Economic Instruments - Charges and taxesFertiliser Tax (Sweden)
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Background Sweden introduced price regulation and a fertiliser tax on nitrogen and phosphorous in 1984, with these two working together until 1992 when the price regulation was dropped and the phosphorous charge was eliminated and replaced by a charge on the cadmium content of commercial fertiliser. The two are related by the fact that cadmium occurs in mineral deposits (at varying concentrations) in phosphate rock (so that phosphate fertilisers are frequently sources of cadmium pollution in the soil). Unlike Austria, Sweden did not abolish their fertiliser tax upon accession to the EU in 1995. The government saw the tax as a good way to finance environmental projects. Apart from that, the tax as such was expected to have a positive effect on the environment. From that time on, the tax on fertiliser has been equivalent to about 20% of the price of fertiliser. The Swedish government introduced the environmental charge / tax to reduce the use of fertilisers in agriculture and forestry and so reduce the adverse impact of agriculture on the environment. The goal of the price regulation tax was principally to finance export subsidies though it appears to have been recognised that this too will have had an impact on fertiliser use (and, presumably, the magnitude of the exported surplus). Prior to its abolition, the price regulation charge was set far higher than the environmental charge. As such, any price incentive conveyed by the combined system might have been expected to be more significant in the case of the price regulation charge (Ecotec, 2001). In July 1995 the special tax office at Dalarna County Tax Authority in central Sweden was appointed taxation authority in place of the National Board of Agriculture. This occurred as the charge was converted to a tax. The tax is levied on commercial fertiliser manufactured in Sweden or imported. Manufacturers and importers are under a duty to register, submit returns and pay tax on quantities delivered each month. SEPA (1997) reports that there were 45 registered manufacturers, of which 5 were importing for their own use. 37 were importing for resale and only 3 were manufacturing in Sweden itself. The tax system in Sweden for fertilisers is somewhat similar to that found for pesticides in that what was once an environmental charge (implemented on July 1st 1984 for all chemical fertilisers) has graduated into a tax (since July 1st 1995). Pre-dating the environmental charge was the introduction of a price regulation charge on nitrogen in commercial fertiliser.
Aims The Swedish government introduced the environmental charge / tax to reduce the use of fertilisers in agriculture and forestry and so reduce the adverse impact of agriculture on the environment.
Scope The tax is levied on commercial fertiliser manufactured in Sweden or imported. Manufacturers and importers are under a duty to register, submit returns and pay tax on quantities delivered each month. SEPA (1997) reports that there were 45 registered manufacturers, of which 5 were importing for their own use. 37 were importing for resale and only 3 were manufacturing in Sweden itself.
Coverage There is no environmental charge on potassium in commercial fertiliser as this is not thought to have any negative environmental effects. Also, when the phosphorous charge was eliminated in 1994, it was replaced by a charge on the cadmium content of commercial fertiliser. The two are related by the fact that cadmium occurs in mineral deposits (at varying concentrations) in phosphate rock (so that phosphate fertilisers are frequently sources of cadmium pollution in the soil). The charge was set in January 1994 at a rate of SEK 30 per gram of cadmium where the cadmium content exceeded 50g /tonne of phosphorous. This threshold was lowered to 5g/tonne of phosphorous in November of the same year (Ecotec, 2001).
Tax Rates The charge was set in January 1994 at a rate of SEK 30 per gram of cadmium where the cadmium content exceeded 50g /tonne of phosphorous. This threshold was lowered to 5g/tonne of phosphorous in November of the same year. The rates have remained stable since 1994, and are thus (Speck et al., 2006, www.oecd.org, 2004): 1.80 SEK per kg of nitrogen if the fertiliser contains more than 2% nitrogen 30 SEK per gram of cadmium if the cadmium content exceeds 5 gram per tonne phorphorous. Unlike Austria, Sweden did not abolish their fertiliser tax upon accession in 1995. The government saw the tax as a good way to finance environmental projects. Apart from that, the tax as such was expected to have a positive effect on the environment. From that time on, the tax on fertiliser has been equivalent to about 20% of the price of fertiliser.
Exemptions No tax exemptions apply; all fertiliser nitrogen, domestic or imported, is subject to the same tax rate.
Allocation of Revenues Since the introduction of the tax in 1985 until now there have been discussions about the desirability of the tax. Concerns are raised regarding the costs for farmers. Farmers argue that the tax revenues should be returned to the farmers (for instance on a per hectare basis). Most of the charge revenues generated in Sweden between 1984 and 1995 were used for research and various environmentally oriented projects. The action programs have included investment in fertiliser management units, advisory services and special information and research programs in the agricultural and forestry sectors. In 1994, the steep rise in the environmental levy occasioned its transformation into a tax. Following this rise only a small proportion of tax revenues have been channelled to environmental projects in the field. The effect of the change is that measures to reduce the use of commercial fertiliser in agriculture will not in future be financed using funds earmarked for the purpose. Revenues go to the state budget, but funds are still allocated for environmental improvements in agriculture.
Institutional Arrangements Before the tax office administered the tax, the National Board of Agriculture administered it.
Performance The goal of the price regulation tax was principally to finance export subsidies though it appears to have been recognised that this too will have had an impact on fertiliser use (and, presumably, the magnitude of the exported surplus). Prior to its abolition, the price regulation charge was set far higher than the environmental charge. As such, any price incentive conveyed by the combined system might have been expected to be more significant in the case of the price regulation charge. The price regulation charge this stood at a higher level than the environmental charge. In the first years of implementation of the tax, the fertiliser use declined by 2 to 3%. Nitrogen and phosphorus consumption was at its lowest in 1991/1992, when total taxes per kg of fertiliser were at a maximum. The years 1991/92 to 1994/95 would appear to indicate a price responsiveness in respect of all component nutrients that supports a belief that farmers are responsive to price. Some of this response might have been obscured by changes in levels of price support over the same period (Ecotec, 2001). A calculation of the optimal nitrogen dosage with and without the levies shows that the levies probably reduced use of nitrogen fertilisers by 15 to 20% in 1991/1992. The effect of the tax level of 1997 may be estimated at around 10%. The price elasticity of chemical nitrogen fertiliser is estimated to be between -0.17 and -0.25 for Sweden in one study and between -0.12 and -0.51 in another study. In the longer term elasticity may be expected to be greater, since other factors (for instance new technology) may reduce the need of fertiliser-N (Ecotec, 2001). There is some evidence to suggest that average levels of cadmium in fertiliser have fallen since the charge on cadmium content was introduced. There were no data available on the effect of fertiliser tax on the mineral surplus or the nitrate level in water (Ecotec, 2001). Due to the tax, the price of fertiliser-N rose at first about 10% in the first years of implementation. The height of the price regulation tax increased over time to about 20% of the purchase price of fertiliser. The environmental charge on phosphorus in fertiliser was 8% of the price. The total taxes per kg of fertiliser were at a maximum in 1991/92, representing 30 to 35% of the price of the product. The price regulation tax was abolished in 1992, and the tax on phosphorus in 1994. However, the environmental tax on nitrogen was increased in 1995 from SEK 0.60 to SEK 1.80 per kg of nitrogen. In 1996 the nitrogen-tax amounted to about 20% of the price of fertiliser. The Federation of Swedish Farmers (LRF) started a campaign to abolish the tax, or at least reduce it. They argue that the tax system is not very efficient to reduce nitrate leaching and that the costs for the farmer are very high. They estimated that the farmer has to pay 300 SEK (EUR 35) to reduce nitrate leaching by 1 kg. The LRF is convinced that some sort of system is needed to save the environment, but that the tax system is inefficient. The LRF suggests a switch from a unit tax system to a system based on surpluses, as is the case in the Netherlands, because such a system is much more efficient (Ecotec, 2001). In 1994, the ratio between fertiliser expenditure and farm income (Gross Added Value) in Sweden was 14%. In addition, the fertiliser industry faces a decreasing demand of fertilisers, so they are affected as well. On entry to the EU, there were concerns for competitiveness. On the other hand, there was also a view that the environmental aspect of agriculture might give Swedish products a competitive edge in the EU (Ecotec, 2001). Thus, while in other countries accession to the EU occasioned a removal of this type of charge / tax, Sweden retained its environmental tax on nitrogen. As mentioned above, the combined rate on nitrogen is lower in the post-accession years, and the charge on phosphorous has been removed in favour of one on cadmium content (Ecotec, 2001). The fertiliser industry has seen a decrease in the competitiveness of their product, because other options for fertilising (use of organic manure, use of leguminous, and new technologies which can reduce the use of fertilisers) have become relatively more attractive. However, the majority of fertilisers appear to be imported so that the industry is not a major one in Sweden. Calculations of the Swedish Board of Agriculture showed that the levy should be 6 to 8 times as high as the current level to achieve the goal of an extra N-reduction in the year 2005 of 7850 ton at a national level. The Income of the tax is 30Meuro per year (Romani, 2004)
References Ecotec, 2001. Study on Environmental Taxes and Charges in the EU. http://europa.eu.int/comm/environment/enveco/taxation/environmental_taxes.htm Romani,M. 2004. INSTRUMENTS FOR THE CONTROL OF DIFFUSE POLLUTION BY NITRATES FROM AGRICULTURE WITHIN THE EUROPEAN UNION West and North European countries. ENGREF Centre de Montpellier Speck et al., |
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