sou · GXB312 · 2009-02-26 00:00:00 — This implies that a too strict application of the waste hierarchy may lead to unnecessarily high socio-economic costs (especially transportation costs). The extent to which a too strict application of the waste hierarchy is consistent with effective environmental policy and efficient resource management is obviously a politically very controversial and emotionally sensitive issue, while from an economic perspective it is a mere empirical matter. The conclusion reached by the commission based on a number of studies is that from a socio-eco- nomic perspective, the allocation between deposition, recycling, and incineration is not an either/or trade-off, but rather a both/and kind of question. Since deposition of combustible waste is prohibited in the EU, the only options left for this kind of waste are incineration and material recycling. Collection of recyclable materials is (as almost all other processes) resource demanding, and in addition energy intensive, and also entails increasing marginal costs. The marginal costs of waste incineration on the other hand are fairly . This necessitates a careful comparison of (1) the effects of increased material recycling and (2) the effects of waste incineration on resources and the environment. Type of waste and spatial aspects such as high transportation costs, especially in some regions, are some of the factors that affect marginal cost. Quantitative targets for recycling levels can easily lead to very high marginal costs. There are therefore both socio-economic and environmental policy-related reasons why great care must be used when setting the level of ambition for material recycling. The goal of the existing tax The introduction of the waste incineration tax, which constituted a part of the so-called green tax exchange, had many purposes. The most predominant was to promote the kind of waste management that was considered environmentally and socio-economically advantageous. However, the tax was also intended to stimulate attainment of the declared objectives of energy, climate, and environmental policies. From the governments statement in the proposition, it can be concluded that they (the government) presuppose that re-use, material recycling, and biological treatment of household waste is generally more beneficial than incineration. However, these methods of waste management cannot generally compete economically with waste incineration. One of the purposes with the tax was therefore to make the method of incineration relatively more expensive compared to the other methods and thereby stimulate re-use and material recycling. In addition, household waste contains fossil material, and the waste incineration tax therefore implies a price on the CO2 emissions resulting from incineration. From an energy policy perspective, and in accordance with the EU Co-generation of Heat and () Directive, steering of waste for incineration must be done according to the incineration hierarchy; i.e., high-effect co-generation is better than loweffect co-generation, which in turn is better than pure heat production. The tax was therefore designed with strong incentives for incineration of waste in combined power and heat plants. Some characteristics of household waste are of importance in analyses of policy measures: It is heterogeneous (it consists of about ten main components). Its composition is expensive and economically unreasonable to measure continuously. The composition of bin and bag waste is normally estimated based on so-called pick-analyses. to personal integrity reasons, these analyses can be difficult to perform at the household level. The variance is large. The composition varies with municipal waste management, season, water content, types of in the area, etc. The statistical uncertainty is relatively high since the numbers of measurements and pick-analyses are relatively low and since the import and export statistics are undeveloped. Estimations of the energy content of waste are based on mathematical formulas derived from the contents of carbon, hydrogen, oxygen, sulfur, and ash in sub-components of waste. Estimations of the fossil and biological contents of waste suffer from similar weaknesses. Looked at from an incentive and therefore an instrument perspective, some aspects are unique to household waste: The amount of waste increases roughly proportionally to an increase in private consumption. Thus, the amount of waste is largely determined by the development of private consumption. One explanation to this is that an average household rarely lets the type of packaging decide which product to buy, and another is that it does not usually determine what proportion of its budget should be spent on consumption. With the exception of households in a single-family house, and to a certain degree housing associations, it is difficult to use economic incentives to affect the amount of household waste or how households handle their waste (except through a depositrefund system). Economic incentives that affect the volume or weight of household waste, such as a volumeor weight-based waste collection fee, may have negative external effects such as improper and/or illegal burning of waste and illegal dumping of waste. One indication of this is that a weight-based waste collection fee has been shown to reduce the amount of collected waste in Swedish single-family housing areas by about while other registered waste flows have not increased. Moral incentives combined with short distances and high accessibility to recycling stations (with so-called sidewalk collection as an extreme case) could be expected to be more meaningful, and therefore more appropriate, than economic incentives as instruments to affect waste management among households. The opportunities for waste sorting are strongly related to the design of the waste collection service. Access to storage space, transportation options, etc. may restrict the choices available to households. These aspects make the choice of instruments very complicated. In fact, the difficulty and probably also the impropriety of influencing households directly with economic incentives (with the exception of a deposit-refund system) constitute the main problem in waste management policy. Managing waste in a socio-economically efficient has the characteristics of a public good, which implies weak economic incentives at the individual level. The costs of waste management are usually included in housing rents, and the presentday level of technology makes the transaction costs of measurement and fee determination at the individual level very high. In terms of the waste incineration tax, the distance is great between those whom the tax is imposed on (the waste incineration plants) and those who in the end actually pay the tax (households). The heterogeneity of household waste also implies that the information needed to design optimal taxes and/or regulations is missing; in fact, even if this information did exist, we would still be stuck with a significant problem of monitoring and controlling household behavior. As long as households can not be monitored and debited individually, the basic economic incentive problem remains. However, the difficulties involved in using economic incentives to influence waste management among households are largely compensated for by the households norm-based willingness to contribute to more environmentally friendly waste management through waste sorting. It is mainly the responsibility of the municipalities to effectively take advantage of and administer this social capital. The anger and public disappointment that arise when waste sorted out for recycling is sent to incineration, purposely or accidentally, illustrate how quickly trust capital can be eroded. The design of the waste incineration tax The waste incineration tax is based on the fossil carbon content of household waste. However, the heterogeneity of household waste makes any reliable continuous carbon measurement economically unreasonable. For this reason, the figure used to calculate fossil carbon content of household waste has simply been set to of the weight. The resulting amount of carbon in waste is subject to both CO2 and energy taxation. The nominal CO2 tax in 2008 was 709 per metric ton of fossil carbon, which corresponds to 011 per metric ton of CO2 or about per metric ton of waste. The energy tax in 2008 was per metric ton of fossil carbon, which corresponds to per metric ton of CO2 or about per metric ton of waste. The gross incineration tax revenue in 2007 was million. Gross tax revenue here means the taxes paid according to filed tax returns minus the tax reductions related to combined power and heat production but not minus refunds of taxes paid for heat delivered to industries. The latter amounted to about million in 2007, thus resulting in net revenues of million. No energy or CO2 tax is charged when household waste is incinerated and consumed to produce taxable electrical power. If the efficiency of electricity generation is at least , there is a tax relief for fuel (waste) consumed to produce heat at combined power and heat plants. At this level of efficiency, there is a CO2 tax relief of . The tax relief then increases gradually as the efficiency level increases, and reaches at an efficiency level of . As far as the energy tax, there is complete exemption at electricity efficiency levels above . Counted in money, this means that in 2008 the CO2 tax and the energy tax totaled per metric ton of household waste for incineration plants without production of electricity, while the CO2 tax (there is no energy tax) in combined power and heat production is only about per metric ton if the efficiency of electricity generation is – hence a very large reduction (). No tax reduction is granted for heat production at plants that do not combine power and heat production. However, when industrial companies buy heat from a waste incineration plant, the plant (as with other types of fuel) pays the lower industrial tax rate for that heat; i.e., a CO2 tax. The plant can also use this rate for fuels used to produce heat for professional agriculture, aquaculture, and forestry. All in all, of all incinerated household waste is subject to the mentioned tax reductions or tax exemptions. The net average tax is about /ton. This means that the ability of the household waste incineration sector to adjust to the tax reduction regulations is extremely good. Target achievements of the waste incineration tax The commissions analyses lead to the conclusion that no significant steering effects of the waste incineration tax can be seen – with one exception: it clearly allocates household waste to combined power and heat production instead of to heat-only production, while the tax exempt commercial waste is allocated to plants for heat-only production. In addition, the tax has had only small effects, if any, on the amount of generated household waste, on the degree of material recycling, and so far also on the volume of combined power and heat production. As an instrument to achieve waste-, environmental-, energy-, and climate-policy objectives, the tax is therefore not very effective. The waste incineration plants generally perceive the tax as extremely difficult to handle, both from an optimization and an accounting perspective: 1.The tax is hard to adjust to due to its relatively complicated tax reduction model. On the other hand, nearly all plants have an efficiency of electricity generation that is higher than except for in the summer months when the consumption of heat is low. In addition, the extent of the tax reduction indicates that the tax-driven production optimization works very well. 2.A correct account of the tax is impossible in practice since the tax burden is really a time-continuous function of the efficiency of electricity generation, which can only be approximated. This is particularly difficult during summer months with low heat consumption. 3.The basis for the tax reduction is impossible to account for accurately. Household waste is commonly incinerated together with commercial waste. The plants liable for the tax have to rely on information from the waste suppliers and then keep track of when the different shipments are burned. Household waste is oftentimes delivered mixed with commercial waste, especially in connection with long-distance transports. The respective proportions of household and commercial waste are consequently difficult to determine. From a tax audit point of view, it is fair to say that the evidence gets, literally, burnt up. 4.The extra work that the tax calls for is quite extensive relative to the revenue it generates. Tax-driven transports where commercial waste (which is not taxed) is shipped to heat-only plants and household waste is shipped to combined power and heat plants do occur. Although the extent of these transports is difficult to back up with statistics, the tax does create economic space for an increase of transport distances equal to about . The commission finds that the existing waste incineration tax appears to be a purely fiscal tax; i.e., it almost entirely lacks steering effects. The only clear effect of the tax (other than increased waste reception and management fees) is a reallocation of waste among different incineration plants at the cost of increased transportation costs, which implies increased environmental stress. Another not insignificant problem with the tax is that the grossly simplified estimation of carbon content in household waste, combined with the scope of application of the definition of such waste according to environmental law, imply that sorted wood waste (e.g., scrapped furniture) from households ends up being taxed. Consequently, the market value of this kind of wood waste decreases, in turn resulting in sales difficulties. It is obviously principally inappropriate that the CO2 tax is imposed on a pure biofuel. The commission proposes that the household waste incineration tax be abolished. The reason is that the tax does not serve as an instrument to reach the targets that motivated its implementation. Therefore, the commission proposes that the tax be abolished without replacing it with another tax or policy instrument. To compensate for the million in lost revenues, the commission proposes a general increase of the CO2 tax by about per kg CO2. The commission has been instructed to analyze alternative policy instruments. Based on previous investigations and analyses of alternative tax measures, the commission concludes that a reformation of the waste incineration tax aimed to improve its level of target achievement is not possible without incurring unacceptably high socio-economic costs. Therefore, from an efficiency standpoint this well-intended (and politically attractive) tax appears to in the end fall short of a well-defined target. Moreover, since the waste incineration tax lacks significant steering effects (with the exception of its effects on waste transportation patterns, which has never been stated as a policy objective), it can not be argued that its abolishment calls for a compensating instrument to be implemented. It is in this context also important to point out that it is the commissions belief that no new instrument should be implemented without first objectively and thoroughly analyzing both its target and the effectiveness of the means. Such a time consuming, and to some extent research intensive, analysis of the entire Swedish waste management policy has not been possible to carry out within the very restricted resource and time frame available to the commission. Rather, the task of the commission has been to develop a position regarding whether the Swedish waste incineration tax should be abolished and, if so, whether it should be replaced with a different policy instrument. An unbiased analysis of the entire waste policy should be preceded by research that sheds light on economic-institutional aspects in terms of municipality behavior, market analyses, environmental effects of different municipal waste-collection fees and waste-collection systems, and socio-economic analyses of various waste policy objectives. It is the opinion of the commission that, based on our current level of knowledge, motives for further steering in the area of waste management are lacking. Consequences of the proposition Consequences in terms of energy policy Since the incineration tax primarily steers the allocation of waste between combined power and heat production and heat-only production, the most important question is whether other instruments are needed in order to secure a continued high combined power and heat production and to take advantage of the possibilities of producing electricity through efficient combined powerand heatproducing processes when makes additions to its waste incineration capacity. The primary incentive effect of an abolishment of the tax would be that transportation cost minimization would then become profitable by only considering the technical characteristics of different incineration plants. Both household waste and commercial waste could be incinerated where it is most appropriate technically and in consideration of the involved transportation costs. A reallocation of waste within the framework of the existing incineration capacity would be expected; an increased share of commercial waste would be incinerated in combined power and heat plants and an increased share of household waste would be incinerated in heat-only plants. The resulting increase in energy efficiency would be expected to result in a small increase in the combined power and heat production. The incentives provided by the tax to invest in new combined power and heat production capacity are difficult to estimate. out a tax, these kinds of investments depend primarily on the expected development of electricity prices and on the supply of competitively priced waste fuel. Today it is profitable, even without tax incentives, to build combined heat and power instead of heatonly plants. Thus, almost all new plants have a turbine, and, moreover, several existing heat-only plants have converted or are converting to combined heat and power. The commissions opinion is hence that there are currently no reasons for further steering toward combined power and heat production after the tax has been abolished. However, if a need were to arise, then the already existing electricity certificate system (although comparatively weaker) could be used to control the flow of waste. Consequences in terms of environmental policy Since it cannot be determined whether the tax has been positive or negative from an environmental or a climate point of view, it cannot be determined whether an abolishment of the tax would have positive or negative environmental effects. An abolishment of the waste incineration tax would affect the relative prices of different fuels. Household waste would become relatively cheaper compared to commercial waste, biofuels, and fossil fuels. However, due to technical and legal reasons, it is difficult for plants that were not built to perform waste incineration to convert to this activity. The commission concludes that the share of all household waste that is incinerated would not change with an abolishment of the tax. An abolishment of the waste incineration tax would eliminate a large proportion of the microeconomic incentives to tax optimize where to ship different kinds of waste for incineration. transportation would decrease as a consequence, since the economic incentives to steer household waste toward combined power and heat production and commercial waste to heat-only production would no longer exist. The waste would instead, regardless of type, go to the plant with the nearest location and with the technical ability and capacity to accept the waste. Consequences in terms of waste policy An abolishment of the waste incineration tax would affect the relative prices of different household waste treatment alternatives. The available statistics show, however, that the tax has not had any significant effects on material recycling. The commission therefore concludes that an abolishment of the tax would not have any significant effects in this regard. It also needs to be emphasized that the policy objectives stated for material recycling of household waste have already been achieved, suggesting that further stimulation of material recycling can not be motivated from a waste policy perspective. Before deciding whether to increase material recycling further, the marginal cost of doing so needs to be analyzed. This is necessary in order to weigh the marginal cost against the environmental loss/gain that would result from increased material recycling. Our knowledge about municipal behavior is limited. It is therefore difficult to assess to what extent an abolishment of the tax would be transferred back to the households. However, it seems likely that some municipalities would use the resulting budget space to increase activity, and primarily to finance measures to increase waste sorting by households. An abolishment of the tax may therefore very well affect recycling to the same extent as possible alternatives to the tax. We may in favorable terms describe this development as a promotion of research, development, and demonstration within the highly politically prioritized area of renewable energy. Cost reductions for households and businesses Despite the speculations above, it can be expected that an abolishment of the waste incineration tax would reduce the households waste costs somewhat, either as a direct effect of reduced municipal waste collection fees or indirectly through lower rent increases. As a consequence, their disposable incomes would increase. If this in turn would lead to increased consumption, the amount of household waste would increase accordingly. However, in the big picture, this increase can be regarded as negligible. An abolishment of the waste incineration tax would most likely reduce the administrative costs for the affected businesses and for The total cost decrease is estimated at –13 million per year. Abolishment of the tax would imply a significant simplification for the affected incineration plants. It should be possible to abolish the tax on 1 January 2010. lag om ändring i lagen (1994:1776) om skatt på energi Härigenom föreskrivs i fråga om lagen (1994:1776) om skatt på energi1 dels att 2 kap. 4 a §, 4 kap. 14 § och 5 kap. 4 a § ska upphöra att gälla, dels att 1 kap. 2 § och 2 kap. 10 § ska ha följande lydelse. Energiskatt skall betalas för Energiskatt ska betalas för bränslen som anges i 2 kap. 1, 1 bränslen som anges i 2 kap. 1, 1 a och 3–4 a §§. a, 3 och 4 §§. skall betalas för bränslen som betalas för bränslen som anges i anges i 2 kap. 1 och 3–4 a §§. 2 kap. 1, 3 och 4 §§. Svavelskatt skall betalas på svavel- ska betalas på svavelinnehållet i innehållet i bränslen som anges i 3 bränslen som anges i 3 kap. 1 §. kap. 1 §. Bestämmelser om dessa skatter skatter finns i 2–10 kap. finns i 2–10 kap. Bestämmelser om skatt på elektrisk kraft finns i 11 kap. 4 a § 2007:1387 4 a § 2006:592. 2Senaste lydelse 2006:592. betalas med belopp som efter en betalas med belopp som efter en årlig omräkning motsvarar de i 1 årlig omräkning motsvarar de i 1 och 4 a §§ angivna skattebe- § angivna skattebeloppen multi- plicerade med det jämförelsetal, jämförelsetal, uttryckt i procent, uttryckt i procent, som anger som anger förhållandet mellan förhållandet mellan det all- månad året närmast före det år året närmast före det år beräk- beräkningen avser och prisläget i ningen avser och prisläget Regeringen fastställer före november månads utgång de omräknade skattebelopp som enligt denna lag ska tas ut för påföljande kalenderår. Beloppen avrundas till hela kronor och ören.