establish technology-based
standards (allgemein anerkannte Regeln der Technik) such as best
practicable, or commonly accepted technology. These standards
form one of the basic measurements used in the Effluent Charge
Law (BCD, discussed later. The standards vary depending on
whether the waste water originates with a municipality or
industry, and if the latter, the standards vary by industry. The
federal government has appointed some 50 task forces to establish
these technological standards for different industries and for
cities.
The FWA provides for the appointment of water protection
agents to assist in enforcement of the minimum standards. Large
water users must designate such water agents within their own
organizations to monitor waste discharges. The Laender are also
empowered to require the appointment of such agents in other
circumstances when this is expedient.
In addition to the basic regulatory system provided for in
the FWA, the law provides that dischargers causing harm or injury
to others are liable for damages. Those who violate the
provisions of the Act are also liable for fines of as much as
100,000 DM. b
6. The Effluent Charge Law
After years of extensive public discussion the Effluent
Charge Law (ECL) was overwhelmingly passed in the Bundestag and
Bundesrat in September 1976. It calls for the Laender to levy
charges (Article 1) on direct dischargers of specified effluents
into public waters—fresh, brackish and saltwater. Attention in
this study is limited to fresh.water because it is the focal
point of the law in practice. Firms and households discharging
into municipal sewerage facilities are not charged directly.
The effluent charge policy is designed to reflect the
polluter-pays principle, which broadly states that the parties
discharging waste should pay for the abatement costs actually or
implicitly imposed on society.
The charge system is also designed to be compatible with the
principle of precaution or prevention, which states that the
quality of natural systems such as rivers ought not to be .
permitted to deteriorate and should improve through time.
The third principle reflected in the ECL is one of
cooperation. Environmental policy can be successful with close
cooperation among the federal government, Laender, communities
and citizens.
The discharge permit issued by the Laender to all direct
dischargers is divided into two parts. The first, a legal part,
establishes the discharge right, ^ and contains all the physical,
chemical and biological data and monitoring procedures pertaining
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to waste water quality (pH, temperature, biochemical oxygen
demand (BOD,.), other concentrations, etc.) and the maximum amount
of waste water in specified periods (hour, day, year). The
specified waste water quality levels must be equal or higher in
quality than the miminum requirements of the federal
administrative regulation. This part of the discharge permit is
subject to the water laws of the FRG and the Laender.
The second part of the discharge permit contains all the
data that are necessary to calculate the waste water discharge
bill. The pollutants considered for purposes of the effluent
charge are settleable solids, chemical oxygen demand (COD),
cadmium (Cd), mercury (Hg) and toxicity for fish. Also specified
is the annual volume of water. The standard may be specified in
terms of concentration per m of discharge volume or per ton of
product produced.
The permit specified a maximum concentration of each
pollutant and volume of waste water a discharger expects to
produce (Hoechstwert). The average (standard) amount and
concentrations expected to be discharged are also specified
(Regelwert) and are provided by the waste dischargers. Under
normal circumstances, the figure or reference value (Bezugswert)
on which the charge is based is the volume and concentration the
entity expects to discharge. Notice that the charge normally is
based on the expected rather than the actual level of discharge.
This permits economy in administration.
Table 1 illustrates these ideas. The figurative firm
discharges only settleable solids and COD whose reference
(expected average) and maximum values have been specified. Under
normal circumstances, the waste discharge bill is easily
calculated. The data in Table 1 are converted to damage units
using the coefficients provided in an appendix to the ECL and
exhibited in Table 2 below.
The total damage units of pollution, based on the data in
Table 1 and the conversion factors in Table 2, are summarized as
follows:35
Damage Units (DU)
Settleable Solids 1,600
COD 165.600
167,200
The charge per damage unit was 12 DM in 1981 and rises to 40 DM
per damage unit in 1986. Thus the initial bill for this
representative firm in 1981 is 2,006,400 DM (about 803,000
dollars).
DM is about $.40 in round numbers, as of March 1983.
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TABLE 1
SELECTED POLLUTION PARAMETER VALUES
FOR A HYPOTHETICAL FIRM
Total Discharge (m /Yr)
Specific Amount of Waste-Water
Per Ton of Product (m /Ton)
Settleable Substances
(ml/1)
COD (Kg02/Ton of Product, and
CPD (KgOj/D
WATER LAW
Component
Values
12,000,000
190
.18
140
740
WATER CHARGE
Component
Values
10,755,000
160
.15(Ref.Val
,30(Max.Val
112(Ref.Val.)
700(Max.Val.)
The ECL contains an economic incentive for polluters to meet
the federal minimum standards. Under Article 9(5) of the ECL,
dischargers in compliance with the federal minimum standards will
have the charge liability halved by the unit charge. In the
event that the Laender have imposed stricter standards than1 those
set by the federal government, the standard of the Laender must
be met in order to qualify for the 50 percent discount. The
incentive to comply created by introducing a discontinuity or
jump in the payment schedule has some special characteristics
which will be discussed in a later section of this paper.
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11
TABLE 2
CRITERIA TO BE USED FOR ASSESSMENT OF DAMAGE OF
DISCHARGES, NATIONAL EFFLUENT CHARGE SYSTEM
OF THE FEDERAL REPUBLIC OF GERMANY
Criteria
Settleable Substances for
Which Organic Content
>10%a
Settleable Substance for
Which Organic Content
OxTdizable Substance, as
Measured by COD
Mercury & Compounds0
Cadmium & Compounds0
Toxicity Toward Fish
Unit of
Measurement,
Quantity/Yr.
1 mj settled
1 m3 settled
lOOKg
lOOg Hg
lOOg Cd ,
1 ft A ft—-J
Damage Units
Per Unit of
Measurement
1.0
0.1
2.2
5.0
1.0
1000m-
wastewater 0.3Gpa
a. Measurement procedure: reduce amount by 0.1 ml/1 wastewater
beforehand.
b. Measurement procedure: reduce amount by 16 mg/1 wastewater
beforehand. Silver sulfate is the catalyst in the dichrornate
method specified.
c. Measurement procedure for Hg and Cd: atomic absorption
spectrometer.
d. GF is the dilution factor, e.g., down or up to nontoxicity.
If wastewater is discharged in coastal waters, toxicity is not
considered for those substances whose content is based on salts
which are comparable to those in ocean water.
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It generally may be presumed that the normal (expected)
value will not exceed the federal minimum standard. In the
example above, the bill would be halved to 1,003,200 DM (about
402,000 dollars) if the firm met the federal minimum.
If actual waste discharge is above the federal minimum,
using the average (monitor value) of the last five observations,
the polluter faces legal consequences under thegPWA and loses the
50 percent reduction in the charge obligation.
The ECL and FWA are primarily keyed to expected performance.
However, seasonal and other variations in discharge are an
important consideration. Damage generally is a function of
actual, not average discharge. In recognition of this, maximum
concentration values and volume are defined and the maximum
cannot be more than twice the expected values stipulated by the
discharger. It follows that the physical basis for the charge is
at least one-half the maximum value.
If the maximum value is exceeded more than once, then the
value on which the charge typically is computed (Regelwert) is
increased. The revised basis for the charge increases with the
amount the maximum actually is exceeded in a mannmer specified in
the ECL. *
The basis for computing the charge is reduced if the
discharger anticipates that his actual volume and concentration
will be below his previously stipulated expected value (or
standard-value) by at least 25 percent for at least one-fourth of
a year. In this case, the charge is based either on the actual
performance or on the downward revised expected value.
The effluent charge system is a delicate and complicated
resolution of federalism and practicality. The discriminating
reader will have detected unexplained possibilities in the above
description. For example, what is the charge if the discharger's
actual pollution meets the federal minimum but is above the
expected level? We cannot give a general answer for the
following reason. If the discharger, in fact, meets the federal
minimum, then the federal conditions are met. That the polluter
is actually discharging more than is expected but is only paying
on the basis of the lower, expected value, is a potential issue
for the Laender to resolve as each sees fit. Perhaps the answer
is provided in Articles 14 and 15 of the FWA which prohibit acts
of evasion. Only a state-by-state survey would provide the
answer to these and other subtle matters which fall within the
Laender jurisdictions.
6.1 The Hardship Clause
.41
The ECL contains a hardship clause"1"1" that allows the federal
government, with consent of the Bundesrat, to pass laws exempting
industries, sections of industries, or regions from the charge in
instances where imposition of the effluent charge would result in
significant detrimental economic conditions. An exemption may be
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for the whole charge or a part of it, but it is in any event not
to remain in force later than December 31, 1989.
The Minister of the Interior to date has been petitioned by
eleven industries for ^exemptions. The requests have come from
pectin, cellophane, particle board, yeast and non-ferrous metals
industries. Seven petitions have been denied and the rest are
still being considered. Several counties (Kreise) in East
Bavaria and a number of cities have also requested exemptions.
They have been rejected either because of inapplicability of the
law to the counties or because of lack of sufficient proof that
imposition of the charge would occasion significant detrimental
economic consequences to the cities or counties. Although the
hardship clause has yet to be used, it was thought by many
interviewed to have been an important element in the political
process leading to the enactment of the legislation. Criteria for
assessing hardship are not spelled out in the Act.
6.2 Magnitude of the Charge and the Minimum Standard
a) Industries
Because no revenues have been collected and too little time
has elapsed to make a representative study of actual impacts, it
is not possible to report the actual economic effect of the new
water quality laws on municipalities and industries. However,
one study does provide some estimates of the magnitude of the
charge in value terms. Rincke appraised the impact of an
effluent charge on 26 of the major water polluting industries in
the country. He found that the cost of the charge and avoidance
measures were less than two percent of sales for the most serious
polluters Accept in the pulp, yeast and leather industrial
branches. Sales for the last two industries rank in the lowest
twenty percent of the group surveyed. Only in the pulp sector
does the charge component loom large. Several of those
interviewed stated that the pulp industry has many marginally
economic plants, barely surviving with outdated technology.
Should the new water quality laws put some of the pulp plants out
of business, it would be seen as a modest advancement of the
anticipated date of demise. Short of a full-scale study of each
sector's domestic and international competitive position, one
cannot say that a one or two percent increase in the cost of
products is altogether innocuous. However, it is clear that such
an' increase is small compared to variations in advertising
budgets and annual changes in interest and wage rates, and
probably is small compared to annual changes in raw material
costs.
b) Municipalities
The charge for waste treatment to municipalities depends on
the size of the municipality, desired level of waste treatment
and the age of equipment. It is high when new facilities are
built and tapers off as the financing obligations are met, since
the charge varies with financial costs rather than real costs.
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One study-found that sewerage charge rates varied from .60 DM/nr
to 3 DM/m , but.that the charge in large municipalities did not
exceed 1 DM/m3.
The effluent charge component.of the new laws is expected to
increase the unit cost by .03 DM/m in 1981 and by .11 DM/m5 in
1986. The effluent charge component in 1|86 will amount to about
3.26 DM or $1.30 per year per inhabitant. The cost of adding
facilities to meet the minimum standards.expressed on a volume
basis was estimated to be about .33 DM/m for the municipalities
surveyed or perhaps 10 DM ($4.00) per year if per capita annual
consumption is 30m . Putting the cost of the charge (about
$1.30) and the necessary new facilities (about $4.00) together,
yields an estimated cost of under about $6 per year per
inhabitant to meet the requirements of the new water quality
laws.
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I
7. Task Force Groups to Establish Minimum Requirements
Before proceeding to a more detailed analysis of the new
waste water laws, it is useful to sketch how the minimum
requirements in the laws are established.
The Federal Ministry of Interior initially established 60
task forces in 1977, one for each major polluting activity.
Since then there has been some consolidation so that about 47
task force groups remain (see Appendix A).. The purpose of the
task forces, set forth in the common set of instructions, was to
establish minimum standards compatible with generally accepted
standards of technology. . Volumes and concentrations regularly
issued with new effluent discharge permits and standards,
acceptable to a majority of experts in the field, describe the
minimum standard level desired. Table 3 illustrates the standards
for municipalities of three different sizes.
Membership of the task forces was appointed by the Minister
of Interior and was drawn from the federal and Laender
governments.and from representatives of the relevant
industries. Technical expertise was brought in from
universities, technical institutes and consulting firms. Those
from the consulting firms tended to be guests in an advisory
role, invited by the Chairman. The size of the task forces
varied. Generally there were four regular members with greater
variation in the number of advisory experts.
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TABLE 3
FEDERAL MINIMUM STANDARDS FOR MUNICIPALITIES
Samples
According To
Load Category
of Discharger
Load Cat. 1:
Less than 60kg/d
BODg (untreated)
GraB Sample
2-Hr.Mixed Sample
24-Hr.Mixed Sample
Load Cat. 2:
60-600g/d
BOD5 (Untreated)
GraB Sample
2-Hr.Mixed Xample
24-Hr.Mixed Samp.
Load Cat. 3:
More than 600kg/d
BOD5 (Untreated)
GraS Sample
2-Hr.Mixed Sample
24-Hr.Mixed Sample
Settleable
Solids
ml/1
Chemical
Oxygen
Demand(COD)
mg/1
Biochemical
Oxygen Demand
After 5 days
(BOD5)
mg/1
0.3
180
120
45
30
0.3
160
110
35
25
0.3
140
100
30
20
The idea of a task force to establish minimum standards and
the composition of that task force are crucial ingredients in the
enactment of the new laws in the FRG and in their implementation.
They are vital considerations in the adoption of an effluent
charge policy in the United States. The Laender, by voting for
the new FWA, gave up their control to set minimum water quality
standards before they knew what the new minimum effluent
standards were. Basically they were being asked to give up an
unspecified amount of power.
An effective safeguard against the loss of too much control
was to provide a role for the Laender and the polluters in the
standard-setting process. The task force was the institutional
vehicle for this protection. However strong the appetite for
improving water quality of Ministry of Interior, the appointment
process had to recognize the bare fact that each state had to
enact implementing legislation and carry out the attendant
enforcement responsibilities. Moreover, the Bundesrat had to
pass the regulations recommended by each task force. The task
force was a practical idea for postponing debate over technical
minutia which would have mired the legislative process and
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I
extended the date of ena'ctment further into the future.
At the present time, 39 task forces have submitted
regulations, of which 27 have been or are about to be ratified by
the federal government and the Bundesrat. It is expected that
most of the remaining regulations will be completed by the end of
1983. Task forces for some of the major sources of pollution,
however, have yet to submit regulations.
8. The Polluter-Pays Principle and Effluent Charges
A first step in evaluating the actual effluent charge system
is to consider the characteristics of an ideally efficient
system. Then it readily will be seen that the actual effluent
charge system bears little resemblance to an idealized one. That
is not a surprising finding. It does mean, however, that the
search for merit and deficiencies must be made in the murky realm
of second-best analysis, where judgment and partial analysis play
a more prominent role than rigorous proofs in a general
equilibrium context.
There is a menu of policies which induce individuals, firms,
municipalities and public agencies to use water quantity and
water quality in a manner which serves the public good. Two broad
sets of regulations are available and reflect different
philosophies in practice. The first has a physical orientation
'and is manifest in permits or licenses. Physical constraints are
imposed on water use: withdrawal cannot exceed a given number of
liters per period; discharge cannot exceed a given amount of a
named chemical substance during a specified period.
The second approach, effluent charges, has a strong economic
component. Those using public water bodies as a waste receptor
are charged a rate expressed in money (DM) per physical unit of
waste discharged. Unlike the standards system, the polluter is
not constrained by physical rules. His constraint is a more
subtle, economic one. He can pollute as long as he can afford to
pay the price: presumably until the profit from additional sales
no longer matches the cost of paying for the residuals associated
with the additional sales.
There are no significant differences between an idealized
effluent charge system and an idealized standards system. For
each, public managers, blessed with adequate information,
calculate just that level of water quality in a river for which
the benefits of extra quality are matched by the cost5society
necessarily must bear to preserve that extra quality.
Discovering this magic point (or vector with multiple
qualitative characteristics) requires enough knowledge to permit
the rulemaker to calculate what each polluter would be willing to
pay to discharge an extra unit of waste.
The water quality manager can achieve the desired outcome
either by posting a common effluent charge, which each must pay
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in order to consume an extra unit of pollution, or by issuing
individual (optimum) standards to each "consumer" of water
quality. The charges or the standards change through time in
keeping with changing circumstances.
Although the idealized system is of little practical
interest, its attributes have considerable merit. First, under
these circumstances each polluter places the same value on"an
extra unit of pollution. Equally, this means that no discharger
pays any more than another for an additional unit of effluent
discharge. The cost is equal across polluters. Veiled behind the
single characterization, yet nevertheless of crucial
significance, is the second attribute. There is no cheaper way
to achieve the desired quality level because the least cost
technology has been adopted by all. Those who can treat cheaply
will trade this service for a price to others whose cost of
treatment is high. Of course, the incentive to discover low cost
measures to reduce effluent discharge diminishes as the level of
the effluent charge decreases.
r TT—• n
The third attribute is less important for the present study.
Under ideal circumstances, the cost to dischargers of treating a
bit more is just matched by the benefits to those from marginally
improved water quality. If this condition is not met, there is
economic waste. A charge or standard set too high results in
polluters paying more than the beneficiaries gain from the last
bit of water quality achieved. For many reasons, not the least
of which is the difficulty of measuring the benefits of water
quality improvement, no one seriously has argued that the federal
minimum requirements or effluent charges in the FR6 will result
in this condition. When the three conditions described above are
met, there are no further gains from trade among polluters, among
beneficiaries or between polluters and beneficiaries of clean
water. 6
These three attributes fall within the realm of efficiency.
In addition, when an effluent charge is adopted, it satisfies the
equity criterion known as the beneficiaries-pay principle in
public finance and the polluter-pays principle in the case of
water quality. Those who pollute are those who pay. Standards
fall short of this equity goal because they permit the free
discharge of a given amount of pollution.
The Effluent Charge Law (ECL) and the Federal Water Act
(FWA) at the federal level did not satisfy the efficiency
criteria set for the above ideals because each producer of a
given product faces the same minimum standard and each must meet
the same discharge concentration levels whether the cost of
treatment is high or low. Not even by paying a charge can the
uniform minimum standard be avoided.
The marginal cost of treatment in one branch of industry is
not equal to the marginal cost in another, except fortuitously,
because the task force groups were not charged with that
responsibility.
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In the next two sections we discuss the degree to which a
policy of minimum standards leads to resource inefficiency in the
municipal and industrial sectors.
9. Uniform Standards are Costly Unless Required Waste
Treatment Levels are High
For as long as economists have been discussing the charges
or standards approach to environmental quality management they
have argued strenuously that uniform standards are inefficient.
A uniform standard refers to a policy in which all dischargers of
a type, such as municipalities, are required to achieve the same
level of purification or waste removal or to adopt the same
technology.
Whatever its practical or equitable merits, the policy is
costly and inefficient whenever individual waste dischargers
differ in ways substantially effecting the cost of waste
treatment. (For example, the per capita cost of municipal waste
treatment falls dramatically_as the number of inhabitants
served rises (see Figure 2). ) When the same level of
purification is imposed on all entities, the smaller
municipalities pay more than the larger ones to treat the last
units of waste. Therefore, the same water quality level can be
achieved at a lower cost by cutting back; on the high cost
activity and expanding the lost cost activity.
According to the Council of Experts for Environmental
Questions, the effluent charge policy is about one-third cheaper
than a uniform standards policy. A charge level of 40 DM (1974
prices) would have achieved a 73 percent removal for a cost of
1.2 billion DM per year, whereas a uniform standard achieving the
same level ofgpurification would have cost just under 1.8 billion
DM per year.
Inflation and technical progress have occurred since 1974
when these data were assembled. Increasing the DM values by 50
percent or more would produce estimates more appropriate, for the
present. By 1986, it is expected that the real value of the 40
Dm charge will be around 22 DM. It would be over 80 DM per
damage unit if the charge was indexed for inflation.
The potential economic advantages of an effluent charge over
a uniform standard apply to the industrial sector as well. Using
the data from one important and widely quoted study, at a uniform
standard of 80 percent removal of chemical oxygen demand, some
pollution-intensive industries such as chemicals have (marginal)
treatment costs more than twice as high as other
pollution-intensive industries such as food processing. The
potential advantage of the charge over a uniform standard is
pronounced- for large, newer, pollution-intensive firms which
typically have low unit treatment costs.
•It is fairly obvious that potential costs savings from
eschewing uniform standards policies are greatest when there is a
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big difference in treatment cost opportunities among polluters.
As required levels of treatment or the effluent charge increase,
opportunities for substituting low cost for high cost treatment
diminish and the economic advantage of the effluent charge over
uniform standards is eroded. A charge high enough to achieve
100 percent removal for all is the same as a uniform standard.
At the required levels of purification cited above, the
efficiency gains of a charge over a uniform standard are
modest.
10. Low Effluent Charge Levels Reduce but. Do Not
Elimi nate Incentives to Economize
It is a common belief in the Federal Republic of
Germany,(FRG) among professionals in the area of water quality
affiliated with universities and the federal government, that a
charge of 12 DM in 1981 rising to 40 DM per damage unit is too
small. Such a charge cannot, by itself, achieve the desired
water quality objectives for the country and it cannot be a very
great incentive to discover low cost abatement strategies.
Research results reported in Appendix B support the federal
proposition. But there are important exceptions worth citing
even if the frequency is unknown.
In response to the new water quality legislation, the giant
chemical firm, BASF, with a complex involving hundreds of small
plants and over 50,000 workers at one site in Ludwigshaven, has
made a serious effort to manage water quality. Its staff for
these matters has increased markedly in the last decade, nearly
doubling since the passage of the water quality legislation in
1976. Not only is BASF responsible for treating its own waste
but it treats the waste of two large municipalities and three
smaller ones with populations of over 300,000 as well, thereby
achieving low unit abatement costs by large-scale integrated
treatment processes.
BASF is required to achieve a purification level of 88
percent in terms of COD, but their plants actually achieved an 84
and 96 percent removal of COD and BOD_ in 1981. Taking
pretreatment into account, removal levels were around 80-percent
for COD and over 94 percent for BOD5 in the late 1970s.
Presumably BASF achieves these high levels of treatment because
it is cheaper than paying the effluent charge. We have learned
on an informal basis that there are numerous other large
industries with comparable performance records.
The second feature of the BASF system is of substantial
economic interest. BASF has practiced the polluter-pays
principle within its plant since 1975. Individual branches
basically face shadow or implicit prices for the volume and
concentration of COD. The response to the introduction of an
internal liability system has been a 20 percent decrease in
discharge. Rather than mandate physical decreases, the
intra-firm charge elicited a "voluntary" decrease in effluent
discharge achieved through process change, recycling of solvents,
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21
improved pretreatment facilities (separation tagks, settling
pits, etc.) and replacement of old facilities.
54
It is fair to
conclude that even if the charge is modest, by some standards, it
induces cost savings.
The charge also provides an incentive for municipalities and
industries to operate treatment plants and operate them
efficiently. Inefficient treatment is incompatible with minimum
requirements and inefficient operation will prevent qualification
for the 50 percent discount on the effluent charge. The charge,
by encouraging increased operating and maintenance expenditures,
partially offsets the efficiency distortion existing subsidy
programs create because only capital costs are subsidized.
One consequence of the ECL (and the FWA) is the remarkable
level of investment in waste treatment plants and equipment and
related operation and maintenance expenses it occasioned during
the announcement phase, generally, 1974-1979. Several studies
have documented this response, the most recent being that by
Sprenger and Pupeter. In Sprenger and Pupeter's survey of 54
waste water intensive representative industries, they found that
about 10 percent met the expected minimum effluent standards
requirements at the time the laws were passed in 1976. These
industries' incentive to make subsequent investments arose from
the potential extra benefits of paying one-half the charge rate
for a reduction in expected residual pollution discharges
achieved. Another 70 percent made investments in order to
satisfy the minimum requirements in the new federal water law and
the effluent charge law.
Sprenger and Pupeter further concluded from the interviews
that some significantly accelerated investment can be attributed
to the effluent charge part of the laws alone. Some of those
interviewed did not have to meet the restrictions set down in new
legal permits because this would have preempted their old
licenses. They were, however, subject to the Water Charge Law
(ECL). Since these firms did not behave dramatically differently
from those subject to both the FWA and the ECL, it is clear that
the effluent charge law did provide an incentive to abate
pollution.
Whereas Sprenger and Pupeter studied industrial responses to
the new water laws, Ewringmann, et al., investigated the response
to the new laws by municipalities. & Ewringmann, et al., found
that slightly more than one-third of the towns or cities
interviewed cited the effluent charge law as the primary reason
for undertaking more extensive waste treatment measures, while an
additional 14 percent declared that the minimum requirements
alone were responsible for increased expenditures. Another 20
percent stated that they had accelerated their construction plans
due to the effluent charge law.
The authors of this study concluded that when the planned
construction phase of their sample municipalities is completed,
80 percent of the inhabitants will receive full secondary
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treatment. This is compared to a national goal established in
1971, of 90 percent in 1985 and estimated levels of under 40
percent and 53 percent in 1963 and 1978 respectively.
t> /
Some,
including Wicke and Dorau believe the investment stimulus
provided through the announcement of the new laws was one of
most favorable effects.
the
We have tried to demonstrate that the adopted effluent
charge policy alone and in consort with the new minimum
standards, induced firms and municipalities to invest in new
waste treatment plants and equipment and created some incentive
to find economical ways to reduce waste discharge. As a result
of dedicated efforts to manage waste discharge more efficiently
in 1981r more than one-half the waste dischargers met the minimum
requirements and qualified for the halving of the charge in
general and in Baden-Wuerttemberg, 90 percent qualified for the
charge reduction.
The result necessarily improved ambient water quality. No
quantitative estimate of the change in water quality has been
made but the Dmweltbundesamt (EPA) reports there has been an
improvement in the biological quality. This conclusion appears to
be true, judging from a comparison of water quality maps between
1975-1980, where river segments are classified by four classes
of water quality.
Other actual or likely consequences, some of them good and
others not beneficial, will be discussed below. The subsequent
evaluation is largely qualitative because the laws are so new.
There has been too little time to have practical experience with
administering or enforcing the law or spending the revenues
collected.
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H« Effluent Charge Revenues^ A Potential Substitute
Source of Subsidies
The effluent charge-will collect revenue amounting to about
350 million DM in 1981. The actual amount of revenues is not
yet known since the money need not be collected until the end of
1982. There is a distinct variation in amounts collected among
the Laender. For example, North-Rhine Westphalia estimates
revenues of 100 million DM while Baden-Wuerttemberg estimates
revenues of around 15 million DM in 1981.
Revenues are to be used for water quality management
administration expenses associated with the ECL, and also for
projects or purposes which maintain or improve water quality,
including industrial production processes which are
pollution-saving. The fraction devoted to administration
varies among the Laender. It was as much as about 50 percent in
one Land in the first year, but is expected to fall to 20 to 25
percent in future years.
Perhaps because no revenues have been collected, those
interviewed were unaware of any specific criteria for revenue
expenditures adopted by the Laender. Several experts speculated
that the revenues would be made available to subsidize
investments which improve water quality beyond the federal
minimum standards, for example, tertiary treatment, as well as to
support investments which bring water quality up to the minimum
standards. Another person thought that loans with subsidized
interest rates would be available.
Effluent charge revenues are an obvious and important source
of subsidies for waste treatment investments. This inevitably
raises concern that the new source of subsidy may be substituted
for the old source, general fund moneys. At the present time,
Laender governments offer investment-subsidies in the
neighborhood of 40 percent or more.
It takes little political acuity to imagine that the Laender
governments will decrease subsidies for waste treatment from the
general fund once effluent charge revenues roll in. This would
be a particularly attractive substitution in times of budget
stringency. The polluter-pays principle can be invoked in
defense of the reallocation. It will be hard to argue against
the proposition that the dischargers who benefit from waste
treatment facilities (which meet the minimum standards or reduce
the bill for discharge) ought to pay for the facilities. Those
who approve of shifting fiscal responsibilities from higher to
lower echelons in the political hierarchy can see the merit of
the effluent charge as a new source of subsidies.
12. More Policy Instruments are Better Than Less
Some have argued that an effluent charge is a more flexible
policy tool because-it can be changed more readily than an
effluent standard.78 Others have argued just the opposite. For
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example, Baumol and Oates state that "one serious practical
liability" of the effluent charge is the inability to change it
as quickly as may be desired The truth probably rests between
the two extremes. Standards can be altered more easily in some
cases/ effluent charges in others/ depending largely on the
concatenations of public and private expectations.
The benefit of having a system of both standards and charges
is that the water quality regulations can each be adjusted
through time to produce a result more harmonious with the desired
water quality objectives. The objectives will change through
time as a result of changing environmental and economic
conditions. The added flexibility provided by multiple
regulatory instruments is not merely of theoretical interest; it
is an argument made by a number of experts interviewed, and it is
a point to be made in favor of adopting a charge policy in the
United States.
A combined charge and standards system is advantageous in a
decentralized decisionmaking framework where the control from
above is circumscribed. A critical case in point is the limited
ability of the Laender to regulate the municipalities. Laender
can regulate the aggregate discharge level of a municipality but
they are powerless to establish charges from the firms and
households which indirectly would achieve this discharge level.
The Laender charge the municipalities for their waste
discharge. The Laender cannot force municipalities to adopt
pricing policies for water quantity or quality which make the
indirect dischargers/ the customers of the municipalities, see
the marginal economic consequences of their waste discharge
decisions. However, introducing an effluent charge typically
increases the costs of a continued average or nonmarginal pricing
policy for all customers. Customers who are not the cause of the
increased price, because they do not pollute or their pollution
is more benign, now have an economic incentive to pressure the
municipality to adopt a more rational charge policy.
To illustrate, a municipality which practices average cost
pricing of fresh water (the price covers water quality costs as
well) or waste discharge on a volume basis will charge the same
price to two withdrawers of the same quantity. However, one may
use the water for cooling and not change water quality, as
measured by the quality parameters on which the charge is based.
The other may discharge high concentrations of chargeable
pollutants into the municipal system. The effluent charge
imposed on the municipality by the Laender simply increases the
municipalities average cost of water services, which is passed on
to the firm using water only for cooling. We can expect this
firm to press for a municipal pricing policy which is better
tailored to the costs a firm has created. The likelihood
increases as the perceived inequity rises; i.e., as the charge
level to the non-residuals discharger increases or as the
variance of pollution load across indirect dischargers increases.
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Evidence of the inducement to change customer pricing
policies created by the effluent charge is provided in a survey
of 52 municipalities. Nearly one-fourth of the municipalities
had decided to change the structure of their water and sewerage
fees in response to the effluent charge prior to the policy
actually going into effect. More can be expected to change their
fee structure with time. i
There is a further advantage of a combined charge and
standard regime in a decentralized system. It is difficult for
an authority like the state to use an effluent charge alone to
achieve a desired ambient water quality when the state has no
control over the pricing policy of municipalities or other public
agencies with their own pricing policies.
The state could set forth optimal solutions to achieve the
desired outcome either by using its best estimate of the pricing
policy the municipality will adopt, or by issuing to the
municipality charge systems contingent on the pricing policy the
municipality adopts. These are unlikely to be realistic
possibilities. More plausible are standards set to achieve
whatever quality goals are desired by the state combined with a
charge system which satisfies non-water quality efficiency
criteria such as equity considerations. These considerations are
important and in all likelihood are reflected in the standards as
well.
13. Effluent Charges Change the Costs of Enforcement
There is no reason why enforcement costs should be different
with an ideal effluent charge compared to an ideal standard. Of
more practical interest is whether actual effluent charges will
reduce compliance costs in the United States. We must speculate
about the answers in both cases since it is too soon to obtain g.
qualitative or quantitative evidence on the new German program.
In the absence of an effluent charge, the reward for
violating a standard is the expected gross profit of the actions
less the expected costs associated with being caught. If it is
reasonable to assume that in a combined charge and standard
system those caught accidentally or intentionally exceeding the
legal standard would have to pay fines plus charges which vary
with the unreported quantities discharged, then the charge system
reduces the expected net benefit of violating the standard; Thus,
a given level of compliance can be achieved at a lower
enforcement cost in the presence of a charge. Alternatively, a
higher level of compliance can be achieved (with a standard and
charge) than was obtained at the old cost of enforcement, when
there only was a standard. In short, non-compliance should
decrease when it is less rewarding, so enforcement can be cut
back accordingly.
Enforcement costs also will be lower if there is some
trade-off between "justice" aad economic sanctions in the world
of practical affairs. Polluters might successfully argue that
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because they are paying, the frequency of punitive proceedings or
level of punishment should be mitigated. This argument is
unavailable in a pure standards system.
The above arguments for decreased enforcement costs focus
on the (net) benefits of evasion to the evader. The outcome when
viewed from the supply side is different. Prior to an effluent
charge/ the reward to the Laender water quality management
authority for enforcing water quality standards is improved water
quality. Since effluent charge revenues cover the Laender's
costs of administering the effluent charge law, the water quality
management agencies in the Laender will be encouraged to increase
enforcement activities. The rewards are improved water quality
and a larger agency, with the expansion automatically financed by
effluent charge revenues. The net result of these qualitative
arguments is: (1) There will be a greater resemblance of actual
discharge to legally mandated standards. In this sense one can
say that the quality of water law has improved. (2) The
reduction in the discrepancy between the actual result and the
legal requirement, in effect, reduces the uncertainty about
enforcement to polluters. (3) The cost of a given level of
compliance has decreased but it is not possible to conclude that
total enforcement costs will -increase or decrease unless the
agency aggrandizement effect can be assumed to outweigh the
diminished value of compliance averting behavior for firms and
municipalities.
The new legal and economic instruments are more precisely
stated than heretofore and have induced a more precise
measurement and monitoring system. ThegLaender have been forced
to sharpen their enforcement practices. The increased quality
of data removes ambiguity. This increases or reduces the costs
of enforcement depending on the quality of administration prior
to the new laws. Compliance with permits formerly was moreggf a
qualitative judgment based on a spectrum of considerations.
Such judgments are more likely to be accurate in Laender known
for their tradition of high quality administration.
In contrast, the new charge system places high stakes on
limited pieces of quantitative information such as the levels of
the five pollutants on which the charge is levied. If, for
example, the minimum requirement is barely exceeded, the bill
doubles because firms and municipalities do not qualify for the
half-price incentive for meeting the minimums. The difference
could amount to as much as 4 million DM for some in 1981.
During discussion it was argued by one interviewee that this
feature of the charge policy is likely to invite more litigation,
thereby increasing the cost of the system. Others may see the
feature as an inducement to stay within the minimums.
Enforcement is one element of the broader issue of implementing
the charge system to which we now turn.
14. The Costs of Institutional Change
14.1 Federal Level
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Peter Menke-Glueckert has argued that the formation of
successful environmental policy in general, and the effluent
charge law in particular, is, in three ways, a.test case of the
PRG's political culture and democratic system. First, the
physical dynamics of the environment introduce intertemporal
complexity by requiring decisions and plans extending beyond the
normal four-year election terms. Second, environmental
problem-solving strategies must be compatible with the political
response and legal competence distributed among international,
federal, Laender and municipal entities. Finally, success
requires an understanding of complex technical and economic
problems. An effluent charge is still a difficult concept to
master in political circles and in engineering and scientific
bureaus.
The effluent charge system was not a part of the very long
tradition of usage licensing practices of German water
administrative authorities. Menke-Glueckert, and others, also
have emphasized how painfully long it took to nurture the idea of
an effluent charge to maturity in the parliament. It is one
thing to change the conditions of permits; there is the old 1957
law and a specific system of water quality licenses and permits
which date back to the last part of the 18th century.
The idea of a nationwide effluent charge was a dramatically
new idea. Integrating it with standards and permits made it a
complex undertaking. It required education of legislators,
Laender officials, and municipal and industrial administrators.
Real costs were incurred to bring the charge system to fruition
at the federal level. Although the effluent charge system is a
simple concept to understand, and the computation of the charge
is easily described in a few paragraphs, a substantial amount of
resources were required to explain to firms and municipalities
the actual charge system, including the precise methods of
sampling and measuring pollution. It is safe to say that these
costs of institutional change are greater than they would have
been had there only been amendments to the 1957 Federal Water
Act. In the end, however, the populace and the public agencies
were better educated and more knowledgeable about the efficacy of
using economic instruments for solving pressing public problems.
A more tentative conclusion is that the distinctiveness of
the effluent charge concept required a long gestation period for
the fruition of new water quality legislation. This in turn
insured that all parties had ample opportunity to present their
interests. If true, the resulting policies can be said to
reflect accurately the relative weights of all interested parties
to the decision. In response to questioning during interviews, no
evidence was made available to indicate that the new laws were
the product of a stacked process and evidence cited in Section 4
indicates that the law-making process was convergent.
The idea of adequate representation by all parties in the
political process is in marked contrast to the manner in which
principal water quality legislation in the United States
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allegedly occurred. In a remarkable and little known piece of
public policy analysis, Marc Roberts explains persuasively how
environmentalists played a disproportionate role in the passage
of the Clean Water Act of 1972. The U. S. Senate version,
calling for a standard of zero discharge by 1983, passed a vote
of 80-0. Only in the final version was the standard compromised
to best available technology. Roberts argues that the technical
complexity of the issue gave great authority to the subcommittees
of the Public Works Committee, which handled the water quality
legislation. The ranking members of the committee and the
technical staff had a special position and played a substantial
role in the final outcome. According to Roberts, a strong
environmental influence on the staff was evident: one staff
member was married to an environmental lobbyist, some staff
members were persuaded that any discharges were hazardous, and
the environmental lobby groups were well-organized and effective.
14.2 Local Level
The new management system at the local level was costly and
it initially strained the technical expertise of the regional
water boards who must help set local discharge standards which
meet the Laender's stated ambient water quality objectives.
To illustrate, in Bavaria the number of staff for sampling
and evaluation has been increased by about 160. Additionally, in
each of the 71 districts a new person has been added. In the
short run, it is expected that the bureaucratic expenses of the
new system will absorb one-third of the revenues from the
effluent charge in Bavaria and about 10 percent in North
Rhine-Westphalia.
Municipalities also have an uphill battle to improve their
administrative capabilities. One study states that only pH levels
are collected on a routine basis and as few as about one-third of
the municipalities measure COD, often in an unsystematic way.
The new water policies also have imposed higher costs of
administration on the private sector, as those whom we
interviewed were quick to impress upon us.
Much of the increased expense must be assessed to the cost
of operating an effective system in the face of rising real
demand for environmental improvement in the context of a
relatively fixed natural resource system. Some of the increased
costs incurred by the federal government and the Laender to
familiarize people with new ideas can be attributed to the charge
system. These are short run by their nature. Nevertheless, they
are real marginal costs of a new charge system. Finally, there
may be continuous institutional costs of a charge system over and
above that of a standards system. The reasoning is that a charge
system, in principle, is always constraining whereas a standards
system acts as a nonbinding constraint until the limits are
encountered.
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In the actual charge-plus standard system, the charge and
hence the cost drops dramatically in half if the standard is not
exceeded, so this pivot point could be a bureaucratic sore thumb.
Perhaps offsetting the cost is the benefit mentioned earlier.
When polluters exceed their standard and pay, the pressure to
initiate costly, punitive proceedings will be less than if
polluters violate a standard and do not have to pay an effluent
charge on this excess.
During the course of institutional change new variables are
identified, specific parameters are defined,and exact thresholds
are established. Those confronted by the new laws are quick to
point out that the federal government did not worry about the
practical matters of implementation because this is the legal
responsibility of the Laender, and it is the responsibility of
firms and municipalities to respond. Those effecting and affected
by the new policies tell colorful stories about how the change of
a minimum standard by 0.1 units would save a particular polluter
hundreds of thousands of dollars per year. Some argue that there
is no scientific basis for the parameter values adopted,
maintaining that no adverse harm would result if the constraints
were relaxed, say, twenty percent. Others criticize what they
believe to be the arbitrariness or imprecision of the testing and
the monitoring procedures. While it is important to acknowledge
such testimony in a research project of this nature, it is
difficult to evaluate its importance.
One must bear in mind that the federal government is not a
monolith. In order to pass through the gauntlet of the Bundestag
(and Bundesrat), the new policies had to meet the approval of
members representing disparate Laender which do have to execute
the water quality laws. The minimum standards were set by task
forces which had broad membership, as discussed in Section 7. No
one interviewed complained about the composition of the
membership of any task force. Those who cited exhorbitant costs
because of a chosen parameter level were not randomly chosen from
a population of dischargers. No one was asked to provide
examples of the unusual benefits which might have occurred along
some special reach of a river because a parameter was 20 percent
higher than it might have been.
The present period can be regarded as a running-in period
for the new policy. Indefensibly high and low parameter values
will be discovered and replaced by more sensible values; flaws in
administrative procedures will be discovered and revised
accordingly.
We close this discussion with strongly favorable testimony
on behalf of the effluent charge policy. One of three states to
strongly oppose the effluent charge law was Schleswig-Holstein,
in the northern part of the country. As a predominantly rural
region, the state was concerned with the cost and the ominous
task of acquiring sufficient technical capability for
administering the new legislation. After a few years of
experience, several experts with substantial responsibility for
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administering the ECL have found it to be a far easier task than
they had imagined, to their great surprise. Simple, practical
ways have been devised to implement the "economic point of view".
Illustratively, the need for increased analysis of samples has
been handled, in part, by contracting with private labs, who are
now staunch supporters of the effluent charge system.
14.3 Uniform Policies Reduce Some Costs of Institutional
Change
All practical and effective water quality management
programs require the specification of variables, parameter and
threshold values. An effluent charge system has the greatest
chance of meeting the criterion of political feasibility if it is
kept simple—few pollutants, strictly limited number of threshold
values, uncomplicated rate schedules, etc. The bane of naive
marginal efficiency is simplicity. Simplifying 'eventually
involves making charges and standards and other debatable
components of policy more uniformly aggregating and averaging.
It saves transactions and political costs, but ultimately at the
expense of efficiency.
One benefit ascribed to a policy which applies to all, i.e.,
meeting minimum requirements, is that it greatly reduces the „,
incentive of any one firm or industry to curry special favor.
To do so singles one out for public scrutiny much more than if
there is a distribution of policies and an entity seeks a
marginal change resulting in a favorable interpretation,
adjustment or reclassification. If bargaining for a narrow
interest is discouraged by announcement that policies will be
uniform, then it is argued that policy decisions will be made
more quickly. The duration of the uncertainty about the date and
content of new legislation is also reduced, creating a further
source of benefit. If these arguments have merit, then the
resulting benefits must be weighed against the costs of
uniformity. Only path-breaking empirical research will tell us
when the net benefits of simplifying rules actually are positive.
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15. Effluent Charges; A Stimulus for Improved
Professionalism
The effluent charge has stimulated a modest change in the
professional composition of those making management decisions,
placing in greater prominence those with special expertise in
waste water management decisions. Ewringmann discovered that
financial officers and others with economic backgrounds now were
being included when some municipalities discussed their
responsibilities for maintaining water quality. ' The required
improvement in water quality sharpens the relationship between
cost and environmental quality. This, in turn, has brought the
subject more frequently into public discussion and further
stimulated the public's desire to improve water quality and find
solutions to the remaining bottlenecks. Whether these
appetites are soon satiated by the attendant costs remains to be
seen.
Care should .be exercised about giving too much credit to the
effluent charge portion of the new policies. The acknowledged
need to improve water quality translates into applying more
pressure on polluters, enforcing laws more frequently, and
punishing more severely. Thus monitoring and measuring
procedures have to be improved,.because the legal demand for
greater accuracy has increased. This would have occurred to
some degree in the absence of an effluent charge because
regulations in some form had to be toughened. However, actual
levels of discharge are more important than with a standards
system alone and call for more accurate measurement. This is
true, first, because the actual payment jumps by 100 percent when
one exceeds the minimum; second, because in unusual cases—when
discharge is 25 percent or more below the minimun or when
discharge is above the minimum—the actual level is econmically
important; and third, because compliance is based more on
quantitative criteria than hitherto was the case. On balance,
the present effluent charge system must be administered by a
higher scientific quality organization.
16. Implementation Pitfalls
Many a good idea remains stillborn because the difficulties
of implementation are insurmountable. Proverbs such as "seeing
is believing" poignantly emphasize this all too frequent
occurrence. We have addressed the charge that the problems of
implementing an effluent charge system are exacerbated because
the federal government enacted legislation which another
governmental unit, the Laender, had to put it into practice. Two
major practical problems discussed were the difficulty of
developing acceptable procedures for testing the concentrations
of specific residuals discharges and resolving the controversy
over acceptable threshold levels of concentrations.
Probably the two largest stumbling blocks remaining in the
way of practical implementation are devising acceptable'and
effective policies for handling storm water runoff and charging
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indirect discharges. About 90 percent of all firms in the FRG
discharge their effluent into the sewerage systems of
municipalities and are not directly liable for the effluent
charge. The difficulties with surface runoff are easily
understood. The bill for residuals discharge is the product of
volume, concentration and price. Storm water runoff increases
the cost of purification. Thus the cost of meeting a uniform
standard is higher for municipalities and areas which experience
storm water above the national average. Schleswig-Holstein and
Lower Saxony are two such areas. They have spoken out strongly
on this.issue and will exclude storm waters from their charge
system.
Three elements of the indirect discharger problem warrant
discussion. First, how are those whose waste enters municipal
systems to be charged; second, do their costs resemble the costs
of direct dischargers? and third, can there be relief for a firm
whose economic viability is threatened by charges a municipality
levies for that firm's discharge?
An important criterion for a municipal charge system is
administrative simplicity. This feature is sacrificed to the
degree that a second desirable characteristic, the polluter-pays
principle, is achieved. Ideally, each firm faces a (marginal)
charge that reflects the (marginal) cost of discharge imposed on
the municipality. For example, firms with high concentrations of
cadmium, mercury, COD, settleable solids or toxicity would pay
more than those with lower concentrations in their expected
waste. In this manner, the polluter-pays principle is passed
back to the entity making the marginal pollution decision.
In practice, municipalities in the FRG have charge systems
so rudimentary that the cost of waste treatment is embedded in
the charge for fresh water withdrawals. According to one study,
less than one-half the municipalities made any distinction at all
in a polluter's effluent concentration in computing a sewage bill
in the FRG during the late 1970s. ^ It is fairly clear that the
charge policy is used primarily as a financial instrument by the
municipalities and not as an allocative device. Thus, finding a
solution to the practical pricing policy problem has wide
ramifications in terms of efficiency.
When all firms are homogeneous in their residuals discharge,
municipalities can continue to practice undifferentiated charge
systems. When individual discharge varies greatly in volume and
concentrations, a pricing policy which does not distinguish
differences in volume, concentration or pollutants will greatly
favor the big pollution-intensive industries and discriminate
against the mild polluters. A uniform pricing policy acts as a
wet blanket on incentives to reduce discharge, which would be
undertaken by an estimated 80 percent of the firms for a cost
lower than the municipalities to which they are hooked up.
In recognition of the nationwide problem of revising
municipal charge systems, the Umweltbundesamt (EPA) commissioned
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a study of charge systems for.the purpose of providing guidelines
useful to all municipalities. The study developed a
self-evaluation scheme based on a municipality's desired degree
of purification, level of toxicity and pollution concentration,
and industry share of effluent, to help municipalities select an
appropriate level of complexity—charge differentiation—for
their effluent charge system. Alternative charge systems which
were administratively simple and had incentive elements were
discussed at some length.
The impetus for the study may have been provided by a
previous study commissioned by the EPA to investigate the effects
of the effluent charge on indirect dischargers. According to that
study about 40 percent of the municipalities did not actually
have nor did they have plans for adopting a waste water pricing
policy which charges a firm more if they have higher
concentration effluents.
Fairness between the direct and indirect discharger with
regard to the federal water quality laws is a consideration which
should be raised. However, inadequate data preclude reaching
definitive conclusions. Even qualitative answers are not
possible because of the presence of two major counter forces as
is seen below.
Subsidies to municipalities and non-fee revenues such as ad
valorem taxes tend to..decrease the cost of effluent treatment to
indirect dischargers. u The advantage will decrease to the
extent that subsidies from the effluent charge revenues will be
made available to firms. On the other hand, indirect dischargers
pay for treatment of storm water runoff which is not of their
making but can amount to as much as 50 percent of the total cost
in some communities.
Turning to the problem of the marginal firm, the application
of the polluter-pays principle creates practical difficulties
(raises the question of fairness) when the discharge of one firm
is so noxious that a municipal treatment plant cannot meet the
minimum standards. A likely candidate is a firm employing
galvanizing processes. Should the firm be liable for the full
charge increase applied to all the treatment plant's waste? What
if the firm goes out of business as a result? This problem is
under discussion in the FRG and will be an issue in the United
States if an effluent charge is introduced.
The Land Hessen has provisions in its law for municipalities
to place full liability on the polluter.109 Michaelis in his
interview intimated that the Ruhrverband does not find it easy to
adopt effluent charge policies which,, bankrupt a firm, however
theoretically justified they may be. u
I7* The Effluent Charge; A Potential Cause of_ Resource
Inefficiency
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Rarely can improvements in public policy proceed in all
directions at the same pace. The purpose of this section is to
identify and underline the unavoidable waste which occurs when
progress is asymmetric.
When the cost of using natural water quality increases, and
polluters search for ways to make cost saving substitutions, one
natural option is to discharge into the air. If air quality and
air policies are not scrutinized publicly at the same time, not
only can air quality deteriorate as a result of improvements in
water quality but society can be made worse off on balance. This
will occur if the costs of air quality deterioration more than
offset the net benefits of water quality improvement.
Although the instructions to the task forces were.requested
to take other areas of the environment into account, none of
the members were described by those whom we interviewed to have
expertise in or responsibility for air quality management.
Members setting minimum water quality requirements were described
as water quality specialists. Thus there is no built-in
guarantee that air quality's "interests" were being watched. The
same commentary applies to other-potential resource substitutes
such as land and ground water.
A second adjustment open to polluters is to substitute water
sources. Not only can one expect an increase of residuals
discharge into marine environments for which no charge is levied,
but one can expect a substitution of ground water for surface
water in two senses. In the first case, indirect dischargers,
who pay for the costs of effluent treatment through the bill for
water withdrawals from the municipal system* naturally will try
to withdraw ground water as a substitute. Fortunately not
many possess the legal right to withdraw water from the ground.
Second, some polluters will be encouraged to avoid charges by
discharging waste water in such a way that it is reabsorbed into
ground water aquifers. Fortunately again, this is not legally
permissible, but vigilant surveillance of aquifer water quality
is a prudent step to take during these years of transition.
Finally, those responsible for managing solid waste disposal on
land can expect increased pressure on their services as a result
of the new water quality mangement laws. Since no empirical
analysis of these concerns has been undertaken, the purpose of
this section is merely to alert readers to a potential problem.
18.
Incorporating Effluent.Charges into U. S_. Water
Pollution Control Law.^=3
The existing U. S. system of water pollution control is
dominated by a legalistic approach in two ways. First, it
emphasizes as its goal the total ban of discharges of wastes into
public waters instead of applying cost-benefit principles which
would proscribe only those discharges of waste which are not
cost-justified for a particular body of water, considering the
alternative uses for those waters and their assimilative
capacity. Secondly, the U S. system relies heavily on the
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threat of punishment, i.e., fines and/or imprisonment, rather
than on economic incentives to induce industries, municipalities
and other waste dischargers to reduce the pollutants they
discharge into public waters.
The first of the above two concepts, the ban-the- discharge
approach, was explicitly incorporated into the Federal Water
Pollution Control Act (FWPCA) Amendments of 1972, and has been
subjected to heavy criticism by the National Water Commission in
its 1972 final report "Water Policies for the Future", by the
National Commission on Water Quality in its 1976 report, and by
independent economists. The principal basis for this criticism
has been that the cost of carrying out such a program is simply
too high, given other demands on public funds. Achievement of
the no-waste-discharge goal by 1985, or any other time, would be
so costly as to require giving up other goals that have a higher
social, political, and economic utility. The critics note that
while most pollution, possibly as much as 90 percent, can be
stopped or removed at acceptable costs, removal of the final few
percentage points becomes exceedingly expensive. Stringent
limitations on the discharge of toxic substances into public
waters may be justified on the ground that they pose a direct and
immediate danger to human health, whereas a similar ban on the
discharge of other pollutants seldom has such powerful
justification. Indeed, such waste discharges may cause
insignificant harm either to humans or fish and wildlife in view
of the assimilative capacity of the particular body of water.
It was not surprising that the 1977 Amendments to the
Federal Water Pollution Control Act altered the emphasis of the
federal program in the direction of the receiving water standards
approach and away from the no-waste-discharge principle. This
change is important to our consideration of effluent charges as a
supplement to the existing pollution control system. While
effluent charges are consistent with a receiving water standards
approach they tend to conflict with the ban-the-pollution
approach. Effluent charges are based on the assumption that some
wastes will continue to be deposited into public waters, and that
such use is not, per se, legally wrong or inherently evil. An
effluent charge system is a legitimate means of helping to
allocate the use-opportunities for this resource among
competitive interests. In addition such a system will create a
pool of revenues that can be used for the construction of .
treatment facilities, research, and pollution control
administration.
It should also be noted that the adoption of an effluent
charge system is consistent with the current administration's
support of the "user fee" concept. Instead of imposing the costs
of water pollution control, administration, research,
enforcement, and construction on the general taxpayer, these
costs are borne by those who use public waters for the discharge
of their wastes and who therefore benefit most directly from the
use of this resource.
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The above discussion leaves unanswered the more basic policy
question of whether an effluent charge law should be enacted at
the state level or at the federal level. We do not take a
position on this issue here, believing tha't this is a matter for
the Congress and the various state legislatures to decide. We
will, however, portray the three major options that are available
and note some of the advantages and disadvantages of each.
(1) The federal government could enact an effluent charge
law for the entire nation, and could collect the charges and
disburse them as it saw fit. Under such a plan Congress might
carry forward the same federal-state relationship that is used in
administering the Clean Water Act (CWA) Thus a state would be
permitted to implement the charge system under continuing federal
supervision,, so long as the state met federal standards.
Alternatively, if a state decided not to implement the federal
charges program, EPA would itself carry out the implementation in
that state. (2) The states could enact effluent charge systems
of their own choosing, so long as their choices were not
preempted by the Clean Water Act. (This issue is discussed
below.) (3) The federal government could enact a law that would
set minimum requirements for any state effluent charge law.
States could then enact such laws as they chose, so long as those
laws met federal standards. If a state chose not to have an
effluent charge law, then none would exist in that state, i.e.,
EPA would not implement any federal charge system in that state.
19. Congress's Power Under the Federal Constitution to
Enact an Effluent Charge Law.
There is little doubt that Congress has the constitutional
power to enact an effluent charge law applicable throughout the
United States if it chooses to do so.
A casual look today at the exercise of governmental powers
in the United States, between the states and the Federal
government, might convince the modern observer that the 1787
Constitution allocated the major share of governmental powers to
the national government. The federal government's presence can
now be seen and felt everywhere, in all aspects of legal, social,
environmental, and economic affairs. However, quite the opposite
perception prevailed when the Constitution was adopted. At that
time it was everywhere recognized that the basic sovereign powers
of government resided in the states. The national government had
no inherent powers of sovereignty. Its entire governing
authority had to be carved out of the powers that were then held
by the states. The Constitution was in fact a delegation of a
certain few limited powers from the states to the national
government.
This perception prevailed until well into this century and
was reflected in the fact that the great bulk of legislation that
has existed until recently was produced by state legislatures.
It has been primarily the post-World War II era that the federal
government has moved directly and comprehensively into the field
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of social, economic, and environmental regulation.
The water pollution control field was completely dominated
by state regulation until the mid-1960s. By then it had become
apparent that state regulation was failing to achieve the kind of
water pollution control desired by the public. At first the
federal intervention was gradual. In the Water Quality Act of
1965 Congress sought simply to oversee state regulation, and made
no attempt to regulate waste discharges directly. It was not
until 1969, with the rediscovery of the Rivers and Harbors Act of
1899, that the federal government undertook through the Corps of
Engineers permit system to regulate directly the discharge of
wastes into public waters by industries. Then in 1972 the
federal government changed the rules of the game entirely and
took over the field of water pollution control from the states,
essentially reversing the federal/state roles and thereafter
allowing state regulation only under strict federal supervision.
The courts have supported this expansion of the federal
government's role in the environmental as well as in other areas
of social and economic regulation, and have done so via an
increasingly broad interpretation of Article I, Sec.8(3) of the
federal Constitution, the sb-called "Commerce clause". This
clause says that Congress shall have the power "to regulate
commerce with foreign nations, and among the several States".
Prior to the 1940s the Supreme Court had interpreted this
language to limit Congress's legislative power to matters more or
less directly connected with actual commerce. A body of water
had to be navigable, or affect navigability, to come within the
reach of this aspect of the commerce clause power, although in
cases such as United States v. Appalachian Electric Power Co..,
311 U.S. 377 (1940), the Court had broadened the meaning of
"navigability" for commercial purposes to cover not only
tributaries of navigable waters but also waters that could be
made navigable by reasonable improvements.
In 1942, the Court moved entirely away from the concept of
navigability as a limit on congressional power to legislate under
the commerce clause and ruled that this power extends to any
activity that "affects" interstate commerce. In Wickard v.
Filburn, 317 U.S. Ill (1942), the Court held that Congress could
constitutionally enact a law regulating the acreage of wheat a
farmer could plant even though the wheat was destined solely for
use on his own farm. Conceding that the amount of wheat involved
was trivial by itself, the court concluded that taken together
with that of many other farmers similarly situated, homegrown
wheat could be sufficiently competitive with wheat in commerce to
affect substantially the price of the latter, thus justifying
regulation of all production. Thus wheat farming, though not
directly producing articles of commerce, was within the reach of
Congress's power under the Commerce Clause becuase it "affected"
interstate commerce.
Subsequent cases have established the applicability of this
principle to the environmental law field. In United States v.
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Ashland Oil £ Transportation Co., 504 F.2d 1317 <6th Circuit
1974), the court held that Congress had the constitutional
authority to enact the Federal Water Pollution Control Act
Amendments of 1972, by which the federal government took over
much of the direct regulation of water pollution. About the
impact of water pollution on interstate commerce the court said
"Obviously water pollution is a health threat to the
water supply of the nation. It endangers our agriculture by
rendering water unfit for irrigation. It can end the public
use and enjoyment of our magnificent rivers and lakes for
fishing, for boating, and for swimming. These health and
welfare concerns are, of course, proper subjects for
congressional attention because of their many impacts upon
interstate commerce generally. But water pollution is also
a direct threat to navigation—the first interstate commerce
system in this country's history and still a very important
one."
Other potential impacts of water pollution that "affect"
interstate commerce easily can be identified, any one of which
would justify Congressional legislation on this subject.
It seems clear therefore that Congress has the
constitutional power under the commerce clause to enact an
effluent charge law to control water pollution, if it chooses to
do so.
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39
20. Constraints on Congress's Power to Legislate.
The Bill of Rights of the federal Constitution contains two
clauses that could possibly be argued as the basis for challenges
to a federal effluent charge law: the due process and equal
protection clauses. However, assuming that such a law is
carefully written and reasonably related to the pollution goals
to be achieved, any such challenges should fail. The due process
and equal protection clauses guarantee the._basic reasonableness
and fairness of any legislative scheme.
The due process clause has two separate aspects, one called
"substantive" due process and the other "procedural" due process.
Under the substantive due process requirement a person can insist
that his property not be taken by the government without payment
of compensation. This concept generally has no application to
waste dischargers, however, because the courts have held that a
person does not have a legally vested property right to pollute,
at least not such a right as requires payment of compensation for
its loss by government regulation.
Procedural due process requires generally that fair
procedures be followed in applying any regulatory scheme, such as
reasonable notice of hearings and orders, and the opportunity to
present one's own arguments before a proper forum. Any defects
in procedural due process can be corrected by merely changing the
procedure to one that meets the court test of fairness.
The principal tenet of the equal protection doctrine is that
persons similarly situated should be treated alike under the law.
Conceivably an industrial waste discharger might complain that he
was being charged more than another disharger who was similarly
situated. However the courts have almost uniformly rejected such
claims unless the differential treatment is based on race,
gender, or some other suspect classification.
Nearly all laws have a differential impact on different
groups or classes of persons. Where the law infringes on a
fundamental right such as the right to vote, or is based on a
"suspect" classification such as race, a court will examine it
with exceptional care, giving it what is called "strict
scrutiny". A court will uphold the law only if it is "necessary"
to serve a "compelling state interest". Laws that do not
infringe on fundamental rights or deal with suspect
classifications receive only "minimal scrutiny," and will be
upheld if a rational relationship can be discerned between the
law and the goal sought. Under this rational basis test the
government has broad discretion in enacting laws which affect
some groups differently than others. Few legislative enactments
have' been struck down under this test. There is no reason to
believe that a carefully drafted effluent charge system would
fail to meet this test.
21. State Authority to Enact Effluent Charge Laws
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The states also have the legal power to enact effluent
charge laws if they choose to do so. As noted above, states have
enacted health and environmental laws for a much longer period of
time than the federal government. The states' powers to enact
such laws falls under the classificatin of state "police power",
and extends to the protection of the health and welfare of the
people within the state. Such legislative authority has been
used to protect health, morals, aesthetic appearance,
environmental quality, recreation, fish and wildlife, and
economic welfare. These powers have been upheld by courts in all
the states as well as in the federal courts.
The more serious challenge to state effluent charge laws
arises from two other sources: (1) that such a law might violate
the federal Constitution's "dormant" commerce clause requirement
that guarantees free interstate commerce; and (2) that such a law
might be preempted by existing federal statutes in the field of
pollution control. Under the first such challenge the courts
have held that legislation may be suspect If it places a greater
burden on out-of-state enterprises than on those operating within
the state. Nowak, Rotunda and Young have said that "the
rationale of the Commerce Clause was to create and foster the
development of a common market among the states, eradicating
internal trade barriers, and prohibiting the economic
Balkanization of the Union. Approval of discriminatory
regulation enacted by one state would merely serve to invite
retaliatory legislation by the burdened jurisdictions." The
typical case of an invalid state law under this concept is
illustrated by the law that places special requirements on trains
(limiting length) or trucks (mud flaps) that pass through the
state on interstate travel.
There is no reason to believe that a state-enacted
effluent charge system would violate the "dormant" commerce
clause. We agree with Anderson and co-authors in their
carefully supported conclusion that the dormant commerce clause
is "not important to the charges approach" because "most charges
plans can function effectively without unreasonable impacts on
interstate commerce."
The question of federal preemption of state water pollution
control laws is more complex. Under the supremacy clause of the
federal Constitution, if Congress enacts a law that conflicts
with a state law or that occupies the field so completely that no
room is left for state control, then the state law is preempted
and cannot stand. It is clear that Congress could enact a
comprehensive effluent charge law that would preempt any state
laws in the field. However, most federal legislation in the
environmental field provides that state laws on the same subject
are not preempted if they are more strict than the federal act.
If such a provision were included in the federal effluent charge
law then a state could, if it chose to do so, levy charges that
would be added on to those levied under the federal law.
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A related question is whether existing federal water
pollution control laws occupy the field so completely there is no
room left for the enactment of state effluent charge laws. This
question may be answered by the provision in the Clean Water Act
that expressly reserves to the states the power to enact water
quality laws that set standards stricter than those promulgated
under the federal act. One might argue that it is impossible for
states to have stricter standards than the federal law, at least
after 1985, because after that date the nation will have achieved
the no-discharge goal. It is everywhere conceded, however, that
this "goal" will not be achieved by 1985, or at any identifiable
time after that. The 1977 amendments make clear that the
government intends to perpetuate a technology-based program of
pollution control into the foreseeable future. Such a program
allows sufficient leeway for implementation of state effluent
charge programs.
A technology-based federal program might, however, give rise
to the argument that state effluent charges could not be levied
so long as the waste discharger was meeting the federal
technology-based standards. We believe that such an argument
would likely fail because state effluent charge systems would
seem by their very nature to be premised on stricter standards
than those required under federal law, and would come within the
provision of_the federal act that explicitly allows stricter
state law. However, a court might hold that the federal
disclaimer allows stricter state standards only in terms of the
quantities of chemical or other substances discharged and not in
terms of charges assessed against polluters. We recommend
therefore, that Congress enact an amendment to the Clean Water
Act to make it clear that state effluent charge laws would not be
preempted by existing federal pollution control laws.
Under an amended Clean Water Act, the states could
continue to implement their own standards-oriented water
pollution control systems as they do now, so long as they meet
federal standards. (About half the states have met these federal
standards and carry out their own programs under the supervision
of the Environmental Protection Agency). The amendment would
make it clear that the states could add a charge system to their
bag of tools for controlling pollution.
As noted above, congressional legislation in this area might
take one of two basic approaches. It could simply provide that
the states could enact whatever charge systems they deem
appropriate, and that those systems would not be preempted by
existing federal water pollution control law. Secondly, the
federal act could set minimum physical standards and minimum
charge standards for state effluent charge laws. Obviously a
major concern in making the choice between these two, or among
other variables, will be to assure that the nation does not
return to the era when industries were able to bargain one
state's pollution control laws against another and threaten to
move from states with strict laws to those with more lenient
programs.
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22. Variations in Effluent Charge Levels by State or
Region
If Congress enacted an effluent charge law, should that law
establish uniform charges for waste dischargers all across the
nation, or should it vary those charges by state or region? If
the charges are uniform everywhere then the states or regions
with cleaner waters may complain they are being penalized because
their charges are higher than necessary to achieve the desired
water quality levels.
One important argument in favor of uniform national charges
is that if variations were permitted, some states might set their
charges very low for their less developed regions with less
pollution, thus inviting industries to shift their location, and
their pollution, to these areas. Such a possibility could well
raise the ire of both environmentalists who want to keep the
clean areas clean, and of larger cities and industrialized areas
who want to keep jobs.
Probably the most important reason for applying a uniform
charge across the nation is the political difficulty of deciding
upon the level of charges that should be applied in different
regions. There is simply no acceptable formula for regionalizing
charges at the national level without creating great, and
possibily disabling, political controversy. Nonetheless some
modifications in the uniform charge theme might prove feasible
and politically desirable. Some of these are suggested by
Anderson and coauthors and include special surcharges on new
plants, allowing states some variation but with a federally
established minimum charge below which the states cannot go,
recognition of assimilative capacity as a basis for modest charge
adjustment, and application of a varying time schedule for
phasing in charges reflecting the different amortization needs of
diverse industries. These approaches, as well as others that
might be conceived, would tend to discourage migration of
industries from one state or region to another and at the same
time would speak to the complaints of environmentalists who want
to discourage degradation of the more pristine areas.
If states enacted their own effluent charge systems, without
the constraint of any federal minimum, then significant
variations are likely to exist between the states, and the
political problem of threatened industrial migration can be
expected.
23. Collection and disbursement of the revenues from
an effluent charge system.
If the states adopt their own charge systems, either under
federal guidelines or on their own, then presumably the charges
collected would go to the states to be spent for water quality
administration and improvement according to priorities
established by each state legislature.
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If an effluent charge system is enacted and implemented at
the federal level, Congress could provide either that the charges
would be collected by EPA and disbursed by EPA pursuant to
federally established priorities, or that the charges would be
collected by the states and disbursed according to state
established priorities.
If revenues were spent in the United States for
administrative costs and water quality improvement expenditures
as they are in the FRG, then the charge revenues that are spent
for administration would have to be divided between EPA and the
states, at least in those states that implement their own
programs. Additional funds could be used for pollution control
related purposes as determined by Congress and/or the state
legislatures.
24. Could an Effluent Charge System Be Grafted Onto the
Present Technology-Based Standards System?
No insurmountable legal problems should arise by enacting an
effluent charge system on top of the current standards system.
As noted above, the current water pollution control system in the
United States, while professing a no-discharge-by-1985 goal, is
in fact a technology-based system, applying criteria such as best
available technology or best conventional technology. Under this
system the states have set ambient water quality standards for
receiving waters. For many bodies of water, these standards are
being met, or can be met by application of the technology-based
standards. For other waters, however, these technology-based
standards are deemed too lax to assure compliance with existing
standards. For these waters Sec. 303(d) of the CWA requires
that they be classed as water quality "limited segments"; special
procedures are then established to encourage achievement of the
desired ambient water quality level.
It seems obvious that an effluent charge system could
appropriately be applied to waste dischargers on the "limited
segments" of water where technology-based standards will not
achieve the desired ambient water quality standards. Effluent
charges would be an appropriate means of encouraging industries
and municipalities to improve their technology, or to consider
alternative means of disposing of their wastes.
A different situation arguably could exist regarding those
waters where the ambient water quality standards have been
achieved. On these waters the waste dischargers might claim that
charges are inappropriate because the desired water quality has
already been achieved. A somewhat similar argument might be made
by an industry (on any body of water) that is using the legally
required level of technology, i.e., "why should I have to pay
effluent charges when I am using the level of technology required
by law.?" The answer to these arguments is that both the ambient
water quality standards and the technology-based standards are
only waypoints, they are not final destinations. Because of
continuing population and industrial growth, and the need to
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kk
dispose of an ever-increasing quantity of waste material, we need
to continue developing better waste control technology, and
alternative methods and locations for disposing of wastes. An
effluent charge system provides a built-in incentive for
encouraging such continuing efforts.
The data presently generated by the NPDES system make it
quite feasible to adopt an effluent charge system with only
modest additional effort. The applicant for a discharge permit
under the National Pollutant Discharge^Elimination System (NPDES)
must provide EPA or the relevant state agency extensive and
precise data on the quantity and content of the wastes to be
discharged under the permit. These data include chemical
parameters, metal content, physical and biological parameters,
and radioactive parameters, and cover a total of some 68
different items. The permits identify the permissible discharges
of each of these substances, and require appropriate
self-monitoring to assure that the permissible limits are not
exceeded, or if exceeded are reported. The Environmental
Protection Agency and the relevant state agencies have a well
established spot-monitoring system of their own to assure the
validity of the self-monitoring system. With this body of data
already available it would not be technically difficult to graft
an effluent charge system onto the present regime. The
information on which such charges would be based is already in
existence. The principal decision that would have to be made
concerns the choice of the wastes that would be the basis of the
charges.
One of the surprising consequences of the enactment of the
PRO charge system was the degree to which more complete and more
precise data were developed because money changed hands on the
basis of that data. While the United States if further along now
than the Germans were when they enacted the effluent charge law -
and we have considerably more data than the Germans did then - it
nonetheless seems likely that implementation of an effluent
charge system here would also generate important new
informatiopn, for the same reasons - money changes hands on the
basis of that information.
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25. Synopsis
The Federal Republic of Germany's 1976 Effluent Charge Law
was produced at the crest of that nation's environmental movement
and against a background of broad support for the application of
market economics to resolve the country's water pollution
problems. The ECL was designed to operate in tandem with the
existing standards/permit system established in a 1957 law and
modified in 1976 Amendments.
The Effluent Charge law was enacted by the Budestag and
Bundesrat as a framework law because the FRG Constitution
requires that all implementation and enforcement of water
management laws must occur at the Laender rather than the federal
level. All the Laender have subsequently adopted implementation
laws and enforcement programs. The federal act established a
minimum national water quality goal, and authorized federally
created task forces to set technology-based standards for all
industries and municipalities. The recommedations of these task
forces had to be confirmed by the Ministry of Interior and.the
Bundesrat which approximately resembles the U.S. Senate. The
federal act also determined the pollutants on which the charges
are to be based, and set the annual charges for each pollutant.
The Laender carry out all enforcement of the Act, including
timing of implementation, collection and disbursement of charge .
revenues.
The technology-based standards established uniform
thresholds for individual discharge level across the country.
The Laender can set higher minimums if they are necessary for
achieving particular quality goals in given water bodies.
The effluent charge system enacted in 1976 is tied to five
pollutants: settleable solids, COD (chemical oxygen demand),
mercury, cadmium, and toxicity to fish (Sec. 6). The charge
level starts at 12 DM (about $5.00) per damage unit in 1981 and
rises to 40 DM (about $16.00) per damage unit in 1986. A damage
unit is a specified amount of effluent such as 45.45 Kg of COD.
The charge per damage unit is uniform across regions and
polluters.
Each discharger pays for the expected amount of pollution
stipulated in the effluent charge portion of the individual
permit. The charge liability is lower under two circumstances.
If the expected discharge level meets the federal minimum
standards, the unit charge is reduced by one-half (e.g., from 12
DM to 6 DM in the first year). Second, if the actual discharge
level is substantially below the expected level, the bill is
based on the actual level of discharge.
When maximum levels of discharge, stipulated in the permits,
are exceeded, polluters are penalized by having to pay more in
the future.
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Revenues from the charges can be used by the Laender for the
costs of administering the ECL and for supporting pollution
abatement activities such as research for innovations in
technology; tertiary treatment plants and other investments which
inmprove water quality beyond the mininimum desired levels; lake
rejuvenation; and large-scale, economical treatment plants which
benefit region.
Lessons learned from the short experience of the FRG are
that an effluent charge system is most likely to be politically
viable and administratively attractive if:
1) It covers a small number of pollutants—under six;
2) It is combined with permit systems;
3) The charges begin at some specified level and
escalate during a transition period;
4) The charge levels result from a process involving
the participation of interested parties including
those benefitted and harmed by waste dischargers;
5) Measures and levels of volumes and pollution
concentrations are simplified;
6) Effluent charge revenues are made available for
abatement-related expenditures—see below;
7) Hardship clauses are provided to protect
dischargers or industrial sectors under
exceptional circumstances (Section 6.1);
8) Controversy over "regionalization" of the charges
is faced squarely; and
9) Care is taken to demonstratae how the effluent
charge program actually can be implemented
(Section 16).
If an effluent charge system meeting the above constraints
is implemented, we can expect:
1) Charges to increase the incentive for firms to find
treatment technologies, substitute production
processes and substitute input and output
combinations which diminish residuals discharge.
The qualitative evidence is that firms whose
standards did not change because their discharge
licenses did not change, generally found ways to
reduce their charge obligation. An intra-firm
effluent charge system resulted in a 20 percent
decline in waste discharge in the seven years
since its introduction (Section 10).
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2) Charges to increase the incentives for
municipalities to adopt customer sewage pricing
policies which not only are acceptable financial
instruments but also offer incentives for the
indirect dischargers to economize on waste
production (Section 10).
3) Charges encourage, if not require, municipalities
to find satisfactory procedures for better
monitoring of the intake and outflow of effluent
This will help public authorities to reduce the
average cost of their sewage services and will aid
them in executing an effluent charge policy which
better reflects the marginal cost of treating a
given customer's effluent (Section 12).
4) If a charge system is generating billions of
dollars per year in revenues, it is likely that
this source increasingly would look attractive
as a substitute to the U. S. Treasury for pollution
abatement subsidies. Since revenues have yet to be
collected in the FRG, there is no evidence to
support the concern of several water quality
experts interviewed that this substitution would
take place. A decreased dependence on the
Treasury redistributes the cost of pollution from
the general taxpayer to the consumer of pollution
intensive products and to the owners of factories
specialized in the production of those products.
Such a shift in the source of the polluter-pays
principle (Section 11).
5) The present system of subsidies in the 'U. S. for
waste treatment rewards capital intensive municipal
waste treatment technologies by subsidizing capital
expenditures. By encouraging municipalities to use
more operation and maintenance expenses to reduce
waste discharge, the effluent charge system helps
to correct resource allocation distortions the
subsidies created.
6) If revenues generated from charges are made
available for expenditures for water quality
improvement, some portion of these funds will be
available for use by industry. The present subsidy
system in the U. S., by excluding firms directly
(except for fair credits favoring "end of pipe"
charges), distorts the marginal cost of waste
treatment between private (firms) and public
(municipality) dischargers. There may be equity
considerations which justify the present policy,
but such goals are achieved at the cost of a lost
in efficiency. These losses will be mitigated, in
part, if firms qualify for subventions. Final
discussions prior to the passage of the ECL defined
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J»8
the uses of charge revenues to include industrial
expenditures for effluent reduction-production
processes, in addition to more straightforward
pollution abatement expenditures (Sections 10 and
15).
7) If the cost of administering and enforcing the
effluent charge system is covered in part or
totally by revenues created, as it is in the FRG,
then we can expect greater availability of
enforcement services and more compliance compared
to the precharge period. There is too little
empirical evidence regarding enforcement levels
in the U. S. to know whether and to what extent
the present situation is optimal. There is the
danger of excessive enthusiasm for enforcement
when the budget for enforcement comes from charge
revenues. Representation of heterogeneous
interests on a board in charge of revenue
disbursement is one way to reduce the chance for
this resource misallocation — admixtures are
effective antidotes for excessive zeal (Sec. 13).
8) Introducing an actual effluent charge system on top
of a standards system, in all likelihood
increases the total cost of educating legislators
and others unfamiliar with such a policy so they
can vote intelligently. In return, water quality
is improved and the flexibility, quality and
precision of the management program is improved
when more policy options are available (Sections 14
and 15). Moreover, the costs of familiarizing
policy makes about economic instruments may be
thought of as an investment. Returns will be
realized when discussions of policy issues in the
future embraces economic solutions.
9) An effluent charge system combined with a permit
system creates a more flexible assortment of policy
. tools capable of better responding to changing
circumstances than either system alone (Sec. 12).
10) If managers of other natural resources such as
ground water, marine waters, air and land—which
—are substitute waste sinks for fresh water bodies,
are engaged at least in an advisory capacity in the
design of the charge system, spillover losses into
these substitute areas can be reduced (Section 16).
11) In recent years, the introduction of the bubble
concept has improved the efficiency of water
quality management in the United States.
Residuals producers are permitted to trade
environmental quality permits. The bubble concept
introduces greater flexibility into the system by
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enabling exchange, in effect, to remove
constraints on some firms' behavior. Is a charge
system unnecessary if a bubble policy is in place?
Other things being equal, the introduction of
charges results in a loss of revenues to polluters.
Alternatively put, the implicit value of discharge
permits is depreciated by the introduction of an
effluent charge. In contrast, since introducing
the bubble removes some constraints, the value
of tradeable permits increases. Thus, the
distributive consequences of these two policies is
quite different. In practice, the efficiency
aspects seem to be different. To date, the number
of air pollution offsets consummated is modest and
the number of water quality trades is miniscule.
This suggests that there are practical impediments
to the development of offset markets in water.
These may or may not be of a short-run nature. On
the other hand, the effluent charge impinges on all
municipalities, direct dischargers, and on some
indirect dischargers. Thus the effluent charge
system generally is superior to a bubble system.
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50
The extent of the resource savings created by an effluent
charge depends largely on its magnitude. What is clear from this
discussion is that in a pollution offset program, effluent
charges are complementary, not competitive programs, when the
criterion is economic efficiency.
Finally, if the experience in the Federal Republic of
Germany is a guide, the introduction of an effluent charge will
improve water quality (Section 10).
In the United States it is clear that Congress has the
constitutional power to enact an effluent charge law for the
nation as a whole. Alternatively Congress could enact a
"framework" law estalishing minimum standards for state effluent
charge laws, and then allow the states to enact such laws as they
saw fit. Objections might be raised to federal or state effluent
charge laws on the basis of constitutional equal protection and
due process grounds, but these objections would fail.
States have authority to enact effluent charge laws under
their own constitutions, and under the federal constitution.
However state water pollution control laws might be preempted by
the extensive federal regulation in the field. The Clean Water
Act (CWA) explicitly provides that state laws are not preempted
by the federal Act if they are "stricter" than the federal law,
and state effluent charge laws might conceivably meet this
criterion. However sufficient uncertainty surrounds this question
that we recommend enactment of federal legislation explicitly
authorizing state effluent charge laws.
An effluent charge law could be enacted in the U. S. to
operate in tandem with the existing CWA standards/permit system.
In spite of the much publicized no-discharge "goal" of the Clean
Water Act, the system actually is technology based. It would be
quite feasible to coordinate an effluent charge law with the
existing NPDES system. The data generated by the NPDES process
provides the technical information that would be required for
establishing effluent charges. An effluent charge system should
not excuse waste dischargers merely because they are meeting the
technology-based standards.
Caution should be exercised about considering variations in
charge levels if they are initiated by a state or a region. Not
only is it exceedingly difficult to determine the technically
proper and politically acceptable variance, but such variances
might also encourage industries to bargain among states for the
lowest charges.
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51
APPENDIX A. PROBABLE COUNT OF DIRECT-DISCHARGERS ACCORDING
TASK
FORCE NO,
1,6
2
36
4
5
7
8
9
10
11
12
13
14
15
16,20
19
22
24
25
26
27,28
29
31
32
33
34,35
36
37
38
39
40
41
42
43
44
45
46
47
48
50
51
52
53
55
TO INDUSTRIAL PRODUCTION GROUPS*
NUMBER OF DIRECT
BRANCH OF INDUSTRY DISCHARGERS0
Plastics, Synthetic Fibres About 10
Acid, Alkali, and
Halogen Production 8
Organic Pigments 1
Inorganic Pigments 9
Soda 4
Meat 50C
Brewery, Mailting 250
Dairy 35
Margarine, Oil, Fat 10
Fruit & Vegetable Canning .d
Wine 0
Spirits 29
Yeast 2
Starch 8
Mineral Hater, Soft Drinks .d
Potato Products 7
Sugar About 50
Cellulose, Pulp (Paper) 13
Paper, Cardboard 110
Wood 6
Textile 60
Leather Tanning 4
Iron and Steel About 135
Non-ferrous Metals 60
Galvanizing (Electroplating),
Hardening, Etching 50-100
Auto & Machine Const'n At least 300
Coke 11
Ore-Dressing About 15
Mining (Bituminous Coal)
Lignite Briquet
Refineries
Waste Heat and Residues (From
(Utilities) Power Plants)
Glass
Fine Ceramics
Quarries
17
5
30
15r
About 730g
.d
Offal Processing About 33
Gelatine 9
Potash (Potassium) .
(Hydroxide) 6n
Other Fertilizers (Excepting
Potash) About 15g
Halogenated Compounds 4-8
Petrochemicals 8
Pharmaceuticals 4
Pesticide 1
Food Drying 45
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52;
58
59
60
Calcium Carbide, Silicon
Carbide Production About 8g
Used Oil Refining
Aliphatic Oxycarbon Acid,
Citric Acid Production. 2^
.d
TOTAL* 2369-2423
a. Divided according to task force in accordances with
section 7a WHL.
b. Standing as of May 1980.
c. Plus about 1800 very small dischrgers.
d. No statement was possible.
e. Plus about 100 very small dischargers.
f. Statements for Bavaria only.
g. Number of plants.
h. Plus 9 operations in the Siedesalz area.
i. To the extent that can presently be determined
(excluding very small dischargers).
SOURCES Survey of the IFO-Institute (based on statements
by the Federal/Laender task forces in accordance
with Section 7a FWA).
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100
jgto»B00Ma»^^
Q
1-1 W II
UO W
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101
APPENDIX B
tIMt C«JM »M MM tMIVMlfll
D
C
Z
P
K
M
Municipal -*•"
Chemical
Pulp Mills
Paper Mills
Canned Fruits and
Vegetables
Different Wastes
Marginal
Costs DM/PE
„ Mid-1970's
Prices
MUll * H»Hlt«ll«»
PE -
Population Equivalents
FIGURE B.2
MARGINAL COSTS FOR THE AVOIDANCE OF ONE EQUIVALENT
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55
APPENDIX C
THE LEGAL AND INSTITUTIONAL SETTING IN THE FRG
The FRG is a federal nation-state composed of 11 Laender:
Schleswig-Holstein, Hamburg, Lower Saxony, Bremen, North
Rhine-Westphalia, Hessen, Rhineland-Palatinate,
Baden-Wuerttemberg, Bavaria, Saarland, and West Berlin.
The FRG, under the Basic Law, is a decentralized nation;
power is divided along certain lines between the federal
government and the Laender, or states. We will examine this
governmental structure from the viewpoint of water management and
will analyze the legal competence to legislate and regulate over
water resources from that viewpoint.
The Bundestag (Federal Parliament) has the power to pass
framework legislation in the area of water management/protection
of water quality. Because water law in Germany was historically
the exclusive precinct of the Laender, these governments have
been reluctant to.give it up. Consequently the Bundesrat
(Federal Council) , which normally has only the power to initiate
legislation in the Bundestag and has veto power over Bundestag
legislation, but which is politically tied to the interests of
the Laender, has been given extraordinary powers with regard to
the setting of standards pursuant to FWL Art. 7a(l). This
allocation of power is merely one of several indications of the
political compromise that the federal water quality legislation
represents.
The executive arm of the government, the Chancellor and his
cabinet, is traditionally the product of a coalition between one
of the major national political parties and a sufficient number
of smaller parties, who together form a majority in the Bundestag
and are thereby in a position to elect the Chancellor. The
Chancellor in turn appoints the ministers who make up the
cabinet. The Chancellor and the cabinet constitute the government
for as long as their policies are acceptable and they avoid a
no-confidence vote in the Bundestag.
The Ministry of Interior has federal responsibility under
the 1976 FWL Amendments and the ECL for the government's water
quality management program. The Ministry of Interior is
different than the U. S. Department of the Interior in that the
German Ministry has no regional offices located in the Laender
and exercises far less political clout in that arena than its U.
S. counterpart.
The Ministry of Interior is advised on environmental and
water quality matters by another federal agency, located in the
Ministry of Interior, the Umweltbundesamt (Environmental Agency).
This agency is also very different than its U. S. counterpart,
the Environmental Protection Agency. The U. S. agency has very
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56
substantial enforcement powers under the Clean Water Act, Clean
Air Act, Environmental Policy Act, and others. The FRG
Umweltbundesamt is an advisory agency only. It has no
enforcement powers. In fact, its very existence has been
contested by the Laender because it was not listed in the Act
which created the Ministry of the Interior.
The FRG's government is limited in the power it may assume
in the water law area by the legislative competence that it is
given in the Basic Law. This Law divides the legislative
competence into four areas. In the first area the federal
government has exclusive competence (foreign affairs, national
citizenship, commerce with foreign countries, postal affairs, the
national railroads and air transportation, currency, copyrights
and patents, etc.). In the second area, the federal government
and the Laender have concurrent legislative competence (civil,
criminal, and real estate law, health and welfare, local commerce
and natural resource development, electrical production
—including nuclear plants—road construction and maintenance,
traffic control, land-use regulation, and other enumerated
areas). In the third instance the federal government's
competence is limited to the enactment of "framework" legislation
(water management, press and film industries, land distribution,
regional planning, public services, etc.). The fourth category
consists of matters that are reserved wholly to the Laender.
Of significance here is the fact that in the area of water
management the federal government has neither exclusive nor
concurrent legislative competence: if it had exclusive competence
it would have total control over water quality management? if it
had concurrent competence it could preempt Laender laws to the
extent that a uniform national approach to the problem was
required. However the Basic Law provides only for federal
"framework" competence,and thus the principal responsibility for
water pollution control remains where it has been traditionally,
in the Laender.
It is precisely this concept of "framework" legislation that
makes the German program of water pollution control so difficult
to understand in legal terms. The ramifications of framework
competence and the allocation of legal authority between the
federal government and the Laender is still murky even to German
scholars, because its use in the water management area is still
so new, untried, and "in process".
APPENDIX C — FOOTNOTES
1. The Bundestag is the primary legislative arm of the FRG. Its
members are elected to four-year terms and they are responsible
for electing the Chancellor.
2. The Bundesrat is composed of representatives of the Laender
governments who vote as a block according to the instructions of
the local governments they represent.
U.S. EPA Headquarters Library
Mail code 3201
120° Pennsylvania Avenue NW
Washington DC 20460
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57
3. Basic Law, Article 129 and FWL, Article 7a(l).
4. Professor Dr. E. Rehbinder, J. W. Goethe-Universitat,
Frankfurt, letter of January 13, 1983.
5. F. J. Peine, "Die Pflicht der Laender zum Vollzug des
Abwasserabgabengesetzes" (The Duty of the Laender to Implement
the Effluent Charge Law), Natur und Recht 4, p. 143.
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FOOTNOTES
* We are grateful for the translation services of Casey O'Rourke
and research assistance and translation services of Barbara
Fritzemeier. Extensive comments on various drafts were provided
by Blair Bower, Will Irwin, Marvin Rosters, Allen Kneese, J.
Salzwedel, E. Rehbinder, H. Massing, F. Schendel, M. Uppenbrink,
H. Luhr, F. Schroeder, G. Gedlitschka, W. Kitschler, H. Roth, J.
Gilles, C. D. Malloch, Michael DeBusschere, Malte Faber, Lutz
Wicke and W. Dorau.
1. J. Koelble, Gewaesserschutz in der Gesetzgebung (Water
Protection in the Law), undated, p. 6.
2. See Government of the Federal Republic of Germany, "A Program
for the Protection of the Human Environment" (1971), pp. 72, 74,
75 (hereinafter cited as PPHE); L. Dinkloh, ("Stand des
Gewaesserschutzes 1982 in der Bundesrepublik Deutschland aus der
Sicht der Gesetzgebung" (Conditions of Water Protection Law in
Germany in 1982 in View of the Legislation). Vortrag
Jahrestagung 1982, Fachgruppe Wasserchemi (May 1982). Everyone
interviewed agreed that water quality in the early 1970s was
unacceptable. Disagreement occurs over the solution.
3. PPHE, supra note 2.
4. Interview with Dr. H. Massing, Duesseldorf, September 21,
1982.
5. Interview with Dr. H. Massing, Duesseldorf, March 16, 1983;
interview with Dr. M. Uppenbrink, Dr. H. P. Luhr, and Dr.
Kanowski, Umweltbundesamt (EPA), Berlin, March 17, 1983.
6. For the broad powers sought, see PPHE, pp, 72-73. Some
discussion of thfe problems arising from limited federal
competency is found in R. W. Johnson and G. M. Brown, Jr. ,
Cleaning Up Europe's Waters: Economics, Management, Policies.
Pub. by Praeger Publishers (1976)(hereinafter cited as Johnson
and Brown).
7. Interview with Massing, supra note 5; interview with Dr. J.
Salzwedel, Institut fuer das Recht der Wasserwirtschaft an der
Universitaet Bonn, Bonn, March 15, 1983.
8. Interview with Massing, supra note 5; interview with
Uppenbrink, Luhr, and Kanowski, supra note 5.
9. There is a feeling in the FRG that once a consensus on the
need for legislation is achieved, the various parties are more
inclined to work in cooperation toward the common goal than in
the United states where a more adversarial philosophy seems to
operate. Interview with Uppenbrink, Luhr, and Kanowski, supra
note 5.
10. Interview with Dr. W. Kitschler, Dr. H. Roth, and Dr. J.
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59
Gilles, Ministry of Interior, Bonn, March 15, 1983; interview
with Salzwedel, supra note 7.
11. References relied on in the next few paragraphs are Johnson
and Brown, supra note 6, p. 122; V. Boehm, "Interim Report on the
Draft of an Effluent Charge", No. 6 (June 1976), pp. 163-65; K-H.
Hansmeyer, et al., Economic Problems of Environmental Protection
Policy (1976), pp. 92-95; interview with H. Sander, Bundesverband
der deutschen Industrie e.v. (BDI), Cologne, March 14, 1983. The
BDI is an industrial association representing approximately
80,000 private industrial enterprises. It acts as a political
interest and advisory group and is instrumental in determining
national economic policy.
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12. Interview with Salzwedel, supra note 7.
13. It subsequently has been discovered that a proportional
relationship seems to exist between these two metals and other
heavy metals. Interview with Uppenbrink, Luhr and Kanowski, supra
note 5.
14. Interview with Kitschler, Roth and Gilles, supra note 10.
15. See K-G. Malle, "Sind Abgaben ein geeignetes Instrument der
Umweltspolitik?" (Are Charges an Appropriate Environment Policy
Tool?) Omwelt (1982), p. 35
16. Translated from Gewaesserguete Karte der Bundesrepublik
Deutschland, Ausgabe 1976 (Water Quality Map of the Federal
Republic of Germany, 1976 Edition). There are four classes of
water. Class I is oxygen saturated, low in nutrients, and
supports high quality fish; Class II is defined in the text;
Class III is heavily polluted; Class IV is excessively polluted.
The Federal Republic of Germany uses a method of classifying
water quality developed by Kolkwitz and Marssond and revised by
Liebmann. See H. Liebmann, "Die Notwendigkeit einer Revision des
Saprobiensysterns und deren Bedeutung fuer dieWasserbeurteilung"
(The Necessity of a Revision of the Saprob Systems and Its
Importance to the Classification of Waters).
Gesundheits-Ingenieur 68 (1947). References provided by Dr. H.
Massing.
17. FWA, Article 2(1).
18. J. Koelble, supra note lr at pp. 16 and 18.
19. FWA, Article 8(2).
20. FWA, Article 4(1), -(2); Article 18.
21. ECL, Article 4(1).
22. J. Schilling, "Zusammenhang zwischen Rahmenplanung,
Bewirtschaftungsplaenen und Abwasserbeseitigungsplaenen" (The
Relationship Between General Water Plans, Water Utilization Plans
and Waste Water Disposal Plans), in Berichte der
abwassertechnischen Vereinigung E.V., Tr. 32, ATV
Hauptversammlung, Mainz, 1980 (Reports of the Waste Water
Technical Association, Proceedings of the Annual Conference), pp.
216 and 222.
23. Ibid, at p. 216. Another provision of the Act authorizes
the Laender to require industries to use public sewerage systems,
or the treatment plants of third parties. FWA, Article 18a(2).
24. FWA, Article 18.
25. FWA, Article 22(1).
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26. FWA, Article 41.
27. Menke-Glueckert reports that there were only seven
dissenting votes in the Bundestag and they wanted a more strict
effluent charge law. See Menke-Glueckert, "Stand der
Vorbereitungen zum Inkraf ttreten des Abwasserabgabengesetzes11
(Status of the Preparations for the Implementation of the
Effluent Charge Law) , in Berichte der abwassertechnischen
Vereinigung E.V. , Tr. 32, ATV-Jahreshauptversammlung, Mainz 1980
(Reports of the Waste Water Technical Association, Proceedings of
the Annual Conference, Mainz 1980).
28. Interview with Professor Dr. J. Salzwedel, Institut fuer das
Recht der Wasserwirtschaft an der Universitaet Bonn, Bonn,
September 22, 1982.
29. The states typically set forth criteria to which
municipality pricing policies should adhere as a condition for
receiving a discharge permit. But the criteria are so broad that
the legal link is weak between the indirect discharger's payment
and the municipality's cost of managing its waste.
30. Document titled "Structure and Effectiveness of the Waste
Water Charge Act", no date or author provided. Dr. J. Salzwedel
also has discussed the principle of precaution during an
interview, Washington, D. C. , July 7, 1982. He explained that
the idea behind a minimum standard which all must follow is that
it helps to prevent a deterioration of water quality.
31. Undated Document, supra note 30.
32. Discharge rights are water rights under German law.
33. The requirement that charge relevant data be included on the
permit grew out of debate on the floor of the Bundestag. The
provision is intended to minimize the administrative burden
imposed on the Laender by the ECL. H. Dahme "Wasserrechtliche
Zulassung und Abwasserabgabe" (Water Rights and the Effluent
Charge), in Berichte der Abwassertechnischen Vereinigung E. V.,
Tr. 32, ATV Jahreshauptversammlung, Mainz 1980, p. 42. See also
K. Berendes, "System und Grundpr obi erne des
Abwasserabgabengesetzes" (System and Basic Problems of the ECL) ,
Die oeffentliche Verwaltung 19 (1981), p. 751.
34. Table reproduced from B. T. Bower, R. Barre, J. Kuchner and
C. S. Russell, Incentives in Water Quality Management: France and
the Ruhr Area (1981), p. 301. Other pollutants for which minimum
requirements may be established for some industries include: BOD,
hydrocarbons, phenols, cyanide, heavy metals, halogenated
hydrocarbons, sulfide, ammonia, fluoride, phosphorus, and total
suspended solids. See H. Hornef and S. Kanowski, "New Federal
Waste Water Discharge Standards in Germany", Effluent and Water
Treatment Journal (November 1981), p
Hornef and Kanowski).
513 (hereinafter cited as
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35.
For settleable solids:
10,755,000 mVYr - 15 ml/(l damage
unit/m ) = 1613 damage units.
For COD:
10,755,000
- (700 mg/
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63
Through the Task Forces for Specific Industries), Berlin 9/20/77.
47. The minimum standards for municipalities are found in the
relevant task force report, "Erste Allgemeine
Verwaltungsvorschrift uber Mindestanforderungen an das Einleiten
von Schutzwasser aus Gemeinden in Gewaesser-1. Schmutzwasser
VwV," January 24, 1979. (First General Administative Regulation
Regarding the Minimum Standards for the Dischage of Effluent by
Municipalities into the Waters - First Effluent Regulation) It
was reported that these standards are equivalent to 93 percent
removal of BODg for small communities and 94.5 percent for large
cities. Interview with F. Schafhausen,._Umweltbundesamt (EPA),
Berlin, November 25, 1982.
48. One-half of the firms in the IFO study, directly discharging
pollutants into waters, reported they had participated in the
task force groups. See R-U. Sprenger and M. Pupeter,
"Evaluierung von gesetzlichen Massnahmen mit Auswirkungen im
Unternehmensbereich" (Evaluation of Legal Measures with
Consequences in the Business Sector), IFO-Institut fuer
Wirtschaftsforschung, Munich (May 1980).
49. It is true that the Laender could frustrate the intentions
of the federal government by delaying implenmentation, but there
are clear legal limitations to this strategy.
50. Data obtained during interview with J. Gilles,
Bundesministerium des Innern, Bonn, September 22, 1982, and
through correspondence December 20, 1982.
51. A more complete treatment of water quality management
systems is available in A. Kneese and B. Bower, Managing Water
Quality (1968); A. M. Freeman III, R. Baseman, and A. Kneese, The
Economics of Environmental Policy (1973).
52. Strategies for avoiding effluent charges include better
waste treatment technologies, different production techniques,
different inputs and an altered output mix or level.
53. Additionally, the marginal value of a given water quality
characteristic is equated across all beneficiaries when the
quality characteristic is not a collective good.
54. D. Ewringmann, K. Kobat und F. J. Schafhausen, Die
Abwasserabgabe als Investitionsanreiz (The Effluent Charge as a
Stimulus to Investment), Umweltbundesamt, Berichte 8/80 (1980),
p. 62.
55. Rat von Sachverstaendigen fuer Umweltfragen (The Council of
Experts for Environmental Questions), "Die Abwasserabgabe,
wassergutwirtschaftliche und gesamtoekonomische Wirkungen,
Sondergutachten" (The Effluent Charge: Effects on Water Quality
Management and the General Economy) (1974), p. 70.
56. Interview with Professor G. Rincke, formerly Technische
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Hochschule, Darmstadt, September 23, 1982.
57. Interview with L. Wicke, Umweltbundesamt, Berlin, September
29, 1982; and interview with Dr. Klaus Zimmermann, International
Institute for Environment and Society, Berlin, September 29,
1982. Correspondence with Dr. Zimmermann, December 3, 1982,
provided the 1986 estimate.
58. G. Rincke, "The German Federal Law on Wastewater Charges",
Prog. Wat. Tech. 10, Nos. 3/4 U978), pp. 95-102. See also
Appendix B, Figure 3.2.
59 See Dr. Lutz Wicke, "The Experience with the German Effluent
Charge System in the Light of Irish Considerations in that
Field", Lecture at Dublin University, April 15, 1983.
60. This conclusion is based on the discussion of Wicke with
regard to the treatment cost functions exhibited in Appendix B,
Figure 3.1, and estimates of treatment costs by Niernes. See L.
Wicke, "Zur Bedeutung von Abwasserabgabe und
Entwaesserungsgebuehren fuer die Effizienz der Kommunalen
Entwaesserung" (Concerning the Significance of the Effluent
Charge and Sewerage Fees for the Efficiency of Municipal
Sewerage), Finanzarchiv 39. No. 1 (1981), p. 101; and H. Niemes,
Umwelt als Schadstoffempfaenger (Environment as Receive of Waste
Materials), 1981.
61. Interview with Dr. Ing. W. Haltrich and Dr. K-G Malle, BASF,
Ludwigshafen, September 24, 1982.
62. Correspondence with Professor Dr. M. Faber, March 10, 1983;
interview with Professor Dr. M. Faber, Dr. H. Niemes and Dr. G.
Stephan, Department of Economics, University of Heidelberg,
Heidelberg, September 27, 1982.
63 Blair Bower noted in correspondence (April 9, 1983) that Dow
Chemical Co. in the U. S. began an intra-firm effluent charge
policy in 1958.
64. Correspondence with W. Haltrich, December 7, 1982.
65. R-U. Sprenger and M. Pupeter, "Evaluierung von gesetzlichen
Massnahmen mit Auswirkungen im Unternehmensbereich" (Evaluation
of Legal Measures with Consequences in the Business Sector),
IFO-Institut fuer Wirtschaftsforschung, Munich (May 1980). See
also Ewringmann, Hansmeyer, Hoffmann, and Kibat, Berichte 2/81
supra note 44, and H. Hoffmann and D. Ewringmann, Auswirkungen
des Abwasserabgabengesetzes auf Investitionsplanung und
Abwicklung in Unternehmen, Gemeinden und Abwasserverbaenden
(Effects of the Effluent Charge Law on Investment Planning and
Arrangements in Firms, Municipalities and Effluent Associations),
Study prepared for the Umweltbundesamt (EPA) (1977).
66. See Ewringmann, Hansmeyer, Hoffmann and Kibat, Berichte
2/81, supra note 44.
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67. See PPHE, supra note 2, and P. Menke-Glueckertr "Status of
the Preparations for the Implementation of the Effluent Charge
Law", supra note 27.
68. Correspondence from L. Wicke and M. Dorau, March 10/ 1983.
69. Estimates obtained during interviews with F. A. Schendel,
Bayer A. G., Leverkuesen, March 14r 1983; M. Schell, Ministerium
fuer Ernaehrung, Landwirtschaft und Forsten, Schleswig-Holstein,
Kiel, March 16, 1983; and W. Baumgaertner, Ministerium fuer
Ernaehrung, Landwirtschaft und Umwelt, Baden-Wuerttemberg,
Stuttgart, March 18, 1983.
70. FRG, Umweltbundesamt (EPA), "Structure and Effectiveness of
the Waste Water Charges Act", Berlin (June 28, 1982), p. 6. A
comparison of the maps led us to the same conclusion. See
Gewaesserguetekarte der Bundesrepublik Deutschland, Ausgaben 1976
and 1980 (Water Quality Map of the Federal Republic of Germany,
1976 and 1980).
71. Estimate provided by Schendel, supra note 69. Excerpts of
document provided by one interviewee contained an estimate of 650
million DM for the two years 1981 and 1982.
72. The first estimate was contained in the document referred to
above, supra note 71. The second estimate was provided during
the interview with Baumgaertner, supra note 69.
73. According to Article 13 of the ECL, the revenues can be used
only for that portion of the administrative expenditure
associated with enforcement of the Act and for the Lender's own
supplementary regulations. Some believe that a free
interpretation of this clause will siphon off "too much" revenue
for administration.
74. The application to support investment in specialproduction
processes is described in F. Boelam, "Interim Report on the Draft
of an Effluent Charge Law", Wastewater Correspondence 23 (June
1976).
75. Data obtained during interviews with F. Schendel, supra note
69, C. A. Conrad, Schleswig-Holsteinischer handeskreistag, Kiel,
March 1983, and Baumgaertner, supra note 69.
76. Interview with Massing, supra note 4.
77. Johnson and Brown, supra note 6, pp. 126-27; Bower et al.,
supra note 34, pp. 237-40, 270-71 and interview with Michaelis,
Ruhrverband, Essen, September 22, 1982; interview with F.
Schroeder, Bavarian Ministry of Interior, Munich, September 28,
1982. In extraordinary circumstances, the subsidy for waste
treatment plants has been as high as 80 percent. Correspondence
with P. Michaelis, December 7, 1982.
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66
78. Kneese and Bower, supra note 51.
79. W. Baumol and W. Dates, The Theory of Environmental Policy
(1975), p. 154. To support their view they refer the reader to
the history of tax changes.
80. Viz. Dorau, supra note 35. Discussion with Faber and
Niernes, supra note 62, was particularly helpful in thinking about
the merits of joint use of standards and charges.
81. See Wicke, supra note 60.
82. Umweltbundesamt (EPA), "Structure and Effectiveness of the
Waste Water Charges Act" (June 28, 1982). In preparation for the
new laws, planning games were designed to acquaint those
enforcing and those potentially liable with the new regulations.
83. For an interesting discussion of compliance avoiding
behavior, see D. Lee, "Protecting Our Environment: Some Public
Choice Considerations", paper presented at a conference on Market
Perspectives in Natural Resources Economics, Political Economy
Research Center, Montana State University, Bozeman, June 10-14,
1982. Also of interest is W. Viscusi and R. Zeckhauser, "Optimal
Standards with Incomplete Enforcement", Public Policy 27, No. 4
(Fall 1979), pp. 437-56.
84. Interview with Schroeder, supra note 77 and Schell, supra
note 69.
85. Interview with Baumgaertner, supra note 69.
86. Correspondence with Dr. W. Haltrich, December 7, 1982.
87. P. Menke-Glueckert, "Status of the Preparations for the
Implementation of the Effluent Charge Law", supra note 27.
88. Interview with Dr. P. Menke-Glueckert, Federal Ministry of
Interior, September 20, 1982, and correspondence January 12,
1983.
89. Interview with Salzwedel, supra note 28.
90. Parenthetically, we were told that environmental interests
were presented by individuals and public agencies but not by the
active involvement of organized environmental groups. The
political activisim of environmentalists is a recent
manifestation and is illustrated by the advent of the "Green"
party.
91. Allen Kneese rightly suggested that a comparison of the
process leading to the major water laws in the U. S. and the FRG
might be instructive. He also directed us to the excellent study
of Marc Roberts, "The Political Economy of the Clean Water Act of
1972: Why No One Listened to the Economists", in Utilization of
Social Science in Policy Making in the United States, OECD
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67
(1974).
92. Interview with Massing, supra note 4.
93. Interview with Schroeder, supra note 77 and correspondence
from Schroeder, December 5, 1982.
94. See Ewringmann, Hansmeyer, Hoffman and Kibat, Berichte 2/81,
supra note 44, p. 12.
95. Interview with Conrad, supra note 75; 0. Behrend, Ltd.
Ministerialrat, Kiel, March 16, 1983; and T-W. Krahl, Deutscher
Staedtetag, Landesverband Schleswig-Holstein, Kiel, March 16,
1983.
96. Interview with Salzwedel, supra note 28.
97. Interview with D. Ewringmann, Pinanzwissenschaftliches
Forschungsinstitut an der Universitaet zu Koeln, Koeln, September
21, 1982.
98. Interview with R. Sprenger, IFO-Institute for Economic
Research, Munich, September 28, 1982.
99. Interview with Schroeder, supra note 77.
100. Could the rise to greater prominence of "technocrats" lead
to their pursuing their own goals of even cleaner water at the
expense of society? Veblen warned about such a danger in his
discussion of engineers. The relevant question here is whether
an effluent charge encourages or discourages such misdirected
enthusiasm. See T. Bevlen, The Engineers and the Price System
(1963), particularly Chapter VI, "A Memorandum on a Practicable
Soviet of Technicians." The new monetary and measuring
procedures are being developed by The German Standards Institute.
See Bundesministerium des Innern, "Requirements to be Met by
Effluent Discharges Into Waters Pursuant to Article 7a, Paragraph
1 of the Federal Water Act (WHG),"undated.
101. Ewringmann, Hansmeyer, Hoffmann and Kibat, Berichte 2/81,
supra note 44.
102. Interview with Ewringmann, supra note 97.
103. Ewringmann, Hansmeyer, Hoffmann and Kibat, Berichte 2/81,
supra note 44, pp. 12-13.
104. G. Rincke, "Die Abwasserabgabe in der kommunalen
Gebuehrensatzung" (The Effluent Charge in the Municipal
Fee-Regulation), in Berichte der abwassertechnischen Vereinigung
E.V., Nr. 32, ATV-Jahreshauptversammlung, Mainz (1980).
105. G. Rincke, Abwasser: Technische Alternativen zur
Beurteilung der Abwasserabgabe (Effluent: Technical Alternatives
to Distribution of the Effluent Charge), Umweltbundesamt,
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68
Berichte 2/81 (1981).
106. Ewringmann, Hansmeyer, Hoffmann and Kibat, Berichte 2/81,
supra note 44, pp. 20-21.
107. Less than one-half of the communities covered their costs,
net of subsidies, with fees in the 1976-1978 period. See
Ewringmann, Hansmeyer, Hoffmann, and Kibat, Berichte 2/81, supra
note 44, p. 14.
108. Interview with Ewringmann, supra note 97.
109. G. Riricke, "The Effluent Charge in the Municipal
Fee-Regulation", supra note 104.
110. Interview with Michaelis, supra note 77.
111. See supra note 46.
112. The point was emphasized by Dr. Dorau and Dr. Wicke in
personal correspondence, March 10, 1983.
113. Menke-Glueckert reports that ground water extraction by
industry has doubled in the last four years. One hopes this
abrupt change arises for natural reasons and is not a result of
the effluent charge laws. P. Menke-Glueckert, "Status of the
Preparations for the Implementation of the Effluent Charge Law",
supra noe 27, p. 5.
114. The 1977 book Environmental Improvement Through Economic
Incentives, F. Anderson and coauthors, published by Johns Hopkins
University Press contains an excellent analysis of the use of
money charges to discourage environmental harm and the practical
problems posed in the United States by different implementation
strategies. We refer the reader to this work for a fuller
analysis of some of the problems discussed here.
115. Nowak, Rotunda and Young, Constitutional Law (West
Publishing Co. 1977), p. 244.
116. Anderson and coauthors, supra note 114, pp. 130-31.
117. U. S. Const., Art. VI, Cl. 2.
118. See Anderson and coauthors, supra note 114, p. 131 (same
conclusion).
119. Ibid., pp. 166-72.
120. The Bundesrat is composed of representatives of the Laender
governments, but in other ways the Bundesrat resembles the U. S.
Senate.
121. The small number of pollutants, the escalation of prices,
and the availability of revenues for abatement expenditures are
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69
qualities of the French effluent charge system. See Johnson and
Brown, supra note 6 and Bower et al., supra note 34.
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