C7.2 Pollution and environmental charges
Charges can be levied both to reflect the cost of the use of water as a natural resource (for example through demand management charges (C3) such as abstraction levies, or environmental charges (C7)) and to cover costs of service provision. This tool focuses onpollution and environmental charges. Environmental charges are designed to reflect cost of damage to the environment resulting from use of resources, whether surface water or groundwater. Pollution charges, a particular type of environmental charge, are designed to reflect the financial and economic costs of discharging wastes into the environment. By levying a charge, polluters are encouraged to reduce their polluting discharges, and in effect are paying for the reduction of the ambient water quality (in the same way as charges are levied for consumption of water by users).
A charging system has the advantage over pure regulation in that it permits some flexibility in the way firms or other polluters respond. A system combining charges and standards may be best of all since standards provide a greater certainty of outcome than prices alone. Other types of environmental charge include levies on abstractions, or charges reflecting the value of the environmental resources used, and provide an incentive for users to change their behaviour, in response to a price change.
Pollution charges can be levied on specified pollutant discharges on the basis of load and/or concentration, and can reflect environmental damage imposed by pollutants. (Note that pollution charges are distinct from sewerage or wastewater treatment charges, which are tariffs or cost recovery charges, see C7.1).
A desirable pollution charge should:
Levying charges on diffuse (non-point) pollution, e.g. from farms, is difficult to carry out directly, and tends to be done by proxy (acreage, number of cattle, etc) or product (e.g. tax on fertiliser).
Although pollution charges offer a useful incentive to polluters to reduce their polluting discharges, most of the established schemes have as their main aim the collection of revenue to finance pollution abatement programmes. This can effectively raise public support for the charges. The charge in itself offers an incentive to reduce discharge. Revenues from environmental charges are sometimes accumulated to special funds earmarked for environment/conservation activities. As with regulations, pollution and environmental charges need effective regulatory and management capacity (see B2.3). It is important to ensure the acceptability of charges if they are to be effective. Pollution charges can be effective where there is transparency and a clear regulatory framework.