The tax was first proposed in 1974 and federal law on the German wastewater tax (Abwasserabgabengesetz) was passed in 1976. The tax regime remains regulated by this law as amended in 1986, 1990 and 1994. The federal law had to be transposed into Länder legislation, and the tax came into effect in the majority of Länder in 1981, with some following in 1982-83. Upon unification, the tax regime was extended to the five new Länder with effect from 1991, and in the case of industries not liable to previous GDR-wastewater taxes, from 1993. According to the original law, the rate of the tax was scheduled to increase from 12 DM to 40 DM from 1981 to 1986. It was subsequently increased to 50 DM in 1991, 60 DM in 1993 and 70 DM in 1997.
The purpose of the tax was to make dischargers, private and municipal, comply with the prescribed standards. In the past there were considerable problems with non-compliance. The tax is effectively a penalty tax for non-compliance with standards. Despite the reduced exemptions since 1999, the character of the tax has not fundamentally changed.
The tax is levied on a 'damage unit', which is determined as an equivalent of 50kg of chemical oxygen demand (COD), 25kg nitrogen, 3kg phosphorus, 2kg organic halogens, 20g mercury, 100 g cadmium, 500 g chromium, 500 g nickel, 500 g lead or 1,0000 g zinc (RIZA, 1995). Industry and municipalities are charged on direct discharges into rivers, lakes, the sea and groundwater whilst indirect discharges are not charged (OECD 1997, pp40) The charging system is based on a formula, under which pollution units are defined, broadly equivalent to the pollution generated by one individual (OECD 1997: 40).
The charge has gradually increased, and between 1981 and 1993 the charge rose from DM12/unit to DM60/unit (OECD 1997: 40) with an increase to DM70 in 1997 (Tindale & Holtham 1996: 29).
Since January 1, 1997, the tax rate has stood at 70 DM (36 EUR) per damage unit. A damage unit represents either 50 kg of chemical oxygen demand (COD), 25 kg nitrogen, 3 kg phosphorus, 2 kg organic halogens, 20 g mercury, 100 g cadmium, 500 g chromium, 500 g nickel, 500 g lead, or 1,000 g zinc (See RIZA, 1995b: 102 for full details). 50 kg of COD translates into about 2.5 inhabitant equivalents (i.e.), so that the rates are 1.4 euro per kg of nitrogen and 12 euro per kg of phosphorus (Speck et al., 2004). Since 1997, The charges are based on permits rather than actual emissions, but sources can reduce their payments through abatement measures or construction/improvement of sewage treatment plants (OECD 1997: 41) Dischargers are able to ‘offset the costs of investment in pollution control equipment against charges' (OECD 1997: 41).
The tax affects only direct dischargers, i.e. discharges from industries and municipal sewage outlets. Indirect dischargers are affected by the tax via the ordinary wastewater user fee. There are about 8,000 municipal sewage treatment plants and 4,000 industrial direct-dischargers (Hitchens et. al., 1998: 166). The latter belong to Germany's largest industries. The tax interacts with standards for sewage discharges in a fairly complex way. The tax is reduced when standards are adhered to, and further reduced if dischargers manage to keep their effluent at a quality level that exceeds that set in the regulations, provided that the target for this improved performance has been set in advance and is subsequently verified.
Allocation of Revenue
The revenue raised by the tax is spent by the Länder authorities on municipal sewage treatment and on Länder administration of water quality programmes. The practice varies from Länder to Länder, but in the main, the revenue is recycled for support in investments in municipal sewage treatment plants. The Federal Environment Agency (Umweltbundesamt) estimates that 60 per cent of the revenue is derived from municipalities and 40 per cent from industry (RIZA, 1995: 107).
In the first decade of the tax regime, a special 'härteklausel' allowed for a reduction or even annulment of the tax. According to a BMI-report from 1983 the federal authorities received requests from a range of industries, including fish processing, paper- and pulp, kali industry, pectine industry and 7 others, who asked for exemptions or derogations. The BMI was in favour of a restrictive policy towards exemptions, and it seems that a special arrangement was reached only with the paper- and pulp industry (BMI, 1983: 30). The possibility for obtaining exemptions according to the härteklausel was removed in 1989.
In 1982 several Länder spent about 50 per cent of the revenue on administration, while one (Bavaria) accordingly spent more on administration than the revenue earned (Hitchens et. al., 1998: 163-164). In the mid-1980's administration costs were reduced to a level of 25-30 per cent (Hitchens, et al, 1998). In the 1990's the administrative costs were brought down to a level of about 10 per cent of the revenue. In 1998 the share was 10,6 per cent or 76 million DM (EUR 38.9 million) (Bundesministerium, 2000: 31).
The tax provided a revenue of 164MEURO (DM320 million) in 1996. (Tindale & Holtham, 1996: 29). Between 1981 and 1998, the total revenue raised increased by 320% from 87.4 MEUR to 368 MEUR in 1998, due to the steep increase in tax rate from 12 DM to 70 DM per damage unit (Ecotec, 2001).
Ex ante evaluation suggested ‘three-quarters of the private enterprises and two-thirds of the municipalities surveyed had increased, accelerated or modified their abatement-measures for water pollution in anticipation of the charge,'(Barde & Smith, pp24), and of these respondents, two fifths were acting solely in response to the charge (OECD 1997: 41). Behavioural changes by firms to reduce the quantity of charged emissions can lead to possible benefits through reduced emissions of uncharged pollutants and ‘various types of "soft effect" in terms of changes in attitudes and awareness of companies, municipalities, and their employees' (OECD 1997: 41).
The main effect from the tax lies in its impact on compliance with standards. A secondary effect is a more general incentive to reduce discharges liable to the tax. Compliance rates for public sewage treatment plants were reported to be very high following the introduction of the tax (Ecotec, 2001). Many companies have found it cheaper to improve water use in production processes, than to introduce or extend sewage treatment (Bucksteeg, 1991). The burden of the tax depends on whether the discharger is in compliance with the standards. For public sewage treatment plants that do not comply with the BAT standard, the effect of the tax is to increase costs by up to 10 per cent of total operating costs. For plants that comply the cost share of the tax is only about 2 per cent. In addition to this there is a risk to the sewage manager in cases of non-compliance, which entails the need for extra finance after the ending of the budget year (Rudolph, 1989).
A comprehensive comparative study of environmental costs in two water-intensive industrial sectors, dairy and meat production, was carried out by Hitchens et. al. (1998) in Germany, Ireland and Italy. The main finding of the study was that similar industries face different costs for sewage in the same country, depending on local tariff structures and depreciation schemes etc. However, the costs for sewage tended to be generally higher for German firms than for firms in Italy and Ireland. The costs of sewage were in average 1.02 EUR/m3 in (Western) Germany while it was 0.44 EUR/m3 in Ireland and 0.33 EUR/m3 in Italy (ibid. 92). Costs in the dairy industry were 0.87EUR/m3 in Germany and 0.25-0.26 EUR/m3 in Ireland and Italy. The main reason for the difference is not the German wastewater tax, but the more advanced treatment applied in Germany, a difference that is expected to narrow as full implementation of the Urban Wastewater Directive proceeds in all Member States. German dairy companies were on average less water intensive than the Irish and Italian counterparts (ibid.; 84-85). Output per litre of water used was twice as high in German firms as in Irish and Italian ones. This finding suggests that German dairy producers had responded to the higher factor costs of water by minimizing use, suggesting that the price has an inducement effect on technological choice.
Disadvantages include a ‘lack of systematic ecological rationale for the relative levels of charge applied to different substances, and the lack of regional differentiation in the charge, to reflect differences in the ecological vulnerability of different areas,' (OECD 1997: 41). In terms of efficiency the system does not result in cost-minimisation due to the dual operation of charges and permits; there is the possibility of distorted competition between direct and indirect dischargers; the use of revenue to subsidise abatement measures may not be necessary in all cases and some firms may initiate abatement without the incentive of a subsidy; ‘the reduction in the charge applicable to enterprises which ‘overcomply' with the permit requirements reduces the tax burden on residual units of pollution, thus weakening the dynamic incentive function of the charge'(OECD 1997: 41).
Barde & Smith, 1997, 'Do Economic Instruments Help the Environment?', The OECD Observer, No.24, Feb/Mar 1997, pp22-26. Available at: http://www.oecd.org//publications/observer/209/ART_IDXE.HTM
Bundesministerium für Umwelt, 2000, Die Förderung des Umweltschutzes im deutschen Abgabenrecht; einschliesslich des ökologischen Steuerreform, draft, Berlin: BMU.
BMI (Der Bundesminister des Innern), 1983, Erfahrungsbericht zum Abwasserabgabengesetz, Bonn, 41 p.
Ecotec, 2001. Study on the Economic and Environmental Implications of the Use of Environmental Taxes and Charges in the European Union and its Member States. In association with CESAM, CLM, University of Gothenburg, UCD, IEEP http://europa.eu.int/comm/environment/enveco/taxation/environmental_taxes.htm
Hitchens, D., et. al., 1998, The Firm, Competitiveness and Environmental Regulations: A Study of the European Food Processing Industries, Cheltenham: Edward Elgar.
OECD, 1997, Evaluating Economic Instruments for Environmental Policy: 40-41, OECD: Paris. Available at http://www.oecd.org//env/policies/publications.htm#eistrpub
RIZA, 1995, Waste water charge schemes in the European Union, Part 1-2, Lelystad: RIZA.
Rudolph, K.-U., 1989, Zur Kostenstruktur der kommunalen Abwasserentsorgung im Hinblick auf die Bedeutung der Abwasserabgabe, pp. 1412-1415, Korrespondenz Abwasser, no. 12/89.
Tindale S. and G Holtham, 1996, Green Tax Reform, Pollution Payments and Labour Tax Cuts, S, Institute For Public Policy Research, London.
Useful Information Sources
The Federal Ministry of the Environment: http://www.bmu.de/english/aktuell/4152.php
German Environmental Agency: http://www.umweltbundesamt.de/index-e.htm
Green Budget Germany: http://www.eco-tax.info/4fakten/index.html
http://www.bmu.de/files/pdfs/allgemein/application/pdf/umweltabgabenber.pdf from the Min of Finance, 2000: descriptive paragraphs on water resource management in Germany.
http://www.eco-tax.info/4fakten/index.html German Eco- Tax website
http://www.umweltbundesamt.de/water/index.htm waste water info
http://www.umweltbundesamt.org/wsektor/wasserdoku/english/doku_e.pdf - the german water sector overview - policies and experience
http://www.eeb.org/activities/water/making-WFD-work-February05.pdf - overview of waste water WFD give contacts for germany : Micheal Bender and Tobias Schafer, Grune Liga e.V. Bunderkontakstelle Wasser, firstname.lastname@example.org
http://www.bmu.de/files/pdfs/allgemein/application/pdf/waste.pdf see page 10 for performance
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