FOUNDATION FOR ALTERNATIVE ENERGY - SLOVAKIA FOUNDATION FOR ALTERNATIVE ENERGY CO2 / ENERGY TAX FOR CENTRAL AND EASTERN EUROPE Emil Bedi APRIL 1994 C O N T E N T S * ACKNOWLEDGMENTS * FOREWORD * P A R T 1 o 1. INTRODUCTION - Page: 5 o 2. CO2 / ENERGY TAX POLICY FOR CEE - 7 + 2.1 Pathways to reductions of emissions of greenhouse gases - 7 + 2.1.1 Policy options - 7 + 2.1.2. Technology options 8 + 2.2. Present situation in CEE - 9 + 2.3. Energy subsidies - 12 + 2.4. Principles of CO2 / energy taxation - 13 + 2.4.1. CO2 Tax - 13 + 2.4.2. Energy tax - 13 + 2.5. Why do we need CO2 / energy tax in CEE - 14 + 2.5.1. Revitalization of nuclear energy - 15 + 2.5.2. Shift from taxing 'goods' to taxing 'bads' - 16 + 2.5.3. Externalities - 16 + 2.6. Present taxes and charges in CEE - 17 + 2.6.1. Legislation - 17 + 2.7. Recycling the tax revenue into specific CO2 saving measures - 19 + 2.7.1. Undervalued energy efficiency and renewable energy strategies - 19 + 2.7.2. Structure of the possible CO2/energy tax - 19 + 2.7.3. CO2/energy tax revenues for energy efficiency programs - 20 + 2.7.4. Financial incentives for energy efficiency in CEE - 21 + 2.7.5. CO2/energy tax revenues for renewables ( TOWARDS FOSSIL FREE FUTURE ) - 23 + 2.8. Recommendations for actions in CEE - 24 + 2.9. Barriers for CO2/energy taxation in CEE - 25 * P A R T 2 o 3. CO2 / ENERGY TAX POLICIES IN OECD COUNTRIES - 26 + 3.1. The EU CO2/ energy tax proposal - 28 + 3.1.1. What could be the impact of the tax on the economy - 29 + 3.1.2. Is the EU target meeting stabilization of concentration of CO2 in atmosphere? - 30 + 3.2. US energy taxation - 31 + 3.3. Joint implementation - another CO2 abating policy - 31 + 3.4. Existing CO2/ energy taxes in OECD countries - 32 + 3.4.1. CO2/ energy taxes in the Nordic countries - 32 * 4. CONCLUSION - 34 * REFERENCES - 36 --------------------------------------------------------------------------- ACKNOWLEDGMENTS I wish to thank numerous coleagues and friends who gave generously of their time, expertise, and encouragement at every step of this project. In particular I want to acknowledge the assistance of Lise Backer, Reinhold Pape and Gunnar Boye Olesen who provided me helpful comments. My special thanks belong to Swedish NGO Secretariat on Acid Rain for support of this project. Emil Bedi --------------------------------------------------------------------------- FOREWORD Many NGOs from Central and Eastern Europe (CEE), working on energy issues, are trying to develop alternative energy policy which could reflect the ideas of sustainable development and which could give solutions to the threat of global climate change. This attempts are in CEE urgently needed , because nearly all governments in the region are building their energy policy on pollution-rich fossil fuel combustion or nuclear power. Most of the NGOs in the region has soon recognized that it is not enough just to say 'no' to particular subject , but that they could achieve much more if they force their own energy policy option. Building bricks of the new NGO energy strategy has been declared in various documents like Celakovice statement 1 or Greenway Energy Group meeting in Bratislava 2 . Due to the democratization process of the society in CEE we live at a time when NGOs are more able than ever to affect their political representatives. Active lobbying of some NGOs for energy savings and renewables has led to the point where NGO representatives became the partner for governmental organizations and are involved in continual dialog on energy policy orientation. Some decision-makers accepted this new way of thinking and are ready to implement at least principles of energy efficiency into official policy. Transformation process in CEE towards market economy brings new opportunities in this area. But declining gross domestic product (GDP) and the lack of domestic financial resources created the barrier which is too high for most of the countries in the region to realize the sustainable option. Foreign investors supported by large Western banks with their attempts to revitalize the nuclear power in CEE , undermine this process of change. CEE NGOs are facing the new challenge - they have to fight against much stronger opposition than decaying domestic utilities. The new incentives which could strengthen their standpoints are required. CO2/energy tax and creation of domestic financial resources for energy efficiency program and utilization of renewable energy sources could by one of possible options . This publications is intended to review this idea which could strengthen energy policy of sustainable development in CEE. Part one provides information related to introduction of CO2/energy taxation in this region. Part two gives overview of what is going on in OECD countries in this way. --------------------------------------------------------------------------- P A R T 1 1. INTRODUCTION Everyone who burns fossil fuels or uses electricity generated with fossil fuels contributes to the growing concentration of carbon dioxide in the atmosphere. In Central and Eastern Europe that includes everybody. All carbon dioxide emissions contribute more or less equally to the atmospheric buildup, which threatens longlasting changes in global climate. The Intergovernmental Panel on Climate Change (IPCC) reported in 1990 and 1992 concluded that 'emissions resulting from human activities are substantially increasing the atmospheric concentrations of greenhouse gases...these increases will enhance the greenhouse effect, resulting on average in an additional warming of the Earth's surface'3. Stabilization of the temperature level below the proposed highrisk limit 2.0 grades Celsius above the preindustrial level recommended by researchers of Stockholm Environment Institute 4 and adopted by the IPCC can be achieved if global emissions of carbon dioxide are reduced by 60 % by the middle of the next century. The reduction of this order calls for ca 80 % reduction of European per capita emissions if all the Earth's inhabitants are to be reassured of the same right to use fossil fuels. Energy policy is of central importance to the global warming. The US Environmental Protection Agency has estimated that 60-65% of the greenhouse gases are produced either directly or indirectly by energy use 5 . CO2 is the most important greenhouse gas and is believed to contribute to more than half of the global warming effect. Development of effective energy policy oriented on reduction of CO2 emissions is thus crucial point. Since the amount of carbon dioxide emitted per unit of each fossil fuel burned is known with reasonable accuracy , and since there is now no economically feasible way to prevent carbon dioxide emissions when fuels are burned, the best way to regulate these emissions seems to be to impose a tax on the carbon content of each fuel and a tax on electricity. It is not yet possible to quantify accurately the potential economic damages from climate change , so the net economic savings from appropriate CO2/energy tax cannot be estimated. CO2/energy tax policy need to be considered in a broad international context. One reason for this is obvious. The Climate Convention was signed by over 150 countries (including CEE) at the Earth Summit in early 1992. But only industrialized countries are required to adopt limitation strategies. CEE countries did not committed to reduce carbon dioxide emissions yet. Introduction of carbon/energy tax and the fact that it is going to take several decades to reduce our consumption of fossil fuels means that this tax could generate large revenues for a very long time. Governments of CEE countries thus would have an opportunity to use this revenues where marginal benefits for the environment and energy policy are greatest. CO2/energy tax which can be considered as environmental tax thus should be used to induce changes in energy use especially in promoting renewable energy technologies and energy efficiency. --------------------------------------------------------------------------- 2. CO2 / ENERGY TAX POLICY FOR CEE 2.1 PATHWAYS TO REDUCTIONS OF EMISSIONS OF GREENHOUSE GASES The problem of limiting global climate change is complex. There are many variables, some of which are under human control like emissions levels, research into alternative technology, choices of consumption, rate of decrease of forested areas of the world, value added on future generations - and many of which are beyond our control - like response of biosphere to emissions, capacity of the oceans to absorb CO2 etc. On the global level adoption of a definite goal e.g. limiting warming commitment to 0,3 grade Celsius over next 30 years or cutting total emissions by 50 % - would constitute the first step (partially done by most OECD countries) in a plan to limit climate change. Commitment to reduce carbon dioxide emissions is thus the challenge for CEE countries. Second step to achieve the goal is to seek the incentives that could stimulate the change of current emissions . 2.1.1 POLICY OPTIONS Most promising policy approaches which could be adopted by governments of CEE countries include : 1. direct control through environmental regulations like limits of emissions or setting e.g. efficiency standards. This way seems to be effective and easy to implement. For example vehicle and appliances efficiency standards in the US appear to have significantly increased energy efficiency. 2. change of energy consumption by altering the price structure. Excise taxes, pollution charges and cutting subsidies are simple ways to implement social and environmental costs of energy use into its price and thus affect emissions of greenhouse gases. 2.1.2. TECHNOLOGY OPTIONS There is many technology options to chose from. Most interesting for implementation in CEE are: 1. Switching from higher to lower carbon content fossil fuels such as from oil or coal to natural gas. In some cases this can be done with little new investment, such as with dual- fuel boilers. Attempt to reduce CO2 emissions by switching to nuclear power is along other dangers the most expensive option 6 and thus cannot be considered as appropriate way of reducing CO2 emissions. 2. Switching from fossil fuels to renewable fuels. This is the only solution to our energy needs which support sustainable development. Sun (solar hydrogen), biomass, wind and other renewable fuels are able to cover future energy consumption in all regions of the world 7 . At present biomass offers the most competitive and abundant renewable energy source in CEE. The possibility of producing a wide range of solid, liquid and gaseous biofuels, including methanol, ethanol, biogas and diesel substitutes at competitive prices should encourage decision-makers for its wider utilization. 3. Increasing of energy efficiency. There are at least two reasons for improving energy efficiency in CEE. First we are wasting the fuels and financial resources and second it costs less to save fuels than to burn it 8. There are many ways how and where to increase energy efficiency. In CEE most promising options on demand side are: improving heating and lighting efficiency (better isolation, district heating systems, compact fluorescent lamps) and on supply side: combined heat and power production . When electricity is produced from combustion of fuels 60-70 per cent of the total energy content of the fuel is typically lost as waste heat. Combined heat and power production take advantage of the heat generated, for industrial process applications or for space and water heating in buildings. In these systems only 20-40 per cent of the total energy content of the fuel is lost. 2.2. PRESENT SITUATION IN CEE Changing centralized economies to market oriented ones has led in CEE to fast decline of GDP. For most of CEE countries this decline presents loss 10-40% since the begin of transformation process in 1989. Current situation in carbon dioxide emissions in CEE depends on overall energy consumption which has decreasing tendency (see table 1). This trend has not been caused by special CO2 abating measures but only due to economic recession. More important feature is that decline of energy consumption is not adequate to the decline of GDP. The reason for this is that energy-intensive industry sometimes due to 'special governmental treatment' has been protected against sudden exposure to market conditions (e.g. Slovak government has guaranteed electricity prices for Aluminum Works in Ziar nad Hronom which are lower than regular tariffs just to keep lower price of Slovak aluminum on world markets). This sector still counts for large share of production capacity of most CEE countries and historically it is the most effective sector in making hard currency. TABLE 1. CO2 EMISSIONS FROM ENERGY USE IN SOME CEE COUNTRIES --------------------------------------------------------------------------- MILLION TONES CO2 1988 1989 1990 1991 USSR 3820 3798 3692 3604 CZECHOSLOVAKIA 235 228 215 199 HUNGARY 80 76 73 69 POLAND 462 441 358 354 --------------------------------------------------------------------------- Despite its decreasing tendency per capita CO2 emissions or emissions per unit of GDP are still too high in CEE (see table 2). If appropriate measures (energy efficiency) will not be introduced this trend is expected to change in the near future due to the rise of energy consumption as the result of development of the tertiary sector and expected economic growth. TABLE 2. PER CAPITA AND PER UNIT OF GDP EMISSIONS OF CO2 --------------------------------------------------------------------------- Tones of CO2 per 1000 Tones of CO2 per 1991 USD of GDP capita USSR 1 409 12,5 Hungary 1 316 6,5 Czechoslovakia 1 308 13,0 Poland 1 244 9,3 USA 1 015 20,1 EC 668 9,7 Sweden 329 6,5 --------------------------------------------------------------------------- Note that comparison of CO2 emissions per unit of GDP between CEE and OECD countries does not express buying power in different countries. According to this discrepancy between energy consumption and the output of the goods and services (GDP), it is reasonable to assume that emissions of CO2 in CEE countries should decline at a faster rate as compared to e.g. OECD countries. This is because marginal cost of reducing consumption of primary energy and thus reduction of carbon dioxide emissions are generally lower in CEE than in the OECD countries. Energy efficiency of CEE countries is half as energy efficient as those of market economies (see table 3 with the outlook for the future). This was advocated, in particular in the Agenda 21 UNCED process, the framework convention on Climate Change. Reducing this gap by half would save 540 million tones of oil equivalent (mtoe) in the year 2000 and 600 mtoe in 2010 (see table 3 of which 90 per cent would be fossil fuels. A reduction of CO2 emissions of about 10 per cent in the CEE translates , all other things being equal, into a 5-6 per cent reduction of global CO2 emissions. TABLE 3. ENERGY INTENSITY OF CEE COUNTRIES 1973-2010 --------------------------------------------------------------------------- 1973 1990 2010 Western Europe and Northern 0,59 0,47 0,33-0,34 America Central and Eastern Europe 1,03 0,92 0,60-0,71 --------------------------------------------------------------------------- Energy intensity is measured by primary energy consumption in tones of oil equivalent per USD 1000 of GDP in 1980 dollars. Note: Comparison of energy intensities between OECD and CEE countries are very frequently cited in the connection with huge wasting of energy in CEE countries. But wasting of energy will probably be not as high. The reason for this is that GDP depends except others even on foreign trade. But products exported from CEE, like steel , cement or aluminum which are mostly high energy intensive are often traded at dumping prices on western markets . This situation which is partly caused by protection barriers of Western European markets has impact on GDP of CEE countries. From this point of view high energy consumption vs. GDP ratio in East seems to be influenced not only by wasting of energy but even by market forces or barriers in East-West trade. See also note under table 2. Nevertheless the energy wasting is the reality in CEE countries. The high level of energy consumption in CEE is due to : 1. Historical economic development in which priority has been given to heavy industries like iron, steel or petrochemicals which are high energy consumers. 2. Low efficiency in the production, transformation, transport and distribution of energy products, in particular for electricity generation and the transport of heat. 3. Obsolete and poorly maintained industrial installations and, in general, inefficient consumption of end-use systems like badly insulated houses, non-regulated space heating, etc. All these facts has been fueled by low and heavy subsidized energy prices in past which made most of energy saving measures ineffective. Oil shocks in 70s and 80s which due to sharp increase of oil price stimulated higher energy efficiency in OECD countries had only minor impact on CEE countries because of dependence on cheap Russian oil and the fact that price was overall less important factor in centrally planned economies than in market economies. Adjustment to world energy prices seems to be the way followed by countries like Hungary, Poland, Czech and Slovak Republics. But this is a slow process which must be made carefully. For example , it is not acceptable to make a consumer pay the economic cost of obsolete and ineffective district heating. Only when the heating system has been brought to compliance with standards of rational operation can the consumer be asked to pay full price. Consumers do not have the technical or financial capacity to manage programs for rehabilitation of buildings and heating systems. Establishment of consistent energy-efficiency programs for all sectors of social and economic activities seems to be the appropriate solution. 2.3. ENERGY SUBSIDIES Energy price is important. The trend of global energy consumption, both absolute and per unit of GDP, dropped sharply after the oil price rises of 1970s and after the price collapse of 1986. Energy productivity has improved faster in countries with higher energy prices. These and other factors confirm that energy demand can respond quite strongly to price changes, and have convinced many analysts that 'price is more important than we thought' 9 . Energy pricing , and the use of CO2/energy taxes to limit emissions are central issues in discussing responses to the greenhouse effect. However, to understand the issues it is important to start from the present reality. Energy subsidies are common and in CEE ( including former USSR ) are quite high ( see table 4 ). Coal prices for instance are less than the production costs in many countries of the region. TABLE 4. ENERGY SUBSIDIES IN THE WORLD --------------------------------------------------------------------------- ENERGY SUBSIDIES IN 1985 PRICES Fomer USSR 163 bil. USD CEE 22 bil. USD CHINA 14 bil. USD WORLD TOTAL 235 bil. USD --------------------------------------------------------------------------- [OECD Economic Studies No.19, Winter 1992 ]. The economic costs of energy subsidies in CEE are much higher than in developed countries. Subsidies always give incentives to behave inefficiently. They draw governmental expenditures away from much more important applications, encourage wasting, and make use of indigenous resources much less attractive thus leading to ever greater dependence upon fossil fuel. Removing subsidies ( especially for coal industry ) would be expected to cut carbon dioxide emissions not only via energy savings but also via interenergy substitutions ( natural gas for coal ) which reduce the average carbon content of energy demand. Steps towards removing energy subsidies in CEE countries ( also in the former USSR ), have been introduced during past 2-3 years. These reforms, although partial in scope, certainly contributed to lower carbon emissions in the past and should do it in the future. Removing existing distortion in energy markets mostly caused by energy subsidies should be the ultimate goal not only for CEE countries but even for some developed countries. It seems clear that especially in CEE this will be slow process. 2.4. PRINCIPLES OF CO2 / ENERGY TAXATION Since cutting subsidies is long term process sometimes connected with social problems - CO2/energy taxation should be therefore a natural focus for policy. 2.4.1. CO2 TAX When the main aim is to limit carbon dioxide emissions, the most effective tax is one on carbon directly, rather than on particular energy activities. Since carbon emissions come from a large number of desegregated energy users ( e.g. houses, cars ), it is not practical to tax the emissions , but it is quite possible to tax carbon-based fuels in proportion to their carbon content. The CO2 tax has the virtue of treating all fossil fuels according to their emissions of carbon dioxide and thus can be much more cost effective way than energy tax. It is clear that CO2 tax reduces emissions of sulfur, NOx, VOC and heavy metals more than a similar energy tax. But pure CO2 tax will stop nuclear power plants being replaced by e.g. natural gas as it has been proposed by many NGOs in some CEE countries. In the case of nuclear power it could be useful to introduce a tax on energy or uranium that is equal to the tax on oil. 2.4.2. ENERGY TAX Energy tax means taxing all forms of nonrenewable energy using the same charge per unit of primary energy. Tax of this kind would also be levied on the use of uranium and other fissionable substances in nuclear reactors. But single energy tax without CO2 tax would not be able to differentiate between various fossil fuels with regard to their content of carbon. This lack of effect on emissions, compared with straight carbon dioxide tax, will be particularly pronounced in regions whose electricity production is based on coalfired condensing power stations and which are potentially capable of utilizing natural gas in combined cycle gas fueled power plants. Here emissions could be reduced by more than half due to increase of efficiency and lower carbon content of natural gas. Short comparison of pros and cons of energy vs. CO2 tax is in table 5 10 . TABLE 5. ENERGY vs. CO2 TAX --------------------------------------------------------------------------- ENERGY TAX CO2 TAX Basic idea 1. including external climate impacts of CO2 costs of energy production + use 2. resource limitation Taxed quantity energy content of specific carbon content of energy carriers energy carriers Strategy and signal 1. priority for energy shift to low or non carbon efficiency and saving energy carriers 2. pro renewables Winners 1. energy efficiency and 1. nuclear energy savings 2. natural gas 2. tax-free renewables 3. oil instead of coal 4. efficiency+renewables Losers 1. all fossil fuels 1. coal 2. nuclear energy 2. oil (but winner to 1+2 End-of-pipe no yes encouragement Problems + additional 1. nonspecific on CO2 1. risk shifting and aspects accumulation ( nuclear, natural gas 2. methane emission 3. distortion of competition ( regional, international --------------------------------------------------------------------------- 2.5. WHY DO WE NEED CO2 / ENERGY TAX IN CEE There are several reasons why do we need CO2/ energy tax in CEE . One of them is that carbon dioxide is a global pollutant and its taxation ought to be the same worldwide ( hoping that developed countries will introduce this kind of taxation ). Another reason is that environmental taxes may be effectively used to reduce different kinds of emissions or to use energy in an efficient way. Such taxes have several advantages. Except of pollution reduction they can take into account the interests of future generation since most energy sources and raw materials are scarce. Furthermore taxes like this can contribute to the structural change of economy by strengthening the competivity of technologies ( renewable energy, energy efficiency ) which are more sustainable than the present choice. But in CEE exists other urgent reasons which need to be reviewed separately. 2.5.1. REVITALIZATION OF NUCLEAR ENERGY Any attempt to phase-out nuclear energy in CEE failed on the question how to encourage its substitution by other options like natural gas, energy efficiency or renewables. As the result of this failure we are facing revitalization of nuclear power in some CEE countries. Construction of new nuclear power plants in some CEE has been halted due to the lack of financing. Nevertheless new nuclear power plants are presently being build (despite financial uncertainties) with the help of foreign investors. Westinghouse has contracted with Czech utility CEZ to provide uranium fuel and USD 225 million worth instrumentation to Temelin nuclear power plant. A loan of USD 420 million guaranteed by Export-Import Bank to cover the costs of completion was approved. Just recently French EdF has got 51% shares of nuclear power plant in Mochovce,Slovakia. EBRD has been selected for financing (DM 1,3 billion) nuclear power plant completion. What is going on in the Czech and Slovak Republics is being prepared in other regions of CEE (Russia, Ukraine). Money for revitalization of nuclear industry in CEE are taken out of pockets of taxpayers in the West who fund Export-Import Bank, EBRD, Int. Atomic Energy Agency etc. It is ironic that much of the public money going to finance the rescue of the nuclear industry in the East is coming from governments in countries where public opinion has turned against nuclear power. Western nuclear companies are also pressing new CEE governments to complete partially constructed reactors and build new reactors , ignoring safer, more job-creative renewables and energy conservation strategies. Absence of appropriate legislation including full insurance, the costs for radioactive waste disposal, security and lower public awareness attract foreign investors. Export of electricity to West which is intended to cover the cost of the new nuclear power plants is thus just another way of exporting radioactive waste and nonviable technologies from developed to CEE countries. Note: Most of CEE countries except of Russia heavy depend on foreign fuel sources. In the case of e.g. Slovakia this means 86% of primary energy which is mainly imported from Russia (oil and gas). In the case of possible problems with export of electricity to Western Europe it could mean not only phasing out of this nuclear power plant but even 30 % of country's electricity consumption. Vulnerability of CEE countries due to overdependance on foreign sources thus could lead to uncertain economic development and halting of the transformation to market economy . 2.5.2. SHIFT FROM TAXING 'GOODS' TO TAXING 'BADS' At present the political debate has mainly dealt with how much we tax, not what we tax. This is unfortunate , for what we tax is important. In most countries the governmental budget relies largely on personal income taxes (salaries and wages) and corporate income taxes which are also taxes on investment and capital gains . These taxes do exists along with sales, value added and property taxes. Our present taxes fall mostly on just those activities that make the economy productive : work, savings and investment. Naturally, such taxes discourage people from undertaking these vital activities. A better system would place more of the tax burden on activities that make the economy unproductive and that should be discouraged like resource waste and pollution. Environmental taxes (charges) are one of several incentivebased instruments of environmental policy. Such taxes and charges are mechanisms for dealing with the systematic failures in market incentives that arise when individual actors do not pay full costs (external costs) of their activities. Shifting the tax burden away from economic 'goods' toward environmental 'bads' seems to be inevitable in effective and environmentally friendly policy. Economic productivity and environmental protection are not incompatible and that is why economy would benefit from this shift as a whole. 2.5.3. EXTERNALITIES When an activity entails disturbances to the environment for which no compensation is paid, those disturbances can be referred to as an external cost. Externalities from using fossil fuels, then, can be described as effects like acid rain, climate change, radiation or urban smog which are not reflected by market energy prices . These costs are paid by whole society and environment. Economic theory suggest that the costs of such impacts should be incorporated into the energy price. The tax can be seen as an attempt to correct these disturbances. In practice it is not easy to estimate the costs of for instance acidification and to quantify the greenhouse effect is likely to be far more uncertain . Nevertheless there is no doubt that attempts to include external costs into the price of energy are urgently needed. Another problem related to fossil fuels is their exhaustibility. Sooner or later , finite resources of these fuels will 'run out' or come to be available at extra high cost. This future scarcity, however, is not reflected by presentday prices. Thus it may be reasonable, by taxing presentday consumption of fossil fuels, to give consumers an indication of the high scarcity price in future. 2.6. PRESENT TAXES AND CHARGES IN CEE Paradoxically, when it comes to making polluters pay for costs that they impose on the rest of society, some CEE countries are more progressive than many developed countries which still have not managed to implement comprehensive pollution charges. Their levels , if implemented , are far below efficient rate (the Swedish NOx and SO2 tax and Norwegian taxes provide exceptions). Actually unite charges for SO2 in Czech Republic, Slovakia and Poland ( 35-75 USD/tone ) are one of the highest. These charges are levied on the whole tonnage of emissions including those under the emissions permits. In some CEE countries charge revenues are used for financing of environmental measures. Nevertheless up till now , the application of emission charges has in most cases not been very successful in terms of pollution abatement. This has been caused by philosophy of circling state money to state enterprises and back. Enterprises, protected from the risk of bankruptcy simply paid charges, without modifying emissions. Furthermore charges have been intended to finance certain items of national government expenditures or have been so low that they cannot possibly have adequate steering effect. 2.6.1. LEGISLATION Environmental charges and fines are instruments which are in operation in a number of CEE countries for quite a long time. Experiences from some countries are reviewed below. ESTONIA has had a system of environmental fines since the mid-1980s. These financial instruments were levied to provide revenues for Estonian Fund for Nature Protection and Rational Use of Natural Resources , established in 1983. Fines paid by polluting enterprises, agricultural farms and army establishments were used for compensating for damage caused by pollution, for investments in environmental technology projects , etc. In 1990, the Fund was reorganized . The major current problem with the system of charges was the effect of hyperinflation, which has almost completely wiped out the real revenues from charges. HUNGARY has had a system of pollution charges since the 1970s, levied in the form of penalties for air pollution, waste water pollution, generation of hazardous wastes, and noise/vibration, and a nature protection penalty. Penalties are calculated on the basis of emissions of pollutants, at rates reflecting the health impact of substances. Since 1991 the Central Environmental Protection Fund has collected the penalty revenues. CZECH REPUBLIC AND SLOVAKIA have a system very similar to that introduced in Hungary . The revenues from charges are collected by Ministry of Environment and through Environmental Fund are used for financing of projects oriented on nature protection, research, training and new environmentally sound technologies. POLAND also has a system of environmental fees established under the previous economic system. This system of fees , now more than ten years old, had initially little impact on the environment. More recently , fees have been increased sharply and this combined with the market reforms has substantially improved its effectiveness. At present revenues collected in this way correspond to 40 % of country's environmental investment expenditures. This revenues are fully earmarked and they are distributed through 50 environmental funds. RUSSIA introduced a number of taxes partly for environmental purposes. These include a land tax, payments for the right to use natural resources, payments for industrial water consumption etc. In addition pollution charges on air and water pollution and on waste disposal have been levied since 1991-1992, based on permitted pollution levels and pollution in excess of those levels. Rates are aiming to reflect the pollution damage and human health risk. Regional and local authorities have the right to exempt polluters from these charges. The revenues are largely distributed to state non-budget ecological funds, responsible for environmental protection systems (municipal sewage facilities, waste disposal facilities, monitoring systems etc.). High inflation and refusing of paying charges by enterprises due to poor financial situation creates a number of problems. Many CEE countries have experience with environmental funds financed from earmarked revenues coming from charges and taxes. Although there are several problems to be solved in the future this philosophy of collecting, administration and distribution of revenues (earmarking) could be implemented in the framework of CO2/energy taxation in the same way . 2.7. RECYCLING THE TAX REVENUE INTO SPECIFIC CO2 SAVING MEASURES Extensive capital shortage in CEE is one reason why discount rates are frequently much higher than in developed countries and thus make it impossible to finance energy efficiency and renewable energy projects. Government investment in this way is restricted and new incentives to find financial resources inside of domestic economy must be found. Recycling the tax revenue into carbon dioxide saving measures could do the job. A study by the Technical University of Athens for the European Commission highlights the potential role of recycling the tax revenues into specific carbon dioxide measures 11 . Where the bulk of the revenue is diverted into energy conservation , renewables and more efficient fossil fuel combustion, projected CO2 emission reductions are three times greater than the case where the tax revenues are put into a more general budget. The study concludes that this would not only allow the European Union (EU) stabilization target to be met, but a reduction of up to 22% in CO2 emission from current levels. 2.7.1. UNDERVALUED ENERGY EFFICIENCY AND RENEWABLE ENERGY STRATEGIES Heritage of the centralized energy planning and monopoly energy supply companies, as we can see them in CEE, favors large-scale investments in supply side . Decentralized , democratic planning based on least-cost principles including environmental and social costs giving the same opportunity to independent producers utilizing renewables as to the large producers are still strongly undervalued by CEE governments. To launch in CEE countries, the effective sustainable energy programs which are urgently needed both for the economy and the environment, the tax incentives and other subsidies that now favor fossil and nuclear energy should be re-directed to demand side efficiency and to renewables. 2.7.2. STRUCTURE OF THE POSSIBLE CO2/ENERGY TAX Creation of appropriate fund, from taxes like CO2/energy tax and higher taxes on inefficient consumer products ( appliances, vehicles ) is the promising way. From this fund the incentives for energy conservation measures and renewable energy projects can be provided by grants or low-interest loans which are presently not available for potential investors in CEE. It seems reasonable to start with small CO2/energy tax in CEE. Due to high energy consumption few per cent of energy price added as the tax could create a large amount of money sufficient for building demonstration projects. Pilot projects based on renewables or case studies on energy efficiency are presently urgently needed. Decissionmakers, private investors and public could be provided with informations on what is really possible. It is not important to set exact figures for CO2 or energy taxes at this stage of development in CEE but it is very important to set up new way of considering energy prices and its taxation. From this point of view starting with small tax on coal, natural gas, petrol and uranium could do good job. Such tax would create considerable revenues in each CEE country. 2.7.3. CO2/ENERGY TAX REVENUES FOR ENERGY EFFICIENCY PROGRAMS Two things in energy sector of CEE countries seems to be clear: 1. energy saving potential is high 2. the policy of 'getting the prices right' ( market prices ) is for consumers in CEE not enough. Due to several barriers market forces as e.g. price increase without appropriate energy policy ( demand side management, efficiency standards, legislation ) are insufficient to mobilize the resources in energy efficiency sector in CEE. The main barriers include : 1. lack of information about future energy prices and technological possibilities 2. high initial capital cost for households and unwillingness to take risk associated with long term investment 3. lack of experience in cost-effectiveness analysis and in calculating the rate of return of investment 4. subsidies to energy producers. Direct interventions are needed to strengthen market mechanisms and to remove institutional and market barriers. Some projects in CEE countries demonstrated that quite modest investments in overcoming these market failures can yield large benefits in terms of reducing demand for energy and avoiding related pollution. By installation of for instance metering equipment, temperature regulation systems and insulation on some buildings energy savings up to 30 % can be achieved. Payback times for such investments are mostly shorter than one year. In CEE exist a large gap in investment to energy efficient (savings) and renewable technologies. Revenues from CO2/energy tax used for stimulation of these investments could overcome the above mentioned barriers. EXAMPLE: POLAND While energy prices in Poland have already reached the level of prices in West Europe, the average month salary in Poland is much lower ( like in other CEE countries ), about USD 200. As a result, a sufficient price incentive exists for consumers to save energy. In the study , 'Demand-side Management in Poland: Assessment and Pilot Program' coordinated by the US Agency for International Development and the World Bank, a cost ranking of electricity-saving measures called a conservation curve , was developed - the first in CEE. Despite being a conservative study by North American standards, the conclusions are striking. Of the end uses assessed, 16 percent savings can be achieved at less than avoided cost of electricity ( assumed to be relatively low 2,7 cents/kWh ). This amounts to about 2000 MW worth of power plants. If a modest pollution externality cost of 2,1 cents/kWh is included to reflect the high pollution impacts of the coal and lignite used in the region today, the cost-effective electricity savings jump to 36 percent of the total electricity consumption, which is equivalent of 5000 MW of power station. The study for Poland outlines a proposed six-year 'National Demand-Side Management Program Summary .' The summary projects an investment of nearly USD 259 million for a program to cut peak demand by 764 MW and save 1745 GWh of electricity by the year 2000. A series of implementation programs for improved efficiency in lighting , drive motors, refrigeration, industrial processes, and insulation is recommended. It is likely that demand-side management could help achieve similar or even larger savings throughout CEE . But until world lending institutions like World Bank or EBRD will overemphasize energy supply investments and fail to evaluate energy efficiency potential in CEE - financing of such programs will always be a problem in this region. Even in this case CO2/energy tax could do this job by creating domestic financial resources and avoiding to increase foreign debt at the same time. 2.7.4. FINANCIAL INCENTIVES FOR ENERGY EFFICIENCY IN CEE Governments of CEE are revising their energy policies and are developing new legislation and institutions. From the following overview of present state of the financial incentives for energy efficiency can be seen that first steps to the right direction has recently been made or are under consideration by some CEE countries . BULGARIA Financial incentives will be treated in the new law on energy efficiency. CZECH REPUBLIC AND SLOVAKIA In force are selective customs and tax tariffs to enhance the use of energy efficient equipment appliances. This instrument is being used in combination with other administrative measures . HUNGARY The main incentives are being financed by foreign credits and are used for the implementation of energy policy, diversification of fuels and energy efficiency. Its focus is on industry. LITHUANIA No taxation schemes in force at present. It is however possible for industries to obtain subsidies for manufacturing of products with high thermal efficiency and for measuring equipment. POLAND There are no financial incentives at the present, Probably due to restructuring problems of the Polish economy. ROMANIA No tax incentives measure in force. The Energy Conservation Agency can give grants on energy efficiency investments. RUSSIA The government is considering the following fiscal measures : 1. raise tariffs according to quantities of consumed energy, which exceeds the contract, 2. establish an Energy Conservation Fund, from which subsidies for the efficient use of energy can be granted, 3. abolish taxation on enhanced energy efficient investment by research and development departments in the fuel and energy industry, 4. establish tax discounts for energy efficient equipment (expenditures on reconstruction and/or modernization are allowed to be included in the cost-price). SLOVENIA For energy conservation investments subsidies and favorable loans are available. The government is financing projects for efficient energy use. Equipment for efficient energy use as well as for renewable energy can obtain at low interest rate and tax deduction. UKRAINE Environmental clean technologies can be favored for a certain period of time by tax reductions. For industrial and public sectors a reduction in tariffs is applied to increase end-use efficiency. 2.7.5. CO2/ENERGY TAX REVENUES FOR RENEWABLES ( TOWARDS FOSSIL FREE FUTURE ) A study prepared by Stockholm Environmental Institute 12 shows that future based on renewable energy sources is in fact credible. It is technically and economically feasible to halve the current global use of fossil fuel and to maintain our transport systems, industries and homes with a renewable energy sources like solar, wind, hydro, biomass, and geothermal. The study suggests that a steady replacement of fossil fuels with energy efficient technologies and renewables could reduce global emissions of carbon dioxide by 52% by 2030, and 71% by 2075. Improving energy efficiency in all regions of the world , and developing a solarhydrogen energy system are the building bricks of fossilfree future scenario. The overall costs of such a scenario are estimated to be equal to or less than those for carrying on with our current wasting of energy sources. Making such a future a reality will however require major political changes. The role that renewable energies could play in CEE is still underestimated by decision makers. Due to organizational barriers ( local and decentralized sources are hard to get centralized financing ), political obstacles and some specific technical problems ( fluctuation with time, dispersion in space ), the short term market type considerations in favor of fossil fuels or nuclear are still common praxis. Renewable energy sources are victims of both policy failure and market failure. Energy markets belong to the most distorted commodity markets. Producers of energy from fossil and nuclear fuels sell their output well below to the true cost to the economy. Those who produce energy from renewables and impose negligible cost on the rest of society are still in disadvantage to their competitors with fossil fuels. Internalization of external costs due to environmental damage could open the way for renewables. For example, a draft EU directive suggests a limit of 0,1 % sulfur content in gasoline after 1.10.1994 and 0,05% after 1996. Today, biofuels satisfy these requirements, but fossil fuels have to be refined with added cost estimated at 5 ECU and 11 ECU per barrel respectively to meet this directive 13 . Sometimes it is believed that simple removing existing subsidies from fossil fuels will solve the whole problem of broader penetration of renewables on the market. This is correct approach in the optimal world. But in the real world neither full internationalization of externalities nor the withdrawal of governmental intervention is likely to occur in the near future. As long as nonrenewable energy sources , in particular coal and nuclear power, remain heavily subsidized the development of renewables will not be brought about by the market forces. Renewables requires support by public expenditure to counterweight large resource transfers from taxpayers to nuclear, coal, gas and oil power producers. Budgets of CEE countries are very unreliable sources of capital necessary to cover renewable energy projects. Revenues from CO2/energy taxes thus should be the right tool which can provide financial resources for projects which support sustainable and fossil-free development. Furthermore supporting domestic renewable sources helps to: 1. Reduce imports and may ease balance-of-payments problems of many CEE countries. 2. Provides more jobs than fossil fuels. 3. Increase countries energy security . 2.8. RECOMMENDATIONS FOR ACTIONS IN CEE During time of major structural changes in CEE countries there exist the potential advantage to use CO2/energy tax as well as other environmental taxes to redirect the pressure of market forces towards achieving of substantial environmental improvements. To cut CO2 emissions and to change energy policy towards sustainable one will need: 1. To adopt carbon dioxide target as it has been done by OECD countries . 2. To include externalities in the price of energy and to cut subsidies to fossil fuels which have damaging environmental impacts, discourage energy savings and the development of renewable energy sources. 3. To introduce small ( few per cent of present energy or fossil fuel price CO2/energy tax and use the earmarking revenues from tax as the financial resource for energy efficiency and renewable energy sources. 4. To establish appropriate administrative institutions responsible for effective distribution of tax revenues . 2.9. BARRIERS FOR CO2/ENERGY TAXATION IN CEE There are several specific problems which create the barriers for the introduction of CO2/energy tax in CEE. 1. Differences between CEE countries in the transformation process to market economy create different conditions for implementation of such taxation. In countries like Poland, Hungary, Czech Republic, Slovakia or Slovenia transformation of economy reached the point where CO2/energy tax should be seriously considered. 2. Many enterprises in CEE are still in monopoly position and are able to pass any environmental tax on to their customers. CO2/energy tax would, in this situation, raise substantial revenues, without achieving environmental goals. Setting energy standards should improve the situations. 3. High inflation especially in countries of former USSR countries could create severe problems for the operation of the tax. The revenues from CO2/energy tax will erode by inflation. Possible way how to overcome this barrier is the introduction of tax with automatic indexing against rate of inflation. 4. In some CEE countries, the organization of agencies responsible for enforcing environmental and especially energy policy is still largely unchanged from previous system. Lack of skilled people and information create serious barrier. 5. Energy policy of CEE countries will depend on future legislation and this can be negatively influenced by Energy Charta signed by CEE countries. It is too early to estimate all negative impacts on energy sector in the region coming from this document, nevertheless privatization of energy sector by foreign investors and export of electricity from CEE could be taken in consideration. According to planned Charta protocols huge energy resources in CEE can be exploited on a large scale with minimal environmental standards. CEE countries should play a role of cheap energy supplier for the West. From an environmental point of view, future export of electricity from CEE to West ( Poland is already a big exporter of electricity to Austria ) could only be accepted if it is guaranteed that exported electricity is provided without deterioration of the environment - but it is not the case for CEE at present. --------------------------------------------------------------------------- P A R T 2 3. CO2 / ENERGY TAX POLICIES IN OECD COUNTRIES It is not expected that CEE countries will introduce carbon/energy taxation before it will be done by OECD especially EU countries. From this point of view it is important to know what are the experiences with such taxation (Nordic countries) and what could be expected in this way in EU or US . Most of OECD countries committed to lower CO2 emission. The emission targets and condition under which they should be adopted are summarized in table 5. TABLE 6. NATIONAL CARBON DIOXIDE EMISSION TARGETS IN OECD COUNTRIES --------------------------------------------------------------------------- COUNTRY CO2 TARGET AUSTRALIA No higher than 1988 by the year 2000 ,20% reduction by 2005. Condition: to be implemented if others take like actions AUSTRIA 20% reduction by 2005 compared with 1988 level. Condition: still needs parliamentary approval. BELGIUM EU target: No higher than 1990 level by year 2000 CANADA 20% reduction by 2005, compared with 1988 level. DENMARK 20% reduction by 2005, compared with 1988 level. Comment: Implementation plan adopted . FINLAND No higher than 1990 level by year 2000 Comment: policy goal, not a formal target . FRANCE No higher than 1990 level by year 2000. Comment: per capita per year target. Reduction from 2,3 to 2,0 tones CO2 per inhabitant within 25 years. GERMANY 2530 % reduction by 2005 compared with 1987 level. GREECE EU target: No higher than 1990 level by year 2000. IRELAND EU target: No higher than 1990 level by year 2000 . ITALY No higher than 1988 level by year 2000 20% reduction by 2005 . Comment: nonbinding resolution . JAPAN No higher than 1990 level by year 2000 Comment : on per capita basis . Condition: to be implemented if others take like actions. LUXEMBOURG EU target : no higher than 1990 level by 2000, 20% reduction by 2005. NETHERLANDS No higher than 1990 level by year 1995, 35% reduction by 2000. Comment: unilateral action committed . NORWAY No higher than 1989 level by year 2000 PORTUGAL EU target: No higher than 1990 level by year 2000 . SPAIN EU target: No higher than 1990 level by year 2000 . SWEDEN No higher than 1990 level by year 2000 SWITZERLAND No higher than 1990 level by year 2000 UK No higher than 1990 level by year 2000 UNITED STATES No higher than 1990 level by year 2000 Comment: Clinton`s April 1993 statement commitment do not have statutory legal force and is based on voluntary actions. --------------------------------------------------------------------------- 3.1. THE EU CO2/ ENERGY TAX PROPOSAL Through a resolution by the Council of Ministers, the EU has undertaken to stabilize combined emissions from its 12 member countries in 2000 at the 1990 level. The Commission proposes that fossil fuels should be taxed on the basis of their carbon dioxide emissions, and that this portion of the tax be set at 50 % of the total tax of ECU 17,7/tone oil equivalent (USD 3/barrel of oil equivalent) in 1993. The other half of the tax should be assessed on the thermal value of energy sources used. With the view to achieving a gradual introduction of the tax, it was supposed to set USD 3/barrel from 1 January, 1993, rising by USD 1/barrel to USD 10/barrel by the year 2000 14 . A few examples of proposed taxes on products are reviewed in the table 6. TABLE 7. TAXATION OF PRODUCTS IN ECUs ON THE BASIS OF 3 USD/BARREL --------------------------------------------------------------------------- PRODUCT UNIT CO2 TAX ENERGY TAX TOTAL TAX Petrol 1000 l = 32,7 6,59 6,87 13,46 GJ (0,202) (0.412) Diesel fuel oil 1000 l = 35 7,66 7,76 15,42 GJ (0,207) (0,417) Heavy fuel oil 1000 l = 40,2 8,77 8,44 17,21 GJ (0,218) (0,428) Natural gas 1000 m3 =34,6 5,44 (0,16) 7,14 12,58 GJ (0,370) Hard coal 1000 kg = 25 6,5 (0,26) 5,25 11,75 Low-grade GJ 4,9 (0,26) 3,99 (0,48) Anthracite 1000 kg = 19 8,93 GJ (0,48) Coke 100 kg = 26 7,8 (0,30) 5,46 13,26 GJ (0,51) Opencast lignite 1000 kg = 7,5 2,25 (0,30) 1,58 3,83 Lignite GJ 5,6 4,2 (0,51) briquette 1000 kg = 20 (0,28) 9,8 GJ (0,49) Peat 1000 kg = 10 3,0 2,1 5,1 GJ (0,30) (0,51) --------------------------------------------------------------------------- The values in brackets represent the tax per gigajoule (GJ), the amount of the energy tax is ECU 0,21 per GJ in all cases. 3.1.1. WHAT COULD BE THE IMPACT OF THE TAX ON THE ECONOMY A key element of the EU tax proposal is that it should be fiscally neutral, i.e. increases in energy costs would be offset by reduction in other taxes. There are a number of exemption from the tax, the most important being special treatment for energy intensive industries. Taxes for such a industries will be reduced by 2590%. The exact reduction will depend on each firm's costs of energy as per cent of its value added. With the exemption of large scale hydro ( more than 10 MW ) , renewable energy is exempt from the tax. What could be the impact of such tax on economy? The answer depends on many factors , most noticeably the scale of the tax and the uses to which the revenues are put. Energy is such a large business that relatively small tax would suffice to raise large sums. A tax adding just 1 per cent to the price of coal would rise around USD 2,5 billions if applied globally 15 . Yet the price impact of such a tax would be quite negligible - far smaller than for instance, the uncertainties in predicting price of oil a week ahead. Furthermore for the great majority of manufacturing industry , energy costs only represent between 0% and 5% of total production costs. If CO2/energy taxation would be introduced in EU according to schedule it would raise estimated revenues of 56 billion ECUs in 1993 and 97 billion ECUs in the year 2000. Such taxation would have a varying impact on different fuels and industries. It is estimated that the price effects of the tax in the year 2000 would be: 69 % price increase for petrol and diesel, 15 % for electricity, 31 % for natural gas, 39 % for heavy fuel oil and 63 % for coal. A study for European Community 16 provides a very detailed information of likely impacts of the EC CO2/energy tax by country and industrial sector. The tax receipts in the assessment are assumed to be recycled through reducing income taxes (35%), employer's social security contributions (40%), corporate taxes (10%), and energy conservation measures (15%). The main conclusions of the study are that : 1. The tax 'stimulate the hightech, capital goods producing sectors'. 2. There is an accelerating trend in energy efficiency. The industrial energy intensity reduces between 14% and 39%, compared to 1990, according to country. 3. The real GNP growth rate is only 0,07% lower, on average each year. 4. The acceleration of price inflation is 0,23% on average. The impact of CO2/energy tax on private households would be modest. This direct impact would only represent between 0,5% and 1,3 % of total household expenditure 17 . Nevertheless special treatment of low-income families is needed because they spend relatively higher share of their expenditure on the energy compared to average household. More generally can be concluded that : 1. The economic impacts of the EU tax are likely to be small, and may well be positive. 2. If tax revenues are recycled directly into the measures cutting CO2 emissions such as energy savings, renewables and cogeneration, CO2 emissions could be reduced more efficiently and to a far greater extent. 3.1.2. IS THE EU TARGET MEETING STABILIZATION OF CONCENTRATION OF CO2 IN ATMOSPHERE ? It is questionable if commitments of OECD countries will meet CO2 stabilization in atmosphere. The chairman of IPCC, Dr. Bert Bolin, warned the opening plenary of INC 9 that achieving current commitments by industrialized countries to limit CO2 emissions would represent 'only a very modest first step to reach a stabilization of CO2 concentration'. 'Even stabilizing the total global emissions would not stabilize atmospheric concentrations for several hundred years'. Furthermore EU has made the introduction of CO2/energy tax conditional on other major OECD countries taking similar steps. It is unclear today when the tax will be introduced EU countries have decided to make a decision in December 1994, before the UN conference on Climate Change. A new Greek proposal includes a USD 3/barrel tax with a possibility for countries to opt-out if they implement the EU CO2 stabilization/reduction policy with other measures. 3.2. US ENERGY TAXATION The US administration proposed an energy tax as part of a package of measures to reduce the federal budget deficit and to stimulate economic growth. The US tax proposal, which contains a basic rate on the thermal heat content of energy products plus an additional oil supplement foresees considerably lower tax rates than EU tax proposal The static receipts of the US energy tax, if introduced would amount to roughly USD 22 billion annually which corresponds to 0,4 % of US GDP in 1992. Nevertheless this proposal was defeated in Congress and replaced by a 4,3 cent/gallon increase in gasoline taxes. 3.3. JOINT IMPLEMENTATION - ANOTHER CO2 ABATING POLICY As part of the new plan , Clifton's administration launched a program to encourage international emissions reductions known as joint implementation. Joint implementation is perceived to offer a means of obtaining credits against emission reduction obligations within one's own borders, by undertaking emission reduction projects in other countries. Defining joint implementation in the worst way, some fear that industrialized countries will only plant forests in developing countries, with little consideration of the net benefit to the latter-but allowing the former to receive credit for greenhouse gas reductions while increasing their own emissions at home. Defined more positively , joint implementation offers a means to stimulate cooperation between industrialized and developing countries to reduce global greenhouse emissions in the most cost-effective manner possible. Joint implementation in CEE countries without carbon dioxide commitments should undermine possible realization of the Climate Convention's objective. Thus all parties involved in joint implementation should have similar emission commitments and clear emission baseline. Joint implementation as a part of climate convention is hard to be expected before 2000. For CEE countries ( if introduced ) it seems to be the way towards nuclear implementation, because nuclear power is considered by most decision-makers as appropriate CO2 abating measure. 3.4. EXISTING CO2/ ENERGY TAXES IN OECD COUNTRIES High energy taxation is common in majority of developed countries. According to OECD study 18 existing taxes are on average the equivalent of a USD 70 /ton carbon. There are however large differences between countries, and coal and natural gas are in most cases taxed much lower taxed than oil and in many countries not taxed at all. Oil used in domestic sector is subject on average to a tax of USD 135/ton. This calculation is based on the present average taxation of light oil in the EU(countries weighted for number of inhabitants). The highest taxation is in Italy, Germany and Denmark, while Belgium, Luxembourg and the UK have particularly low taxes. Only a few countries have , so far , introduced carbon dioxide taxes. Beside Netherlands the Nordic countries has been the most progressive in this way. In all these countries CO2 tax co-exists with traditional energy taxes. 3.4.1. CO2/ ENERGY TAXES IN THE NORDIC COUNTRIES All of the Nordic countries (Denmark, Finland, Norway and Sweden) have taxes on energy products which are among the highest in the world . Nevertheless these countries have introduced, or have decided to introduce , new taxes with the specific aim of curbing CO2 emissions. At present , only emissions of CO2 from energy use are being taxed. In all of these countries, the scope and rates vary between sources of emission and exemptions from taxation and other forms of tax relief are common. Existing or proposed CO2 taxes in the Nordic countries are high in comparison with international norms. For example, CO2 taxes on gasoline in Sweden and Norway in 1992 reached a level equivalent to 15 and 22 USD/barrel of oil. This can be compared with the proposal by EU to impose a CO2/energy tax of 10 USD/barrel of oil by the year 2000. Calculated as the average tax on all CO2 emissions imposed CO2 taxes equivalents are reviewed in the following table. TABLE 8. CO2 TAXES IN THE NORDIC COUNTRIES --------------------------------------------------------------------------- COUNTRY CO2 TAX EQUIVALENT SWEDEN 28 USD/ton CO2 NORWAY 27 USD/ton CO2 FINLAND 2 USD/ton CO2 DENMARK 15 USD/ton CO2 1) --------------------------------------------------------------------------- 1) for private consumers, not including general energy taxes DENMARK has newly implemented a CO2 tax, which came into force for industries in January 1993. Denmark will also rely on measures other than taxation in its greenhouse abatement strategy. In particular, fuel substitution in the electricity sector will play a central role. The Danish CO2/energy tax revenue is partly used to increase energy efficiency and cogeneration. A number of support schemes are set up for efficiency improvement, to increase the number of consumers in district heating systems together with a partly exemption of gas used in cogeneration stations. FINLAND Finland has made no formal commitment to cut its CO2 emissions. However, the issue has been discussed in the Parliament, and Parliamentary Committee has proposed stabilization of emissions by the year 2000. Modest CO2 tax was introduced in 1990. A further increase in the tax and other measures to curb emissions will hinge on future statements or commitments by the Parliament. NORWAY In May 1989, the Norwegian Parliament stated that emissions of CO2 should be stabilized by 2000 at the 1989 level. The goal is preliminary, and should , according to the Parliamentary decision, be continuously analyzed. Norway has introduced CO2 tax in January 1991 . Moreover, additional resources have been allocated to various energy conservation programs. SWEDEN Some of the most progressive examples of environmentally oriented taxation are the Swedish taxes on S02, NOx and on CO2. Those taxes are close to marginal abatement costs, so considerable effect can be expected. In 1990 and 1991, Sweden undertook a comprehensive tax reform, wherein CO2 taxes were seen as an important component. Improved energy efficiency and electricity conservation objectives continue to dominate Swedish energy policy. Furthermore, various measures are in place to encourage production and consumption of renewable energy sources, in particular peat and wood 19 . --------------------------------------------------------------------------- 4. CONCLUSION The current trends for climate change and the projected changes over the next century calls for global action . An immediate start must be made towards increasing energy efficiency and phasing out fossil fuels by renewables. The challenge to policymakers responding to global warming is to design a flexible policy framework capable of reducing the concentrations of greenhouse gases in the atmosphere and designing of sustainable energy path. The success of the future environmental policies in the world lies in partnership, experience sharing and multilateral learning . Introduction of CO2/energy taxation in some OECD countries seems to be the right way to follow in CEE. It seems clear that unless a large number of OECD countries do not introduce such a kind of tax there are little chances to introduce it in CEE. Nevertheless there is growing support in OECD-countries for a system, where countries with CO2/energy taxes can set similar duties on energy-intensive imports from countries without CO2/energy taxes. There is yet no official proposal for this; but if it is implemented it will hit CEE-countries without such a taxation. Some CEE governments are currently proposing changes in their energy pricing in order to bring them more into line with the market prices. But it is still too less in order to bring them into line with the external costs of fuel use. Cutting subsidies and internalization of external costs is a long term process. What CEE countries need do just now is to start or strengthen the process of utilization of renewables and increasing of energy efficiency. Form this perspective introduction of small carbon or energy tax could do useful job. This seems to be viable option for CEE countries not only from the point of view of reduction of CO2 concentration in atmosphere or fossil free future but even from political and economical reasons. Growing support in OECD countries for system, where countries with CO2/energy taxes can set similar duties on energy-intensive imports from countries without CO2/energy taxes could hit especially CEE countries. Another reason why it would be useful to discuss this problem just now is the revitalization of nuclear power in CEE. Governments of CEE are now looking for Western capital . And it flows into nuclear industry much easier than into any other industry . Too few is presently hearing the underfunded voices for renewable energy strategies that would generate more jobs, than ever created by Western nuclear companies. There are no examples of such huge investment into energy efficiency or renewables in CEE like we can see it now in nuclear industry. Energy efficiency and renewable energy projects are at present not favored by CEE governments because lack of money and preference towards nuclear energy. The political and economic changes taking place in CEE present a unique opportunity to re-orient the policy towards sustainable development. To achieve this goal allocation of revenues from CO2/energy tax for energy efficiency and renewables could be viewed as appropriate tool for generating financial resources inside of own country. Development of renewable energies and energy efficiency is difficult to handle by centralized administration and large institutions . From this point of view the concerned NGOs could be the leading force in promoting this option and ease the change of this sustainable energy path. --------------------------------------------------------------------------- REFERENCES 1 Energy in Central and Eastern Europe, Nuclear Power and Energy Efficiency: Two Options, Celakovice Conference, 1992 2 Renewable Energy in Central and Eastern Europe, Greenway Energy Group Seminar, Bratislava, 1993 3 Intergovernmental Panel on Climate Change, 'Climate Change: the IPCC Scientific Assessment.' Cambridge University Press, 1990 and 1992 4 F.R. Rijsbermann, R.J. 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Grubb, The Greenhouse Effect: Negotiating Targets, Royal Institute of International Affairs. London, 1989 16 The Economic Impact of a Package of EC Measures to Control CO2 Emissions, Report to the Commission of the European Communities , DRIEurope November 1991 17 Europe Environment, No. 410, May 18, 1993 18 P. Hoeller, J. Coppel, Energy Taxation and Price Distortions in the Fossil Fuel Markets : Some Implications for Climate Change Policy, OECD, Paris, 1992 19 OECD DOCUMENTS, Climate Change . Designing a Practical Tax System, Paris, 1992 FOUNDATION FOR ALTERNATIVE ENERGY - SLOVAKIA