Toll- og avgiftsdirektoratet Kopi: Samferdselsdepartementet … · 2018-02-22 · Kopi:...

Norges luftsportforbund Møllergata 39, 0179 Oslo, Tlf.: +47 23 01 04 50, [email protected] www.nlf.no

Bankgiro 5002 05 01577, Foretaksnr: 974 953552 MVA

Toll- og avgiftsdirektoratet

Pr. epost: [email protected]

Kopi: Samferdselsdepartementet

Deres ref.: 15/84353-3, arkivkode 470 Vår ref.: sf37-11-1316 3. februar 2016

HØRINGSSVAR – flypassasjéravgift – endring av forskrift 11. desember 2001 nr. 1451

Norges Luftsportforbund (NLF) er et særforbund tilsluttet Norges idrettsforbund (NIF) og organiserer

følgende idretter under fellesbetegnelsen luftsport: Fallskjermhopping, hanggliding, paragliding,

seilflyging, motorflyging, mikroflyging, modellflyging og flyging med varmluftballonger. NLF har 245

tilsluttede klubber over hele landet med til sammen over 18 000 medlemskap. Våre medlemmer – i

særdeleshet motorflygere og mikroflygere – berøres direkte dersom innføringen av avgiften innebærer

at det ikke lenger er kommersielt grunnlag for én eller flere lufthavner i Norge. Medlemmene berøres

også indirekte – både på basis av rammevilkårene for luftfarten i Norge generelt, og naturligvis som

følge av global oppvarming på sikt.

NLF takker for muligheten til å kommentere forslaget til forskriftsendring og avgir herved følgende

høringssvar som søker å balansere luftfartens behov opp mot hva som er mest hensiktsmessige verktøy

for å redusere utslipp av klimagasser.

0 – Innledende bemerkning

NLF erkjenner at dette høringssvaret er omfattende og detaljrikt. Den offentlige debatten om

flyseteavgiften viser imidlertid at det er en betydelig risiko for uheldige vedtak dersom ikke detaljene i

denne kompliserte saken er kjent. Vi håper derfor at Toll- og avgiftsdirektoratet vil gå grundig

gjennom våre analyser og redegjørelser i dette svaret før vedtak fattes.

1 – Miljømessige påvirkning

NLFs eget strategidokument slår fast at forbundet skal planlegge og gjennomføre

luftsportsaktivitetene med minst mulig negativ virkning på miljøet, og at man skal ta omgivelsene på

alvor i miljøspørsmål. Dette innebærer at NLF generelt sett er positive til tiltak som kan bidra til å

redusere klimagassutslipp, både innenfor egen aktivitet og for luftfarten for øvrig.

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At luftfarten bidrar til klimagassutslipp er hevet over tvil. Nøyaktig hvor mye, på hvilken måte og med

hvilken vekstrate, er derimot mer omstridt. NLF legger til grunn at utslippene som er knyttet til

nordmenns flyreiser (både nasjonalt og internasjonalt) kan utgjøre om lag 7,5 prosent av nasjonens

samlede CO2-utslipp, basert på en studie fra 20051.

Det at en del av utslippene skjer i stor høyde istedenfor på bakkenivå innebærer at de direkte

utslippene fra luftfarten angitt i CO2-ekvivalenter må multipliseres med en forsterkningsfaktor.

Studien fra 2005 opererer med en gjennomsnittlig faktor på 1,3 for innenlandstrafikk og 2,0 for

utlandstrafikk. For NLFs egne aktiviteter vil en forsterkingsfaktor neppe komme på tale, siden det

utelukkende flys i lavere høyder med fly uten trykkabin, og siden aktiviteten ikke skaper cirrusskyer.

Luftfarten har imidlertid en rekke egenskaper som balanserer bildet med tanke på klimagassutslipp, så

vel som andre miljøpåvirkninger.

a) Luftfarten fordrer vesentlig mindre infrastruktur enn bakkebasert transport, noe som gir

betydelig færre inngrep i natur og nærmiljø, samtidig som man eliminerer vei-/baneslitasje.

b) Infrastrukturens begrensede omfang gir en betydelige reduksjon i klimgassautslipp,

sammenliknet med om tilsvarende infrastruktur skulle vært bygget for bakkebasert transport.

Her må man ta i betraktning CO2-utslipp fra produksjon av bygningsmaterialer så vel som

utslippene knyttet til tunnelboring, bygging av vei-/banelegemer mv. Asplan Viak har på

oppdrag fra Jernbaneverket gjort beregninger for bygging av høyhastighetsbaner i Norge2. Av

Asplan Viaks studie framkommer det at det vil ta hele 60 år å ”nedbetale CO2-gjelden” fra

byggingen av en høyhastighetsbane Oslo–Trondheim. I et slikt tidsperspektiv er det realistisk

at luftfarten er gjennomelektrifisert.

c) Luftfart kan skje med langt kortere transportstrekninger enn annen transport, siden direkte

ruteføringer i en helt annen grad er mulig. Modernisering av innflygingssystemene som nå er i

gang, vil gjøre denne fordelen enda mer betydelig enn tidligere. Dette gir igjen mindre utslipp

av klimagasser pr oppdragskilometer enn annen transport, når andre faktorer holdes

konstant.

Når miljøavgiftspolitikken utmeisles, må denne typen effekter tas i betraktning. Det å se blindt på

utslipp fra framdriftsmotorer i f eks fly og biler, gir ikke et realistisk bilde av helheten.

2 – Framtidig karbonnøytral luftfart

Luftfart omtales ofte i det offentlige ordskiftet som en ”klimaversting”, noe som bidrar til å underbygge

påstanden om at ”nordmenn må fly mindre”. Etter NLFs oppfatning er dette en svært éndimensjonal

framstilling av virkeligheten. For det første har luftfarten betydelige miljømessige fordeler, ref ovenfor,

og for det andre er det viktig å ha i bakhodet at stempelet som en betydelig forurenser ikke reflekterer

realistiske framtidsscenarier. Det burde for øvrig være politikkens mål å redusere det samlede

1 “Utslipp av klimagasser fra flytrafikk”, Arvesen og Hertwig, NTNU Trondheim, 2007. 2 “A Methodology for Environmental Assessment – Norwegian High Speed Railway Project Phase 2”, Svanå et al, Sandvika, 2011.

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utslippet pr innbygger til et bærekraftig nivå, snarere enn å peke på én forurensende aktivitet som bør

reduseres framfor en annen (innbyggerne bør selv kunne velge mellom f eks kjøtt eller flyreiser, så

lenge de betaler for sine egne utslipp uansett valg).

Det er NLFs påstand at luftfarten innen noen årtier vil bli den mest miljøgunstige av

samtlige transportformer. Store forskningsmiljøer jobber intenst med elektrifisering av luftfarten.

I skrivende stund finnes allerede elektriske småfly for treningsformål. Innenfor en kort tidshorisont på

to til fem år vil småfly for mer omfattende allmennflyoperasjoner være tilgjengelige på markedet

gjennom Airbus’ satsing på E-Fan-konseptet3. Rekkevidden vil være på linje med siste generasjons

Tesla-elbil, og Airbus har med sitt datterselskap Voltair etablert en egen fabrikk for produksjon av elfly

i Pau, Frankrike.

Allerede i 2030 mener forskningssamarbeidet Bauhaus Luftfahrt i Tyskland at deres konseptstudie Ce-

Liner vil kunne være på vingene. Dette er et hel-elektrisk passasjerfly med 190 seter og en rekkevidde

på 600 nautiske mil (som strekningen Oslo–Tromsø)4. I 2040 vil rekkevidden kunne være hele 1400

nautiske mil (som strekningen Oslo–Barcelona).

På kortere sikt – allerede i løpet av få uker inneværende år – vil blant annet SAS og Lufthansa ta i

bruk biologisk jetdrivstoff levert på Oslo lufthavn Gardermoen som ledd i Avinors, AirBPs og

flyselskapenes biologiske drivstoffsatsing. Dette drivstoffet har et vesentlig mindre karbonavtrykk enn

fossilt jetdrivstoff, og framtidig utvikling av algebasert biojetfuel kan redusere karbonavtrykket

ytterligere.

Etter NLFs oppfatning er det avgjørende at avgiftssystemene i Norge:

• differensierer etter hvilken drivstofftype som benyttes (fossil eller

fornybar/karbonnøytral)

• bidrar til en styrking av teknologisk utvikling for karbonnøytral luftfart

• bidrar til akselerert implementering av karbonnøytral luftfart i Norge

Avgiftssystemet bør etter NLFs syn være insentivbasert for å kick-starte elektrifisering og innføring av

biologisk drivstoff, slik Norge med stort hell har fått til på elbilfronten.

3 – Dagens miljøavgifter

NLF forstår det slik at det er tverrpolitisk enighet i Norge om at ”forurenser skal betale”. Gitt dette

som premiss, er det vesentlig at avgiftene designes og innrettes med dette for øyet, og ikke som følge

av sideordnede hensyn (eksempelvis rene fiskale begrunnelser). Dersom luftfartsavgiftene derimot

designes på basis av rent fiskale behov, vil to vesentlige ulemper inntreffe: Det vil undergrave

legitimiteten til miljøpolitikken (herunder senke oppslutningen i befolkningen om nødvendige og

rasjonelt baserte miljøavgifter), og det vil ramme luftfarten på utilbørlig vis.

3 http://www.airbusgroup.com/int/en/innovation-citizenship/airbus-e-fan-the-future-of-electric-aircraft.html 4 http://www.bauhaus-luftfahrt.net/presse-medien/ila-2012/08-der-ce-liner/BHL_ILA2012_08_Ce-Liner.pdf

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Forskning på miljøavgifter5 viser klart at prinsippet om at ”forurenser skal betale” har en rekke

fordeler framfor et system hvor visse forurensere får avgiftsfritak. Dagens norske avgiftspolitikk er

utformet som lag på lag med miljøavgifter, hvor visse sektorer fritas for avgift for helt åpenbare

utslipp, noe som er lite samfunnsøkonomisk og miljømessig hensiktsmessig. Flere har tatt til orde for

en opprydding i avgiftssystemet, herunder Bruvoll og Dalen i en artikkel fra 2008:

En opprydding av virkemiddelbruken innebærer like avgifter for utslipp av klimagasser og

andre miljøutslipp for alle forurensere, og at fiskale elektrisitets- og fyringsoljeavgifter kun

legges på sluttforbruket og, igjen, er lik for alle. Etter prinsippet om at forurenser betaler,

skal utslippene betales for gjennom avgifter eller kjøp av utslippsrettigheter.

NLF viser også til ICAO (FNs luftfartsorganisasjon) som har en uttalt holdning til avgifter i luftfarten:

Avgiftene skal ikke ha et fiskalt formål, de skal være direkte knyttet til miljøkostnad og de skal ikke

diskriminere luftfart sammenliknet med andre transportformer.6

Ser vi på avgiftssystemet i Norge og internasjonalt – både pr i dag og etter en eventuell innføring av

den foreslåtte flyseteavgiften – ser vi at disse klart definerte, forskningsmessig anbefalte og

internasjonalt vedtatte målene ikke er oppnådd. Som Toll- og avgiftsdirektoratet peker på i sitt

høringsbrev, har luftfart med fossilt drivstoff i grove trekk følgende miljøavgifter pr nå:

– Internasjonalt luftfart: Ingen avgifter

– Europeisk luftfart (intra EØS): Indirekte avgiftsbelastning gjennom EU-ETS-kvotesystemet.

– Innenriks luftfart: CO2-avgift for drivstoff, NOx-avgift for motorer med stor effekt og

svovelavgift for svovelholdig mineralolje. Visse sektorer er fritatt for visse av avgiftene. I tillegg

kommer den indirekte avgiftsbelastningen gjennom EU-ETS-kvotesystemet.

Videre: Etter det NLF erfarer, er ingen av inntektene fra miljøavgiftene øremerket tiltak som

kompenserer for skadene på miljøet, i strid med det ICAO anbefaler for internasjonal luftfart og som

det ville vært naturlig at Norge appliserte for innenlands luftfart.

4 – Prinsipper for optimalisering av miljøavgifter

Det finnes som kjent tre hovedtyper av miljøavgiftsregimer: Kvotesystemer (TEP – tradable emission

permits) som EU-ETS, miljøskatter/miljøavgifter (environmental taxes) som dagens CO2-avgift for

jetdrivstoff og flybensin, samt fleksible miljøavgifter (FEF – flexible emission fees)7. Hvert system har

sine styrker og svakheter, men for luftfarten som i seg selv er like grenseoverskridende som utslippene,

har gjerne kvotesystemer blitt ansett som mest relevante.

I de tilfellene kvotesystemene enten mangler (som i internasjonal luftfart) eller er utilstrekkelig til å

oppnå et visst resultat (som i europeisk luftfart med dagens EU-ETS), kan nasjonalstatene under visse

forutsetninger velge å innføre enten tradisjonelle eller fleksible miljøavgifter. Fleksible avgifter har

5 “Lag på lag i norsk klima- og energipolitikk”, Bruvoll og Dalen, Økonomiske analyser 5/2008. 6 ICAO Council Resolution, 1996 7 “Two approaches to pricing pollution”, Christina van Breugel, Mattias Enggaard, Jes Erik Jessen, Ulrika Stavlo ̈t, Christopher Sköld og Elina Berghäll, Nordisk ministerråd, København, 2014.

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vært lite utprøvd, men de kan vise seg som svært effektive for luftfart, siden de raskt kan tilpasse seg

markeds- og teknologiendringer.

I denne delen av gjennomgangen tar vi utgangspunkt i tradisjonelle (faste) miljøavgifter, skjønt både

fleksible miljøavgifter og kvoter kan være bedre verktøy for luftfart. Skal man likevel optimalisere slike

faste miljøavgifter, vil første punkt være å slå fast hvilken miljøkostnad utslippene har. Disse er

selvsagt svært krevende å estimere, men basert på den amerikanske regjeringens anslag fra 2015 over

utslippenes kostnader for samfunnet, kan de dreie seg om i størrelsesorden USD 36 pr metriske tonn

CO2-utslipp på bakkenivå8 (NOK 318). En sammenstilling fra ”Update of the Handbook on External

Costs of Transport, Annex E” viser et tilsvarende mediantall for 22 ulike studier på området, nærmere

bestemt EUR 32 pr tonn (NOK 309)9. Beregningene benytter en skadekostnadstilnærming, dvs at man

priser skaden som påføres miljøet dersom utslippet ikke fjernes. Anslaget vil måtte revideres jevnlig

etter hvert som ny kunnskap innhentes, men uansett størrelse, kan prinsippene for avgiftspolitikken

følge den samme røde tråden.

I parentes bemerket er forskningsestimater for marginal begrensningskostnad (”marginal abatement

cost”) – det vil si kostnad for å kompensere for marginale utslipp gjennom miljøtiltak – typisk satt

høyere enn miljøskadekostnad, skjønt det hefter stor usikkerhet ved begge typer estimater. Tall i

størrelsesorden 80–90 euro pr tonn er vanlig i estimater for marginal begrensningskostnad.10 Dette

utgjør om lag 0,015 euro (14 øre) pr personkilometer i gjennomsnitt for all kommersiell luftfart. Den

marginale begrensningskostnaden kan imidlertid ikke brukes som basis for tradisjonelle

drivstoffavgifter, siden det kun er de ”siste” og ikke de ”første” literne med drivstoff som utløser

marginale tiltakskostnader. Etter hvert som de rimeligste miljøtiltakene er ”brukt opp”, er det tenkelig

at de marginale tiltakene blir stadig dyrere. På den annen side kan ny teknologi som vi ikke kjenner i

dag, redusere reduksjonskostnaden. Derfor vil marginalkostnaden hele tiden være et mål i bevegelse. I

et system med faste drivstoffavgifter tar vi derfor utgangspunkt i miljøskadekostnad.

Så snart miljøkostnaden med utslipp pr CO2-ekvivalent er fastslått, må det utvikles et avgiftssystem

som baseres på faktiske utslipp fra en gitt lufttransporttjeneste. Forbruk av fossilt drivstoff er den klart

mest opplagte beregningsbasisen, siden det uten mobil karbonfangstteknologi gir en direkte

indikasjon på utslippenes størrelse.

For luftfartens del må det som nevnt legges inn en faktor som kompenserer for forsterkingseffekten

som skyldes utslipp i stor høyde. Forsterkingseffekten er størst der man flyr høyt, lenge

(langdistansetrafikk). Av rent praktiske grunner kan det trolig være nødvendig å benytte en

sjablongmessig faktor for luftfarten totalt. En faktor på 1,8 er ansett som et mulig gjennomsnitt for

innenlands og utenlands luftfart på kort og lang distanse.11

Luftfartsavgiftene bør videre sees som del av en helhetlig avgiftsomlegging, der prinsippet om at alle

klimagassforurensere skal betale rendyrkes. Det betyr eksempelvis at klimagassutslipp i forbindelse

med utbygging av bakkebasert infrastruktur – herunder produksjon av materialer – avgiftsbelegges 8 “European Union ETS Update: Aviation Emissions Making Headlines Ahead of Another Important Political Crossroads”, Jordan R. Labkon, The National Law Review, 2015. 9 ”Update of the Handbook on External Costs of Transport” (Appendix E), Report for the European Commission: DG MOVE, Ricardo-AEA/R/ED57769, 2014. 10 ”Update of the Handbook on External Costs of Transport” (Table 38), Report for the European Commission: DG MOVE, Ricardo-AEA/R/ED57769, 2014. 11 “Lag på lag i norsk klima- og energipolitikk”, Bruvoll og Dalen, Økonomiske analyser 5/2008.

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etter beregnet samfunnsmessig skadekostnad. Slik unngår man at luftfarten blir belastet for hvert

gram med utsluppet CO2, mens andre aktiviteter og konkurrerende transportformer forskånes fra

avgifter, helt eller delvis.

Det mest krevende elementet knyttet til det å optimalisere miljøavgiftssystemet for luftfart er at Norge

er bundet av europeiske og internasjonale avtaler som setter rammen for avgiftspolitikken. På

europeisk plan er EU-ETS-kvotesystemet rammen for avgiftsbelegningen. EU har besluttet å utvide

EU-ETS til internasjonal luftfart, men på bakgrunn av stor internasjonal motstand mot EUs plan, har

EU gått med på å skyve på innfasingen av EU-ETS til ICAO presumptivt fatter vedtak om en global

MBM-strategi (GMBM – global market based mechanism) i år. MBM skal opp på ICAO Assembly til

høsten, og det er en forventning om et vedtak som innfører en MBM fra 2020. ICAO har imidlertid

hatt store problemer med å levere på dette området hittil, blant annet pga interessemotsetningene

mellom industrialiserte land og land som står foran stor utvikling. EU kan komme til å innføre EU-

ETS for internasjonal luftfart, dersom ICAO ikke nå konkluderer etter flere års forsinkelse.

En utfordring med EU-ETS er at det europeiske kvotemarkedet flommer over av kvoter.

Kvotesystemet reduserer følgelig ikke utslippene så mye som Paris-avtalen av 12. desember 2015 om

reduksjon av jordens samlede utslipp forutsetter, for å nå målet om maksimalt 1,5 til 2,0 graders

oppvarming. Siden kvotene finnes i overflod og omsettes for mellom 50 og 80 kroner pr tonn, samtidig

som den samfunnsmessige kostnaden for utslipp er anslått til ovennevnte 318 kroner, er det rimeligere

for dem som har utslipp å kjøpe kvoter enn om de faktisk skulle betale for skadene for sine reelle

utslipp.

I lys av dette er det i utgangspunktet ikke urimelig at norske myndigheter – der de har mulighet til det

etter internasjonale avtaler – innfører avgifter som eksempelvis dekker differansen mellom

kvoteprisen og den stipulerte samfunnsmessige kostnaden for utslipp. Avgiftssystemet må imidlertid

være tilstrekkelig elastisk og dynamisk til at luftfarten ikke betaler to ganger for samme utslipp. Og –

systemet må opprettholde prinsippet om at forurenseren betaler.

Chicago-konvensjonen forbyr Norge å innføre drivstoffavgifter for utlandsflyginger.12 Det mest

relevante virkemiddelet Norge kan bruke for karbonutslippsavgift er følgelig utelukket – og det på de

flygningene som er lengst og som gir størst utslipp! Det er å håpe at ICAO Assembly 2016 konkluderer

om en internasjonal bærekraftig GMBM-modell som eliminerer problemet. I motsatt fall vil EU-ETS

kunne dekke deler av utslippskostnadene (både nasjonalt, europeisk og eventuelt internasjonalt), men

så lenge kvotene er så rimelige som de er, vil det fortsatt være et stykke igjen til at ”forurenseren

betaler” for alle flygninger utenfor Norge.

Siden drivstoffavgifter er utelukket for internasjonale flygninger – og siden EU-ETS ikke fullt ut

dekker miljøkostnadene pr i dag13 – kan man se det som besnærende å tenke seg at man går bakveien

via en flyseteavgift, noe denne høringen tar utgangspunkt i. NLF vil imidlertid advare sterkt mot en

énsidig norsk avgift (som også skal gjelde internasjonale flyvninger), blant annet fordi et slikt tiltak

12 Chicago Convention on International Civil Aviation, artikkel 15 og 24 a). Ref uttalelse fra ICAO Assembly. 13 “Two approaches to pricing pollution”, Christina van Breugel, Mattias Enggaard, Jes Erik Jessen, Ulrika Stavlo ̈t, Christopher Sköld og Elina Berghäll, Nordisk ministerråd, København, 2014.

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erfaringsmessig fører med seg at lufttrafikk flyttes fra norske til utenlandske lufthavner, noe vi ser fra

nederlandsk innføring av en slik avgift:

The tax has stimulated some Dutch travellers to make use of airports situated in Belgium and

Germany to avoid the tax, resulting in more CO2 emitted by ground transport. The tax is not

transparent and the revenues gained are not reinvested in the industry and so it is not

compatible with ICAO’s cited objectives in respect of emissions charging mechanisms. 14

Risikoen er at eksempelvis Oslo lufthavn Gardermoen som i dag i økende grad har blitt en attraktiv

hub for reisende som har Oslo som transittstopp blir mindre attraktiv pga flyseteavgiften, med det til

følge at det blir færre direkteruter fra Norge til fordel for konkurrerende navflyplasser. Forsøket på å

løse dette problemet ved å unnta transitt- og transferpassasjerer for flyseteavgift, ref utkastets § 3-22-

5, vil ikke kompensere tilstrekkelig, da det:

a) kun omfatter gjennomgående billetter, noe som i seg selv favoriserer ett businesskonsept for

flyselskaper kontra et annet og således også vil virke konkurransevridende

b) ikke demmer opp for lekkasje til utenlandske lufthavner der bakketransport fra Norge til den

utenlandske lufthavnen er en reell mulighet

For internasjonale flygninger må derfor internasjonalt samarbeid og norsk påvirkning til at det

europeiske kvotesystemet forbedres stå i fokus, istedenfor ensidige norske avgifter.

5 – Hva betaler luftfarten i dag i forhold til hva den skulle ha betalt?

Forbrenning av jetdrivstoff og flybensin gir i hovedsak følgende klimagasser: Karbondioksid, metan og

di-nitrogenoksid. Klimagassene summeres som CO2-ekvivalenter basert på ulike faktorer, der CO2 har

faktor 1.

CO2-ekvivalenter pr liter drivstoff15:

CO2 (faktor: 1) CH4 (faktor 25) N20 (faktor 298) Sum CO2-ekvivalenter

Jetdrivstoff 2,54 kg16 0,02 g –> 0,0005 kg 0,08 g –> 0,023 kg 2,56 kg

Flybensin 2,20 kg17 0,81 g –> 0,020 kg 0,26 g –> 0,077 kg 2,30 kg

Innenriks luftfart betaler i dag 1,0818 kroner i CO2-avgift pr liter jetdrivstoff. Én liter jetdrivstoff gir i

henhold til ovenstående tabell et utslipp på 2,56 kg CO2–ekvivalenter.

Korrigert for en forsterkingseffekt på 1,3 for innenriks fart19, blir tallet 3,33 kg. Pr tonn effektivt CO2-

utslipp er dette en kostnad på 324 kroner. I tillegg betaler luftfarten gjennom EU-ETS-systemet

14 “Fuel and air transport – A report for the European Commission”, Air Transport Department, Cranfield University, 2005. 15 ”Update of the Handbook on External Costs of Transport”, Report for the European Commission: DG MOVE, Ricardo-AEA/R/ED57769, 2014 16 https://www.eia.gov/environment/emissions/co2_vol_mass.cfm 17 https://www.eia.gov/environment/emissions/co2_vol_mass.cfm 18 https://lovdata.no/dokument/STV/forskrift/2015-12-14-1570/KAPITTEL_6

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mellom 50 og 80 kroner pr tonn CO2. For innenriks luftfart betales det altså mellom 374 og 404 kroner

for en miljøskade som den amerikanske regjeringen anslår til 318 kroner pr tonn. Dersom anslagene er

korrekt, både med tanke på miljøskade og forsterkningseffekt, overbetaler allerede innenriks luftfart

for sine skader. Gitt usikkerheten i tallene, kan man likevel si at innenriks luftfart i grove trekk dekker

sine miljøkostnader. Å avkreve en flyseteavgift på toppen av dette, innebærer da en ren fiskal

belastning for en transportform som allerede betaler sine kostnader. For flygninger som skjer med

biodrivstoff – eller med elektriske fly i framtiden – vil flyseteavgiften være en økonomisk straff for

utslipp som ikke finnes.

For allmennflyging med flybensin – det mest relevante operative scenariet for våre medlemmer i

øyeblikket – er forholdet slik: All allmennflyging, uansett innenriks eller utenriks fart, betaler 97 øre i

CO2-avgift pr liter flybensin. Én liter flybensin (avgas 100LL) gir klimagassutslipp tilsvarende 2,3 kg

CO2-ekvivalenter.20 Korrigering for forsterkingseffekt er mest sannsynlig irrelevant på grunn av

operasjoner i svært lav høyde og ingen cirrusgenererende effekt. Allmennflyging betaler ikke for

utslipp gjennom EU-ETS-systemet, men likevel blir prisen pr tonn CO2-utslipp 421 kroner – altså godt

over ”skadeprisen” på 318 kroner pr tonn. Toll- og avgiftsdirektoratet foreslår da heller ikke en

flyseteavgift for allmennflyging, noe som bare skulle mangle gitt at det overbetales allerede pr i dag

etter det vi kan se av foreliggende tall.

For utenriksfart innenfor Europa, er forholdet annerledes: Én liter jetdrivstoff gir som nevnt

klimagassutslipp på 2,56 kg CO2–ekvivalenter21. Forsterkingseffekt for utenriksfart er anslått til 2,022,

som gir et effektivt utslippsnivå på 5,12 kg pr liter. På bakgrunn av bestemmelsene i Chicago-

konvensjonen, kan det imidlertid ikke legges drivstoffavgift for slike flygninger. Det betales kun

indirekte gjennom EU-ETS-systemet, følgelig bare et sted mellom 50 og 80 kroner pr tonn CO2. Én

liter fossilt jetdrivstoff i utenriksfart skulle ha hatt en avgift på 1,63 kroner for å dekke sine

miljøkostnader (sett bort fra kreditt for det som betales gjennom kvoter), men indirekte betales det

altså kun mellom 13 og 20 øre. Underbetalingen er i størrelsesorden 1,40–1,50 kroner pr liter.

For utenriksfart utenfor Europa – hvor det heller ikke betales gjennom EU-ETS-systemet i øyeblikket

– er underbetalingen lik kostnaden for miljøskaden, dvs 1,63 kroner pr liter.

6 – Hvordan rette opp i skjevhetene?

Dersom Norge skal følge forskningsanbefalinger og ICAO-retningslinjer samt egen uttalt politikk om

at ”forurenser betaler”, må det gjøre endringer i avgiftssystemet. Status quo oppsummert:

a) Innenriks luftfart med fossilt jetdrivstoff har trolig et noe for høyt avgiftsnivå pr i dag

b) Innenriks luftfart med biodrivstoff er i dag unntatt CO2-avgifter og kvoter, slik det bør være

c) Allmennflyging med fossil flybensin betaler høyst sannsynlig for høye avgifter pr i dag

d) Utenriks luftfart med fossilt jetdrivstoff innenfor Europa betaler for lave avgifter pr i dag

19 Utslipp av klimagasser fra flytrafikk”, Arvesen og Hertwig, NTNU Trondheim, 2007. 20 https://www.eia.gov/environment/emissions/co2_vol_mass.cfm 21 https://www.eia.gov/environment/emissions/co2_vol_mass.cfm 22 Utslipp av klimagasser fra flytrafikk”, Arvesen og Hertwig, NTNU Trondheim, 2007.

9

e) Utenriks luftfart med biodrivstoff innenfor Europa er i dag unntatt CO2-avgifter og kvoter, slik

det bør være

f) Utenriks luftfart med fossilt jetdrivstoff utenfor Europa betaler ingen CO2-avgifter i dag

For å rette opp dette, blir det meningsløst å innføre en flyseteavgift som rammer samtlige flyginger

(dog unntatt allmennflyging), enten de underbetaler pr i dag eller ikke, enten de går langt eller kort

eller enten de bruker karbonnøytralt drivstoff eller ikke.

NLF foreslår isteden følgende strategi:

1. CO2-avgiften for fossilt jetdrivstoff (innenriks) beholdes inntil videre på dagens nivå, men den

bør revideres etter hvert som kvotepris eller kvotemodell endres. En årlig regulering basert på

gjennomsnittlig samlet kvotepris foregående år kan være en aktuell strategi for og ned-

/oppjustere CO2-avgiften i takt med kvoteprisen, slik at innenriks luftfarten ikke ender opp

med dobbeltbetaling for utslipp. Det bør også gjennomføres regelmessige revisjoner av

kostnadsanslag for samfunnskostnader for karbonutslipp, ref også pkt 7 nedenfor.

2. Dersom flygninger med biojetdrivstoff vil rammes av framtidige kvotekostnader (EU-ETS eller

ICAOs GMBM) – og der disse overstiger kostnader for eventuelle utslippsskader med aktuell

variant av drivstoff – bør det vurderes å innføre en negativ "avgiftssats" (subsidiering).

Dermed vil man kunne kompensere for utilsiktede effekter av at kvotesystemene ikke

nødvendigvis blir tilstrekkelig finmaskede.

3. CO2-avgift for fossil flybensin (avgas 100LL/UL91) bør reduseres for å reflektere

utslippskostnad. Avgiften bør reguleres årlig etter samme prinsipper som for fossilt

jetdrivstoff, ref også pkt 7 nedenfor.

4. Norge må jobbe aktivt som EØS-medlem overfor EU for å påvirke kvotesystemet (inndragning

av kvoter eller andre virkemidler), slik at EU-ETS gir det nødvendige bidraget til Paris-

avtalens klimamål. Ikke minst bør alle forurensere som i dag er utenfor kvotesystemet, trekkes

inn i det – alternativt må et FEF-system som beskrevet i pkt 7 nedenfor settes i verk.

5. Norge må jobbe aktivt som ICAO-tilsluttet stat for å bidra til at et effektivt GMBM-system

settes i verk snarest mulig.

6. I en mellomperiode der pkt 4 og 5 ikke ennå er iverksatt eller gitt nødvendig effekt, kan Norge

vurdere egne tilleggstiltak – men bare dersom de:

a. ikke rammer flygninger som allerede betaler for høy avgift

b. ikke bryter Norges internasjonale forpliktelser gjennom ICAO-samarbeidet, bilaterale

avtaler, EØS-avtalen mv.

c. reflekterer faktisk utslippsnivå gjennom at drivstofftype, drivstofforbruk og flygingens

lengde er beregningsparametere

d. er nøye konsekvensutredet

7. Norge bør bidra aktivt i den internasjonale forskningen og debatten rundt miljøavgifter. Det

bør utredes om luftfarten nasjonalt og internasjonalt kan være en kandidat for en ”flexible

10

emission fee” (FEF): En slik mekanisme kan være bedre egnet til å fange opp kombinasjonen

av et internasjonalt/overstatlig hovedmål og nasjonale gjennomføringsmetoder enn

kombinasjonen med tradisjonelle nasjonale miljøavgifter og overstatlige kvotesystemer. Vi

viser her til rapporten ”Two approaches to pricing pollution”,23 utgitt av Nordisk ministerråds

”Working Group for Sustainable Consumption and Production” i 2014, som beskriver

mekanismen slik:

The main focus of the Flexible Fee Mechanism is the levying of a fee at the point where a

pollution-inducing product enters the economy. The fee is then raised sufficiently (and

sufficiently often) to effectively stimulate the transformation of the economy in a

sustainable direction. At the same time, the revenue from the fee is directed back into the

economy to stimulate alternatives, demand and employment. (…)

The novelties of flexible emission fees include very frequent adjustments of fee, an

independent expert group with operational freedom to manage the mechanism and the

introduction of sufficient volatility in order to produce a new stable equilibrium (via

futures markets). In addition, the price on pollution is only indirect as the flexible

emission fee is meant to reflect marginal abatement costs, which is contrary to the

predominant approach of setting the emission price equal to environmental damage

costs.

8. Alle CO2-avgifter som Norge bringer inn fra luftfarten – uansett om de bygger på kvoter,

tradisjonelle eller fleksible avgifter – bør enten øremerkes til klimatiltak med dokumentert

effekt eller brukes til å påskynde utviklingen av karbonnøytral luftfart gjennom forskning og

utvikling.

En slik re-investering i luftfarten er ikke bare i tråd med ICAOs mål, det bidrar også til økt

effektivitet for sektorer der det i øyeblikket ikke investeres tilstrekkelig i teknologi som kan

begrense utslippene:

(…) the revenue repayment will increase the efficiency of the mechanism if it is

redistributed to, e.g., research that will reduce abatement costs in cases where

underinvestment in abatement technologies exists due to market failure. This is not the

result if revenue is repaid to the public or other purposes. 24

Luftfarten er i en særstilling når det gjelder denne typen underinvestering, blant annet fordi

særdeles tunge, tidkrevende og kostbare sertifiseringsprosedyrer gjør at det tar særdeles lang

tid for investorer å få avkastning på sine investeringer i ny teknologi. En re-investering i

luftfartsteknologi kan både bøte på dette og bidra til at Norge får et nytt høyteknologisk

satsingsområde.

23 “Two approaches to pricing pollution”, Christina van Breugel, Mattias Enggaard, Jes Erik Jessen, Ulrika Stavlo ̈t, Christopher Sköld og Elina Berghäll, Nordisk ministerråd, København, 2014. 24 “Two approaches to pricing pollution”, Christina van Breugel, Mattias Enggaard, Jes Erik Jessen, Ulrika Stavlo ̈t, Christopher Sköld og Elina Berghäll, Nordisk ministerråd, København, 2014.

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7 – Konsekvenser dersom høringsforslaget vedtas

Dersom høringsforslaget vedtas uten endringer, vil det innebære en rekke negative konsekvenser for

luftfarten, allmennflygingen og Norge som sådan. Vi antar at høringssvar fra andre aktører belyser

disse i detalj, men vi vil særlig peke på følgende:

• Avgiften slår hardest ut for lavprissegmentet, siden avgiftens andel av total billettpris her vil

være uforholdsmessig stor. Lufthavner som primært trafikkeres av lavprisselskaper, vil derfor

være særlig utsatt. Moss lufthavn Rygge har vært framhevet i det offentlige ordskiftet, og

lufthavnen har allerede kunngjort stengning fra 1. november 2016, dersom avgiften innføres.

At dette er en reell situasjon og ikke bare en tom trussel, er hevet over tvil. NLF viser i den

sammenhengen til BDOs rapport på oppdrag fra Samferdselsdepartementet sommeren

201425, som konkluderer med at lufthavnens økonomi er så svak at konkursrisikoen er høy.

Når dette er bildet et uavhengig konsulentselskap tegner før flyseteavgiften var på tale, bør det

være åpenbart at selv relativt små forskyvninger i konkurransesituasjonen vil kunne bringe

lufthavnen over ende. Basert på Forsvarssjefens Fagmilitære råd som ble presentert høsten

2015, er det ikke gitt at rullebanen på Rygge opprettholdes ene og alene i militær regi. En

avvikling av den sivile lufthavna kan altså bety slutten på flyplassen som sådan.

• Moss lufthavn Rygge er av avgjørende betydning for norsk allmennflyging generelt og for

denne aktiviteten i hovedstadsregionen spesielt. NLF vil her peke på at småflyplassituasjonen

på Østlandet etter stengningen av Fornebu i 1998 ennå ikke er løst, og at det som er de facto

hovedsmåflyplass for Oslo (Kjeller) har en høyst usikker framtid. Dersom småflyaktiviteten på

Kjeller avvikles eller må reduseres, er det kun Rygge igjen med realistisk kjøreavstand til Oslo

som kan ta denne typen trafikk.

• Moss lufthavn Rygge er hovedtreningsarena for allmennflyging på Østlandet. Flyplassen

betjener en rekke flyskoler, herunder Norges største flyskoler på Kjeller og Torp, med tanke på

landingstrening. Rygge er også hjem for to egne flyklubber med skolevirksomhet. Dersom

Rygge forsvinner, vil det både operativt og flysikkerhetsmessig slå særdeles uheldig ut.

• Også en rekke distriktsflyplasser kan rammes hardt av flyseteavgiften. Båtsfjord er en av

dem.26 Flyplasser som trafikkeres av FOT-rutene vil riktignok ha en viss beskyttelse, siden

seteavgiften etter det vi forstår skal kompenseres gjennom innkjøpsprisen for flyrutene. En

rekke flyruter i distriktene trafikkeres imidlertid uten FOT-tilskudd, og dermed kan bunnen

falle ut av de magreste flyrutene. Det er svært uhelidg at de flygningene som skjer innenlands

og hvor passasjerene allerede betaler for sine utslipp avvikles, mens langdistanserutene blir

langt mindre berørt – til tross for at passasjerene på disse i mindre eller ingen grad betaler for

sine utslipp.

• Siden flyseteavgiften ikke differensierer mellom ulike drivstoff- og framdriftstyper (fossilt,

biologisk, elektrisk), gir den intet insentiv til luftfartsoperatørene til å velge miljøvennlige

framdriftssystemer. Den kan derfor være egnet til å redusere tempoet i den tekniske

utviklingen som på sikt kan gjøre luftfarten karbonnøytral. 25 “Oppsummeringsnotat: Finansiell analyse private lufthavner”, BDO for Samferdselsdepartementet, 2014 26 http://www.ifinnmark.no/batsfjord/flyseteavgiften/hans-jacob-bono/frykter-at-ny-avgift-kan-true-flyplasser/s/5-81-180695

12

• Siden avgiften ikke tar hensyn til hvor drivstofføkonomiske flyene er, gir den operatørene intet

ekstra insentiv til å velge drivstoffgjerrig materiell. Et slikt ekstra insentiv er særlig viktig i en

tid hvor olje- og drivstoffprisen er lav.

• Siden avgiften er den samme uansett flygningens lengde, rammer den kortdistanse hardere

enn langdistanse, til tross for at lange flygninger påvirker miljøet mest.

• Det blir uforholdsmessig dyrt å fly korte strekninger, noe som rammer både flyselskap og

lufthavner som betjener de korte strekningene mer enn de som betjener de lengre

strekningene. Dette går på tvers av norsk uttalt politikk om en spredt bosetning.

• Flyseteavgiften gjør norske lufthavner mindre konkurransedyktige for internasjonale

flygninger, til fordel for konkurrerende lufthavner i andre land. Det kan i sin tur innebære

lengre flygninger for norske passasjerer, med dertil økt utslipp og tap av inntekt og

arbeidsplasser i Norge som resultat.

8 – Konklusjon

NLF mener på bakgrunn av ovenstående at forslaget til flyseteavgift er dårlig miljøpolitikk og dårlig

luftfartspolitikk. I tillegg er tiltaket i særklasse dårlig timet, bare måneder før ICAO er forventet å

konkludere med sitt GMBM-system. Om ICAO ikke kommer i mål (og EU unnlater å ta internasjonale

flygninger utenfor EØS inn i EU-ETS-systemet), kan det være langt større grunner til å se på

særnorske løsninger – men da i lys av hva som gir en reell effekt på miljøet. Naturligvis må en grundig

faglig konsekvensutredning til – både fra et miljø- og luftfartsperspektiv – før en eventuell særnorsk

ordning innføres.

NLF imøteser at disse innspillene blir vurdert i den videre prosessen og håper vi blir inkludert i

dialogen.

Med vennlig hilsen,

John Eirik Laupsa

Generalsekretær

Vedlegg: 1. Oppsummeringsnotat: Finansiell analyse private lufthavner, BDO for

Samferdselsdepartementet, 2014

2. Two approaches to pricing pollution, Christina van Breugel, Mattias Enggaard, Jes

Erik Jessen, Ulrika Stavlo ̈t, Christopher Sköld og Elina Berghäll, Nordisk ministerråd,

København, 2014

Oppsummeringsnotat Finansiell analyse private lufthavner

Oslo, 6. juni 2014

Rapporten er utarbeidet for oppdragsgiver, og dekker kun de formål som med denne er

avtalt. All annen bruk og distribusjon skjer for oppdragsgivers regning og risiko. BDO vil

ikke kunne gjøres ansvarlig overfor en tredjepart.

Notat Finansiell analyse private lufthavner

Side 2 av 10

Innholdsfortegnelse 1. Innledning og mandat ................................................................................... 3 2. Lønnsomhet og resultater .............................................................................. 4

2.1. Selskapene har forbedret resultatene over de siste år. .................................... 4 2.2. Kontantstrøm fra driftsiden har forbedret seg over siste 3 år............................. 5

3. Balanse og soliditet ...................................................................................... 6 3.1. Selskapene har varierende soliditet ............................................................ 6 3.2. Selskapenes balanse viser at Rygge har foretatt større investeringer enn Torp ....... 6

4. Øvrige forhold ............................................................................................. 8 4.1. Selskapenes avsetninger til dekning av krav fra Avinor er uklart ......................... 8 4.2. Selskapenes internhandel er lav ................................................................ 8 4.3. Eierforhold .......................................................................................... 9

5. Avsluttende kommentarer ............................................................................ 10


Side 3 av 10

1. Innledning og mandat Sandefjord Lufthavn AS (Torp) (SHL) og Rygge Sivile Lufthavn AS (Rygge)(RSL) er privateide selskap med konsesjon fra Samferdselsdepartementet for å anlegge, drive og eie Torp og Rygge lufthavn. Avinor leverer flysikringstjenester til Torp og Rygge flyplass. BDO har fått i oppdrag av Samferdselsdepartementet å gjennomføre en overordnet vurdering av de to selskapenes evne til å betale kostnadene knyttet til flysikringstjenesten. Dette notatet oppsummer kortfattet våre analyser og vurderinger, basert på en underliggende analyse. Oppdraget er utført av BDO sin rådgivingsavdeling og innebærer en overordnet gjennomgang og finansiell analyse av de private lufthavnene i Norge ved hhv. Torp og Rygge. Vårt arbeid er således å anse som et rådgivningsoppdrag der vi basert på det arbeidet som er gjort oppsummerer, utdyper og begrunner våre analyser og konklusjoner til oppdragsgiver som er Samferdselsdepartementet. Vårt arbeid og våre vurderinger bygger på foretakenes årsregnskap og annet kortfattet materialet som er stilt til vår disposisjon fra Torp og Rygge, og våre analyser er begrenset til denne informasjonen. I hovedsak dreier dette seg om foretakenes prognose for kommende to år. Vi har forsøkt å verifisere deler av informasjonen vi har mottatt, men dette er på ingen måte å anse som en ordinær revisjon eller en begrenset revisjon. Vårt arbeid er gjennomført innenfor en begrenset tidsramme og tidsperiode, og omfanget og fullstendigheten av analysene som er foretatt må ses i lys av dette. Vi kan ikke gå god for at alle relevante forhold er avdekket eller analysert. BDO finner det riktig å presisere at vi ikke kan påta oss ansvar for fullstendigheten eller riktigheten i det grunnlagsmaterialet som har vært utgangspunkt for våre vurderinger. BDO har ikke blitt gitt fullt innsyn i de finansielle forholdene hos de to selskapene. Vi har derfor vært nødt til å basere analysene på offentlig tilgjenglig informasjon, og den informasjon selskapene har vært villige til å dele med oss ved forespørsel Dette medfører at analyser og konklusjoner presenterte i vår rapport vil kunne være beheftet med vesentlig usikkerhet, og bygger tidvis på forutsetninger som vi ikke har kunnet avklare med selskapene. Oslo, 6.juni 2014 BDO AS

Frank Olstad Director


Side 4 av 10

2. Lønnsomhet og resultater 2.1. Selskapene har forbedret resultatene over de siste år.

Inntekter: En sammenligning av Sandefjord Lufthavn AS (SHL) og Rygge Sivile Lufthavn AS (RSL) viser at begge selskapene har hatt en god vekst i inntekter i perioden 2011 til 2013.

Tabell 1 - Inntekter i 1.000. Kilde: Selskapenes årsregnskap.

SLH har i denne perioden hatt en betydelig høyere inntekt per passasjerer, NOK 170 i 2013, enn RSL. RSLs inntjening per passasjerer har i den samme perioden økt kraftigere enn for SHL, men ligger fortsatt bak med NOK 153 i gjennomsnitt pr. passasjer i 2013.

Tabell 2 - Driftsmargin i %. Kilde: BDO beregninger basert på selskapenes årsregnskap.

SLH har hatt god lønnsomhet i hele perioden og budsjetterer med fortsatt god driftsmargin i årene som kommer. Fra SHL sine hjemmesider fremstår selskapet med et bredt inntektsgrunnlag med fem flyselskap som benytter Torp; KLM, Nextjet, Norwegian, Ryanair, Wizz Air og Widerøe. Ytterligere flyr 9 charterselskap fra Torp. RSLs lønnsomhet har blitt betydelig bedre i perioden 2010 – 2012, for deretter å svekkes noe i 2013. RSL forventer nedgang i omsetning og lønnsomhet de kommende årene, uten at dette er nærmere spesifisert fra selskapets side. Det rapporteres i ”Boarding.no”

1 at det er registrert en nedgang i antall passasjerer på 7,4 % i mars 2014 ved Rygge, grunnet at DAT (Danish Air Transport) har lagt ned sine innenriksruter til Bergen, Stavanger og Trondheim, samt at det var en nedgang i utenrikstrafikken på fem prosent. RSL fremstår fra hjemmesidene med et mindre antall flyselskap som benytter Rygge; Ryanair og Norwegian. I tillegg flyr 4 charterselskap fra Rygge. Det er ikke mulig å bryte selskapenes ytterligere ned på inntektssegmenter innen lufthavnstjenester basert på de offisielle regnskapene. Selskapene har i denne prosessen ikke ønsket å dele denne informasjonen med oss og ytterligere analyser har derfor ikke vært mulig. Kostnader:

Tabell 3 - Analyse av kostnadsstruktur drift. Kilde: BDO-beregninger baser på selskapenes årsregnskap.

Kostnadene i SLH og RSL er ikke helt sammenlignbare på detaljnivå da blant annet RSL kjøper tjenester som faktureres fra annet selskap, mens SHL har egne ansatte til produksjon av tilsvarende tjenester. På aggregert nivå utgjør SHLs driftskostnader (før avskrivninger) 75 % av inntektene, mens de i RSL utgjør 79 % i 2013.

1 http://www.boarding.no/art.asp?id=57359

Driftsinntekter 2010 2011 2012 2013

RYGGE SIVILE LUFTHAVN AS 185 777 230 994 261 368 288 944

SANDEFJORD LUFTHAVN AS 263 908 232 074 290 212 316 506

Driftsmargin 2010 2011 2012 2013

RYGGE SIVILE LUFTHAVN AS 12 % 19 % 25 % 21 %

SANDEFJORD LUFTHAVN AS 27 % 25 % 26 % 25 %

Komparativ analyse

(% av inntekter) RSL SHL RSL SHL RSL SHL RSL SHL

Lønnskost % 5 % 13 % 4 % 17 % 4 % 17 % 4 % 15 %

Andre driftskostnader % 83 % 60 % 77 % 58 % 71 % 57 % 76 % 59 %

Sum driftskostnader 88 % 73 % 81 % 75 % 75 % 74 % 79 % 75 %

20132010 2011 2012


Side 5 av 10

Tabell 4 - rentekostnader i 1.000. Driftsmargin i %. Kilde: Selskapenes årsregnskap.

En vesentlig forskjell mellom selskapenes kostnadsside er kapitalkostnadene. RSL har en betydelig høyere investering i eiendeler på nesten 803 millioner kroner, mot SLH 495 Mill kroner. Dette medfører en noe høyere avskrivingskostnad hos RSL, men forskjellen i mellom selskapene for den årlige avskrivingskostnaden er imidlertid ganske liten, kun ca. 1 mill kroner i året. Dette kan indikere at selskapene har en forskjellig tilnærming til vurdering av levetid på eiendelene. Alternativt kan investeringer i tomt medføre totalt sett lavere avskrivinger, da tomter ikke avskrives, men i følge RSL sine anleggsnoter har de ikke investert i tomt. Investeringene i eiendelene er i større grad gjeldsfinansiert hos RSL enn hos SHL, noe som medfører høyere finanskostnader i RSL. Det faktum at RSL har lavere inntekter i gjennomsnitt pr. passasjer, kombinert med høyere driftskostnader og kapitalkostnader enn SHL, medfører at RSL har mindre evne til å takle svingninger i markedet og økte kostnader. Til vår informasjon er også RSL i diskusjoner med Forsvaret/Forsvarsbygg vdr. overtagelse og kostnader når Forsvaret fullt ut avvikler sin drift på Rygge. Dette kan medføre endringer i kostnadsnivået for RSL.

2.2. Kontantstrøm fra driftsiden har forbedret seg over siste 3 år

Selskapenes kontantstrøm er en indikator på om selskapene er i stand til å generere likviditet fra driften til å kunne betale sine forpliktelser. I et regnskap vil det være kostnader som ikke medfører et direkte krav om betaling. Dette er typisk for avskrivinger som er en periodiseringseffekt i regnskapet.

Begge selskap viser en økning i kontantstrømmene fra driften i selskapene. Denne kontantstrømmen skal bl.a. benyttes til å dekke betalbare rentekostnader og avdrag på lånefinansiering.

Begge selskap viser evne til å generere positive kontantstrømmer til å kunne betale sine forpliktelser, men da vi ikke har informasjon om forfallsstruktur på lån kan det ikke trekkes noen endelig konklusjon. Men en svekkelse av RSL sitt resultat, enten ved fallende inntekter og/eller økende kostnader vil klart påvirke selskapets evne til å kunne håndtere forpliktelsene etter hvert som de forfaller ved at kontantstrømmen fra drift svekkes.

Finanskostnader 2010 2011 2012 2013



Kontantstrøm fra drift 2010 2011 2012 2013

RYGGE SIVILE LUFTHAVN AS (9 313) 20 897 30 976 48 112


Tabell 5 - Kontantstrøm i 1.000. Kilde: BDO-beregninger basert på selskapenes årsregnskap.


Side 6 av 10

3. Balanse og soliditet 3.1. Selskapene har varierende soliditet

Soliditet er innen økonomi et uttrykk for en bedrifts evne til å tåle tap. En bedrift med høy egenkapitalprosent, sies å ha god soliditet.

Bruk av lån til finansiering av eiendeler ansees å gi en økt risiko i form av at det må som hovedregel betales renter på lån uavhengig av selskapets resultat. Dette innebærer at det da foreligger en økt kostnad for selskapet.

Rygge Sivile Lufthavn AS har balanseførte eiendeler til NOKm 902 per 31.12.2013. Egenkapitalen til RSL ved samme tidspunkt var NOKm 151 og utgjør 17 % av totalkapitalen, dvs. en relativt lav egenkapitalandel. Langsiktig gjeld i selskapet beløp seg til NOKm 707. Av dette utgjør NOKm 250 ansvarlig lån fra eierne, og dersom man inkluderer det ansvarlige lånet som en del av egenkapitalandelen tilsvarer den 44 %.

Innhentet konkursvurdering fra eksternt analysebyrå indikerer en moderat konkursrisiko på mellom/langsiktig horisont basert på 2012 tall, men er på det laveste vurderingstrinnet før høy risiko.

Til sammenligning har SHL bokførte anleggsmidler til et beløp av NOKm 495 ved utgangen av 2013 og på samme tidspunkt var SHLs egenkapital NOKm 241 eller 43 % av totalkapitalen. Langsiktig gjeld i selskapet var 194 NOKM som er NOKm 506 lavere enn RSL.

Innhentet konkursvurdering fra eksternt analysebyrå indikerer en lav konkursrisiko på mellom/langsiktig horisont basert på 2012 tall.

Oppsummert innebærer dette at selskapenes soliditet isolert sett på siste rapporteringspunkt 31.12. 2013, er relativt like i egenkapitalandel, dersom ansvarlig lån hensyntas. Uten ansvarlig lån er RSL sin soliditet relativt lav.

3.2. Selskapenes balanse viser at Rygge har foretatt større investeringer enn Torp

Sandefjord Lufthavn AS (SHL)

Mesteparten av anleggsmidlene til SHL relaterer seg til driftsbygninger (NOKm 155), anlegg på terminalområdet (NOKm 78) og rullebane (NOKm 57). Ved utgangen av 2013 foreligger det i tillegg prosjekter i arbeid på NOKm 98, som relaterer seg til nytt terminalbygg som nå var ferdig i april 2014. Anlegg på terminalområde avskrives med 0 – 15 % per år, og avskrivningstiden på driftsbygginger og rullebane varierer mellom 20 og 50 år i følge årsregnskapet. Selskapet har ikke ønsket å gi oss ytterligere detaljer rundt dette slik at det er ikke mulig å gjøre noen nærmere vurdering av avskrivingskostnadene. I 2013 kjøpte SLH 100 % av aksjene i eiendomsselskapet Parkeringsplassen AS. I forbindelse med dette har de gitt selskapet et lån på NOKm 31. Selskapet vil bli innfusjonert med regnskapsmessig effekt fra 1. januar 2014. Gjeld til kredittinstitusjoner var ved samme tidspunkt NOKm 194, og beregnet implisitt rentenivå ligger på ca. 4,6 % pr. år. Leverandørgjeld beløpte seg til NOKm 61 per 31.12.2013, en økning med NOKm 45 sammenlignet med foregående år. Selskapet har ikke spesifisert hvilke poster som inngår i leverandørgjeld


Side 7 av 10

Selskapet opplyser at annen kortsiktig gjeld, NOKm 32 per 31.12.2013, relaterer til periodiseringer. De største postene er påløpte utgifter til vintervedlikehold, flysikringstjeneste, sikkerhetstjenester, avsetninger til lønn, feriepenger og skattetrekk. Egenkapitalrentabiliteten de siste to årene er 16 %. Totalkapitalrentabiliteten for 2013 var 7 %. Dette indikerer (forenklet) at selskapets aksjonærer har hatt en ”middels” avkastning på investert

kapital.

Rygge Sivile Lufthavn AS (RSL)

Selskapet har bokførte anleggsmidler til et beløp av NOKm 803 ved utgangen av 2013. Mesteparten av dette relaterer til tomter og bygninger (NOKm 669) og driftsløsøre og inventar (NOKm 134) Driftsløsøre og inventar avskrives over 3 til 5 år, og avskrivningstiden for bygg er mellom 7 og 50 år i følge årsregnskapet. Selskapet har ikke ønsket å gi oss ytterligere detaljer rundt dette slik at det er ikke mulig å gjøre noen nærmere vurdering av avskrivingskostnadene. Gjeld til kredittinstitusjoner var ved samme tidspunkt NOKm 450. Som sikkerhet er det gitt 1. prioritets pant i terminalbygg, parkeringsplasser, flyoppstillingsplass og tilkjørselvei, samt tinglyst festerett mellom lånetaker og Forsvarsbygg. Selskapet har i tillegg ansvarlige lån på 250 millioner fra eierne. Vilkår for nedbetaling og renteberegning for denne er ikke oppgitt Vi har ikke mottatt noen spesifikasjon av annen kortsiktig gjeld, NOKm 35 per 31.12.2013 I tillegg til høyere finanskostnader vil større nedbetalinger på gjelden kunne gi en utfordrende likviditetssituasjon for RSL. RSL opplyser i sine noter at gjelden til kredittinstitusjoner på NOKm 450 skal refinansieres i løpet av 2014. Egenkapitalrentabiliteten det siste året er 8 %. Totalkapitalrentabiliteten for 2013 var 1 %. Dette indikerer (forenklet) at selskapets aksjonærer har hatt en lav avkastning på investert kapital

Oppsummert innebærer dette at RSL har en svakere soliditet enn SHL, men det ansvarlige lånet vil i praksis utjevne denne forskjellen. Faktum er likevel at RSL har investert mer enn SHL og har samtidig har en betydelig lånefinansiering av investeringene, som medfører rentekostnader. Årlige avskrivingskostnader er relativt like for begge selskap, på tross av vesentlige forskjeller i investeringsnivå. Dette innebærer implisitt at RSL forventer at anleggsmidlene vil vare lenger enn hos SHL. Men uten ytterligere detaljinformasjon fra selskapene er det vanskelig å kunne fastslå hvorfor selskapene vurderer at relativt like typer investeringer skal avskrives over forskjellig tidshorisont. En mulig hypotese kan være at RSL har en mer konservativ tilnærming til avskrivingstakten slik at selskapet kan vise bedre (positive) resultat fra virksomheten2.

2 Jfr. Dr. Oecon Finn Kinserdals artikkel i tidsskriftet Magma, 1/2014 vdr. usikre poster i regnskapet.


Side 8 av 10

4. Øvrige forhold 4.1. Selskapenes avsetninger til dekning av krav fra Avinor er uklart

Selskapene ble til vår informasjon pålagt økte kostnader i 2012 fra Avinor AS for betaling av innflygningskostnader. Begge selskap bestrider kravet fra Avinor og har bedt om en rettslig behandling av kravet. I denne forbindelse er det stillet spørsmål ved om selskapene har tatt høyde for disse kostnadene i sine regnskap. Vi legger til grunn at dersom disse kostnadene er medregnet i selskapenes resultatregnskap vil de være en del av selskapets kortsiktige gjeld, grunnet at det ikke er betalt, og vil medføre en merkbar økning av denne posten i regnskapet.

Tabell 6 - Annen kortsiktig gjeld i 1.000. Kilde: Selskapenes årsregnskap.

I SHL øker ”annen kortsiktig gjeld” i 2012 betydelig fra 2011, mens den igjen faller i 2013. Selskapet oppgir i sin årsrapport at posten kortsiktig gjeld inneholder flysikringstjenester uten at dette spesifiseres nærmere. Og om dette omhandler normale periodiseringer eller er en avsetning basert på usikkerhet rundt utfalles av en rettslig behandling av Avinors krav. En akkumulering av tilbakeholdt betaling over flere år vil normalt medføre en økning av kortsiktig gjeld tilsvarende, uten at dette klart kan observeres i regnskapene. Da selskapet ikke har ønske å utdype dette forholdet kan ingen klar konklusjon trekkes i forhold til om selskapet allerede har tatt høyde for de økte kostnadene i regnskapet. Gitt eksisterende informasjonsnivå foreligger det en viss sannsynlighet for det er tatt høyde for deler eller hele kostnaden i SHL. I RSL er det liten bevegelse i ”Annen kortsiktig gjeld” i perioden 2011- 2013, og det foreligger ingen informasjon i selskapets årsregnskap om innholdet eller bakgrunn for denne posten. Selskapet har heller ikke ønsket å gi ytterligere informasjon om dette forhold. Basert på manglende bevegelse er det ikke urimelig å anta at RSL ikke har tatt høyde for økte kostnader med flysikringstjenester i sine regnskap. Vi har i denne sammenheng ikke foretatt noen vurdering av om dette forholdet og manglende omtale i årsregnskapet er i tråd med kravene i Regnskapsloven eller Norsk regnskapsstandard. Ved selskapets egen rettssak, skal det kun avsettes i regnskapet dersom det vurderes at det er sannsynlighetsovervekt (>50 prosent) for at den usikre forpliktelsen kommer til oppgjør. Da skal beste estimat eller vektet sannsynlighet av utfallene avsettes.

4.2. Selskapenes internhandel er lav

VI har i denne analysen også foretatt en overordnet vurdering av om selskapenes resultat kan være påvirket av handel med nærstående selskap, såkalt internhandel. Basert på den offentlige tilgjengelige informasjonen fremstår selskapene med svært liten andel internhandel, og det ansees derfor at det er begrenset risiko for at selskapenes regnskap er vesentlig påvirket av dette forholdet.

Annen kortsiktig gjeld 2010 2011 2012 2013




Side 9 av 10

4.3. Eierforhold

Sandefjord Lufthavn AS (Torp) Torp er i all hovedsak eiet av offentlige aktører i form av kommuner/fylkeskommune (totalt 86,5 %) Eier: Eierandel: Vestfold Fylkeskommune: 43,3 % Sandefjord Kommune: 35,7 % Vestfold Flyplass Invest (private investorer) 13,5 % Stokke kommune 7,6 % Tabell 7 – Eierstruktur SHL. Kilde: Proff.no

Rygge Sivile Lufthavn AS (Rygge) Rygge er i all hovedsak eiet av private aktører (80 %), med Østfold Fylkeskommune som deleier (20 % direkte og indirekte) Eier: Eierandel: Thon Holding AS 40 % Orkla Eiendom AS 40 % Østfold Energi AS (majoritetseier er Østfold FK) 15,02 % Østfold Fylkeskommune 4,98 % Tabell 8 - Eierstruktur RSL. Kilde: Proff.no


Side 10 av 10

5. Avsluttende kommentarer Innledningsvis vil vi presisere at begge selskap vil være avhengig av konjunkturer og markedsutsikter på linje med andre aktører i denne bransjen, i tillegg de selskapsspesifikke fremtidsutsikter, og våre konklusjoner inneholder ingen selvstendige vurderinger av disse forhold. Sandefjord Lufthavn AS (SLH) har en solid egenkapitalandel og lønnsom drift. Selskapet har flere flyselskap som operer på Torp, og selskapets ledelse legger opp til investeringer i økt kapasitet de nærmeste årene. Dette indikerer at selskapet sannsynligvis vil få et kapitalbehov i årene fremover, men gitt at dette er lønnsomt bør det være mulig å få finansiert dette hos en ekstern finansieringsinstitusjon, slik at selskapet vil kunne opprettholde solid drift også i fremtiden. I forhold til det omstridte kravet fra Avinor kan det foreligge indikasjoner på at det er avsatt noe kostnader knyttet til dette forholdet i regnskapene, men dette kan ikke fastslås med sikkerhet. I tillegg vil det være uklarheter om eventuell størrelse på en eventuell avsetning. Indikasjonene er derfor at SHL vil kunne økonomisk sett kunne takle et avgiftsnivå som skissert i mandatet, selv om dette vil gi eierne en lavere avkastning og derved gjøre investeringen mindre attraktiv ut i fra et rent finansielt synspunkt. Rygge Sivile Lufthavn AS (RSL) har lav egenkapitalandel og svak drift. Selskapet har avhengige av få flyselskap som opererer på Rygge, og dette kan gi utfordringer for selskapet. Selskapets ledelse budsjetterer med en reduksjon i inntekter og lønnsomhet i tiden som kommer. I tillegg har selskapet høy gjeld fordelt mellom eiere og finansieringsinstitusjoner. Dette indikerer at det vil bli vanskelig for RSL å møte sine forpliktelser gitt at de pålegges ytterligere kostnader, og fremtidlig drift vil kunne være truet. En betydelig andel av selskapets gjeld er utstedet av eierne som ansvarlig lån, og reduserer konkursrisikoen noe, da eierne vil ha tap utover egenkapital dersom de begjærer selskapet i konkurs. Ytterligere usikkerhet foreligger i form av at Forsvaret avvikler sin aktivitet ved Rygge, og dette kan innebære at RSL må dekke høyere kostnader selv i forhold til at de tidligere antas å ha hatt en viss kostnadsdeling med Forsvaret. I forhold til det omstridte kravet fra Avinor foreligger det ikke indikasjoner på at det er avsatt noe beløp til kostnader knyttet til dette forholdet i regnskapene, men dette kan ikke fastslås med sikkerhet. Indikasjonene er derfor at RSL økonomisk sett vil kunne ha store utfordringer med å takle et avgiftsnivå som skissert i mandatet, og at det foreligger en risiko for konkurs, og/eller at eierne vil avvikle driften ved RSL grunnet manglende lønnsomhet.

Two approaches to pricing pollution

Ved Stranden 18DK-1061 Copenhagen Kwww.norden.org

This report compares the Cap and Trade method with an alternative method, the Flexible Fee Mechanism. The Flexible Fee Mechanism was created as a response to political and other practical obstacles often preventing the efficient application of other methods.

The main focus of the Flexible Fee Mechanism is the levying of a fee at the point where a pollution-inducing product enters the economy. The fee is then raised sufficiently (and sufficiently often) to effectively stimulate the transformation of the economy in a sustainable direction. At the same time, the revenue from the fee is directed back into the economy to stimulate alternatives, demand and employment.

Still, key questions remain unanswered in this report. This project was launched by the Working Group for SCP (HKP) in collaboration with the Working Group on Environment and Economy (MEG) under the Nordic Council of Ministers.


TemaN

ord 2014:512

TemaNord 2014:512ISBN 978-92-893-2722-0ISBN 978-92-893-2723-7 (EPUB)ISSN 0908-6692

TN2014512 omslag.indd 1 27-03-2014 08:53:34

Two approaches to

pricing pollution

Christina van Breugel, Mattias Enggaard, Jes Erik Jessen, Ulrika Stavlöt, Christopher Sköld and Elina Berghäll

TemaNord 2014:512

Two approaches to pricing pollution Christina van Breugel, Project Manager, COWI, Mattias Enggaard, COWI. Jes Erik Jessen, COWI, Ulrika Stavlöt, FORES, Christopher Sköld, FORES and Elina Berghäll, QA responsible, VATT ISBN 978-92-893-2722-0 http://dx.doi.org/10.6027/TN2014-512 TemaNord 2014:512 ISSN 0908-6692

© Nordic Council of Ministers 2014

Layout: Hanne Lebech Cover photo: ImageSelect

This publication has been published with financial support by the Nordic Council of Ministers. However, the contents of this publication do not necessarily reflect the views, policies or recom-mendations of the Nordic Council of Ministers.

www.norden.org/en/publications

Nordic co-operation Nordic co-operation is one of the world’s most extensive forms of regional collaboration, involv-ing Denmark, Finland, Iceland, Norway, Sweden, and the Faroe Islands, Greenland, and Åland.

Nordic co-operation has firm traditions in politics, the economy, and culture. It plays an im-portant role in European and international collaboration, and aims at creating a strong Nordic community in a strong Europe.

Nordic co-operation seeks to safeguard Nordic and regional interests and principles in the global community. Common Nordic values help the region solidify its position as one of the world’s most innovative and competitive.

Nordic Council of Ministers Ved Stranden 18 DK-1061 Copenhagen K Phone (+45) 3396 0200 www.norden.org

Content

Preface ................................................................................................................................................................. 7 Summary...........................................................................................................................................................11 Definitions ........................................................................................................................................................15 1. Introduction ............................................................................................................................................17 2. Description of the project – methodology ................................................................................19

2.1 Analytical focus .......................................................................................................................19 2.2 Approach ....................................................................................................................................23 2.3 Criteria for economic efficiency ......................................................................................25

3. Economic instruments for pricing pollution ...........................................................................31 3.1 Introduction ..............................................................................................................................31 3.2 Tradable emission permits ................................................................................................32 3.3 Flexible emission fees ..........................................................................................................35 3.4 Repayment mechanism .......................................................................................................45 3.5 Description of analytic cases.............................................................................................50

4. Analysis .....................................................................................................................................................53 4.1 Evaluation on the general level .......................................................................................53 4.2 Evaluation of analytical cases ...........................................................................................63

5. Results ........................................................................................................................................................69 6. Recommendations ...............................................................................................................................73 Dansk sammenfatning ...............................................................................................................................75 7. Appendix ...................................................................................................................................................79

7.1 Independence of governmental agencies and public acceptability ...............79

Preface

Most people agree that we need to solve our major environmental prob-lems. The question is which methods are most effective and politically viable and will they work in practice?

This project aimed to develop a foundation for better decision-making and policies through increasing the understanding of the oppor-tunities and drawbacks of various approaches to setting a price on pollu-tant emissions.

This report gives political leaders the opportunity to take advantage of the knowledge available in the area today by presenting and analysing comparisons of two approaches from different disciplines. The target group includes political representatives, government officials, consum-ers and environmental agency officials as well as other stakeholders − primarily in the Nordic region.

One of the most common methods today is the Cap and Trade ap-proach, currently used for trading carbon emissions permits in the EU-ETS. The way this method is implemented in the EU-ETS, mainly due to political restrictions and obstacles, has been criticized by many in light of the falling prices on emission permits in this system contrary to the obvious need for more powerful economic driving forces.

This report compares the Cap and Trade method with an alternative method, the Flexible Fee Mechanism. The Flexible Fee Mechanism was created as a response to political and other practical obstacles often preventing the efficient application of other methods. The main focus of the Flexible Fee Mechanism is the levying of a fee at the point where a pollution-inducing product enters the economy. The fee is then raised sufficiently (and sufficiently often) to effectively stimulate the transfor-mation of the economy in a sustainable direction. At the same time, the revenue from the fee is directed back into the economy to stimulate al-ternatives, demand and employment.

Earlier studies, headed by adjunct professor Magnus Enell, showed that the Flexible Fee Mechanism, also known as the Höglund Mechanism, opens up new alternatives concerning the political and practical imple-mentation of economic and environmental control mechanisms.

8 Two approaches to pricing pollution

That report was published by the Nordic Council of Ministers Work-ing Group for Sustainable Consumption and Production (SCP). This study is a continuation based on the conclusions in that report.

Flexible Fees work by:

Levying a Fee which is sufficiently high and adjusted sufficiently often for a Fee – induced Futures Market to emerge.

Letting the Futures Market and other hedging and insurance instruments indicate the price (the average abatement cost) which can be levied without harming the economy.

Securing a repayment of a sufficiently large fraction of the revenue from the Fee so that a majority of voters will clearly benefit from the Flexible Fee Mechanism and investors will put money into environmentally sustainable (cheaper) alternatives.

These three parts or components are all essential to the mechanism. If one or more of them are lacking, then the viability and economic control function of the mechanism will be impaired.

Due to circumstances and limitations, only the first part or compo-nent of the Flexible Fee Mechanism was studied and to reduce complexi-ty the study kept to a more high level comparison of the approaches in general with reference to the European ETS scheme.

The original assignment called for a comparison of the practical appli-cation of the two approaches to nitrogen and phosphorus. One factor that was possibly under-estimated in framing the assignment was that each approach is aimed at different objectives, views pollution differently and handles the revenue from the fee differently. Furthermore, the two ap-proaches view the role of the market differently, as well as the role of eco-nomic incentives in the building of political support.

That the study became narrower than intended, however, does not di-minish the importance of this report. On the contrary, it makes it even more important as a source and starting point for further discussion and research, which, based on what arises from this report, is urgently needed.

This “Two Approaches to Pricing Pollution” project was launched by the Working Group for SCP (HKP) and conducted in collaboration with the Working Group on Environment and Economy (MEG) under the Nordic Council of Ministers.

The project was carried out by a consortium with COWI as lead in co-operation with FORES and VATT.

Two approaches to pricing pollution 9

The project has been carried out by:

Christina van Breugel, Project Manager, COWI Mattias Enggaard, COWI Jes Erik Jessen, COWI Ulrika Stavlöt, FORES Christopher Sköld, FORES Elina Berghäll, QA responsible, VATT.

The steering group appointed for the project consisted of:

Stefan Nordin, Swedish Agency for Economic and Regional Growth Fredrik Granath, Swedish Environmental Protection Agency Øyvind Lone, Norwegian Ministry of the Environment

During the project, a number of stakeholders were interviewed, and we would like to take this opportunity to thank the following contributors:

Anders Höglund and Stephen Hinton, The Swedish Sustainable

Economy Foundation Jørgen Schou, Danish Environmental Protection Agency Jørgen Birk Mortensen, University of Copenhagen Jens Holger Helbo Hansen and Mette Gravesen, Danish Ministry of

Taxation And the many others who have been willing to discuss and develop

the topic of this report. The project was undertaken from October 2012 to January 2013.

Sigurbjorg Saemundsdóttir Chair of the Nordic SCP Working group (HKP gruppen) Ministry for the Environment, Island

http://tssef.se/

http://tssef.se/

Summary

The report analyses economic mechanism for pricing pollution in a prac-tical setting.

Based on a set of criteria (efficiency, transaction cost, acceptability and others) the analysis compares of proposed flexible emission fees and tradable emission permits. The aim is to clarify advantages and chal-lenges of the respective mechanisms that are important in the practical process of the regulator deciding what regulation to impose on polluters.

Tradable emission permits are well described and broadly used. However, the application has not been without difficulties, which is the current case for the permits-based European Emission Trading System for CO2. In the analysis, tradable emission permits are included as a mean to highlight differentiators of the flexible emission fee mechanism.

The functioning of the flexible emission fee concentrates around an independent expert group that sets a fee on emissions and varies the fee often to ensure proper reductions emissions. In consequence, the pollut-ers will insulate themselves against the varying fee on a futures market. The price of futures reflects the market expectations for tomorrow’s fee based on e.g. development in marginal abatement costs due to techno-logical change. Information feedback from the futures market can be used by the expert group to adjust the fee.

The novelties of flexible emission fees include very frequent adjust-ments of fee, an independent expert group with operational freedom to manage the mechanism and the introduction of sufficient volatility in order to produce a new stable equilibrium (via futures markets). In ad-dition, the price on pollution is only indirect as the flexible emission fee is meant to reflect marginal abatement costs, which is contrary to the predominant approach of setting the emission price equal to environ-mental damage costs.

These novel elements could to some extent be adopted by other types of regulation and may correspond more or less to the paradigms of to-day’s environmental regulation. Still, key questions remain unanswered: are the benefits of flexibility and induced stability by means of a volatile fee greater than costs incurred? This question requires a formal eco-nomic analysis that can test assumptions.


The flexible emission fees have been described both with and without a specified environmental target. The implications of this range from a question of cost effectiveness – where different mechanisms can be as-sessed on their ability to reach a target at lowest cost – to a fundamen-tally different perspective on environmental regulation than the prevail-ing. If there is no specified target the flexible emission fee will in effect drive emissions down at a rate comparable to the change in polluters’ abatement costs, but without explicit consideration of environmental damage costs. This can potentially minimize abatement costs, but not optimize costs and benefits of reaching an environmental target.

On the question of where the mechanism has its potential strengths, consideration in the analysis are with characteristics as shown in the table below.

Table 1. Potentially the flexible emission fee has strengths in cases with these four characteristics

Where high levels of low cost information on effects are available as many adjustments requires much information. Where objectives are long term and where environmental damages are small and minimization of abatement costs is the top priority. Where the typical alternative is a ban and transaction costs are not prohibitive (e.g. very sensitive environ-mental challenges where regular monitoring and adjustments by an expert group are necessary to make sure emissions stay within narrow thresholds). Where there is a time lag between the political decision of the overall environmental legislative framework and the actual setting of targets (e.g. policies that originates from the EU and where the Member States subsequently are to design the national implementation) the flexible emission fee would allow regulators to quickly to initiate a fee without a specified target for the relevant emission, substance or resource and only later determine the national target with a knowledge of the cost of abatement which have been reflected at the futures market.

The flexible emission fee is presented as an alternative to current envi-ronmental legislation. A change of regime is suggested that will favour consumers through repayment of fee revenues, reduce polluters’ abate-ment costs, and phase out unwanted substances as well as promote re-cycling. In this study, however, the current environmental regulation based on national and international legislation and the corresponding set of policies is unchanged and flexible emission fees is regarded as a stand-alone mechanism comparable to others such as taxes, command and control etc. This will allow an analysis of the use of the mechanism within the limits of the current regulation and to compare the mecha-nism with others being implemented.

This is also the case in relation to repayment of fee revenues to con-sumers that is proposed as part of flexible emission fees. The present study argues that the flexible emission fee remains an economic mecha-


nism for environmental regulation comparable to other which has ana-logue options for repayment.

It is recommended that further development and communication of the mechanism focuses on the economic core and not the broader moti-vations for environmental regulation nor the spending of revenue. Only this way can the mechanism win broader acceptance among regulators. In addition, the economic reasoning has to be substantiated and tested and an obvious next step is contact to academia and publication in peer-reviewed economic journal.

Definitions

Actions Polluter’s actions that affect emission levels, e.g. input substitution and technology adaptation.

Flexible emission fees An expert group sets a fee on emissions and adjusts the fee often to en-sure proper reductions in emissions. The polluters will hedge them-selves against the varying fee on a futures market. The price of futures reflects the market expectations to tomorrow’s fee based on, e.g., tech-nological and environmental trends; this information can be used by the expert group to adjust the fee. Revenue is suggested to be redistributed to consumers.

Futures market A derivatives market where future expectations to the flexible emission fee can be traded. It is assumed to emerge if fee fluctuates sufficiently and enables polluters to hedge against this volatility.

Mechanisms Regulator’s economic-based policies to combat pollution.

Polluter The entity that is the source of the targeted emission and is included under the mechanism.

Regulator The public authority that governs the mechanism, sets environmental targets, monitors and enforces legislation.

Tradable emission permits A mechanism where a fixed number of emission permits are auctioned or given to polluters that can choose to trade permits on the market, use permits when emitting or abate emissions. The number of permits can gradually decrease over time.

1. Introduction

In an economic system where finite resources (in the long run) are being depleted – rather than recycled – and harmful substances are dis-charged/emitted beyond sustainable levels through economic activities and thereby in the long term undermining the system, it becomes in-creasingly evident that this development calls for the application of mechanisms to support sustainable ways of production and consump-tion. Such mechanisms to be applied should be environmentally and economically effective as well as socially and politically acceptable. In our view, the overall background for the present project “… aimed at developing a better basis for policy on sustainable production and con-sumption through developing practical pricing approaches to pollution.” Policy action must be seen from the perspective of both consumers and industries as both are part of causes, solutions and will bear the positive and negative consequences of environmental regulation.

The present project should be considered as a follow-up to the recent report “Flexible emission fees: an incentive for driving pollution reduction and sustainable production and consumption” released by the Nordic Council of Ministers,1 which sets out five areas for further exploration, especially in relation to the practical application of flexible emission fees compared with a cap and trade (tradable emission permits):

A rigorous comparison between the two main pricing approaches:

cap and trade vs. flexible emission fees with a repayment mechanism. An investigation of the conditions necessary for the emergence of

flexible emission fees futures markets.

────────────────────────── 1 According to the call for tenders, the report concludes “… that by increasing fees until the market responds and by redistributing a sufficient fraction of the income from the fees, to make the solution politically and democratically viable, market forces may well be able to respond by seizing this opportunity to supply relatively cheaper, non-polluting goods and services whilst older, more polluting alternatives retain financial stability during their phase-out period. … The report is optimistic that both growth and environmental goals can be reconciled if fees are managed in this way.”


A study of the repayment mechanism and its effect on the political and democratic acceptance of sufficiently high fees to achieve sustainability.

Looking at a range of pollutants that accumulate in nature to include those that are abundantly available, i.e. nitrogen, recyclable, i.e. phosphorus and non-renewable, i.e. carbon dioxide from burning fossil fuels.

Comparing the two approaches both in general and for the same pollutants to generate valuable knowledge, perspective and understanding.

The purpose of this project is therefore to investigate and compare effec-tive design and implementation of the practical application with the concrete environmental challenges of two main approaches to pollution pricing, namely a flexible emission fee with a repayment mechanism and a tradable emission permit mechanism. In doing so, the focus should be on the advantages and disadvantages of the various approaches to pric-ing pollution in a practical setting, thus contributing to enhancing the basis for decision-making and political solutions.

2. Description of the project – methodology

This report will further the discussion of flexible emission fees by means of a comparison with tradable emission permits. Focus will be on the prac-tical applicability of the mechanism discussed upon theoretical criteria.

The analysis explores the usefulness of flexible emission fees as an economic policy instrument for pricing pollution, and it can be seen as a step towards testing and maturing the idea of flexible emission fees. The flexible emission fee can be used as a policy instrument in line with other market-based instruments. The analysis will explore the similarities and differences compared with other instruments, especially cap and trade.

The overall aim of the flexible emission fee is to set the correct price on pollution, thereby achieving a fair payment from the users of the environment.

A Nordic perspective is maintained in the establishment of cases. The analysis does not carry out any formal analysis, modelling nor consider legal aspects. It is outside of the scope of the analysis to examine legal obstacles and related considerations. The analysis will be based on the interviews conducted during the project phases and the theoretical con-siderations already made in previous analyses.

2.1 Analytical focus

Flexible emission fee (FEF) is presented as both an economic mecha-nism and as an element in shifting our economic system towards a sustainable path.

The Swedish Sustainable Economy Foundation contextualises the mechanism in its argumentation, which covers “closing element cycles to promote full recycling,” “cradle to cradle” and “repayment of revenues directly to citizens in order to create public acceptance of higher retail prices resulting from a game changing fee.” In this analysis, the scope is narrower and the analytical focus is on flexible emission fees as an eco-nomic mechanism vis-a-vis tradable emission permits (TEP). Both mechanisms are highly relevant to discuss in a broader context, but to a


large extent they coincide in their ability to tackle environmental con-cerns and generate revenue that can be repaid.

The inspiration for the mechanism is found in control engineering where engines can be designed to improve the congestion by getting continuously feedback. The FEF (flexible emission fee) differentiates itself from the tradable emission permits by influencing the price on the market instead of the quantity.

2.1.1 Where do the mechanisms differ: from input to emission?

To guide the reader in the proceeding analysis, we will give a few com-ments on the report’s overall distinction between the two mechanisms.

In the descriptions of FEF (see section 3.3), it is presented as an ap-proach to putting a price on pollution and correcting marked failure, but also as part of a political ambition to transform society (a closed, circular economy based on recycling of resources) and to redistribute fee reve-nue to consumers.

This compares to TEP which is part of mainstream environmental reg-ulation and economics and where distinction is made between the “eco-nomic core” of the mechanism and its role in politics and economic policy.

However, as the table shows this distinction is not necessarily a chal-lenge when comparing FEF and TEP. TEP can in many ways be parallel to FEF depending on the actual design and context of the mechanism application. In consequence, this report aims a highlighting the points where the mechanisms differ and the potential advantages and draw backs of these differences.

In the view of this report’s authors, the innovative elements of FEF lie within the functioning of the mechanism ifself. The emissions to which FEF can be applied or how revenue is spent are very much parallel to TEP and are therefore given less attention in this report.


Table 2. Some differences and similarities between the flexible emission fees (FEF) and tradable emission permits (TEP), respectively

Topic FEF TEP

Type of emission

Can be applied to a range of emissions (or inputs) both up- and downstream in the value chain

Set quantity or fee

Sets an initial fee that is changed reflecting market signals (but also on ambition for future emission quantity)

Sets a future emission quantity based on political choice

Market correction

Puts a price on pollution

Adjustments Based on new info, the price can be adjusted with small time intervals. Adjustment decided by independent expert group

Quantities adjusted after trading period, which in principle can be long or short. Adjustment decided political-ly or other policy makers (could also be an independent expert group)

Use revenue Redistribute to consumers Redistribution to polluters, via public budgets or directly to consumers*

*Cases where TEP uses grandfathering of permits (permits are given to polluters for free), no reve-nue will be generated and nothing redistributed. The analytical focus in this report is primarily on the mechanisms, narrowly speaking. This line of thought is illustrated below.

Figure 1. Analytical focus on mechanisms rather than broader context


2.1.2 What is implied by “practical”?

In this context, the term practical aims at the matters that need to be dealt with when applying economic regulation to environmental prob-lems. This involves questions such as:

What is the right level of regulation? Who will bear the cost? How can the administration, enforcement and monitoring be designed?

However, in the case of FEF and TEP a very high degree of both general definitions and case specifications has to be in place before these practi-cal questions can be subject to analysis.

In the view of this report’s authors, the detailed information on FEF is not available to an extent that allows answering of practical questions such as those above. A crude illustration of the knowledge base for FEF shows the mechanism can be further developed and studied on various levels. In comparison, TEP has been subject to much scientific scrutiny and application both to emissions and to other matters. Nonetheless, TEP has given many challenges when applied (as evident in the present debate on the EU Emission Trading System) and is still being developed.

Figure 2. Crude illustration of levels of knowledge development for flexible emis-sion fees (FEF) and tradable emission permits (TEP), respectively

FEF 3. Detailed study (theoretical and

simulations)

1. Idea

2. Definition

4. Application

TEP 3. Detailed study

(theoretical and simulations)

1. Idea 2. Definition Explanation

Well developed

4. Application

Some development

No development


In the absence of comparable information, comparing the two mecha-nisms is attached with difficulties both in general and when applied to specific cases. Thus, a comparison of practical elements including admin-istrative costs, transaction cost, environmental and economic efficiency is presently not feasible.

This report approaches its title – “practical approaches to pricing pol-lution” – in a pragmatic way. In the following chapters, the report discuss-es and applies theory to components of practical application of the two mechanisms. At this stage, the outcome is recommendations for topics that need to be developed further in order to practically apply FEF.

2.2 Approach

The method used in this analysis contains the following steps:

Defining the criteria necessary for assessing and comparing different market-based instruments.

Assessing flexible emission fees and comparing them with the cap and trade from a theoretical perspective.

Testing the practical possibilities of the instrument through interviews.

The report will first set up a number of general criteria for discussing efficiency requirements of economic instruments. The criteria are gen-eral and could be applied to any kind of instrument. Next, a short intro-duction to flexible emission fees and tradable emission permits will be given. Finally, the instruments will be combined with the established criteria – both at the general level but also in relation to specific cases.

The overall analytical approach is illustrated in the figure below.

Figure 3. Analytical approach

Flexible emission fees Tradable emission permits

Evaluation at the general level

Evaluation of application to analytical cases


Alongside the comparison of the two mechanisms, a general introduc-tion is given to the options for spending the revenue that the fees or auc-tioning of emission permits generate. Basically, revenues can be regard-ed as contributions to government budgets or be repaid to either com-panies or consumers; nonetheless, the choice of how to spend revenues can have an effect on the political acceptance of the policy suggested. The two instruments together with many other market-based instru-ments are parallel in this respect, and the topic will be presented as an additional perspective in a separate section.

The analysis combines existing knowledge from literature and ex-perts into an analytical framework established to discuss theoretical and practical aspects of the flexible emission fees. As no application of flexi-ble emission fees exists, the analysis will remain hypothetical but the framework allows a discussion of opportunities and drawbacks of po-tential applications. Interviews with practitioners will support the evi-dence to conclude on these issues.

The discussion proceeds at two levels; a general evaluation of the in-struments characteristics and requirements for economic efficiency and a case-based evaluation. The analysis establishes analytical cases for various pollutions, market characteristics and stakeholders involved upon which the instruments are applied. This allows a practically ori-ented but hypothetical discussion of practical pollution pricing under varying circumstances.

To qualify the discussion of practical application of the instruments, the project has drawn upon expert interviews. The interviews have been conducted in order to gather information, test analytical frameworks and arguments.

The results are a synthesis of the general and case analyses shedding light on the two practical approaches to pricing pollution.


2.3 Criteria for economic efficiency

The optimal mechanism would be one that ensures target fulfilment within a specified timeframe,2 by choosing the actions that can be im-plemented at the lowest possible cost (while stimulating development of actions with even lower marginal reduction costs), and without causing adverse distributional effects deemed to be political and democratic unacceptable. Ideally, such an optimal mechanism should at the same time be characterised by full and certain knowledge of the interplay between pressure and impact3 as well as actions and their cost, and by incurring no kinds of transaction costs.

Although no mechanism fulfils this ideal, it seems to be a good point of departure for assessing the features and practical applicability of dif-ferent mechanisms.

Thus, for comparing the practical applicability (to counter a specific pollution problem) of the flexible fees4 mechanism against the more well-known cap-and-trade mechanism, i.e. comparison of the two differ-ent main approaches to “pricing pollution”, the following four main cate-gories of criteria could be developed and applied:

Efficiency. Acceptability. Uncertainty. Transaction costs.

These four main categories of criteria will be defined below.

────────────────────────── 2 Ideally, such target should be set as to reflect equilibrium where the marginal abatement cost equals the marginal environmental cost, to be socially cost effective. 3 This terminology refers to the DPSIR framework used by the European Environment Agency (EEA), to structure thinking about the interplay between the environment and socio-economic activities. DPSIR stands for: Driving forces – Pressures – State – Impact – Responses. The DPSIR framework represents a systems analysis view:- social and economic developments exert pressure on the environment and, as a consequence, the state of the environment changes. This leads to impacts on e.g. human health, ecosystems and materials that may elicit a societal response that feeds back on the driving forces, on the pressures or on the state or impacts directly, through adaptation or curative action. 4 According to literature, it is important to distinguish between “tax” and “fee”: A tax generates general government revenue to be used in principle for general purposes, while a fee is revenue neutral to govern-ment as the revenue generated should be re-distributed back to the sectors where the fee is levied The classic example is a fee levied on pollution, that is re-distributed back to the sectors where the fee is levied to e.g. stimulate the development and use of cleaner technologies.


2.3.1 Effectiveness and efficiency

For analytical purposes, efficiency is divided into various subcategories:

Environmental effectiveness of mechanisms ensures certainty of target fulfilment (desired level of pollution reduction) – within a given time frame. By environmental efficiency, we understand the potential of the mechanism for reaching the desired level of pollution reduction targeted – within the desired time frame.

Economic efficiency of mechanisms ensures pollution reduction at the lowest cost and largest environmental gains to society. By cost effectiveness of a mechanism, we understand the potential/ability of the mechanism to reach a given level of pollution reduction at the lowest possible cost (to society) – or alternatively to achieve the highest possible level of pollution reduction at a given cost (to society) – through its potential to provide incentives for implementing the “cheapest” actions, i.e. the actions that can be implemented at the lowest possible cost.5

Dynamical efficiency of mechanisms ensures lowering of marginal reduction cost over time. By dynamical efficiency, we understand the potential of the mechanism to provide incentives for the development of new actions over time, e.g. by stimulating technological development that can reduce pollution at lower cost than hitherto, thus lowering the overall marginal reduction costs over time.

Distributional efficiency or efficiency of redistribution of revenue, ensures that the revenue is redistributed efficiently. By efficiency of redistribution of revenue, we understand the redistribution of revenue in a way that achieves the highest possible level of pollution reduction – through its potential to provide incentives for pollution reduction – e.g. as direct subsidies to stimulate development of environmental technology by the industry, or e.g. in a way to stimulate environmentally sound spending by the public.

Predictability/stability of mechanisms ensures predictability about cost of pollution and/or alternative cost of emissions reduction. By predictability, we thus understand predictability about cost of pollution and/or alternative cost of emissions reduction that is of importance to polluters in deciding on their investments.

────────────────────────── 5 Transaction costs not included.


2.3.2 Acceptability

Acceptability ensures avoidance of adverse distributional effects deemed to be politically and democratically unacceptable. We will dis-tinguish between two main categories of acceptability: Acceptability of division of burdens, ensures that the imposition of

costs is politically and democratically acceptable. Thus, by acceptability we understand the imposition of costs, which is acceptable, politically and democratic, in the sense that it affects pollution reduction without leading to (political and democratic) unacceptable and/or adverse effects on e.g. business sectors operating in markets characterised by strong international competition (from competitors in other countries or regions not facing such costs).6 Another example of such unacceptable and/or adverse effects could relate to placing too heavy economic burdens on low-income groups. Who ultimately bears the costs of pollution reduction will thus be of importance to the degree of political and democratic acceptance of the mechanism.

Acceptability of redistribution of revenue, ensures that the redistribution of revenue is political and democratic acceptable. I.e., that the revenue is redistributed in a way that is perceived as acceptable or even to promote acceptability – whether this would be achieved by redistribution of the revenue e.g. as direct subsidies to stimulate development of environmental technology by the industry, or e.g. as a general refund to compensate for the specific fee imposed and/or stimulate spending. Thus, the redistribution of revenue will clearly also be of importance to the degree of political and democratic acceptance of the mechanism.

────────────────────────── 6 This could ultimately lead to increased pollution if home market production (one way or another) is relo-cated to another country or region without regulation – especially in the case of transboundary pollution.


2.3.3 Uncertainty

Uncertainty and/or (lack of) information, hereunder the interplay be-tween the three major types of uncertainty defined below:

1. Environmental (or scientific) uncertainty concerns uncertainty about

the connection between driving forces (e.g. economic activity) and pressures (e.g. discharge/emissions of pollutants) as well as uncertainty about the connection between pressures and state/impacts (i.e. environmental effect), hereunder natural variations (in biological, geological, chemical and physical conditions of the recipients) – and thus uncertainty about the actual effect of implementing specific actions.

2. Economic uncertainty concerns uncertainty about the costs of pollution reduction by implementation of specific actions, including informational asymmetry about actual costs between “regulator” and “polluter”, where the latter often possesses the best information about costs.

3. Technological uncertainty concerns uncertainty about the technological ability/capacity of a specific action for pollution reduction – that is of major relevance not least when implementing (almost) unproven technologies.

2.3.4 Transaction costs

Transaction costs of applying the mechanism, including informational transaction costs that concern the regulating authority’s costs of com-municating necessary information about the mechanism to relevant players, i.e. “polluters”, as well as these players’ costs of obtaining and processing information on the mechanism and its requirements. Administrative (administrational) transaction costs that concern the

administrative costs of the regulating authority responsible for implementing and enforcing the mechanism, as well as the administrative costs to those players targeted by the mechanism. The distribution of costs between the public and private sector and the magnitude of costs to regulating authority and players, depend among other things on the degree to which the mechanism differentiates itself according to certain environmental criteria, or the polluters costs of trading emission permits or futures contracts and/or costs to the regulating authority of e.g. providing a platform for trading emission permits or futures contracts.


Monitoring (transaction) costs concern the costs of monitoring the state/condition of the environment, as well as costs of monitoring compliance with the regulating authority’s requirements. The intensity of monitoring of compliance will ultimately be of importance to the effectiveness of the mechanism.

Juridical transaction costs that concern the costs of the parties’ involvement/engagement in legal disputes when monitoring has shown lack of compliance by one (or more) of the players, or alternatively when one (or more) of the players claim to be treated unjust.

The criteria are applied to the analysis of the mechanism in section 4.

3. Economic instruments for pricing pollution

3.1 Introduction

The purpose of this analysis is to evaluate approaches to setting a price on pollution. Environmental legislation is introduced to protect the envi-ronment, create incentives to develop new technologies, create national strongholds and implement the polluter pays principle (PPP).

The price on pollution expresses the cost and benefits that are con-nected with the change of behaviour or action according to the objective and belonging target of the environmental policy. This includes the valu-ation of the externalities. These externalities are seldom traded on a market and need to be assessed by using valuation methods which are likely to be uncertain.

The second-best alternative is to estimate or reveal the avoidance cost or, in other words, the abatement cost of reducing emissions. This can be done through gathering information directly from companies or be revealed as a willingness to pay at the market place. The most prag-matic way to estimate or determine the price on the pollution is through the creation of a market. Two different approaches to creation of mar-kets will be investigated in the following.

3.1.1 The two mechanisms

This analysis operates with two mechanisms: the flexible emission fee and the tradable emission permits. Tradable emission permits: A mechanism where a fixed number of

emission permits are auctioned or given to polluters that can choose to trade permits on the market, use permits when emitting or abate emissions. The number of permits can gradually decrease over time. The permits are also traded on a marked where the prices on the permits express the expected future abatement costs. In that way, the market is a market place for futures.


Flexible emission fees: An expert group sets a fee on emissions and adjusts the fee often to ensure proper reductions emissions. The polluters will hedge themselves against the varying fee on a futures market. The price of futures reflects the market expectations to tomorrow’s fee based on, e.g., technological and environmental trends; this information can be used by the expert group to adjust the fee.

Tradable emission permits are a well described mechanism with many practical applications. Flexible emission fees have been the topic of a number of policy reports, but have not been applied to date. The two mechanisms are described in the following.

3.2 Tradable emission permits

An emission permits market is an economic volume-based policy instru-ment7 with the primary aim to achieve an environmental objective at the lowest cost possible for its participants. Compared to an emission tax, a permit market is particularly effective when the amount of emissions is seen as important and there is a risk of reaching a critical tipping point.

In an emission permits market, the quantity of emissions is directly controlled. Emitters included in the system eventually have to cover their emissions by a corresponding number of permits. In case of excess emissions, participants need to offset their excess by acquiring permits from other sources that are able and willing to emit below their estab-lished share of permits. A company in need of more credits can purchase them on the market. Conversely, a company that has a surplus of credits can sell the excess. The permit price therefore reflects the scarcity of the right to emit, set by the agreed permit volume, which in turn depends on the stringency of the environmental policy. This is the most common feature of an emission permit market; the “cap-and-trade”. Policymakers choose a cap of how much emission is allowed, and within that cap, the right to pollute is traded among the market’s participants. The trade is conducted with emission permits, which are controlled and certified by an administrative authority. In that way, the amount of emission given by one permit will be given a market price, thus creating economic in-

────────────────────────── 7 In contrast to a price-based instrument such as a tax, where price is fixed but the level of emissions are not.


centives to decrease emissions by putting an extra cost into investment and production decisions.

The cost of reducing green house gases emissions varies significantly within different sectors but if the market works well, the abatement cost will be reduced as the various sectors and participants are exposed to the same marginal cost of emitting greenhouse gases. This enables the achievement of the desired emissions reductions at the lowest cost. In this way, permit markets create a cost-efficient sharing of the emission constraint among emitters. In conclusion, emission permit markets are regarded as decreasing the emissions at the lowest cost, creating a gen-eral price (overarching countries, and sectors) and guarantees that the emissions stay within a cap.

EU ETS

The European Union Emissions Trading System started in January 2005 and comprises around 13,000 installations in industry sectors and energy produc-tion. From 2013, the EU ETS encompasses half of the greenhouse gas emissions in the EU, not only including carbon dioxide but also N2O and perfluorocarbons from several industrial sectors. The cap is set so that the carbon dioxide emis-sions of the included sectors will have decreased by 21%, year 2020, relative to the 2005 levels.

Initially, all emission permits were allocated for free with just a small share (0.13–3 per%) being auctioned, but starting from 2013 energy production in-stallations will have to buy all their allocations through auctioning, while the industry sector will see a decrease in the share of their free allocations until 2020, when all their shares will be auctioned. Hence, the emission permits are estimated to be more frequently traded from 2013 onwards.

Between 2005 and 2012, the EU ETS has seen emissions decrease by 10%. Even though the carbon price is seen as a contributor to this, the major cause of the emission reductions so far is the economic crisis. Since the beginning of the crisis in 2008, the ETS market has experienced a surplus of allowances and international credits; by the end of 2011, the total number of allowances added up to 8.720 million tons of carbon dioxide while the verified emissions were only 7.765 millions tons of carbon dioxide – creating a surplus of 955 million allowances. Many has considered the surplus the main reason for the sharp decline in the share price, falling to below EUR 10 in mid-2011, causing a real risk of seriously disrupting the functioning of the carbon market, and undermin-ing the incentives to promote investments in clean-tech. In order to decrease the surplus and stabilize the carbon price, the Commission has suggested a ‘back-loading’, or ‘set aside’, of the permits. This would mean a temporarily, or


permanent, removal of an amount of emissions from the market. The conditions for such market interference are, however, still discussed and highly uncertain.

The states’ income from the auctioning of emission permits does not have to go to any specific purpose.

In the first phase of the European Union emission trading system (EU ETS), starting in 2005, carbon emission permits (known as European Union Allowanc-es (EUA)) were traded at prices ranging from €30 to below 10 Euro cents. In the second phase, starting in 2008, prices fluctuated between €30 and €8. A range of derivatives has developed for trading on a growing market dominated by a few large players. Researchers have attempted to assess the main drivers of the price of an emission permit. Several studies have found that carbon credits are highly dependent on policy and regulatory interferences. Other factors that influence the price of permits include the price of natural gas, oil and coal, the variability of weather, fluctuations in the level of GDP and the occurrence of the global finan-cial crisis.

In theory, the price of permits under a cap-and-trade should establish the marginal abatement cost sufficient to meet the cap set in the scheme. In reality, price volatility has been substantial. Research shows that price volatility was mainly caused by fuel prices, weather and policy developments. In addition, the EU ETS is a relatively new market that in general requires time to realise real price discovery. Other researchers argue that the market will never produce a right carbon price, since assets must be owned and they must be divisible with appropriate legal and institutional frameworks in place.

A futures market established for a flexible emission fee will also be based on artificial scarcity. The future price is likely to be influenced by fundamentals and it is reasonable to believe that futures prices will be as volatile as EUA.


3.3 Flexible emission fees

The flexible emission fee8 mechanism is based neither on volume nor on price explicitly, and in that respect it differs from both a tax or a cap-and trade system. Instead, it relies on three pillars; a flexible fee, a futures market and a repayment mechanism.

The flexible emission fee mechanism is basically a continuously adjust-ed tax pricing targeted emissions. Initially, this fee is set and adjusted by policymakers or a panel of experts the same way the control interest rate is set by a board in a central bank. Changes in the flexible emission fee are made in response to various indicators, e.g. the rate of emissions reduc-tions or the rate of green technological development, to keep the market on track towards achieving the long-term environmental objectives. Un-like tradable emission permits, the environmental objective is flexible rather than fixed and can be adjusted over time (see also section 3.3.1 on environmental targets).

Largely, the flexible emission fee mechanism works as a traditional environmental tax. Emitters facing a marginal abatement cost lower than the flexible emission fee will benefit by choosing to abate, whereas emitters facing a marginal abatement cost that is higher will benefit by choosing to pay the fee. However, the flexible emission fee mechanism also encompasses a third alternative; the possibility to hedge against emission fee fluctuations on a futures market.

As the costs of risk and uncertainty have been acknowledged for cen-turies, policy makers have faced the challenge of balancing policy effec-tiveness and policy transparency. Whereas an emission tax optimally would change with fluctuating marginal damage costs, policy makers also have to target stable long-run market conditions for market partici-pants. The idea behind the flexible emission fee mechanism is quite the opposite. Instead of aiming for stability, the policy makers would in-crease the risk by stochastic changes of the emission fee. By increasing instability, a futures market would be established where emitters can insulate hedge against uncertainty. Thus, increasing risk and uncertainty would result in more stability on the market and not in less stability.

The prices on the futures market would reflect the emitters’ expecta-tions of the level of future emission fees, which would be affected by the

────────────────────────── 8 Presented by Anders Höglund, who initially suggested the idea, and the Swedish Sustainable Economy Foundation.


markets’ assessment of future emission levels, green technological de-velopment, political risk, etc. The futures market could thereby work as a pollution abatement price discovery function, providing the fee-setters with important information on the emitters’ expected future abatement costs, risk assessments, etc. An important vision aspect of the flexible emission fee concept suggests that this information can be reprocessed into the decision rule of the fee-setters. This hypothetical feedback mechanism would then assist the fee-setters in discovering the optimal fee level, adjusted to the true costs of emitters and society. Given suffi-ciently rational expectations and sufficent information for a functional market to emerge, the flexible emission fee mechanism would have the potential to result in an optimimized trajectory of emissions given tech-nological development, marginal damage and marginal abatement costs.

The third notion of the flexible emission fee mechanism involves a re-imbursement mechanism, which may be designed as a budget neutral repayment of the fee revenues. With uniform refund shares for all indi-viduals and budget-neutrality, the interference of an additional fee/tax in the economy is assumed to be politically and publicly accepted. The reform is, however, also believed to have redistributive effects since low-income households by assumption will, on average, be compensated by more than they spend on emission fees. These progressive income effects are assumed to give positive general equilibrium effects on the economy, under most conditions, by increasing aggregate demand and employment in a beneficial way.

Although the optimal level of the flexible emission fee is considered to be substantial, the fee is suggested to initially be set at a symbolical, low level, insufficient to curb the emissions, but sufficient to enable and encourage the establishment of a futures market. Once the futures mar-ket has been established and the policy reform has been generally ac-cepted, the fee will be raised to the level seen as needed by the fee-setters. At the same time, polluters will expect the fee to rise from the initial level motivating the emergence of a futures market.

It is assumed that rapid fee adjustments can best be managed by a panel of experts. The expect group considers factors such as the follow-ing when setting the fee:


Price information from the futures market, including trends in the cost of abatement.

Expected environmental impact of the use of resources or the activities causing emissions.

Trend in the environment/status on reaching the target. Prevailing fluctuations in the economy, weather, energy prices and

other activity determinants. Trends in bottom lines of polluters.

Below, the elements of flexible emission fees are summarised and de-scribed.

Figure 4. Elements of the flexible emission fee mechanism

1) Politicians set environmental targets. 2) The expert group makes sure that target is met by managing the fee based on available information. 3) The fee is set and adjusted repeatedly to promote desired emission reductions at least abate-ment costs. 4) Due to fee variations a futures market will emerge giving the polluter the possibility to insulate against variations and providing information to the expert group on average abatement costs. 5) Repayment of fee revenue to the public in order to ensure acceptability of mechanism.

An additional point to make is that a flexible fee, that is easy to adjust, could in theory promote more opportunistic behaviour among politi-cians for short run electoral reasons, which could sacrifice environmen-tal progress. But in practice the opposite could also be true.

Flexible emission fees can be regarded in relation to three types of environmental targets: fixed, flexible and unspecified target. Here, we define an environmental target as specified in time and quantity. For


example, a 60% reduction by 2025 as compared to today’s level of emis-sions. Hence, the three types of targets are:

1. Fixed: y reduction by year x 2. Flexible; y ± a% reduction by year x ± b% 3. Unspecified: y reduction by year?

The latter could also be phrased as an environmental objective indicat-ing the desired direction of change, rather than a quantitative target at some point in time.

If flexible emission fees operate under a fixed environmental target, it will basically be a quantitative mechanism.9 The flexibility of the mecha-nism is hence limited to the path of reductions, because a given reduc-tion has to be made at a given point in time. Whether this is of societal importance will rely on the emission in question (e.g., is time a major factor for environmental consequences?) and on the mechanism’s time horizon (short-term or long-term).

If the target is flexible, there is no point in time when a given envi-ronmental target has to be met. However, there is an objective of reach-ing the target within a flexible time span. The path of emission reduction is therefore a function of a dynamic weighing of marginal abatement costs and marginal environmental benefits. Information of industry’s response to regulation can be incorporated along the way for cost to be minimized while a steady reduction of emission reductions will occur. This interpretation shares similarities with a price-based mechanism.10

In situations with an unspecified target, the emissions will be driven down by a steady increase in the fee, but there is no goal indicating when a given reduction should be made. This situation is the topic of the box below.

────────────────────────── 9 I.e. having a quantitative target on a specified date like in the case of tradable emission permits. 10 An environmental tax is a price on pollution. The tax makes environmentally harmful activity more costly and emissions are therefore reduced. However, contrary to a quantitative mechanism there is no guarantee that a tax will lead to the desired reduction.


* Höglund, A. (2012): “A new method to reduce the emissions of greenhouse gases”, Appendix 3 in Enell, M. (2012): “Flexible Emission Fees – An incentive for driving sustainable production and consumption”, TemaNord 2012:511, and Sanctuary & Höglund (2005): “A Flexible Pollution Tax – Preliminary Research Investigation”, Cargine and Swedish Environmental Research Institute.

The fixed environmental target was introduced in the Swedish Sustaina-ble Economy Foundation’s briefing paper on phosphorous and nitrogen, which is presented in section 3.5. In other presentations of flexible emis-sion fees, there is no specified environmental target.11 The notion of a

────────────────────────── 11 Höglund, A. (2012): “A new method to reduce the emissions of greenhouse gases”, Appendix 3 in Enell, M. (2012): “Flexible Emission Fees – An incentive for driving sustainable production and consumption”, Te-maNord 2012:511, and Sanctuary & Höglund (2005): “A Flexible Pollution Tax – Preliminary Research Investigation”, Cargine and Swedish Environmental Research Institute.

Flexible fee without a target

It has been argued that emission reductions occur gradually when the fee is set to equal average abatement cost.* The fee is thus determined by the develop-ment in abatement costs and, in turn, the rate of reduction is determined on the market itself. Without a specified environmental target, there is no exogenous factor that can accelerate the emission reduction beyond the market rate of abatement.

This can be exemplified by energy efficiency taxes on cars. The regulator knows the population of vehicles and the individual energy consumption ex-pressed as kilometres per litre of petrol. Furthermore, the markets of new and used cars provide plentiful information on the cost of increasing efficiency (mar-ginal abatement costs). These conditions imply that the regulator can set a fee on energy consumption and know in fair detail what rational agents will choose to do and how the shift in vehicle populations will occur under gradually increasing fees that reflects the development of average abatement costs. Nonetheless, as there is no specified target, the shift will not be controlled, but only cost mini-mizing from the perspective of car owners; for instance, a car owner will not be forced to buy a new car prematurely when considering abatement costs. The car owner will postpone buying a new car as long as it is better budget-wise to keep the old one.

Without a target, there is no weighing of abatement costs and benefits (avoided damage costs) in order to make the change in energy efficiency of cars follow a socially optimal path, but focus is instead on minimizing car owners’ costs of reduction. Hence, the fee is on poor technology rather than environmen-tally damaging emissions.


flexible goal is introduced in this project through discussions with the Swedish Sustainable Economy Foundation and it forms the basic idea underlying the description of flexible emission fees in section 3.3 above.

3.3.1 Futures markets

The uncertainty generated by the flexibility of the fees would – it is ar-gued – stimulate the development of futures markets. This would be so, as a futures market might represent a way to hedge against the risk cre-ated by a flexible fee. At the same time, a futures market may represent a way of achieving price or cost revelation.12

3.3.2 Functioning of futures markets for flexible emission fees

Regarding the development and functioning of the futures market in flexible emission fees, the originators of the flexible fees mechanism reason as follows:13

If the (initial) fee for emission of a certain substance is set significant-ly above the cost of emissions reduction, there will be a clear incentive for reducing emissions substantially. However, the resulting environ-mental improvements might be achieved by an economic loss to society that very well could be above the environmental gain to society, if e.g. capital destruction14 is assessed to be necessary/worthwhile as an ele-ment of the effort to reduce emissions.

────────────────────────── 12 A traditional futures contract is an agreement to buy or sell a specific quantity of some asset at some time in the future at a price agreed upon at the time the agreement is made. Any asset whose future price is uncertain could be a candidate for a futures contract. There must be enough consumers and producers who want to diminish the price uncertainty (hedgers) and enough other traders willing to take on that risk (speculators) in order for the contract to be successful, i.e., worthwhile for the contract to be listed on a futures exchange. Actual delivery of the underlying asset of a traditional futures contract is not usually expected – contracts are “offset” or cleared. However, if necessary, contracts are ultimately legally enforceable. Each contract has different specifications because the underlying assets are different. The contract specifies the asset, the amount of the asset, and the date of expiration. The advantage to having exchanges is that the contracts are standardized and therefore much more attractive to both hedgers and speculators. In futures trading the two parties doing the trading are actually making the contract with the exchange’s clearinghouse, which guarantees performance of both sides of the transaction. So a trader wishing to offset a contract does not have to find the other party to the original transaction; the clearinghouse will substitute any other party. 13 This section is to a large extent following the reasoning in the paper “A new method to reduce the emis-sions of greenhouse gases” by Anders Höglund. 14 For example premature shutdown and scrapping of otherwise well functioning equipment.


Figure 5. Functioning of futures market

Imagine two polluters both facing individual marginal abatement costs as represented by the mar-ginal abatement costs (MAC) curve above. Polluter A produces at a level causing emissions at level QA and with marginal abatement costs equalling cA, while polluter B produces at a level causing emissions at level QB and with marginal abatement costs equalling cB. If a pollution tax/fee is intro-duced t, where cB >> t >> cA then polluter A will have a clear incentive to reduce emissions to a level equalling Q (rather than pay the fee for the quantum of emissions QA-Q), and thus only pay the fee for the remaining quantum of emissions Q. Further, once polluter A decides to abate and to invest to bring emissions down to level Q, polluter A will like to hedge against future increases in the pollution tax/fee that would alter the optimal investment decision (to abate to a level below Q). On the other side, polluter B will have no incentive to reduce emissions, with a pollution fee at level t.

However, continuing excessive emissions could conversely also lead to substantial costs to society. This could be the result, if the fee for emit-ting the substance is set significantly below the cost of emissions reduc-tion, leaving no incentive for reducing emissions.

Thus, the level of an emissions fee that minimizes polluters ’ abatement costs is expected to be correlated to the average cost of reducing emissions – that, however, will in general be unknown (at least to the regulator).

Therefore, a so-called “flexible emissions fee futures market” is intro-duced as a price and cost insurance market that elicits price and cost re-vealing behaviour of the polluters as well as expectations of other actors. The “flexible emissions fee futures market” provides information to the


regulator about the polluters’ cost of reducing emissions as well as differ-ent actors’ expectations to future costs of reducing emissions. In turn, information about the “current” cost minimizing level of the emission fee is disclosed by means of the “flexible emissions fee futures market.” In this market, the “emissions fee futures contract” is a binding agreement be-tween buyer and seller about the “delivery” of the emissions fee, for the stated amount, for the stated substance, for the stated time period, to a determined price (the price of the futures contract at the time of agree-ment), including a clearing procedure at the date of expiry.15

When introducing such an emissions fee futures market, “polluters” facing reduction/abatement costs below the current future emissions fee, “set” by the price of the emissions fee futures contract on the mar-ket, will in principle find it worthwhile to abate and to sell emissions fee futures contracts16 to reduce their risk, while polluters facing reduc-tion/abatement costs above the current future emissions fee will in principle find it worthwhile to pay the fee and to buy such contracts to reduce risk.

Speculators can also engage in the market, whose activities can re-duce fundamental errors in the pricing of the contracts. However, specu-lators might also increase errors in the pricing of contracts, as specula-tors might have different agendas.

Contracts can cover one or – more likely – more emission fee periods. On the expiry date, the contracts are then cleared between sellers and

────────────────────────── 15 Thus, it is presupposed that trade in emission futures contracts on an emission fee futures market can be established according to the same principles as trade in traditional commodity futures contracts on a traditional commodities futures market, that is claimed to have proven to be able to provide good liquidity and low transac-tion costs, applying the same rules and regulations as are established on a traditional commodities futures market. In continuation hereof, an emissions fee futures contract is defined by the following terms: – The emissions fee futures contract is a binding agreement between buyer and seller about the delivery of the emissions fee, a) for the stated amount, b) for the stated substance, c) for the stated time period, d) to a determined price – that is set as the price of the futures contract at the time of agreement. – By delivery is meant a clearing procedure on the day when the contract expires – thus on the expiry date the contract is cleared between seller and buyer based on the difference between the contracted price and the expiry price, i.e. the price/fee set at expiry date. 16 The seller of the contract is facing costs below the current fee and will find it worthwhile to abate as long as the marginal abatement cost is below or equals the current emission fee, but would also like to insure against increasing fees that would alter the optimal investment decision, and would therefore like to fix the future cost (at least for the investment period), by selling a contract that in principle on expiry date entitles the buyer to a payment, at the agreed price on contracting date, of the emission fee for the specified sub-stance, in the specified amount (that is not abated), during the specified time period. Thus at expiry date the buyer in principle receives a payment equalling the agreed price on contracting date, and then pays the actual fee for the period following after expiry date – in practice payments are cleared based on the differ-ence between the contracted price and the expiry price.


buyers, based on the difference between the contracted price and the expiry price, i.e. the price/flexible emissions fee set at expiry date.17

During each emission fee period, all “polluters” pay the emission fee determined by the market, on the expiry date the payment is made to the regulator.

The emissions fee futures market should thus serve to facili-tate/provide a sufficient number of contracts for a certain period, to enable a polluter to fix the cost at the current cost/price for the futures contract for emissions during the same period whenever the polluter wants to do so!

Fulfilling this, the trade in emissions fee futures contracts on the fu-tures market, will – due to the differences in costs and risks between polluters – contribute to moving the price of the emissions fee futures contracts towards the overall average cost of emissions reduction, and thus (in the long term) contribute to moving the emissions fee towards the same level.18

The possibility for polluters – and other actors – to fix the cost at the current cost/price for the emissions fee futures contract, and thereby to insure against changes in the emissions fee, facilitates the opportunity to develop and invest in e.g. (new) abatement technologies as it enhances the predictability of investment decisions and thereby promotes development at a rate that minimizes abatement costs. Price on futures market.

The price on the futures market is expected to reflect expectations to the future fee. In turn, however, the futures market expectations are influences by a number of factors and will entail a dynamic feedback as the expert group incorporates information from the futures market when setting the fee (see illustration below).

The many factors influencing expectations will also influence the pol-luter’s abatement costs; or say, for a polluter to make a decision to in-stall a cleaning device attention must be given not only to the fee level, installation and operating costs, but also factors such as sales protects, input prices etc.

────────────────────────── 17 The trade on the futures market will therefore generate a gain or a loss exactly covering the difference in the emission fee cost. 18 This cost-revealing feature is considered central to the idea behind the introduction of the flexible emis-sions fee futures market.


Figure 6. Factors influencing price on futures market

If no environmental target is set (or only a loosely formulated target along the lines of a gradually declining level of emissions), the market will not consider the “environmental trend”, but rather the “technological trend” – or, say, the expectations for the development of abatement costs.

3.3.3 Emergence of futures market

Fluctuations in the flexible emission fee are the basic condition for the emergence of a futures market.

It is unclear what market characteristics and what level of fluctuation are needed for the agents to opt for futures. One fundamental aspect is the polluters’ ability to pass on the fee to consumers. If the polluter is a price taker of international market prices, he cannot pass on fees to con-sumers. If the polluter is a price-setter and able to pass on fees, it is less likely that a futures market will emerge.

Acting on a speculative futures market requires a high level of resources and insight. However, as the polluter can trade via middlemen, the specula-tive part can be left for those willing to engage. In spite of this, an extensive number of agents is necessary for a well functioning market to emerge.


3.4 Repayment mechanism

Repayment of revenues from flexible emission fee or auctioning of trad-able permits can be spent in various ways. The options include (i) fiscal recycling to non-climate related programs, (ii) recycling to emission reduction expenditure or incentive programs, (iii) recycling to reduce inefficiencies in the tax system, (iv) recycling to reduce distributional effects, and (v) recycling to reduce competitiveness impacts. Also, the lattertwo options could be an important factor for consumers and/or polluters to accept new taxation.

Repayment can to a large extent be discussed independent of it source. Money can be spent in a beneficial way, irrespective of whether it is generated via a fee or permit auctioning. This is the reason why the subsequent analysis focuses on the mechanism narrowly, and not on the repayment mechanism. Still, an overview of the repayment mechanism is given below as it is an element of major relevance both in general and in relation to flexible emission fees.

3.4.1 Background

All emission abatement policies are likely to add to the distortions in the economy created by the tax system. Traditionally, economists have ar-gued that the costs of reducing emissions are significantly lower under economic, incentive-based, policy instruments, such as emission taxes and tradable emissions permits, than under administrative methods, such as technological standards or direct regulations. However, there is also research emphasizing the difference between policy instruments for controlling emissions that raise revenues for the government and those that do not. Revenue-raising instruments include emission taxes and tradable emission permits that are sold or auctioned to firms. Non-revenue-raising instruments include tradable carbon permits that are distributed free of charge.

There are different ways the revenues can be recycled to the econo-my that benefit the society. The revenues can be recycled to households, to firms or to the government. On the household level, the revenues raised can be used to reduce marginal tax rates that discourage work effort and investment. Revenues can also be repaid in a lump-sum trans-fer with the purpose of increasing aggregate demand in general. On the firm level, revenues can be reimbursed directly to the emitters to com-pensate for increasing costs and lost competitiveness or indirectly by cutting distorting taxes. If revenues are spent on governmental level, the


revenues could be used to reduce the federal budget deficit, which would mean fewer distortions on employment, investment and consum-er spending in the future. Revenues could also be used to finance addi-tional public spending or long-run investment in public goods or in re-search and development, which only in the latter case would give an efficiency gain to society.

Regulations that increase production costs also tend to reduce the level of employment and investment in the economy. The costs of these spillover effects in the labour and capital markets are called the tax in-teraction effect. On the other hand, the revenue-raising instruments can give potential economic gains if the revenues are used to reduce other distortions in the economy. This revenue-recycling effect can offset some of the costs of the tax interaction effect.19 Research suggests that with second-best environmental taxation, i.e. a setting with pre-existing dis-tortionary taxes, the presence or absence or revenue-recycling effects are important to the choice of environmental policy instrument.

Among economists, there has been a debate whether revenue-neutral substitution of environmental taxes for other distortionary taxes such as personal income tax, might offer a double dividend, i.e. improve the en-vironment as well as reduce the welfare costs of a distortionary tax sys-tem. For policymakers the no-cost idea of a green tax swap is especially appealing, as the values of environmental benefits are uncertain. A con-sensus has, however, emerged in the literature arguing that the revenue-recycling effect cannot offset the tax interaction affect since environmen-tal taxes typically aggravate labour market distortions even if revenues are employed to cut pre-existing distortionary taxes.

The presence of the tax-interaction effect makes indeed the revenue-recycling effect more fundamental to overall efficiency gains. Research show that in the presence of distortionary taxes, environmental instru-ments that fail to exploit the revenue-recycling effect, as in the case where revenues are returned to the economy through lump-sum tax cuts rather than through cuts in marginal tax rates, cannot improve economic efficiency.20, 21 To summarize, using tax revenue for any of these uses – funding distortive marginal tax cuts, reduction of government deficit, or

────────────────────────── 19 Parry, I.W.H., 2001, “Revenue Recycling and the Cost of Reducing Carbon Emissions” in Climate change: economics and policy: an RFF anthology, edited by Michael Toman, Resources for the Future, Washington. 20 Goulder, L.H., I.W.H. Parry and D. Burtraw, 1997, “Revenue-raising versus other approaches to environ-mental protection: The critical significance of pre-existing tax distortions”, RAND Journal of Economics, 28(4), 708–731. 21 Bovenberg and De Mooij, 1994, Environmental Levies, AER 94(49), 1085–1089.


productive government investing – could promote growth. However, if revenue is not recycled in an efficient way, the costs of a carbon tax would be substantially higher

Equity aspects often dominate the tax-reform discussions. Many studies indicate that environmental taxes are regressive and dispropor-tionately affect low-income groups.22 Equally distributed tax revenues would more than compensate these groups for any regressive effects experienced from the tax itself. If the equity dimension is included in the analysis of alternative recycling options, the results might change also in efficiency terms. If society holds income-inequality aversive preferences, i.e. when people think income inequality is unfair, theoretical analysis shows that equity effects can dominate the efficiency effects of recycling under certain labour market regimes. Then increasing lump-sum wel-fare payments can be more appropriate than reducing distortionary taxes mainly borne by the rich, even if the latter strategy involves clear efficiency gains.23 This result depends on the assumed income distribu-tion, distribution of carbon production and distribution of carbon con-sumption and is ultimately an empirical question.

Efficiency and equity arguments notwithstanding, revenue recycling also gives political benefits. Budget-neutral and distribution-neutral environmental reform schemes are key to political support and public acceptability. In particular, distributive effects are often a large part of the difficulty of reaching national or multilateral agreements on envi-ronment. Economics wisdom says that the policymakers should use pol-icy instruments to get the price of emission right to induce efficient be-haviour and then use the income tax or transfer schemes directly to pro-duce the aimed distribution. If an environmental tax or permit scheme raises the price of energy, which is consumed disproportionately by the low-income households, lower taxes or higher transfer programmes could balance the difference. If environmental gains are disproportion-ately concentrated to the high-income households, income taxes might be raised to offset the redistribution effects.

Certain emitters, such as energy-intensive industry or the automotive industry, could be more intensely affected by an environmental tax. To

────────────────────────── 22 For a summary, see Melfcalf, G.E., S. Rausch and J. Reilly, 2011, “Distributional impacts of carbon pricing: A general equilibrium approach with micro data for households”, downloaded from http://www.voxeu.org/index.php?q=node/6629# on 2011-06-16 12:05. 23 Proost and Van Regemorter, 1995, The Double Dividend and the Role of Inequality Aversion and Macroe-conomic Regimes, Int. Tax and Public Finance 2, 207–219.

http://www.voxeu.org/index.php?q=node/6629#


avoid massive lobbying efforts for support to avoid the impact of envi-ronmental taxes, reimbursements of revenues such as free emission permits to these special-interest groups could be necessary.

In the analysis above, efficiency, equity and political arguments could be rationalised as expressions of economic self-interest. Rational indi-viduals, firms and governments are assumed to have well-defined pref-erences, profit or welfare functions that they seek to maximize under full information on the economic consequences of various policies. Econo-mists are generally aware that such assumption only provides a bench-mark, which may be more or less suitable as an approximation of reality. The approximation is less appropriate the more complex the policy issues are and the more they are influenced by sentiments. Environmental policy would seem to qualify as such an area where it may be difficult to under-stand how attitudes are formed and actions are taken with the help of traditional economic theory only. Instead, there could be a lot to gain from drawing on psychological research and behavioural economics.

Recent studies show that consumers’ economic decisions are strongly affected by perception. Research shows that a larger, direct visibility of a tax gives stronger behaviour-inducing effects.24 Timing also plays an important role in regulatory efficacy. Research show that economic ben-efits that are immediate, such as sales tax incentives, have a much great-er behavioural effect than benefits that are delayed, such as income tax incentives, despite equal economic value.25 Thus, these kind of psycho-logical effects could also be of importance for the decision on how to spend collected revenue wisely.

To summarize, evidence from the economic literature show that the most efficient and growth-promoting way of spending revenue would be to remover other, distortive, taxes in the economy. It could also be effi-cient to invest in research and development, if the market tends to un-derinvest in theses activities due to market imperfections. In addition, psychological research shows that the economic behaviour under some circumstances could be described as irrational. Equivalent economic policy options could be judged differently due to different perception biases. This implies that other factors than theoretic efficiency, such as

────────────────────────── 24 Getty, R., A. Looney and K. Kroft, 2009, “Salience and Taxation: Theory and Evidence”, American Economic Review, 99(4), 1145–1177. 25 See for example Gallagher, K.S. and E. Muehlegger, 2008, “Giving Green to Get Green: Incentives and Con-sumer Adoption of Hybrid Vehicle Technology”, KSG Working Paper No. RWP08–009 or Jaffe A.B, R.G. Newell and R.N. Stavins, 2000, “Technological Change and the Environment”, NBER Working Paper 7970.


policy visibility, should be considered when designing optimal policy. Lastly, to increase political support and public acceptability, it could also be relevant and necessary to encompass distributive effects in the policy decision, to counteract regressive income and competitiveness effects that are considered unfair by voters and firms.

3.4.2 Flexible emission fees and tradable emission permits

According to the initiators, the concept of flexible emission fees encom-passes revenue recycling by means of a uniform lump-sum transfer to all households in a nation. As already argued this trait is not unique to this mechanism but it can be applied to all revenue-raising instruments. It can, however, be valuable to relate the notion of the benefits of lump-sum transfers to relevant research in the area, as summarized above.

Without support of the public, the introduction of emission fees would be difficult. Therefore, lump-sum transfers of emission fee reve-nue equal per capita are believed to increase public acceptability. Fur-thermore, the redistribution of economic resources, in particular to low-income households, is believed to increase aggregate demand and through the multiplier effect result in increasing output and employment.

In general, distributing funds lump sum has a higher efficiency cost than using funds to reduce distorting marginal tax rates. Whether the low-income households are net gainers or net losers from this kind of scheme, with emission fees and lump-sum transfers, is an empirical question, de-pending on the income distribution as well as on the distribution of emis-sion production and consumption. Although there are studies showing that lump-sum transfers of fee revenues in some cases for equity reasons might be the preferred recycling option, it does not seem reasonable to believe that lump-sum transfers also give positive macroeconomic effects. Since environmental taxes, as all other taxes, distort the choice between work and leisure and between consumption and savings, the initial defi-ciencies in distribution must be substantial for lump-sum transfers to offset these costs. To conclude, a lump-sum transfer of emission fee reve-nues could be the best policy option with regard to political support and public acceptability, however it is unlikely that lump-sum transfers are more efficient than a marginal income tax reduction.

Ideally, a more thorough analysis of the welfare effects using a formal model would be warranted. This is, however, outside the scope of this evaluation.


3.5 Description of analytic cases

This section describes literature cases where flexible emission fees and tradable emission permits, respectively, have been applied to nitrogen and phosphorous emissions.

The cases were both developed for a Swedish context, but are very different in nature, which makes direct comparison difficult. However, the introduction of the two analytical cases is a useful way to bringing forward the differences and similarities between the proposed applica-tions of the mechanisms.

3.5.1 Permit fee system for nitrogen and phosphorus

In attempt to decrease eutrophication of the Baltic Sea, the Kattegat and the Skagerrak, the Swedish Environmental Protection Agency has pro-posed a fee-system aiming at decreasing emissions of nitrogen and phosphorus in a cost-efficient manner. The system overarches a set of different sectors and regulates their activities by setting obligatory emission caps. If an organization’s emissions exceed its cap, the organi-zation has the choice either of decreasing its emissions or of paying a fee.

Example of repayment mechanisms

In the Nordic countries, Denmark introduced carbon taxes in 1993, Finland in 1990, Norway in 1991 and Sweden in 1991. Three of these countries, Finland, Norway and Sweden allocate the revenues from their carbon taxes to the general government budget. Hence, there is no specific offsetting of other taxes against the carbon taxes. I Denmark, the carbon tax revenues from industry are recycled back to industry through reduced social security contributions and through investment incentives. In addition, in 2009, a per capita deduction was intro-duced in Denmark to counteract the effects of increases in energy taxes. Due to its lump sum nature, “the green check” has equity effects in the sense that households with high energy consumptions tend to have high income and will thus pay relatively more in energy taxes compared to low-income, low-consuming households. All tax payers receive a deduction of DKK 1,300 plus DKK 300 per child. However, taxpayers with incomes above a given threshold receive no “green check” at all.

Another example of revenue recycling is in the Netherlands, where the reve-nues are recycled back to households and industry through personal and corpo-rate tax relief.


The fee income is then used by the regulatory authority to pay for com-pensatory measures – reducing phosphorus or nitrogen elsewhere – in organizations excluded from the fee system (p.7). Instead of letting the market supply and demand set the price of emissions, the fee will be set with regard to the costs of acquisition of compensatory measures. The fee is aimed to finance compensatory measures, rather than to guide the par-ticipants’ behaviour (Naturvårdsverket, p. 102). Whether or not the point sources will be allowed to trade with emissions permits, as in a “cap and trade”, is not yet decided, but will be further investigated (p. 102).

Initially, the distribution of the individual caps will be guided by what is technically achievable. Initially, the Swedish Environmental Protection Agency proposes the fee system to assign emission caps to point sources, such as wastewater treating plants as well as pulp and paper industries, but to later on to incorporate diffuse sources such as agricul-ture, iron and steel industries as well as chemical industries, as these are also major nitrogen and phosphorus polluters. The nitrogen and phos-phorus fee is still only a proposal by the Swedish Environmental Protec-tion Agency.

3.5.2 Flexible import tariff and fee scheme for nitrogen and phosphorus

Phosphorus is an indispensible nutrient, finite and scarce, but also recy-clable. Threats of peak-phosphorus notwithstanding, the current over- and misuse of phosphorus cause serious over-fertilization of water.

Since phosphorus mainly enters the national supply chain through imports of fertilizers and food, the flexible emission fee proposal26 for controlling phosphorus mismanagement involves a flexible import tariff on phosphorus-containing commodities. By increasing the price on phosphorus, the intention is to stimulate a market for phosphorus recy-cling. If this up-stream measure is insufficient, the next policy step in-volves an end-user fee. Phosphorus leaks into waterways mainly from water treatment plants and agriculture, and by levying a fee on phos-phorus emission, a market for phosphorus-rich products like urine could be promoted.

Nitrogen is another indispensible nutrient causing over-fertilization of water, although abundant and non-recyclable. The main sources of

────────────────────────── 26 Hinton, S (2013): Briefing Paper – Flexible emission fees applied to phosphorous (P) and nitrogen (N).


nitrogen pollution are industry, combustion engines and agriculture. The flexible emission fee proposal for nitrogen diffusion encompasses a flex-ible fee on combustion engines, industrial processes and artificial ferti-lizer production. As for phosphorus, the proposal also suggests an ad-justable tariff on food imports.

The proposed phase-out time for phosphorus imports is assessed to 20 years, whereas the zero emissions target for nitrogen is assessed to be achieved in 30 years. The proposal suggests that the import tariffs would be adjusted if the level of imports was not falling in sufficient pace.

To compensate households for increasing food prices, the flexible emission fee proposal advocates a fee revenue redistribution, as sug-gested by means of a general reduction of personal taxes. Revenue in-come is also suggested to be directed towards investments in infrastruc-ture for phosphorus recycling.

This proposed policy scheme is believed to restrict imports of phos-phorus and nitrogen and stimulate a market for phosphorus recycling.

4. Analysis

Based on the four categories of criteria and the description of flexible emission fees and tradable emission permits presented above, this chap-ter evaluates the two mechanisms on the general (theoretical) level and when applied to analytical cases.

4.1 Evaluation on the general level

The general comparison of flexible emission fees (FEF) and tradable emission permits (TEP) revolve around the four topics: Efficiency Acceptability Uncertainty Transaction costs.

Each topic is subdivided and evaluated in the comparison of the two mechanisms. The table below highlights the differences identified in the analysis. Each element is elaborated subsequently.


Table 3. Evaluation of flexible emission fees (FEF) as compared to tradable emission permits (TEP) on the general level

Topic Characteristics of FEF

Efficiency If no pre-set environmental target, risk of very slow emission reduction, but also oppor-tunity to steepen reduction path given new information. However, also prone to conti-nuous lobbying

FEF allows the polluters to minimize costs of reducing emission parallel to TEP

FEF does not ensure socially optimal emission reductions, but a cost minimizing approach

Market information that can be used to adjust fee and reduce abatement costs is provided via futures markets, but at the cost of increasing market variability and risk

An expert group with operational freedom makes continues fee adjustments, based on available information. This is believed to improved decision making, but is not clear how the expert group weighs conflicting elements.

Acceptability FEF revenue is proposed to be redistributed to consumers benefiting public support to the mechanism. This could be done for TEP as well.

An expert group without full democratic control could prove difficult to accept.

Uncertainty Fee fluctuations are a source of uncertainty which, however, is thought to be mitigated by a futures market. Uncertainty and fluctuations are nonetheless also inherent to TEP.

Transaction cost Futures markets involve cost. It is not clear to what extent transaction costs will in-crease, but it is to be expected that the related costs will be relatively smaller in an extensive market with many polluters.

It has been argued that flexible emission fees “does not exist to put a price on the environmental damage caused by pollutant…it is…meant to put a price on the pollutant emissions so that the underlying causes to the damage can be eliminated.”27 This statement reveals a fundamental-ly different approach than mainstream environmental economics, where the objective is typically not to eradicate an emission but to reach a so-cially optimal level of emissions (that can be zero). In this approach it is necessary to conduct a valuation of damages and not just to phase out costs at least cost.

────────────────────────── 27 Höglund, A. (2012, p. 18): “A new method to reduce the emissions of greenhouse gases”, Appendix 3 in Enell, M. (2012): “Flexible Emission Fees – An incentive for driving sustainable production and consump-tion”, TemaNord 2012:511.


Environmental effectiveness Flexible emission fees are identical in providing emission reduction in cases where both have parallel long term environmental targets and time frame. This is opposed to a traditional tax in which there is a fixed price but an uncertain quantitative endpoint.

However, the endpoint as well as the path of emission reduction may differ between flexible emission fees and trade emission permits mech-anisms. That is e.g. in cases where flexible emission fees have no fixed target (cf. section3.3.1), as compared to tradable emission permits that always will operate with fixed targets.28

Both the path and speed of emission reductions and the endpoint can be of importance in situation where damage costs accumulate over time or in cases with irreversible consequences of continued emissions. From an environmental point of view the temporary aspect of emissions are often central, which implies that the specific type of pollution and design of flexible fees is important in this respect.

Tradable emission permits ensures that the target is met, whereas flexible emission fees can loosen or strengthen targets along the way. This has the consequence that tradable emission permits offer greater certainty of reaching a pre-set target, which is relevant in cases where you have – politically – fixed targets to which the regulation has to en-sure compliance. In other cases, the flexible fees system may correspond well to indicative, reduction targets (e.g. “good ecological status”, “reduc-ing waste generation”).

It remains unclear precisely on what basis the expert group will con-tinuously set the flexible emission fees; one element in their decision rule appears to be the degree of fulfilment of environmental goals. Also the fact that there are often major lags between a change in behaviour and the impact to be detected in the environment will make the chang-ing of targets and the setting of taxes very complex. However, the setting of the flexible emission fee can also be taken to be affected by specula-tion, level of investment in abatement technology but possibly also ele-ments of public, stakeholder and political pressure. The creation of envi-ronmental policies and the setting of environmental targets is a political process, but the continuous fee setting may introduce an additional risk of eroding the environmental ambitions along the way.

────────────────────────── 28 The targets under tradable emission permits will be gradually reduced from one trading period to the next.


Economic efficiency Both instruments allow the polluter to act in a cost minimising way to the benefit of both mechanisms’ economic efficiency.

Flexible emission fees have been presented in a rightful context, where the difficulties of assessing costs and benefits of environmental policy leads to inefficient decision making of regulators and in turn pol-luters and consumers.29 Planning for optimality is impossible, which is the reason why markets are left to allocate. However, in mainstream environmental economics the regulator puts up a framework to correct for externalities under which the market can operate. This framework is established based on available information of both costs and benefits. The cost revealing aspect of futures markets is seen as a way to over-come these informational problems and guide emission reduction. How-ever, two questions arise:

If abatement costs are not compared to environmental benefits of

abating, it is not possible to determine whether a change is socially desirable.

Is the information revealed on futures markets an smart approach to improve regulation; basically you choose to introduce risk, which is typically regarded as a bad thing, in order to reach a new level of stability (and information).

The search for optimality is a basic economic approach to policy making. However, when a target is politically agreed, economics turn to finding the most cost effective way of reaching it. Managing the flexible emission fee without a specified target – quantitative and in time – is thus neither an efficient nor cost-effective approach. Without a specified targets the approach is to minimize abatement costs disregarding environmental damage. In practical terms, this is some times the way politics work: let’s solve this problem and phase out the substance slowly. Most often poli-ticians set specified goals that range from bans to quantitative targets both of which are fixed in time.

When making the choice of introducing risk to a market, the regula-tor must be confident that the benefits of doing so outweigh the costs. The information gains and possibility of hedging on a futures market –

────────────────────────── 29 E.g. Höglund, A. (2012): “A new method to reduce the emissions of greenhouse gases”, Appendix 3 in Enell, M. (2012): “Flexible Emission Fees – An incentive for driving sustainable production and consumption”, TemaNord 2012:511.


that on exist as a consequence of volatility – are benefits that can reduce abatement costs. On the other hand, risk is not free. The introduction of volatility implies a risk premium on top of a comparable risk-free choice of abatement. And speculators will need return on their investments. These pros and cons of the flexible emission fees are not possible to as-sess and less so quantify within this analysis. It is nonetheless key in determining the attractiveness of flexible emissions fees as a mechanism to reduce emissions.30

Irrespective of these aspects, flexible emission fees and tradable emissions permits are in principle parallel if they have the same envi-ronmental target and intervals between adjusting fee/number of per-mits. Other examples of mechanisms that have been discussed that have the abilities to reveal a price on a market or stimulate stability include a flexible cap and trade and Pigouvian taxes. Most of these mechanisms are new combinations of old instruments.

────────────────────────── 30 A future question for investigation is to determine the nature of information that is produced on a flexible emission fee futures market. And how much more useful is this information for the purpose of regulation compared to e.g. the information that lies in the change in emissions as response to a regular tax?


Sources: Kashyap, A.K. and J.C. Stein, 2012, “The Optimal Conduct of Monetary Policy with Interest on Reserve”, American Economic Journal: Macroeconomics, 4(1), 266–282. Stein, J. 2012, “Monetary Policy as Financial Stability Regulation”, The Quarterly Journal of Econom-ics, 126(1), 57–95.

Dynamic efficiency Both mechanisms increase costs of pollution and give incentives to abate emissions and introduce new technology. However, stability could lead to a higher level of investment in abatement reducing cost via innova-tion. This is one of the things that flexible emission fee with a futures market aims at by giving an opportunity for polluters to insolate against fluctuations giving security in the life span of investments.

A comment on macroprudential policy in the finance sector

When analysing the flexible emission fee mechanism, it could be useful to get some insights into parallel problems and analyses in other economic areas and literatures.

In the aftermath of the financial crisis, a substantial number of macropru-dential reforms have been suggested. Economists and policymakers are focusing on systemic risks in the financial system and various instruments to address them. One example includes the risk of banks issuing too much short-term debt (excessive money creation) in a socially non-optimal way, leaving the system excessively vulnerable to costly financial crises. Hence, the banks do no internal-ize its social costs, which is the definition of a fundamental market failure. Among the variety of ways for a regulator to address this externality, two, for environmental economists, classical instruments are suggested.

Stein (2012) suggests a flexible “cap-and-trade” system in which banks are granted tradable permits, each of which allows them to do some amount of money creation. The author claims that the market price of the permits reveals information about banks’ investment opportunities to the regulator, which can then adjust the cap accordingly. When the price of the permits goes up, this suggests that banks in the aggregate have strong investment opportunities, so the regulator should loosen the cap by putting more permits into the system. Another proposal by Kashyap and Stein (2012) and others suggests that with a reserve requirement on the banks’ short-term liabilities, changes in the quantity of reserves can be used to implement a socially efficient, time-varying regime of Pigouvian taxes.

Both cited articles emphasise that optimal Pigouvian taxes are likely to be time-varying, and to depend on information that is not available to the regulator. In order to obtain this information, the authors state that it helps to have a mar-ket price, as in a cap-and-trade system.


The EU ETS market for carbon emission permits has suffered from high fluctuations which proposedly has let to inoptimal decisions of both over and under investments in abatement. Also, it has been argued that technological diffusion is stronger with a tax than with a permit system, regardless if it is auctioned or handed out for free. Popp et al. say “Under tradable permits, technology diffusion lowers the equilibrium permit price, thereby reducing the incentive for participating firms to adopt. Thus, a permit system provides a lower adoption incentive than a tax, assuming the two instruments are equivalent before diffusion occurs”.31

It has been argued that flexible emission fees reduces capital destruc-tion as the fee will reflect marginal abatement costs via the futures mar-ket allowing polluters to phase out pollutants or yesterday’s technology at their preferred speed. This contributes to minimizing abatement costs. However, the fee and therefore the incentive to adopt new tech-nology can be lowered due to a lower fee to the extent that environmen-tal damages are disregarded in the setting of the fee.

Efficiency of redistribution of revenue Given that both mechanisms generate revenue from fee or permits auc-tioning, the same possibilities for efficiency improvements in redistribu-tion exist. The spending of revenue cannot be seen disregarding the way they have been collected. However, when the revenue is generated the mechanisms in question can thus be regarded as parallel to the extent that revenues can be generated to the same degree and spent on e.g. development of emission technologies or reducing distortive taxes.

Regarding the efficiency of revenue recycling, economic theory shows that emission tax revenue optimally should be used to decrease existing distorting taxes. Emission taxes should be levied to correct for an exter-nality and not for revenue collection purposes, even if revenue would pay for additional emission reduction. Furthermore, the tax base will be decreasing and the governmental investments in additional emission reduction must be finances by other means.

Following the criteria definition above (section 2.3), the revenue re-payment will increase the efficiency of the mechanism if it is redistribut-ed to, e.g., research that will reduce abatement costs in cases where un-derinvestment in abatement technologies exists due to market failure This is not the result if revenue is repaid to the public or other purposes.

────────────────────────── 31 Popp, Newell and Jaffe, 2009, “Energy, the Environment, and Technological Change”, NBER Working Paper 14832.


However, there can be many other reasons than efficiency for choice of repayment mechanism.

Tradable emission permits can be allocated with no cost to polluters (grandfathering) and thus without generation of revenue that can be redistributed. However, auctioning of permits allows redistribution of revenues parallel to the flexible emission fee. The case for many Nordic environmental taxes is, however, that they are regarded as a source of government revenue in line with income taxes. Financing government budget is a part of any taxation be it environmental, income or company taxes, which should be considered when designing mechanisms that are politically feasible.

Predictability It is argued that the flexible emission fee with a well-functioning futures market will bring about a way to ensure predictability of costs and thus investment decisions. However, if the futures market is very volatile it could have the unwanted side effect that futures market option for polluters to insulate against fee fluctuation comes at elevated costs due risk levels.

The first period of time after introducing the flexible emission fee it will be difficult for the agents to create realistic and reliable expectation to the level of the fee. This lowers predictability, but is analogue in a tradable permit system.

It is noteworthy that the possibility to hedge against fluctuation is al-so a likely consequence of fluctuating markets – also a market for trada-ble emission permits. However, one of the advantages of a regular tax is that is constant and therefore only prone to more or lees frequent changes by regulator (policy or political risk). Since predictability can be an asset of multiple mechanisms to varying degree, the question is as much what losses are provoked to attain it. These aspects cannot be clarified within this analysis.

Acceptability Redistribution of revenues has been presented as essential in promoting acceptance. Yet, as both mechanisms have the same opportunities for revenue generation, they also have the same options for redistribution and in turn acceptability via spending of revenues.

One central point, in flexible emission fees is the pivotal expert group that could be difficult to accept. For the flexible emission fees to work and new decisions on fee levels taken continuously, a devoted expert group make swift decision making more likely than when relying on Parliament negotiation. Technocracy with no or little democratic control has appeal as a way to ensure decisions based on knowledge and long


term perspective. Parallels of the functioning of an expert group to that of a central bank are drawn in the appendix.

For expert groups to become broadly acceptable many changes have to occur in the way we regulate our economy and make decisions gener-ally speaking. An independent expert group with operational freedom is far from today’s situation and many decisions have to be made before a body is likely.

In the UK, legislation has been adopted that set targets for reductions of climate change emissions and the establishment of a Committee on Climate Change.32 The committee reports to Parliament on legally bind-ing carbon budgets and related issues. In spite of the fact that all deci-sion are still in the hands of politicians, the UK example represents the first steps in the direction of what could become an expert group in line with the ideas of the flexible emission fee mechanism. This includes a legal framework for ensuring that Government meets its commitments by means of legally set targets and an independent body of experts.

Setting the fee is no tedious task: informational demands can be huge and trade offs difficult. In principle the expert group will have to consid-er multiple objectives at once, which makes it necessary to democratical-ly develop a decision rule before the expert group is set to manage the fee and given responsibility of solving an environmental problem in a balanced way.

Uncertainty A strong argument in favour of flexible emission fees is that it lowers un-certainty. A wellfunctioning futures market is assumed to reduce uncer-tainty of abatement cost implying that the flexible futures fee potentially can promote a reduction path where abatement costs are minimized and the destruction of capital due to abrupt changes is reduced. When a target is set without including environmental damage cost or there is no target at all,33 the environmental uncertainty is removed from the decision making (not from the environment-economy interrelation).

On the other hand, mainstream environmental economics see deci-sion making on uncertain basis (uncertain knowledge about present and future environmental and abatement costs) as a necessary evil. In order

────────────────────────── 32 www.theccc.org.uk 33 The former could be no phosphorous imports in 30 years and the latter phase out of phosphorous imports without a specified goal in time, see also section 3.3.1.

http://www.theccc.org.uk


to move the emission reductions towards an optimal target policy deci-sions must be made based on best available information.

This fundamental distinction – not between mechanisms as much as between economic reasoning is not possible to evaluate on present grounds.

Lastly, the expert group will be setting and adjusting the fee accord-ing to a set of attributes that are – more or less – known to the agents. The knowledge will provide that companies with a tool to generate ex-pectation for the fee in the coming period. It is not clear precisely on what basis the expert group will make decision, but assuming that the process is transparent can lower uncertainties.

Rapid adjustment is a way to timely incorporate updated infor-mation, which can reduce risk of off target policies. The current debate on the EU ETS34 reflects the difficulties in adjusting regulation based new information and changed conditions. The flexible emission fees are inherently adjusted which potentially reduces risks of malfunctioning. However, tradable emission permits could in principle also be adjusted much more frequent than in the current setup of EU ETS.

Transaction costs In comparison with tradable emission permits, flexible emission fees require a well-developed futures market with a full set of financial mid-dlemen. Although trading can be performed by a limited number of peo-ple and not all polluters have to engage in trading, it has to acknowledge that a futures market is not free of costs. Speculations – for instance on futures markets – can be regarded as beneficial as it evens out fluctua-tions and increases liquidity. Even if the transaction costs are low, speculators still need return on their investment, which everything equal shifts the cost curve upwards. Introducing volatility and risk is not free of cost.

In addition, a given polluter only knows own abatement costs and not that of other agent’s; this implies that the single polluter is willing to pay an additional risk premium reflecting the likelihood that tomorrow’s prices are likely to be both above and below the polluter’s own cost. In other words, that polluter expresses his expectation for the future price on the market and what the price at the futures market is above his abatement cost. It should be seen as that insurance premium that he is

────────────────────────── 34 European Commission (DG Climate Action) on structural reform of the EU ETS: http://ec.europa.eu/clima/policies/ets/reform/index_en.htm

http://ec.europa.eu/clima/policies/ets/reform/index_en.htm


willing to pay to avoid uncertainty. It is not clear to what extent transac-tion costs will increase, but it is to be expected that the related costs will be relatively smaller in an extensive market with many polluters.

If the expert group has to adjust the flexible emission fee several times a year, it calls for a high level of information on actual emission levels, which is costly to attain. It will depend on the specific emission characteristics, but it could be a disadvantage for flexible emission fees compared with tradable emission permit mechanisms where stock of emissions can be taken at the end of multiannual periods.

On the other hand, when the fee or permit system is levied on im-ports, extraction or production of an unwanted substance information levels are generally high. Import statistics are available, which lowers monitoring costs. Furthermore, only few agents tend to be involved in imports compared to potentially many more agents down stream, which lowers administration costs. However, upstream taxation removes focus from environmental damages. It will thus be an import fee or permit system, rather than an emission system, which could lead to the same emission reduction but there will be no incentive to install a range of technologies (e.g. end of pipe filters and remediation technologies) po-tentially increasing costs of reaching an environmental goal.35

This report does not include analysis of legal aspects of the mecha-nisms; neither whether flexible emissions fees are legally possible with-in existing framework nor if it will augment risk of too costly legal dis-putes between e.g. polluter and regulator.

4.2 Evaluation of analytical cases

The Swedish Environmental Protection Agency propose a combined a non-tradable cap and fee system to control phosphorus and nitrogen emissions. Emitters are assigned an emission cap, and if this cap is ex-ceeded, a fee will be levied on the excess emissions. The fee revenues will be used to finance additional reduction actions.

The flexible emission fee proposal involves flexible import tariffs on food and fertilizer containing phosphorus and nitrogen as well as end-user fees on phosphorus and nitrogen emission fees on industry, com-

────────────────────────── 35 If these technologies are applied the polluter could be given permit allowances or exemption from import fees.


bustion engines and agriculture. The fee revenues will be used for household compensation and infrastructure investments.

In general, the former proposal is focused on a narrow set of pollut-ers and a specific environmental problem. The latter, on the other hand, suggests a set of different mechanisms to regulate the full value chain; or in other words the aim is to alter the way the nutrients flow through the economy.

Environmental effectiveness Although both proposals are based on quantitative environmental tar-gets a cap is a more environmental effective approach. A cap sets a legal limit on pollution, and even though a flexible fee can adjust according to observed emission reductions, the fee-setter still has to guess how much it will need to reduce emissions. When initially setting a fee, tax or cap, the same considerations will have to be made. The advantage of the flex-ible emission fee is that this can be adjusted regularly in response to the measured impact of the fee on the environment. However, in the Swe-dish EPAs suggestion, a cap is combined with a fee on excess emissions, which implies that neither of the suggested policy schemes give envi-ronmental guarantees.

As the flexible emission fee is levied upstream, it has high coverage of the down stream value chain.36 Since the tradable emission permit pro-posal only involves a limited number of point sources the coverage is lower. This distinction has consequences for the ability of the proposed mechanisms to reduce emissions.

Another distinction is time horizon and target characteristics. The flexible emissions fee is aimed at full import phase out over a rather long time span as opposed to the tradable emission permit proposal that has a more pragmatic ambition of reducing excess emissions over a shorter horizon in time. The former is a price on imports that incentivises recy-cling (from reducing leaching and evaporation from manure to recollec-tion of nutrients in water bodies), whereas the latter gives incentive for reducing point source emissions (more effective sewage cleansing but also remediation actions in water bodies). The differences in approach have consequences for the environment; the outcome of regulation could, in theory, be the same, but the paths to reach it and technologies applied are quite different.

────────────────────────── 36 In addition, the flexible emission fee proposal.


Economic efficiency The analysis covering economic efficiency might be more clear-cut. The Swedish EPAs proposed policy scheme does not, at its current form, involve a true cap-and-trade system. The suggested instrument is rather a combination of a traditional regulation and an emission tax. Thus, the proposed policy scheme does not result in any economic efficiency if the cap is a binding constraint, i.e. when the actual emissions are lower than the cap. The FEF on the other hand involves double-taxation if both up-stream and end-user emitters are levied by a fee. Increasing food prices and household rebates drive inflation, which the FEF also recognises.

In addition, the upstream levying in the flexible emission fee pro-posal, cuts off a number of end pipe or remediation actions that could be more cost effective, such as increasing process effectiveness or recycling.

A flexible emission fee on both imports, but also on combustion en-gines and potentially end point emissions, are in reality different mech-anisms. In terms of economic theory, policy diversity could be an ade-quate way to address the overall objective, which can be more cost effec-tive than a universal approach. However, the tradable emission permit system could also be extended with other mechanisms in the same way.

According to economic wisdom, or rather tax incidence analysis, the choice of upstream versus downstream carbon tax or cap-and-trade is of no significance since the behavioural change should not depend on where in the production process the regulation is levied. Proponents of upstream cap-and-trade point to the much lower administrative costs of upstream regulation due to fewer entities to regulate. Behavioural econ-omists criticise upstream cap and tax because the price signal from the cap is removed from the the pollution point and the one who is in con-trol of the emission. Although the imposition of a cap or a tax are argued to travel through the system to affect consumer prices, the lack of clear tax salience lead to less behavioural change.

An emission tax levied upstream closely resembles an upstream cap-and-trade system, where the price of allowances is passed forward to consumer prices. However, whereas a tax well could be levied on rela-tively few operations, a cap-and-trade requires the creation of new mar-kets and a new set of openly traded commodities. It seems likely that this type of policy scheme would need to include more entities, and pos-sibly a more downstream approach, to induce trade with allowances and thus result in an economic efficient outcome.


Dynamic efficiency The policy scheme in the Swedish EPAs proposal consists of a non-trade cap with a fee levied on top. This means that the emissions regulated by the cap will be free for polluters. Emission levels exceeding the cap will be subject to a fee. This implies that the proposed policy will have the same effect on technological change as a traditional regulation as long as the cap is binding, i.e. actual emissions are lower than the cap. Hence, the dynamic effects will be negligible. If the actual emissions are higher then the cap and a fee will be levied on top, then the proposals by the Swedish EPA vs. the Foundation will give the same incentives to technological development.

Efficiency of redistribution of revenue The two proposals differ in terms of spending (and generation) of reve-nues. The flexible emission fee is proposed in relation to redistribution to the public (but also for investments in sewage infrastructure). On the other hand, the tradable emission permits proposes to spend revenue on remediation actions. These two alternative ways of recycling fee reve-nues lead to different efficiency results, but also to different kinds of incentives of technology diffusion and in turn dynamic efficiency effect.

Predictability A fixed cap and a long-term set emission tax would give more predicta-bility than a flexible fee, despite the possibility to hedge against fluctua-tions on a futures market.

Acceptability A green tax shift by financing decreasing personal income taxes with import tariffs could possibly be more public accepted than an intra-industry redistribution of fee revenues. However, import tariffs on food and fertilizers will most likely be claimed to be protectionism and ren-der protests from WTO as well as from the EU. Furthermore, it will be difficult to differentiate between ecological and traditional food imports in terms of phosphorus and nitrogen, which also would affect the analy-sis on environmental efficiency as well as on transaction cost.

Transaction costs Both policy schemes involve substantial transaction costs for set-up and monitoring etc. The monitoring of end of pipe emissions and recipient environmental concentrations etc. is costly, but it is not clear how the mechanisms distinguish themselves, as both suggest environmental monitoring.


The flexible emission fee based primarily on imports is not wholly dependent on environmental information, but if it expected that envi-ronmental trends is an important component of the decision to change fee several times a year, the monitoring costs would be substantial. Im-port statistics do, furthermore, report nutrients content of goods – it could be calculated for every single fertilizer and food, but this is not trivial task.

5. Results

The report compares flexible emission fees and tradable emission per-mits based on a set of criteria. The latter is used analytically to highlight differences between the proposed flexible emission fee mechanism and a well described and broadly applied mechanism. However, tradable emission permits faces challenges as expressed in the current debate on the future of the European Emission Trading System. The pros and cons of flexible emission fees are in focus, and efforts have been made to point out the particular advantages and disadvantages in comparison with tradable emission permits.

The results of the analysis of flexible emission fees are summed up in the following questions:

Are flexible emission fees at par with the framework for environmental regulation? A major driver of current environmental policy and legisla-tion are challenges that require action to avoid irreversible damage or threats to human health. The polluter’s pay principle is central in this environmental regulation. In cases where flexible emission fees operate without a specified target, it can be argued that the fee is a price on poorer than average technology rather than on pollution. The polluter will still pay, but there is only a very indirect price on pollution itself as damage costs of emissions are not priced. On the other hand, if a target is specified for the flexible emission fee, a price on pollution will be the consequence and, in this case, also be part of the futures market price.

Will flexible emission fees be preferred by consumers and polluters? The risk of increase in consumer prices and options for repayment are analogue for economic mechanisms for environmental regulation. Re-payment of revenue is possible, irrespective of the mechanism that gen-erates revenues. It is therefore to be expected that consumers have no general preference for one mechanism over the other. Polluters are said to opt for stable market conditions, but the argumentation that flexible emission fees with a future market will in fact lead to predictability at low cost has to be scrutinised formally for this to be substantiated. To the extent that flexibility reduces abrupt changes in fee, it will most probably be preferred by polluters. It can, furthermore, be expected that polluters are in favour of a fee that moves with average abatement costs, as this minimize their costs and leaves out accelerated action on envi-


ronmental grounds (emission reduction will occur at a market’s pre-ferred speed – disregarding externalities – when there is no specified environmental targets to reach). However, it is not clear whether pollut-ers will be in favour of mechanism management by an independent ex-pert group; it can potentially reduce their say in the process, but it can also reduce abrupt changes due to, e.g., political risk.

Case-specific factors of mechanism design and market structure are likely to influence the response by consumers and polluters. For in-stance, if the revenue is redistributed to development of new technology, it will increase the acceptance with some polluters. On the other hand, if the revenues are paid to the citizens as a lump sum transfer, it will cre-ate a positive opinion in the population. In addition, if the polluter is a price-setter, it can pass the burden on to the consumer, but if the pro-ducer is a price-taker, it will bear the loss and the consumer will experi-ence a budget increase.

What elements are new? In many aspects, the flexible emission fee combines well known elements. The mechanism does, nonetheless, dif-ferentiate itself on some aspects: (1) a flexible emission fee without a specified environmental target differs from the general paradigm within environmental economics that optimal regulation reflects the intersec-tion between the marginal abatement costs and the marginal damage cost to the environment; (2) introduction of volatility via fluctuating fee level in order to reach a new equilibrium opposes traditional regulation that aims at minimizing instability. At the present stage, it is not clear whether this dynamic is beneficial or not; and (3) the introduction of an expert group is also an innovative element that has some potentials in making qualified decisions with a long-term perspective, but it is also a major step away from present day political control. Any advantage of an expert group could also be found if applied to the management of other mechanisms.

With a specified environmental target (e.g., quantitative reduction at point in time), the FEF sends a clear quantitative signal to the market in spite of the fact that prices are used to regulate or interfere on the mar-ket. Nonetheless, this case shares extensive similarities with quantitative regulation (e.g., tradable permits) where small intervals of adjustments (of the number of permits) could be applied as well. However, this has not be prevalent in actual application of quantities mechanisms – one of the reasons being the difficulties in political decision-making that will only increase at greater frequencies; a matter which an expert group with operational independence could reduce.


With a flexible environmental target (some buffer as to quantitative reduction and point in time of achievement), the flexible emission fee resembles price regulation (a tax). During the period of regulation, new information from polluters, on the environment and so forth can be in-corporated in the adjustments of price, which makes it continuously possible to optimize benefits and minimize cost. The benefits of flexibil-ity in regulations have been presented often in economic literature. However, flexibility can come at elevated cost, not only to decision-making but also transaction, monitoring and administrative costs.

In which cases are flexible emission fees most attractive? The mecha-nism has potential strengths in cases (1) with high levels of low-cost information on effects as many adjustments require much information; (2) with long-term objectives where environmental damage is small and cost minimization is the top priority; (3) where the typical alternative is a ban and transaction costs are not prohibitive (e.g., very sensitive envi-ronmental challenges where regular monitoring and adjustments by an expert group are necessary to make sure emissions stay within narrow thresholds) and also (4) where there is a time lag between the political decision of the overall environmental legislative framework and the actual setting of targets (e.g., policies that originate in the EU and where the Member States subsequently are to design the national implementa-tion), the flexible emission fee would allow regulators to quickly imple-ment a fee without a specified target for the relevant emission or re-sources and only later determine the national target where the knowledge of the price for abatement which have been revealed at the futures market.

6. Recommendations

Following the results of the analysis and the process to reach them, sev-eral suggested recommendations for further development and assess-ment of flexible emission fees have surfaced. The list below can be re-garded as progressive steps for future work.

Structured communication: In discussions, communication and

further analysis, it is of great importance to create a stringent framework for discussions. This implies that broader motivations for policy action (e.g., environmental concern, repayment to citizens, economic stimulus) have to give way for focused analysis of the isolated mechanism. Albeit important, the other aspects must be dealt with separately in order to maintain focus on the points where the flexible emission fee distinguishes itself from other mechanisms. It is recommended that the next step in communication and future development focus on flexible emission fees in a rather narrow sense.

Strict definition: We regard it important to formalise the definition of flexible emission fees. This project has provided a structure and analysis that can be explored to a greater extent, and we recommend that contact be established to academia for formalisation in order to clarify argumentation. Furthermore, it seems reasonable to believe that a thorough literature study could result in additional insights into the efficiency of the instrument. Although flexible emission fees might be a uniquely used term in the literature, there is a lot of research along the same line such as “endogenous tax rates”, “dynamic corrective taxes”, “flexible pigovian corrections”, “discrete tax reform”, “dynamic taxation schemes” etc. A major step forward will be publication in a peer-reviewed journal.

Efficiency analysis: A formal, theoretical analysis of the efficiency of futures markets in relation to flexible emission fees. It is crucial to establish a clear basis for assessing the trade-off between, e.g., efficiency losses of hedging on a futures market in terms of volatility of futures prices, risk premium, transaction cost etc. versus gains in flexibility and information revelation.

Cases: Continue the development of the flexible emission fee on selected cases, e.g. based on the initial effects thoughts on the


nitrogen and phosphorous applications (TSSEF, 2013).37 The development could aspire to reach the same level of detail as the work of the Swedish Environmental Protection Agency on tradable permits for nitrogen and phosphorous (e.g., Naturvårdsverket, 2012).38

Empirical simulations: Tests of flexible emission fee and futures market efficiency on given markets can show efficiency gains and losses and redistribution effects. The simulation should be calibrated with data from and the structure of selected markets.

Assessment of barriers: An assessment of barriers for implementation must be carried out; this includes legal aspects, current environmental regulation, and consequences for trade and industry.

Convince politicians to set legally binding environmental goals and to establish an expert group with operational freedom that can handle an environmental problem effectively and decide upon proper policy initiatives, be it taxes, tradable permits or flexible fees.

────────────────────────── 37 TSSEF, 2013: “Briefing Paper – Flexible emission fees applied to phousforous (P) and nitrogen (N)”, The Swedish Sustainable Economy Foundation. 38 Naturvårdsverket, 2012. “Styrmedel för ökad rening från kommunala reningsverk”, Rapport 6521.

Dansk sammenfatning

Denne rapport analyserer økonomiske virkemidler til at sætte pris på forurening.

Med udgangspunkt i et sæt af kriterier (økonomisk efficiens, transaktionsomkostninger m.fl.) sammenligner analysen et forslag til fleksible miljøafgifter med virkemidlet omsættelige kvoter. Formålet er at afklare fordele og ulemper ved virkemidlerne, som er vigtige i den praktiske proces, der leder til valg af miljøregulering.

Omsættelige kvoter er velbeskrevne og anvendt i mange sammen-hænge. Samtidig er anvendelsen forbundet med udfordringer, hvilket for indeværende ses på det europæiske marked for CO2-kvoter. Analysen inkluderer omsættelige kvoter for at fremhæve forskelle og ligheder med fleksible miljøafgifter.

Fleksible miljøafgifter er bygget op omkring en uafhængig ekspert-gruppe, der pålægger forurening en afgift, som varieres hyppigt nok til at opnå den ønskede reduktion i forurening. Som følge af variationen vil forureneren beskytte sig med fremtidige udsving i miljøafgiften på et så-kaldt futures-marked.39 Prisen på futures vil afspejle markedets forvent-ninger til morgendagens afgiftsniveau eksempelvis baseret på udviklingen i de marginale omkostninger ved at reducere forureningen. Ekspertgrup-pen kan efterfølgende anvende information om prisudviklingen på futu-res-markedet i sin beslutningen om at fastsætte afgiftsniveauet.

Fleksible miljøafgifter bibringer nye elementer, der omfatter meget hyppig variation i afgiftsniveau, en uafhængig ekspertgruppe med ope-rationel frihed til at forvalte miljøafgiften og indførslen af tilstrækkelig afgiftsvolatilitet til at afstedkomme en ny ligevægt (via futures-markedet). Ydermere er afgiften kun en indirekte pris på forurening eftersom fleksible miljøafgifter er tiltænkt at afspejle de marginale reduktionsomkostninger.

Disse elementer kunne i nogen grad indarbejdes i andre former for virkemidler og matcher i større eller mindre grad paradigmerne i da-

────────────────────────── 39 En future er en kontrakt mellem parter om køb og salg af et værdipapir til en fastsat pris på et fastsat fremtidigt tidspunkt.


gens miljøregulering. Der er dog fortsat nøglespørgsmål, som står ube-svarede: Er gevinsterne ved fleksibiliteten og afledt stabilitet via en stærkt fluktuerende afgift større en omkostningerne derved? Dette spørgsmål kræver en formel økonomisk analyse, som kan afsøge de un-derliggende antagelser.

Fleksible miljøafgifter er blevet beskrevet både med og uden et fast-lagt miljømål. Konsekvenserne af dette spænder fra et spørgsmål om omkostningseffektivitet – hvor forskellige virkemidler kan vurderet i forhold til deres evne til at nå et miljømål med færrest omkostninger – til en grundlæggende anderledes opfattelse af miljøregulering. Hvis det ikke er et fastlagt miljømål vil fleksible miljøafgifter drive forurenings-reduktionen i en takt, der er sammenlignelig med udviklingen i forure-nerens reduktionsomkostninger, og dermed uden skelen til de skades-omkostninger som forureningen medfører. Denne tilgang kan potentielt minimere reduktionsomkostningerne, men den kan ikke optimere om-kostninger og gevinster forbundet med et miljømål.

Overvejelser i analysen om de potentielle styrker ved virkemidlet er vist i tabellen herunder.

Table 4. Fleksible miljøafgifter kan have potentielle styrker i tilfælde med disse fire karakteristika

Høj grad af let tilgængelig information, da hyppige variationer kræver store mængder information. Meget langsigtede målsætninger og lave skadesomkostninger som følge af forureningen, hvor minimering af reduktionsomkostninger har førsteprioritet. Det typiske alternativ er et forbud og transaktionsomkostningerne ikke er uforholdsmæssige (fx meget føl-somme miljøudfordringer, hvor hyppig monitorering og tilpasning fra ekspertgruppens side kan holde forure-ningen inden for et snævert spænd). Lang periode mellem den politiske beslutning om rammeværket og den faktiske målfastsættelse (fx EU-regulering hvor medlemsstaterne efterfølgende skal designe den nationale implementering) kan fleksible miljøafgifter give mulighed for hurtigt at pålægge afgifter uden fastsatte miljømål og kun derefter fastsætte nationale mål baseret på bl.a. den viden om reduktionsomkostninger, der er opnået med fleksible miljøafgifter og afspejlet på futures-markedet.

Fleksible miljøafgifter er fremsat som et alternativ til den nuværende miljøregulering. Et regimeskifte foreslås både til fordel for forbrugere via tilbageføring af provenu, mindske reduktionsomkostninger for foru-reneren og udfase uønskede stoffer samt fremme genanvendelse. På trods af dette antager denne analyse, at den nuværende miljøregulering baseret på national og international lovgivning samt tilhørende politik-ker er uændret. Derfor anskues fleksible miljøafgifter som et uafhængigt virkemiddel på linje med andre eksempelvis skatter, administrative sty-ringsmidler mv. Dette muligør sammenligning af virkemidlet med andre anvendte virkemidler inden for den nuværende regulering.


Denne sondring er også gældende med hensyn til tilbageføring af provenu til forbrugerne, hvilket er foreslået som del af fleksible miljøaf-gifter. Analysen fremfører, at fleksible miljøafgifter ses snævert som et økonomisk virkemiddel, der kan sammenlignes med virkemidler med samme muligheder for tilbageføring.

Det anbefales at videre arbejde og formidling af virkemidlet fokuse-rer på den økonomiske kerne og ikke på den bredere motivation for miljøregulering eller anvendelsen af provenu. Kun ad denne vej kan vir-kemidlet vinde accept blandt lovgivere. Ydermere bør de økonomiske ræsonnementer underbygges og testes og et oplagt skridt er at etablere kontakt til forskningsmiljøer med henblik på publicering i fagfælle-bedømte, økonomiske tidsskrifter.

7. Appendix

7.1 Independence of governmental agencies and public acceptability

Public choice theory and historical evidence show that some governmen-tal institutions can cause large damage on the economy if abused by gov-ernments. In addition, theoretical and empirical research show that gov-ernments indeed might have strong incentives to abuse these institutions. Whereas there is a trend to make some of these institutions independent of the government it is also argued that independence creates new prob-lems regarding the accountability, responsibility, and legitimacy.40

A central bank is a typical example of this type of institution. Re-search show that governments face strong incentives to interfere with monetary policy for own short-run political gain, which can be harmful for society. It is argued that an independent central bank can run a more credible monetary policy, making market expectations more responsive to signals from the central bank. Since the 1990s, there has been a trend towards increasing the independence of central banks. The configura-tion and political say vary between countries, but generally central banks have to ensure stable prices and long-term stability in the econo-my. Central banks do not necessarily set their own goals, but they often have far-reaching operational freedom.

Trust in the institution is critical for the functioning of central banks; they are expected to deliver trustworthy decisions to the benefit of the whole economy. The public acceptability of a central bank will depend crucially on how well it defines and performs over time. The financial crisis and the bad performance of the independent central banks vs. the less-independent central banks have fuelled the debate regarding the efficiency and legitimacy of independency.

Another type of institution facing the same challenges, involves Fiscal Policy Councils. Albeit not commonly implemented, various forms of

────────────────────────── 40 Kvasnicka, M., 2005, “Independence and Responsibility of Central Banks”, New Perspectives on Political Economy, 1(2), 50–75.


Fiscal Policy Councils have been advocated by economists in recent years. It is argued that that the councils should advice, monitor and con-strain government policy, and in some proposals even be delegated parts of fiscal decision making. A common proposal has been to delegate the right to adjust specific tax rates within pre-determined margins around some politically determined base level in order to stabilise the business cycle. The aim has been to increase effectiveness of stabilisa-tion policy by reducing time lags and the risk that stabilisation motives are dwarfed by other objectives.

Not unexpectedly, technocratic influence on fiscal policy is contro-versial. Whereas critics have argued that the freedom of action of demo-cratically elected politicians would be circumscribed in a non-acceptable way, others argue that distortions in the political process, such as politi-cal rent seeking, would be counteracted and policies more aligned with public preferences would be promoted.41

The some extent the above reasoning can be paralleled with a flexible fee-setting expert group. Monetary, fiscal or environmental policymak-ing could all to a varying degree be distorted by self-interested politi-cians, lobbying, excessive discounting of the future and time incon-sistency problems. Under some conditions technocratic decision-making by independent expert could be more efficient. Whereas the advantages of independent central banks seem generally accepted, delegating fiscal policy to independent experts are highly controversial. Whether delegat-ing decision-making on environmental taxes would be accepted or con-sidered provocative remains to be seen, but it seems likely that a pro-posed reform would be subject to intense discussion.

Notwithstanding the unwillingness for politicians to give away power to influence fundamental economic decisions, such as employment, infla-tion,and industry framework conditions, there are also other issues that should be considered. Whereas a central bank not is established to gen-erate revenue for government budgets, a fee-setting expert group, and some forms of fiscal councils, has a direct effect on revenue. This could possibly make the latter experts more subjective to outsider pressure. In addition, whereas the interest rate has economy-wide implication, could the effects of emission fees be concentrated on a very limited number of stakeholders. For pollution concentrated to a smaller industry fraction, the fee-setting expert group’s decision could have significant influence

────────────────────────── 41 Calmfors, L, 2005, “What remains of the stability pact and what next?”, Sieps 2005:8.


on bottom lines. In these cases, it is likely that industry will not accept giving a full mandate to the expert group.

Finally, whereas an unfavourable monetary policy for national com-petitiveness could be motivated by national inflation or stability reasons it is harder to motivate an industry-harmful emission fee when envi-ronmental benefits are global and the fee opens for international distri-bution of burdens.


Ved Stranden 18DK-1061 Copenhagen Kwww.norden.org

This report compares the Cap and Trade method with an alternative method, the Flexible Fee Mechanism. The Flexible Fee Mechanism was created as a response to political and other practical obstacles often preventing the efficient application of other methods.

The main focus of the Flexible Fee Mechanism is the levying of a fee at the point where a pollution-inducing product enters the economy. The fee is then raised sufficiently (and sufficiently often) to effectively stimulate the transformation of the economy in a sustainable direction. At the same time, the revenue from the fee is directed back into the economy to stimulate alternatives, demand and employment.

Still, key questions remain unanswered in this report. This project was launched by the Working Group for SCP (HKP) in collaboration with the Working Group on Environment and Economy (MEG) under the Nordic Council of Ministers.


TemaN

ord 2014:512

TemaNord 2014:512ISBN 978-92-893-2722-0ISBN 978-92-893-2723-7 (EPUB)ISSN 0908-6692

TN2014512 omslag.indd 1 27-03-2014 08:53:34

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