sou · GQB39d1 · 2003-01-01 00:00:00 — In the event of a tax being in- troduced on waste that is incinerated, I consider that the present level of waste tax should be reviewed so as to ensure that a situa- tion does not arise in which the combined effect of the system of taxes on waste steers developments in an unwanted direction. Tax on biofuel ash should continue tax is charged on landfilling of ash from incineration. This also applies to ash from the burning of biofuels. I have studied the question of whether there is any reason to make landfill disposal of biofuel ash tax-exempt. In the spring of 2001, issued re- commendations for extraction of fuels and compensatory fertilisation. The purpose of these recommendations is to make good use of valuable nutrients and avoid a long-term impoverish- ment of soil. According to the guidelines, recycling of bio- fuel ash should occur within one or a few forestry cycles, i.e. within 40-200 years. Considerable development work is now under way on suitable forms for recycling ash. The waste tax on biofuel ash disposed of in landfills provides an incentive for following guidelines. Conversely, it may be said that the introduction of a tax exemption for biofuel ash would reduce the incentive to return nutrients to soil. I have found that the waste tax on biofuel ash has a marginal ef- fect on the cost of using biofuels in the energy supply system. Mo- reover, I have found no other significant reason for considering a tax exemption for landfill of biofuel ash at the present time. My overall opinion is therefore that a waste tax should continue to be charged on biofuel ash disposed of in landfills. Thus, I find no reason to propose any change in this respect. No effect on the tax on gravel The waste tax provides an incentive to make use of such waste as excavated earth, bricks, concrete, asphalt, and slag and ash from incineration, instead of disposing of it in landfills. These forms of waste can serve as substitutes for gravel and other aggregates, such as crushed rock. Since 1 1996, a gravel tax has been levied at a rate of per tonne of gravel. The purpose is to reduce the use of natural gravel and sand, such as is found in glaciofluvial eskers. I have found that the quantities of waste that can be used as ag- gregates and may be affected by the waste tax at the end of the 1990s amounted to approximately 1.4 million per year. I estimate that at most half of this could replace gravel, gravel being generally in short supply where such waste is available. For compa- rison, approximately 25 million of gravel were used in 2000 and the environmental goal set by the Riksdag is that gravel ex- traction should fall to 12 million per year by 2010. On my assessment, the potential impact of the waste tax on gra- vel use is relatively minor. Accordingly, in my opinion, the goals and purposes of the tax on gravel cannot be influenced sufficiently by the introduction of the waste tax for this to provide any reason to reconsider the tax on gravel. Direct deductions proposed for final capping material Material used for final capping of a landfill is tax-exempt. This tax exemption is obtained by deductions on tax returns that are per- mitted when and only when the material has actually been used for final capping. In other words, under the tax system as presently organised, waste tax is paid when the material is delivered to a tax- able landfill site and deductions are granted when the material has been used for final capping. A considerable length of time can elapse between delivery and use of final capping material. Consequently, the tax can make it more difficult for the taxable party to make use of occasions when large quantities of suitable material for final capping can be acqui- red at a low cost. The taxable party may run into liquidity problems and incur interest costs if large quantities of final capping material are to be stored at the landfill site for an extended period pending use. The quantity of material required for final capping purposes is expected to grow as a result of the provisions given in the EC Landfill Directive, which was transposed into Swedish law by the Landfill (2001:512), which entered into force on 16 2001. This means the harmful effect of the tax system on the efficient use of final capping material will also increase. In order to facilitate landfill operations that are good for the en- vironment and economically efficient, and to promote efficient use of resources, I propose an amendment of the law. My proposal is that a deduction should be permitted as soon as material destined for final capping is delivered to a taxable landfill site, provided that the waste consists of certain specified types of inert waste and is stored separately from other waste. Taxes on waste in other countries Taxes or charges on landfill waste exist in a large number of coun- tries. In principle, all EU countries have introduced this type of taxation. In addition, there is now a tax on waste that is incinerated in , , parts of and, in principle, the (where the present tax rate is zero). I have provided an overview of the waste tax systems in , , the UK and the . In my account I have paid particular attention to any available national evaluations of these systems. The basis for bringing in a tax or charge on the treatment of waste varies from country to country. So do the purpose of the po- licy instrument and the legislative design chosen. This variation can make it difficult to draw direct parallels between the tax systems in different countries. The evaluations consistently show that a tax on waste leads to a reduced quantity of waste delivered for the type of treatment con- cerned and an increase in other types of waste treatment. The Danish evaluations also indicate that the waste tax has a restraining effect on the growth of waste generation. Motives behind the import of waste to I have studied the motives behind the of waste to by waste managers in , the , and , the countries that at present account for virtually all waste imported to from other countries. There are two main motives for sending combustible waste to : Reception charges at waste incineration plants are considerably lower in than in , the , and . treatment capacity in , the and is in short supply now or is expected to become increa- inadequate. It is worth noting that the quantities of waste imported into to date have had significance for 's capacity to take care of waste generated in this country. Nevertheless, we can- not rule out the possibility that Swedish waste treatment capacity may in time be claimed by waste from other countries as landfill bans and other restrictions are brought in there. A tax on waste that is incinerated No tax is currently payable on waste that is incinerated. I have as- sessed and analysed the economic and environmental consequences of introducing a tax of this kind. My study has revealed that while there are good reasons for a tax on waste incineration, there are also a number of disadvantages or risks. Reasons for a tax on waste that is incinerated I have identified five conceivable reasons for considering a waste incineration tax: A tax on waste incineration could be introduced as a means of ma- king the system of energy and environmental taxation more con- sistent. Fossil fuels are subject to energy and carbon dioxide taxes. contains a fossil component that at present is not taxed. The proportion of fossil materials in household waste ranges from 10 to 15 per cent. A tax on waste incineration could neutralise the advantages waste incineration enjoys as a result of the current design of energy tax- ation. An indirect effect of present energy and carbon dioxide taxes on fossil fuels is to raise the price of heat deliveries to di- strict heating networks. As a result, waste incineration facilities can obtain revenues from heat production that are about 35 per cent higher than they would otherwise have been. The actual reve- nue gain depends on local factors. The additional revenue leads to correspondingly lower reception charges for waste delivered to in- cineration facilities. Other waste treatment methods do not enjoy this tax-generated advantage. A tax on waste incineration could serve to improve economic conditions for material recycling and biological treatment of waste. Augmented material recovery and, biological treatment, in- corporating nutrient recycling and in certain cases biomethanisa- tion, is in general either more expensive or yields lower revenues than waste incineration incorporating energy recovery. A tax on waste incineration could be one of a number of policy levers to increase the total capacity for treating waste for which landfilling is not a permitted option. At present there is a shortage of capacity for treating sorted combustible waste, which is not eli- gible for landfill. The capacity shortfall will increase when the ban on landfilling of organic waste comes in in 2005. It is therefore important that waste incineration is put to optimal use and that waste that can be turned to account or treated in some other way does not occupy incineration capacity. A tax on waste incineration would raise the fees charged for receiving waste for incineration, which in turn would enable other forms of waste treatment to charge higher fees. This would pave the way for more extensive use of other forms of waste treatment that are more expensive or yield less revenue, and would make it possible to expand such fa- cilities. A tax on waste incineration could eliminate the economic incen- tive for other countries to send waste to Swedish waste incinera- tion facilities. A tax of this kind could thus help to ensure that the available incineration capacity is used for Swedish combustible and organic waste. Overall, a tax on waste incineration could help increase total waste treatment capacity while lessening the burden on the environment and promoting a more efficient use of resources. However, it sho- uld be emphasised that the principal means of achieving environ- mental gains is to reduce landfill. In relative terms, the substitution of biological treatment methods for waste incineration has environmental impact and what effect it does have depends on the specific design of the waste treatment system. Drawbacks of a tax on waste that is incinerated My analysis also shows that a waste incineration tax would involve certain problems and risks, especially if the tax rate were high. Some potential difficulties identified in the report are: High tax levels would act as an economic incentive to avoid incineration, even when it would be the environmentally most ap- propriate method. As a result there is a risk of environmental and economic sub-optimisation. Too high a tax on waste incineration could, for example, lead to the composting of contaminated biolo- gical waste and hence production of contaminated compost. High tax rates could also, for economic reasons, lead to a failure to develop adequate capacity for treating waste that is prohibited from landfills because of bans that have been introduced against landfilling of sorted combustible waste and of organic waste. This may result in continued landfilling under exemptions from these prohibitions, a failure to make use of the energy content in waste and a greater overall impact on the environment. One way of counteracting these effects could be to impose a higher waste tax on landfill waste dumped under exemptions. A waste incineration tax would make landfill an economically more attractive option for the fractions of waste concerned. As a result, there is a risk that a waste incineration tax could make it more difficult to implement landfill bans on sorted combustible and organic waste. One way of counteracting these effects could be to impose a higher waste tax on landfill waste dumped under exemptions. There may be a temptation to try to lower investment costs so as to moderate the cost increase deriving from a waste incineration tax. This could lead to heat stations being chosen instead of ther- mal power stations, which would reduce the electricity yield from the district heating system. The quest for lower investment costs could also encourage the choice of simpler heat recovery and pu- rification technology, thereby leading to a lower total energy yield and increased risks of environmentally harmful emissions. It sho- uld, however, be pointed out that present environmental law gives no grounds for believing that environmental requirements would be relaxed if a waste incineration tax were introduced. A waste incineration tax could potentially have such an impact on attitudes towards waste incineration that the of new ca- pacity would be delayed even where it would be motivated from environmental and resource management perspectives. Consequences of a tax on waste that is incinerated I have analysed the potential consequences of introducing a general tax on waste that is incinerated. The consequence analyses have been based on a number of assumptions about the organisation of the tax. In the examples I have analysed, I have assumed that waste inci- neration plants and co-incineration plants are liable for taxation. Plants that burn virgin biofuels or waste that can be regarded as a pure biofuel are tax-exempt. Exemptions from waste incineration tax are also granted for such biofuels in the case of co-incineration. Both waste treatment facilities and industrial plants are subject to tax. A further assumption is that adequate measures are taken to pre- vent increased landfilling, by implementing other policy instru- ments such as higher taxes on landfill waste. Consequence analyses have been conducted for a waste incine- ration tax set at three different levels: , and per tonne of waste. Consequences for different actors The waste facilities are expected to raise reception charges to cover the cost arising from the tax. It is not expected, on the other hand, that they would be able to balance the increased cost due to taxa- tion by higher revenues from energy production. It is expected that municipalities would raise their refuse collec- tion fees to pay for the higher reception charges. As a result, the increased cost of waste treatment would be shifted to households and companies. A waste incineration tax would entail higher costs for house- holds because of higher refuse collection fees. For a normal house- hold consisting of two people living in a detached house and paying a fee of about per month, it is estimated that the average increase would be about per month, if the tax is set at per tonne of waste. This is a rise of some 9 per cent. centives a household is given to reduce the quantities of waste it produces and increase the amount of waste it sorts depends on how municipalities choose to plan their refuse collection charges. A waste incineration tax would lead to higher costs for busines- ses, irrespective of whether they burn taxable waste themselves, deliver it to incineration facilities themselves, or have their waste collected by the municipality. To some extent they can avoid hig- her costs by sorting and recycling more of their waste. It is esti- mated that the remaining cost increase would be relatively minor compared with other business costs. This is partly because waste treatment constitutes a limited share of total waste costs, and partly because waste costs themselves are a minor economic factor for businesses. Account should also be taken of other tax changes that may arise for enterprises and households in connection with the introduction of a waste incineration tax. If total taxes levied are not changed, a tax on waste incineration need not lead to a heavier economic bur- den. In contrast, I consider that there are greater potential effects for other waste treatment operators. Biological treatment and recyc- ling would become more competitive. Indeed, this is expected to have a positive influence on the development of these treatment methods, for the part of the waste stream that can suitably be tre- ated by them. Consequences of different tax levels per tonne of waste The analysis shows that there are two tax-related arguments in fa- vour of the lower level of per tonne of waste: For household waste containing 15 per cent fossil material, an incineration tax of approximately per tonne of waste wo- uld be needed to correspond to the present carbon dioxide tax on fossil fuels of per kg of carbon, and to the energy tax le- vied on carbon burned in heat stations. The indirect effect of energy taxes on fossil fuels, in the form of higher revenues for heat, is estimated to correspond to just over per tonne of waste. The consequence analysis of an incineration tax of per tonne of waste shows that the effects would otherwise be relatively insignificant. However, some increase in recycling of heavy, non- combustible fractions could be expected, as well as some expansion in the quantities of waste delivered for biological treatment. per tonne of waste The analysis shows that there are two principal arguments in sup- port of the intermediate level, per tonne of waste: Biological treatment in the form of large, efficient facilities for tunnel composting and, to some extent, reactor digestion with bi- omethanisation would be put on an equal economic footing with waste incineration and might therefore be chosen where the type of waste makes this method more suitable than incineration. This presupposes functioning markets for sale of compost, digestate and biogas. The economic incentive for importing waste to from , and the would be eliminated. At present has a waste incineration tax equivalent to just over . The almost completely lacks district heating networks so that waste incineration yields less revenue. In waste incineration has a dominant position in the district heating network (which is fairly small by comparison with and ), and this makes heat revenues considerably lower. These factors explain why these countries have higher reception charges for waste for incineration than . It is estimated that a waste incineration tax of per tonne of waste would have relatively minor economic consequences for households and businesses. per tonne of waste The higher level of per tonne of waste is selected so as to put reception charges for waste delivered to incineration facilities in at the same level as the average rates currently charged in . One obvious effect would then be that the economic incentive to export waste from for incineration in would disappear. However, it is uncertain whether this effect has any relevance. At present virtually no waste is exported from to Swedish waste incineration facilities. One possible explanation for this is that in the alternative exists of co-incineration at other energy facilities, which make considerably lower reception charges. A tax level of per tonne of waste is so high that the al- ternative cost of recycling large proportions of plastic fractions, for example, would be at the same or lower levels. Biological treatment producing biogas would also be a financially attractive alternative to incineration for waste that is readily biologically degradable. , it is reasonable to expect that a tax level this high would lead to a substantial increase in recycling and biological treatment. Having said that, the tax level is so high that an economic incen- tive would arise to avoid waste incineration even in cases where in- cineration is the most environmentally appropriate alternative. This could make new incineration capacity a highly uncertain invest- ment. Landfilling under exemptions from landfill prohibitions wo- uld become an economically attractive alternative, even if the tax on landfill waste were doubled from the present level. , the consequence of an incineration tax of per tonne of waste might be a drop in the treatment capacity for com- bustible and organic waste covered by landfill prohibitions. A tax level as high as per tonne of waste would pro- bably not bring environmental advantages over and above the ex- pected advantages at the intermediate level of per tonne of waste. Indeed, there is a palpable risk that the disadvantages would outweigh the advantages. The green tax shift and tax on waste that is incinerated The Riksdag endorsed proposals for a green tax shift in connection with the debate on the 2001 and 2002 budget bills. The decisions by the Riksdag have two main consequences for a waste incinera- tion tax: The tax on fossil fuels used in heat production has been raised and may be raised still further. This means higher costs for producing district heating from fossil fuels, which also leads, indirectly, to higher heat production revenues from waste incineration. This adds to the tax advantage incineration enjoys over other forms of waste treatment. The tax increases in 2001 and 2002 justify lowe- ring waste incineration reception charges by approximately per tonne of waste each year. An energy tax reform is to be implemented. Among other measu- res in the reform, taxation of fuels used in heat production will be partially replaced by a new heat tax levied at the consumption stage. This will lead to a corresponding fall in the heat revenues generated by waste incineration. On my assessment, a waste incineration tax would fit into the changed structure of taxation brought by the green tax shift. At the same time the tax level tax that can be justified with reference to energy taxation is affected. A higher carbon dioxide tax justifies a higher waste incineration tax, while a transfer of energy tax from the production to the consumption stage, conversely, is an argu- ment for a lower waste incineration tax. We will have to wait and see what form the green tax shift takes before being able to determine to what extent requirements of con- sistency in the tax system may justify a waste incineration tax. Questions for further investigation In the course of my analyses I have identified a number of ques- tions that need elucidation or further study before a tax on waste incineration should be introduced. The principal issues are as fol- lows: The general scope of the tax requires suitable definition. The ex- amples used in the consequence analyses assume an incineration tax that applies to all waste burned at incineration and co-incine- ration plants, with the exception of waste that can be regarded as biofuel. A possible basis for arriving at a suitable definition is pro- vided by the new EU . Incineration plants covered by the Directive could be made taxable. In any further analysis, attention should be paid to developments in the application of the Directive. The need to grant tax exemption for hazardous waste in special cases should be examined more closely. Special rules for incinera- tion of sludge may also need to be considered. EC regulations on State aid must be taken into account in a further analysis of the appropriate general scope of any waste inci- neration tax, and of any exemptions, opportunities for deductions or differentiation that may be considered necessary. A compre- hensive assessment of the compatibility of a waste incineration with EC regulations on State aid is not possible before a position has been taken on a range of important questions regarding the detailed design of the tax. A tax on waste incineration should be coordinated with present taxes on landfill waste to avoid a situation arising where the overall effect of the waste tax system would be to steer developments in an unwanted direction. In addition, an overall assessment should be made taking into ac- count the future design of waste policy objectives and strategies in and the EU. Other measures and policy instruments that may arise in the area of waste, such as the continued evolution of the green tax shift, will influence both the reasons for and level of a waste incineration tax.