Definitions

A distinction between charges and taxes in this report has been made largely by following the EU approach to classification of such instruments: the term "charge" is applied when the revenue from the instrument is earmarked for environmental expenditure; if the revenue is not earmarked for environmental expenditure, the term "tax" is used. Economic instruments described in this report are classified according to the following definitions (following the OECD classification):

Emission charges/taxes:

Emission charges/taxes stand for direct payments based on measurements or estimates of the quantity and quality of pollutant discharged.

User charges:

User charges are payments for the cost of collective services, and are primarily used as a financing device by local authorities e.g. for the collection and/or treatment of solid waste or sewage water.

Product charges/taxes:

Product charges/taxes are applied to products that create pollution either when they are manufactured , consumed or disposed of (for example: fertilizers, pesticides, batteries, etc.). Product charges/taxes are intended to modify the relative prices of the products and/or to finance collection and treatment systems. One form which product charges/taxes may take in practice, is that of tax differentiation leading to more favorable prices for "environmentally friendly" products and vice versa. (E.g.car sales differentials as on fuel efficiency, existence of catalytic converter, compliance with emission standardsetc.; and tax differentiation between leaded and unleaded fuel).

Deposit refund systems:

In deposit refund systems a payment/surcharge is made when purchasing a product contained in a designated type of product (e.g.,packaging). The payment (deposit) is reimbursed when the product is returned to the dealer or a specialized treatment facility.

Marketable (tradable) permits/quotas (also referred to as emissions trading):

Marketable (tradable) permits/quotas are based on the principle that any increase in emission from a given source must be offset by a decrease in emissions of an equivalent, and sometimes greater, quantity. For example, when a statutory ceiling on pollution levels is fixed for a given area, a polluting firm can set up a new facility or expand its activities only if it does not increase the total pollution load. The firm must therefore buy "rights" or permits to pollute from other firms located in the same control area which are then required to abate their emissions by an amount equal to the additional pollution emitted by the new activity.

Non-compliance fees:

Non-compliance fees are imposed on polluters which do not comply with environmental requirements and regulations. They can be proportional to selected variables such as damage due to non compliance, profits linked with reduced (non) compliance costs.

Performance bonds:

Performance bonds are payments made to authorities in expectation of compliance with the environmental requirements. The bonds are refunded when compliance is achieved. Liability payments: Liability payments are made to compensate for the damage caused by a polluting activity. Such payments can be made to "victims" (from chronic or accidental pollution) or the government. They can operate in the context of specific liability rules and compensation schemes (e.g. funds).

NB: Neither non-compliance fees, nor liability payment can be construed as fines which are lump sum legal sanctions.

Subsidies: Under the term "subsidies" all forms of financial assistance to polluters or users ofnatural resources is understood, e.g. grants, soft loans, tax breaks, accelerated depreciation. Please note, however, that National/Regional/Local Environmental Funds and their support instruments (grants, soft loans, interest subsidies etc.) are not subject to this project.

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