ISSN 2225-7543

Serhiy М. Schkarlet, Doctor of Economics, professor

Iaroslav V. Petrakov, PhD

Chernihiv State Technological University, Chernihiv, Ukraine

Environmental Taxation Evolution in Ukraine:
TRENDS, Challenges and Outlook

Recent development trends of environmental taxation in Ukraine in context of the 2011 Tax Reform are analysed. Institutional, fiscal and security challenges for green taxes evolution during economic downturn and recession are summarized. Further modernization outlook for environment-oriented fiscal instruments in Ukraine considering European experience is stated.

Key words: environmental taxes, fiscal nstruments, trends, challenges.

Проаналізовано останні тенденції розвитку екологічного оподаткування в Україні в контексті реалізації податкової реформи 2011 року. Узагальнено інституційні, фіскальні та безпекові виклики для еволюції «зелених» податків в період економічного спаду та рецесії. Визначено напрями подальшої модернізації екологічно орієнтованих фіскальних інструментів в Україні з урахуванням європейського досвіду.

Ключові слова: екологічні податки, фіскальні інструменти, тенденції, виклики.

Проанализировано последние тенденции развития экологического налогообложения в Украине в контексте реализации налоговой реформы в 2011 году. Обобщены институциональные, фискальные вызовы, а также вызовы безопасности для эволюции «зеленых» налогов в период экономического спада и рецессии. Определены направления дальнейшей модернизации экологически ориентированных фискальных инструментов в Украине с учетом европейского опыта.

Ключевые слова: экологические налоги, фискальные инструменты, тенденции, вызовы.

“Developing a tax environment for growth and competitiveness must be the primary motive for every tax policy and reform, as we strive to return to prosperity and stability”

Algirdas Šemeta, EC Taxation and Customs Union, Audit and Anti-fraud Commissioner

The problem identification and its interconnectedness with important theoretical and practical issues. Environmental problem has become a crusial issue of current national regulatory policy both in developed and developing countries. Despite repetitive attempts to mitigate climate change on a worldwide scale efficiency concerns remains stable due to the limited regulatory space and problems variety. Environmental issue is of great importance both on micro and macro levels, defining competitor positions, market strategies, financial, fiscal and national resource security.

Regulatory mechanism of environmental protection in EU countries was changed during last decade with shift move from command-and-control to market-based instruments and informational approaches.

OECD Environmental Devision mentions different policy instruments with which governemtns can address environmental challenges, from traditional ones, that have relied on prescriptive regulations that have limited the flexibility of firms and the range of potential mitigation measures (but have also provided clear paths to pollution reduction) to more market-based approaches:

1) regulatory approaches: also known as “command-and-control” approaches (CAC), these have traditionally outlined limits and/or approaches for specific industries. These can take the form of emission intensity limits, technology ordinances, or absolute emission limits. They are typically directed at individual industries or specific product characteristics and with the focus usually being on the larger operators;

2) voluntary approaches: governments can also work co-operatively with industrial partners to arrive at binding or non-binding agreements to address emissions, or establish programmes to which firms voluntarily can adhere, thereby reducing the need for legislation;

3) market-based instruments (MBI): these instruments rely on allowing price signals to motivate firms to find the lowest-cost means of abatement by placing a value on (or at least near) the activity causing environmental damage. These can either take the form of a tax on the pollution, a tax on a proxy to pollution, or an emissions trading system that auctions or freely distributes permits, effectively giving the holder of a permit the right to emit (or that give “credits” to polluters that reduce emissions below a predefined baseline). These permits and credits can typically be traded and banked across time periods and have very similar features and effects to taxes;

4) subsidies: instead of trying to induce abatement by taxing the bad, governments can also try to subsidise the good. By reducing the cost of eco-friendly actions or products, the structure of demand and supply can be influenced;

5) information: in addition to the approaches above, governments have also typically undertaken information campaigns to raise awareness about environmental issues. These can take the form of public-service type messages encouraging citizens to undertake green acts or provide greater information on making environmental choices in consumption, such as detailing information on energy utilisation and expected lifetime costs of certain appliances. This information, which is typically difficult for consumers to collect and compare across different options, can help overcome informational barriers and reinforce environmentally related taxation on energy, for example [61, P. 22].

For the purpose of this research under the “environmentally related taxes” should be understood any compulsory, unrequited payment to general government levied on tax bases deemed to be of particular environmental relevance (energy products, motor vehicles, waste, measured or estimated emissions, natural resources) [61, P.33].

Ukraine as a developing European-oriented country leads its way through facing the environmental challenges during unpredictable global macroeconomic stance and announced in 2010 nation-wide multisectoral reforms. In this context, the environmental taxation evolution is expectd [8] to be one of the key drivers of economic modernization, affecting the corporate behavior and individual consumption [6].

The problem of adequate environmental regelatory mechanisms fine-tunning has become extremely actual, being not widespread discussed in the professional and scientific circles. The transition position between CAC and MBI approaches unables governments’ effective use of all the instruments variety. Declarative announcement of environmental protection necessity should be replaced with forced, goal-oriented, quantity measured actions, based on MBI fiscal instruments potential.

Introduction. In spite of last decade environmental regulatory mechanisms tightening in developing countries, global financial and public finances crises and recession, deeping inequality and institutional reforms, basic environmental indicators seem to be rather unchanged, less moving toward targeted threshold, both in developing countries – Russia [17; 19], Ukraine [7; 10; 14], and developed – US [25; 41; 48], UK [60; 66], Sweden [44; 45].

Environmental taxation trends and challenges are now widely discussed at the international level – by European Comission’ Environmental Agency [27; 31; 32; 35; 36], IMF [46; 56; 63], OECD [61], the World Bank Group [41; 57].

On the one hand, negative external background (liquidity deficit at a corporate sector level, fiscal stimulous programs expiring, long-term labor market ageing issue) complicates enterprise modernization and shifting towards eco-friendly production, on the other hand – long-term fiscal imbalances and strengthening international competition require from national goverments new regulatory approaches. However few countries have succeeded in climate change mitigation challenge (Sweden, Norway, Danemark, Netherlands, Belgium), both G-20 and less developed world look constrained in providing sustainable eco-development.

Latest research and publications’ overview. The problems of fiscal instruments in environmental regulation application are broadly observed by foreign world-famous scientists Ph. Aghion (France-USA) [21; 22], I. Bateman (UK) [24]; P. Ekins (UK) [31]; D. Fullerton (USA) [37-39]; J. Hassler (Sweden) [42-45]; J. Horowitz (USA) [47; 48; 64]; K. Kosonen (Finland) [50]; G. Metcalf (USA) [55]. As it can be seen, the majority of the authors are from the US, UK and the Dutch Council countries, where the environmental taxation reforms had being started prior to the rest of the world – in 1990-2000. Thus, theoretical studies concerning tax policy design, instruments implementation have be replaced by empirical research works on environmental tax incidence, various effects of MBI policy action and inaction, taxes regressivity/progressivity.

On postsoviet area environmental taxation issues have been investigated less considerably and are focus primarily at policy objectives and current problems, rather than at correlation analysis of policy measures effectiveness and fiscal instruments regulatory (correctory) potential. Amongst others we’d like to mark out works of Ukrainian researches V. Vyshnevskiy [1], O. Garkushenko [3], Y. Skaletskiy [10], Y. Yakovlev [14], and Russian scientists E. Yesina [15], R. Vesseli [16], A. Galashev [17], E. Reshetnikova [18] and K. Frai [19].

Unsolved problems. Regardless long-run public discussion of environmental challenges, fiscal instruments’ design and potential analysis opportunity are regareded as urgent issues that are likely to rise the next wave of societal dialogue, aimed at national environmental perception recovery. The risk of permanent cyclical wandering crises amplifies the necessity of sensitive environmental fiscal instruments fine-tunning, that would not affect general growth and social well-being.

Research task. The purpose of the paper is to to give a brief overview of the recent development trends of environmental taxation in Ukraine in context of the 2011 Tax Reform, summarizing the institutional, fiscal and security challenges for green taxes evolution during economic downturn and recession. At a conclusion of research an outllok for further modernization of environment-oriented fiscal instruments in Ukraine considering European experience is suggested.

Main material disclosure. The 2010-2011 Tax reform in Ukraine was the result of broad national economy modernization plan, announced by the President V. Yanukovich at the beginning of his fisrt election term. The second stage of the reform (after the Tax Code of Ukraine implementation effective form the January, the 1st 2011) expected to run over the environmental taxation reform by introducing ecological tax instead of the environmental pollution charge [8, P.13]. The tax was designed to consolidate various resource and ecological charges and fees, with tax base widening and serious tax rates revision.

In praise of Ministry of Finances of Ukraine, ecological tax was included in the Tax Code and started to be administered at the beginning of the 2011 with the transition period of 2 years (for 2011 tax rates amounted for 50% of statutory rate, 2012 – 75 % and from 2013 – 100 %). Two years later we’ll try to give the first estimate of environmental tax reform, admitting its positive and negative sides.

The positive effects of the 2011 Tax Reform are the follows:

1) tax base broadening for air, water and land pollution activities;

2) tax rate substantial increase and differentiation due to toxic range and type of pollutive substance;

3) ecological tax mobilization on the polluted territories (implementation of the ‘polluter pays’ principle) with revenue sharing between general government and municipalities.

Hovewer, reform revealed the number of negative issues:

1) tax rates groundlessness. Statutory ecological tax rates were increased on average from 6 to 14 times (table 1), without statement of the necessity for such upsurge). At the same time they still remain to be lower the rates, applied in the EU countries (table 2).

 

Table 1

Statutory (nominal) ecological tax rates dynamics in Ukraine in 2010-2012*

Pollution type

Statutory (nominal) tax rate, € per ton

Tax rates marginal growth,%

2010

2011

2012

2011 to 2010

2012 to 2011

air pollution from stationary sources

NOx

7,37

106,73

114,92

1 347,54

7,68

benzpiren

9 383,13

135 869,14

146 298,96

1 348,01

7,68

CO2

0,28

4,02

4,32

1 354,25

7,47

nickel

297,24

4 304,02

4 634,40

1 348,02

7,68

styrol

53,82

779,37

839,15

1 347,97

7,67

depending on the class of the danger

1

52,72

763,37

821,95

1 348,01

7,67

2

12,07

174,83

188,25

1 347,98

7,68

3

1,80

26,05

28,09

1 349,39

7,84

4

0,41

6,03

6,48

1 354,25

7,47

air pollution from movable sources

leaded petrol

0,41

5,94

6,40

1 333,18

7,60

diesel fuel

0,41

5,94

6,40

1 333,18

7,60

water pollution

nytrogen

4,84

70,10

75,45

1 348,83

7,63

mineral oil

28,48

412,41

443,99

1 348,12

7,66

nitrites

23,78

344,32

370,70

1 348,00

7,66

nitrates

0,41

6,03

6,48

1 354,25

7,47

sulphates

0,14

2,01

2,16

1 354,25

7,47

phosphates

3,87

56,03

60,33

1 347,48

7,67

chlorides

0,14

2,01

2,16

1 354,25

7,47

waste utilization in the water objects (depending on the class of danger)

1

7,60

61,19

65,86

704,73

7,63

2

0,28

2,23

2,40

706,16

7,79

3

0,07

0,56

0,60

709,32

7,68

4

0,03

0,22

0,24

690,36

7,58

 

Notes: * - environmental charge in 2011 was substituted with environmental tax; ** - tax rates are given without indexation coefficient.

Source: author calculations.

Tax rates undervaluation is likely to attract investment in “bad” activities due to tax competition benefit (but environmental further loss).

Table 2

Nominal environmental tax rates in EU countries and Ukraine in 2012

Country

Nitrogen oxydes

(NOx), €/kg

Electricity, %

Landfill waste, €/ton

Motor oil,

€/litre

Diesel, €/litre

Denmark

0,67

8,85

63,8

0,32

0,428

Finland

n.a.

0,87

30

0,087

0,364

Germany

n.a.

2,05

n.a.

0,061

0,47

Italy

0,21

0,47

25,8

0,403

0,423

Netherlands

n.a.

11,14

85,5

0,245

0,365

Norway

1,85

1,26

52,1

0,168

0,474

Sweden

5,18

2,8

40,9

0,378

0,408

UK

n.a.

0,53

44,9

0,126

0,63

Hungary

0,43

n.a.

23

0,337

0,347

Poland

0,11

n.a.

24

0,054

0,296

France

0,06

n.a.

9,2

n.a.

0,428

Turkey

n.a.

n.a.

n.a.

n.a.

0,607

Ukraine

0,11

3

0,1

-

0,2

 

Notes: n.a. – data is not available, for differentiated tax rates the maximum one is stated.

Source: authors calculations, based on [2; 11; 61]

2) disability of tax incidence calculation due to statistics shortage and its disconnectdness with revenue indicators. National statistics service started new environmental taxation observations only from 2011, that disables comparative retrospective analysis of tax reform. In addition, national environmental goals, amended in 2011 are extremely ambicious and require far more effective fiscal instruments but many objectives do not have quantitive indicators of assessment (targeting).

European Environmental Agency indicates four EU key environmental policy priorities (that are covered with 113 various indicators):

1) better implementation and further strengthening of current environmental priorities;

2) coherent integration of environmental considerations across sectoral policy domains;

3) dedicated management of natural capital and ecosystem services;

4) transformation to a green economy [33, Р. 17].

Unlike, Ukraine in the Law “On State Ecological Strategy of Ukraine for the period by 2020” announces seven main environmental policy goals (that are covered with less than 20 targeted indicators) requiring, in our opinion, investment over 60% of GDP, that according to current revenue dynamics (table 3) will be covered in 30 years (not 8 as projected).

Table 3

Environmental taxes revenue dynamics in Ukraine during 2008-2012

Group of

Environmental Taxes **

2008

2009

2010

2011

2012*

€ bln

% of total

€ bln

% of total

€ bln

% of total

€ bln

% of total

€ bln

% of total

Energy

1,20

45,58

0,88

48,08

0,98

48,09

1,23

51,84

1,13

56,00

% of TotRev***

3,11

х

3,49

х

3,29

х

3,21

х

3,76

х

% to GDP ***

0,98

х

1,04

х

0,95

х

0,97

х

1,28

х

Transport

0,51

19,53

0,26

14,23

0,36

17,63

0,28

11,82

0,16

8,06

% of TotRev

1,33

х

1,03

х

1,21

х

0,73

х

0,54

х

% to GDP

0,42

х

0,31

х

0,35

х

0,22

х

0,18

х

Pollution

0,15

5,81

0,11

6,11

0,18

8,98

0,26

10,95

0,21

10,58

% of TotRev

0,40

х

0,44

х

0,61

х

0,68

х

0,71

х

% to GDP

0,12

х

0,13

х

0,18

х

0,21

х

0,24

х

Waste

0,51

19,29

0,06

3,54

0,13

6,15

0,21

8,69

0,17

8,56

% of TotRev

1,32

х

0,26

х

0,42

х

0,54

х

0,57

х

% to GDP

0,41

х

0,08

х

0,12

х

0,16

х

0,20

х

Emission

0,00

0,00

0,30

16,64

0,15

7,15

0,00

0,00

0,00

0,00

% of TotRev

0,00

х

1,21

х

0,49

х

0,00

х

0,00

х

% to GDP

0,00

х

0,36

х

0,14

х

0,00

х

0,00

х

Resource

0,26

9,78

0,21

11,40

0,25

12,01

0,40

16,69

0,34

16,80

% of TotRev

0,67

х

0,83

х

0,82

х

1,04

х

1,13

х

% to GDP

0,21

х

0,25

х

0,24

х

0,31

х

0,38

х

Noise

0,00

0,00

0,00

0,00

0,00

0,00

0,00

0,00

0,00

0,00

% of TotRev

0,00

х

0,00

х

0,00

х

0,00

х

0,00

х

% to GDP

0,00

х

0,00

х

0,00

х

0,00

х

0,00

х

TOTAL EnvTaxes

2,64

100,00

1,82

100,00

2,04

100,00

2,37

100,00

2,01

100,00

% of TotRev

6,82

х

7,27

х

6,85

х

6,20

х

6,71

х

% to GDP

2,14

х

2,17

х

1,98

х

1,88

х

2,29

х

 

Notes: * - 9months 2012 cumulative data; all figures are converted in Euro (due to official exchange rate at the latest banking day of a year); ** - energy (6,7,8,9,12,13); transport (1); pollution (14,15,16); waste (10); resource (2,3,4,5); emissons (17): 1-Car-owner tax (effective till 01.01.2011); 2-Charge for special use of forest resources; 3- Charge for special use of water; 4-Subsoil utilization fee; 5- Other natural resources utilization fee; 6-excice on petrol production; 7- excice on mineral oil production;8-import excice on petrol; 9- import excice on mineral oil products; 10- excice on mineral oil products., vehicles and tyres; 12-target charge on the heat-and-power production; 13-target charge on natural gas consumtion; 14-environmental tax; 15-environmental charge (effective till 01.01.2011); 16- environmental fund; 17-emission trading schemes revenue; *** - TotRev – total revenues of State Budget of Ukraine (with local budgets); GDP – Gross Domestics Product of Ukraine:

Source: authors calculations, based on Ukrainian State Statistics Service and Ministry of Finances of Ukraine data.

Ukrainian environmental policy goals are:

1. Increased society ecological awareness. The first goal matches next objectives:

- non-government ecological social organizations project and implementation involving 2 % financing support threshold of State Environmental Protection Fund general expenses by 2015 and 3 % - by 2020;

- local government assistance in inexhaustible management and eco-friendly technologies implementation, setting up in the each region experimental-information and educational centers aiming to support these objectives;

- public support for the creation and development of energy efficient communities, and introducing such technologies by 2015.

2. Environmental position improvement and increasing environmental protection. The second goal matches next objectives:

- increasing environmental protection via introduction by 2015 complex approach on risks valuation, prevention of natural disaster and consequences minimizing due to Johannesburg Actions Plan:

air - reduction of air pollution with stationary sources by 10 % and 25 % by 2015 and 2020 respectively from the basic level; national economy energy sector structure optimization by low-carbon energy sources utilization increase up to 10 % in 2015 and 20 % in 2020, greenhouse emissions decrease with accordance to national liabilities in Kyoto protocol;

water resource protection – new water-protective facilities construction and reconstruction as well to decrease (basically organics, NOx, phosphates) water pollution by 15 % by 2020, insufficiently cleansed sewage decrease up to 20 % by 2020;

land and soil protection - cropland area decrease up to 5-10 % by 2020;

forest protection - forest area broadening to 17 % by 2020;

geological environment and subsoil – introduction of ecologically safe subsoil utilization technologies and land reclaiming by 2020 on the minimal area of 4300 hectares;

waste and dangerous chemicals – 70 % of landfill providing at a specialized and ecosafe polygons by 2015, share decrease of compounding waste with safe biological degradation by 15 % by 2020; 1,5 times increase of waste recycling by 2020.

3. Safe environment achievement for human health. The third goal matches next objectives:

- surface water safety for 90 % of communities with less than 250 ths habitants, centralized water supply normative compliance by 2015;

- hygien quality drinking water compliance with 70 % of rural communities by 2020.

4. Ecological policy integration and integrated ecological management system development. The fourth goal matches next objectives:

in transport sector – noise control shields deployment near the communities with less than 500 ths habitants by 2015 and by 2020 for communities with less than 250 ths habitants; public transport share increase up to 25 % by 2020;

in agriculture – improvement of conditions for the ecologically oriented and agricultural organics technologies introduction through doubling from the basic level the area of their exploitation by 2020;

5. Bio and landscape diversity decrease suspending and ecological net formation. The fifth goal matches next objectives:

- national econet adjustment to the level (41 % of the country territory), that is necessary for the national ecosecurity, introduction of bio and landscape diversity environmental protection measures by widening natural protected area up to 10 % by 2015 and 15 % by 2020;

6. Providing of balanced ecological nature management. The sixth goal matches next objectives:

- 10-year framework policy for sustainable consumption and production Conception preparation and authorization in 2012 due to Johannesburg Actions Plan, the Strategy and national actions plan design and implementation by 2015;

- energy efficiency in manufacturing improvement by 25 % by 2015 and 50 % by 2020 through the introducing alternative technologies in power industry;

- renewables’ volume increase up to 25 % by 2015 and 55 % by 2020;

- organics farming area share increase up to 7 % by 2020.

7. Regional ecological policy enhancement. The seventh goal doesn’t matches objectives with quantity measures [4].

As noted above, financial crisis may not affect environmental-related tax revenues, that broke the pre-crisis level 2012. Energy and resource payments provide the main share of revenues, resulting in 1,12 % of GDP and 0,38 % od GDP respectively in 2012. Emission revenues seemed to be the most volatile among environmental taxes during 2008-2012 due to greenhouse emission trade permits cotracts disruption with Japanese governement and several European companies. Nevertheless, budget revenues from environmental-related taxes in Ukraine are far less, then in EU countries (table 4).

Table 4

Environmental taxes revenues in Ukraine and EU countries, % to GDP

Country

Energy

Transport

Pollution, waste and resource use

Total

2008

2009

2010

2008

2009

2010

2008

2009

2010

2008

2009

2010

Danemark

2,11

2,20

2,30

1,84

1,51

1,50

0,30

0,30

0,20

4,25

4,01

4,00

Finland

1,78

1,81

1,80

0,89

0,79

0,90

0,06

0,05

0,10

2,73

2,65

2,80

Germany

1,83

1,92

1,80

0,35

0,34

0,40

0,00

0,00

0,00

2,19

2,26

2,20

Italy

1,90

2,09

2,00

0,58

0,50

0,60

0,03

0,03

0,00

2,52

2,62

2,60

Netherlands

1,92

2,04

2,00

2,03

1,23

1,20

0,54

0,71

0,70

4,49

3,98

3,90

Norway

1,20

1,30

1,20

1,07

1,16

1,20

0,13

0,24

0,20

2,40

2,70

2,60

Sweden

2,18

2,28

2,20

0,36

0,53

0,50

0,05

0,01

0,01

2,59

2,82

2,71

United Kingdom

1,76

1,94

1,90

0,51

0,57

0,60

0,09

0,08

0,10

2,36

2,59

2,60

Hungary

2,04

1,99

2,00

0,57

0,46

0,50

0,27

0,17

0,10

2,89

2,62

2,60

Poland

1,80

2,10

2,10

0,06

0,23

0,20

0,09

0,24

0,22

1,94

2,57

2,52

France

1,42

1,45

1,40

0,22

0,55

0,20

0,10

0,09

0,10

1,74

2,09

1,70

Turkey

2,52

n/a

n/a

0,82

n/a

n/a

0,00

n/a

n/a

3,34

n/a

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

Ukraine

0,98

1,04

0,95

0,42

0,31

0,35

0,75

0,82

0,68

2,15

2,17

1,98

EU-27*

1,09

1,80

1,80

0,46

0,53

0,50

0,04

0,10

0,10

1,59

2,43

2,40

 

Notes: * - average weited amount.

Source: authors calculations, based on the MOF data.

Thus, Ukraine has great fiscal potential of environmental taxes in all observed groups of taxes. Compared to EU-27 average level, tax revenues from energy sources can be rised at 80-100 %, from transport – at 50-60 % in medium term period. Special attention should be focused on the pollution/waste/resources group of environmental taxes, that gains 6,8 times more revenues, compared to EU average (0,1 % of GDP). It indicates the revenue fall potential from environmental protection measures (that can be fully compensated with other revenue groups rise). In addition, this reflects the scale of horrible environmental situation in Ukraine.

Analysis of environmental protection costs (EPC) and ecological payments dynamics in Ukraine in 2002-2011 (table 5) depicts actual public support of environmental protection (less, then 1/20 of total EPC in 2011 with negative trend begining from the 2008). Besides that, the amount of actual ecological payments was inadequate with necessary financial support amount (in comparison with EU countries, table 6), worsened by low taxpayers discipline. Thereby current environmental problems are the heritage of long-term underfinancing and residuary principle of budget allocations. These facts confirm our statement of MBI urgent implementation necessity.

Table 5

Environmental protection costs (EPC) and ecological payments dynamics
in Ukraine in 2002-2011, € mln.

Indicator

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Environmental protection costs,

641,0

610,2

579,1

705,6

944,9

1 024,8

955,7

891,7

1 156,0

1 771,2

  incl. from state budget

24,6

19,5

100,1

144,1

186,7

181,1

212,3

206,2

262,5

101,6

EPC dynamics, % y/y

119,5

114

104,1

117,8

132,8

118,4

103,9

131,6

125,6

38,35

Public share in EPC, %

3,84

3,2

17,29

20,42

19,76

17,67

22,22

23,13

22,71

5,73

Ecological payments accrued,

45,5

39,0

33,6

41,5

52,2

54,1

112,0

87,9

101,1

190,6

Actual ecological payments,

16,5

25,0

23,0

35,7

46,3

52,8

95,7

90,3

98,9

174,8

Payments/ Accrued, %

36,2

64,2

68,6

86

88,7

97,6

85,4

102,7

97,8

91,71

Share of public EPC, financed by ecological payments, %

66,8

128,2

23

24,7

24,8

29,2

45,1

43,8

37,7

58,08

Ecoligical payments as tax revenues share, %

0,06

0,13

0,26

0,31

0,29

0,27

0,4

0,43

0,34

0,28

 

Source: [2; 12].

Table 6

Environmental protection investment and current expenditure by sector in EU, € mln.

Country (latest year available)

Industry

Specialized producers

General government

Total invest-ment

Total
current exp.

Total invest-ment

Total
current exp.

Total invest-ment

Total
current exp.

EU-27 (2009)

11 671

40 138

Belgium (2007)

764

2 685

316

1 276

Bulgaria (2008)

203

212

104

94

108

101

Denmark (2008)

721

2 411

170

1 080

Germany (2007)

1 840

8 250

4 120

15 420

1 830

5 860

France (2008)

1 531

6 290

21 959

2 717

5 988

Italy (2009)

11 870

1 823

13 486

3 290

9 094

Hungary (2009)

90

266

128

456

95

86

Netherlands (2007)

462

1 414

507

2 436

1 711

6 700

Poland (2009)

1 173

1 530

172

3 164

981

526

Sweden (2008)

420

701

UK (2008)

2 471

2 702

Norway (2008)

588

612

465

1146

Reference note:

 

 

 

 

 

 

Ukraine (2011)

557

1 112

61

40

 

Notes: … - data is not available.

Source: [32, P. 182; 11, P. 523].

3) As CAC approach with dominant public share in environmental protection costs is impossible under current circumstances, the further active introduction of market-based instruments will help to achieve announced large-scale goals, but faces the nuber of challenges, that can be divided into two groups: direct (fiscal) and indirect (institutional and security).

The fiscal challenges comprise the environmental taxes basic features and the efficiency concerns. First, taxes as automatic stabilizers tend to be procyclical with revenue decrease during economic downturn and recession (that is currently observed in Ukraine).

Thus, the revenue losses will be resulted in budget deficit broadening, actualizing the public finances security matters. Additionally, unobserved impact of environmental taxes on economic activities raises the question of additional tax incidence research, that require further national statistical and regulatory harmonization with EU standards. Second, efficiency of fiscal instruments depends on tax administration capacities and quality, creating the demand on the tax design, anti-fraud and shadow economy halting measures.

Institutional challenges are two-fold and comprise the need in further public institutions reform, reinforced by national demand model reconsideration. “Bad” (bureaucratic and corrupted administrative and regulatory authorities) institutions create demand for unofficial economy and social explosure risks. Low life level decays ability for “clean goods” consumption, that are getting regarded as luxury in the developing countries. Thereby low purchasing capacity forces citizens to consume cheap, environmental aggressive, goods. Inelastic demand on “bad goods” shifts fiscal burden on the most vulnerable groups of taxpayers, increasing inequality. Besides that, deregulation of energy and transport sectors as a prerequisite of MBI efficiency in current political and social conditions in Ukraine is doomed to failure.

As seen from table 7, ecological tax upsurge havn’t solved the air emission problem, as the average pollution volume tends to grow form 376 tones in 2009 to 502,0 tones in 2011, that is 33,8 % increase, similar situation is with CO2 emissions volume, that can be explained with increased demand for cheap coal instead of costly imported natural gas.

Table 7

Environmental pollution indicators dynamics in Ukraine during 2008-2011

Indicator

2008

2009

2010

2011

Number of entities-air pollutants by stationary sources (incl. CO2)

10729

10446

9312

8696

Average pollution by 1 entity, tones

421,7

376,0

443,7

502,9

Total volume of pollution release by stationary sources, mln. tones

4,5

3,9

4,1

4,4

Total volume of pollution release by movable sources, mln. tones

2,7

2,5

2,5

2,5

CO2 emission volume, mln. tones

209,4

185,2

198,2

236,0

 

Source: [12, P. 26; 13, P. 26].

Namely stationary sources carbon dioxide emission increase caused worsened environmental statistics (table 8).

Table 8

Air pollution rejections and CO2 emission volume in Ukraine during 2008-2011

Year

Air pollution rejections

CO2 emission

Total, ths

tones

including

Total, mln. tones

Including

Stationary sources

Movable sources

Stationary sources

Movable sources

2008

7210,3

4524,9

2685,4

209,4

174,2

35,2

2009

6442,9

3928,1

2514,8

185,2

152,8

32,4

2010

6678,0

4131,6

2546,4

198,2

165,0

33,2

2011

6877,3

4374,6

2502,7

236,0

202,2

33,8

 

Source: [2].

Liquidity constraints (high credit rates, absence of public support) resulted in hazardous waste problem (table 9). In a country with 46 mln. of habitants, there are only 2 (two) incinerating factories (Kyiv and Dnypropetrovsk) with the 70 % of overfilled landfills throughout the country.

Table 9

Waste balance indicators in Ukraine during 2008-2011, ths tones*

Year

Produced

Utilized and recycled

Burned

Removed to the special objects and areas

Balance at end of the year on the special objects and areas and on the entities territory

2008

2 301,2

918,9

32,2

1 066,3

21 017,2

2009

1 230,3

825,9

15,8

333,2

20 852,3

2010

419 191,7

145 710,7

1 058,6

336 952,2

13 267 452,0

incl. waste of the І-ІІІ hazard level

1 659,8

642,4

16,5

306,3

20 587,7

2011

447 641,2

153 687,4

1 054,5

277 106,8

14 422 372,1

incl. waste of the І-ІІІ hazard level

1 434,5

597,5

15,6

138,5

19 509,4

 

Notes: * – data for 2008-2009 is available for the waste of the І-ІІІ hazard level; since 2010. – for the waste of the І-ІV hazard level.

Source: [2]

Tax rates increase for toxic waste havn’t solved the problem of ground pollution as well (table 9). On the contrary, the waste balance at end of the 2011 year on the special objects and areas and on the entities territory increased at 1,2 bln tones comparing to the end of 2010. So, the next steps should be made on the utilization side – only tax incentives to recycling and incinerating plants can solve the problem of waste.

Financial deficit issue depicts security challenge both on demand and supply side. The lack of innovative (but primary expensive) technologies on supply side compels to further territories contamination, boosting infections, soil and water pollution. The law demand on recycling technologies (due to higher primary costs) keeps foreign investors out and makes the environmental problems unsolved.

4) inadequacy of ecological tax revenues and indispensable nature preserving costs, their structure. Capital investment and operational costs on nature preserving activities in Ukraine (tables 6, 10, 13) are critically deficient and are 2-10 times less, than in developed EU countries. Additionally, public investments are incommensurable relative to any revied country.

This leads us to the question of informational mechanism efficiency. Inherently, tax base broadening and tax rates increase led to expected taxpayer behavior – due to environmental taxation fiscal burden increase corporate sector in 2011 tripled capital investment and doubled capital repair costs (from € 47,3 mln. to € 80,8 mln.), while government almost halved the expenditures in 2011 shifting the burden on the private sector.

Table 10

Capital investment and operational costs on nature preserving activities in Ukraine, € mln.

Source of funding

1996

2000

2008

2009

2010

2011

1 Capital investments and operational costs, incl.

1 163,15

641,17

1 579,66

1 018,92

1 246,38

1 771,14

1.1 Capital investments

224,40

120,48

484,09

279,79

262,18

617,91

1.2 Capital repair

100,00

46,39

105,01

50,99

47,28

80,80

1.3 Operational costs

938,75

520,67

1 095,56

739,13

984,21

1 153,23

2 Environmental abatement costs dynamics, y/y

119,5

125,6

90,9

118,6

140,8

3 Public share in environmental costs, %, incl.

8,8

9,2

21,4

24,6

11,4

7,0

3.1 Capital investment, %

7,5

7,9

19,0

20,5

8,7

4,4

3.2 Operational costs, %

1,3

1,3

2,4

4,1

2,7

2,6

 

Source: [11, P. 524].

Since 2011, State Statistics Service of Ukraine counts the capital investment and operational costs on nature preserving activities in Ukraine by source of funding (table 11). It is seen, that public sector and institutional investors (with EU and the World Bank Group as a leading ones) priority is facilities modernization (€ 60,6 mln. opposite to € 40, 96 mln. and € 145,68 mln. to € 1,29 mln. of operational costs respectively), while corporate sector was focused in exploitation of existing facilities (with operational costs in 2,77 times higher the capital expenditures).

Table 11

Capital investment and operational costs on nature preserving activities in Ukraine
by source of funding, 2011

Source of funding

Capital expenditures

Operational costs

Total

€ mln.

% of a total

€ mln.

% of a total

€ mln.

%

1 Public, incl.

60,589

9,8

40,961

3,6

101,550

5,7

1.1 State budget, incl.

27,297

4,4

30,101

2,6

57,398

3,2

1.1.1 Environmental protection fund

6,111

1,0

1,834

0,2

7,946

0,4

1.2 Local budgets, incl.

33,292

5,4

10,860

0,9

44,153

2,5

1.2.1 Environmental protection local funds

24,853

4,0

3,882

0,3

28,736

1,6

2 Private, incl.

557,327

90,2

1 112,261

96,4

1 669,588

94,3

2.1 Corporate sources

411,650

66,6

1 110,971

96,3

1 522,622

86,0

2.2 Other sources

145,676

23,6

1,290

0,1

146,966

8,3

Total

617,915

100,0

1 153,223

100,0

1 771,138

100,0

 

Source: [12].

The structure of investment (table 12) shows the pollution intencity level, with air and soil seen to be most affected by externalities (table 13). It should be admitted the crusially low level of investment in biodiversity and environmental R&D during analysed period.

Table 12

Environmental protection capital expenditures and operational costs structure, %

Type

capital expenditures

operational costs

2008

2009

2010

2011

2008

2009

2010

2011

Air protection

39,6

41,9

41,3

39,3

16

12,9

12,7

12,3

Water cleansing

24,8

29

26,5

11,2

47,2

53,6

48,6

44,8

Waste recycling

11,3

13,2

17,2

18,4

27,4

24

25,1

32,1

Land, water rehabilitation

21,1

13,2

11,6

9,9

3,4

3

4,6

4,9

Noise protection

1,8

0,8

0,4

0,6

0,3

0

0

0,3

Biodiversity

0,9

1,1

0,7

0,2

2,1

2,4

2,3

2,7

Nuclear security

0,2

0,2

0,1

19,8

0,9

1,2

4,4

0,6

R&D

0,1

0,3

0,3

0,2

0,6

0,6

0,5

0,4

Other

0,2

0,3

1,9

0,4

2,1

2,3

1,8

1,9

 

Source: [11, P.524, 525].

Table 13

Ecological payments in Ukraine in 2011, € mln.

Type of payment

ET liabilitites

Actual payments

Air pollution, incl.:

1 438, 051

1 310,885

 stationary sources

1 256, 380

1 138,347

 movable sources

181, 671

172,538

Water pollution

60,344

59,223

Landfill waste

491,652

455,303

Ecological tax, total

1 990,047

1 825, 411

Penalties for environmental regulations violation

132,781

18,448

 

Source: [2].

Table 14

Environmental protection facilities operation settlement

Facility type

1990

2008

2009

2010

2011

Water treatment station (ths m3 per day)

343

414

30

110

52

- сorporate

159

4

4

47

6

- public

177

410

26

63

45

Feedback water supply systems, ths m3 of water/day

379

2

1

14

16

Gas collection facilities, ths m3 per hour

3710

0

184

500

2213

4. Waste and pollutants sterilization facilities, ths tones

0

0

3

11

50

 

Source: [11, P.526].

As seen from the table 14, dispite the tax reform efforts the level of annual environmental protection facilities operation settlement is far lower than the basic level, requiring investment increase from 1,6 (for gas collection facilities) to 6,6 times (for water treatment stations).

Conclusions.

1. Severe external environment and economy in transition imposed Ukraine to start unprecedent reforms just aftermath of the global financial crisis. Ecological tax together with the 2011 Tax Code adoption started the process of irreversible shift from old soviet command-and-control model of environmental regulation towards modern and effective marked-based instruments.

2. Despite partial success in tax base broadening, statutory tax rates adoption to the European level and revenue rise, Ukraine now faces fiscal, institutional and security challenges for the “green tax” reform on the way to sustainable growth and well-being, that require immediate adequate fiscal policy measures.

3. Fiscal challenge poses the question of environmental taxes efficiency and completeness. Procyclical downward tax revenue feature, forced by the demand price shock adjustment require to uncover unleashed fiscal potential of energy and transport taxes, imposing instutitional and security challenges.

4. High income inequality, together with financially constrained demand and unreformed energy, transport and utilities markets pursue the shadow economy growth, high demand on “sin” goods and further environmental damages, that are of the national security matter. The liquidity deficit unables timely corporate sector capital and operational expences on environmental protection technologies, limiting supply of innovative green goods, making their price relatively high and inaccessible for common taxpayers.

5. Comparative analysis of the environmental tax revenue level in Ukraine and EU countries, together with tax rates and costs analysis allowed to conclude for further environmental tax reform outlook:

- energy and transport taxes are of unprecedentally high fiscal potential (100% and 60% rise respectively), thus requiring sectoral and public administration reforms to gain the public trust;

- tax rates hikes in 2011 (from 6 to 16 times instantly) didn’t remove pollution externatilities, but significantly increased the environmental-friendly investments (30% and 227% for current and capital expenditures respectively by corporate sector). Their further increase claims creation of additional compensatory mechanisms for most vulnerable taxpayers (subsidies), together with goal-oriented fiscal incentives and additional fiscal instruments (greenhouse emission trading shemes, auctions) to corporate sector in order to meet the ambicious national environmental development strategy targets and reach the European average level of investment in ecological protection;

- environmental taxes’ regulatory potential still remaines unobserved and unleashed, that require additional empirical research, based on success foreign coutnries’ case studies and simulations analysis.

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