Green Taxation in Question: Politics and Economic Efficiency in Environmental Regulation

Green Taxation in Question Politics and Economic Efficiency in Environmental Regulation Carsten Daugbjerg and Gert Ting...

Author: Carsten Daugbjerg | Gert Tinggaard Svendsen

7 downloads 272 Views 2MB Size Report

This content was uploaded by our users and we assume good faith they have the permission to share this book. If you own the copyright to this book and it is wrongfully on our website, we offer a simple DMCA procedure to remove your content from our site. Start by pressing the button below!
Report copyright / DMCA form

DOWNLOAD PDF

Green Taxation in Question Politics and Economic Efficiency in Environmental Regulation

Carsten Daugbjerg and Gert Tinggaard Svendsen

Green Taxation in Question

Also by Carsten Daugbjerg POLICY NETWORK UNDER PRESSURE: Pollution Control, Policy Reform and the Power of Farmers

Also by Gert Tinggaard Svendsen PUBLIC CHOICE AND ENVIRONMENTAL REGULATION: Tradable Permit Systems in the United States and CO2 Taxation in Europe

Green Taxation in Question Politics and Economic Efficiency in Environmental Regulation Carsten Daugbjerg Associate Professor Department of Political Science Aarhus University Denmark

and

Gert Tinggaard Svendsen Associate Professor Department of Economics Aarhus School of Business Denmark

© Carsten Daugbjerg and Gert Tinggaard Svendsen 2001 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2001 by PALGRAVE Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N. Y. 10010 Companies and representatives throughout the world PALGRAVE is the new global academic imprint of St. Martin’s Press LLC Scholarly and Reference Division and Palgrave Publishers Ltd (formerly Macmillan Press Ltd). ISBN 0–333–77649–6 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Daugbjerg, Carsten. Green taxation in question : politics and economic efficiency in environmental regulation / Carsten Daugbjerg and Gert Tinggaard Svendsen. p. cm.

Includes bibliographical references and index.

ISBN 0–333–77649–6

1. Air pollution—Government policy—Europe—Case studies. 2. Pollution—Government policy—Europe—Case studies. I. Svendsen, Gert Tinggaard, 1963– II. Title. HC240.9.A4 D38 2001 336.2’7836373’094—dc21 2001032121 10 10

9 09

8 08

7 07

6 06

5 05

4 04

3 03

Printed and bound in Great Britain by Antony Rowe Ltd, Chippenham, Wiltshire

2 02

1 01

For our youngest daughters, Asta Marie and Marie

This page intentionally left blank

Contents

List of Figures

x

List of Tables

xi

Preface

1

2

3

xii

The Politics and Economics of Green Taxation Carsten Daugbjerg and Gert Tinggaard Svendsen

1

Contribution The economics of green taxation Research method Structure

1

7

9

12

Group Mobilization and Rent-Seeking Gert Tinggaard Svendsen

17

Introduction Group mobilization CO2 tax levels in OECD countries Rent-seeking in Denmark, Norway and Sweden Conclusion

17

19

21

23

40

Parties Matter Carsten Daugbjerg

45

Introduction Institutionalization of the Left±Right Dimension Parties and Green Taxation Green taxation in the industrial sector Liberal and conservative governance: Denmark and

Britain Social democratic governance: Sweden and Norway Governance from the centre: the Netherlands The five country comparison Moving beyond correlation The importance of policy design in green taxation vii

45

47

53

56

57

62

67

72

73

80

viii Contents

4

5

6

Policy Networks Carsten Daugbjerg

83

Introduction The policy network concept Green tax design Policy networks and tax design Fertilizer and pesticide tax schemes in Scandinavia Agriculural policy networks Exercising power? Conclusion

83

85

89

91

92

99

105

112

Designing Green Taxation Carsten Daugbjerg with Gert Tinggaard Svendsen

117

Introduction Making green taxation more attractive Reimbursement Taxing production inputs or outputs? Administration of tax revenues The problem of redistributive reimbursement Labour taxes Annual turnover Corporate tax Nature of target sector Conclusion: the limitations and opportunities of

green taxation

117

120

120

123

124

128

130

131

132

132

Designing Permit Trading Gert Tinggaard Svendsen

137

Introduction Why permit trading? Grandfathering Gains from permit trading Interest groups Special reward and hot air Industry Environmental groups Hypotheses The American Acid Rain Program Market activity

134

137

139

139

141

144

144

145

145

146

146

146

Contents ix

Monitoring Auction Industry and environmental groups The Kyoto Protocol Trade level and interest groups Bureaucratic preferences Governmental preferences Policy recommendations Conclusions

148

148

150

151

153

156

157

160

163

Appendix: Observers at Kyoto Meeting

169

Notes

175

Bibliography

179

Index

197

List of Figures

1.1 5.1 6.1 6.2 6.3

Number of green taxes in OECD countries Standard versus taxation Cost distribution Permit trading between the United States and Russia How much market prices exceeded minimum prices

at the auction (per cent)

x

3

121

140

142

150

List of Tables 1.1 Total CO2 emissions in countries with CO2 taxation

from 1990±97 2.1 Individual incentive to rent-seek against green

taxation 2.2 Lower bound CO2 tax rates for industry and

households in 1997 2.3 Differentiated lower bound CO2 tax rates for

industry and households 2.4 Dithmer Commission proposal for industry 2.5 Modified Model 2 proposal with voluntary

agreements 2.6 Existing and proposed CO2 taxes in Norway, 1998 3.1 Aggregate time in office (expressed as a percentage)

of various types of governments in 10 West European

countries, 1959±98 4.1 Extremes on the policy network continuum 4.2 A comparison of green tax schemes 4.3 Indicators of structural power of farmers 6.1 Permit prices 6.2 Reduction commitment for Annex B countries

(percentage of base year, 1990) 6.3 Number of observers present at Kyoto meeting

xi

4

19

21

23

28

30

34

52

87

99

105

147

152

154

Preface The book title Green Taxation in Question stems from our first motivation to write the book. We felt that there was something missing when discussing green taxation. Such discussions usually were based on economic theory which did not question the political feasibility of green taxation. What we observed from reality was that the use of green taxation did not have the intended environmental effects. Why not? The economic literature reveals that this question is under researched. This gap between theory and reality informed the point of departure for this book. Our discussions on this question motivated us to look for the answer that could not be found in the literature. In order to answer why green taxation did not work as intended, we had to develop an interdisciplinary approach which combined political science and economics. Our academic backgrounds in these two disciplines provided us with the necessary foundation to undertake the task. In essence, our political economy approach suggests what can be done in political terms, not necessarily what should be done in economic terms. Thus, we search for the best economic solution given that it must be politically attractive. We hope that this book will contribute to the academic discussions on green taxation. While primarily addressed to the academic world, the book is also aimed at environmental policymakers. It presents policy recommendations which might guide the formulation of future environmental policy. We suggest how green taxation might become more acceptable to industry and discuss emission trading as an alternative to green taxation. We are most grateful to Palgrave for its prompt offer to commit itself to publish this book and for its receptiveness to changes to the original book proposal. We owe a great debt to our research assistants Anders Branth Pedersen and Lene Hjùllund. Without their help, this book would, at best, have been considerably delayed or, at worst, not have been written at all. We also wish to express deep appreciation for the skilful assistance of Ann-Marie Gabel (layout), Sheila Kirby (lan-

xii

Preface xiii

guage revision), Lone Winter Mathias (secretarial assistance), Inge Kùrvel (library assistance) and Peter Sidelmann (research assistance). A vote of thanks also goes to Jens Blom-Hansen, Andrew Jordan, Asbjùrn Norgaard, Jan-Tjeerd Boom, Jan Lien Christensen, Martin Paldam, Manfred J. Holler, Hannelore Weck-Hannemann, Niels Nannerup, three anonymous referees of Scandinavian Political Studies and two anonymous referees of Homo oeconomicus. Furthermore, we would like to thank colleagues at the Centre for Social Science Research on the Environment and at the Department of Economics, the Aarhus School of Business for valuable comments on earlier draft chapters. Needless to say, we alone are responsible for the content. The book project has been funded by the Danish Strategic Environmental Research Programme II and the Research Board, Faculty of Business Administration at the Aarhus School of Business. We are grateful for this support. We would also like to thank Scandinavian University Press for allowing on us to use parts of the article `Power and Policy Design: A Comparison of Green Taxation in Scandinavian Agriculture' in Chapter 4. It was published in Scandinavian Political Studies, vol. 21, no. 3, 1998, 253±84. Finally, we thank Accedo Verlagsgesellschaft, Munich, for allowing us to use parts of the article `The US SO2 Auction and Environmental Regulation' in Chapter 6. It was published in Homo oeconomicus, Vol. XVI, No. 2, 1999, 191±203. The book is dedicated to our daughters, Asta Marie and Marie, whose arrival interrupted the work on this book but enriched our lives. They were born in late 1998 and early 1999 respectively.

1

The Politics and Economics of Green Taxation Carsten Daugbjerg and Gert Tinggaard Svendsen

Contribution From being a minor policy issue administered by the less prestigious branches of government departments, pollution control has grown to be an important issue in contemporary societies. Environmental ministers, ministries, departments and agencies as well as other branches of government, are now dealing with the issue. Environmental concern has become institutionalized in government and will remain an important policy issue in the future. Pollution can be defined as `the introduction into the environment of substances or emissions that either damage, or carry the risk of damaging, human health or well-being, the built environment or the natural environment' (Weale, 1992, 3) and, in the final analysis, these environmental threats or costs are all the result of human behaviour. In economic terms, they are negative externalities. These unwanted side effects of production are èxternal' to the market because the market pricing of goods and services does not incorporate the extra costs caused by pollution. Therefore, the price signal in the market has to be corrected by adding in the environmental costs. This can, for example, be done by imposing a green tax on harmful emissions. Environmental regulation produces costs and benefits as do other types of regulatory policy (Leone, 1986, 3). Depending on the specific environmental problem being regulated, pollution control distributes cost and benefits in various ways. The most difficult type of pollution control occurs when regulation concentrates the costs of implementing policy on a well-defined group of polluters and the 1

2 Green Taxation in Question

benefits of policy are dispersed. As to the costs, reduction of air pollution, for instance, is costly to industry (unless it is compensated for the costs incurred) because it has to pay for the installation of equipment to combat pollution. However, these costs may be difficult to pass on to consumers and the benefits are dispersed both in space and time. Environmental improvement is widely dispersed to a large group of persons (for example the public at large) and each member is only affected at the margin. Environmental improvement may also involve a time dimension as it may affect future generations positively. This distribution of policy costs and benefits means that producers have strong incentives to organize opposition to the introduction of burdensome environmental policies because each of them has a lot to win if political action bears fruit. In other words, it pays off to contribute to collective action. Those benefiting from pollution control do not have similar incentives to enter the policy process. Since benefits are widely dispersed, each member of the benefiting group has little to win and, therefore, little motivation to invest resources (such as time and money) in organizing, or mobilizing, political support for environmental regulation. Such a distribution of costs and benefits means that environmental politics becomes the politics of cost distribution. Typically, this type of environmental politics can be found in economic sectors, such as industry and agriculture. Although this characterization of environmental policy directed towards producers suggests severe difficulties in reducing industrial and agricultural pollution, environmental measures in these sectors have indeed been applied. The traditional way of controlling pollution in Western Europe has been regulation by the use of standards (the command-and-control approach). It tends `to force all businesses to adopt the same measures and practices of pollution control and thus accept identical shares of the pollution control burden regardless of their relative impacts' (Andersen 1994a, 21). Among environmental researchers and policy makers, there is a growing scepticism towards this type of pollution control. It is argued that environmental improvement is progressing too slowly and, in some situations, is leading to even further deterioration of the environment. This has motivated policy makers to search for other solutions. In particular, there is a growing interest in market-based environmental policy instruments such as green taxation. Throughout Europe, academics and policy makers are vigorously discussing this option.

The Politics and Economics of Green Taxation 3

Economists have simply suggested that politicians should impose a uniform tax on pollution. The tax must be uniform. If not, the reduction of pollution will not take place at least-cost, because society can always save costs by shifting the responsibility for pollution reduction from the high-taxed to the low-taxed polluter (see next section in this chapter). The revenue from uniform green taxation may subsequently be used for lowering other distortive taxes such as income tax thus reducing economic distortions and increasing production (Lee and Misiolek 1986; Terkla 1984). In this way, green taxation may provide a double dividend by establishing the collective good of environmental improvement (at least-cost) and by lowering other distortive taxes. In practice, political decision-makers seem to have followed the advice given by environmental economists on taxing pollution. Green taxation is increasingly being applied in the OECD countries, as shown in Figure 1.1. It is in Europe in particular that this approach to environmental regulation has gained a foothold.

120 110 100 90 80 70 60 50 40 30 20 10 0 1987

1992

1997

Figure 1.1: Number of green taxes in OECD countries Source: Compiled by the authors, based on information from OECD (1989), OECD (1994) and OECD (1997).


However, policy makers do not follow the advice of environmental economists when designing green taxation. Our review of green tax schemes applied in OECD countries clearly shows that economic efficiency has not been the driving force behind the politics of green taxation. As we shall see, taxes are differentiated and not uniform because consumers are taxed at a much higher rate than producers. This is a clear indication that the politics of green taxation is the politics of cost distribution. In general, the level of green taxation in Europe is set too low to have the desired effect on environmental behaviour. Thus, Howe (1994) concludes that the main effect of green taxation is fiscal rather than environmental. For example, green taxation has been applied in relation to the reduction of carbon dioxide (CO2 ) emissions in OECD countries. Still, one may argue that even though CO2 taxes are differentiated, they may lead to the required environmental results. A straightforward way of measuring these environmental results is simply to look at the nominal emission development in the five OECD countries where CO2 taxes have been applied (see Table 1.1). Table 1.1 uses nominal CO2 emission figures and the year 1990 as the reference year because these two criteria are used in the Kyoto Protocol which is an international agreement on national CO2 emission target levels (see Chapter 6). Note that CO2 emissions have increased significantly since 1990 for all five countries that have applied CO2 taxation. Most strikingly, Denmark's total CO2 emissions have increased from 53 million tons Table 1.1: Total CO2 emissions in countries with CO2 taxation from 1990±97

Denmark Sweden Norway Finland Netherlands

1990

1997

Increase %

53 55 35 73 160

63 57 41 77 179

19 4 17 5 12

Sources: Energiministeriet (2000), Andersen (2000), Statens Forurensingstilsyn (2000) and ECN (2000). Note: Figures are rounded to the nearest million ton.


in 1990 to 63 million tons in 1997 (19 per cent) and Norway's total CO2 emissions have increased from 35 million tons in 1990 to 41 million tons (17 per cent). So, in general, CO2 taxation has not succeeded in cutting actual emissions in order to achieve the stated target levels such as those established by the Kyoto protocol.1 This is why we question the use of green taxation and see the need to undertake a political analysis. Environmental economists have in general paid no, or at best very little, attention to the political context within which green taxation would be introduced. To understand the real-life politics of green taxation and to base future policy recommendations on this analysis, we must establish which political factors determine the actual design of green taxes? We answer this question by identifying three main political constraints. These are: rent-seeking, party politics, and policy networks. Based on these findings, we develop policy recommendations concerning the future design of green taxation and international permit trading. If these political constraints are neglected policy makers are most likely to fail in designing appropriate instruments and, consequently, will fail to achieve environmental target levels. In particular, this political opposition occurs in relation to well-organized producer groups such as industry and agriculture. In this book we identify these political barriers by comparing the various ways in which green tax schemes are designed across countries. Thus, comparative research is the major methodological tool in the analysis of the politics of green taxation. Surprisingly, this type of analysis is almost absent in the literature on green taxation, which has been dominated by economists seeking to develop environmental policy instruments that are economically efficient. Economists have been criticized for ignoring the reality of political friction. Mueller (1989, 2) describes this situation as doing `blackboard economics'. He suggests they would solve theoretical problems on the blackboard but would make unrealistic assumptions and by that ignore the muddy and troublesome reality. Furthermore, he describes how economists have tended to establish a `Nirvana model' of government where, for example, a benevolent dictator exists and where special interest groups have been ignored. Such optimal results are not typical in reality. Therefore, there is a strong


need to identify the best economic solution given that it must be politically feasible. Hahn and Stavins (1992) and Cropper and Oates (1992) have pointed to the need of directing environmental economic research towards political reality. Dijkstra (1999), Svendsen (1998a) and Wallart (1999) have tried to fill this gap by arguing that one major difficulty when putting theory into practice is the absence of political acceptability of environmental taxes within producer communities. However, these authors do not analyze empirically whether rentseeking actually influences the design of green taxation. Understanding the politics of green taxation is the prerequisite for the development of effective green taxation models which have a chance of being implemented. In other words, it is necessary to open the `black box' of political decision-making and examine how real-life green tax policymaking works. By taking political and institutional constraints into consideration, this book contributes to the academic literature and the political debate on green taxation, and bridges the gap between the disciplines of economics and political science. In environmental policy research, there is a great need for scholarly work which combines analyses of the political aspects of market-based instruments with analyses of the cost-effectiveness and their overall economic consequences for society. Political science offers theories and analytical tools which can be used to analyze the political aspects of environmental regulation but the discipline has seldom taken into consideration the costeffectiveness and overall economic consequences of a given policy, which is central to economic analysis. This book combines the analysis of the political context of environmental regulation with the traditional economic analysis of market-based instruments used in pollution control. This enables us to reveal the constraints that determine the design of green tax schemes and to present marketbased environmental policy instruments which, at the same time, are cost-efficient and politically attractive. As mentioned above, political opposition occurs particularly in relation to attempts to introduce green taxation which concentrates the costs on well-organized producer groups such as industry and agriculture. When considering the political barriers, green taxation might not prove to be the best solution in all situations. Other market-based policy choices may turn out to be more politically


attractive and thus feasible. Therefore, this book also analyzes tradable pollution permits (permit trading). Combining economic efficiency and political acceptability is the real challenge for both social science environmental research and environmental policymakers. We attempt to meet that challenge by suggesting some ways to design green tax schemes which will help to overcome the political opposition identified in our analysis of real-life green tax policymaking. Theoretical models of the politics of green taxation are rarely used as the starting point for the development of green tax policy schemes; rather, policy designers begin from a concern about a lack of efficiency in environmental regulation. The use of theoretical policy making models as the point of departure for assessment is a new element in the academic exercise of designing environmental policy instruments. Our analyses of the links between policy design and political acceptability lead us to conclude that green taxation can be successfully applied provided that policy designers use certain measures to decrease opposition. However, there are certain limitations to the use of the instrument, which means that it cannot be regarded as an all-round solution. The nature of the sector concerned and the nature of the pollution are crucial to the opportunities to use green taxation measures to control pollution. While green taxation may be a feasible option to reduce point pollution (and in some situations non-point pollution) in relatively homogeneous sectors, it is likely to become a troublesome measure to implement in heterogeneous sectors, being an important feature of the industrial sector. It is argued that in the latter situation, tradable pollution permits may be a better alternative because permits can be given freely to polluters and then devalued to meet the desired target level.

The economics of green taxation As early as 1920, the British economist Arthur C. Pigou had suggested the use of green taxes (Pigou, 1920). Inspired by the smog problems in London around the turn of the last century, Pigou introduced an environmental tax in a more general externality context. By viewing pollution as a negative externality where the private costs are lower than the social costs, and by confronting the polluter with a price reflecting the true social marginal cost, it would prove to be possible


to internalize the externality. This could be done efficiently by using a tax calculated as the difference between the private marginal benefit of the polluter and the social marginal benefit. The original policy recommendation made by Pigou (1920) is still valid in this century: an efficient environmental tax rate must be imposed directly on emissions and the tax rate must be uniform per emission unit. The existence of such a uniform environmental tax means that firms will reduce emissions up to the point where the marginal cost of reducing one extra pollution unit equals the tax rate. Therefore, it costs the same to reduce the last pollution unit in all firms. If the tax rate was not uniform, different polluters would face different tax levels. For example, producers facing low tax levels would stop reducing at the same low marginal cost level whereas consumers facing high tax levels would keep on reducing until their marginal reduction costs became high enough to match the tax rate level. In other words, because it is cheaper for producers than for consumers to reduce an extra pollution unit, society would be better off if producers reduced more and consumers less. This would lead to a lowering in the total reduction cost. As long as tax rates are not uniform, society can save costs by shifting pollution reductions from the high-taxed to the low-taxed polluter. Only when all polluters face the same tax level, will the optimal situation be achieved, where all marginal reduction costs are identical for all polluters. It will no longer be possible to save costs by shifting pollution reduction between, for example, producers and consumers.2 This very idea of state intervention and green taxation was rejected by Coase (1960), arguing that there was no need for it. If property rights were well defined, transaction costs were low and agents were fully informed, voluntary bargaining, in this case between polluters and victims, would solve the problem. However, in the case of water and air pollution problems, we typically find a large number of participating agents and, therefore, transaction costs will be high and strategic behaviour, that is free-riding, will most likely occur (Svendsen 1998a). Another option is the use of subsidies so that polluters will be rewarded economically by the state for each unit they reduce. However, the option of subsidizing emission reductions is problematic. It becomes too profitable to remain operating in the subsidized industry. Therefore, too many firms will stay within that industry and


some may even increase pollution levels to qualify for payments (Bramhall and Mills 1966; Kamien et al. 1966; Baumol and Oates 1988 212±13). Not surprisingly, economists have not regarded subsidies as a satisfactory environmental policy instrument (Baumol and Oates 1988). Consequently, economists' recommendations have mainly concerned the use of green taxation. Nevertheless, subsidies have been widely used in environmental regulation. Environmental subsidies have been used to compensate polluters for some of the costs of complying with regulations. Usually, such payment schemes have been put into effect only for limited time periods. Although economists do not recommend them, one can find examples of schemes which pay producers to reduce environmental damage. For instance, in agriculture, some subsidies are designed to motivate farmers to adopt environmentally friendly production methods in environmentally sensitive areas. Another alternative instrument for regulating pollution, namely, tradable pollution permits, was introduced by Dales (1968). Montgomery (1972) then demonstrated that, in a world of full information a system of tradable permits would be economically efficient, just like green taxation. These findings meant that the economic debate focused on the two options of green taxation and tradable permits during the 1970s. This discussion has continued ever since. Our book adds to the debate by highlighting the political context within which both green taxation and permit trading should be applied.

Research method The book consists of comparative case studies at three different analytical levels. The purpose of the analyses of the empirical cases is to develop statements on green taxation, which reach beyond the particular cases analyzed. This raises the question of whether the comparative case study method can be used to produce statements which can be generalized. In surveys samples are randomly selected so that they mirror the populations from which they are drawn. Therefore, the findings in the sample can be generalized to the population. Yin (1994) argues that the ànalogy to samples and universes is incorrect when dealing with case studies'. Instead, generalization in comparative case studies is based on theoretical propositions and the logic of


multiple experiments. Cases are selected on the basis of their characteristics of the variables identified by the researcher as independent ones. The whole idea of this type of generalization is that the more times an experiment can be replicated and produce the outcome predicted by the theory being tested, the more convincing the theory becomes. Since `[t]he experimental method is the most nearly ideal method for scientific explanation' (Lijphart 1971, 683), one should attempt to approximate the experiment when comparative case studies are designed. The prerequisite for applying the comparative case study method, as outlined by Yin (1994), is that the researcher has a more or less developed theory, or at least an initial theoretical model, on the phenomenon in question. Because reality is extremely complex, it is not possible to explain policy choices without some consideration of causal relationships before undertaking empirical analyses. One can only understand the politics of green taxation by the use of theoretical models which suggest how variables relevant to green tax policymaking may be related. A theoretical model is àn abstraction of reality that is developed for presenting systematically the most important relationships in the situation which is being described' (Graham 1971 112). It is `highly suggestive to the researcher because it points the way to significant research' (ibid.). The empirical analyses of this book are based on theoretical models derived from theoretical approaches within the disciplines of political economy and political science. The three chapters examining the politics of green taxation derive hypotheses from public choice theory, the literature on parties and public policy, and the policy network approach. Multiple experiments can be designed as literal replications or as theoretical replications. In experiments based on literal replication, the researcher undertakes experiments which are predicted by theory to produce similar outcomes. In theoretical replications, s/he designs experiments, which for predictable reasons produce different outcomes. Applying the same logic in case studies, one can select cases which, the theory predicts, will produce either similar or different outcomes (Yin 1994, 44±51, 106±10). In order to provide the best opportunities for the test of the hypotheses, this book uses the method of theoretical replication because it is the best way to test hypotheses, which attempt to establish the way in which variation in the independent variable causes variation in the dependent variable.


Comparative case studies based upon the logic of literal replication can also strengthen theoretical hypotheses: however, they do have limitations in that respect. They are insufficient to support theories that attempt to establish the way in which variation in the independent variable causes variation in the dependent variable. The purpose of this book is to establish whether the three political constraints, namely, rent-seeking, party politics and policy networks which, theoretically, have been identified as crucial independent variables, really make a difference in the explanation of green taxation. That is, does variation in these three variables produce differences in green taxation across countries? To establish whether these variables produce the policy variance suggested by theory, cases, which differ in the independent variables, are selected for analysis. Thus, this book compares green taxation directed towards two different target groups (consumers and producers) and green taxation introduced in political systems dominated by different types of governments (Social Democratic/Labour, Liberal/Conservative and centrist governments). Finally, we compare green taxation implemented in sectors in which the established state±producer policy networks differ. Yin's case study method is based on the idea of multiple quasiexperiments. As already mentioned, this requires that the selection of cases for analysis ensures variation in the variable identified as the independent one in order to establish whether this can explain the outcomes suggested by theory. However, to approximate the ideal of multiple experiments, the selection of cases should not be limited to ensuring that there is variation in the independent variable. It is crucial that the contexts of the cases are similar. This means that it is necessary to compare cases which, with the exception of the variable in question, are as similar as possible to keep constant variables which could be potential alternative explanations and thus threaten the validity of the analysis. As (Lijphart 1971, 683) puts it: òne cannot be sure that a relationship is a true one unless the influence of other variables is controlled.' In other words, we should try to control extraneous variance through the selection of cases (Peters 1998, 30±7). Furthermore, as outlined above in the description of Yin's use of theoretical replication, comparative case study researchers, through the selection of cases, attempt to `manipulate' the independent


variable in order to measure the effects on the dependent variable. Manipulating the independent variable and keeping constant other potential independent ones are the two basic and inseparable elements of the quasi-experimental method used in comparative case study research. However, in practice, this is not as easy as it may seem. In the social sciences, we are very rarely, if ever, able to design comparative studies which wholly fulfil this requirement. By giving the Scandinavian countries a prominent role in the analysis, we have attempted to choose core cases of the analysis which are as similar as possible. In political analysis, the Scandinavian countries are often regarded as one of the most similar groups of countries in Western Europe. In order to avoid limiting this book to an analysis of Scandinavian green taxation, we have included other Western European countries although this means that the requirement of similar cases is somewhat relaxed.

Structure As described above, the basic research question is to identify the political constraints determining the actual design of green taxation. Three political constraints, questioning the use of green taxation are identified in the book, namely, rent-seeking (Chapter 2), party politics (Chapter 3), and policy networks (Chapter 4). This leads us to recommend specific policy models that are politically feasible in the cases of green taxation (Chapter 5) and international permit trading (Chapter 6). The contents of these chapters are summarized below. In Chapter 2, public choice theory is applied as a micro-level analytical tool. It suggests that consumers are more burdened by green taxes than producers because producers have much better incentives to organize. We try to explain the incentives to organize and lobby within a group and how this affects the design of green tax schemes. Since producers are a relatively small and well-defined group, they each have significant incentives to engage in collective action because the benefits from doing so are likely to outweigh the costs. Consumers form a large group in which each member has only a little to win from collective action. Thus, consumers have difficulties in forming powerful interest groups. Our comparison of CO2 tax schemes, where local and regional pollution effects can be ignored, is directed towards both producers and consumers in five OECD coun-


tries. By looking at political decision-making processes in Denmark, Norway and Sweden, we demonstrate that well-organized industrial groups actually influence policy design in contrast to weakly organized consumer groups. This leads to large differences in green taxation between producers and consumers. Public choice theory successfully explains systematic differences in the green taxation of producers and consumers. However, it cannot sufficiently explain why some taxation of producers occurs. Therefore, Chapter 3 sets out to explain why producers are taxed and why similar European industries are taxed differently. A macrolevel analysis of how broader political structures in society affect green taxation is undertaken. The party system is a reflection of the broader political structure because it is a manifestation of political cleavages in a society. It is argued that the way in which the major political parties have become linked to the interests of certain social groups has an important impact on green tax policymaking. Right-ofcentre parties are historically linked to industrialists and farmers and, consequently, are reluctant to introduce green taxation policies, but may accept them if they are designed to accommodate producer interests. Left-of-centre parties tend to be more sympathetic towards green taxation of producers and less willing to accommodate their interests. Thus, the traditional left±right dimension is at the centre of green tax policymaking in Western Europe even though environmental concern within the electorate cuts across class lines. This hypothesis is supported by a comparison of green taxation in Denmark, the Netherlands, Norway, Sweden and the United Kingdom. A detailed comparison of the failed attempt to introduce a carbon dioxide tax in the UK in 1990 and the introduction of such a tax in Sweden in the same year lends support to the conclusion drawn from the broad five-nation comparison and the `parties-matter' thesis found in the literature on political parties and public policy. However, this analysis of broader political structures does not fully explain the variation in the design of green tax schemes directed towards producers. Therefore, differences in political structures at the meso-level are analyzed in Chapter 4. Sectoral policy networks, which exist prior to attempts to introduce green taxes, are important sources of power for producers because they affect their opportunities to realize their objectives in environmental policymaking. It is


demonstrated in a comparative analysis of green taxation in Scandinavian agriculture that the more political power producers can derive from the structure of existing policy networks, the more likely policy makers are to accommodate farm interests. This is done by reimbursing tax revenues, by giving producers control over the spending of the revenue and by avoiding designing tax schemes in which there is no direct relationship between the object being taxed and pollution. Chapter 5 summarizes the findings of Chapters 2, 3 and 4 and shows the lessons to be learned about designing green taxation in a political context. It is argued that to design green taxes which are high enough to have the desired incentive effects, tax revenues must be reimbursed, either by earmarking them for environmental subsidies or by suspending or reducing other taxes directed at producers. When tax proceeds are used for environmental subsidies or other purposes within the sector taxed, it is important to give producers a certain degree of control over the spending of the revenue. This ensures that the revenue remains `sectoral money' and not general state income. Furthermore, actual emissions rather than polluting production inputs should be taxed. A clear and simple causal relationship between the tax object and pollution may mean that producer groups find green taxation intellectually acceptable. Production inputs should only be taxed when there can be little doubt that there is a causal relationship between the extent to which the input is used and pollution levels. If green tax schemes can be designed along these lines, producers will have little incentive to mobilize strong opposition to green taxation. However, in practice, the requirement of reimbursement may be difficult to fulfil because, with few exceptions, polluting industries are not homogeneous. This means that reimbursement will redistribute financial resources among producers and thus create winners and losers. Redistribution within producer communities is likely to bring about mobilization of opposition among losers, while potential winners have weaker incentives to mobilize for gains. Since reimbursement must be independent of the pollution level to maintain the incentive to reduce pollution and achieve the desired target levels, it is difficult to find reimbursement schemes that are fairly simple to implement and which also do not bring about redistribution. This being the case, the overall policy recommendation is that green taxation of producers works best in fairly homogeneous sectors.


The problems associated with green taxation in heterogeneous economic sectors means that alternative market-based instruments should be seriously considered. Such an instrument, which may be politically feasible even in the case of heterogeneous producer groups, is transferable pollution quotas or permit trading. This system as it has been applied in the US since the mid-1970s is the focus of Chapter 6. Basing the analysis on recent US experience with the Àcid Rain Program', it is argued that permit trading may be politically attractive to producers because it offers them historical emission rights freely (grandfathering). Thus, a major obstacle to the use of market-based instruments in pollution control is removed and the desired target levels can be achieved, such as those agreed upon in the Kyoto agreement which allows international trade of CO2 emissions. In relation to the Kyoto agreement, we develop and test hypotheses based on the assumption that political actors act rationally. This leads us to recommend a model for CO2 trade among countries rather than trade among firms. This policy recommendation is second best in strict economic terms. However, it is the best economic design given that the hypothesis must be politically feasible.


2

Group Mobilization and Rent-Seeking Gert Tinggaard Svendsen

Introduction We start by establishing the first political constraint which determines the actual design of green taxation, namely that of `rentseeking'. Rent-seeking is defined as `the use of resources in lobbying and other activities directed at securing protective legislation' (McKenzie and Tullock 1981). A concept originally introduced by Tullock (1967), it has had a wide-ranging impact on social sciences in general (Fishback, Libecap and Zajac 2000). The general idea is that rent-seeking affects the level of green taxation in favour of well organized interest groups. As such, rent-seeking may explain why the economists' long recommended uniform taxation of pollution has not been applied. Economically rational behavior at the micro-level leads to rentseeking. Depending on group size, it may pay individuals to organize for collective action and form interest groups capable of rent-seeking as described by Mueller (1989), Olson (1965; 1982) and Svendsen (1998a). In the presence of well organized rent-seeking, policy makers are confronted by special interest groups that pursue private goals which may conflict with the overall goals of society. So, if the dominant interest groups do not like a particular green tax proposal, they may hamper it and policy makers will not succeed in achieving the desired environmental target levels. We develop this idea further in this chapter. First we use a public choice approach based on the micro assumption that individual agents behave economically rationally.1 The 17


public choice approach allows us to analyze the politics of green taxation in a stringent and parsimonious way. A simple numerical example will show how group size determines producer ability to mobilize and rent-seek compared with that of consumers. Simple theoretical outlining is important because the reality of environmental regulation is extremely complex. Here, the principle of Ochams' razor is truly needed: any inessential premiss or complexities ought to be cut out of an argument. Hence, in an attempt to state things as simply as possible, we test the theory of rent-seeking in a two-step analysis where we look at the dependent and independent variable, respectively. Thus, we then focus on the dependent variable of political outcome by establishing whether consumers are taxed higher than producers in practice. This is done by focusing on the case of CO2 taxation levels in five OECD countries. These are the four Scandinavian countries (Denmark, Norway, Sweden, Finland) and the Netherlands. Even though tax schemes in use within the OECD cover a vast area in terms of the many different national designs, we have chosen CO2 regulation as an empirical case. It makes comparison easier because the effect of CO2 is global, not local. This means, in contrast to the case of local and regional pollutants, that differences in CO2 taxation among the five countries are not due to differences in local pollution effects. If severe local environmental damage from local emissions occurred in one country this would need to be regulated more stringently compared to another country where no such damage existed.2 We move on to find out whether the independent variable of rentseeking actually caused the observed effect in the dependent variable of policy outcome, that is the design of CO2 tax levels. Thus, focusing on Denmark, Norway and Sweden, we show how the presence of interest groups in the political decision-making process both influences initial CO2 tax designs and later governmental attempts to reform them. There are three main reasons for focusing on Denmark, Norway and Sweden while omitting Finland and the Netherlands. First, these three Scandinavian countries have CO2 taxes which are levied through a separate self-contained tax scheme. In Finland and the Netherlands, the use of CO2 taxes takes place in connection with a more general energy tax where the CO2 component constitutes only

Group Mobilization and Rent-Seeking 19

a part of the tax base (Svendsen et al. 2001). Second, an extraordinary openness has made it possible to follow the developments in decision-making in these three countries; written documents cover the whole process. Third, the three Scandinavian countries represent, as argued in Chapter 1, a homogeneous group having fairly similar political and administrative institutions which are characterized by a high degree of corporatism: `The integration of organized interests into public and administrative policy making is a core political structure of the Scandinavian countries.' (Christiansen 1997, 3). Finally, we summarize the results.

Group mobilization Our micro approach suggests that an individual agent will act whenever it pays and the strength of this incentive is determined by the size of the net gain from undertaking such action. We suggest that group size is crucial for explaining the incentive to mobilize and rentseek (Olson 1965). It is easier for a small group to mobilize and rent-seek than it is for a large group. As such, group size may theoretically explain why a small group of producers oppose CO2 taxation more aggressively than a large group of consumers. This political asymmetry against green taxation is illustrated by the example given in Table 2.1. Consider first a group of consumers consisting of 100 million identical agents. Say, that each consumer pays an euro 2 CO2 tax so that total tax payments from this group amounts to euro 200 million. Further assume that the total cost of successfully opposing the introduction of green taxation through rent-seeking is euro 1 million. Table 2.1: Individual incentive to rent-seek against green taxation

Number (identical agents) Individual CO2 tax payment Total tax payments Total rent-seeking costs Individual net gain Source: the authors.

Consumers

Producers

100 million 2 200 million 1 million 2±1 million

100 2 million 200 million 1 million 2 million±1 million


Although the consumer group as a whole would get benefits worth euro 200 million (200 times the euro 1 million invested in rentseeking), the net benefit to any individual member who chooses to oppose green taxation on his or her own is clearly negative. Individual gain from successfully avoiding green taxation is euro 2 only compared to the individual cost of euro 1 million. In the absence of organization and political mobilization, no single consumer will take the initiative to lobby against green taxation. Therefore, in this `large' group, the collective good of avoiding green taxation will not be achieved. Now, consider the producer group and assume that 100 large companies are affected. Say that each producer pays an euro 2 million CO2 tax so that total tax payments from this group is the same amount as for the consumer group, namely, euro 200 million. Consequently, each producer member will experience a benefit valued at euro 200 million from preventing green taxation. If the cost of successfully rent-seeking against taxation is euro 1 million, each individual producer's net benefit is euro 1 million (euro 2 million � euro 1 million). Therefore, the collective good of avoiding green taxation will be achieved by such a small group even in the absence of political mobilization, see Table 2.1 above. This logic explains why industrial interests organize more easily than consumers. Producers are typically strongly organized and capable of sharing costs. Note, that if the 100 producers share the euro 1 million rent-seeking costs so that each member of the group pays euro 10 000, individual net gains become much higher, that is, euro 1 990 000 (euro 2 million � euro 10 000). Organization and mobilization in response to green taxation, which typically takes place more frequently in the case of producers, further reinforces the political asymmetry between producers and consumers because of the cost-sharing opportunities (Olson 1982; Svendsen 1998a). It follows that it is easier to impose green taxation on consumers (large group) than producers (small group) due to differences in rentseeking power. Therefore, public choice theory does not predict uniform green taxation but differentiated green taxation where the tax level will be high for households and low (or non-existent) for industry.


CO2 tax levels in OECD countries3 A survey of 1997 CO2 tax rates for the five relevant countries is shown in Table 2.2. In Finland, Norway and Denmark, the CO2 taxes vary according to fuel type and energy use. Therefore, the numbers involved have been converted into one average tax rate for each of these three countries to enable meaningful comparison. In Sweden and the Netherlands, CO2 taxes do not vary according to fuel type and energy use and the CO2 taxes in each of these two countries can, therefore, be applied directly. Finally, to make the tax rates comparable in monetary terms, the common currency of the euro has been used.4 Table 2.2 shows that Norwegian industry faces the highest CO2 tax rate whereas Finnish industry faces the lowest. Note that these figures Table 2.2: Lower bound CO2 tax rates for industry and households in 1997 (euro/ton CO2 )

Industry Households

Finland1

Sweden2

Norway3

Denmark4

Netherlands5

7.8 17.8

10.4 41.6

19.6 44.2

8.9 79.5

8.1 8.1

Sources: Clasen (1998); European Environmental Agency (1996); Enevoldsen (2000), NaturvaÊrdsverket (1997); OECD (1995). Notes: 1. The tax is levied as a consumption tax on electricity. The rates were 0.033FMK kWh for households and 0.0145 FMK kWh for industry. To obtain a single CO2 tax rate, it was assumed that the production of electricity was based on 50 per cent fuel oil and 50 per cent coal after which standard conversion factors where used. 2. The CO2 tax is explicitly defined to be four times higher for households than for industry. 3. Households are assumed to use equal amounts of natural gas and petrol only and industry is assumed to use equal amounts of diesel, heavy fuel and coal only. The tax rates used were 363 Norwegian kroner/ton CO2 for natural gas, 363 Norwegian kroner/ton CO2 for petrol, 162 Norwegian kroner/ton CO2 for diesel oil, 182 Norwegian kroner/ton CO2 for coal and 139 Norwegian kroner/ton CO2 for heavy fuel oil. 4. The tax rates vary according to three categories of energy use, that is space heating, light industry and heavy industry. Therefore, the tax rates that households and industry face, respectively, are dependent on levels of consumption. Households use energy for space heating only, whereas the consumption pattern for industry is 33 per cent heavy industry, 60 per cent light industry and 7 per cent space heating. 5. The CO2 tax is explicitly defined to be uniform for households and industry. However, when the implicit tax advantage for industry is taken into account, differentiation occurs, see Table 2.3.


are unrealistic when considering real CO2 tax payments from an average firm. Here we consider only that part of industry which is actually taxed ± the remainder of industry is left out. The shown average tax rates for industry concerns only those firms that are actually taxed and therefore they must be higher than the corresponding average tax rates calculated for all firms in one country. So, because only a part of industry faces CO2 taxes and because all consumers face them, Table 2.2 contains lower bound estimates. Tax ratios cannot be lower, only higher. We have chosen this lower bound approach for two reasons. First, it is hardly possible to incorporate the extremely complicated exemptions and refund systems linked to the nominal CO2 tax rates. If tax exemptions and refund systems were taken into account (such as those described below), the ratios between real CO2 tax rates for industry and households would lead to an ever higher level of differentiation than the present results suggest. Therefore, our results would only be further strengthened if exemption and refund rules were taken into account. Second and most important, this approach is sufficient for our purposes. We do not need to compare the real CO2 taxation of an average firm in one country to that in another country. Rather, our focus is to identify the size of tax differentiation ratio between producers and consumers within one country. This ratio can then be compared to other countries. In calculating these tax differentiation ratios, we distinguish between two types of ratios: one without tax deduction and one with tax deduction. As the tax payments are part of company expenditure as with any other costs, the lower bound èffective tax rate' can be found by taking this implicit tax advantage of the companies into account through deducting it from the nominal tax rate. Doing this makes the differentiation between industry and households even stronger. These calculations are presented in the second column of Table 2.3. As can be seen from Table 2.3, the difference between the tax rates that apply to industry and households is substantial. In particular, the case of Denmark shows heavy differentiation. When industry pays euro 1 and households pay euro 9 in Denmark, industry pays euro 0.66 after tax deduction (34 per cent) whereas households still pay euro 9. This corresponds to a 1:14 ratio differentiation.


Table 2.3: Differentiated lower bound CO2 tax rates for industry and households (rounded figures)

Sweden Denmark Finland Netherlands Norway Average ratio3

Ratio 11

Ratio 22

1:4 1:9 1:2 1:1 1:2 1:4

1:6 1:14 1:3 1:2 1:3 1:6

Source: Table 2.2.

Notes:

1. Tax rate for industry versus tax rate for households excluding the tax advantage. 2. Tax rate for industry versus tax rate for households including the tax advantage. In 1998, company tax amounted to 28 per cent in Sweden, 34 per cent in Denmark, 28 per cent in Finland, 35 per cent in the Netherlands and 28 per cent in Norway. 3. The average ratio is calculated as a simple average, that is all countries are equally weighted.

On average, over the five cases, households are met with a tax rate four times higher than that of the industry. Moreover, if the tax advantage of the industry is included, the average differentiation increases to six times. The Netherlands is, at first sight, an exception to the rule because the same tax level applies for households and for industry, as the first-best solution prescribes. However, allowing for the tax advantage in the Netherlands, a differentiation factor of two occurs. This indicates that the empirical findings on the dependent variable of policy output support the theoretical hypothesis that well organized interest groups influence the design of green taxation.

Rent-seeking in Denmark, Norway and Sweden5 We have now shown that CO2 taxes are highly differentiated. On average, consumers are taxed six times higher than producers in the five relevant OECD countries. We now move on to open the `black box' of political decision-making. The reason for doing this is to see whether the independent variable of rent-seeking really is the main


explanatory factor for understanding policy outcome, that is the different CO2 tax levels for producers and consumers. For each of the three chosen countries, we have used a two-phase approach when observing rent-seeking and its effects. First, we collected data on the presence of interest groups measured by their active opposition, that is activities in the media, contact with government, published reports, statistical data and brochures, and so on). These activities are used as an indicator of the amount of rentseeking in the decisionmaking process. Second, we collected data to measure the effects of rent-seeking as found in the development of actual CO2 tax designs over time. In each of the three Scandinavian countries we chose the same approach by focusing on two cases in each country, namely the introduction of an initial CO2 tax and the first major attempt to reform it. When categorizing the observed interest groups we followed the theoretical distinction between producers and consumers. `Producers' are represented by industrial organizations whereas `consumers' are represented both by traditional consumer organizations (representing consumers in general) and environmental organizations (representing those consumers that have specific preferences for environmental goods). Denmark Initial proposal A national CO2 target level was introduced in 1990 in Denmark. It stated that CO2 emissions should be reduced by 20 per cent from 1988 to year 2005 (Energiministeriet 1990, 91). This target level was settled at a conference convened by the Danish Ministry of Energy in 1989. All main parties in the energy sector were present except for the electric utility industry. Overall, the main parties accepted the target level, presumably because no cost distribution was discussed at that time. The main industrial organization, the Confederation of Danish Industries (CDI), thought that this target level was too ambitious but did not directly oppose it (Folden et al. 1993, 53). The next step was controversial. In order to achieve the target level, a majority in parliament suggested a uniform tax of DKR 100/ton CO2 (May 1991). Once the distribution of costs became known producers became much more active in rent-seeking than consumers.


The CDI immediately opposed the unilateral proposal in cooperation with other industrial organizations (Det fri Aktuelt 25 May 1991). The CDI was evidently extremely active in the decisionmaking process. It held meetings with the relevant ministers, addressed bureaucrats and claimed in the media that many jobs would be lost in Denmark if the CO2 tax was introduced. The CDI also encouraged its members to protest and many individual firms made their own separate complaints (Folden et al. 1993, 78ff). A large Danish firm in the cement industry and several Danish oil refineries announced that they would have to close if the tax was introduced in its present form (Det fri Aktuelt, 25 May 1991). Many other large firms and the Agricultural Council complained directly to the government (MaÊnedsbladet Press no. 85, 1992). In fact, the director of the Agricultural Council threatened in public that the Danish food processing industry was considering moving abroad (Information 3 June 1991). The trade and service industries opposed unilateral CO2 taxation too and calculated that it would lead to significant inflation levels. (Det fri Aktuelt 25 May 1991). Likewise, Danish horticultural industry was worried about the economic consequences, arguing that CO2 taxation would significantly increase the costs of energy intensive production in greenhouses (Folden et al. 1993, 41ff). However, the horticultural industry was not expected to oppose a general CO2 tax as long as their own business was exempt. To achieve this result, the main focus of organizational effort was placed on contacting politicians and ministers. (Folden et al. 1993, 63ff). The electric utility industry opposed CO2 taxation expressing concern that taxation would double the costs of the fuel required for electricity production in Denmark and undermine its substantial exports of electricity. The electric utility industry also wondered why, for example, French nuclear power plant stations (which were not being hit as CO2 neutral producers) should be allowed to expand at the expense of competitors that based their electricity production on fossil fuel energy (Auken and Jùrgensen 1995, 16±17). This industrial rent-seeking concerning lost jobs created conflict within the main labour union, the Danish LO, and other industrial labour unions. (Det fri Aktuelt 25 May 1991) However, the LO maintained that the CO2 tax proposal would not cost any jobs (LO-Bladet 15 August 1991). While, at this stage, it was not possible to find any reactions from consumer and environmental organizations.


The evidence shows an overwhelming level of opposition and rentseeking from producers, which is striking compared with the general absence of any lobbying on behalf of consumer interests. As a result, influential politicians were convinced that exemptions should be added to the CO2 tax proposal (Folden et al. 1993, 92ff). Two main effects of industrial rent-seeking could be observed when the CO2 tax bill was passed into law in 1991 (and subsequently implemented in 1992 for households and 1993 for industry). The first effect was that the final tax design was differentiated. Household tax remained at the DKR 100/ton from the original uniform tax proposal whereas the tax rate for industry was halved to DKR 50/ton. The second effect was that energy-intensive sectors (such as steel, chemistry, aluminium, horticulture, cement, glass, cardboard and paper) were basically exempted from CO2 taxation due to a favourable refund system. The consequence of this refund system was an inverse correlation where firms emitting the most pollution were given the lowest economic incentive to reduce their emissions: the greater your emissions, the less you had to pay.6 This perverse incentive motivated the CDI to encourage its members to increase their CO2 emissions to receive higher refunds and thereby save money (CDI 1992). When taking this refund system into account, the DKR 50/ton tax for industry is lowered further to a real level of DKR 35/ton (Finansministeriet 1994a, 30; Kristoffersen, Munksgaard and Jensen 1997, 49). Reform The absurd consequences of the CO2 tax design as described above called for reform. Therefore, the government appointed a new commission, known as the `Dithmer Commission'. Its task was to investigate the possibilities for increasing green taxation of industry and simplify the existing model for refunding revenue. (Enevoldsen and Brendstrup 2000; Finansministeriet 1993, 3) However, as we shall see, the result was prompt industrial action and a repeated series of industrial rent-seeking behaviour similar to the pattern exhibited at the time of the initial CO2 tax proposal. In the autumn of 1993 the Dithmer Commission set out to convene a number of meetings with 24 industrial, environmental and consumer organizations. These meetings resulted in a report showing that Denmark, unless taking further action, would reach only 15 per cent CO2 reduction from 1988 to 2005 and not the prescribed


national target level of 20 per cent. Therefore, an expanded CO2 tax on industry was thought to be appropriate. The tax should be raised from DKR 35/ton to DKR 200/ton CO2 , that is roughly a six-fold increase. It was also stated that CO2 taxation on households required raising by a factor of six, namely, from DKR 100/ton to DKR 600/ton. Furthermore, the report stated that Danish energy taxation on industry was in line with the European average. (Chapter 4; Finansministeriet 1994a, 17) Still, it was thought that the new CO2 tax should be increased gradually (Finansministeriet 1994a, 11±12, 30). During the meetings with the affected interest parties, consumers were well represented ± in the initial phase by six environmental and consumer organizations. However, industrial organizations dominated the political decision-making process. When the Dithmer Commission report was subsequently circulated, three of the environmental organizations that had participated in the first meeting were no longer part of the political process. In contrast, several new industrial organizations had entered the arena, most notably, the electric utility industry. The CDI repeated the argument that the CO2 taxation proposal would increase total job losses and that none of the refund systems were attractive because they would lead to a devastating redistribution of the manufacturing sector (Finansministeriet 1994b). In general, organizations representing energy-intensive firms were most active and strongly opposed the new CO2 tax proposal whereas the labour-intensive organizations were somewhat reluctant to respond. This is logical because the energy-intensive sectors with the highest CO2 emission levels face the highest CO2 taxation payments and therefore have the most to lose when CO2 taxation is introduced. (Svendsen et al. 2001) Inevitably, consumer organizations welcomed the proposal. The Consumer Council was positive towards green taxation claiming that producers paid much too little compared with consumers. Refunding was seen as a means of encouraging the development of new and cleaner technology. The environmental organizations were also positive taking that the existing taxation system should be reorganized in terms of environmental protection and that they were in agreement with the proposed that the raised CO2 tax for producers, that is, it should be doubled to DKR 400/ton (Finansministeriet 1994b).


These arguments were repeated when the interest groups were again formally invited to participate. In reaction to the initial responses received from producers and consumers, the Dithmer Commission formulated a set of new material for use in a round of six meetings. It is remarkable, that the main representative of consumers, the Consumer Council, discontinued its participation in the process. Only green consumer interest groups were now represented, by two organizations (Finansministeriet 1994c). The first round of meetings was held at the sectoral level, that is, with industrial and service sectors. Second and third round meetings were held with representatives from the energy sector and primary industries, respectively. In the fourth round environmental organizations were invited, while in the fifth and sixth rounds, only industrial organizations participated because they were the only category invited (Finansministeriet 1994d;1995a). After the first four rounds of meetings, the Dithmer Commission proposed a tax model for discussion with industrial organizations at the last two meetings. The model contained three different tax levels for industry as `the number of tax levels must achieve a balance between administrative concerns, economic incentives and firms exposed to competition.' (Finansministeriet 1994e, 7) The levels proposed for industry are set out in Table 2.4. Table 2.4 shows that space heating is introduced at a more rapid speed than the other two. Consumers were, like industry from 1998, to pay a DKR 600/ton CO2 for space heating. However, as industry only uses 7 per cent of fossil fuel energy for space heating (as shown above in Table 2.2, note 4), the two other tax level categories concerning light and heavy processes (60 per cent and 33 per cent of fossil fuel energy use, respectively) are crucial to industry. As seen in Table 2.4, these two tax levels for producers are substantially lower Table 2.4: Dithmer Commission proposal for industry (DKR/ton CO2 ) DKR/ton CO2

1996

1997

1998

long run

Space heating Light process Heavy process

200 80 10

400 100 15

600 120 20

600 200 50

Source: Finansministeriet (1994e, 9).


than the DKR 600/ton CO2 valid for consumers, in particular the one for heavy processes.7 After discussing this model with industrial organizations in the last two rounds of meetings, the Dithmer Commission proposed two different models in its final report to the government (Finansministeriet 1995b). Model 1 was the same as described above in Table 2.4. The only change was that the tax levels for light processes had been lowered even further to DKR 75/ton (1996), DKR 95/ton (1997), DKR 115/ton (1998) and DKR 200/ton (long run), respectively. Model 2 combined a CO2 tax with a minor sulphur dioxide tax. Compared to Model 1, it lowered CO2 taxation further for producers reaching an average CO2 tax of DKR 130/ton. There was no tax reduction for consumers because space heating taxation remained unaltered (Finansministeriet 1995b, 33). Concerning refund systems, the Dithmer Commission proposed that refunds should take place as reduced payments for labour market services and/or through subsidizing environmental investments (Finansministeriet 1995b, 6). Even though producers, compared to consumers, were clearly favoured in both Dithmer Commission proposals, they did not accept it. Both the CDI and the LO were by now opposed to the tax and met with the government. They opposed both models and requested a voluntary agreement approach (Jyllandsposten 27 February 1995). In this setting voluntary agreement means that an energyintensive firm commits itself to an agreed plan for reducing CO2 emissions. If it fails to comply, the voluntary agreement becomes nullified and the firm will return to the highest tax level and have to repay any money saved while the voluntary agreement was in operation (Danish Government 1995). This led the government to modify Model 2 to include voluntary agreements (see Table 2.5) (Enevoldsen and Brendstrup, 2000; Larsen et al. 1997, 94±5). The shift towards lower tax rates and voluntary agreements for producers can only be explained by strong producer presence in the political decision-making process compared to consumer groups which did not achieve any tax reduction. As shown in Table 2.5, space heating, which primarily concerns consumers (see Table 2.2, note 4), is still set at the DKR 600/ton level and it is not possible to establish voluntary agreements. As far as producers are concerned, CO2 taxation without a voluntary agreement has been reduced. The modified Model 2 proposal now suggests


Table 2.5: Modified Model 2 proposal with voluntary agreements (DKR/ton CO2 )

DKR/ton CO2 Heavy process Light process Space heating

Voluntary agreement

No voluntary agreement

3 68 ±

25 90 600

Source: Danish Government (1995, 5).

DKR 25/ton for heavy processes and DKR 90/ton for light processes. These tax levels were, when linked to actual energy use, significantly lower than the average DKR 130/ton proposal in the original Model 2 proposal. Under the voluntary agreement system, CO2 tax levels were lowered even further for producers. Heavy processes faced a nominal tax payment of DKR 3/ton, with light processes facing DKR 68/ton only. This is remarkable as heavy processes are estimated to use onethird of total energy consumption among producers (see Table 2.2, note 4). The planned refund system attached to this proposal was intended to subsidize investments in energy savings and to lower labour market service payments (Danish Government 1995, 13). This modified Model 2 bill was passed into law and implemented in 1996. Summary The development in CO2 tax proposals in Denmark showed that producer organizations played a dominant role concerning the choice of CO2 tax design in Denmark. This proved to be the case both when designing the initial proposal and when designing the reforms. When designing the initial CO2 tax proposal, industrial opposition and presence became more and more visible in contrast to consumer representatives. Consumer groups were present in the initial phase of introducing a CO2 target level. After that time, they were largely absent from the political decision-making process. The much stronger presence and rent-seeking behaviour of producers had a radical effect, with the initially proposed uniform CO2 tax being changed to one of a differentiated CO2 tax, where the general tax rate for VAT firms was lowered to half the rate applicable to households. Also a


generous refund system for producers was added to the final proposal resulting in the perverse incentive to increase CO2 emissions; it strongly favoured energy-intensive firms and therefore the main representative for industry, the CDI, encouraged its members to increase their CO2 emissions to receive higher refunds and thereby save money. This pattern of producers dominating the decision-making process and achieving tax reductions in contrast to consumers was repeated when the CO2 tax was reformed. After the Dithmer Commission had formulated a new proposal favourable to producers, renewed and aggressive rent-seeking from the dominant industrial organizations took place. In contrast to the initial phases of CO2 taxation, all the main labour unions were by now convinced that many jobs were at risk and, in order to protect their members, they fully supported producers in their claims. Once again, only industry was involved in the final and decisive negotiations whereas consumers were left out. The original reform proposal was changed much in favour of producers in the form of lower tax rates. Furthermore, a system of voluntary agreements was added to the programme lowering tax rates even further to nominal levels. Norway Initial proposal Norway set its national CO2 target level in 1989 taking that CO2 emissions should be stabilized at the 1990 level in year 2000 (Miljùverndepartementet 1989, 10).8 As in Denmark, industry was inactive when discussing and settling the CO2 target level; only the environmental groups were active in promoting their point of view (Tenfjord, 1995, 173±4). To achieve the stated level, a CO2 tax was introduced in 1991. This CO2 tax was differentiated and only minor parts of industry were taxed.9 However, the offshore oil industry was taxed.10 One possible explanation for taxing the offshore oil industry but not domestic industry may be that the oil industry is weakly represented within the main industrial interest groups in Norway. Kasa (1999, 11) suggests that the oil sector is a `mixed bag' of companies (state companies, private domestic companies and several transnational companies are involved) presenting difficulties for this heterogeneous group to organize concerted action against CO2 taxation.


The background for introducing CO2 taxation in Norway was the appointment of two commissions in 1989, namely the Climate Group and the MU Commission (Miljùafgiftsudvalget). The recommendations of the two commissions formed the basis of the government proposal to let CO2 taxation embrace industry and energy production (Tenfjord 1995, 94±5). Industry launched an immediate response to this challenge and, as was the case in Denmark, eventually took over the political decision-making process. The main industrial representative organization, Confederation of Norwegian Industries (CNI), indicated that it would be very difficult to achieve the target level and refused unilateral CO2 taxation; it would ruin competitiveness and block new investments. The CNI also feared that the expansion of gas and oilfields in the North Sea would be threatened. Therefore, the CNI and other industrial representative organizations produced a brochure in which they made it clear that CO2 taxation should be international and that a system of tradable permits would be a better alternative (Tenfjord 1995, 174±6, 183). Furthermore, industrial representative organizations met with the government in 1990 presenting their arguments. Single interest firms such as Hydro emphasized that a CO2 tax on gas would mean closures and job losses, which won the industry the backing of most labour unions. (Tenfjord 1995, 184) Producers won this battle. The government basically dropped CO2 taxation of industry with only one main exception, namely, CO2 taxation of offshore oil and gas production. However, industry could not rest on its laurels; it had to sustain its campaign because the MU Commission continued to investigate the possible use of green taxation. The MU Commission launched its report in 1992. It was strikingly `friendly' to industry (NOU 1992). The MU Commission argued that CO2 taxation had to be co-ordinated with other countries and that the Norwegian target level was unrealistic. This position was backed by a Climate Group commission report issued later in 1992 (Tenfjord 1995, 121,184±5). Industry welcomed the new MU Commission report. The CNI and all the other main industrial representative organizations supported the main conclusions and they were backed by the largest labour union, the LO. In fact, the CNI and the LO co-operated closely. For example, they wrote a joint letter to the government saying that CO2


taxation had to be international and that Norway should not move further than Sweden, which was at the same time in the process of reducing its CO2 taxation level (see next section on Sweden) (Finansdepartementet 1992). The Consumer Council declared that because economic instruments could have a negative effect on household economies, one should not forget other instruments such as direct regulation and information. The two main environmental organizations found it disturbing that the MU Commission recommended giving up the national target level and they rejected the calculations in the report (ibid.). Reform In 1995, another commission was appointed by government. The task of the `Green Tax Commission' was to consider the role of tax policies in shaping better employment and the environmental prospects in the long run and to settle future CO2 policies (Farsund 1996, 78±9; NOU 1996). The Green Tax Commission delivered its report in June 1996. It was less friendly towards industry than the MU Commission report had been. It stated that exempted industries should also be taxed, although at the lower level of NKR 50/ton CO2 with existing tax levels for other sectors to remain unchanged. (NOU 1996, 55) This report received much public attention. Industrial organizations strongly opposed it and simply repeated their arguments from earlier on (Bretteville and Sùften 1998, 4), as did other organizations in their replies (Finansdepartementet 1996b). In 1998, the government proposed a new CO2 tax for non-taxed industries, based on the Green Tax commission report. The proposal stated that non-taxed industries should be taxed at twice the rate suggested in the Green Tax Commission report, that is NKR 100/ton CO2 . Because manufacturing industry was exposed to strong competition in international markets, the government suggested that the major part of the tax revenue should be reimbursed to this sector, for example, by rewarding firms which were above average energy efficiency, by lowering employers' contributions to labour market services and by increasing the tax free part of personal income. Such measures were expected to increase both the demand and supply of labour (Norwegian Government 1998, chapters 3, 5 and 6; Svendsen et al. 2000). The perspective taken was that this refund system would,


Table 2.6: Existing and proposed CO2 taxes in Norway, 1998 Type

Tax, NOK/ton CO2

Petrol Petrol

384

Oil Heavy fuel oil Light fuel oil Oil in exempted sectors

143 168 100

Coal and coke Coal for energy purposes Coke for energy purposes Coal and coke in exempted sectors

183 139 100

Oil and gas Oil offshore Gas offshore Gas in exempted sectors

336 382 100

Source: Norwegian Government (1998, chapter 3).

in all likelihood, be phased out as more and more countries began to implement the Kyoto protocol (see Chapter 6). As seen in Table 2.6, the proposed CO2 tax levels (in italics) were significantly lower than the already existing tax levels. Even so, industrial sectors fought to avoid new CO2 taxes altogether. In particular, the energy-intensive firms, which were organized under the Federation of Norwegian Process Industries, strongly opposed the tax. As the largest losers from CO2 taxation, these energy-intensive members were strongly motivated to react against these concentrated costs (Svendsen et al. 2000). In fact, rent-seeking from energyintensive sectors was so intense that the Prime Minister, Ms Gro Harlem Brundtland, broke the norm and, extraordinarily, instructed civil servants of the Green Tax Commission to avoid CO2 taxation of producers (Kasa 1999, 16). The Federation of Norwegian Process Industries complained that the tax would have a severe weakening effect on competitiveness, because the tax was not imposed on foreign competitors, thus forcing Norwegian manufacturing companies to move abroad. The Federation was aware of the CO2 problem but argued that a green tax was the wrong instrument. Rather, the Federation would prefer


other alternatives, such as a system of tradable pollution permits, a system of voluntary agreements between the firms and the state, or a research and development programme aiming at introducing new and cleaner technology (Norwegian Government 1998, chapter 3; Nettavisen 11 May 1998). Fearing the economic consequences of CO2 taxation, the Federation of Norwegian Process Industries continued to launch an aggressive nation-wide campaign against the tax aimed at various types of political actors. The Federation argued that the tax affected an industry which kept many small communities alive and therefore the Federation called upon its member firms to lobby against the tax in their local communities (Stavanger Aftenblad, 18 March 1998). So far, the Federation of Norwegian Process Industries has successfully mobilized the support of powerful organized interests such as the CNI and the Association of Oil Companies (Norwegian Government 1998, chapter 3). Furthermore, the Ministry of Industry and Energy now prefers a system of tradable pollution permits to CO2 taxation (Bretteville and Sùften 1998, 4). Finally and perhaps most importantly, manufacturing industry still has the support of the large Federation of Trade Unions (LO). The Federation of Trade Unions maintains that it fears loss of jobs if such taxation is to be implemented (LO Industri 1998; Norwegian Government 1998, chapter 3). In contrast, the Association of Retail and Service Industries supports the new CO2 tax proposal because the association fears that its members, in the long run, will be subject to new CO2 tax burdens if manufacturing industry is once again exempted from the tax (Aftenposten, 18 February 1998). The government proposal for reform of the existing CO2 taxation was rejected and shelved. Lately, a new commission has been appointed with the explicit task of investigating the possibility of introducing the other alternative, that is a system of tradable pollution permits (see Chapter 6 and Svendsen et al. 2001). Summary The pattern observed in Norway is almost identical to the one observed in Denmark. Differentiated CO2 taxation levied on producers and consumers was clearly the result of a strong industrial presence in the political decision-making process, marked in contrast to consumer organizations. Like in Denmark, it was not possible to


introduce uniform taxation. The effects of the strong presence of industrial rent-seeking was evident, as producers were favoured with low CO2 taxes compared to consumers who dropped out after taking part in establishing target levels. Also, the Green Tax Commission attempts to reform the differentiated CO2 tax system were effectively blocked by industry. Sweden Initial proposal Sweden, like Denmark and Norway, established a national target level in the late 1980s. In 1987, the government had appointed the Green È avgiftsutredningen') (Lundqvist 1996, 314; Tax Commission (`Miljo NaturvaÊrdsverket 1997, 16). On the recommendation of the Green Tax Commission, a SKR 250/ton CO2 tax on all fossil fuels came into force in 1991 (Swedish Government 1990b, 147±64), in line with the government's stated ambition of stabilizing CO2 emissions at the 1988 level (SOU 1989, 271). In contrast to Denmark and Norway, this initial CO2 tax was in principle a uniform and not a differentiated tax. Certain exemptions were made for energy-intensive firms in particular, horticulture.11 Furthermore, if the emission of CO2 was reduced by using less fossil fuels, the saved tax payments could be refunded to the firm (ibid. 153). Still, the overall concept is one of uniform taxation, and significant costs were imposed on Swedish industry (ibid. 173). How can we explain the successful introduction of uniform CO2 taxation in Sweden? Like in Denmark and Norway, one would expect industrial rent-seeking and opposition to uniform taxation. The answer seems to lie in weak industrial rent-seeking in Sweden in the initial phase. When Swedish industry, like in Denmark and Norway, received a report from the Green Tax Commission (the Green Tax Commission), industry only replied formally to the Commission. It seems that industry did nothing else before the bill was passed. In its formal reply to the Green Tax Commission, the main industrial organization, Confederation of Swedish Industries (CSI) opposed the recommended CO2 taxation scheme. The CSI stated that the proposal suggested too high a level of CO2 taxation and that unilateral Swedish action would have a devastating effect: CO2 reduction must be co-


È - och energideordinated with the other EU member countries (Miljo partementet 1989, appendix A, 49ff). This point of view was also backed by the other industrial representative organizations, both energy- and labour-intensive ones (ibid.). However, for some unknown reason, Swedish industry did nothing more. We did not find any other material demonstrating active rentseeking by industrial representative organizations in Sweden other than these formal replies to the Green Tax Commission. Therefore, it is reasonable to suggest that uniform CO2 taxation was introduced in Sweden because industrial organizations were less active in the initial phase after the first commission report than in Norway and Denmark where industry was active in the media, published reports, statistical data, brochures and so on. The fact that industrial representative organizations in Sweden were less active initially also explains why they did not win the support of other main interest groups, again in contrast to the situation in Denmark and Norway. In Sweden, strong interest groups initially promoted CO2 taxation whereas the corresponding interest groups in Denmark and Norway opposed it. Most prominently, we found that the Federation of Farmers was positive towards CO2 taxation and so was the main labour È - och energidepartementet 1989). union, that is the Swedish LO (Miljo Therefore, in contrast to Denmark and Norway, the main representative organizations from agriculture and the unions did not back industry in their formal replies. The major environmental organizations were also given the opportunity to present their opinions to the Green Tax Commission. They formally replied in line with their counterparts in Denmark and Norway suggesting that the proposed CO2 tax should be doubled (ibid.). Reform As described above, Swedish industry did not oppose initial CO2 taxation proposals aggressively. However, the introduction of uniform CO2 taxation on 1 January 1991, sparked Swedish industry into active rent-seeking, like its counterparts in Denmark and Norway. The main industrial representative organization, the CSI, is the dominant player in the evidence we have found. The CSI published a brochure in May 1991 asking for lower CO2 taxation and lower energy taxation in general. The brochure is entitled: `Let industry


lift up Sweden' and it is illustrated by a map of Sweden taking off into the sky on blue and yellow wings (the colours of the national flag). The brochure proposed drastic cuts in tax levels to preserve Swedish competitiveness (Expressen 15 May 1991). The stated necessity for cutting CO2 and other energy taxes has been repeated several times (see for example Dagens Nyheter 19 November 1991; 26 February 1992). In 1992, the CSI published a report which calculated that lower CO2 and energy taxation in Sweden would increase the country's energy-intensive industrial production by 10 per cent. This was shown to be good for the global environment because clean production in Sweden would replace more polluting production in Eastern Europe (Dagens Nyheter 05 February 1992.) The strong presence of the CSI acted to influence the green tax `Hjalmarsson Commission', which had been appointed to introduce the first CO2 tax in early 1991. Its task was, among other things, to analyze the rather complicated exemption rules for CO2 taxation. At the end of 1991 the Hjalmarsson Commission followed the recommendations of the CSI. It suggested that all exemptions should be removed and that CO2 taxes should be lowered drastically for manufacturing industry and horticulture (SOU 1991).12 The function of these tax reductions was seen as preserving the competitiveness of Swedish industry and it was envisaged that they could be financed by increasing CO2 taxation of service industry and households (ibid., 162f). This new report was, of course, welcomed by the main industrial representative organizations claiming that the conclusions of the report corresponded to their own calculations and wishes. Therefore, they supported the recommendations of the Hjalmarsson Commission and wanted them to be implemented as soon as possible (Finansdepartementet 1991; Dagens Nyheter, 20 November 1991). The electricity producers took the same view. They liked the changes but felt they should not be financed by taxing other sectors (Finansdepartementet 1991; Dagens Nyheter 25 November 1991). At this stage the Swedish LO also had been convinced by the CSI that reduced CO2 taxes would secure more jobs and higher wages in real terms. The LO had moved from a `yes' to a strong `no' position. Even so, the LO also agreed that other sectors, like households, should not finance the lost tax revenue (Finansdepartementet


1991). In contrast to the LO, the Federation of Farmers maintained its original position. The farmers agreed that the competitiveness of agricultural industries would be improved following the new proposal. Still, the farmers rejected it because they saw the result as having negative consequences for the environment and the use of natural resources. Therefore, the Federation of Farmers thought that horticultural and energy-intensive industries should not be exempted at all (ibid.). This strong green position taken by Swedish agriculture is in stark contrast to the cases of Denmark and Norway where agricultural competitiveness takes top priority. It is not easy to explain this difference. One possible explanation could be that the Federation of Farmers, in return for its support of CO2 taxation, demanded the abolition of a then existing tax on electricity (ibid.). Consumers' interests were, in general, represented by the Swedish Consumer Council and the green consumers by two environmental organizations. The attitude of the Swedish Consumer Council was vague. On the one hand, it pointed out that it was better to have EUwide uniform CO2 taxes on industry. On the other hand, it felt that it was not good to loosen restrictions on CO2 emissions because Sweden would then no longer be a pioneering country in environmental protection. Therefore, unilateral CO2 taxation should be maintained. The two environmental organizations criticized the work of the Hjalmarsson Commission which, in their opinion was biased and assisted industry, rather than suggesting more simple solutions for saving energy and taking care of the environment. They wanted a new commission to be appointed and suggested that CO2 taxation should be raised (ibid.; Dagens Nyheter 14 June 1992.). Overall, the CSI dominated the political debate whereas most other organizations were practically invisible, apart from their formal replies to the Hjalmarsson Commission. This pattern, in line with the trend observed in Denmark and Norway, was reflected in the final Bill which was passed in 1993. It did not include as extensive radical reductions as those proposed by the Hjalmarsson Commission. However, the reform clearly differentiated the previous uniform tax in favour of producers matching the trend we observed in Denmark and Norway. The initial uniform SKR 250/ton tax was lowered to SKR 80/ ton for industry whereas it was raised to SKR 320/ton for households. In other words, households were taxed four times higher than industry (see Table 2.2 above and NaturvaÊrdsverket 1997, 48±9).


Summary Sweden introduced a uniform CO2 tax in 1991. We observed that producers, like consumers, did not rent-seek during the initial decision-making process. They only replied formally to the report from the Green Tax Commission. We cannot explain why industry did not actively oppose uniform taxation in this initial phase. Therefore, the Swedish case is less clear-cut than the Danish and Norwegian one. However, we subsequently observed that industrial rent-seeking began once the uniform CO2 taxation had been introduced. In particular, the CSI dominated the political debate after the introduction of the first uniform CO2 tax. The Hjalmarsson Commission had been heavily influenced by the CSI's proposals. Also, the CSI campaign had given the main labour union, the LO, second thoughts about the number of jobs at stake. Hence, the LO changed its initial position from accepting uniform taxation to one of backing-up industry in its claim for tax differentiation (as was the case in Denmark and Norway). In this way, aggressive industrial rent-seeking from early 1991 led to green tax reform and lower tax levels for industry in the 1993 reform. Thus, the final policy design corresponds to the design found in Denmark and Norway, namely differentiated CO2 taxation in favour of producers.

Conclusion Economists have traditionally suggested that politicians should simply impose a uniform tax on harmful emissions, as the first-best solution prescribes. However, a detailed analysis of the actual design of CO2 taxes in OECD countries reveals that they are differentiated and lie far from this first-best optimal design. Also, empirical evidence concerning political decision-making in Denmark, Norway and Sweden reveals that industrial rent-seeking is a decisive factor in explaining these policy outcomes. We argued that industry had been successful in rent-seeking against green taxation whereas consumers were less successful. The discussion on group size led us to the hypothesis that the large group made up of individual consumers had difficulties in organizing because the net benefits for individual consumer action are clearly


negative; it does not pay to take the initiative by organizing the whole group into collective action in order to capture the total net benefits. Producers constitute a small group and are well organized. It is even possible for individual group action to take place without any wider organization, as our example illustrated. As a result of weak rent-seeking power, it was argued that consumers are taxed at a much higher rate than the well-organized producers. We chose CO2 taxation in OECD countries as the most appropriate case of green taxation because CO2 emission has a global effect. This means that no local or regional pollution effects can explain differences in the way CO2 is taxed. We went on to compare the levels of CO2 taxation in the five countries which, to date, have introduced CO2 taxation, namely, Denmark, Norway, Sweden, Finland and the Netherlands. Here, we found a large difference between the CO2 tax rate applicable to the consumers and the one applicable to the producers in the OECD countries. In general, CO2 taxes were non-uniform and consumers would, on average, pay a tax rate which was six times higher than that paid by the producers. Furthermore, producers were subsidized by favourable refund systems. The empirical findings on CO2 taxation within the five OECD countries demonstrably support the theoretical prediction that rent-seeking producers would influence political decision-making and avoid taxation. Next, we opened the `black box' of political decision-making in practice, to find out whether the independent variable of rent-seeking did in fact cause the observed effect above in the dependent variable of policy outcome, that is the differentiated design of CO2 taxation. Overall, the development of CO2 taxation and later reforms supported the hypothesis that producers achieved their results by rent-seeking. Producers, in contrast to consumers, were active when the instruments were designed to determine the outcome of the crucial issue of cost distribution of CO2 reduction costs. We noted that energy-intensive sectors were the driving force in rent-seeking within industry because they (as heavy CO2 emitters) had the most to lose in the event that CO2 taxation was introduced. Finally, it was seen that rent-seeking, industrial representative organizations used similar arguments in all three Nordic countries; in essence that green taxation on industry means cost jobs and large-scale economic losses. To avoid the distortion of international competition and to achieve a


global effect, green taxation had to be international. This overall pattern was based on the empirical findings from Denmark, Norway and Sweden. In Denmark, the tax levels were significantly lowered during the political decision-making process, especially in favour of energyintensive industry. Furthermore, the final Bill included the voluntary agreements that producers asked for. Producers reacted aggressively and they became the winners compared to the consumers who were by far the most heavily taxed group. This pattern was repeated in the political decision-making process concerning the reform of CO2 tax legislation in 1995. Here, environmentalists and consumer organizations had been represented in the initial phases but not in the final and decisive ones concerning instrument choice. In Norway, we observed the same pattern as in Denmark. Industry dominated the political arena and was favoured by either no or lower CO2 taxes, in contrast to households. Exemptions for industry were already a fact in Norway when designing the initial CO2 tax. This gap in CO2 taxation between producers and consumers was clearly the result of strong and well-organized industrial rent-seeking and aggressive public campaigning. When the Green Tax Commission suggested that exempted industries should be taxed and government tried to enact it the proposal was successfully blocked by industry in collaboration with the labour unions. Consumer interests were again, like in Denmark and Sweden, almost absent after taking part in establishing initial target levels. Discussions on instruments and CO2 cost distribution in practice, among different sectors in society, leaves no room for consumer interests in the domestic decisionmaking process. In Sweden, a uniform CO2 tax (as recommended by economists) was imposed in January 1991 on manufacturing industry. This tax was at the same level as the one imposed on the service industry and households. Seemingly, industry had been caught out failing to impact on the initial decision-making process. However, the main industrial representative organization, the CSI, woke up and dominated the political debate from early 1991. Their aggressive campaigning resulted in the 1993 reform, where a new CO2 tax favoured manufacturing industry but punished the service industry and households. So, from early 1991, the trend corresponded exactly to the pattern observed in Denmark and Norway. Again, this suggests that manu-


facturing industry is well-organized and strong in terms of rentseeking in contrast to the poorly organized households. The shift from uniform to differentiated taxation in Sweden was explained by the fact that industrial rent-seeking turned from being weak to dominating the decision-making process and because the Swedish LO consequently changed its position from opposing industry to backing it (as in the case of Denmark and Norway where industry was also backed by the main labour unions). So, rent-seeking practices once again successfully turned unfavourable uniform taxation into politically acceptable differentiated CO2 taxation. Strikingly, governments have in general been forced by industrial representative organizations to tax industry at a lower rate than households. Two main problems arise from this practice. First, when sectors that pollute the most are not taxed, pollution reduction does not take place in an optimal way. As we argued in Chapter 1, taxation should be uniform ± otherwise society can reduce costs by shifting pollution reduction costs from the high-taxed consumers to the low-taxed producers. Second, tax differentiation results in disappointing environmental results. As we showed in Chapter 1, nominal CO2 emissions have increased significantly in all countries that have applied CO2 taxation. Thus, the lesson learned is that it is possible to tax consumers but difficult to tax producers who have much stronger incentives to mobilize opposition. Nevertheless, producers have not been able to avoid taxation. Chapter 3 examines how government coalitions affect green taxation.


3

Parties Matter1 Carsten Daugbjerg

Introduction Chapter 2 described the incentives to organize and rent-seek within a group and how this affects the design of green tax schemes. We concluded that since producers are a relatively small and well-defined group, they each have a significant incentive to engage in collective action because the benefits are likely to outweigh the costs. Consumers form a large group in which each member has only a little to gain from collective action and, therefore, have difficulties in forming powerful interest groups. Our comparison of tax schemes design for CO2 (carbon dioxide) pollution control demonstrated that producers were less heavily taxed than consumers. Thus, public choice theory could explain why uniform taxation did not occur. However, it cannot explain why environmental taxation of producers differs across countries. This chapter addresses this question. An analysis is carried out in order to examine how broader political structures in a society affect green taxation. In other words, we undertake a macro-level analysis. The party system is a reflection of the broader political structure because it is a manifestation of political cleavages in a society. The way in which parties relate to these cleavages has an important impact on their willingness to use green taxes directed towards producers. It is argued that the traditional left± right dimension is at the centre of green tax policymaking in Western Europe even though environmental concern within the electorate cuts across class lines (Eijk et al. 1992, 4). Thus, to a large extent, a political party's position on the left±right scale is the key to revealing 45


its policy preferences in green taxation. Hence, the fact that environmental issues have become more important factors in terms of voting behaviour has not changed the importance of the traditional left± right cleavage in policy making. In the literature on political parties there has been a lengthy debate about the importance of political parties in public policymaking, in particular, in economic and welfare state policymaking. The basic question in this debate is whether or not political parties are crucial determinants of public policy. We shall not review the entire debate here, but limit ourselves to Schmidt's (1996) excellent review of the empirical literature on political parties and public policy in which he finds support for the `parties matter thesis'. However, he is aware that a range of other factors curtail the influence of parties. As he points out: `[w]ithout downgrading the impact of other political and economic determinants, it can safely be concluded from these studies that the hypothesis on partisan influence on public policy passes the empirical test reasonably well' (169). This conclusion is based on studies which analyze partisan influence on policy choices and the nature of policy contents such as the levels of taxation and public expenditure rather than policy impact; that is, the effects of policies in economic and social life. Showing that parties have an impact on policy effects has proved difficult in macro-economic policy. As Schmidt (1996, 166) points out: `many areas in social and economic life in democratic states are not amenable to political manipulation. It is therefore not surprising that correlations of the party composition of government and macro-economic outcome indicators such as rates of economic growth, inflation and unemployment, with a few exceptions yield inconclusive results.' While it is difficult to establish a causal link between parties and policy impact, the link between parties and policy content can be established. The remainder of the chapter concentrates on this issue. Essentially, this chapter is a contribution to the literature on political parties and public policy in that the `parties matter thesis' is tested empirically outside the traditional field of research, which is the welfare state and economic policies. The main question is whether parties matter in public policymaking and, in particular, environmental policymaking. More specifically, we analyze whether the position of governments on the traditional left±right dimension in politics affects whether or not green taxation is applied and how it is designed.

Parties Matter 47

The chapter is sub-divided into five main sections. First, we argue that the traditional left±right dimension is still central to public policy making in Western Europe. Second, we develop a hypothesis on its influence on green taxation. Third, we undertake a five-nation comparison to establish empirically whether this link can be found in green taxation. Britain, Denmark, Sweden, Norway and the Netherlands were chosen for analysis because these countries enable us to vary the independent variable, that is a government's position on the left±right scale, and measure its effect on green taxation. We show that liberal and conservative parties tend to be more reluctant to use producer-directed green taxation than social democratic and labour parties. Liberal and conservative parties may, however, accept green taxation as long as policy design accommodates producer interests. Fourth, after this broad analysis, we turn to a detailed comparison of CO2 taxation in Britain and Sweden to strengthen the conclusion of the five-nation comparison. Finally, the chapter considers the importance of policy design in green taxation.

Institutionalization of the left±right dimension Studies of electoral behaviour in Western Europe show that, since the late 1940s, factors other than social group affiliation, such as environmental concern, increasingly influence individual voting behaviour (for example Franklin 1992; Inglehart and Rabier 1986). È ller-Rommel (1989, 16) argues that `the emergence of new value Mu orientations in Western Europe together with the foundation of green parties has produced a new dimension of conflict' within existing party systems. However, this new conflict dimension has not radically changed policy formation; not even in environmental politics, because the traditional left±right cleavage continues to dominate policymaking in policy fields which include a socio-economic aspect. Since green taxation involves a reallocation of economic resources, it can be conceived of as a socio-economic policy issue. The left±right cleavage is maintained by the institutionalization of party systems, arising, in turn, from the institutionalization of political parties. In this section, we argue that the institutionalization of political parties is an important reason why the left±right dimension has remained central in modern party politics. It structures government


formation; thus, the left±right dimension should be ascribed independent explanatory power. Because the left±right dimension structures policymaking to such a considerable extent, it is crucial in understanding how the broader political structure of a society influences the choice of public policies. Lipset and Rokkan's (1967) seminal work on party systems and voter alignments in Europe is a very useful starting point for theorizing about the way in which the left±right cleavage affects green tax policies. A major argument of Lipset and Rokkan's work was that European party systems were frozen in the 1920s and thus did not change for long periods of time. As they argued: `the party systems of the 1960s reflect, with few but significant exceptions, the cleavage structures of the 1920s' (50). Lipset and Rokkan (ibid.) argue that party systems in liberal democracies matured after the final phase of mass mobilization and the extension of suffrage early in the twentieth century. Since there were no new masses to mobilize and represent at that time, the opportunities for the formation of new parties were limited. The party system, to use Lipset and Rokkan's (1967) phrase. Basically, the Western party systems were formed in relation to four cleavage lines in society. These are the centre± periphery, state±church, land±industry and worker±capital cleavages. However, party formations taking place before the emergence of the worker±capital cleavage were influenced, to a larger extent, by specific national historical developments rather than the formation of the parties of the left. As Lipset and Rokkan (35) argued: The decisive contrasts among the Western party systems clearly reflect differences in the national histories of conflict and compromise across the first three of the four cleavage lines . . . : the `center± periphery', the state±church and the land±industry cleavages. [These cleavages] generated national developments in divergent directions, while the owner±worker cleavage tended to bring the party systems closer to each other in their basic structure. The crucial differences among the party systems emerged in the early phases of competitive politics, before the final phase of mass mobilization. They reflected basic contrasts in the conditions and sequences of nation-building and in the structure of the economy at the point of take-off toward sustained growth . . . .The decisive contrasts among the [party] systems had emerged before the entry

Parties Matter 49

of the working-class parties into the political arena, and the character of these mass parties was heavily influenced by the constellations of ideologies, movements, and organizations they had to confront in that arena. Since the worker±capital (or left±right) cleavage can be found in all West European countries, it is the most relevant one to concentrate on in a cross-national study. Before turning to a discussion on the left±right dimension's influence on modern politics, we briefly discuss the cleavage concept and argue why political parties can be seen as institutions. In the literature on party systems and voter alignments there has been some discussion about the definition of a political cleavage. In the work by Lipset and Rokkan (1967) and in Rokkan's other writings, a clear definition of the cleavage concept cannot be found (Aardal 1994, 221). Indeed, what constitutes a political cleavage has been widely discussed in the academic literature (see Aardal 1994 for a review). Not every social, cultural and economic conflict leads to the development of political cleavages. Bartolini and Mair (1990, 215±19) argue that to qualify as a lasting political cleavage, three requirements must be fulfilled. First, there must be a socio-economic foundation of the cleavage. Second, there must be a collective identity based upon shared values and perceptions. Third, a cleavage must have an organizational expression. However, Aardal (1994, 224±7) argues that the first of Bartolini and Mair's requirements is not a prerequisite for the emergence of a political cleavage. A political cleavage need not have a socio-economic foundation, but can be based on collective identity and linked organizational arrangements only. It is important to point out that Lipset and Rokkan's work is not a theory of cleavage structures, party systems and voter alignments. Rather, it is a retrospective analysis of political development, but at the same time a model from which hypotheses can be derived (Aardal 1994, 221±3). Lipset and Rokkan's model of cleavage politics is based implicitly on historical institutionalism. An important argument of historical institutionalism is: `Current institutional structures may be a product of some peculiar historical rather than contemporaneous factors . . . [and] once an historical choice is made, it both precludes and facilitates alternative future choices' (Krasner 1984, 225). The freezing of party systems is only possible if the constituent parts of


the party system ± the political parties ± themselves become institutions, reflecting political conflict in society at a certain point in time. From an historical institutionalist perspective, the principal decisions are made in the formative phase in a party's history and continue to structure the party's political behaviour for decades. Lipset and Rokkan seem to conceive of parties as institutions since they argue: ònce established [parties] develop their own internal structure and build up long-term commitments among core supporters . . . [and] once [a party] has been established and entrenched, it will prove difficult to change its character . . . ' (Lipset and Rokkan 1967, 30). Panebianco (1988, 16) also supports the historical institutionalist view of political parties by arguing: `[a party's] original official aims are never abandoned, nor do they ever become a mere ``facade'' . . . .[The party] continually engages in certain activities related to these aims, for it is precisely upon these activities that the party's collective identity and the leadership's legitimacy are based.' Ideology plays an important role in the institutionalization of political parties. As Peter Hall (1986, 272) points out: `Like all organizations, [parties] become attached to a particular ideology because ideology is central to organizational life. Ideology provides a political organization with an identity over time, tying present activities to past ideals.' Most political parties are based on more or less coherent ideologies and these may often be linked to long-term commitments to certain social groups. This is exactly what makes parties develop into institutions. Thus, ideology stabilizes party organizations. Parties change only if their electoral strength is seriously threatened by changes within the composition of the electorate because party change may conflict with commitments to certain groups, and this may produce a crisis within the party resulting in internal conflicts. Since coherence is a highly valued goal within party organizations È blom 1968), parties attempt to avoid such situations by sticking (Sjo to established party ideologies and policy positions. We do not claim that parties never change. Indeed, socio-economic changes may lead to an increase in some social groups and a decrease in others, and thus alter the relative size of core voter groups. In such situations, parties may be caught in a dilemma: they have to choose whether to stick to the interests of their traditional voters and face declining electoral support or to transform and attract voters from

Parties Matter 51

new social groups in order to maintain or even increase electoral support. In general terms, one cannot predict how parties will react to this dilemma. As Lane and Ersson (1991, 112) argue: `Parties may react differently to social structure change. Some stick to their traditional clientele whereas others try to identify new key groups.' Parties trying to attract new voters rarely give up their traditional supporters (Kirchheimer 1966, 185±6, 193). This may sometimes mean that parties have to face a new dilemma because the interests of such parties' core voters may turn out to conflict with those of the new supporters. However, since the parties' policy objectives, to a large extent, are derived from their long term commitments to their original core constituencies, the interests of new supporters are rarely allowed to lead to policy positions which conflict with the interests of the parties' original core supporters. The institutionalization of political parties contributes to the maintenance of traditional cleavage lines in modern politics. The left± right cleavage line is crucial to party politics in most Western European countries because it strongly influences who co-operates with whom in the parliamentary arena. Patterns of government formation in Europe clearly demonstrate this. Table 3.1 summarizes the overall pattern in 10 West European countries from 1959 to 1998. These countries have all been democratically governed in the postwar period. Within this period of time, instances of governance by coalitions that cut across the left±right cleavage line, taken together as a whole, still only represented 9 per cent of all categories of government. However, there are exceptions to this overall trend. Both Belgium and Austria have had traditions of broad coalition governments, which have cut across the left±right cleavage line. Since these two countries can, in this respect, be classified as òutliers' they have been excluded from Table 3.1 in order to establish the main tendency in European government formation. The fact that most government coalitions in Europe do not cut across the worker±capital cleavage line, but are centre±right, centre± left coalitions or purely governments of left or right, indicates that the left±right cleavage line is of major importance in public policymaking. Government formation since the early 1970s has not changed this pattern, although there has been a significant growth in the electorate's concern for new issues such as pollution and environmental damage.


Table 3.1: Aggregate time in office (expressed as a percentage) of various types of governments in 10 West European countries, 1959±98* Government type Single party government or coalition government within a single cleavage block Centre±left coalition Centre±right coalition Left±right coalition Left±centre±right coalition Total

Time in office (per cent) 48 22 22 5 4 100

Source: Europa Yearbook, various issues. Table compiled by Peter Sidelmann

Sùrensen.

Note:* The countries included in the table are, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Sweden, Norway and United Kingdom. The position of political parties on the left±right scale is based on Castles and Mair's (1984) work. We have, however, allowed ourselves to classify the Danish Social Democratic Party as a moderate leftist party rather than a centrist party.

Dominance of the worker±capital cleavage line in government formation does not, however, preclude policy agreements made across this cleavage line. Such agreements are much easier to make than government coalitions. While policy agreements between two or more parties only need to be based on a limited number of policy issues in which common ground can be found, formation of government coalitions requires that the parties involved share fairly similar views on policy across many issue areas. The pattern of government formation indicates that policy commitments in relation to core constituencies are crucial to parties. Although office seeking may be an important motivation for political parties to participate in government, the pursuit of policy objectives is just as important and even the most important purpose for some party types (Budge and Laver 1986; Strom 1990). The fact that opposition parties do indeed make deals with governments underlines that policy objectives may be just as important as office seeking (Budge and Laver 1986). In addition to the institutionalization of the party system, the left± right cleavage in party politics is maintained by voting behaviour. Although social group affiliation in most Western countries has

Parties Matter 53

become a weaker determinant of individual voting behaviour since the 1960s (Franklin 1992), voting mobility cutting across the worker± capital cleavage did not occur to a larger extent in the 1970s and early 1980s than it did in the 1920s. Instead, voting mobility takes place among parties within cleavage blocks (Bartolini and Mair 1990). Bartolini and Mair (1990, 292) therefore, correctly, conclude that we cannot speak of the decline of cleavage politics because cleavages are à means of political stabilization, providing individuals with a constellation of pre-existing alternatives for their own social and political integration'. Furthermore, cleavages contribute to the structuring of the overall voting behaviour of individual voters (ibid. p. 5). This structuring of voting behaviour and political integration, feeds back into the party system and maintains its overall structure despite socio-economic change. Since Bartolini and Mair (1990) apply aggregate data analysis and not individual-level analysis, they cannot say anything about the relationship between individual affiliation to social groups and voting behaviour (Mackie and Franklin 1992, 47). What they are basically saying is that once people have decided on what side of the worker±capital cleavage line they belong, they tend to stay there. Thus, people use the left±right dimension to develop their political identity, and this means that the left±right cleavage line is still important in current elections. This electoral behaviour maintains the overall structure of the party system.

Parties and green taxation Many political parties have been more or less forced to incorporate the environmental issue into their electoral programmes in order to gain new votes or to avoid losing votes. The latter can easily happen because being seen to not care about the environment could lose voters and result in electoral defeat. In order to maintain, and sometimes even increase, their electoral support, most parties have tried to co-opt the environmental issue, at least rhetorically. In some parties, the greening process has been more serious, meaning that they have expressed environmental concern in party policy. The most penetrating form of greening is à more permanent fusing of environmental beliefs into the realms of existing party ideology, thereby informing future policy decisions' (Robinson 1992, 74). Greening at the ideological level is the rarest type of co-option of the environmental issue.


Although parties co-opt the environmental issue, the greening process may not be as pervasive as it may seem at first sight. When incorporating environmental issues, many parties model the new issue in familiar ways (Eijk et al. 1992, 418) so that it `fit[s] established structures of party thought and action' (Robinson 1992, 216; see also Aardal, 1993, 165±7). So, although party systems may co-opt new conflicts in society, they still mirror historical cleavage lines (Aardal 1994, 237). Since parties tend to institutionalize their original aims and ideologies, they `do not present themselves de novo to the citizens at each election; they each have a history and so have the constellations of alternatives they present to the electorate' (Lipset and Rokkan 1967, 2). The political parties' position in relation to the established worker± capital cleavage line can help to explain their policy objectives in green taxation. Since green taxation involves socio-economic questions, a party's position on the left±right scale is of major importance in explaining its policy choices within this policy field. Political parties attempt to protect and/or promote the interests of the original core supporters, and since `parties are alliances in conflicts over policies and value commitments' (ibid. 5), they attempt to deliver policies which are favourable to their core constituencies (Hibbs 1992, 362), or at least do not harm these. However, since politics in practice is `the art of the possible' political parties are forced into a process of coalition building. In two-party systems this takes place among factions within the parties. In multi-party systems, coalition building among parties is a much more important factor in policymaking. We are not saying, however, that coalition building within parties is not taking place in such systems; rather, we are saying that it is not as prevalent as is it among parties. Coalition building means that sometimes a party has to accept a policy decision which is unfavourable to its core constituency in order to realize other goals. In line with our historical institutionalist perspective on political parties, the policies suggested in parties' environmental programmes are designed not to hurt the interests of their core constituencies and sometimes even to promote them. In pollution control, left-of-centre parties ± social democratic parties and labour parties ± tend to perceive of green taxation of producers as being an acceptable policy measure because it does not directly hurt their core constituency,

Parties Matter 55

which typically consists mainly of workers. Accordingly, in many European countries, social democratic and labour parties have chosen to identify with environmentalists (Eijk et al. 1992, 425). Therefore, social democratic and labour parties may see the introduction of green taxes directed towards producers as an acceptable way to demonstrate environmental concern but also as a way of raising state revenue. In such situations, environmental policy making reflects the traditional left±right dimension in politics. In other words, the making of environmental policies is dominated by cleavage politics. However, we might see social democratic and labour parties join the opposition to green taxation if they fear that low income groups will be hit too hard by the costs of green taxation (Weale 1992, 163). Presumably, such a policy position is most likely to occur when consumer directed green taxes are discussed or when trade unions believe that green taxation in industry will lead to a rise in unemployment. In contrast, right-of-centre parties, that is, various liberal and conservative parties, are much more reluctant to impose green taxes on polluters. Their affiliation to producer interests means that they prefer other types of environmental regulation, usually soft measures such as voluntary agreements. However, they may accept the use of green taxes in two circumstances. First, participation in coalition governments with centre parties that have adopted a green profile may sometimes force them to accept green taxes, but then they will attempt to ensure that tax schemes accommodate producer interests. Second, some liberal and conservative parties may accept green taxation of producers if their core constituencies are exempted from the taxes or their interests will be accommodated through reimbursement schemes linked to the tax schemes. Basing our hypothesis on parties' policy positions on green taxation in relation to their position on the left±right scale, we suggest that centre parties may take intermediate positions on green taxation. This means that they would be more positive towards the use of environmental taxes than liberal and conservative parties, but less willing to use them than social democratic and labour parties. However, if they represent certain producer groups such as farmers, small enterprises or self-employed artisans, they may be reluctant to force green taxes on these groups. Squeezed between major parties to the left and right in a sometimes overcrowded centre, some centre parties


have attempted to co-opt the green issue and, thereby, pursue fairly radical policies on green taxation. In such situations, the left±right dimension is of minor importance in determining their policy position on this issue. Thus, the policy positions on green taxation of the centre parties may be more difficult to predict than those of social democratic/labour parties and liberal/conservative parties. In summary, we hypothesize that social democratic or labour governments or coalition governments, in which these parties are the dominant partners, introduce green taxes more frequently than do liberal or conservative parties. Parties located at the centre of the political spectrum are likely to place themselves in intermediate policy positions, unless they have adopted a green profile. If liberal or conservative parties which are members of a coalition government with centre parties are forced to accept green taxation directed towards producers, they will attempt to have them designed in a way which accommodates the interests of producers. So, to a great extent, green taxation can be explained by the parties' position on the left±right scale.

Green taxation in the industrial sector In this section, we apply European-wide data to test the hypothesis that social democratic and labour governments tend to find green taxes a more acceptable measure in pollution control in industries than do conservative or liberal governments. These differing policy positions are the result of the parties' different position on the left± right scale. Even though it is broadly agreed that concern for the environment cuts across the left±right cleavage line, we demonstrate that at the end of the day there is a tendency for governing party's (or parties') position on the left±right scale to influence green taxation. To establish whether centre parties take intermediate positions on green taxation, a country in which a centre party has been the dominant governing party, during the postwar period is included in the comparison. The following analysis is designed as a comparative study in which cases selected for comparison enable a robust test of the theoretical hypothesis. This means that we analyze pairs of countries that have all experienced government coalitions of varying political complexion during the 1980s and early 1990s; this being the period in which

Parties Matter 57

green taxation was either introduced or seriously considered in most European countries. In other words, the independent variable (types of parties in government) will be varied in order to analyze whether this produces variation in policy choices in green taxation as suggested by the theoretical hypothesis. This part of the analysis attempts to draw an overall conclusion on the link between European political parties and green taxation. When one attempts to categorize green taxes, a difficulty immediately occurs. Some of the tax schemes were originally energy taxes or fees to cover costs associated with the running of distribution systems (for example for drinking water), administration and registration (for example of chemicals), recycling, cleaning (for example of sewage), or they were introduced for fiscal purposes only. Some of these tax schemes have, so to speak, been `painted' green in the sense that, later on, policymakers added environmental purposes to them. We have attempted to leave such taxes out of the analysis. Only those tax schemes which were originally introduced for environmental purposes, either by (1) inducing firms to engage directly in environmentally friendly behaviour, or (2) indirectly by raising revenue for other environmental policy measures, have been included. These measures are, for instance, concerned with environmental research and development, subsidies for environmental investments in production technology and various types of environmental information campaigns. In fact, many current environmental tax schemes were originally introduced for revenue raising purposes (see for example Hahn 1989, 109; OECD 1997). Liberal and conservative governance: Denmark and Britain From the mid-1980s and until the mid-1990s which, so far, seems to have been the heyday of green taxation in Europe, liberal and/or conservative governments governed in both Britain and Denmark. The existence of these types of governments enables us to test whether or not they were reluctant to introduce green taxes directed towards the industrial sector as suggested by our hypothesis. Furthermore, the Danish change of government in 1993, when a social democratic±social liberal government took office, enables an examination of whether the inauguration of a government coalition in which the Social Democratic Party was the leading partner had any consequences in the use of green taxation.


We expect to find relatively few green tax schemes directed towards producers in these two countries, in particular in Britain, because the conservative governments were not forced into forming coalitions with centrist parties which ± squeezed between the major parties of the left and right ± have chosen to strengthen their electoral platform by adopting an environmental profile. In contrast, the Danish liberal±conservative governments were forced to build coalitions with the centre parties in order to introduce their policies. This means that these governments may have had to accept the introduction of some green taxes. Britain Perhaps the most outright left±right conflict in party politics can be found in Britain which, in contrast to the other countries included in the analysis, has a two-party system. There is, however, a third party represented in Parliament, the Liberal Democrats, but with a few exceptions this party has not had much influence in British politics during the postwar period.2 The two dominant parties are the Conservative Party and the Labour Party. From 1979 to 1997, the Conservatives governed in Britain. Conservative rule is clearly reflected in the extent to which green taxation has been used. Only two green tax schemes affecting industry were introduced between 1979 and 1997. A relatively low tax on water discharges was introduced in 1990 to cover the costs of monitoring effluents and water quality. The tax level was not intended to reflect the costs of environmental damage (Smith 1995, 32). A landfill tax was introduced in 1996 to reduce the amount of waste. The tax revenue is reimbursed by lowering employers' National Insurance contributions by 0.2 per cent. Compared with waste taxes in other European countries, the British landfill tax is one of the lowest (Turner et al. 1998, 30±4). Green taxation is used to a very limited extent in Britain, as suggested by our theoretical hypothesis. One may ask why it was used at all. The Conservatives did not have to make compromises with the other political parties. The reason why the Conservatives introduced the landfill tax may be explained by the fact that it was not seen as affecting industry because the revenue is reimbursed by lowering employers' social security contributions. To understand the introduction of the water tax, we need to understand the situation in which it

Parties Matter 59

was introduced. The then Secretary of the Environment, Chris Patten, had suffered a major defeat because his proposals on green taxation had been rejected by the cabinet (see below) when the Thatcher government presented its White Paper on environmental policy in 1990. The relatively low water tax, which was suggested in the government's 1990 White Paper on the British environmental strategy (HM Government 1990, 168), may, thus, be seen as a measure intended to soften the blow for Patten. Although the introduction of the landfill and water taxes does not strictly fit the pattern suggested by our theoretical hypothesis, there is no doubt that during the conservative governments of the 1980s and 1990s, the tendency was to apply green taxes only to a very limited extent. This will become particularly evident when we analyze some of the continental European countries (see below). Thus, our hypothesis should not be rejected. Denmark Green taxation is widely used in Denmark. Green taxation has been directed at both producers and consumers. However, `Danish governments have hesitated to impose energy or environmental taxes on manufacturing industries . . . .As a result, most of the Danish green taxes are directed towards households or consumers and not towards manufacturers; where, however, the effects in terms of ecological modernisation would probably be more beneficial' (Andersen 1994b, 49). Andersen bases this conclusion on the fact that the manufacturing industry would only pay approximately DKR 7 billion in green taxes in 1994, while households would pay about DKR 37 billion. The major part of the industrial share of the green tax revenue stems from vehicle registration and diesel taxes, which were originally introduced for fiscal reasons. By January 1997, Denmark had introduced six green tax schemes directed towards producers. These were: a sulphur tax, a CO2 tax, a CFC and halons tax, a water discharge tax, a tax on non-toxic waste and a pesticide tax In Danish government formation, the left±right cleavage line has been by far the most dominant during the twentieth century. Government formation has been dominated by the so-called four old parties which are the Social Democratic Party, created to pursue labour interests, the Liberal Party which was originally formed to represent farmers and rural interests, and the Conservative Party


which emerged to pursue employer, urban capital and industrial interests. The latest of the old parties in Danish politics is the Radical Liberal Party which was formed in the first decade of the twentieth century by former Liberal Party members. They built their electoral platform on smallholders and urban professionals (Elklit 1986). As things turned out, the Radical Liberal Party became a centre party and obtained a strategic position at the centre of Danish politics. As Pedersen (1987, 9±10) points out: `The Radical Liberals mostly found themselves placed in a pivotal situation after the Folketing elections so they were bound to become mediators and powerbrokers in Danish politics.' In the 1970s, two more centre parties, the Centre Democrats and the Christian People's Party, joined the centre of Danish politics and became important government coalition partners in the 1980s and early 1990s. In environmental politics, the parties' policy positions are fairly similar to their positions on the traditional left±right scale in socioeconomic issues, the only exception being the Radical Liberal Party, which is regarded as being more green than the Social Democratic party, but still less green than the Socialist Peoples' Party (Christiansen 1996, 39). The political parties' co-option of the environmental issue on the left±right dimension seems to have penetrated the minds of the electorate so that it considers the environmental issue as `just another aspect of the left±right dimension' (Andersen 1990, 203). With one exception, governments in Denmark have been minority governments since 1971, and some of these have been fairly weak. In È ter governments, which particular, the various centre±right Schlu were in power from 1982 until 1993, faced considerable difficulties in the area of environmental politics. The Radical Liberal Party supÈ ter governments, particularly on economic policy, ported the Schlu but joined an alternative political grouping that constituted a majority in a number of other policy fields. However, the Radical Liberals were not willing to force the government to resign. This was an unusual situation. Previously, Danish governments usually resigned È ter govor called a general election if they were defeated. The Schlu ernments broke that norm and accepted 105 defeats from 1982 to 1988 (Damgaard 1992, 31±4). In environmental politics, the opposition established a green majority, which consisted of the left-wing parties, the Social Democrats and the Radical Liberals. On several

Parties Matter 61

È ter governments to adopt occasions, this majority forced the Schlu certain environmental policies which they disliked. In January 1993, the Social Democrats returned to power. The first Nyrup government (1993±94) was composed of the Social Democratic Party and the three small centre parties: the Radical Liberals, the Christian People's Party and the Centre Democrats. The government had a majority of one for approximately one year. Since then the Nyrup governments have all been minority governments. After the first general election in which the Nyrup government stood for re-election (1994), the government was reduced by one party as the Christian People's Party did not gain sufficient electoral support to be present in parliament. Two years later (in 1996), the Centre Democrats left the government so that it was reduced to a two-party coalition consisting of the Social Democrats and the Radical Liberals. This coalition managed to stay in power after the 1998 general election. At first sight, our theoretical hypothesis that social democratic and labour governments more willingly use producer-directed green taxation than do conservative and liberal governments parties seems not to apply to Danish environmental policymaking. While the pesticide tax, the water discharge tax and the sulphur tax were introduced by the Nyrup governments, the taxes on CO2 , CFC/halons and waste È ter governments. However, when were introduced during the Schlu one takes into consideration, the unique parliamentary situation in the 1980s and the actual design of the tax schemes, our hypothesis survives. In 1988, a broad majority in the Danish parliament introduced a CFC/halons tax, but only after the Environment Minister had changed her proposal so that there would be no distortion in competition in the export and domestic markets. This was done by refunding the tax revenue on goods containing CFC or halons when they were exported and by imposing a levy on imported ones. These measures meant that the tax burden could effectively be passed onto Danish consumers. Furthermore, she had to increase the funds for research and development in cleaner technology and recycling in the industries using CFC/halons. Part of the research and development programme was to be funded by tax revenues from consumer related green taxes (Miljù- og planlñgningsudvalget 1988). Thus, the tax scheme involved a redistribution from consumers to producers and this, combined with the change in design of the scheme as to


who would bear the actual tax burden, made the CFC/halons tax scheme acceptable to the industry. The waste tax which was adopted in 1986 was originally part of the annual budgetary agreement of 1985 and was designed to reduce the amount of waste from, for example, the construction industry (Andersen et al. 1997, 23±4). The tax was part of a larger economic package in which various issues were linked. This may have persuaded members of the governing parties, who were potentially opposed to the waste tax, to accept it. Moreover, the costs to constructors could easily be passed onto their customers as well as the tax increases adopted in 1989 and 1992. The CO2 tax was adopted in 1991 by a parliamentary majority that consisted of the Social Democratic Party, the Radical Liberals and the Socialist People's Party. It was adopted against the will of the liberal± È ter government which suffered yet another defeat conservative Schlu in environmental policymaking. È ter governments, the In contrast to the liberal±conservative Schlu Nyrup governments did not face similar problems in environmental policymaking because they were supported by the two left-wing parties, the Socialist People's Party and the Red±Green Alliance. These parties had no problem in taxing producers and the Nyrup governments willingly used them to introduce green taxes. However, so long as the Centre Democrats formed part of the government, a balance had to be found because this party was cautious about raising production costs. Social democratic governance: Sweden and Norway Since the mid-1980s, when green taxation became more frequently applied, the Social Democrats have dominated politics in Norway and Sweden in terms of holding office. However, there have been short periods in which non-social democratic/non-labour governments have been in power. This overall dominant position of the Social Democrats was the influencing factor in our decision to choose these two countries in order to analyze the extent to which Social Democratic parties introduce producer-directed green taxes. Sweden Sweden became one of the pioneers in environmental protection when it set up the Environmental Protection Agency in 1967 and

Parties Matter 63

enacted the Environmental Protection Law in 1969. During the past three decades, the Swedes have undergone a trial and error process in pollution control (Kronsell 1997, 40). The ongoing gathering of experiences may have formed the basis of what eventually led to the introduction of new environmental policy instruments in the 1980s. Farmers were the first to feel the effects of the new environmental policy strategy in 1984 (Lundqvist 1996, 314), and since then green taxation has been introduced in several spheres of production and consumption. By January 1997, Sweden had introduced taxes on sulphur, CO2 , nitrogen oxides, non-toxic waste, pesticides and chemical fertilizers. These were the major green taxes directed towards producers. The left±right cleavage line has dominated Swedish politics. As Vedung (1988, 81) points out: `Modern Swedish politics is exceptionally one-dimensional. Philosophically, parties align themselves along one single scale, the left±right axis.' This dimension has also characterized government formation in Sweden since the 1930s. Although the Social Democrats formed coalition governments with the Centre Party (a rural and agrarian party) in the 1930s and 1950s, these governments must be characterized as centre-left governments and did not cut across the traditional worker±capital class line. Traditionally, the Centre Party has placed itself at the centre of Swedish politics as an alternative to both the Social Democrats and the non-socialist parties (the Liberal Party and the Conservative Party, and in the 1990s, also the Christian Democrats), refusing to join any of the two blocs. As a result, it is the non-socialist party with which the Social Democrats have most frequently co-operated (Sannerstedt È lin 1992, 102±7). and Sjo Sweden is the country in Europe where the Social Democratic Party has been the most dominant. It governed from 1932 until 1976 and in some periods it even had an absolute majority in parliament. From 1976 until 1982, the Centre, Liberal and Conservative parties were in power. In 1982, the Social Democrats resumed governmental power and were able to remain in power throughout the 1990s, being only interrupted by a centre-right government from 1991 to 1994. Since the social democratic governments of the 1980s and 1990s only commanded a minority in parliament, they relied on the support of the Communists/Leftist Party and the Green Party. Since these two parties are, generally, considered to be environmental parties (Lundqvist


1996, 265, 268), the social democratic governments had a potential majority behind a tough environmental policy towards producers. As a result, all the green tax schemes directed towards producers mentioned above were introduced by social democratic governments. The reluctance of, in particular, the Conservative Party to use green taxes is indicated by the fact that during the three-year period (1991± 94) in which the four-party centre-right government was in power, no new green tax scheme was adopted. Although green taxes were unpopular within the industrial and farming communities, they were not abolished, but a reform of the CO2 tax that benefited industry was undertaken in 1993. Energy taxes directed towards industry were suspended and the CO2 tax was lowered to a fourth of the level applicable to consumers. As a result, industrial taxes were decreased to a level below the one in force before the introduction of the CO2 tax in 1991 (see below). Norway It was not until the late 1980s that the Norwegians began to place emphasis on green taxation as a useful instrument to reduce pollution. The Brundtland report published in 1987 and its emphasis on sustainability triggered interest in the extended use of environmental taxes and charges. The Ministry of Finance seems to have played an important role in putting the issue of green taxation onto the agenda. It realized that the costs of the proposed sustainability policy were extensive and at the same time it was concerned about the costeffectiveness of various policy instruments (Reitan 1997, 310±11). Green taxation has gained a foothold in Norway. With only five green taxes directed mainly towards producers, consumers seem to have been the prime target. By January 1997, the Norwegians had introduced a sulphur-based tax on heavy crude oil and taxes on CO2 , CFC/halons, pesticides and chemical fertilizers. These were directed wholly or partly towards industrial pollution. During the postwar period, the left±right cleavage line has determined government formation. The Norwegian parties' links to social groups come close to those found in the other Scandinavian countries. The original core supporters of the Conservative Party were urban industrialists, merchants and academics. This coalition of urban elite interests was opposed by an alliance of rural populists and urban radicals, called the Left. This alliance later split up into two

Parties Matter 65

more parties, the Christian People's Party and the Centre Party, the latter being affiliated to farm interest and what remained of the Left is now the Liberal Party. Labour interests are represented by the Labour Party and the Leftist Socialist Party (Rokkan 1966, 73±89). Until 1961, the Labour Party formed single-party majority governments, but since then it has not been able to gain similar strength. Similarly, as in Swedish politics, the Norwegian Labour Party has often made agreements with the parties located at the centre of the political spectrum that is the Centre Party and the Christian People's Party (the former in particular). With the exception of the first conservative Willoch government (1981±83), the non-labour governments have been centre±right coalition governments consisting of the Conservatives, the Centre Party, the Christian People's Party and in the 1960s and early 1970s, the Liberal Party (Rommetvedt 1992, 56±76). Norwegian political parties have incorporated the green ideology to varying extents. At the ideological level, the Christian People's Party, the Centre Party and the Leftist Socialist Party have turned more green than the Labour and the Conservative parties. However, this has not suspended the left±right dimension in Norwegian party politics. Aardal's (1993, 162±7) analysis of Norwegian parties concludes that they integrate the environmental issue with their traditional core issues which reflect the interests of their core supporters. This is apparent in the question of state intervention in environmental regulation. The Labour Party favours a much higher level of state intervention in environmental policymaking than do the Conservatives. These policy views correspond with the two parties' positions on the left±right dimension. The importance of the traditional left±right dimension in environmental politics was evident when the Conservative Party, the Christian People's Party, the Centre Party coalition government was in power in the mid-1980s. As Jansen and Osland (1996, 192) put it: voting in environmental matters mainly corresponded with the left±right dimension in politics. For instance, the parties that had most strongly presented themselves as green parties in the Storting [the Norwegian parliament], the Socialist Left Party and the Centre Party, voted against each other in most environmental issues at the same time as the Labour Party and the Socialist Left Party voted in agreement on these issues.


This voting pattern more or less came to an end when the Labour Party returned to power in 1986 and `the parties' voting behaviour in environmental matters to a considerable extent was crosscutting the left right dimension' (ibid.). The sulphur-based tax on heavy crude oil was introduced in 1970, and is the only green tax in Norway introduced by a centre±right government. It must be said, however, that the tax on heavy crude oil was relatively low (Jansen and Osland 1996 231). The rest of the green tax schemes directed towards producers were introduced during Labour Party governance. Thus, so far, our theoretical hypothesis suggesting that labour and social democratic governments are more willing to apply green taxes than liberal and conservative governments seems to be supported by the Norwegian data. However, a more detailed analysis of the policy process of CO2 taxation in Norway shows that Norwegian data does not provide strong support for our hypothesis. In October 1989, a centre±right government consisting of the Conservative Party, the Centre Party and the Christian Peoples' Party, and headed by the conservative party leader Syse, took over from the Labour Party government which had been in power since 1986. Earlier on, the parties of the new government had criticized the former Labour government for being too lax on setting objectives for the reduction of CO2 emissions (Tenfjord 1995, 78). Having outlined more ambitious objectives on Norway's policy on climate than the Labour Party, the parties of the new centre±right government was more or less forced to state that they would pursue a dynamic environmental policy. Nevertheless, it took the government almost one year to reintroduce the former Labour government's proposal to introduce a CO2 tax on petrol and heavy crude oil. This was not controversial to the Conservative Party because along with the other parties it had already stated that green taxation was a viable policy option (ibid. 89±93, 85 fn 5). Shortly afterwards, the government coalition broke down and the Labour Party returned to power. The Labour Party government drew up a new CO2 tax proposal which extended the tax scheme proposed by the former government to include the off-shore industry. The Conservative Party criticized this widening of scope, arguing that it would hurt the industry's international competitiveness. Furthermore, the Labour government considered taxing industries exempted in the centre±right government's

Parties Matter 67

original proposal. Not surprisingly, Norwegian industry strongly opposed this move (ibid. 93±8, 95 fn 22). Thus, the fact that Syse's centre±right government was suggesting a narrower CO2 tax scheme than the subsequent Labour government indicates that the Conservative Party was more concerned about industrial interests than the Labour Party. However, these findings provide only limited support for our theoretical hypothesis, but more importantly, they do not reject it. What the Norwegian evidence tells us is that the influence of the left±right dimension in Norwegian green tax policymaking is not quite as dominant as expected, but it does have some influence. Governance from the centre: the Netherlands The Netherlands is almost the perfect country to pick if one wants to analyze the influence of centre parties on green taxation. In the postwar period, the Christian Democrats have been the central political force in the Netherlands in terms of holding governmental office, since they have participated in all government coalitions from 1917 until 1994. In terms of votes, the Christian Democrats have been one of the major parties in the Netherlands (Gladdish 1991, 27, 37, 39, 46, 56, 68). Christian Democratic parties in Europe are located at different points on the left±right scale. Some are centre parties, while others are moderate right parties. The Christian Democratic Appeal in the Netherlands belongs to the former group (Castles and Mair 1984, 85; Hazan 1997). Three circumstances make the Dutch example an almost ideal case to test our hypothesis about the policy position of centre parties in green taxation and the argument about the importance of the left±right dimension in green tax policymaking. First, the Christian Democrats have a dominant position in Dutch politics, second they are in a centrist position on the left±right scale and third they have not adopted a distinct green profile. According to our theoretical hypothesis we expect to find some cases in which producers are taxed. However, these tax schemes may to some extent be acceptable to producers, since the Christian Democrats have to develop policy positions which are acceptable to the interests of the various social groups which constitute the core supporters of the party. We demonstrate that the Dutch green tax schemes can be seen in this light.


Within the international literature on green taxation, the Dutch water effluent charges are well-known for their effectiveness (for example Andersen, 1994a; Bressers 1983). These charges were adopted by the Dutch parliament in 1969 and put into effect the following year. This early introduction has made many environmental researchers see the Netherlands as one of the pioneers in economic environmental regulation. Over time, the use of green taxation has spilled over into other environmental policy fields. By January 1997, the Dutch applied taxes on CO2 , water discharge, surplus manure and purchased fodder.3 The Dutch party system is based mainly on two major political cleavages: the worker±capital (left±right) cleavage and the religious± secular cleavage. Until the mid-1970s, when the Christian Democratic Appeal was formed to strengthen confessional interests, there were three major religious parties which each represented three different churches. The worker±capital cleavage has crystallized itself into two major political parties, namely, the Liberal Party and the Social Democratic Party (Hazan 1997, 98). The Liberal Party embodies à belief in economic freedom together with a pro-employer view of economic decision-making' (Gladdish 1991, 86). Compared with the other Northern European countries, the Dutch Social Democratic Party has been relatively weak since it has never attracted more than a third of the votes in opinion polls. An important reason for this is that the Christian Democratic Appeal attracts a considerable share of the working class vote; in 1986 one-third of its voters were workers. (Gladdish 1991, 85±9) On the left±right scale, the Christian Democratic Appeal (CDA) is regarded as a centre party. As an interclass religious party, the Christian Democratic Party `must accommodate . . . [itself] to a flexible, and hence centrist, stand on socio-economic issues. Only by locating themselves at the centre of the left±right continuum can religious parties maintain . . . their electorate . . .' (Hazan 1997, 112; see also Gladdish 1991, 85). Being an interclass party means that the CDA has a heterogeneous core constituency. As Gladdish (1991) observes: `the distribution of CDA votes overall matches closely the distribution of voters through the social structure.' Thus, the CDA must represent the interest of all social groups in the Netherlands and this has forced the party and its predecessors to become `natural brokers between conflicting interests, first within . . . [its] ambit, but

Parties Matter 69

indirectly also in society at large' (Daalder 1966, 220). Although the CDA dominates the centre in Dutch politics, it has not been able to occupy it totally. The Liberal Democratic Party is regarded as centrist and non-religious (Hazan 1997, 114) and has participated in several government coalitions. The fact that the Dutch party system is organized along two major cleavages does not mean, however, that both conflict dimensions have dominated Dutch politics in the postwar period. Hazan (1997, 109±10) shows that the class dimension has been far more important than the religious±secular dimension in Dutch politics in the postwar period. Hence the government formed by the Social Democratic Party, the Liberal Party and the Liberal Democrats in 1994 is exceptional. This is the first time since 1917 that a Dutch government did not include at least one religious party. The fact that most Dutch government coalitions cut across the religious±secular cleavage rather than class lines indicates that conflicts across the religious± secular cleavage are not as salient as those evolving along the left± right dimension of Dutch politics. The four dominant political parties in the Netherlands can be grouped with the Liberal Party as the moderate right party, the Social Democratic Party as the moderate left party. The Christian Democratic Appeal and the Liberal Democrats are at the centre. The Liberal Democrats are generally seen as being more to the left than the Christian Democrats (Castles and Mair 1984, 80; Gladdish 1991, 84; Hazan 1997, 105). The dominance of the left±right cleavage also characterizes environmental policymaking, the only exception being that the Liberal Democrats seem to be more to the left than the Social Democrats. This can be seen in the debate on green taxation. The Liberal Democrats favour the introduction of new green taxes and the increase of existing ones. Green taxation is also viewed positively by the Social Democrats who argue that environmental taxes are perfect policy instruments for steering production processes towards sustainability. They have also stated that they favour an ècologization' of fiscal policies; however, low-income groups should be compensated for the loss of purchasing power which green taxation may bring about. As a moderate right wing party which considers itself representative of business interests, the Liberal Party prefers regulatory instruments and views green taxes as secondary environmental


instruments. It states that if green taxes are to be used the revenue should be used to reduce other types of taxes, or it should be used to subsidize the introduction of environmentally-friendly production technologies and not to fund the environmental bureaucracy. The CDA supports the application of `the polluter pays principle' and, thus, welcomes environmental charges to stimulate the development of alternative products and production methods. To accommodate the interests of their working class voters, the Christian Democrats are careful not to introduce green tax schemes which would affect low-income groups negatively (Tak 1994, 16±23). The needs of the Christian Democratic Appeal to accommodate the interests of a heterogeneous core constituency can be seen in the design of the green tax schemes. Several green tax schemes directed towards producers were introduced by coalition governments in which the CDA took part. Even the Liberal Party has been a member of government coalitions, which have introduced producer-directed green taxes. This may seem to indicate that our hypothesis is weak. However, a closer examination of the design of the tax schemes will reveal that it is not that weak after all. In fact, it holds true. Here, we shall briefly consider the taxes on water effluents, CO2 , fodder and surplus manure. The Dutch Social Democratic±Christian Democratic government included a CO2 component in the energy tax in 1990. The revenue was spent on environmental measures. In 1996, a small users CO2 tax was introduced by a Social Democratic±Liberal coalition government. For small users, the tax rate was increased considerably. Originally, the Dutch government favoured a European Union CO2 tax, but when it realized that this objective could not be achieved, the government introduced a national CO2 tax. While voluntary agreements were used as the major instrument to regulate the emissions of largescale emitters, the tax was aimed at small-scale polluters (Andersen and Liefferink 1997, 116±18; Enevoldsen 2000). The small enterprises paid approximately 1 billion guilders in tax. This revenue was reimbursed through a lowering of employers' contributions to social premiums, a rise in the standard tax deduction for small enterprises and a lowering of the corporate tax (VROM 1998a). Since the CO2 tax, in an international comparison, was relatively low (Collier 1994, 79; Enevoldsen 2000) and covered only small-scale polluters, it was not a major instrument in climate policy; but rather,

Parties Matter 71

a secondary instrument. Originally, the Liberals were against the tax, but accepted its introduction as the price of forming government with the Liberal Democrats and the Social Democratic Party. What made the tax scheme acceptable to the Liberals was the fact that the revenue was reimbursed and that horticulture was exempted from the tax (Tweede Kamer 1995, 10, 611±20). In 1998, the Social Democratic/Liberal coalition government suggested and later introduced a reform of the tax scheme which would raise the tax level and make larger polluters subject to the tax. CO2 emissions above a certain level would continue to remain untaxed. The major part of the revenue would still be reimbursed to industry (Dutch Ministry of Finance 1999, chapter 8; VROM 1998b). Water effluent charges had already been enacted in 1969 and put into effect in 1970. Originally, the Christian Democratic/Liberal coalition government introduced the tax scheme to raise revenue to fund the running of sewage plants and to subsidize the development of cleaner production technologies. Thus, the tax was a way to raise revenue to operate a regulatory policy which was based on a complex permit system setting the conditions under which a polluter can discharge (Andersen 1994a, 152; Bressers 1983, 143±5). The way in which the water effluent charges are administered helps to assure industrialists that the charges are collected only to cover the costs of anti-pollution measures and to subsidize the introduction of new and cleaner technologies in the enterprises. The administration of the water effluent charge comes under the auspices of the Ministry of Transport and Public Works in which industrialists have more faith than the Ministry of Housing, Planning and the Environment. Dayto-day administration of the scheme is undertaken by the Directorate-General for Public Works (Rijkswaterstaat) and the public, semi-autonomous local water boards which are dominated by nonenvironmental interests, primarily farmers and industrialists. These boards are allowed to charge polluters only for the actual costs of running the sewage plants. Because of the importance of water management in the Netherlands, the Directorate-General for Public Works has traditionally been a powerful and relatively autonomous public agency and is often seen as à state within the state' (ibid., 147±53). The power and autonomy of these public institutions in relation to both economic ministries and environmental interests meant that industrialists in 1970 had good reasons to believe that the


charges would not develop into fiscal measures or instruments to reduce discharges directly but remain a means to fund water treatment facilities and the introduction of new and cleaner production technologies. Thus, industry as a whole did not oppose the charge (Huppes and Kagan 1989, 220±1). This may also have made the tax scheme acceptable to the Liberals in particular but also to the Christian Democrats. The taxes on surplus manure and purchased fodder were introduced by the Christian Democratic/Liberal government in 1986 to raise funding for processing and transportation of animal manure from surplus areas to deficit areas. It is important to point out that the tax schemes are secondary measures in the policy on manure, which is basically a regulatory policy system. This approach to green taxation is in line with the policy position of the Liberal Party. The tax schemes are designed in a way which, in practice, exempts most farmers from the tax; the tax burden is mainly borne by larger poultry and pig farmers (Huppes and Kagan 1989, 227±30). According to Huppes and Kagan (1989, 229±30), these farmers have little political influence within the farming community. The General Inspectorate of the Ministry of Agriculture scheme administers the tax schemes. By leaving the day-to-day administration to these authorities, which are regarded as being responsive to farm interests (ibid., 229; Glasbergen, 1992, 41±7), farmers have some kind of guarantee that the tax revenue remains within the agricultural sector. The five country comparison The five country comparison confirms that the position of political parties on the left±right scale does influence their policy position on green taxation. Governments in which conservative and liberal parties are the leading partners are somewhat more reluctant to introduce green taxation in economic sectors than social democratic/ labour governments. Governments in which centre parties dominate place themselves in an intermediate position. The importance of the left±right scale becomes clearer when one undertakes an analysis of policy designs. Liberal and conservative parties have accepted green taxation directed towards producers only when the policy design accommodated producer interests. This conclusion is mainly based on empirical evidence from Britain, Denmark, Sweden and the Netherlands. The Norwegian decision

Parties Matter 73

to introduce CO2 taxation does not provide much support for the conclusion, because the Conservatives, in fact, put forward the proposal for a CO2 tax. It is important to point out here that, in the social sciences, a theoretical hypothesis can only outline a tendency when attempting to predict outcomes, and therefore one or a few cases which deviate from the tendency predicted is not enough to reject the hypothesis. As Lijphart (1971, 686) states: `Deviant cases weaken a . . . hypothesis, but they can only invalidate it if they turn up in sufficient numbers to make the hypothesized relationship disappear altogether.' To conclude, the politics of green taxation is more a matter of the way the tax schemes are designed rather than a question of whether or not to use green taxes. Our cross-national analysis shows that conservative and liberal parties can accept producer-directed green taxes if they accommodate producer interests. Moving beyond correlation To strengthen our argument that parties' location on the left±right scale is an important factor in determining their policy positions in green taxation, we undertake a more detailed comparison of green tax policymaking in Britain and Sweden. In 1990, the Conservative British environment minister, Chris Patten, unsuccessfully attempted to persuade the cabinet to introduce a CO2 tax. In contrast, the Swedish Social Democratic government passed a law on CO2 taxation in 1990. The comparison of the two cases enables us to strengthen the research findings of the previous section. This section examines whether different government constellations actually do produce different policy outcomes in green taxation. More specifically, we analyze whether the arguments and actions of Conservative and Social Democratic governments in issues involving green taxation reflect the fact that the two types of parties have different core constituencies. Our theoretical model suggests that the Conservative British government would reject the idea of green taxation of industry on the grounds that it would hurt business ± one of its core constituencies. The link between the business community and the Conservative Party can clearly be seen in the occupational background of Conservative members of parliament throughout the twentieth century. Businessmen have made up at least one quarter of the MPs in every


election term, but at no time more than 41 per cent. In 1992, the share was 38 per cent (Criddle 1994, 147, 160). However, the party is not à party of business, let alone a party for business'. Rather, it ìs the party closest to business in Britain' (Grant 1993, 131). In a two party system like the British one, political parties have to broaden their electoral appeal to obtain a majority in parliament. Thus, the Conservative Party has traditionally attracted a substantial share of the working-class vote (McKenzie and Silver 1967; Waller 1994). In the 1992 general election, manual workers accounted for almost a quarter of the party's votes, but this does not mean that the interests of workers are institutionalized in the party. They are clearly underrepresented among the party's members (Whiteley and Richardson 1994, 50±1). Furthermore, the then Prime Minister, Margaret Thatcher's attacks on the unions demonstrated that workers' interests are not central to the party. In contrast, we expect that the Swedish social democratic government, which introduced the CO2 tax, was less concerned about industrial interests. The core constituency of the Swedish Social Democratic Party has traditionally been the working class and, compared with its counterpart in Denmark, it has succeeded in maintaining a higher level of support among manual workers (Birgerson and WesterstaÊhl, 1992, 55±6; Esping-Andersen 1985, 124±5).4 In testing our theoretical hypothesis that parties matter in green taxation, the selection of these two countries for analysis has important methodological advantages, because we are able to keep constant a number of potential independent variables and, thus, rule out alternative explanations for differences in environmental policies. An important institutional factor, which affects the extent to which political parties are able to influence the contents of public policy, is state structure. Schmidt (1996, 169±77) argues that the higher the degree of fragmentation of political power in a state, the lesser the ability of the governing party (or parties) to make an imprint on public policy contents because the governing party (or parties) is forced into bargaining and compromise seeking. Therefore, changes in government will not usually result in notable policy changes. In contrast, partisan influence on public policy is stronger in states with centralized political power. Those governments are not forced into compromise-seeking to the same extent as governments in countries in which political power is fragmented. By selecting

Parties Matter 75

Britain and Sweden for analysis, one can eliminate the effects of state structure on policy choices because both countries are characterized by relatively high degrees of centralization in political decisionmaking (ibid. 172). Another potential alternative explanation for different policy choices in Britain and Sweden could be found at sectoral level. Differences in industrial policy networks may make a difference, but fortunately this explanation can be ruled out in this particular comparison. The policy networks model (see next chapter) argues that tight and closed industrial policy communities provide industrial interest associations with political power, while loose and open industrial policy networks are characterized by conflict and, therefore, industrialists cannot acquire political power from such networks. Since the British industrial policy network is looser and more contentious than the Swedish one (Grùnbñk 1991; Smith 1993, 152± 62), the policy network model suggests that it would be easier to introduce a CO2 tax in Britain than would it in Sweden because Swedish industrial interests can derive more political power from the industrial policy network than British industry. Since we observe the opposite policy choice, it can be concluded that government composition is the more important factor influencing policy choices in this particular comparison. Furthermore, since the policy processes analyzed took place in the same time period, we can rule out that transfer of experiences between the two countries explains the choice of policy (see Dolowitz and Marsh 1996, for a review of the literature on policy transfer). There were no experiences to transfer at the time the CO2 tax was discussed, since none of the countries here, or any other country, had experience in the use of economic instruments to reduce CO2 emissions. Britain It came as a surprise to many people in July 1989 when Margaret Thatcher appointed Chris Patten as Environment Secretary in her Conservative government, since Patten had previously been sceptical of Thatcher's policies. Patten's appointment of the internationally respected environmental economist, David Pearce, as special advisor, indicated that he would seriously consider green taxation. Patten and Pearce did not waste their time. A month after his appointment Pearce and his associates produced a report to the


Secretary of the Environment in which they concluded that pricing of environmental services via a market mechanism was the best way to achieve sustainable development: . . . because it allows resource users to respond in the same way as they do to price signals elsewhere in the market. Using prices in this way is wholly consistent with the `polluter pays' principle which the UK already supports. But there are powerful reasons for arguing that the traditional `standard-setting' approach to environmental policy now needs to be supplemented by more market approaches, using charges and permits (Pearce et al. 1989, 170). Later, Patten defended the market based approach put forward by Pearce and associates in an article (Patten 1990). However, the cabinet rejected the idea of a CO2 tax and downgraded it to a potential solution for the future in an annex to the White Paper prepared on the British environmental strategy. The paper stated that such a tax `will not be introduced in the next few years' (HM Government 1990, 69). Undoubtedly, a defeat for Patten, The Times (25 September, 1990) observed: `Many of Mr Patten's boldest initiatives, including the introduction of pollution taxes, were rejected and the final document is as notable as for what is left out as for what remains in.' Immediate macro-economic and financial concerns meant that the tax option was not politically attractive. The Prime Minister and the Chancellor of the Exchequer opposed the proposal because they feared it would contribute to inflation. As stated in the White Paper (HM Government 1990, 69): Ìn the immediate future the reduction of inflation is of overriding importance.' This point of view was put forward as the main reason why the tax option was rejected despite the White Paper (on the same page!) arguing that the effects on inflation could be offset by other measures. As it pointed out: `higher taxation of energy and fuel could be offset by lower taxation elsewhere so that in the medium term, there need be little net effect on the general price level.' The Energy Secretary also opposed the tax proposal: ` . . . because of the impending privatisation of the electricity industry, nothing was to be allowed that would increase the price of electricity or encourage people to use less of it' (The Times 26 September 1990). Although the decision to reject the introduction

Parties Matter 77

of a CO2 tax was primarily grounded on immediate macro-economic and financial concerns, business interests were not forgotten. The White Paper (HM Government 1990, 69) stated: Long term measures affecting the relative price of energy can only sensibly be taken when competitor countries are prepared to take similar action. Unilateral action by Britain would do little to influence global warming. It would have a damaging impact on activity and employment in the energy-intensive sectors, relative to our competitors, to little purpose. . . . Given this, and our best assessment of how long it will take to achieve an international consensus, tax or other measures directly raising the relative price of energy outside the transport sector will not be introduced in the next few years. Sweden At roughly the same time that CO2 taxation reached the political agenda in Britain in 1989 with Pearce et al.'s report, the Green Tax Commission in Sweden put forward the same idea (see also Chapter 2). The Commission recommended that fossil fuels were taxed SKR 250/ton of emitted carbon dioxide. To ensure that production costs would not increase too much and hurt the international competitiveness of Swedish industry, the Commission further recommended that energy taxes should be reduced by 50 per cent, and, in the case of energy intensive industries, reduced even further. Firms would continue not to be subject to energy and CO2 taxes of energy consumption above a certain level. The Social Democratic members of the Commission supported this tax scheme, including the rules on reduced taxation levels and exemptions, which presumably were designed to avoid the loss of jobs. This position taken by the Social Democratic members of the Commission ensured that they were wholly in line with the trade unions on the question of CO2 taxation. The Conservative member accepted the idea of a CO2 tax but stressed that all energy taxes used in the industrial sector should be suspended. Although energy taxes would be reduced, the tax level would increase; for coal and gas it would almost be doubled and the increase would be by more than four times for light fuels. The Confederation of Swedish Industries opposed this development in


taxation levels, arguing that production costs would increase and, therefore, it fell naturally to the Conservative member of the comÈ rbundet mission to suggest a suspension of the energy taxes (Industrifo 1989; LO 1989; SOU 1989, 259±78, 510±11). In parliament, the Social Democratic government presented a proposal on a CO2 tax that was in line with the recommendations of the Green Tax Commission (Swedish Government 1990a). In the parliament's standing commission on internal revenue, the Conservatives tried once more to persuade the majority in favour of the tax proposal to suspend energy taxes with the exception of the tax on petrol. However, they failed in spite of suggesting a substantial increase in the CO2 tax level (Skatteutskottet 1990, 121±3). This difference in the parties' core constituencies was mirrored clearly in the changes in the CO2 tax scheme when changes in government took place in 1991 and 1994. A minority coalition government which consisted of the Conservative Party (the dominant party), the Liberals, the Centre Party and the Christian People's party was formed in 1991. The Conservatives did not waste their time. In April 1992, the new government presented a reform proposal on the CO2 tax that would considerably lessen industry's energy and environmental tax burden. The government wanted to increase the general CO2 tax level from SKR 250 to 320/ton of emitted CO2 . To improve the international competitiveness of Swedish industry, the industrial sector was to be taxed at SKR 80/ton; a quarter of the level that applied to households. This lowering of the taxation level meant that the tax paid by Swedish industry decreased from 3.6 billion kronor in 1992 to 0.5 billion in 1993. By increasing the CO2 taxation directed at non-industrial sectors (particularly consumers), the government intended to maintain tax proceeds at a certain level (NaturvaÊrdsverket 1997, 48±9; Swedish Government 1992, 1±18). The Conservatives had put considerable pressure on the Centre Party to accept this tax reform which resulted in internal problems within the Centre Party. The Social Democrats criticized the tax proposal. They opposed the government's attempt to lessen the tax burden for the whole industrial sector; however, they considered it reasonable to reduce the tax level for energy intensive companies which were sensitive to international competition because energy taxation was higher in Sweden than in any other country (Finansutskottet 1992, 164). In parliament,

Parties Matter 79

the Social Democrats failed to block the proposal. Thus, in line with our theoretical hypothesis, the centre±right government pursued industrial interests and lowered the level of green taxation in the industrial sector. As Sterner (1994, 22) concludes: `the reform of 1993 . . . [would bring] industrial tax levels back down to a much lower level than before the rise in 1991.' In 1994, the Social Democrats returned to power, and one of their objectives was to reform the CO2 tax scheme to place a heavier tax burden on industry. This was done in 1996 when the government put forward a proposal which would double the CO2 tax directed towards industry. To avoid hurting the international competitiveness of Swedish energy intensive industries and thus to avoid loss of jobs, the government lowered the energy consumption threshold at which enterprises had been allowed to pay reduced tax levels. Not surprisingly, industry opposed the proposal (Swedish Government 1996). The tax increase was supported by the Centre Party and the Leftist Party and this ensured that there was a majority in favour of it (Finansdepartementet 1996a).5 The reform took effect in September 1997. Summary The comparison of the failed attempt to introduce a CO2 tax in Britain and the introduction and subsequent changes of such a tax scheme in Sweden shows that the composition of government does make a difference in green taxation. The location of parties along the left±right political axis does, to a significant extent, determine their policy positions. Our theoretical hypothesis is further strengthened, as this detailed analysis demonstrated that there are good reasons to believe that there is a causal link between a given political party's position on the left±right dimension and the position it takes on green taxation in the industrial sector. Business interests were important to both British and Swedish Conservative parties when they considered CO2 taxation directed towards industry. Although immediate macro-economic and financial concerns were the main obstacle to the introduction of a CO2 tax, the then British Conservative government was fully aware that such a tax would hurt the competitiveness of British industry. In line with our theoretical hypothesis, the Swedish Social Democrats were less concerned about industrial interests than their Conservative opponents when they introduced CO2 taxation in 1990.


Although the British Conservative government rejected the CO2 tax, we cannot conclude that conservative parties, or for that matter liberal parties, find green taxation unacceptable. When coming to power in 1991, the Swedish centre-right government, in which the Conservative Party was the dominant partner, reformed the CO2 tax scheme in order to accommodate industrial interests. Thus, it accepted that industry should be taxed, but not the way in which the tax was originally designed.

The importance of policy design in green taxation This chapter has argued theoretically that the traditional left±right dimension in politics is an important aspect of the broader political context which makes a difference in green taxation directed towards producers. This political cleavage is maintained by the institutionalization of party systems, which in turn is upheld by the historical legacy of political parties. Using these considerations as the theoretical point of departure, we developed a hypothesis suggesting that social democratic/labour governments, or coalition governments in which these parties are the dominant partners, are more likely than liberal and conservative parties to introduce green taxes. However, liberal and conservative parties may accept green taxation directed towards producers if the policy design accommodates the interests of producers. Parties located at the centre of the political spectrum are likely to place themselves in intermediate policy positions, unless they have adopted a green profile. Thus, parties matter: the position of governments or government coalitions on the left±right scale is an important factor in explaining why producers are taxed differently across countries. This hypothesis was tested in a five-nation comparison of Britain, Denmark, Sweden, Norway and the Netherlands. The aim of this comparison was to establish whether a government's position on the left±right scale is associated with the position it takes in green taxation. The findings confirm that social democratic and labour governments find it less problematic to use green taxes directed towards producers than do liberal and conservative governments. However, the comparison reveals that conservative and liberal parties have, on several occasions, accepted the use of producer-directed green taxes. In such situations, the tax schemes accommodate pro-

Parties Matter 81

ducer interests to a considerable extent. Most tax schemes of this type reimburse tax revenue to producers in various ways, for instance, by lowering or suspending other types of taxes, by introducing environmental subsidies, or by enabling producers to pass the costs of the tax onto consumers. Another way to accommodate producer interests is to assign the administration of the schemes to public authorities with which producers have good and close relations. This may reassure producers that taxes in the foreseeable future would not develop into a source for raising general state revenue. However, the association between government parties' position on the left±right scale and the design of green tax schemes directed towards producers, as found in the five-nation comparison, is only a tentative confirmation of the theoretical hypothesis since it does not tell us whether the relationship is a causal one. Therefore, we undertook a detailed comparison of the policy process on CO2 taxation in Britain and Sweden to establish whether a causal relationship could be found. This detailed comparison strengthened the theoretical hypothesis, because it demonstrated that social democratic and liberal/conservative governments pursue different interests in green taxation. Therefore, we have good reason to believe that the relationship found in the five-nation comparison between the position of government parties on the left±right scale and the design of green tax schemes, is indeed a causal link. The findings of this chapter lead us to conclude that the politics of green taxation is a question of how to design tax schemes, rather than a question of whether or not to use such instruments, in environmental regulation. However, party politics cannot fully explain variation in green tax schemes directed towards producers. In fact, tax schemes vary even though similar governments have introduced them. The next chapter attempts to provide an answer as to why such variation occurs.


4

Policy Networks Carsten Daugbjerg

Introduction In the previous chapter, it was demonstrated that Conservative and Liberal parties accommodated producer interests in green taxation to a greater extent than Social Democratic and Labour parties. Thus, the party composition of governments partly explains why tax schemes vary across Western European countries. However, it does not fully explain the variation, because green taxation differs among countries with similar governments. This variation is the focus of this chapter. It is more than just cosmetic and may be the result of divergent power resources of producers caused by differences in structural relationships between government departments and producer groups. Such relationships are known as policy networks and are important determinants of the design of green tax schemes. In this chapter, we concentrate on this third political constraint in green taxation. An important claim of the policy network approach is that networks affect policy choices. In this chapter, we analyze whether established agricultural policy networks make a difference in fertilizer and pesticide taxation in three Scandinavian countries, and if so, how they affect policy choices. We conclude that policy networks affect power relations and, therefore, influence the design of tax schemes. Agricultural policy networks which enable the formation of strong coalitions between farm unions and state agricultural authorities to a greater extent favour farm interests in green taxation than those which do not enable the formation of such coalitions. From a methodological perspective, fertilizer and pesticide taxation 83


in Scandinavia is almost ideal for comparative analysis, because it enables us to keep constant crucial parts of the context within which the policy process was embedded. Agri-environmental taxes were introduced in Scandinavian agriculture in the 1980s and 1990s. Sweden has applied fertilizer and pesticide taxes since 1984 and Norway since 1988. In Denmark, there have been several unsuccessful attempts to tax fertilizers. In contrast, pesticide taxation turned out to be much easier to introduce; a pesticide tax was put into effect in 1995. These taxes were all introduced by Social Democratic governments or governments in which the Social Democratic Party was the leading party. These governments were either not dependent on the support of parties which traditionally speak for farmers or they were in a situation in which these parties would not challenge the governments on the question of green taxes. Clearly, this made the tax alternative a politically feasible measure to use in agri-environmental policies. The taxes were introduced to cope with similar types of pollution problems. In all three countries, nitrate run-offs from arable land to ground and surface waters were perceived as the main pollution problem in agriculture (Andersen and Daugbjerg 1994; Eckerberg 1994; Mydske, Steen and Taarud 1994). Pesticide use was also seen as a serious environmental problem. Although the three countries faced similar pollution problems, they introduced different green tax schemes. While the Danish government did not tax the use of fertilizers and designed the pesticide tax scheme in a way which, to a great extent, accommodated the interests of farmers, the Swedish government did so only to a limited extent when it designed pesticide and fertilizer tax schemes. In terms of accommodating farm interests, the design of the Norwegian pesticide and fertilizer tax schemes lies somewhere in between the Danish and the Swedish schemes. Since neither differences in government coalition nor policy problems can explain why the green taxes introduced in Scandinavian agriculture differ, the research design enables us to keep constant these two important aspects of the context. This means that we can concentrate on other political constraints which are considered important determinants of public policy. In the public policy literature, the structure of relations between government departments and producer groups is regarded as an

Policy Networks 85

important factor affecting policy choices. Therefore, this chapter undertakes a comparative meso-level analysis of agricultural policy networks to establish how these affect green tax policy choices during Social Democratic or Labour party rule. Meso-level analysis focuses on the relationship between a government department and interest groups (Rhodes and Marsh 1992b, 1, 12) irrespective of whether this occurs at the sectoral or at the sub-sectoral level. Meso-level analysis is concerned with the interaction between organizations and examines relationships which are structural rather than personal (Marsh 1995, 2). It `concentrates on questions concerning the structure of the network and the patterns of interactions within them' (Marsh and Smith 1996, 13). This chapter has seven main sections. First, the policy network concept is presented. Second, we highlight three politically important dimensions of green tax schemes. Third, a theoretical hypothesis on the relationship between policy networks and the content of green tax schemes is developed. Fourth, a comparison of fertilizer and pesticide tax schemes in Danish, Norwegian and Swedish agriculture is undertaken. Fifth, we compare the power of the agricultural policy networks in the three countries. Sixth, we analyze whether farmers, in their attempt to influence the content of the tax schemes, utilized the power potentials embodied in the networks. The seventh and final section summarizes the findings and assesses their validity.

The policy network concept Policy network analysis is increasingly being applied to analyze environmental policymaking (for example Bomberg, 1998; Daugbjerg, 1998a, 1998b, 1998d; Jordan and Greenaway, 1998; Maloney and Richardson, 1994; Mazey and Richardson, 1992; Ward and Samways, 1992). Policy networks are political structures, which tend to lead policy makers in certain policy directions and away from others when they make policy decisions. A policy network will develop in relation to a policy or set of related policies when political actors regularly exchange resources. Any organization entering the policy process is dependent on other organizations for resources. Consequently, they have to exchange resources in order to achieve their goals (Rhodes 1981, 98±102). As


Maloney et al. (1994, 36) suggest: `Groups need government to deliver authoritative decisions and governmental policy makers need groups to facilitate the formulation of a workable and effective policy.' The type of public policy and the intensity of the regulation which it brings about strongly affects the pattern of resource interdependency (Daugbjerg 1994, 460±1). In the explanation of policy variation, the British policy network approach is particularly useful. It addresses the policy consequences of different organizational arrangements and argues that certain network types tend to be associated with distinctive shapes of policy (Daugbjerg, 1998a, 1998b, 1998d; Stones 1992, 224). Thus, the policy network concept is essentially a comparative concept because it is concerned with variation, irrespective of whether this occurs within nations or among them. In fact, `the policy network approach is based on the assumption that any adequate characterization of the policy process must recognize variety' (Rhodes and Marsh 1992a, 188). Basing their work on this assumption, policy network analysts have developed analytical frameworks which enable us to analyze variation in government-interest relations. Unfortunately, however, network analysts have not been able to show the real value of network analysis since their work has been based mainly on single case studies rather than comparative studies. The latter can be designed to enable a test of whether policy networks make a difference in public policy making; that is, do different network types lead policy choices in different directions? Rhodes and Marsh (1992a) have demonstrated that it makes good sense to apply a continuum to describe and understand government± interest group relations. The terms `policy community' and ìssue network' describe the extremes of this continuum. Although some network analysts do not explicitly apply the network continuum in their research, the notion of its existence seems to characterize most of the British network literature. Most network analysts use the policy community concept to characterize and describe a tight, closed, highly integrated and highly institutionalized network in which membership is very restricted. The other extreme on the continuum is an issue network in which access is relatively open and in which the degrees of integration and institutionalization are low. Therefore, the network is basically unstable. Table 4.1 shows one version of the network continuum.

Policy Networks 87

Table 4.1: Extremes on the policy network continuum Dimensions

Policy community

Issue network

Membership

Very limited number of members. Narrow range of interests represented. Bargaining and negotiation. Frequent interaction. Consensus on policy principles and procedures to approach policy problems.

Large number of members. Wide range of interests represented. Consultation. Unstable pattern of interaction. Conflict over policy principles and procedures to approach policy problems.

Integration Institutionalization

Source: Daugbjerg 1998b.

Policy networks cannot be separated from the question of power. They have a major impact on power relations which, in turn, influence the choice of policy. To apply the concept of power in combination with network analysis, it is necessary to distinguish between different types of power. Smith (1990) distinguishes between structural and non-structural power. To exercise structural power, producers must be in a position to acquire power from institutional arrangements in politics. For Smith (1990, 39), `[t]he basis of structural power is that rules, procedures and beliefs support the interests of the powerful without the powerful having to decide on every occasion what should be allowed on the agenda.' The agenda defines which issues are being conceived of as policy problems and which policy options are acceptable (Smith 1993, 71). The existence of rules, procedures and beliefs gives certain interests a privileged position in policy making because `[p]ower is not only exercised by individual decisions but by privileges created by structure which advantage certain groups to the exclusion of others' (Smith 1990, 35). Non-structural power refers to the exercise of power arising not from structure, rules, procedures and beliefs, but from situations in which producers apply their resources and skills (Smith 1990, 35). Those possessing resources such as systematized information, expertise and certain political skills can exercise non-structural power.


Policy communities have institutionalized certain ways to handle policy problems. As Rhodes (1981) puts it: èach policy community . . . has, in fact, an agenda of ``relevant'' issues and problems. Only some matters will be deemed appropriate ones for decision' (122). Moreover, it `has evolved its own approach to problems: established routines of contact, shared perceptions and values, and the stock of tried knowledge and policies are brought to bear on new problems' (118). When a policy community is subject to external pressure for change, producers can form a strong coalition with the government department or agency with which they traditionally interact within the network. Such a coalition rests on a consensus on policy principles and procedures of the policy community. They are derived from a shared view on what broader social, political and economic objectives the policy should pursue. Policy principles and procedures tend to safeguard the interests of producers since, often, their purpose is to maintain or further the international competitiveness of an industry or to protect it from international competition. The state actors of the policy community also share these producer interests, since they coincide with traditional public interests such as maintaining or increasing employment and prosperity. Thus, members of policy communities can rely on structural power in pursuing their interests (Smith, 1993, 72±3). Furthermore, since they control the expertise within their policy field, they can also exercise non-structural power. Thus, core members of a policy community have considerable political power. However, in situations in which an issue becomes politicized, they may lose control over the policy process. For instance, problems which can be claimed to threaten public health, can `mobilize latent public sentiment' and put members of a policy community `publicly on the defensive' (Wilson 1980, 370). This may cause disequilibrium in power relations for a while but after public attention has decreased, power relations may move back into equilibrium (Baumgartner and Jones 1993, 16±17). Policy reversal which reflects traditional power relations may then take place (Daugbjerg 1998b, 49). Members of issue networks and other types of loose networks have to rely on non-structural power alone because such networks have low degrees of institutionalization. Loose policy networks are

Policy Networks 89

characterized by a lack of consensus on policy principles and procedures, because their members disagree on which broader social, political and economic objectives policy should pursue. However, there may be some sort of agreement on policy principles and procedures, but this agreement does not rest on a deeply rooted consensus based on a shared understanding (see Smith 1993, 126±7). The lack of consensus on policy principles in a loose network makes it difficult for producers to form strong coalitions against political actors who pursue policy objectives which they dislike. In other words, producers cannot use established networks as a power base to provide structural power.

Green tax design The focus on variation in government±interest group relations and its consequences for power relations means that policy network analysis has the potential to explain why green tax schemes are designed differently. Before developing a hypothesis on the link between policy networks and green tax policy designs, we need to consider the policy preferences of producer groups in green taxation. Basically, farmers and business people are opposed to green taxes because they increase production costs and are politically burdensome since they create uncertainty about future tax levels. How do producers want these overall concerns to crystallize themselves into specific green tax measures? Of course, the best solution for producers is to avoid green taxation, but when they fail to persuade policy makers not to suggest the use of such a policy instrument, they attempt to influence the design of the tax schemes. To safeguard their interests, in particular, three aspects of the policy design seem important to them, namely, questions of (i) reimbursement of tax revenue, (ii) the causal relationship between the object being taxed and pollution, and (iii) control over tax revenue. Reimbursement of tax revenues makes green taxation more acceptable to producers (Andersen 1994a, 213; Buchanan and Tullock 1975, 143). Obviously, producers are better off if proceeds are reimbursed instead of becoming general state income. However, even though revenues are reimbursed, producers may still oppose the tax because reimbursement may involve redistribution of income among producers and as a consequence there will be winners and losers


within the producer community concerned. Therefore, they prefer reimbursement schemes, which involve no more than a minor redistribution of income. If this can be done, green taxation may become acceptable to producers. In principle, there are two ways to channel revenue back to producers. The earmarking approach requires that producers engage in environmentally friendly activities to qualify for reimbursement. Revenue is paid back in the form of various types of environmental subsidies. Producers can get their money back only if they engage in certain environmentally friendly activities (see Andersen 1994a, 204±10). In the non-earmarking approach, the revenue is refunded irrespective of whether producers engage in certain environmentally friendly activities or not. This approach reimburses proceeds automatically through direct subsidies or through reductions in various types of taxes. Producers prefer this approach since all members of the industry concerned get back their share of the tax revenue. Green taxation becomes more acceptable to producers when there is a simple and clear linear, causal, relationship between the object being taxed and environmental harm. It makes a major difference whether discharges or production inputs are the object of a green tax (Huppes and Kagan 1989, 234±5). When discharges are taxed, producers pay for their actual pollution, which is not always the situation when polluting production inputs are taxed. Some producers may pollute more than others although they use the same production inputs, but they are equally taxed and, therefore, the tax may be perceived as being unfair (Vatn 2000, 114). Fairness and equity are important values among citizens and politicians (Winter 1994, 43). Finally, giving producers a certain degree of control over the way in which the tax revenue is spent makes green taxation more acceptable to producers. The worst scenario for this group is when the revenue is considered general state income, since this gives them little, if any, control over the spending of the revenue and over the future tax level. Hence, producers prefer green tax revenues to be considered, not as general state income but as `sectoral money', which means that revenue is spent within the sector concerned. Producers achieve most control if they have a majority in the bodies administering the revenue, but if they are accorded the right to consultation they can also achieve influence.

Policy Networks 91

Policy networks and tax design So far, we have presented the policy network concept and its impact on power relations. Furthermore, we have highlighted three politically important dimensions of green tax schemes. In this section, we develop a hypothesis on the link between policy networks and the design of green tax schemes. Producers can influence the design of green tax schemes; however, the extent to which they can do so is affected by the nature of the policy networks. Producers who are members of policy communities can rely on both non-structural and structural power. This tends to put them in a position in which they can influence the contents of green tax policies in a way which accommodates their interests. In contrast, in sectors where an issue network or other types of loose networks exist, groups subject to green taxation can only achieve a limited influence on policy choices because the lack of consensus within the network prevents them from forming strong coalitions which can pursue shared strategic goals. In other words, they have to rely on non-structural power only. Building on this discussion of policy design and policy networks, a hypothesis on the relationship between the two variables can now be presented. We suggest that the more power producers can acquire from established policy networks, the more likely they are to avoid green taxation or excercise considerable influence on the design of such measures. In the latter situation, policy makers tend to (i) reimburse tax revenues automatically without requiring producers to engage in certain environmentally friendly activities, (ii) design tax schemes with a direct relationship between the object being taxed and pollution, and (iii) give producers control over the spending of the revenue. To support the hypothesis empirically, we need to demonstrate that the causal relationship predicted by the hypothesis can be found in practice. This can be done in a comparative analysis of cases in which green tax schemes vary. The purpose of the comparison is to examine whether differences in policy networks can explain policy variation. In order to test the hypothesis on the relationship between policy networks and policy design, the remainder of the chapter compares fertilizer and pesticide taxes in Denmark, Sweden and Norway and analyzes whether differences in the level of power farmers can acquire from established agricultural policy networks


cause variation in policy design in the way suggested by the hypothesis.

Fertilizer and pesticide tax schemes in Scandinavia Norway and Sweden introduced fertilizer and pesticide taxes in the 1980s and Denmark introduced a pesticide tax in the mid-1990s. So far, Danish attempts to tax fertilizers have failed. Interestingly, the three countries have designed their agri-environmental tax schemes in different ways. This section compares the design of the tax schemes to establish the extent to which farm interests have been accommodated. Denmark In Denmark, there have been serious conflicts over the use of green taxes in agriculture since the mid-1980s. The first attempt to introduce fertilizer taxes was made in 1984 and the next one in 1986±87. In 1991, the tax solution was discussed again but eventually rejected. Farmers strongly opposed the tax proposals, claiming, for instance, that there was no direct link between the tax and pollution. They È ter governments, were supported by the Liberal±Conservative Schlu but these governments had a hard time because initially there was a green majority in the Folketing (the Danish parliament) which supported the tax. This majority was a centre±left coalition of the Social Democrats, the Radical Liberals, the People's Socialist Party and the Left Socialists. The Liberal±Conservative governments managed to split the green majority several times and, therefore, a general fertilizer tax was not introduced in the 1980s and early 1990s (Daugbjerg 1998b, chapter 5). In 1993, the Social Democratic Party was returned to power after more than ten years in opposition. It became the leading party in a coalition government consisting of the Radical Liberal Party, the Christian People's Party and the Centre Democrats. One of the problems the government faced was nitrate pollution in agriculture. The objective of reducing nitrate run-offs by 50 per cent did not seem to be attainable unless new measures were introduced. In 1994, in late 1997 and early 1998, the issue of fertilizer taxation was once more put onto the agenda. A general tax on chemical fertilizers and a charge to be levied on over-fertilization were discussed, but the intro-

Policy Networks 93

duction of such measures was eventually dropped (Daugbjerg 1999a, 122). Thus, so far, taxing fertilizers has proved impossible in Denmark. An important reason why farmers did not accept such a tax was because of the questionable empirical relationship between the use of chemical fertilizers and environmental harm. It was not even possible to introduce a charge on over-fertilization even though the empirical relationship between over-fertilization and pollution is clearer. Clearly, the possibility of losing control over tax policymaking worried the agricultural associations. As the Agricultural Council stated: `We fear that, over time, environmental taxes directed towards producers will become fiscal measures' (Landbrugsraadet 1994). Nitrate pollution was not, however, the only agri-environmental problem with which the government had to deal. Reductions in pesticide consumption had been smaller than expected. In 1986, the Folketing had adopted a pesticide action plan, which stated that the use of pesticides must be reduced by 50 per cent by January 1997. A number of measures such as strict rules on registration of new and old pesticides, compulsory education of farmers and information campaigns had been put into operation, but pesticide use had decreased less than expected. Thus, policy makers were beginning to run out of realistic non-tax policy alternatives. The government decided to use taxes in an attempt to reduce pesticide use and, in March 1995, it presented its formal proposal on a pesticide tax to the Folketing (Skatteministeren 1995). The proposal suggested a tax equal to 37 per cent of the retail price on insecticides and 15 per cent on fungicides, herbicides and crop growth regulating chemicals. These tax levels were claimed to cut down pesticide use by 5 to 10 per cent. The revenue would be reimbursed by suspending the state land tax. The government argued that this would lead to à certain over-compensation' of farmers (ibid., 346, col. 2). The tax scheme would only involve minor redistribution in the farming community; however, horticulture would lose income and, therefore, special measures would be put into operation to ensure that it was not under-compensated. A Folketing majority consisting of the government parties and the left-wing parties supported the proposal (Skatteudvalget 1995). Before the law on pesticide taxes was enacted, the state land tax revenue was channelled into an agricultural foundation which subsidizes domestic and international marketing, development of food


products, combating of plant and animal diseases, advice and education of farmers and certain inspection activities. As mentioned above, this state land tax was suspended and the pesticide tax revenue would then be channelled into the agricultural foundation. The agricultural associations fully control the foundation since they have seven of the eight seats on its governing board (the Labour Movement has the remaining one). The foundation distributes most of the pesticide tax proceeds to the Agricultural Advisory Service (owned by the farm associations), the Agricultural Export Board and nine agricultural foundations which fund the activities mentioned above in various agricultural sub-sectors, such as pig, dairy and beef. Each foundation has a governing board on which agricultural representatives occupy most of the seats (Danske Slagterier 1994; Kùdbranchens FñllesraÊd 1990; Landbrugsraadet 1990; Lovbekendtgùrelse 1996; Mejeriforeningen 1996; Ministeriet for fùdevarer, landbrug og fiskeri 1997, 3±4; personal communication, Strukturdirektoratet, December 1997). Thus, farmers have full control over the spending of the pesticide tax revenue. During 1996 and 1997, waterworks authorities throughout the country detected new pesticide residues in the drinking water (Danmarks og Grùnlands Geologiske Undersùgelse 1997, 49±65) and many people, including scientists, environmental officials, water companies and politicians, feared that the situation would deteriorate further and threaten public health unless something radical was done. However, farmers were not the only ones who caused pesticide pollution; in fact, the pesticide detected most frequently in the groundwater could only be used on non-arable areas (Daugbjerg 1999a, 124; ibid. 58). Nevertheless, farmers faced considerable environmental pressure which, combined with the lack of untried, realistic policy alternatives, meant that they could not prevent the Social Democratic±Social Liberal coalition government from doubling the pesticide tax in June 1998. The revenue was to be used to fund subsidies for organic farming, monitoring of pesticide pollution and policy measures to limit nitrate pollution. Thus, the spending of the new pesticide tax proceeds, to a great extent, would redistribute money from conventional to organic farming. This situation lasted for less than half a year when the government was forced to give in to farming interests in the negotiations on the annual state budget and put a ceiling on local

Policy Networks 95

land taxes for 1999 and 2000. This meant that many local governments had to lower the land tax, channelling DKR 175 million back to farmers (Daugbjerg 1999a, 124). Thus, after the public concern about pesticide residues in drinking water had declined in 1998, the agricultural associations were able to bring the pesticide tax scheme back into line with the policy model decided upon in 1995, which applied the non-earmarking approach in the reimbursement of tax revenues. Sweden In Sweden, fertilizer taxes were discussed in the 1970s but were not introduced until 1984. The Social Democratic government proposed a 5 per cent fertilizer tax and a tax of SKR 4 per kilogram active ingredient in pesticides.1 The Minister of Agriculture stated that there would be no reimbursement of the tax revenue and that the tax schemes should be easy to administer (Swedish Government 1984). Accordingly, the revenue was considered general state income. The Riksdag (Swedish parliament) adopted the proposal (SFS 1984, 409, 410). However, later on, the tax revenue was, if not officially earmarked, then, at least, spent in the agricultural sector. Most of it was spent on general environmental purposes in agriculture. For instance, in 1986, the taxes generated a revenue of SKR 116 million which was spent mostly on research related to agri-environmental problems; approximately SKR 5 million was spent on advice to farmers ( Jordbrukdepartementet 1987, 10). Farmers who were not big consumers of environmental advice had no opportunity to get the tax money back. In other words there were only weak mechanisms to ensure that the revenue in practice was reimbursed to individual farmers. Of course, farmers perceived this as an unsatisfactory situation (ibid. 86). In 1988, the Social Democratic government put forward a proposal to double fertilizer and pesticide taxes. The Minister of Agriculture argued that increasing the fertilizer tax to approximately 10 per cent of the retail price would decrease the use of fertilizers and stimulate more effective use of farmyard manure. By raising the pesticide tax from SKR 4 to 8 per kilo active ingredient, he hoped also to decrease the use of pesticides. Another important purpose of the tax was to provide subsidies for the enlargement of manure storage facilities, an environmental policy measure suggested by the minister. These


subsidies would be provided during a three-year period and were estimated at SKR 200 million. In this period, the tax increase was estimated to provide extra revenue of SKR 230 million annually. Besides funding environmental investments, the taxes would also fund development projects and land conservation schemes (Swedish Government 1988, 24±6, 28±31, 34±5, 40). What should happen with the tax revenue when the subsidy programme concerning enlargement of manure storage facilities terminated in 1991 was not stated. The majority of the Riksdag accepted the proposal ( Jordbruksutskottet 1988, 24±5, 34, 45±6; SFS 1988, 638, 639). Subsidies for the enlargement of manure storage facilities meant that approximately one-third of the tax revenue, in practice, was earmarked to individual farmers' environmental investments, but two-thirds still went to general policy measures, like research and development conducted by state institutions. However, reimbursement through subsidies involved redistribution among farmers. Farmers specializing in plant production would, because of their reliance on chemical fertilizers as the major nutrition source, provide a relatively high share of the tax revenue compared to farmers that specialized in animal production who also relied on animal manure as a source of nutrition. Since only farmers that specialized in animal production could apply for subsidies for the enlargement of animal manure storage facilities, the fertilizer tax would involve redistribution from crop to animal production. In 1994, both fertilizer and pesticide taxes were raised again. The former was, on average, raised to 27 per cent of the retail price and the latter was increased from SKR 8 to 20 per kilogram active ingredient (personal communication, Jordbruksverket, December 1997; SFS 1994, 1706; 1707). The majority of the Riksdag supported the bill, but due to pressure from the Centre Party, which traditionally has represented farm interests, the Riksdag's standing agricultural commission issued a statement, which dealt with the issue of reimbursement. The commission stated that in principle green tax revenues were general state income, but in practice there should be parity between tax revenues and agri-environmental subsidies ( Jordbruksutskottet 1994). However, later on, the idea of reimbursement was further watered down. Originally, the fertilizer tax was considered to be a levy, but in 1995, it was changed to a formal tax, meaning that it is considered not `sectoral money' but general

Policy Networks 97

state income (personal communication, Jordbruksverket December 1997; SFS 1995, 616). Norway In Norway, fertilizer and pesticide taxes were also introduced in the 1980s. In autumn 1987, the Social Democratic government put forward a proposal in the Storting (the Norwegian parliament) which would authorize the government to introduce taxes on chemical fertilizers and pesticides to provide funding for agri-environmental measures. The proposal did not specify the level of the tax but stated that the government had estimated the revenue at NKR 12 million (Landbruksdepartementet 1987a). This was approximately equal to a 1 per cent fertilizer tax (Vatn 2000, 118) and a 2 per cent pesticide tax (Miljùverndepartementet 1989, 75). There was no opposition to the proposal in the Storting, but the Standing Commission on Agriculture stated that all revenue should be spent on agri-environmental measures. In other words, the Storting wanted earmarked reimbursement (Landbrukskomiteen 1987, 8, 12). However, only a little more than a quarter of the proceeds were reimbursed to individual farmers; the rest was spent on research and development, administration and inspections (Landbruksdepartementet 1988, 50). In the 1989 state budget proposal, the government proposed an increase in fertilizer and pesticide taxes so that on average fertilizers would be taxed by 6 per cent of the retail price and pesticides by 8 per cent. The revenue was estimated at NKR 78.5 million of which NKR 62 million were earmarked to various agri-environmental measures. Half of the 62 million would be spent on specific measures on individual farms, nutrition planning and prognoses, information, advice and registration of pollution. The rest of the revenue would be spent on research and development projects and on inspections. When environmental subsidies included in the agricultural agreement, which made up NKR 85 million (Landbruksdepartementet 1989, 25), are taken into account, the total environmental support directed towards individual farms still exceeded the total green tax proceeds. A narrow majority in the Storting decided that the Agricultural Development Foundation (Landbrukets Uttbyggingsfond ) was to act as adviser to the Department of Agriculture on the use of the tax revenue (Nationen 23 November 1988). This has given farmers a certain


influence because five of the nine members on the governing board represent farm and forestry associations. Since decisions are taken by simple majority vote, farmers can form a majority (Landbruksdepartementet 1987b, 63). However, the Department of Agriculture has the final say on the distribution of the tax revenue. During 1987 and 1988, the design of the Norwegian fertilizer and pesticide tax schemes was established. In the following years, the taxes were gradually increased but there were no changes in the way the revenue was reimbursed and administered. In the 1990 state budget, the fertilizer tax was raised to 7 per cent and the pesticide tax to 11 per cent (Landbruksdepartementet 1989, 74; Landbrukskomiteen 1989), and in 1991 they were increased to 15 and 13 per cent respectively (Landbruksdepartementet 1990, 8, 29; Landbrukskomiteen 1990). Despite these tax increases, farmers still received much more in environmental subsidies than they paid in green taxes when the environmental subsidies of the agricultural policy are included in the calculation. Comparison Table 4.2 compares the tax designs on the three dimensions discussed above and clearly shows that in terms of accommodating farm interests in the design of tax schemes, Swedish farmers were worst off and their Danish counterparts were best off. Norwegian farmers were in an intermediate position. The outcomes on the second dimension may need further explanation. There is an unclear link between a general tax on chemical fertilizers and nitrate pollution. Compared to the use of animal manure, the use of chemical fertilizer involves less risk of nitrate runoffs. The merits of chemical fertilizer are that it can be applied much more accurately than animal manure, it can be effectively applied when the crops need it and finally, and perhaps most importantly, during the growing season crops can absorb all nitrogen present in chemical fertilizer; in animal manure only about half can be utilized. Thus, animal manure is more environmentally risky to use than chemical fertilizers (Landbrugsministeriet 1991). What a general fertilizer tax actually does is to tax the `clean' production input in an attempt to motivate farmers to utilize the nitrogen in the polluting input (animal manure) more effectively. In contrast, there is a fairly direct relationship between the use of pesticides and pollution.

Policy Networks 99

Table 4.2: A comparison of green tax schemes

Reimbursement sectoral money? type Link between tax object and pollution fertilizer tax pesticide tax Farmers' control over tax revenue

Denmark

Norway

Sweden

Yes1

Yes2

Non-earmarking

Earmarking

To some extent3 Earmarking of sectoral part of revenue

Not introduced A fairly direct link

No direct link A fairly direct link

No direct link A fairly direct link

Full control

Advisory role

No control

Notes: (1) Fully reimbursed to individual farmers through suspension of the state land tax. (2) Spent on general agri-environmental purposes and environmental subsidies. Revenue more than fully reimbursed to individual farmers when the environmental subsidies of the agricultural policy are included. (3) Revenue originally considered general state income, but not stated clearly until 1995. In practice, revenue mostly spent on general agri-environmental purposes, but partially reimbursed to individual farmers from 1989 to 1991.

Agricultural policy networks In the theoretical part of this chapter, we have argued that policy networks make a difference in green taxation, because network structure affects the extent to which producers have structural power. The extent to which farmers possess structural power can be revealed by examining whether there are counterbalancing forces in agricultural policy networks, in particular in the price negotiations which are central to agricultural policymaking. The exclusion of actors that are capable of counterbalancing farm interests, is an indicator that a policy community exists, which, in turn, means that farmers have structural power. Exclusion of certain actors means that alternative policy options and problem perceptions are not seriously considered in the policy process because there are no insiders to put forward such options. Looser policy networks are characterized by the presence of counterbalancing interests and this indicates that the extent to


which farmers possess structural power is limited. Inclusion of counterbalancing forces implies that alternative options can be put on to the agenda. It is important to point out that an analysis of whether or not counterbalancing forces are included in agricultural policy networks must not confuse presence with influence; being present does not necessarily mean that one has influence. Many policy networks have a core and a periphery. Thus, network analysis must distinguish between the members belonging to the core of networks and those belonging to the periphery (Rhodes and Marsh 1992a). Furthermore, one must be aware that state actors are sometimes a counterbalancing force. Some of them are concerned with broader public interests or with counterbalancing a dominant interest group. Other state actors do, however, `choose to view themselves solely as representatives of constituent and client interests, thinking it appropriate and correct that they act solely according to the latter's preferences rather than their own' (Nordlinger 1981, 37). Denmark Most agricultural observers agree that Danish farmers are powerful. The configuration of the agricultural policy network indicates clearly that farmers have considerable structural power. The network has a core and a periphery. The core consists of the agricultural associations affiliated with the Agricultural Council (Landbrugsraadet) and the Ministry of Food, Agriculture and Fisheries (MFAF).2 Contacts between these core members in matters concerning national policies administered by the MFAF take place in a large number of formal commissions. The process in which Danish positions in EU agricultural policymaking is formulated centres around the so-called Article 2 Commission. The Commission advises MFAF ahead of the meetings of the European Union's Council of Farm Ministers and also on the administration of the Common Agricultural Policy in Denmark. It consists of representatives from the MFAF, the Ministry of Industry, the Confederation of Danish Industries, the Danish Chamber of Commerce, the Economic Council of the Labour Movement, the Consumer Council and the agricultural associations (Lovbekendtgùrelse 1996). The Commission is, first of all, a forum in which the members express their official positions. Decisions are often made in a complex, continuous system of informal contacts and in various types of

Policy Networks

101

ad hoc working groups which usually consist of civil servants from the MFAF and/or its agencies and officials from the agricultural associations. Access to these working groups is open to the other members of the Article 2 Commission but they only participate on an occasional basis because they do not have interests at stake in the specific issues discussed (Daugbjerg 1998b, 151; 1999a, 115). The non-agricultural interests represented in the advisory commission have not been able to position themselves centrally in the agricultural policy network and, therefore, they form the network's periphery. The Consumer Council plays a minor role within the network and complains that the agricultural associations dominate the meetings in the ministerial advisory commission, and that the MFAF and the agricultural associations make deals before the meetings. Moreover, they hold that the Ministry is mainly concerned with agricultural interests (Daugbjerg 1998b, 152; 1999a, 113±18). Agricultural and national interests are closely linked (Buksti 1983, 268±9, 277±80). Since Denmark has had a considerable economic net benefit from the Common Agricultural Policy (Nedergaard et al. 1993, 134±5), agricultural policymaking has not been constrained by macro-economic concerns. In fact, Danish ministers of finance have had no reason to counterbalance agricultural interests and, therefore, the Ministry of Finance plays a minor role within the agricultural policy network (interview, 1998). The close link between national and agricultural interests means that, in the European arena, the Danish state and farmers consider themselves partners. In fact, the MFAF and farmers have traditionally gone to Brussels together to get the best possible deal (see Bregnsbo and Sidenius 1993, 193). Sweden From a comparative perspective Swedish farmers have lost considerable structural power since the late 1950s. This is indicated by the fact that consumers have achieved a central position in the agricultural policy network. In 1962, the Social Democratic government encouraged the formation of the Consumer Delegation (Steen 1988, 214± 15), which came to consist of representatives from the trade unions, the Co-operative Union and the Wholesale Society. Later on, business associations and wholesale companies not belonging to the agricultural co-operative movement also joined. In 1963, the government gave the consumers access to the agricultural policy network, but at


that time they only had a consultative status. Gradually, they gained more political power, meaning that they became equal partners in the annual agricultural price negotiations. Up until 1990 when the agricultural policy was deregulated, the price negotiations were conducted in a certain way. At the first stage, the Agricultural Marketing Board (or a commission appointed by the government), the Farmers' Federation and the Consumer Delegation tried to reach a framework agreement for price setting within a certain period. Usually, the Swedish state representatives played a modest role in this phase. If a compromise was reached, the cabinet presented a bill to the Riksdag. In the second stage of the price setting, the Farmers' Federation and the Consumer Delegation entered into negotiations in which they agreed on a detailed price proposal. The Agricultural Marketing Board then assessed the proposal and presented it to the cabinet, which made the final decision (Micheletti 1990, 132; SOU 1984, 76±8, 418±20; Steen 1988, 204±7). A photograph published in the farmers' weekly magazine Land just before the price negotiations started, illustrates the equal status of the Farmers' Federation and the Consumer Delegation. It showed the presidents of the two associations arm wrestling each other (Land 10 February 1989). The presence of consumers in the agricultural policy network is not the only indication that Swedish farmers have limited structural power. Since the early 1960s, the Agricultural Marketing Board (which administers the price policy) has developed into a mediator between consumers and farmers. For example, in the 1990 agricultural policy reform process, it tried to balance between consumer interests favouring deregulation and agricultural interests seeking limited adjustments of the old policy (Daugbjerg 1998b, chapter 6). Furthermore, an official of the Farmers' Federation characterized the Marketing Board as `the farmers' economic opponent' and did not think the Board had been `working for the interests of agriculture, but had been inspired by consumer interests and the public interest' (interview, Farmers' Federation official 1994). The Ministry of Finance has had surprisingly few contacts with the Ministry of Agriculture (Petersson 1989, 61±2) considering that it controls the state budget. However, although the finance minister and ministry, in terms of contacts, have not been central actors in the agricultural policy network, they have had an important say in agri-

Policy Networks

103

cultural spending decisions. Before the government could present price agreements to the Riksdag, the finance minister had to approve them. Since Swedish finance ministers have a powerful position in the cabinet and traditionally have tried to limit increases in expenditures (Larsson 1993, 212), macro-economic concerns have constrained agricultural policymaking. Norway Norwegian farmers are often regarded as some of the most powerful farmers in Europe because they are heavily subsidized. However, the degree of agricultural support is not necessarily an indication of the power of farmers because it expresses the political will to support farmers' income and says little about Norwegian farmers' ability to mobilize support within the political system when the issue of green taxes is put onto the political agenda. Consumer groups are excluded from the agricultural policy network in Norway. However, this is not to say that there are no actors to counterbalance the influence of farmers in the policy process; there are indeed actors who can bring in alternative problem perceptions and policy options. Steen (1988) has analyzed farm price negotiations in Norway after World War II and shows that, while there has been no explicit conflict between consumer concerns and the interests of farmers, a conflict between farmers and the state has developed.3 He points out that farmers' demands for income increases were in conflict with the state's desire to distribute economic resources to purposes other than agriculture (ibid. 115). A clear indication that the Norwegian state is concerned with interests other than those of farmers is the composition of the state negotiating Commission in the price negotiations. Since the early 1970s, the Commission has consisted of the Department of Agriculture, the Department of Finance and the Department of Consumer and Administrative Affairs. The Department of Agriculture has chaired the Commission, while the Department of Consumer and Administrative Affairs has had the overall responsibility for the negotiations (Klausen 1996, 141; ibid. 203±4). Steen (1988, 202) convincingly argues that the composition of the Commission demonstrates that general price and income concerns and macro-economic planning have been of central importance in the negotiations. Another indication that agricultural interests do not dominate the network is the high number of


breakdowns in the price negotiations. From 1947 to 1985, 52 per cent of the negotiations broke down in Norway, while this only happened to 14 per cent in Sweden in the same period (ibid. 153±4). There are some indications that since the mid-1980s, the Department of Agriculture has become less willing to include the agricultural representatives in policy commissions and investigations. Farmers' associations complain that the Department of Agriculture has introduced tough hearing deadlines, which makes it difficult for them to prepare well considered replies (Opedal and Rommetvedt 1995, 29). This might indicate that the Department is now changing from being a partner to being a counterbalancing force. In 1989, another counterbalancing force was included in the agricultural network as the Department of the Environment gained access to the price negotiations (Landbruksdepartementet 1989, 12; Mydske, Steen and Taarud 1994, 63). This is not the only indication that the Department of the Environment was becoming an important actor in agricultural politics in the 1980s and early 1990s. Since 1987, the state under secretaries of the departments of agriculture and of the environment have met twice a year, and a co-ordination group consisting of officials of the two departments, have met between two and six times a year (Hovik and Opedal 1996, 179). In general, the relationship between the two departments is characterized by cooperation and mutual respect rather than by conflict (ibid. 177, 179). Comparison A comparison of farmers' political power shows that Danish farmers have considerable structural power since there are no powerful actors to counterbalance farm interests within the agricultural policy network. Moreover, macro-economic concerns have not been a constraint on price policymaking. Swedish farmers are the least powerful since they have limited structural power. Within the agricultural policy network, consumers form a counterbalance to them and state agricultural authorities have acted as mediators between the two conflicting interests. Furthermore, macro-economic concerns have constrained agricultural policymaking. Norwegian farmers are in an intermediate position. They have more structural power than their Swedish counterparts because they are not directly counterbalanced by consumers within the agricultural network. However, Norwegian farmers have less structural power than Danish farmers

Policy Networks

105

Table 4.3: Indicators of structural power of farmers

Denmark Norway Sweden

Lack of macro-economic constraints?

Absence of direct consumer counterbalancing?

Yes No No

Yes Yes No

Source: the authors.

because they are constrained by macro-economic concerns. Table 4.3 summarizes the comparison.

Exercising power? So far, we have shown that tax designs are associated with agricultural policy networks in the way that the theoretical hypothesis suggests; that is, the more structural power the networks provide to farmers, the more likely policy makers are to accommodate their interests in green tax schemes. In this section, we shall move beyond this correlation to demonstrate that farmers could obtain power from agricultural policy networks and actually influence the design of the taxes. In order to reveal the impact of farmers' influence on tax design, an analysis is undertaken to establish the extent to which the initial tax proposals accommodated the interests of farmers. Moreover, we examine the extent to which changes in policy proposals were made, during the policy process itself, to accommodate farmers' interests. Denmark During the 1980s and early 1990s when the Liberal±Conservative È ter governments were in power, farmers avoided the introducSchlu tion of fertilizer taxes. They were suggested for the first time in 1984 when the NPO action plan was discussed. Two years later, the contested negotiations on the aquatic action plan of 1986 and 1987 were reopened. Finally, they were considered when the action plan for sustainable agriculture was prepared in 1991. In all three situations, a powerful coalition between the farm associations and the Ministry of Agriculture was formed to oppose the use of such taxes. This


coalition was able to put considerable pressure on the green majority in the Folketing and prevent the introduction of fertilizer taxes (Daugbjerg 1998b, 85±97). In 1993, the Social Democrats returned to power. They set up a commission (the Dithmer Commission) consisting of civil servants from various ministries to examine the possibilities of using green taxes in industry and agriculture. This Commission put the question of introducing pesticide and fertilizer taxes onto its agenda. The government made it clear in its mandate to the Commission that green taxes would not be allowed to affect the international competitiveness of Danish industry and agriculture and that tax revenues had to be reimbursed, using the earmarking approach (Finansministeriet 1994a, 2±3). In its mid-term report (published in April 1994), the Commission examined four pesticide tax models and concluded that only a tax based on the market price could be recommended. The Commission suggested a 30 per cent tax; it did not estimate how much the use of pesticides would be reduced but seemed to believe that the tax would, at least, bring about some reduction. It also put forward the idea of differentiating the tax levels among the four main categories of pesticides: insecticides, fungicides, herbicides and crop growth regulating chemicals. As already mentioned, the government had asked the Commission to consider earmarked reimbursement, but this approach was not even discussed as regards the pesticide tax (Finansministeriet 1994a, 311±21). This issue was excluded from the report to accommodate farm interests and thus decrease the possibility of strong opposition from farmers. Three non-earmarking reimbursement schemes were discussed: one in which reimbursement was based on direct acreage support, one in which refunds were based on the type of crops grown on each farm (crop type and pesticide use are closely related), and one in which proceeds were refunded through a lowering of land taxes. Both of the reimbursement models that were based on direct payments were dismissed because the Commission concluded that they were likely to contradict European Union Law. Furthermore, it was held that reimbursement based on direct acreage support would redistribute income from arable, pig and poultry farmers to dairy farmers, which made it unacceptable to the farm unions. Reimbursement through lowering of land taxes was seen as less problematic in

Policy Networks

107

relation to EU Law and caused only minor redistribution within the farming community (Finansministeriet 1994a, 311±21). Farmers accepted this model as the second best solution. They preferred direct payments based on the type of crops grown on each farm but accepted that this was not a realistic option (interview, former Agricultural Council official, 2000). The Commission also discussed various tax schemes to reduce nitrate pollution, but it did not recommend a particular scheme. In fact, the discussion put a great deal of emphasis on the problems associated with the use of green taxes to reduce nitrate pollution, that is lack of cost efficiency, administrative complexity and redistribution of income within the farming community (ibid. 295±311). Taxes on fertilizers were not discussed later on in the policy process, for the official reason that the Folketing's evaluation of the nitrate policy was still awaited. This was convenient because the issue of taxing fertilizers was politically controversial: farmers strongly opposed such taxes and the Ministry of Agriculture was sceptical (Finansministeriet 1995a, 18, 28). This policy position of the Ministry of Agriculture was in line with the position it had taken in previous conflicts on fertilizer taxation (see above). In late 1997 and early 1998 when a charge on over-fertilization was discussed, the farm associations mobilized the support of the Liberals and the Conservatives who persuaded the government not to use such a measure (Daugbjerg 1999a, 122). The political discussion on the design of the 1998 pesticide tax also demonstrates that Danish farmers possess considerable political power and can utilize it. After public concern about the use of pesticides had declined in 1998, farm interests were accommodated in the 1999 budget agreement which, in practice, reintroduced nonearmarked reimbursement. The farm unions had tried to persuade the government to choose this model long before the budgetary negotiations commenced. Therefore, it is reasonable to argue that there is a clear link between farmers' attempts to have the new pesticide tax revenue reimbursed and the government's decision to put a ceiling on local land taxes, even though the budgetary agreement did not explicitly state this (Daugbjerg 1999a, 123±4). Sweden In 1979, the Swedish Minister of Agriculture set up a commission to investigate the environmental, economic and employment effects of


reduced application of chemicals and fertilizers. It finished its work in 1983, suggesting a number of policy measures. The commission discussed a tax on fertilizers as a measure to limit nitrate run-offs, but since such a tax had to be relatively high to reduce the use of fertilizers significantly, the commission shifted its attention to the tax as a source of funding agri-environmental measures and research. The majority of the commission suggested a 1 per cent tax, admitting that such a low rate would not limit the use of chemical fertilizers. It would, however, create a revenue of SKR 15 million that should be allocated to funding an extended advisory service to farmers and on research related to agri-environmental problems (SOU 1983a, 223±4, 251±2). As for pesticides, the commission suggested a differentiated tax, meaning that the higher the risk involved in using them, the higher the tax. The risk classification was based on the evaluated risks to user's health and not on how pesticides affect the environment. The majority of the commission suggested that 75 per cent of the tax revenue was spent on research, and 25 per cent on registration and reregistration of pesticides and on information about pesticide use (SOU 1983b, 320±3; 343±4). Not surprisingly, the commission's farmer representatives opposed the majority's tax proposals. They argued that most of the applications for the tax revenue did not fall within farmers' economic responsibility, but that of the state. They were prepared, however, to accept the payment of the costs of registration and re-registration of pesticides (SOU 1983a, 303±5; 1983b, 372). The National Board of Agriculture (Lantbruksstyrelsen), which administered the agricultural structural policy and provided an advisory service to farmers, formed part of the commission's majority and, thus, left farmers isolated in the policy process. The reason the Board did not oppose fertilizer taxes might have been that it would benefit from the tax revenues. To improve the advisory service, the commission suggested that the tax revenue was used to fund a staff increase in the regional state agricultural boards (LantbruknaÈmnderna) (SOU 1983a, 236±8, 251±2). Farmers were unable to mobilize sufficient opposition to prevent the Social Democratic government from proposing a 5 per cent fertilizer tax and a tax of SKR 4 per kilogram active ingredient in pesticides in 1984. This level of the fertilizer tax was considerably higher than the one suggested by the commission and the Minister of Agriculture had, in principle, classified the tax revenue `general state income'

Policy Networks

109

and not `sectoral money' which the commission originally recommended. The conflict over green taxation in agriculture was not, however, yet over. In 1988, a working group set up by the Minister of Agriculture suggested an increase in both the fertilizer and the pesticide tax to motivate farmers to use less fertilizers and pesticides. The group recommended that tax revenues be reimbursed and spent on environmental measures in agriculture. For instance, it recommended that SKR 5 million be spent on environmental advice to farmers and that additional resources should be given to the Agricultural State Board to fund research and development projects to be conducted by state institutions. This inflow of new resources might have been the reason why the Board supported the tax increase. The farmer representatives of the working group opposed the tax increases, arguing that higher tax levels would increase production costs and thereby should lead to higher food prices. However, they did not obtain support for their position ( Jordbruksdepartementet 1987, 68±75, 85±6; Swedish Government 1988:128, bilaga 2, 93). The government followed the recommendations of the working group and put forward a proposal which would double fertilizer and pesticide taxes in 1988. The majority of the Riksdag accepted the proposal. Surprisingly, the Centre Party, which has traditionally represented farmers' interests, did not issue any statements in support of farmers;4 only the Conservatives opposed the proposal ( Jordbruksutskottet 1988:24, 24±5, 34, 45±6). The increase of fertilizer and pesticide tax levels in 1994 was supported by a majority of the Riksdag, including the Centre Party. However, the Centre Party did try to ensure that tax revenues were considered `sectoral money' but, eventually, had to accept that the tax revenues were considered to be general state income ( Jordbruksutskottet 1994; Skatteutskottet, 1995). Norway In autumn 1987, the Norwegian Social Democratic government included a proposal on fertilizer and pesticide taxes in the draft 1988 state budget, to provide funding for agri-environmental measures (Landbruksdepartementet 1987a). All parties in the Storting accepted the proposal, but the Standing Commission on Agriculture stated that the revenue should be spent on agri-environmental


measures (Landbrukskomiteen 1987, 8, 12). Unlike their Danish and Swedish counterparts, Norwegian farmers seemed to accept the use of such instruments in agri-environmental policies. The fact that the Centre Party, which has traditionally spoken for farmers, did not oppose the proposal and the fact that the Farmers' Union did not deal with the question in its annual report indicate that the farmer associations' accepted the tax. At first sight, this is surprising when viewed in comparison with the situation in Denmark and Sweden, especially when taking into consideration the fact that in the future, the tax level was to be set in the annual budget negotiations, since such negotiations often involve issue linkage across policy sectors, and there was a risk that farmers would achieve little influence on the tax policy. One reason why farmers did not oppose the taxes might have been that they would, more or less, be automatically compensated for increased production costs in the agricultural price negotiations.5 It is also possible that farmers did not bother because the tax level was very low or, that they were careful not to debate the question because they received a high level of agricultural support and fierce opposition might have politicized the issue of subsidies. Finally, farmers might have accepted the tax because the increase in environmental subsidies (NKR 41 million in 1988) far exceeded the green tax burden (NKR 12 million in 1988) (Landbruksdepartementet 1989, 10). As part of the 1989 state budget proposal, the Norwegian government suggested an increase in fertilizer and pesticide taxes, so that on average fertilizers would be taxed by 6 per cent and pesticides by 8 per cent. All parties of the Storting's Agriculture Commission accepted the tax level. The Centre Party had already suggested an increase in tax levels in summer 1988 (Nationen 2 July 1988). The proposal to increase tax levels awakened the farm associations' interest in the spending of the revenue, but they seemed to accept the taxes and the levels at which they were set (see Norges Bondelag 1989, 93±5; Nationen 24 September 1988). They criticized the government for spending too large a share of the revenue on keeping the public bureaucracy running and for not spending it on measures reducing pollution. The Farmers' Union, strongly supported by the Smallholders' Union, proposed that an agri-environmental foundation be set up to administer the tax proceeds (Nationen 11 and 12 October,

Policy Networks

111

1988). The farm associations' criticism was echoed in the Storting by the Conservatives, the Christian People's Party and the Centre Party, who all stated that the tax revenue should be spent on environmental measures on individual farms. However, they disagreed about the agri-environmental foundation. Only the Christian People's Party and the Centre Party wholeheartedly supported the farm associations' proposal. The Conservatives suggested that the Agricultural Development Foundation (Landbrukets Uttbyggingsfond ), in which farmer representatives were in the majority, should advise the Department of Agriculture on the use of the tax revenues. The governing Labour Party rejected the farm associations' criticisms and opposed the idea of setting up such a foundation, arguing that it would be a new principle to negotiate with interest groups on the use of state tax proceeds (Landbrukskomiteen 1988, 14±16; Nationen 12 October 1988). The dispute was settled by a Storting decision supporting the Conservatives' proposal and thus giving the Agricultural Development Foundation an advisory role. The vote was very close; in fact, it was pure luck for farmers that there was a majority in favour of the Conservatives' proposal. One of the Social Democratic MPs pushed the wrong button and thus tipped the balance! (Nationen 23 November 1988) In 1990 and 1991, fertilizer and pesticide taxes were increased to 15 and 13 per cent respectively (Landbruksdepartementet 1990, 8, 29; Landbrukskomiteen 1990). Still, farmers received much more in environmental subsidies than they paid in green taxes when the environmental subsidies of the agricultural policy are included in the calculation. Hence, farmers did not need to worry too much about the taxes, which may have been the reason why neither the farm associations nor their representatives in the Storting, the Centre Party, opposed the tax increases. Farmers accepted the taxes and the tax levels as long as they were used as sources of funding for agri-environmental measures (Norges Bondelag 1990, 104). However, there seemed to be a limitation to what the farm associations would accept in terms of tax levels. In the early 1990s, further increases in fertilizer taxes were discussed, and the so-called Alstadheim commission even suggested a 150 per cent increase (NOU 1991, 565±7, 602; see also NOU 1992, 200±4). Although the farmer representatives in that commission did not oppose the tax level, later the Farmers' Union did oppose it, arguing


that it was unfair and that it would hurt the international competitiveness of Norwegian agriculture urging abolition of the green taxes (Norges Bondelag 1992, 103±5; 1993, 118±19). Comparison A comparison of the way in which farmers exercised power in the policy process reveals interesting cross-national differences. Danish farmers exerted considerable influence in the green tax policy process. Supported by the Ministry of Agriculture, they succeeded in removing the issue of fertilizer taxation from the agenda several times ± even during Social Democratic rule. On pesticide taxation, their interests were accommodated from the outset of and during the policy process. Norwegian farmers did not exert as much influence as Danish farmers. They had to accept fertilizer and pesticide taxation, but their interests were, to some extent, accommodated later on in the policy process. Swedish farmers could only exert marginal influence. They were isolated and overruled and could not prevent the introduction of fertilizer and pesticide taxes and had little influence on their design. These findings support the theoretical hypothesis that policy networks can provide producer groups with structural power, which can be used to influence the design of green tax schemes: the more structural power, the more tax schemes accommodate producers.

Conclusion The purpose of this chapter was to establish the link between policy networks and the design of green tax schemes used in economic sectors. The reason we have undertaken such an analysis is to establish why green tax schemes are designed differently even though they are introduced by governments which pursue fairly similar overall policy goals. This chapter has examined why fertilizer and pesticide taxes introduced by social democratic governments or governments led by social democratic parties differ. To explain policy variation, differences in interorganizational arrangements within the sectors concerned were analyzed. It was demonstrated that producer groups can acquire structural power from such arrangements and that the higher the degree of structural power obtained, the more producer interests are accommodated in the tax design.

Policy Networks

113

The first part of the chapter developed a theoretical hypothesis which suggested that the more political power producers can obtain from policy networks, the more likely they are successfully to oppose the use of green taxation. In situations in which green taxation is unavoidable (which are more likely to occur when Social Democratic or Labour parties are in power, rather than during Conservative and/ or Liberal rule), we argue that the more power networks provide to producers, the more likely policy makers are (i) to reimburse tax revenues automatically without requiring producers to engage in certain environmentally friendly activities, (ii) to design tax schemes in which there is a direct relationship between the object being taxed and pollution, and (iii) to give producers control over the spending of the tax revenue. This hypothesis was tested in a comparative analysis of green tax policymaking in Danish, Norwegian and Swedish agriculture. The comparison showed that despite several attempts to tax fertilizers, Danish farmers acted to avoid the use of such a measure in agrienvironmental policy. When the Danish government introduced a pesticide tax in 1995, it designed the tax scheme in such a way that, to a great extent, it accommodated the interests of farmers. The tax scheme reimburses the tax revenue automatically without requiring farmers to engage in environmentally friendly activities, and there is a fairly direct relationship between the object being taxed and pollution: it also gives farmers full control over the spending of the revenue. Furthermore, the tax scheme involves only a minor redistribution of income within the farming community. The 1998 decision to double the pesticide tax broke with this policy model, but later on, farmers persuaded the government to bring the tax scheme back in to line with the 1995 framework. The Swedish government was not particularly responsive to agricultural interests when it designed pesticide and fertilizer taxes. Whether the tax revenues were general state income or `sectoral money' remained unclear until 1995, when it was finally stated that it was general state income. In practice, the tax revenues were earmarked mostly for general agri-environmental measures, such as research and development, but from 1989 to 1991, one-third of the revenue was used for environmental subsidies to individual farmers. While the pesticide tax has a fairly direct relationship between the object being taxed and pollution, the relationship is indirect and


fairly weak in the case of fertilizer taxation. Farmers have no control over the spending of the tax revenue. In terms of accommodating farm interests, the design of the Norwegian pesticide and fertilizer tax schemes lies somewhere in between the Danish and the Swedish schemes. The revenue is earmarked and is spent partly on general agri-environmental purposes and partly on environmental subsidies to individual farmers. However, when taking the environmental subsidies of the agricultural policy into account, revenue is more than fully reimbursed to individual farmers. The pesticide tax has a fairly direct relationship between the object being taxed and pollution, but again this relationship is indirect and weak in the case of fertilizer taxation. Farmers advise the government on the spending of the revenue. This pattern of tax designs can be explained by the existence of different established policy networks in Danish, Norwegian and Swedish agricultural politics. The Danish agricultural policy network provided farmers with considerable structural power. Therefore, they avoided fertilizer taxation. As to the pesticide tax, to a great extent, it accommodated farming interests. Swedish farmers could not derive much structural power from the agricultural policy network and this enabled the government to design pesticide and fertilizer taxes that, only to a limited extent, take farm interests into account. Norwegian farmers could use the agricultural network to obtain more structural power than Swedish farmers, but less than their Danish counterparts. The Norwegian farmers' intermediate position on the power continuum helps to explain why the design of Norwegian pesticide and fertilizer tax schemes accommodates farmers' interest more than the Swedish ones, but less than the Danish pesticide tax. A comparison of farmers' actual exercise of power in the green tax policy processes further strengthened the hypothesis. The comparison demonstrated that an important factor in explaining the design of green tax schemes is the ability of producers to acquire power from the structure of the state±producer policy networks. This, in turn, is determined by the type of network which exists in the sector concerned. By comparing green tax policy processes in Scandinavian agriculture, this chapter has demonstrated that the relationship between policy networks and policy design is more than just a correlation. Our findings suggest that it is a causal relationship.

Policy Networks

115

It cannot be ruled out that different affiliations to agricultural interests may have affected Danish, Norwegian and Swedish Social Democratic parties' specific policy preferences on fertilizer and pesticide tax schemes. However, this rival hypothesis cannot explain the policy pattern found here. Clearly, the presence of Social Democratic governments or governments led by social democratic parties, helps to explain why green taxation in agriculture was introduced in certain periods of time, but it cannot account for the variation in policy design. The argument based on the Social Democratic parties' affiliation to agricultural interests suggests that the Norwegian and Danish social democratic parties would accommodate agricultural interests to a greater extent than their Swedish counterpart. The Norwegian Labour Party has traditionally spoken on behalf of smallholders in agricultural policymaking, and during the past three decades it has been more willing to consider agricultural interests than the Swedish Social Democratic Party which abandoned its support for smallholders and upgraded consumer interests in the party programme of 1960 (Steen 1988, chapter 8). Traditionally, Danish Social Democrats have emphasized the importance of employment in the food processing industry and, consequently, has been careful not to hurt agricultural interests (Daugbjerg 1998b, 175±6). These differences in the Social Democrats' relations to agricultural interests may help to explain why Norwegian and Danish farmers, in terms of having their interests considered in green taxation, were better off than their Swedish counterparts. However, it cannot explain why Norwegian farmers were worse off than Danish farmers. If differences in the policy positions of the Scandinavian social democratic parties were to account for the policy pattern found, the Danish and Norwegian agri-environmental taxes should be fairly similar, and they are not. Some social scientists would argue that the reason why Danish farmers were in the best position in terms of green taxation can be explained by the fact that agriculture in Denmark is more important in macro-economic terms than it is in Norway and Sweden. Considering that agricultural production in Denmark plays an important macro-economic role and has direct impact on the Social Democratic core constituency, namely, workers in the food processing industry, one would expect the Danish Social Democratic Party to be careful not to hurt the international competitiveness of agriculture by


introducing green taxes which increase production costs. A decline in international competitiveness would result in decreasing employment in the food processing industry. However, Danish Social Democrats have pursued an inconsistent policy. In the 1980s, they chose an aggressive line towards farmers on the question of fertilizer taxation, but when they returned to power their approach to agri-environmental regulation became more moderate for a while. Thus, the civil servant commission set up in 1993 to investigate the opportunities to use green taxation in industry and agriculture was instructed to include reimbursement schemes in its models of green taxation in order not to hurt the international competitiveness of Danish industry and agriculture. When the pesticide tax was doubled in 1998, the Social Democrats changed policy position and accepted that the revenue was not to be reimbursed to all those who paid the tax only to organic farmers. Half a year later, the Party reversed that position and accepted the practice of reimbursement of the pesticide tax revenue to all farmers. Since the macroeconomic importance of Danish agriculture did not manifest itself in the policy positions of the Danish Social Democratic Party, the macro-economic thesis is not supported by this comparative study. Since neither differences in the Social Democrats' relation to agricultural interests nor the macro-economic importance of agriculture can explain the policy pattern found in this study, we further support our hypothesis that the differences in the nature of agricultural policy networks in the three countries can explain policy choices in green taxation.

5

Designing Green Taxation Carsten Daugbjerg with Gert Tinggaard Svendsen

Introduction Analyses undertaken at the micro, meso and macro-level in Chapters 2, 3 and 4, demonstrate that there are considerable political and institutional constraints to green taxation in economic sectors. This means that tax levels have been set too low to achieve the desired environmental target levels. In this chapter, we analyze whether it is possible to design green tax schemes in ways which decrease opposition to them. We extract the lessons learned from the three preceding chapters and put forward policy recommendations for the future application of green taxation. It is argued that there are ways to improve the design of green tax schemes to create incentive effects and at the same time gain acceptability within producer communities by accommodating producer interests. If the potential of policy design is fully utilized, green taxes may become more than just secondary instruments in pollution control and may even have significant environmental effects. Lack of acceptability within producer communities is an important reason why green taxation is not applied in some situations, or that green taxes are set at low levels where they have limited incentive effects and function mainly as measures to raise state revenue. Although green taxation is not a universal measure which can be successfully applied in all situations, it does have a certain potential in environmental regulation which can be utilized in the future. This requires that policy designers give higher priority to the political dimension of the instrument. 117


Before we discuss how green taxation can be designed to increase its political attractiveness, we briefly summarize the main findings of Chapters 2±4. Chapter 2 demonstrated that public choice theory can inform the way in which the distributional consequences of environmental policies create incentives for collective action. Since green taxes concentrate the policy costs on a relatively well-defined segment of society, producers have a strong incentive to mobilize politically. For each member of the industry subject to green tax proposals, it pays off to contribute to collective action because the benefits of avoiding green taxes, or at least have them designed in a way which minimizes costs, outweigh the costs associated with engagement in the policy process. The environmental benefits obtained by the use of green taxes are dispersed across the population, and since each of the beneficiaries has only a little to gain, it is difficult to organize strong support for green taxes. Although producers have strong incentives to mobilize for collective action against green taxation, green taxes directed towards producers have indeed been introduced across Europe. The comparative analysis in Chapter 3 concluded that the composition of government makes a difference in green taxation. Intuitively, it could be expected that social democratic and labour governments (or social democratic led coalition governments) would, more frequently than liberal and conservative governments, introduce environmental taxation of producers. However, governments led by liberal and conservative parties have, indeed, accepted the use of such taxes. The major difference between the two groups of parties is that liberal and conservative parties, to a greater extent, accommodate producer interests in the tax design. Thus, the specific policy design rather than the principal decision on whether or not to use green taxation becomes the core of the policy making process. At the meso-level of analysis, policy network analysis can also help to explain why green tax policies differ across countries governed by similar political parties. This was demonstrated in Chapter 4. Policy network analysis can reveal some of the producers' opportunities to realize their objectives in environmental policymaking. Established state±producer policy communities and other types of closed and tight policy networks privilege the interests of producers in environmental policymaking, in that producers can use the network as a power base since they enable producers to form a strong coalition

Designing Green Taxation 119

with their traditional allies within the network. A coalition of policy community members is powerful because it controls the expertise within the sector concerned. Therefore, it can avoid green taxation or at least have producer interests accommodated in the policy design. Loose and open types of policy networks provide opportunities for political actors who favour the use of taxes in pollution control. In sectors in which loose state ± producer policy networks exist, producers have limited opportunities for realizing their objectives in environmental policymaking. The absence of a consensus on policy principles means that producers have severe difficulties forming a strong coalition against the use of green taxes with the other network members. Hence, they are not likely to gain control over environmental policymaking. Producers cannot use established networks as a power base to prevent the adoption of green taxes; they have to rely on non-structural power, that is their lobbying skills and resources. One of the lessons learned from the three preceding chapters is that efficiency concerns are not the driving force behind the environmental policy process. Rather, the political attributes of green taxes and the institutional settings have a much more important impact on the way in which green tax schemes are constructed. Among political actors, there are differing views on which instruments are economically efficient, meaning that in environmental politics, efficiency is a somewhat loose concept which can be defined in various ways to serve particular policy objectives. Thus, the concept of efficiency becomes just as political as policy making itself. This means that there is no direct link between an instrument's ability to achieve an optimal welfare economic situation and its political attractiveness. Hence, several researchers have argued that the choice of instruments is political and not a matter of finding the or those instrument(s) which best fulfil the objectives of a policy (for example. Daugbjerg 1995, 1998a, 1998b, 1998c, 1999b; Doern and Phidd 1983; Hood 1983; Howlett and Ramesh 1994; Linder and Peters 1989; Majone 1989). Elmore (1987, 175) suggests that the choice of policy instruments `has more to do with coalition politics than with their operating characteristics'. Ultimately, instruments are chosen because they are able to generate the necessary political support (Daugbjerg 1993, 8) and, therefore, they are a result of a complex balance of institutional, procedural, political and economic considerations (Salamon 1981, 265).


Surprisingly, the discipline of environmental economics has not observed this and moved in the direction of political economy. Even in 1975 Buchanan and Tullock had concluded that to make green taxation more attractive to policy makers, economists should `begin to search out and invent institutional arrangements that will make the penalty tax acceptable to those who are primarily affected' (147). In the next section, we discuss how green tax schemes can be constructed in order to make them more acceptable to producers. Subsequently, reimbursement of tax revenues and the problem of redistribution are discussed. Finally, the limitations and opportunities in green taxation are summarized.

Making green taxation more attractive Many environmental economists argue that, if properly designed and implemented, green taxes limit pollution at something which approximates to the minimum cost to society (for example Baumol and Oates 1988, 155; Pearce and Turner 1990, 94±6; Pearce et al. 1989, 155). Clearly, societal efficiency concern is the central economic argument behind this statement. However, taxation may be more costly to polluters than regulation and, therefore, they strongly oppose this type of environmental regulation. The major question for policy makers is then, how can green taxation be designed to overcome political opposition from producers? It is argued here that there are three dimensions of policy design in particular that are important to take into consideration. These are the questions of reimbursement, taxation of production inputs or output and political control over tax revenues. Reimbursement From a macro-economic perspective, the use of environmental taxation is an efficient way of undertaking pollution control. However, if tax revenues are not refunded to polluters, taxation is more costly to them than regulation. This may be clarified by an hypothetical example. Assume that we have two polluting firms; Firm 1 and Firm 2. Firm 2 has smaller reduction costs (Mc2) than Firm 1 (Mc1), see Figure 5.1. If it is decided that emissions should be reduced by Q*, environmental authorities can use a standard or a tax to achieve the objective.


$/unit

MC1

P1

MC2

P* P2

Q1

Q*

Q2

Q3

Emission Reduction

Figure 5.1: Standard versus taxation Source: the authors.

A standard would require each polluter to reduce the emissions by Q*. However, this approach may be an expensive way to reduce pollution because, at existing levels of output, the marginal cost of reducing emissions for Firm 2 is smaller than the marginal cost for Firm 1. Therefore, we would expect it to be much cheaper for the economy as a whole to assign Firm 2 a greater reduction in emissions. This can be done by a tax set at P*. A tax would motivate Firm 2 to reduce its emissions much more than Firm 1, and thus pollution would be reduced at the lowest economic cost (see Baumol and Oates 1988, 164). A hypothetical comparison of the costs associated with the two types of policy instruments shows that to society as a whole, the tax option is the cheapest one. Say, that Q1 is 1 unit, Q* is 2 units and Q2 is 3 units of reduction. Furthermore, that P1 is $6/unit, P* is $3/unit and P2 is $2/unit. Then we get the following results. If both firms face the same standard, Q*, total reduction costs are $8.1 If both firms face the optimal tax P*, total reduction costs are $6.2 This means that society saves $2 when using green taxation compared with a standard. In this way, a tax, P*, would motivate Firm 2 to reduce its emissions more than Firm 1 and, thus, pollution would be reduced at the lowest economic cost. Firm 1 and Firm 2 will cut back


emissions ùntil the marginal cost of further reductions in smoke output is equal to the tax' (Baumol and Oates, 1971, 46). So, green taxation is economically more efficient than a standard, from society's point of view.3 Now, from the polluters' point of view, this does not necessarily mean that taxation is better than a standard. If tax revenues are not reimbursed, regulation by standards will be cheaper for industry than regulation by taxation (see Buchanan and Tullock 1975). Take a further look at Figure 5.1 and let us say that Q3 corresponds to a 100 per cent reduction (no emission) equal to 5 units. A tax without refund means that on top of the reduction costs from reducing Q1 , Firm 1 must pay taxes for all units emitted, that is the rectangle (Q3 ± Q1 )P*. This extra tax payment of $12 together with the $1.5 in private reduction costs, means a total cost of $13.5 from green taxation without refund, compared with a total cost of $6 from a standard. Likewise, Firm 2 will face the extra tax payment costs of the rectangle (Q3 ±Q2 )P*. This extra cost of $6 added to the private reduction costs of $4.5 totals $10.5 which is significantly higher than the $2 following standard regulation. This example clearly demonstrates that reimbursement of green tax revenues is a crucial measure to make green taxation more acceptable to producer groups and thus decrease political opposition. This was demonstrated in the analysis of real-life green taxation in the three preceding chapters. Many of the tax schemes analyzed in this book reimburse tax revenues. For instance, CO2 tax revenues in Denmark, Finland, the Netherlands, Norway and Sweden are reimbursed to producers (see also Andersen, Dengsùe and Pedersen, 2000; Pedersen 2000). There is, however, some variation in the extent to which the revenues are reimbursed and in the way in which they are refunded. An alternative to reimbursement is to construct tax schemes in a way which enables producers to pass on the costs of the taxes to consumers without hurting the international competitiveness of the industry concerned. The Danish government used this strategy when it taxed CFC/halons and waste. Reimbursement is particularly important when liberals or conservatives introduce or support producer-directed green taxation, or when powerful stateproducer policy networks exist within the sectors concerned. The higher the tax level, the more important it is to refund tax revenues to obtain acceptance within producer communities.


Taxing production inputs or outputs? Reimbursement is not, however, the only important factor making green taxation politically acceptable to producer groups. It makes a major difference to them whether production inputs ± which in one way or another cause pollution ± or emitted pollutants are taxed. As Huppes and Kagan (1989, 234) remind us: `the empirical relationship between taxed emissions or inputs, on the one hand, and environmental harm, on the other, must be relatively clear and simple.' Then, pollution control becomes more intellectually acceptable to producer groups. In general, the establishment of clear, relatively simple and linear relationships between the tax object and pollution can best be achieved by taxing emissions rather than polluting production inputs. In practice, emission taxation is only possible where emissions come from a limited number of identifiable sources and where it can be measured. Usually, this type of pollution is called point pollution. Since it can be located and measured fairly easily, it is possible to determine who is responsible for the emissions and how much they are discharging. This means that environmental authorities can charge polluters for their actual pollution, which, in turn, means that there is a chance that producers see the tax scheme as being fair.4 Non-point pollution is more difficult to tax. This term is used for emissions coming from multiple sources which are difficult to locate, for example, nitrate leaching from farm land or pesticide residues in ground or surface water. In this type of pollution, it is extremely difficult to locate the exact sources from where the emissions originate, how much is emitted from each location and, hence, who is responsible for the pollution. In agriculture, for instance, the pollution process is complicated and strongly affected by inherent conditions such as type of soil, amount of rain, temperature, and the specific crops grown. Non-point pollution can only be taxed by the use of input taxes; however, the relationship between actual pollution and the use of the production inputs taxed may be quite complicated and uncertain. This means that there is a risk that producers are equally taxed even though some producers pollute less than others, because they use the same quantity of polluting production inputs. Within producer communities, this situation is not conceived of as fair (Vatn 2000, 114), and may easily bring about strong


opposition to the tax scheme. However, when there is a fairly straightforward causal link between the type and amount of the production input used and the level of pollution, it may be possible to design a tax scheme which has a chance of being accepted by producers. The political struggles over taxation of chemical fertilizers and pesticides in Denmark are particularly illustrative on this point. The causal relationship between use of chemical fertilizers and pollution is complex and conditioned by a number of other factors such as type of soil and the types of crops grown. By contrast, the causal relationship between pesticide use and environmental harm is less complex, but definitely not linear, since some pesticides are more harmful than others. The absence of a clear and simple link between reduction of the use of chemical fertilizers and pollution meant that Danish farmers fiercely opposed fertilizer taxes, while they were less reluctant to accept pesticide taxes because the relationship was more clear (see Chapter 4). This helps to explain why the Ministry of Agriculture accepted the idea of pesticide taxation and not that of fertilizer taxation (Finansministeriet 1994a, 319). Administration of tax revenues Administrative structures are crucial in designing green tax schemes which can gain acceptance within producer communities. Interest groups are aware that `[s]tructural choices have important consequences for the content and direction of policy' (Moe 1989, 268) and that some organizational forms give them a certain control over policy conflicts (see Schattschneider 1975 [1960], 8). Decisions on organizational forms in environmental policy implementation involve two aspects. The first aspect of administrative choice is to decide where to assign the administration of policy. That is, should policy implementation be placed under the auspices of environmental authorities or sectoral authorities with which producers traditionally interact in questions concerning business regulation? The second aspect is organizational choices concerning interest group involvement in administrative decision making. Of course, administrative structures are most relevant to interest groups when reimbursement involves the handing out of various types of subsidies irrespective of whether these are earmarked for certain environmental purposes or used for other purposes within the sector concerned. Where the introduction of green tax schemes is


linked to the suspension or reduction of other types of producer taxes used to raise general state income, the development of procedures and administrative bodies to implement reimbursement is irrelevant to interest groups. Environmental or sectoral authorities? From a producer group perspective, the implementation of reimbursement schemes may be uncertain when environmental authorities are assigned responsibility for the scheme. Such an organizational choice can turn out to be costly because environmental authorities may interpret rules and procedures from a perspective which is significantly different from that of producer groups. Producer groups consider the assignment of policy implementation to sectoral authorities a much more attractive option. These are more likely to interpret administrative rules and procedures from a perspective which comes close to that of producers and have better information on the industry in which regulation is to take place. This may enable them to lay down specific rules on reimbursement which take into account the conditions particular to an industry. The Dutch government's decision to assign the water effluent charge to the Ministry of Transport and Public Works (a ministry trusted by Dutch industry) and the day-to-day implementation to the Directorate-General for Public Works (Rijkswaterstaat) may be important reasons why the tax scheme was accepted within the industrial community. Interest group involvement Organizational choices in policy administration include considerations of the extent to which interest groups should be involved in administrative decisions. Christensen (1993, 203±6) distinguishes between four different types: pure bureaucracy, consultative bureaucracy, corporatist bureaucracy and delegated administration. In pure bureaucracy, interest groups are kept at arm's length by the bureaucrats who administer policy according to specific rules laid down. Consultative bureaucracy accords interest groups the right to be consulted before decisions are made. In corporatist bureaucracy, `the civil service is politically committed to share its responsibilities with interest representatives' (204). Usually, this means that decisions on policy implementation are made in boards and commissions


in which civil servants and representatives of interest associations are represented. Delegated administration means that the responsibility for policy implementation is delegated to interest associations. This model is also known as a private interest government. Streeck and Schmitter, (1985, 17) reserve this concept for àrrangements under which an attempt is made to make associative, self-interest collective action contribute to the achievement of public policy objectives'. A private interest government ìs based on group self-regulation through formally private organizations, empowered by devolution of public interest' (ibid, 47). To interest associations, the attractiveness of these organizational forms varies. They can be ranged on a continuum with pure bureaucracy as the least attractive option and delegated administration/ private interest governments as the most attractive (see Christensen 1993, 205). The Norwegian farm unions' attempt to have reimbursement schemes administered by an agri-environmental foundation is a clear example that delegated administration/private interest governments can be attractive to producer groups. For members of interest associations, the advantage of private interest governments is that they provide à line of defence between them and the state' (Williamson 1989, 104). Therefore, they may help to diminish producer opposition to green taxation. Private interest governments may also enable administrators successfully to implement complex regulation because they have specialized information and knowledge about the industry at which the reimbursement is directed. Sometimes producers prefer such regulation in order to avoid redistribution within the producer community. However, Christensen (1993, 219) warns us that this way of managing public funds may go wrong. He argues that there is a risk of goal displacement, meaning that the interest association may use the funds to fulfil other goals pursued by the association rather than those originally laid down by the reimbursement scheme. In the literature on private interest governments, the conditions required to avoid such undesirable situations have been analyzed. To implement reimbursement schemes in accordance with the guidelines stated, the interest associations forming a private interest government must possess administrative resources and a certain level of autonomy from both the state and its membership (see Jacek, 1987, 51; Vroom 1985, 129). Autonomy from the state is a necessary


requirement because if the state gains control over the interest association, an undesirable relationship between the leadership of the interest association and its members may easily develop. Members may then start to view their association's executives as agents of the state instead of agents of their interests, and this is likely to cause problems of legitimacy. The interest association must have a certain level of autonomy from its members, otherwise there is a risk that it is pressurized by groups of members to hand out subsidies in a way which does not serve the original purpose. Further to ensure that this does not happen the state is required to be relatively strong and, thus, can threaten direct intervention if the private interest government does not respect the guidelines set out for policy administration (Schmitter 1985, 48; Streeck and Schmitter 1985, 26). If these conditions are fulfilled, private interest government may be a feasible means of ensuring that producers achieve a certain degree of control over the tax revenue without violating the original purpose of reimbursing green tax revenues. There are limited experiences with the use of private interest governments in environmental regulation and in particular in the administration of reimbursement schemes linked to green taxation. This book has analyzed two cases. Perhaps, the earliest example of the use of delegated administration in green taxation is the administration of the Dutch water effluent tax. It is partly administered by local water boards which run sewage plants and charge polluters for the actual costs of running them. The boards are dominated by nonenvironmental interests, primarily farmers and industrialists. However, they are not ideal type private interest governments because industrial interests have to share influence over the administration with farmers and because they do not administer the part of the tax revenue used to subsidize the instalment of cleaner production technologies. Nevertheless, there is an element of private interest government in the administrative model chosen. An even more illustrative example is the administration of the Danish scheme to reimburse the 1995 pesticide tax revenues. The revenue is refunded by the suspension of the state land tax. Before the suspension, the state land tax revenue was channelled into an agricultural foundation which subsidizes domestic and international marketing, development of food products, combating of plant and animal diseases, advice and education of farmers and certain


inspection activities. The agricultural associations fully control the bodies administering the pesticide tax proceeds (see Chapter 4). Summary In this book, we have argued that unless green taxes are designed to accommodate producer interests, it is difficult to introduce taxes set at a level at which they have incentive effects. When policy designers omit to take these political constraints into consideration, green taxes tend to remain at relatively low levels and serve, mainly, the purpose of raising revenue. However, they may have a symbolic value as they demonstrate to the public that pollution control is taken seriously. To design green taxes which are high enough to have incentive effects, it is necessary (1) to reimburse tax revenues, (2) to ensure that producers are given a certain degree of control over the revenue and (3) to tax actual pollution outputs rather than polluting inputs, since this is the best way to ensure that there is a clear and simple causal relationship between the tax object and pollution. Inputs should only be taxed when there can be little doubt that a relatively clear and simple causal relationship exists between the use of the input and pollution. If green tax schemes can be designed along these lines, producers will have less incentive to mobilize strong opposition. Furthermore, it prevents producers from mobilizing strong support within the political system; in particular within sectoral policy networks which are traditional political power bases for producer groups. Finally, and perhaps most importantly, green tax schemes designed as recommended above may bridge the left±right divide in environmental politics. This means that the policy process is likely to become less contested. As a result, there is a chance that policy makers can adopt tax schemes which actually have incentive effects rather than being mainly devices for raising revenue. In other words, policy design can become a means by which to depoliticize the policy field. This implies that technical rather than political and symbolic concerns are given primacy.

The problem of redistributive reimbursement We have argued above that to design green tax schemes which have a chance of gaining acceptance within producer communities, inclu-


sion of mechanisms to reimburse tax proceeds is crucial. Two basic requirements must be fulfilled to ensure that reimbursement remains effective and politically acceptable at the same time. On the one hand, reimbursement must be independent of the level of pollution, otherwise the incentive to reduce pollution would be removed. For instance, it would not matter to the polluter how much s/he discharged or emitted if all of the money paid in taxes would be refunded. On the other hand, reimbursement should not redistribute financial resources within the producer community subject to the tax and thus create winners and losers. Redistribution within producer communities is likely to bring about mobilization of opposition among losers, while potential winners have weaker incentives to mobilize for gains. This is not to say that redistributive green tax schemes cannot be applied at all; in fact, they are not uncommon. As long as the tax level is relatively low and the redistribution, caused by reimbursement, is limited, it may not bring about significant opposition. The problems of redistribution and opposition within producer groups increase proportionally with higher tax levels. Potential losers from green taxation will react more strongly than potential winners. As Weaver (1986, 373) points out: `persons who have suffered losses are more likely to notice the loss, to feel aggrieved and to act on this grievance, than gainers are to act on the basis on their improved state.' In other words, people àre more sensitive to what has . . . [ been] done to them than what has been done for them' (ibid). Experiments have shown that people feel more affected by losses than by gains (Kahnemann and Tversky, 1979, 1991; Knetsch, 1990; Thaler 1980). This `loss aversion' implies that a loss of $ gives an individual a higher disutility than the utility derived from the corresponding gain. This means that losers have much better opportunities to mobilize than winners when redistributive policies are put onto the political agenda. Thus, it is crucial not to create losers when designing green taxes with reimbursement schemes. The trick is to develop refund schemes which do not redistribute. Leone (1986, 3) is rather pessimistic about this, arguing that èvery act of government, no matter what its broader merits or demerits for society at large, creates winners and losers within the competitive sector of the economy. These gains and losses, which accrue to both individuals and corporations, become the object of intense political attention.' To some extent, our analysis supports


Leone's argument, but we shall argue that in certain situations, reimbursement can take place without causing significant redistribution. We have distinguished between earmarked and non-earmarked reimbursement (see Chapter 4). In the former approach, revenue is paid back as various types of environmental subsidies. To qualify for reimbursement, producers are obliged to engage in environmentally friendly activities. Earmarked reimbursement may redistribute financial resources within producer communities, but the scheme is open to all producers. As a result, they have the opportunity to benefit from environmental subsidies, provided that they engage in certain environmentally friendly activities such as introducing cleaner production technologies or not farming in environmentally sensitive areas. In the non-earmarking approach, the revenue is refunded irrespective of whether producers engage in certain environmentally friendly activities or not. Proceeds are reimbursed automatically through direct subsidies or through reductions of existing taxes. Thus, all members of the industry concerned get back their share of the tax revenue (approximately) without being required to do any particular tasks. This means that producers tend to prefer nonearmarked reimbursement. Redistribution caused by non-earmarked reimbursement is discussed in this chapter for two reasons. First, redistribution is most likely to become a political problem when this approach is applied because the individual producer cannot escape redistribution by engaging in certain environmentally friendly activities as s/he can in earmarked reimbursement. Thus, redistribution is not a choice, but a fact. Second, in the economic literature on green taxation, nonearmarked reimbursement is most frequently discussed.5 We analyze three models of non-earmarked reimbursement in order to assess the extent to which they redistribute financial resources within producer communities. These are (i) reduced taxes linked to the employment of labour, (ii) reduced corporate tax and (iii) direct refunding based on annual turnover. We shall demonstrate that there is a risk that such reimbursement schemes bring about redistribution of financial resources within the sector concerned. Labour taxes Within the industrial sector, reimbursement through reduced income taxes (which is assumed to bring about lower wages) or reduced


employer contributions to labour market services or social security, will inevitably bring about winners and losers among firms. An important source of redistribution is the extent to which enterprises employ labour and capital, for example, energy. Labour-intensive industries will benefit from reduction in labour costs, whereas energy-intensive industries are likely to lose. The Dutch tax on CO2 is an example of a green tax scheme causing redistribution through reimbursement by the reduction of tax contributions to labour market services. One of the winners is the financial sector and one of the losers is the food processing industry (VROM 1998a). The basic problem of reimbursement through reduced labour costs is that energy-intensive industries will oppose green taxation because each of them is likely to pay more in tax than they are likely to get back since the benefits are linked to the employment of labour. In other words, they are potential losers, and thus they have strong incentives to mobilize political opposition. Labour-intensive industries are potential winners, but may fail to lobby for a taxation and refund system because their incentives to mobilize politically are weaker. The Norwegian government's failed attempt to broaden the CO2 tax is a powerful example supporting this theoretical argument. Revenues were to be refunded through reduced employer contributions to labour market services which meant that the energy-intensive industries in particular (mainly pulp and paper, chemical, metallurgical and oil industries) would lose out. Therefore, they had strong incentives to oppose the tax scheme, which they did successfully. The potential winners were the labour-intensive retail sector and service industries. In line with the theoretical argument, these two sectors, as potential winners, did little to support the government proposal, whereas the energy-intensive industries, as potential losers, put considerable effort into opposing the tax and eventually succeeded in having the proposal voted down in parliament (Kasa 2000; Svendsen et al. 2001; see also Chapter 2). Given these incentive structures, it is difficult to impose a tax high enough to create noticeable incentive effects. Redistribution can only be avoided if there is a fairly equal relationship between emissions and employment of labour throughout the sector concerned. Annual turnover Reimbursement linked to annual turnover also brings about redistribution within the producer community, thus creating winners and


losers. Tax proceeds are refunded through direct payments. Companies having a limited level of emissions in relation to annual turnover receive more money in refunds than they pay in pollution charges. In contrast, firms which have high levels of emissions in relation to turnover pay more in tax than they receive in refunds. The latter firms are potential losers and have strong incentives to mobilize opposition to the tax scheme; the former are potential losers but do not have a similar incentive to enter the political process. To limit redistribution, there must be a fairly equal relationship between emissions and annual turnover throughout the industry concerned. However, that situation is presumably a rare one. Corporate tax Corporate tax reduction as a means of reimbursement also involves redistribution within producer communities. Those who have the highest profits benefit more from lower company taxes than those who earn less money because there is no linear relationship between the level of earnings and the level of emissions. Without such a relationship, the side effect of corporate tax reductions is redistribution of financial resources from prosperous to less prosperous firms. Redistribution can only be avoided in industries with a fairly equal relationship between profits and emissions, and these are hard to find in the real world. Nature of target sector The analysis of the three reimbursement models demonstrates clearly that in heterogeneous sectors it is difficult to develop green tax models which do not bring about winners and losers within producer communities and do not neutralize the incentives to reduce emissions. The models discussed are all fairly simple and do not require considerable administrative resources to be implemented. Of course, more sophisticated reimbursement models may redistribute to a lesser degree than the simple models discussed. However, in practice, such schemes may be troublesome to design and administer. First, it might be difficult to ensure that reimbursement schemes do not neutralize the incentive effects. Second, to avoid redistribution, they may have to be very complex, which in turn means that they may be difficult to manage for implementation bodies. Further, these administrative difficulties may increase the risk of mismanagement


and perhaps fraud. Third, complex reimbursement models carry a high risk of unintended consequences. For example, the Danish CO2 tax scheme has a complicated refund system which produced perverse incentives. It motivated the Confederation of Danish Industries to encourage its members to increase their CO2 emissions to receive higher refunds and thereby save money (CDI 1992; see also Chapter 2). Fourth, unintended redistributive effects may arise because large firms that can afford to employ staff to get as much revenue back as possible may benefit more from reimbursement than those firms which do not have the resources to hire extra administrative staff. In other words, complex reimbursement schemes may redistribute from small to large companies, and then we are back to where we started. To prevent reimbursement schemes resulting in a redistribution within the sectors taxed, there must be some homogeneous traits within the sector concerned. It is essential that there is an equal relationship between the tax object and the object determining the level of reimbursement throughout the sector. Thus, the more homogeneous the sector, the more the opportunity there is to develop reimbursement schemes which do not redistribute within producer communities. The Danish case of pesticide taxation is an illustrative example of successful reimbursement in a fairly homogeneous economic sector. In 1995, the Danish government introduced a pesticide tax which, compared with those of the other Scandinavian countries (see Chapter 4), was set at a high level. The introduction of such a tax demonstrates that when reimbursement schemes are carefully designed in order to limit redistribution, green taxes can be set at a high level even in sectors in which producers are powerful. The tax revenue is reimbursed by the suspension of the state land tax. In this way, reimbursement is independent of the amount of pesticide used, meaning that the incentive to reduce pesticide use is maintained (Skatteministeren 1995).6 The fact that the reimbursement scheme involved only minor redistribution within the farming community is an important reason why the Danish government succeeded in introducing a relatively high pesticide tax in 1995. This type of reimbursement did not generate winners and losers among farmers and, therefore, was acceptable to the farmers' unions. In 1998, the government doubled the pesticide tax and adopted a reimbursement scheme which redistributed revenue from conventional farmers to


organic farmers. This was opposed by the losers within the farmers' union, and within half a year they succeeded in persuading politicians to reduce local land taxes to diminish redistribution. Within the industrial sector, the idea of reimbursement is much more problematic because the sector, as a whole, is not as homogeneous as the agricultural sector. Industry-wide reimbursement will inevitably bring about winners and losers and, as a result, considerable opposition to green taxation. In some situations, the use of separate green tax schemes for various branches of industry may solve this problem. Then, opportunities for operating relatively simple reimbursement schemes, which do not redistribute within the industrial branch concerned, may arise. However, this requires that the branches are fairly homogeneous. Otherwise, the problems of refunding tax revenues discussed above are likely to occur.

Conclusion: the limitations and opportunities of green taxation This chapter has argued that there are ways to overcome the opposition to green taxation. The opportunities are embodied in the design of the tax schemes. In particular, three dimensions of the policy design deserve attention. First, tax revenues should be reimbursed. Second, actual pollution outputs rather than polluting inputs should be taxed. Inputs should only be taxed if there is a fairly straightforward relationship between the amount of production input and pollution output. Finally, when revenues are reimbursed through environmental subsidies (earmarking) or spent on other purposes within the sector concerned, producers should be given a certain degree of control over the revenue to ensure it remains `sectoral money' and not general state income. However, although policy makers follow these recommendations, there may still be major obstacles to the use of green taxation in economic sectors because reimbursement schemes may redistribute within producer communities, thus creating winners and losers. Since people are more sensitive to losses than gains, losers are more likely to mobilize politically than winners. The analysis of reimbursement through reduced labour taxes, direct payments linked to annual turnover and corporate tax reductions showed that they redistribute within producer communities. Thus, all of the three


reimbursement models are likely to cause asymmetry in interest mobilization in favour of those opposing green taxation, that is the losers. However, if the sector concerned is fairly homogeneous such mobilization might not occur. To apply green taxes with refund schemes in such sectors, there must be an equal relationship between the tax object and the object determining the level of reimbursement. The reimbursement models discussed are fairly simple. Sophisticated reimbursement models may redistribute to a lesser degree; however, in practice, such schemes may be troublesome to design and administer. This means that homogeneous sectors provide the best opportunities to develop policy designs which minimize political opposition. Most of the manufacturing industry is characterized by heterogeneity. This fact limits the opportunities to use policy design as the device to overcome industrial opposition to green taxation. Where possible, environmental policymakers can perhaps introduce green tax schemes in heterogeneous sectors by subdividing them into fairly homogeneous branches and then operate separate tax and reimbursement schemes for each branch. Alternatively, environmental policymakers who want to apply market-based instruments in environmental regulation should consider tradable pollution permits. This instrument may be a more politically feasible instrument than taxation. In addition, American experiences have shown that it has considerable potential in environmental regulation. The next chapter analyzes the use of tradable pollution permits in an American and global context.


6

Designing Permit Trading Gert Tinggaard Svendsen

Introduction Chapter 5 suggested how green taxation could be designed to overcome political opposition. However, it was difficult to find appropriate green tax designs for heterogeneous industries because they would cause politically controversial redistribution among firms or sectors. Potential losers following redistribution would have strong incentives to oppose any such tax scheme and consequently, as argued in Chapter 1, the environmental results would be undermined. Therefore, we will now show how permit trading can overcome political opposition. This solution can be effected utilizing the main feature of `grandfathering', where by the property right to emission rights is freely transferred on the basis of certain distribution rules (Tietenberg 1985). The permit trading model suggested here involves grandfathering and initial free distribution of historical emission rights. This is the distribution rule applied in practice so far in the United States and in the Kyoto Protocol. The principle of grandfathering can be exemplified in the following way. If a firm emitted 100 tons of CO2 in 1990 and is `grandfathered' at its 1990 level, then this firm will receive 100 permits where each permit entitles it to emit one ton of CO2 per year. If its CO2 emission is cut by 5 per cent in the year 2000 by regulators, then the firm's permit holding will be devalued to 95 permits for year 2000. In this way, the use of grandfathering corresponds to the use of standards (command-and-control). Grandfathering maintains the status quo. The only difference between standards and permit trading 137


is the shift in property rights from public authorities to the polluter. Under permit trading, permits are now transferable in contrast to standards where permits are non-transferable. This distribution rule of grandfathering has for example been used in the American Àcid Rain Program' and also forms the basis of the Kyoto Protocol. Therefore, the known experiences from the Acid Rain Program may guide the design of international permit trading following the Kyoto Protocol. As noted by others, the Acid Rain Program is the first large-scale and long-term environmental programme to rely on permit trading to combat pollution and this landmark experiment comes at a particularly important time `since emission trading is under serious consideration, with strong US backing' for dealing with global climate change and `the economic stakes in climate change surpass those in acid rain by several orders of magnitude'.1 Hence, the United States has strongly advocated the idea of global CO2 trade because it has had positive national experiences with buying and selling environmental permits. Thus, the fact that permit trading works makes it worthwhile to consider its use in relation to the widely discussed Kyoto Protocol. The political economy of the Kyoto Protocol, which deals with global climate change and the influence of industry and environmental groups, has not yet been analyzed (Boom and Svendsen 2000a). Our main contribution is, therefore, to put forward suggestions as to the future design of international permit trade following the Kyoto Protocol. When looking at the potential design of international CO2 trade following the Kyoto Protocol, the first issue is to find out what trade level is politically feasible?2 Overall, two main alternatives can be considered.3 The first alternative is trade between governments (governmental trade). Permit trade would then be a transfer of emission permits between states. The second alternative is trade between individual firms (firm trade). In economic terms, there is no doubt that firm trade is the most efficient solution as it entails a much larger market with more agents than governmental trade (Boom and Svendsen 2000a). However, as argued in this book, political attractiveness is the decisive factor in final policy choice, not economic efficiency. So, if governmental trade is preferable for political reasons, this choice would not be the optimal economic solution but it would be the best economic solution given its political feasibility.

Designing Permit Trading 139

This chapter is structured in six parts. First, we start by explaining why permit trading leads to a politically more attractive cost distribution than green taxation. Also, it explains why both seller and buyer gain from permit trading. Second, public choice theory suggests how permit trading design can be made consistent with the preferences of the dominant interest groups, that is industrial and environmental organizations. Crucial in this respect is the ability of interest groups to organize at both the national and the international level when attempting to influence political decisionmakers. Third, we present the design dimensions that ensured wellfunctioning permit trading in the Acid Rain Program. Fourth, on the basis of these findings, we analyze the Kyoto Protocol. Fifth, we recommend how a future global CO2 market should be designed when taking the overall political context of the Kyoto Protocol into account. Finally, policy recommendations and the results are summarized.

Why permit trading? Let us first compare the theoretical case of grandfathering and green taxation to highlight the different consequences of cost distribution to polluters. As argued in Chapter 5 it is difficult to refund tax revenues in a politically acceptable way without bringing about redistribution and political opposition. Therefore, we do not consider taxation with refund here. We only focus on the cost relationship between green taxation without refund and a grandfathered permit market in relation to a producer community. Thereafter, we turn to explain how gains from trade make it economically rational for producers to trade. Grandfathering The importance of grandfathering to cost distribution is astonishing and can be shown graphically in the following way. Assume that CO2 emissions are cut by Q* for a given industry and that the marginal reduction costs (MC) increase linearly as the reduction of CO2 emissions (Q) rises, see Figure 6.1. The correct CO2 tax to accomplish the Q* target reduction level is the price P*. What are the aggregated costs under a tax and a grandfathered permit market, respectively?


$/unit

MC

P* A O

B Q*

1

Emission Reduction

Figure 6.1: Cost distribution Source: the authors.

In Figure 6.1, total costs under a CO2 tax will be the areas A and B which can be understood in the following way. Polluters will reduce Q* of their emissions at the cost of area A. After that, it is cheaper to pay the tax for each of the units they continue to emit than it is to continue reducing emissions. Therefore, the total tax bill amounts to area B. When the polluter must pay for all emitted units under a tax scheme, taxation without refund implies enormous increases in costs to polluters. From the viewpoint of society, this transfer payment has no importance as it only redistributes from firms to the general public. Nevertheless, it is an operating cost for the firm which significantly lowers the political acceptability of the tax (see Chapter 5; Daugbjerg 1998b and Svendsen 1998a). In contrast, the explicit costs to the polluter in a permit market will be A only, because at the corresponding permit price P*, the polluter receives the right to emit 1±Q* without cost (according to the principle of grandfathering). Emissions are no longer taxed and, therefore, the polluter saves area B from grandfathering compared to green taxation. Let us look at this cost comparison in more detail. The cost relationship between green taxation and grandfathering is found by dividing the area AB with that of A. These two areas can easily be calculated by using P* and Q* (as shown in Figure 6.1).4 This gives us:


A B=A 2=Q* � 1 The formula shows the distributional effect when comparing the private costs to polluters of achieving the target level, Q*, under a tax scheme with that of a grandfathered permit market. The differences in distributional effects following different target levels may be exemplified. In Denmark, for instance, the target level of a 20 per cent cut in CO2 emissions applies (from 1988 to 2005). For Q* 0:2, we get the result that taxation is nine times more costly to polluters than the grandfathered permit market! The reduction target level from the Kyoto Protocol is also an illustrative example. Here, the industrialized countries voluntarily agreed on reducing CO2 by 5 per cent from 1990 to 2012. In this case, for Q* 0:05, it can be calculated that taxation without refund would be 39 times more costly to polluters than the permit market! In the case of the CO2 target level in the European Union, the negotiated 8 per cent target level from the Kyoto negotiations can also be used as an example. When Q* 0:08, the permit market is 24 times cheaper to polluters than a corresponding tax without refund. Another example is the American Acid Rain Program, which aims to reduce SO2 emissions by 50 per cent. In this case, for Q* 0:5, taxation would be three times more costly to the polluters, provided that the MC curve is linear. Gains from permit trading Potential trade in CO2 permits between the United States and Russia is an illustrative example of the basic idea of a world-wide market for greenhouse gases. A similar case would be that of the European Union and Central and Eastern Europe. Now, in the case of Russia and the United States, trade will take place because it is cheaper to reduce CO2 emissions in Russia than it is in the United States. The potential gains from trade compared to the situation without trade can be illustrated.5 Assume that the permit price in a world-wide CO2 market is P*, as shown in Figure 6.2. The ownership of one permit gives the right to emit 1 ton CO2 . In this global market, permits will be transferred among countries. Countries will reduce or increase their individual CO2 emissions until all individual marginal reduction costs are equal to the permit price.


$/unit MCu

b

Pu

P*

a

d

MCr

c

Emission Reduction O

Q*

Qr

Qu

Figure 6.2: Permit trading between the United States and Russia Source: the authors.

The individual reduction costs that follow any reduction will vary over different countries as it did for the two different firms in Figure 5.1. So again, to state the argument as simply as possible, let us take the example of two individual countries, where marginal reduction costs differ significantly, namely, that of Russia and the United States. Russia's production facilities are out of date and cause much pollution due to lack of investment and environmental control. Furthermore, excessive use of fossil fuels was strongly encouraged during the communist period. The national prices in Russia were about 4 per cent of the price of fossil fuels on the world market and the Russian economy used nine times more energy to produce a unit of GDP than the average in OECD Europe.6 Because fuels were very cheap there was no incentive to economize or to develop new and more energy efficient technology. In contrast to Russia, the United States already has relatively modern and effective production facilities. If the Americans are to make further reductions they have no option other than to start investing in relatively expensive alternatives such as wind and solar energy. On


the other hand, it will be much cheaper for the Russians to cut down their CO2 emissions, once competition and world market prices are introduced. Previously a state owned company in Russia could just make use of the energy resources without any regard to the consequences for the company's management and employees. Now, in competition with other companies it suddenly pays to minimize production costs and cut back on the use of the much more expensive energy. Therefore, it is fairly easy to make the use of fossil fuels in Russia more effective and, consequently, it is much cheaper to reduce the emission of CO2 in Russia than it is in the United States. If, furthermore, the Russians have the option of selling surplus CO2 permits to the Americans then the incentive to save energy will be even stronger. It will then be worthwhile for the Russians to reduce their CO2 emission in excess of their obligation. Therefore, Russia has low marginal reduction costs, MCr whereas the United States has high marginal reduction costs, MCu. Following the Kyoto agreement, Russia is not obligated to undertake any reductions whereas the United States is obligated to undertake a 7 per cent reduction, here called Qu (see Table 6.2 concerning these target levels). If we assume that the two marginal reduction cost curves increase linearly, then both the United States and Russia can save costs by permit trade compared to the non-trade situation. Figure 6.2 above shows why. To simplify matters, say that Q* corresponds to one permit (reduction unit), Q r to two permits and Q u to three permits. Because Russia can reduce Q r at a cost per unit that falls below the market price, p*, it will do so at the cost of area OdQ r . By reducing and selling these two permits, Russia's net gain corresponds to OP*d. Now assume that the United States is reducing Q* in 1990. However, the United States is obligated to reduce two extra units at Q u . The United States will choose to buy these two permits from Russia. Why? Because it is cheaper to buy two permits from Russia at price P* than to reduce domestic emissions. The costs of buying permits corresponds to the area Q acQ u . If the United States was prevented from buying these permits in a situation without trade, its costs would amount to area Q abQ u . This means a net gain of area abc to the United States. In this way, both countries will gain economically from trading CO2 permits compared to a situation where trade is not allowed.


Interest groups Special reward and hot air As suggested in Chapter 2, a small group with few members can more easily mobilize for group action than large groups. The net benefit to any member in a large group (individual costs minus individual benefits) who chooses to provide a collective good on his or her own is clearly negative. For example, it typically does not pay for the individual taxpayer to protest and lobby against taxation thereby providing the collective good of lower taxation for all taxpayers. The individual costs from doing that effectively would clearly supersede the individual benefits. Therefore, without organization, the collective good will not be provided. In contrast, a small group may mobilize because some of the members' net gain from providing the collective good is positive. Accordingly, when it pays a single actor to undertake group action on its own, an amount of the collective good may be provided even in the absence of organization.7 So, the larger the group is, the less likely it is that the group will pursue its common interests. Only coercion or a `selective incentive' will stimulate a rational individual in a large (latent) group to act in a group-oriented way. `Just as governments need compulsory taxation to finance public goods, non-governmental organizations need special arrangements or ``selective incentives'' to support themselves' (Olson 1992, ix). Group action can be encouraged `through an incentive that operates, not indiscriminately, like the collective good, upon the group as a whole, but rather selectively toward the individuals in the group'. The incentive must be `selective' so that those who do not join the organization working for the group's interest, or in other ways contribute to the attainment of the group's interest, can be treated differently from those who do' (Olson 1965, 51). A selective incentive can be either negative or positive. A negative incentive is a loss or punishment imposed on those who do not help provide the collective good. For example, tax payments are collected with the help of penalties for non-payment. A positive selective incentive is a special reward to an individual agent. In the case of global permit trading, it is possible to give extra permits to reluctant countries. The expression `hot air' means, for example, that Russia's actual emission level is lower than the number of grandfathered permits. The surplus ± which can be sold without any reduction


efforts ± is an extra special reward to Russia for taking part in collective action. Industry The objective of industry is to maximize profits. Therefore, industry is concerned with competitiveness and the minimization of environmental expenses. Above, we saw how grandfathering and free initial distribution of permits were economically attractive to existing firms when meeting their reduction target levels. Furthermore, grandfathering creates a barrier to entry for new firms which have to buy their way into the market (Tietenberg 1985). So, the winners are all existing firms (which get their permits at no cost) whereas the losers are future firms (which have to buy their permits from existing firms). As the future losers are not represented in the political arena, lobbies representing existing firms will dominate the political decisionmaking process in their favour and ask for grandfathering.8 Industry has, over time, succeeded in organizing at the national level for two reasons. First, to influence government and achieve favours. Second, to negotiate with labour unions. This is not the case at the international level. There are no world governments to influence and no world-wide labour unions to negotiate with. Furthermore, the number of firms at the international level is much larger than at each national level, making it harder to organize for collective action. Therefore, industry is likely to be well organized at the national level but not at the international level (Boom and Svendsen 2000a).9 However, we expect that large energy-intensive firms may be so much affected by future CO2 regulation that it pays for them to act on their own (as individual entrepreneurs). They expect to get a net gain from doing so in spite of the fact that the good they provide is a collective one, that is, it benefits all firms emitting CO2 . Environmental groups Industry is counterbalanced by environmental groups. Environmental groups can also mobilize consumers (voters) and, therefore, they are important actors too. A rational main purpose for any environmental organization is that of maximizing membership. Svendsen (1999a) argues that this is done by presenting results to their members. Because membership dues are wholly voluntary, membership loss would be significant if no environmental improvements were


achieved. The necessary environmental results are maximized by using permit trading because this is the most attractive solution for industry. Therefore, it is possible for environmental organizations to negotiate with industry and achieve larger reduction target levels than would have been the case when using standards or green taxation. We hypothesize that environmental groups are well organized at both national and international level. They organize people who are concerned about the same collective goal, namely, improving environmental quality. This concern applies at both national level (for example acid rain) and the international level (for example global warming). However, at the national level, environmental groups are organized less strongly than industry because their members form a very large group where individual incentives to act are low. Therefore, we suggest that environmental groups are relatively well organized at the international level but not at the national level compared to industry. Hypotheses In conclusion, we expect that both industry and environmental groups will use their influence nationally and lobby for permit trading, with industry groups as the stronger of the two. Internationally, environmental groups will dominate, because only energy-intensive sectors from industry will be represented, not industry as a whole.

The American Acid Rain Program The experience with permit trading systems is already broad and growing in the United States. Although earlier permit trading systems had flaws, we now show why the Acid Rain Program has performed well.10 We do this by describing its design on three dimensions (market activity, monitoring and auction) after which we turn to the actual behaviour of industry and environmental groups. Market activity The Acid Rain Program comprises the thousand largest power plants in the United States. These power plants are owned by 200 companies, so there are actually 200 agents in the market. This market structure is appropriate as the number of participants is high. Furthermore, these 200 agents have significant differences in mar-


ginal sulphur dioxide SO2 reduction costs, thus encouraging them to trade (Svendsen 1998a). In this permit market the emission of SO2 is reduced by 50 per cent over the ten-year period 1990±2000. Like CO2 , SO2 causes acid rain and it is emitted through the burning of fossil fuels. The reduction is being achieved by reducing the value of the power plants' permits in the year 2000, so that the desired target level can be accomplished (Svendsen 1998b). Trading is lively and it is easy to call a broker to buy extra permits, exactly in the way of trading shares and other investments. By the end of 1999, over 9300 transfers moving 81.5 million permits were reported to the American Environmental Protection Agency. Sixty-two per cent of these permits (50.4 million) were transferred within organizations (internal trade) and the remaining 31 million permits (38 per cent) were transferred between organizations (external trade) (EPA 2000a). This market activity has succeeded in generating continuous pricing of SO2 permits; Table 6.1 displays the supporting data for the SO2 permit price chart. Table 6.1: Permit prices (in US $) Month/Year

Emissions Exchange

Cantor Fitzgerald EBS

Fieldston Publications

150 141 133 92 70 97 115 96 104 Ð Ð Ð Ð

145 138 133 95 69 97 110 98 113 208 210 138 136

150 137 133 98 83 96 111 98 105 206 217 136 136

8/94 1/95 3/95 1/96 3/96 1/97 3/97 1/98 3/98 1/99 3/99 1/00 3/00 Source: EPA (2000b).

Notes: Three private organizations have independently kept track of prices on a monthly

basis from mid-1994: Emissions Exchange, Cantor Fitzgerald and Fieldston.

Prices are rounded to the nearest whole dollar.


Interestingly, the latest market price from March 2000 ($136) is less than one-fifth the market price of $750 that the American Environmental Protection Agency projected in 1991 (EPA 1991). The costs of participating in the programme are thus much lower than expected. So, the permit trading market works in practice. This was partly explained by market structure. However, besides having an appropriate market structure, two other main reasons for the successful market performance can be identified, namely, the monitoring system and the auction system. Monitoring The monitoring of the power plants' actual emissions is effective. All companies participating in the market must install an advanced measuring device in plant chimneys. The measuring device continually measures the emission of SO2 and is directly connected to the computers of the American Environmental Protection Agency in Washington DC. Because the emission of SO2 can be monitored continually in this way it is not possible to cheat, in the system, for example, by selling permits and earning money without making the corresponding reductions. If a power plant exceeds its permit it is fined $2000 per ton of SO2 . The size of the fine has a deterrent effect, as it is presently about 15 times higher than the current market price of $136. If the fine had been less than the market price it would pay to cheat, because the difference between the market price and the fine would be profit. Consequently, a power plant will always buy an extra permit through a broker rather than paying the much higher fine. So far, no power plant has exceeded its permits and been fined (Svendsen 1998a). The well functioning control system enforced by a single authority is the first main reason why the Acid Rain Program has been a success (Svendsen 1999a). Similarly, it is vital to establish a control system that works in relation to an international CO2 market. Auction The second main reason for extensive trade activity is the interesting feature of an annual SO2 auction. The auction design is most relevant to global permit trading as a potential way of generating market price signals. When the market receives price signals from such an auction, transaction costs are lowered as sellers and buyers do not


have to negotiate on price. The capability to `kick start' an immature, or thin, market with few participants may be necessary when starting global CO2 trade and, therefore, it is worthwhile considering this unique American experience in more detail. The evidence suggests that the auction strategy was needed in the initial phase of the Acid Rain Program. In the early market, buyers could not buy at the spot auction clearing price, which was $131 in 1993 and $150 in 1994. Information on market prices in 1993 and early 1994 is scarce, but all reported prices were above this level. The first price reported by the Emission Exchange Corporation in mid1993 was $170, and their price remained at this level until May 1994. The trade press also reported data on a few other private (bilateral) transactions in 1993, where prices spanned from $178 to $205 (see Joskow et al. 1998). Empirical evidence suggests the emergence of an efficient permit trading market, obeying the law of one price, around the middle of 1994 (see Schmalensee et al. 1998). No single authorized registration of market prices for SO2 permits takes place. Figure 6.3 illustrates the relationship between the reported market prices in the annual auction month (March) and minimum prices at the auction. The applied market price in March 1993 and March 1994 is the $170 reported by the Emission Exchange. This is probably a rough estimate, since information was scarce. The data from 1995±98 reported all three prices from Cantor Fitzgerald, Emission Exchange and Fieldston, respectively. With respect to the data from 1999 the latest published market prices were used, namely, the February prices reported both by Cantor Fitzgerald and Fieldston (see Table 6.1) (Christensen and Svendsen 1999). Figure 6.3 shows that in the auctions of 1995, 1996, 1997, 1998 and 1999 there was practically no difference between market and auction spot minimum prices. However, two qualitative remarks should be made. First, in March 1996, Fieldston did report a significantly higher market price than the other two firms. This was at a time when the permit price had reached a historically low level, so in absolute terms the difference is not that large. Fieldston reported $83 whereas both Cantor Fitzgerald and the Emission Exchange reported $69 and $70 respectively. Second, in March 1998, the inverse relationship emerged: the spot auction-clearing price was above the market price (ibid). From mid-1994 the traded volume on the market escalated, see


30

20

10

0

−10

1993 1994 1995 1996 1997 1998 1999

Figure 6.3: How much market prices exceeded minimum prices at the auc tion (per cent)

Source: EPA (1999).

for example Joskow et al. (1998, 677), so that by March 1995 the auction price was more or less determined by the outside market price and could no longer be interpreted as a price signal. In a way similar to the annual SO2 auction, an annual CO2 auction could be applied by policymakers when establishing future CO2 markets, such as that of the Kyoto agreement. This is important because a price signal lowers transaction costs in the market (buyers and sellers do not need to negotiate at length on permit price). Moreover, if there is a risk that the market might break down in the future or that trade activity would be extremely low, running the auction is justified. This could easily be the case if permit trading is to take place at country level. Then only a few participants would trade irregularly and it is most likely that no single market price would be generated in such a `thin' market. Industry and environmental groups In the United States, both industry and environmental organizations have actively promoted permit trading and the Acid Rain Program (Svendsen 1998a). All dominant American industrial groups and environmental groups were interviewed and they all asked for grandfathered permit trading in the event of regulation (ibid).


Why did only American industry prefer permit trading and not, for example, European industry? American industry, presumably, knew the system well since the first programmes started back in the mid1970s. Industry learned that free initial distribution of permits meant an extra barrier to entry for new firms (ibid). American environmental groups backed industry in its efforts to get permit trading. Earlier on, environmental groups opposed such `licenses to pollute' and stuck to the maintenance of a zero goal for pollution rather than accepting a certain level of emissions. Again, over time, environmental groups may have learned that co-operating with industry leads to higher reduction target levels, that is the cheaper regulation is for industry, the greater readiness of industry to accept increased reductions in emissions (ibid). Subsequently, the environmental results are visible to members of environmental groups because reduction schemes are predefined and therefore they may attract more voluntarily paying members.

The Kyoto Protocol On 11 December 1997, 149 countries signed a world-wide United Nations (UN) climate agreement in Kyoto, Japan. For the first time, this agreement allows countries to trade greenhouse gases, that is, buying and selling environmental permits. Trade of, for example, CO2 emission permits can take place between the 38 countries which have committed themselves to an emission ceiling (known as the Ànnex B countries'). According to Table 6.2, the Kyoto agreement stipulates that the European Union as a whole must reduce its emissions of greenhouse gases by 8 per cent (whereas the individual European Union member states have negotiated different target levels between each other as shown). The United States must reduce its emissions by 7 per cent and Japan by 6 per cent (from 1990 to 2012). The Annex B countries (or industrialized countries) must, as a whole, reduce their emissions of greenhouse gases by 5.2 per cent and they are allowed to buy permits from other countries. By doing so they do not have to reduce emissions themselves. In principle the United States can increase its emission of greenhouse gases if it buys enough permits. The Americans are contemplating buying CO2 permits from another large-scale emitter of greenhouse gases, namely


Table 6.2: Reduction commitment for Annex B countries (percentage of base year, 1990) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Australia Austria* Belgium* Bulgaria Canada Croatia Czech Republic Denmark* Estonia Finland* France* Germany* Greece* Hungary Iceland Ireland* Italy* Japan Latvia Liechtenstein

108 87 92.5 92 94 95 92 79 92 100 100 79 92 94 110 113 93.5 94 92 92

21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38

Lithuania Luxembourg* Monaco Netherlands* New Zealand Norway Poland Portugal* Romania Russian Federation Slovakia Slovenia Spain* Sweden* Switzerland Ukraine United Kingdom* United States European Union Annex B countries

92 72 92 94 100 101 94 127 92 100 92 92 115 104 92 100 87.5 93 92 94.8

* Members of the European Union Sources: EU (1999) and United Nations (2000).

Russia, which is obligated to 0 per cent reduction, that is stabilization of the 1990 emission level. However, the Kyoto Protocol does not specify what permit trade means. The intention was to clarify these matters during the 1999 conference in Buenos Aires. Nothing was decided at this conference, leaving open the question of how permit trade is supposed to take place. First and foremost this means that the question of trade level is left open. We discuss this choice of trade level in relation to industry and environmental groups also taking bureaucratic and governmental preferences into account. Then, based on the trade level choice, we come up with a policy recommendation concerning the future design of a global CO2 market. Here, we use the same three main dimensions as we used above when describing the Acid Rain Program, namely, market activity, monitoring and auction.


Trade level and interest groups Concerning the level of trade, several studies on this subject have appeared since the Kyoto Protocol discussing how such trade is to take place. Bohm (1999) only discusses a government trading system and is mainly concerned with the condition under which such a system will be efficient. Hahn and Stavins (1999) only discuss private trading. They analyze which domestic environmental policy instruments are compatible with different forms of international emissions trading. They conclude that firm trading only is an option when the trading firms are regulated through a tradable permit system nationally. Zhang and Nentjes (1999) arrive at the same conclusion. They also design a set-up for an efficient international private trading system. Finally, Boom and Nentjes (1999) analyze permit trade both between governments and between private entities. Although they take some political constraints into account, their analysis is mainly focused on the economic efficiency of both systems (Boom and Svendsen 2000a). As such, the influence of environmental and industry lobbies on the choice of trade level has not yet been analyzed. That is what we will do next. Decisive for the choice of trade level is the degree of rent-seeking undertaken at national and international level. Above, we hypothesized that environmental organizations, in comparison with industry, were well-organized world-wide and therefore would be present at the Kyoto negotiations. On the other hand industry would be weak at the international level and would only be represented by individual energy-intensive sectors. Most rent-seeking takes place ìn the dark' and it is hard to find a method that detects actual lobbying efforts. However, Boom and Svendsen (2000b) have found a method that may give some insight. At the Kyoto conference, all nongovernmental organizations (NGOs) were registered and a list of all members is given by the UNFCCC (1997). Therefore, it is possible simply to count the number of observers from these NGOs as a proxy of lobbying efforts. Table 6.3 presents the number of observers from NGOs located outside the organizing country. Note that members of Japanese organizations are not included (as they are at the national level). The classification of observers is split up into six categories as shown in Table 6.3. The first three main categories are Ìndustry',


Table 6.3: Number of observers present at Kyoto meeting Kyoto 1. Industry: ± energy-intensive ± neutral/unknown 2. Environmental groups 3. Labour unions ± energy-intensive ± neutral/unknown 4. Neutral 5. Other energy 6. Unknown Total

370 130 240 629 15 5 10 493 79 9 1589

Sources: UNFCCC (1997), Boom and Svendsen (2000b) and the metasearch website www.dogpile.com The Appendix shows the complete listings. We are grateful to Anders Branth Pedersen for assisting us in collecting these data.

Ènvironmental Groups' and `Labour Unions'. Both Industry and Labour Unions have been subdivided into ènergy-intensive' and `neutral/unknown'. The last three main categories are `Neutral', Òther Energy' and Ùnknown'. `Neutral' includes observers from organizations that cannot be seen as interest groups, mainly research institutes. Òther Energy' covers observers from suppliers of nonfossil fuels. Finally, Ùnknown' contains the observers that could not be identified as belonging to one of the mentioned groups. For most organizations it was clear where they belonged. The remaining organizations were looked up on the internet. Most organizations had websites enabling us to classify them. Our complete listings can be found in the Appendix. Overall, the evidence in Table 6.3 confirms our hypotheses. Environmental groups had roughly twice as many observers as industry. Roughly one-third of industry belongs to energy-intensive sectors whereas no labour-intensive sectors were present. Labour unions, wanting to maximize income for members and minimize risk of unemployment, were weakly represented and, like industry, onethird of this group was from energy-intensive sectors. What does this interest group constellation mean to the choice of trade level?


It means that industry will most certainly lobby at national level. Because industry is well organized at the national level, firms can share costs through their organization and thereby provide collective goods without the problem of free-riding. Therefore, industry knows that they can block political decisions if the national government tries to impose costly regulations. It is highly unlikely that different industries will accept a distribution rule that favours some industries and not others. They will argue that such a distribution distorts competition among sectors and that the country will lose jobs. In the case of private trading, industry can only influence the distribution of national commitment and will, of course, try to lobby for generous distributions. In the case of government trading, national industries know that trade between countries may serve their interests better because they may get subsidized by free or cheap emission permits. For example, American industry does not have to reduce emissions ± the entire reduction can be bought (by taxpayer's money) in Russia. This suggestion corresponds to the familiar redistribution from non-organized (consumers) to organized groups (industry) as described in Chapter 2. One may, alternatively, argue that permits could be auctioned off to industry. However, it is probably not politically feasible to compensate taxpayers by auctioning off permits at the national level. Such a solution would change cost distribution in disfavour of industry and correspond to green taxation. In fact, the permit price expresses the capitalized value of annual green taxation (Svendsen 1998a). We hypothesized that environmental organizations will prefer permit trading both at national and international level so as to minimize pollution. Whether they will prefer governmental or private trading may depend on the issue of `hot air'. Hot air arises when the granted quota of permits is higher than actual emission. `Hot air' means, for example, that Russia's actual emission level is lower than the number of grandfathered permits. Total emissions of greenhouse gases in Russia dropped by 25 per cent from 1990 to 1995 (from 3000 million tonnes to 2250 million tonnes of CO2 equivalent) (UNEP 2000). This means that Russia in 1995 could sell this extra 25 per cent (corresponding to 750 million permits) without having to undertake any reduction efforts. As environmental groups want to realize as low a pollution level as possible, they want to ban the purchase of hot air. At what trade level


is it easiest to put restrictions on trading hot air? Because environmental groups, compared to industry, probably are better organized at international level, they may use their influence there and opt for restricted governmental trade. It is easier to do it internationally than nationally, where they confront well organized industrial opponents asking for cheap reductions and hot air. In summary, we suggest that both industry and environmental groups will ask for governmental trade. Industry wants to include hot air whereas environmental groups want to ban the use of hot air to maximize the level of real emission reductions. Bureaucratic preferences What trade level would serve bureaucratic interests the most? Environmental bureaucracies differ from interest groups in two respects. First, they do not need organization to promote their interests. They will, because of their function, be involved in designing both national and international policies. Hence, they can promote their interests at all levels. Second, it is harder to determine the influence of environmental bureaucracies as they do not rent-seek openly as interest groups normally tend to do (Boom and Svendsen 2000a). The ultimate goal of rent-seeking for environmental bureaucracies is the maximization of their budgets. They can grow stronger by creating more jobs and resources for themselves. This pursuit of bureaucratic goals rather than those of the general public is possibly due to monopoly power, (Mueller 1989). This is the reason why government budgets have increased drastically and are hard to cut (Niskanen 1994). Thus, it is not possible to trace bureaucratic influence on decisionmaking but it is possible to hypothesize based on bureaucratic incentives to maximize budgets. Note that it is not the single employee in an environmental bureaucracy that causes rent-seeking. Because the issue is one of institutions, ìnterests' here are viewed as being promoted in an anonymous way such as negotiations among politicians and representatives for bureaucracies. In this way, the incentive to maximize environmental budgets derives from impersonal negotiations at the institutional level (Svendsen 1998a). So, given that permit trading is the policy instrument chosen by the international society and given that environmental bureaucracies are budget max-


imizing, what trade level would environmental bureaucracies then prefer? Concerning permit trading among firms, the only additional work for the environmental bureaucracy is the monitoring and enforcement of the trades that occur. With government trade, every single trade has to be prepared. Information has to be found on both domestic and foreign emission reduction costs and negotiations on conditions and price have to be conducted with the possible trading partner. In contrast to permit trading among numerous firms, governmental trade will never turn into a fully working market. For example, planning and approving large-scale projects, such as the growing of forests in one country, require substantial bureaucratic measures. After a deal is closed, the change in emission ceiling has to be distributed among the domestic polluters. Furthermore, the trading has to be monitored and enforced, just as with firm trading. Therefore, it is clear that government trading is more administratively demanding than permit trading among firms (Boom and Svendsen 2000a). Whether hot air is involved or not probably makes no difference to the use of bureaucratic resources. In both cases, changes in emissions have to be monitored and enforced irrespective of whether reductions are undertaken through the use of newer, alternative, methods of energy production (as the use of renewable energy in Denmark) or if CO2 reductions are just an unintended consequence of economic stagnation and lower production (as the closing down of state-run enterprises in Russia). In conclusion, we suggest that the preference of an environmental bureaucracy also supports government trading with or without hot air included simply because it gives more work to their organization. Governmental preferences Whether it is possible to restrict the use of hot air is very doubtful because it is the very special reward (selective incentive) that has facilitated group action (as discussed above). When providing collective goods at international level, the problem of free-riding arises. The small agents can rationally èxploit' the large by consuming the collective good without paying for it. Once a smaller fraction (in a small group) has obtained the amount of the collective good it gets free from the largest member, it already has more than it would have


purchased for itself and, therefore, has no incentive to obtain any more of the collective good at its own expense. Smaller economies are, therefore, in a favourable bargaining position because large economies will, on their own, be willing to provide much more of the collective good than the small ones. So the small economies can wait for the larger entrepreneurs to act and can wait to see what is offered to them (that is a positive selective incentive) such as `hot air', in return for participation (Olson and Zeckhauser 1967). Hence, in the case of global permit trading, it is possible to give extra permits to reluctant countries. The large countries clearly dominated the negotiations in Kyoto. The three main players were the United States, the European Union and Japan. They met alone in a closed meeting and designed the final draft while other countries had to wait outside the meeting room (Nettavisen www.nettavisen.no 1999). Because of the size of their economies, these countries acted as entrepreneurs having an economic net gain from mobilizing group action on their own. Hence, it is clear that a small group of three countries acted as leaders, while the other countries were followers. In these negotiations the United States was especially effective in ensuring itself benefits within the treaty. The American influence is clear in that permit trading was allowed, and Russia and the Ukraine were allowed to stabilize emissions at their 1990 level. This would provide the United States with cheap emission permits to buy and Russia and the Ukraine with an opportunity to receive additional foreign currency.11 Also other countries were rewarded by hot air distributions. For example, German reductions have, to a significant degree, been the result of economic restructuring in former East Germany since 1990, while British reductions have been an unintended outcome of privatization in Britain's energy sector (Ringius 1999, 23). If the use of hot air is to be restricted, it is likely that many countries will no longer participate because they lose their special rewards. Because countries such as Russia and the Ukraine have signed the Kyoto agreement in the belief that they would be able to sell their hot air, they will strongly oppose any infringement of their right to do so. Furthermore, the United States also has political reasons to oppose restrictions on the sale of hot air. First of all, because it signed the agreement with the expectation of buying


cheap permits in Russia and the Ukraine. Furthermore, since it acted as an entrepreneur by giving hot air to these countries, it has made a commitment to maintain the possibility of sale of hot air by these countries. This commitment by the United States is credible since the United States gains from hot air trading with these countries. It is, therefore, very unlikely that Russia, the Ukraine and the United States will agree to a total ban on trade in hot air (Boom and Svendsen 2000a). Thus, if the use of hot air is restricted, the agreement will no longer be a true commitment because some countries will no longer receive net gains from participation (Nannerup 2001). Note that the presence of hot air trading does not destroy the achievement of the defined target levels. The 38 countries that signed the climate agreement will be given a CO2 quota of permits corresponding to their emission in 1990. In this way, the number of CO2 permits in circulation is `frozen' and the CO2 emission cannot increase further. Then each individual country will face devaluations of its permit holdings corresponding to the target level for that country (as in Table 6.2). Devaluation will, at the latest, take place in year 2012 at which time the goal of the CO2 reduction must be achieved. If the United States wishes to maintain its CO2 emission at the 1990 level, the United States must buy permits from other countries corresponding to 7 per cent of the United States total emission. Countries like Russia, which will reduce and sell CO2 permits to the economically more developed industrialized countries, are rewarded financially in this way. Countries lagging behind will receive important subsidies to make new investments in order to revitalise outdated and run-down industries. In this way the devaluation of CO2 permits will ensure that the world as a whole achieves the stipulated reduction in CO2 emission by the year 2012 (Svendsen 1999b). Therefore, as a consequence of the predefined target levels, hot air distributions do not affect the desired total emissions reduction compared to 1990 levels but they can mean that countries do not have to undertake real reductions when actual emissions are already lower than 1990 levels. For example, Russia can sell their 25 per cent surplus of permits to the United States, thus relieving the latter of the responsibility to reduce domestic emissions. This situation has nothing to do with the functioning of the permit trading system but is solely political, being a consequence of the chosen year that defines


the initial permit holdings. If countries wanted another starting year to avoid significant hot air distributions, for example, 1996, then the target levels would have to be defined in relation to that year.

Policy recommendations We argued that both industry and environmental organizations would ask for governmental trade. The only difference was that industry wanted to include hot air (to get cheap permits) whereas environmental groups wanted to ban the use of hot air (to maximize the level of real emission reductions). Who will win this hot air battle? We suggest that producers will. The decision of whether or not to include hot air will be made at national government level and then taken forward for negotiation at international level, where these governments will be under the same pressure from producer groups as was the case when discussing CO2 taxation in Chapter 2. Therefore, the political economy of the Kyoto agreement suggests that trade will take place at governmental level including hot air. This recommendation also fits the preferences of budget-maximizing bureaucrats and the preferences of governments which already have committed themselves to allow permit trade including hot air. Let us then move on to look at the three specific design features of potential government trading, that is, potential market activity, monitoring and auction. The fact that countries have to reduce will encourage market activity. For example, the European Union could benefit economically from paying the East European countries to reduce their emission. Comparisons between, for example, Denmark and Poland have shown that it is four times cheaper to reduce CO2 emissions in Poland than it is in Denmark.12 A well-functioning CO2 permit trading system under the Kyoto Protocol may reduce the reduction costs for 38 Annex B countries by 40 per cent compared to the situation without trade (Holtsmark 1998, 3). This huge cost saving arises purely because CO2 reduction then takes place in the lowest cost countries. It makes no difference whether the reduction is made in Russia, Poland or any other country because CO2 causes the same global greenhouse effect regardless of the geographical location of the source.


Following a `hot air distribution', one may argue that extra permits in circulation will keep the price down and as such prevent a more rapid development of new technology. However, as argued above, this extra economic reward is exactly what is needed to encourage many countries such as Russia to participate. Less need for new technology may arise in the short run but in the long run it will be better to have many countries participating and becoming Annex B members. Otherwise one may expect `carbon leakage', that is the fact that firms can locate or produce outside the regulated area. For example, CO2 emissions can be exported from an Annex B country such as Denmark to a non-Annex B country such as China. Furthermore, the United States may be more reluctant to promote the system if Russia does not get èxtra permits' and withdraw from the system. Then the gains from trade will diminish. This individual economic reward for participating in collective action is also relevant in, for example, a European or Asian context. Again, reluctant member states or individual firms may be lured into a common agreement by receiving extra permits (Svendsen 1998a, c and d). What about trade between the 38 Annex B countries and countries outside the protocol? This issue has not been settled yet. However, article 12 of the Kyoto Protocol allows such initiatives regarding Certified Emission Reductions with non-Annex B countries, these falling within the framework of `CDM' (Clean Development Mechanism). Although such potential trades could bring about huge cost savings, they are most problematic because only the Annex B country has the obligation to reduce. Another possibility is to include projects that enhance carbon sinks, as described in article 6 of the Kyoto Protocol. Sinks are natural ecosystems such as forests that absorb and thereby neutralize carbon. As such, an Annex B country may buy permits from a non-Annex B country in this indirect way. Concerning monitoring, how can the international community ensure that any country actually reduces its CO2 emission by the number of permits it sells to others? What sanctions can be imposed so, for example, Russia sticks to the rules? First, it is necessary to establish an international authority. Second, this authority must enforce a sanctions system. As the authority managing such an international permit trading scheme among governments, we suggest the World Trade Organization (WTO). The WTO is based in Geneva and already covers the 38 Annex B countries, out of a total of more than


130 member countries, accounting for over 90 per cent of world trade (WTO 2000a). It has extensive experience in settling trade disputes and seems to possess the necessary sanctions to enforce global permit trade. A country's emission of CO2 can be calculated directly from its total use of fossil fuels. This is administratively much easier than having to get exact emission figures for each firm in the firm trading scheme. Therefore, it is relatively simple to find out, on the basis of production, export and import of fossil fuels, whether the CO2 emission from a particular country exceeds the amount of CO2 permits. On the other hand it is more problematic to impose sanctions on a country that tries to cheat. The WTO could impose various sanctions on countries that break the rules. Such sanctions could be trade sanctions, retention of loans, freezing of claims, exclusion from further participation in the market and heavy fines. In fact, the Uruguay Round from 1994 has made it easier to implement such sanctions. Now, it is impossible for a country which loses a case to block the adoption of a sanction. Under the previous GATT procedure, sanctions could only be adopted by consensus, meaning that a single objection could block it. Now, sanctions are automatically adopted unless there is a consensus to reject them so that any opposing country has to persuade all other countries (WTO 2000b). The total effect of the sanctions must be so significant that it by far exceeds the possible gains from cheating. It is feasible too to renew the permits within a short time period, for example five or ten years, and also to devaluate them if negotiations among the participating countries lead to tighter target levels. It will not pay to cheat if permits are renewed periodically and if cheating countries are excluded from the programme, that is, further profitable trade in the future. Finally, an annual auction may be linked to the market. As argued, buyers and sellers will get price signals in case the market is not working well. Such a `thin' market with low trade activity could easily be the case with 38 market agents (countries) trading. Therefore, to make sure that transaction costs are kept low, an annual auction should be implemented. Each year, the WTO could take, for example, 5 per cent of each country's permit holding and then sell it at the auction. Revenue from the auction could then be returned to each


country simply as the auction price times the number of permits corresponding to the 5 per cent. Finding a stock exchange willing to run this auction probably would be easy. In the United States, the Environmental Protection Agency had many applicants willing to run the auction without payment because of the publicity it entailed. The Environmental Protection Agency decided that the Chicago Board of Trade was the most suitable choice (Svendsen and Christensen 1999). Similarly, a world-wide auction for 38 countries must be expected to capture public attention and attract a large number of applicants.

Conclusions The overall policy recommendation is that international CO2 trade should start as governmental trade and allow trade of `hot air' as well. Although the economic analysis shows that firm trading is the optimal international emissions trading scheme, our political analysis showed no support for this instrument. In contrast, the choice of governmental trade is the best economic solution given the preferences of the two dominant interest groups, namely, industry and environmentalists, and also given the preferences of environmental bureaucrats and governments. We reached this conclusion in the following way. First, we showed why permit trading is politically more attractive to the organized polluters than a tax scheme where revenues were not refunded because, initially, emission permits were distributed at no cost (grandfathering). We derived a formula for the distributional effects of these two economic instruments. It showed that for target levels, such as the Danish case of a 20 per cent CO2 reduction or the European Union case of 8 per cent CO2 reduction, the tax solution (without refund) was nine and 24 times, respectively, more costly for polluters than the grandfathered permit market, provided that the MC curves are linear. For industrialists this makes the permit system a much more attractive environmental policy measure than green taxation. Finally, we discussed the significant gains from trade compared to the situation without trade. Using group size theory and discussing the necessity of hot air as a special reward (positive selective incentive) to individual group members, we derived hypotheses concerning the ability of interest groups


to organize at national and international level. We hypothesized that industry would be organized strongly at national level due to its rentseeking activities and the presence of unions. However, industry in general would be less present at the international level because different industries in different countries compete rather than cooperate. Only some energy intensive firms or sectors were expected to lose enough from potential CO2 regulation to engage in costly individual rent-seeking at the international level. It was hypothesized that environmental groups would be less strongly organized at the national level than industry because their members form a very large group. However, environmental groups were presumably better organized at the international level due to their world-wide environmental objectives encouraging co-operation rather than competition with their counterparts in other countries. Concerning instrument choice, we hypothesized that both industry and environmental groups would ask for grandfathered permit trade. Low reduction costs combined with an extra barrier to entry made this system most attractive to existing industry. Environmental groups would presumably support industry in its claims because grandfathered permit trading means lower CO2 reduction costs for industry. Therefore, industry may be willing to accept higher reduction target levels and the environmental organizations could then present these environmental results to their members in order to maintain and attract more voluntary financial support. In relation to the Kyoto Protocol and the choice of trade level, we hypothesized that industry in particular would prefer governmental trade. This system allowed governments to buy permits using taxpayers' money and then favour its own industry by redistributing these permits to it. In this way, redistribution could take place from non-organized to organized groups. For the same reason, it was probably not politically feasible to compensate taxpayers by auctioning off permits to industry at the national level. Such a solution would correspond to the capitalized value of corresponding green taxation and as such make permit trading just as politically unattractive to industry. One bone of contention to be expected between industry and environmental groups is the hot air issue. As industry wants to minimize the price on permits, it is advantageous to maximize the number of permits available in the market by allowing hot air trade. Thus,


industry would oppose any initiatives to reduce the `hot air stock' of available permits, for example, by using another starting year for initial distribution. In contrast, environmental groups would want to ban the use of hot air to increase the level of real emission reductions. After these theoretical considerations, we turned to empirical evidence concerning permit trade at national and international level. First, the successful experience on national SO2 trade was analyzed. The American Acid Rain Program was, as theory predicted, promoted by both industry and environmental groups. Its design has created a well functioning permit trading market backed by an appropriate market structure, monitoring system and an annual auction that provides annual price signals to the market. Then, we turned to potential international CO2 trade according to the Kyoto Protocol. To trace lobbying efforts in Kyoto, we simply counted the number of observers from the main interest groups. The result confirmed the theory, as we found twice as many environmentalists as industrialists. One-third of industry belonged to energy-intensive sectors. Now, who will win the political hot air battle? Here, we argued that industry would win. National industrial groups are able to force their own governments to promote hot air trade and favour them at the expense of consumers, just like they had forced their governments to differentiate CO2 taxes in their favour (as shown in Chapter 2). Moreover, we argued that bureaucratic and governmental preferences supported the choice of governmental trade too. The internal bureaucratic goals of budget maximization pointed to governmental trade because most bureaucratic resources were needed in this system. This is the case both with and without the inclusion of hot air. The explanation is that a trade arrangement between two countries requires much data collection and planning by bureaucrats. In contrast, firm trade between two individual firms is less attractive to bureaucrats; there is less to administrate as firms now make their own decisions. Firms plan for themselves and use their own information when undertaking trade. Governmental preferences also pointed to governmental trade and the inclusion of hot air. If the use of hot air was to be restricted, it was likely that many countries would no longer participate because they would lose their special rewards. For example, as we pointed out, the


United States, Russia and the Ukraine all signed the Kyoto Protocol in the belief that hot air trading was possible. It was the United States that rewarded the Ukraine and Russia with hot air during the negotiations. By doing that, the United States also created a loophole for acquiring cheap permits for itself. Hence, by facilitating trade in this way, the United States has already committed itself to maintaining the possibility of hot air trading. If hot air was to be excluded, the agreement would no longer be a credible commitment because countries would no longer gain from participation. Therefore, our overall policy recommendation was that the overall interest group constellation of the Kyoto Protocol should be in favour of trade at the governmental level and must include hot air. Whether a CO2 trade system at the international level will work depends on the existence of an international authority to monitor and enforce this world-wide market. We suggested that the World Trade Organization could effectively fulfil this role because it possesses the needed sanctions system. Furthermore, this authority could link an annual CO2 auction to the market. An auction is, based on the American experience, crucial in the initial phase of the market for establishing a market price. In particular, the suggested CO2 trade system at governmental level will make a quite `thin' market with only 38 agents (countries) involved. Therefore, like in the United States, for example, 2 per cent of the permits in circulation could be withdrawn and sold at an annual auction which can provide crucial price signals to the market. In conclusion, the proposed permit trading system is the best economic solution given that it is politically feasible. It is better to accept this modification than persisting in the use of green taxation or the optimal economic design of trade among firms. If not, three main advantages are lost. First, governmental CO2 trade secures the desired environmental result. It freezes the number of permits in circulation (puts an upper limit on CO2 emissions) and makes it possible to reduce their numbers so that the politically defined target levels will be achieved. If no such agreement existed, each country could increase its CO2 emissions without restrictions to save reduction costs and gain a competitive advantage compared to countries that persisted in undertaking CO2 reductions unilaterally. Therefore, the Kyoto agreement prevents free-riding from individual countries that deliberately increase CO2 emissions at the expense of countries that do not.


Second, governmental CO2 trade reduces the total costs of CO2 reduction. Without CO2 trade, countries will be returned to the starting point where each country has to reduce without being able to trade. This is a far more expensive solution because the reduction can no longer be made where the costs are lowest. While such reductions also must be made in the most expensive areas like the United States and the European Union. Third, governmental CO2 trade will encourage economic growth in transition economies. The European Union and East European countries, for example, will benefit economically from trade due to `hot air' distributions of permits and differences in marginal reduction costs. Because Eastern European countries are facing much softer target levels than Western Europe, they will receive important financial transfers from selling permits in order to make new investments in their run-down industries.


Appendix: Observers at Kyoto Meeting (see also Table 6.3) 1. INDUSTRY Energy-intensive American Portland Cement Alliance Australian Aluminium Alliance Australian Automobile Association Australian Coal Association Canadian Electricity Association Canadian Vehicle Manufacturers Association Competitive Enterprise Institute Edison Electric Institute Information Agency of the German Power Plants International Climate Change Partnership International Federation of Industrial Energy Consumers International Gas Union International Organization of Motor Vehicle Manufacturers International Petroleum Industry Environmental Conservation International Tropical Timber Organization International Union of Producers and Distributors of Electrical Energy Interstate Natural Gas Association of America National Mining Association OPEC The Climate Council Union of Industrial and Employers' Confederations of Europe World Coal Institute

370 130 2 4 1 5 4 1 5 25 1 29 4 4 3 10 1 7 2 5 8 6 2 1

Neutral/unknown Business Council of Australia European Insulation Manufacturers Association European Roundtable of Industrialists Federal Association of the German Industry Global Climate Coalition International Chamber of Commerce International Organization for Standardization The Business Roundtable The European Association for Promotion of Cogeneration World Business Council for Sustainable Development

240 1 1 2 6 63 115 1 2 30 19

2. ENVIRONMENTAL GROUPS A SEED Europe Alliance for Responsible Athmospheric Policy

629 23 8

169

170 Appendix: Observers at Kyoto Meeting

Alliance for Responsible Environmental Alternatives Association Francaise du Froid Atmosphere Action Network in East Asia Birdlife International Center for Clean Air Policy Center for International Environmental Law Citizens Coalition for Economic Justice Climate Action Network Climate Institute Earth Action Earth Council Environmental Defense Fund European Environmental Bureau FOE German NGO-Forum on Environment & Development Germanwatch Global Commons Institute Global Legislators Organisation for a Balanced Environment Green Earth Organization Green Fingers Society for Environment Protection Green Korea United Greenpeace International International Council for Local Environmental Initiatives International Institute for Energy Conservation International NGO Forum for Ozone Layer Protection and Against Global Warming International Society of Doctors for the Environment International Society on Optics within Life Sciences Natural Resource User Group Natural Resources Defense Council È ko-Institut O Ozone action Rainforest ReGeneration Institute Redefining Progress ReÂseau Action Climat France Sierra Club of Canada The David Suzuki Foundation The Nature Conservancy The Rockefeller Foundation Union of Concerned Scientists US Climate Action Network World Conservation Trust World Watch Institute Wuppertal Institute for Climate WWF

1 2 13 1 5 4 1 83 24 1 4 12 1 37 1 8 9 50 8 4 7 45 116 5 1 3 1 3 6 3 3 1 1 11 1 9 7 3 4 39 7 2 15 36

Appendix: Observers at Kyoto Meeting 171

3. LABOUR UNIONS Energy-intensive International Federation of Chemical, Energy, Mine and General Workers' Union Construction, Forestry, Mining and Energy Union United Mine Workers of America

15 5

Neutral/unknown American Federation of Labor Industrial Union Department International Confederation of Free Trade Unions Confederation Sindical de Comisiones Obreras

10 4 3 2 1

4. NEUTRAL African Centre for Technology Studies Agency for Cultural and Technical Co-operation Alliance internationale de Tourisme American Society of International Law Asian Development Bank Berne Declaration Caribbean Community Secretariat Center for international and European Environmental Research Center for International Climate and Environmental Research Center for Sustainable Development in the Americas Central American Commission on the Environment & Development Centre for Applied Studies in International Negotiations Church of the Brethren Columbia Earth Institute Commission for Environmental Cooperation Convention to Combat Desertification Economic and Social Commission for Asia and the Pacific Embassy of Peru Embassy of the Russian Federation Environmental and Natural Resources Law Centre European Bank for Reconstruction and Development European Business Council for a Sustainable Energy Future European Conference of Ministers of Transport European Science and Environment Forum Federal assembly of the Russian Federation Foundation for International Environmental Law and Development Franciscans International Free University Berlin German Advisory Council on Global Change Global Dynamics Institute Global Environment Facility Grip-QueÂbec

1 1 3

493 2 1 1 3 22 1 1 1 2 2 1 1 1 7 1 2 1 2 1 1 4 21 2 3 1 1 23 2 2 10 10 1

172 Appendix: Observers at Kyoto Meeting

Industrial Technology Research Institute Institut de recherche sur l'environnement Insurance Industry Initiative for the Environment Intergovernmental Oceanographic Commission International Academy of the Environment International Atomic Energy Agency International Council of Environmental Law International Council of Scientific Unions International Education Resource and Innovation Centre International Energy Agency International Maritime Organization International Network for Environmental Management International Union of Public Transport International Youth and Student Movement for UN Korea Institute of Science & Technology Europe Lancaster University Midwest Research Institute Ministry of Foreign Affairs National Association of Regulatory National Association of State Fire Marshals Netherlands Economic Institute OECD Pacific Rim Consortium Permanent Commission for the South Pacific Potsdam Institute for Climate Impact Research Ramsar Convention on the Wetlands Resources for the Future Russian Federal Forest Service Russian Federal Service for Hydrometeorology and Environmental Monitoring Scientists for Global responsibility Southern Research Institute South Pacific Regional Environment Programme Sovereignty International Stockholm Environment Institute Tata Energy Research Institute Thailand Environment Institute The Fridtjof Nansen Institute The Netherlands Energy Research Foundation The Royal Institute of International Affairs The Woods Hole Research Center UNDP Global Environment Facility UNEP Association for Japan UNEP International Environmental Technology Centre United Methodist Church UN

11 1 7 2 1 3 1 1 1 16 1 1 1 8 12 1 2 2 2 4 2 14 3 2 2 1 2 1 2 35 1 3 10 7 20 1 2 4 3 6 3 2 19 3 51

Appendix: Observers at Kyoto Meeting 173

UN University University of Kassel University of Oslo University of Utrecht Verification Technology Information Centre WMO/UNEP World Bank World Conference on religion and peace World Council of Churches World Food programme WHO World Energy Council World Meteorological Organization World Resources Institute WTO

6 2 1 1 3 7 8 13 14 2 3 6 4 11 1

5. OTHER ENERGY European Atomic Forum European Wind Energy Association International Solar Car Federation Nuclear Energy Institute Renewable Energy Systems Ltd. Solar Electric Light Fund Solar Net The Business Council for Sustainable Energy The Solar Century The Uranium Institute

73 14 4 3 11 1 1 2 27 3 7

6. UNKNOWN Association Tunisie MediterraneÂe Pour Le DeÂveloppement Durable Canadian Global Change Program Centre for Business and the Environment E & Co. Energy 21 Forests Absorbing Carbondioxide Emission Institute of Global Climate and Ecology International Institute of Refrigeration Nord-Sud-Forum

9 1 1 1 1 1 1 1 1 1


Notes

1

The politics and economics of green taxation

1. We return to more empirically-based evidence concerning CO2 taxation in Chapter 2. 2. The marginal reduction cost argument is illustrated graphically in Chapters 5 and 6.

2

Group mobilization and rent-seeking

1. This standard homo economicus assumption is discussed by Bisin and Verdier (2000), Hillman and Swank (2000) and Paldam and Svendsen (2000). 2. See for example Steiner and Svendsen (2000) concerning local and regional effects of pollution in Europe. 3. We are grateful to Lene Hjùllund for assisting us in this section. 4. The exchange rate for the euro is based on the average rate for March 1998. The ratio between country currency and the euro was the following: Denmark DKR 7.548; Finland FMK 6.010; The Netherlands HFL 2.232; Norway NKR 8.221 and Sweden SKR 8.639. 5. We are grateful to Anders Branth Pedersen for assisting us in this section. 6. Svendsen (1998a). If the CO2 tax amounts to between 1 and 2 per cent of the firm's refund basis, defined as the firm's total sales inclusive of exports minus total input costs, 50 per cent is refunded (on a refund basis of between 1 and 2 per cent). If the CO2 tax payment amounts to between 2 and 3 per cent of the refund basis, 75 per cent of the tax is refunded (on a refund basis of between 2 and 3 per cent). If the CO2 tax payment amounts to more than 3 per cent of the refund basis, 90 per cent is refunded (on a refund basis of more than 3 per cent). 7. A `heavy process' is defined as when total CO2 tax payment from a firm exceeds 3 per cent of its value- added and 1 per cent of its production value, see Clasen (1998). 8. This early initiative was derived from the `Brundtland Commission's report (named for the Norwegian Prime Minister, Ms Gro Harlem Brundtland, who was Chair of the Commission) on sustainable development and 48 countries' recommendations at the Toronto conference in 1988 suggesting 20 per cent CO2 reduction before the year 2005 (Tenfjord 1995:67±70). 9. A number of sectors were exempted, such as energy used as raw material in industrial production, the use of gas in refineries, air traffic, fishing and coastal fleets. Furthermore, the wood pulp, paper and fishmeal industries 175

176 Notes

received a 50 per cent reduction in fuel oil taxation. The oil industry was allowed to deduct the CO2 taxation derived from offshore gas and oil production. 10. The size of the tax was differentiated as follows: NKR 257/ton CO2 for natural gas offshore, NKR 226/ton CO2 for oil offshore, NKR 97±113/ton CO2 for fuel oils and NKR 259/ton CO2 for petrol. Coal and coke were also CO2 taxed from 1992 by NKR 124 and 94/ton CO2 , respectively. All taxes rates were continuously adjusted upwards (NOU 1996, 9:198). 11. Energy-intensive firms should not pay CO2 taxes at a level any higher than 1.7 per cent of a product's sales value. Furthermore, large exemptions were in force for horticulture whereby an 85 per cent reduction in tax levels could be obtained (Swedish Government 1990b, 151 and 172). 12. The tax limit should be lowered from 1.7 per cent to 1.2 per cent of the product's sales value (NaturvaÊrdsverket 1997:48).

3

Parties matter

1. We would like to thank Lene Hjùllund, Anders Branth Pedersen and Peter Sidelmann Sùrensen for assisting in data collection and for undertaking preliminary analyses. 2. For the majority of that period this party was the Liberal Party. It did not become the Liberal Democratic Party until the 1980s when it joined forces with the Social Democrats ± a relatively new and small breakaway movement from the Labour Party. 3. A tax on non-hazardous waste has also been introduced. The primary motivation to introduce this was fiscal. Environmental concerns were secondary (VROM 1999). Therefore, we do not classify the tax scheme as a green tax. 4. In contrast to the British Conservative Party, the Swedish Conservative Party has attracted few working class votes. One of its traditional core constituencies is the business community (Back 1967, 95±6; Birgerson and WesterstaÊhl 1992, 55±6; SaÈrlvik 1974). 5. For a detailed description of the reforms of CO2 taxation in Sweden, see Pedersen (2000).

4

Policy networks

1. Although the use of fertilizer and pesticide taxes was an innovation in agri-environmental policies, the fertilizer tax was a well known measure in agricultural policy. The Swedish government introduced an agricultural fertilizer tax in 1982 to fund agricultural subsidies. Apparently, farmers were more willing to accept that type of tax, perhaps because the spending of the revenue within the agricultural policy enabled farmers to achieve a certain control over the revenue. An agricultural pesticide tax was introduced in 1986.

Notes 177

2. On 1 January 1997 the Ministry of Agriculture and Fisheries was reorganized and became the Ministry of Food, Agriculture and Fisheries (MFAF). When we analyze events taking place before that date we use the term Ministry of Agriculture. When we refer to the ministry in general or analyze events taking place after 1 January 1997, we use the term Ministry of Food, Agriculture and Fisheries or the abbreviation MFAF. 3. Steen (1988, 119) argues that an important reason why conflict between consumers and farmers did not arise is that in the 1970s an increasingly greater proportion of farmers' income was given in the form of direct state subsidies rather than through high consumer prices (price subsidies). This prevented a conflict from developing since costs were widely dispersed among taxpayers (see also NOU 1991, 32). 4. Although the Centre Party, since the mid-1970s, has adopted an environmental profile, it remains the party closest to agricultural and rural interests. 5. However, in 1990, the government brought that principle to an end in agri-environmental policymaking (Landbruksdepartementet 1990, 27). Surprisingly, neither the farm associations nor their representatives in the Storting, the Centre Party, opposed this.

5

Designing green taxation

1. Firm 1: 12 6 2 6; Firm 2: 12 2 2 2 2. Firm 1: 12 3 1 1:5; Firm 2: 21 3 3 4:5 3. Figure 5.1 shows that the higher the difference in MC, the higher the cost savings from using green taxation compared to a standard. Figure 5.1 also shows that if both firms are grandfathered Q 3 ± Q*, Firm 1 will buy one unit (permit) from Firm 2 at the corresponding permit price P*. In Chapter 6, we will compare costs in more detail when considering the tax solution versus grandfathering. 4. Taxation of emissions, of course, requires that emissions of the pollutant can be measured in a fairly reliable way. The more unreliable the measurement techniques, the less acceptable the tax scheme becomes to producers. 5. Barde (1995), Bohm and Russel (1985), Cropper and Oates (1992), Oates (1995), and Stavins and Whitehead (1992). See also Goulder (1995) and Parry (1995) who discusses the consequences of already existing economic distortions in the economy when using green taxation. 6. However, it is questionable whether the tax actually produces strong incentives to reduce the use of pesticide although, in an international comparison, it is high. In most agricultural holdings, pesticide costs make up a limited share of total production costs (see Nutzinger 1994, 184).

178 Notes

6

Designing permit trading

1. Schmalensee et al. (1998:53). See also Bruce et al. (1996) and Ulph (1996). Svendsen (1998a) surveys the various US experiences on permit trading since the mid-1970s. 2. See Boom and Svendsen (2000a) which also discusses a third possibility, namely that of credit trading. Credit trading means that the seller of permits has to set up pollution combating projects which have to be approved by a particular authority. This should be seen in contrast to joint implementation where the buyer of permits sets up the pollution combating project. 3. Nentjes (1998) discusses the same subject, but focuses on the design of a system of private trading. 4. A B=A B=A 1 P 1 � Q =12P Q 1 2 � 2Q =Q 1 2=Q � 1. 5. See also Baumol and Oates (1988), Cropper and Oates (1992), Jespersen (1998) and Tietenberg (1985;1996). Ê slund (1995:303) and ENDS (1997:19). See also Aldcroft and Morewood 6. A (1995) and WDR (1996) concerning the severe environmental problems in the former eastern bloc. 7. Boom and Svendsen (2000a), Olson (1982, 32±4) and Svendsen (1998a). 8. Svendsen (1998a). Grandfathering means that existing firms get a capitalized value. However, experiences from other industries suggest that such distribution rules have not hampered entry into the markets. For example, the existence of grandfathered milk quotas in the EU has not lead to any breakdown of dairy farming. In contrast, many young farmers have made a smooth entry into the market, replacing older farmers. 9. In fact, producers have formed national policy networks with state industrial authorities, see Chapter 4 for a description of such networks within agriculture. 10. See Klaassen and Nentjes (1997) for more information on the Acid Rain Program and Svendsen (1998a) for an overview. 11. See Boom (1999) for an analysis of the effect of trading on the outcome of international negotiations on emission reduction. See also Barrett (1998) and Bohm (1999). 12. See Halsnaes (1998) concerning these potential cost savings from international CO2 trade.

Bibliography

Aardal, B. (1993), Energi og miljù: Nye stridsspùrsmaÊl i mùte med gamle strukturer, Oslo: Institutt for Samfunnsforskning. Aardal, B. (1994), `Hva er en politisk skillelinje? En begrebsmñssig grenseoppgang', Tidsskrift for Samfundsforskning, vol. 35, no. 2, 218±49. Aldcroft, D.H. and S. Morewood, (1995), Economic Change in Eastern Europe since 1918. Aldershot: Edward Elgar. Andersen, J.G. (1990), `Denmark: Environmental Conflict and the ``Greening'' of the Labour Movement', Scandinavian Political Studies, vol. 13, no. 2, 185± 210. Andersen, M.S. (1994a), Governance by Green Taxes: Making Pollution Prevention Pay, Manchester: Manchester University Press. Andersen, M.S. (1994b), `The Green Tax Reform in Denmark: Shifting the Focus of Tax Liability', Environmental Liability, 2, 2, 47±50. Andersen, M.S. (2000), Àssessing the impact of carbon-energy taxation in the Nordic countries: preliminary observations and methodological caveats'. Mimeo. Andersen, M.S. and C. Daugbjerg (1994), `Land-use policy in Denmark' in K. Eckerberg, P.K. Mydske, A. Niemi-Iilahti and K.H. Pedersen (eds), Comparing Nordic and Baltic Countries ± environmental problems and policies in agriculture and forestry. TemaNord 1994: 572. Copenhagen: Nordic Council of Ministers. Andersen, M.S., N. Dengsùe and S. Brendstrup (1997), Affaldsafgiften 1986± 1996: En ex-post evaluering af incitamenter og miljùskatter, arbejdsrapport nr. 96, 1997, Copenhagen: Miljù-og Energiministeriet/Miljùstyrelsen. Andersen, M.S., N. Dengsùe and A.B. Pedersen (2000), Vurderinger af de grùnne afgifters effekter i de nordiske lande: Resultater og metodespùrgsmaÊl. Copenhagen: Nordisk MinisterraÊd. Andersen, M.S. and D. Liefferink (1997), The New Member States and the Impact on Environmental Policy: Draft Final Report to the Commission (DG-XII), Aarhus: Department of Political Science. Ê slund, A. (1995), How Russia Became a Market Economy. The Brookings InstituA tion, Washington DC. Auken, L.H. and M.H. Jùrgensen (1995), CO2±afgifter eller aftaler? Fra hierarki til netvñrk, Copenhagen: Videnskabsbutikken. Back, P.-E. (1967), Det svenska partivaÈsendet, Stockholm: Almqvist and Wiksell. Barde J.-P. (1995), Ènvironmental Policy and Policy Instruments', in H. Folmer, H.L. Gabel and H. Opschoor (eds), Principles of Environmental and Resource Economics: a Guide for Students and Decision-Makers, Aldershot: Edward Elgar. Barrett, S. (1998), `Political Economy of the Kyoto Protocol', Oxford Economic Review of Economic Policy, 4, 20±39. 179

180 Bibliography

Bartolini, S. and P. Mair (1990), Identity, Competition, and Electoral Availability: The Stabilisation of European Electorates 1885±1985, Cambridge: Cambridge University Press. Baumgartner, F.R. and B.D. Jones (1993), Agendas and Instability in American Politics, Chicago: The University of Chicago Press. Baumol, W.J. and W.E. Oates (1971), `The Use of Standards and Prices for Protection of the Environment', Swedish Journal of Economics, 73, 1, 42±54. Baumol, W.J. and W.E. Oates (1988), The Theory of Environmental Policy 2nd edn, Cambridge: Cambridge University Press. Birgersson, B.O. and J. WesterstaÊhl (1992), Den svenska folkstyrelsen 5th edn, Stockholm: Publica. Bisin, A. and T. Verdier (2000), À model of cultural transmission, voting and political ideology', European Journal of Political Economy, 16, 5±29. Bohm, P. (1999), Ìnternational Greenhouse Gas Emission Trading ± with Special Reference to the Kyoto Protocol', TemaNord, 506, 5±37 Copenhagen: Nordic Council of Ministers. Bohm, P. and C.S. Russell (1985), `Comparative Analysis of Alternative Policy Instruments', in A.V. Kneese and J.L. Sweeney (eds), Handbook of Natural Resource and Energy Economics, Volume 1, Amsterdam: Elsevier. Bomberg, E. (1998), Ìssue Networks and the Environment: Explaining European Union Environmental Policy', in D. Marsh (ed.), Comparing Policy Networks: Buckingham: Open University Press, 165±84. Boom, J.-T. (1999), `The Effect of Emission Trade on International Environmental Agreements', Mimeo, Department of Economics, University of Southern Denmark, Odense. Boom, J.-T. and A. Nentjes (1999), Ìnternational Emissions Trading; Should Governments Trade or Should Firms', Mimeo, Department of Economics and Public Finance, Faculty of Law, Groningen: University of Groningen. Boom, J.-T. and G.T. Svendsen (2000a), Ìnternational Emission Trading Systems: Trade Level and Political Acceptability', JITE (Journal of Instititutional and Theoretical Economics) 4, 548±66. Boom, J.-T. and G.T. Svendsen (2000b), `The Political Economy of International Emission Trading Scheme Choice: Some Empirical Evidence', University of Southern Denmark, Economic Discussion Papers 5/2000. Bramhall, D.F. and E.S. Mills (1966), À Note on the Asymmetry between Fees and Payments', Water Resources Research, 3, 2, 615±16. Bregnsbo, H. and N.C. Sidenius (1993), `Denmark: The National Lobby Orchestra', in M.C.P.M. van Schendelen, (ed.), National Public and Private EC Lobbying, Aldershot: Dartmouth. Bressers, H. (1983), `The Role of Effluent Charges in Dutch Water Quality Policy', in P.B. Downing and K. Hanf (eds), International Comparisons in Implementing Pollution Laws, Boston: Kluwer-Nijhoff Publishing, 143±68. Bretteville, C. and G.B. Sùften (1998), `Beretningen om et varslet avgiftskutt. En historie om norske grùnne skatter', 1±5 in Cicerone vol. 7 no 7.

Bibliography 181

Bruce, J.P., H. Lee and E.F. Haites (eds) (1996), Climate Change 1995: Economic and Social Dimensions of Climate Change, Cambridge: Cambridge University Press. Buchanan, J.M. and G. Tullock (1975), `Polluters' Profits and Political Response: Direct Controls Versus Taxes', The American Economic Review, 65, 139±47. Budge, I. and M. Laver (1986), Òffice Seeking and Policy Pursuit in Coalition Theory', Legislative Studies Quarterly, vol. 11, no. 4, 485±506. Buksti, J.A. (1983), `Bread-and-Butter Agreement and High Politics Disagreement: Some Reflections on the Contextual Impact on the Agricultural Interests in EC Policy-Making', Scandinavian Political Studies 6, 261±80. Castles, F. and P. Mair (1984), `Left-Right Political Scales: Some `Èxpert'' Judgements', European Journal of Political Research, vol. 12, no. 1, 73±88. CDI (1992), SaÊdan beregnes CO2±afgiften, Copenhagen: Confederation of Danish Industries. Christensen, J.G. (1993), `Corporatism, Administrative Regimes and Mis-management of Public Funds', Scandinavian Political Studies, vol. 16, vol. 3, 201±25. Christensen, J.L. and G.T. Svendsen (1999), `The US SO2 Auction and Environmental Regulation', Homo Oeconomicus, XVI(2), 191±203. Christiansen, P.M. (1996), `Denmark', in P.M. Christiansen (ed.), Governing the Environment: Politics, Policy and Organization in the Nordic Countries, Nord 1996:5, Copenhagen: Nordic Council of Ministers, 29±101. Christiansen, P.M. (1997), Parliaments and Organized Interests in Denmark and Ê arhus, DenÊ arhus: Department of Political Science, University of A

Norway, A mark.

Clasen, G. (1998), A Framework for Innovation: Corporate Responses to Applied Energy/CO2 Taxes in Denmark, Rotterdam: Erasmus Studiecentrum voor Milieukunde. Coase, R.H. (1960), `The Problem of Social Cost', Journal of Law and Economics, 3, 1±44. Collier, U. (1994), `Global Warming and Energy Policy in the Netherlands: Towards Sustainable Development?' in M. Wintle and R. Reeve (eds), Rhetoric and Reality in Environmental Policy: The Case of the Netherlands in Comparison with Britain, Aldershot: Avebury, 63±83. Criddle, B. (1994), `Members of Parliament' in A. Seldon and S. Ball (eds), Conservative Century: The Conservative Party since 1900, Oxford: Oxford University Press, 145±67. Cropper, M.L. and W.E. Oates (1992), Ènvironmental Economics: A Survey', Journal of Economic Literature, XXX, 675±740. Daalder, H. (1966), `The Netherlands: Opposition in a Segmented Society' in R.A. Dahl (ed.), Political Opposition in Democratic Societies, New Haven: Yale University Press, 188±236. Dales, J.H. (1968), Pollution, property, and prices. Toronto, Ontario: University of Toronto Press. Damgaard, E. (1992), `Denmark: Experiments in Parliamentary Government', in Erik Damgaard (ed.), Parliamentary Change in the Nordic Countries, Oslo: Scandinavien University Press.

182 Bibliography

Danish Government (1995), Erhvervene og energien, Copenhagen. Danmarks og Grùnlands Geologiske Undersùgelse (1997), GrundvandsovervaÊgning 1997, Brenderup: Geografforlaget. Danske Slagterier (1994), `Vedtñgter for Svineafgiftsfonden', Copenhagen. Daugbjerg, C. (1993), A Preliminary Model for the Study of Agriculture and the Environment in Scandinavia, paper presented at the Nordic Political Science Association Conference, Oslo, 19±21 August 1993. Daugbjerg, C. (1994), `Dansk industri og det indre marked: Policy-netvñrk i Bruxelles og Kùbenhavn', Politica, 26, 4, 456±73. Daugbjerg, C. (1995), Èr miljùpolitik teknik eller politik? En komparativ analyse af miljùpolitik i den svenske og danske landbrugssektor', Nordisk Administrativt Tidsskrift, 76, 1, 33±47. Daugbjerg, C. (1998a), `Linking Policy Networks and Environmental Policies: Nitrate Policy Making in Denmark and Sweden 1970±1995', Public Administration, vol. 76, no. 2, 275±94. Daugbjerg, C. (1998b) Policy Networks under Pressure: Pollution Control, Policy Reforms and the Power of Farmers. Aldershot: Ashgate Publishing. Daugbjerg, C. (1998c), `Power and Policy Design: A Comparison of Green Taxation in Scandinavian Agriculture', Scandinavian Political Studies, vol. 21, no. 3. Daugbjerg, C. (1998d), `Similar Problems, Different Policies: Policy Networks and Environmental Policy in Swedish and Danish Agriculture', in D. Marsh (ed.), Comparing Policy Networks: Buckingham: Open University Press, 75±89. Daugbjerg, C. (1999a), `Landbrugspolitik: Stabilitet eller forandring?', in J. Blom-Hansen and C. Daugbjerg (eds), Magtens organisering: Stat og interesseorganisationer i Danmark, Aarhus: Systime, 107±26. Daugbjerg, C. (1999b), `The Nature of Environmental Policy Making: A Comparison of Danish and Swedish Agri-Environmental Policy', in M. Joas and A.-S. Hermanson (eds), The Nordic Environments: Comparing Political, Administrative, and Policy Aspects, Aldershot: Ashgate. Dijkstra, B.R. (1999), The political economy of environmental policy, New Horizons in Environmental Economics, Edward Elgar, Cheltenham, UK. Doern, G.B. and R.W. Phidd (1983), Canadian public policy: ideas, structure, process, Toronto: Methuen. Dolowitz, D. and D. Marsh (1996), `Who Learns What from Whom: a Review of the Policy Transfer Literature', Political Studies 44, 343±57. Dutch Ministry of Finance (1999), `Taxation in the Netherlands', http:// www.minfin.nl (transcript 12 May 1999). Eckerberg, K. (1994), `Consensus, Conflict or Compromise: The Swedish Case', in K. Eckerberg, P.K. Mydske, A. Niemi-Iilahti and K.H. Pedersen, (eds), Comparing Nordic and Baltic Countries ± environmental problems and policies in agriculture and forestry, TemaNord 1994: 572, Copenhagen: Nordic Council of Ministers. ECN (2000), CO2±emissie 1990±1998 volgens IPCC-methode http:// www.ecn.nl/unit_bs/evn/trends/emissie/evn99t126a.html Eijk, C. van der, M. Franklin, T. Mackie, and H. Valen (1992), `Cleavages, Conflict Resolution and Democracy', in M.N. Franklin, T. Mackie and H.

Bibliography 183

Valen, Electoral Change: Responses to Evolving Social and Attitudinal Structures in Western Countries, Cambridge: Cambridge University Press, 406±31. Elklit (1986), `Det klassiske danske partisystem bliver til', in J. Elklit and O. Tonsgaard (eds), Valg og vñlgeradfñrd: Studier i dansk politik, Aarhus: Forlaget Politica, 21±38. Elmore, R.F. (1987), Ìnstruments and strategy in public policy', Policy Studies Review, 7, 1, 174±86. ENDS (1997), `The Unfinished Climate Business after Kyoto', ENDS Report 275, Air Pollution, December. Energiministeriet (1990), Energi 2000. Handlingsplan for en bñredygtig udviklling, Copenhagen. Energiministeriet (2000), Energinyt, 2, April, Copenhagen: Energistyrelsen. Enevoldsen, M. (2000), Ìndustrial Energy Efficiency' in A.P. Mol, V. Lauber and J.D Liefferink (eds), The Voluntary Approach to Environmental Policy: Joint Environmental Policy-Making in Europe, Oxford and New York: Oxford University Press, pp. 62±103. Enevoldsen, M. and S. Brendstrup (2000), `Considering feasibility and efficiency: The Danish mix of CO2 taxes and agreements' in R.U. Sprenger and M.S. Andersen (eds), Market Based Instruments for Environmental Management: Politics and Institutions, Cheltenham, UK and Northampton, MA, USA: Edward Elgar 148±71. EPA (1991), Auctions, Direct Sales and Independent Power Producers Written Guarantee Regulations, 56 Fed. Reg. (proposed May 23). US Environmental Protection Agency. EPA (1999), http://www.epa.gov/acidrain EPA (2000a), http://www.epa.gov/acidrain/ats/qlyupd.html EPA (2000b), http://www.epa.gov/acidrain/ats/pricetbl.html Esping-Andersen, G. (1985), Politics against Markets: The Social Democratic Road to Power, Princeton: Princeton University Press. EU (1999), Preparing for Implementation of the Kyoto Protocol, Commission Communication to the Council and the Parliament, Brussels. Europa World Year Book, The, various issues, London: Europa Publications. European Environmental Agency (1996), Environmental Taxes, Implementation and Environmental Effectiveness, Luxembourg: Office for Official Publications of the European Communities, 1996. Farsund, A.A. (1996), `Den globale utfordring. CO2±maÊlsettingen og klimapolitikken' in J.E. Klausen and H. Rommetvedt (eds), Miljùpolitikk. Organisasjonene, Stortinget og forvaltningen, Tano Aschehoug 74±93. Finansdepartementet (1991), Remiss till SOU 1991±90, Stockholm. Finansdepartementet (1992), NOU 1992±3, `Mot en mer kostnadseffektiv miljùpolitikk i 1990±aÊrene', Hùringsuttalelser, Oslo. Finansdepartementet (1996a), `Bakgrundspromemoria: Koldioxidskatten Èr industrien', http://www.novator.se/environment/press/ dubblas fo pressCO. Finansdepartementet (1996b), NOU 1996±9, `Grùnne skatter ± en politikk for bedre miljù og hùy sysselsetting', Hùringsuttalelser, Oslo.

184 Bibliography

Finansministeriet (1993), Grùn reform og erhvervene ± oplñg til embedsmandsudvalgets mùderñkke med erhvervs-, miljù-og forbrugerorganisationerne om grùnne afgifter og erhvervene, Copenhagen. Finansministeriet (1994a), Grùnne afgifter og erhvervene. Midtvejsrapport fra embedsmandsudvalget om grùnne afgifter og erhvervene, Copenhagen. Finansministeriet (1994b), Grùnne afgifter og erhvervene ± erhvervs-, miljù-og forbrugerorganisationernes hùringssvar i hùringen af rapporten om grùnne afgifter og erhvervene, Copenhagen. Finansministeriet (1994c), Grùnne afgifter og erhvervene ± materiale til mùderñkken med erhvervs-og miljùorganisationerne, Copenhagen. Finansministeriet (1994d), Deltagere til mùdet den 14.12.94 kl. 9.00 Moltkes Palñ, Copenhagen. Finansministeriet (1994e), Grùnne afgifter og erhvervene ± materiale til mùdet med erhvervsorganisationerne den 14, december 1994, Copenhagen. Finansministeriet (1995a), Grùnne afgifter og erhvervene ± referater fra embedsmandsudvalgets drùftelser med erhvervsorganisationerne, Copenhagen. Finansministeriet (1995b), Grùnne afgifter og erhvervene ± oplñg til regeringen, Copenhagen. Finansministeriet (1999), Evaluering af grùnne afgifter og erhvervene, Copenhagen. Finansutskottet (1992), `Finansutskottets betaÈnkande 1991/92:FiU30. Den È r budgetaÊret ekonomiska politiken och slutlig reglering av statsbudgetten fo 1992/93 (prop. 1991/92:150, del I och 1991/92:100)', Riksdagstrycket 1991/ 1992, Stockholm. Fishback, P., G. Libecap, and E. Zajac (2000), Public Choice Essays in Honor of a Maverick Scholar: Gordon Tullock, Dordrecht: Kluwer Academic Publishers. Folden, M.M., K. Frog, J. Fyhn, J.J. Neufeld and K. Pakudan (1993), CO2± afgiften i modvind ± en analyse af interesseorganisationers mulighed for deltagelse og herunder brug af magt i den politiske beslutningsproces i Danmark, Roskilde: Roskilde Universitetscenter. Franklin, M. (1992), `The Decline of Cleavage Politics', in M.N. Franklin, T. Mackie and H. Valen, Electoral Change: Responses to Evolving Social and Attitudinal Structures in Western Countries, Cambridge: Cambridge University Press, 383±405. Gladdish, K. (1991), Governing from the centre: politics and policy-making in the Netherlands, London: Hurst. Glasbergen, P. (1992), Àgro-Environmental Policy: Trapped in an Iron Law?', Sociologia Ruralis, vol. 32, no. 1, 30±48. Goulder, L.H. (1995), Ènvironmental Taxation and the Double Dividend: A Readers Guide', International Tax and Public Finance, 2, 157±83. Graham, G.J. (1971), Methodological Foundations for Policy Analysis, Toronto: Xerox College Publishing. Grant, W. (1993), Business and Politics in Britain 2nd edn, Basingstoke: Macmillan ± now Palgrave. Grùnbñk, D. (1991), Industripolitik i Danmark og Sverige: En sammenligning af industripolitiske netvñrk i Skandinavien og deres historiske rùdder, Copenhagen: Politiske Studier.

Bibliography 185

Hahn, R.W. (1989), Economic Prescriptions for Environmental Problems: How the Patient Followed the Doctor's Orders, Journal of Economic Perspectives, 3, 2, 95±114. Hahn, R.W. and R.N. Stavins (1992), Èconomic Incentives for Environmental Protection: Integrating Theory and Practice', American Economic Review, 82, 464±8. Hahn, R.W. and R.N. Stavins (1999), `What has Kyoto Wrought? The Real Architecture of International Tradable Permit Markets', Discussion Paper 99±30, Resources for the Future (RFF), Washington DC. Hall, P.A. (1986), Governing the Economy: The Politics of State Intervention in Britain and France, Cambridge: Polity Press. Halsnaes, K. (1998), `The Costs and Benefits of Integrating Non-Annex I Countries in International Greenhouse Gas Emission Trading Systems', Draft. UNEP Collaborating Centre on Energy and Environment Risù National Laboratory, Denmark. Hazan, R.Y. (1997), Centre Parties: Polarization and Competition in European Parliamentary Democracies, London: Pinter. Hibbs, D. (1992), `Partisan Theory after Fifteen Years', European Journal of Political Economy, vol. 8, 361±73. Hillman, A.L. and O. Swank (2000), `Why political culture should be in the lexicon of economics', European Journal of Political Economy, 16, 1±4. HM Government, (1990), This Common Inheritance: Britain's Environmental Strategy, Cm 1200, London: HMSO. Holtsmark, B.J (1998), `Store besparelser med kvotehandel', CICERONE, 6, 1±3. Hood, C. (1983), The tools of government. London: Macmillan. Hovik, S. and S. Opedal (1996), `Miljùpolitikk eller sektorpolitik? Om bruk av forurensningsloven i landbrukssektoren og samferdselssektoren', in J.E. Klausen and H. Rommetvedt (eds), Miljùpolitikk: Organisasjonene, Stortinget og Forvaltningen. Oslo: Tano Aschehoug. Howe, C.W. (1994), `Taxes Versus Tradable Discharge Permits: A Review in the Light of the U.S. and European Experience', Environmental and Resource Economics, 4, 151±69. Howlett, M. and M. Ramesh (1994), `Patterns of policy instrument choice: policy styles, policy learning and the privatization experience', Policy Studies Review, 12, 1/2, 3±24. Huppes, G. and R.A. Kagan (1989), `Market-Oriented regulation of Environmental Problems in the Netherlands', Law and Policy, vol. 11, no. 2, 215±39. Èrbundets yttrande o Èrbundet (1989), Ìndustrifo Èver delbetaÈnkande Industrifo È avgiftutredningen (SOU 1989:83±84), Ekonomiska styrmedel i fraÊn miljo È politiken ± Energi och trafik', Stockholm 8 December 1989, Dnr SI miljo 269/89. Inglehart, R. and J.-R. Rabier (1986), `Political Realignment in Advanced Industrial Society: From Class-Based Politics to Quality-of-Life Politics', Government and Opposition, vol. 21, no. 4, 456±79. Jacek, H.J. (1987), `Business Interest Associations as Private Interest Governments', in W. Grant (ed.), Business Interests, Organisational Development and

186 Bibliography

Private Interest Government: An International Comparative Study of the Food Processing Industry, Berlin and New York: Walter de Gruyter, 34±62. Jansen, A.-I. and O. Osland (1996), `Norway', in P.M. Christiansen (ed.), Governing the Environment: Politics, Policy and Organization in the Nordic Countries, Nord 1996:5, Copenhagen: Nordic Council of Ministers, 181±256. Jespersen, J. (1998), Miljùùkonomi. Jurist- og ékonomforbundets Forlag. Jordan, A. and J. Greenaway (1998) `Shifting Agendas, Changing Regulatory Structures and the ``New'' Politics of Environmental Pollution: British Coastal Water Policy 1955±1995', Public Administration, vol. 76, no. 4. Jordbruksdepartementet (1987), Intensiteten i jordbruksproduktionen. MiljoÈpaÊverkan och spannmaÊlsoÈverskott. BetaÈnkande av arbetsgruppen med uppgift att È rande en laÈgre intensitet i jordbruksproduktionen, Ds utreda vissa fraÊgor ro Èrlaget. Jo 1987: 3, Stockholm: AllmaÈnna Fo Jordbruksutskottet (1988), `Jordbruksutskottets betaÈnkande 1987/88: 24 om ÈrbaÈttrande aÊtgaÈrder i jordbruket, m.m. (prop. 1987/88: 128)', RiksÈfo miljo dagstrycket 1987/88, Stockholm. Jordbruksutskottet (1994), `Jordbruksutskottets betaÈnkande 1994/95:JOU07: Vissa livsmedelpolitiska aÊtgaÈrder vid ett medlemskap i Europeiska unionen', Riksdagstrycket 1994/95 Stockholm. Joskow, P.L., R. Schmalensee, and E.M. Bailey (1998), `The Market for Sulfur Dioxide Emissions', American Economic Review, 88, 669±85. Kahneman, D., J.L. Knetsch and R.T. Thaler (1991), Ànomalies. The Endowment Effect, Loss Aversion and Status Quo Bias', Journal of Economic Perspectives, vol. 5(1), 193±206. Kahneman, D. and A. Tversky, (1979), `Prospect Theory: An Analysis of Decisions Under Risk', Econometrica, vol. 47, 263±91. Kamien, M.I., N.L. Schwartz, and F.T. Dolbear (1966), Àsymmetry between Bribes and Charges', Water Resources Res., 2(1), 147±57. Kasa, S. (2000), `Social and political barriers to green tax reform. The case of CO2 ±taxes in Norway', Environmental Politics vol. 9, no. 4. Kirchheimer, O. (1966), `The Transformation of the Western European Party Systems', in J. LaPalombara and M. Weiner (eds), Political Parties and Political Development, Princeton: Princeton University Press, 177±200. Klaassen, G. and A. Nentjes (1997), `Sulfur Trading Under the 1990 CAAA in the US: An Assessment of First Experiences', Journal of Institutional and Theoretical Economics, 2, 384±410. Klausen, J.E. (1996), `Miljùpolitikken og den segmenterte stat', in J.E. Klausen and H. Rommetvedt, eds, Miljùpolitikk: Organisasjonene, Stortinget og Forvaltningen, Oslo: Tano Aschehoug. Knetsch, J.L., (1990), Ènvironmental Policy Implications of Disparities between Willingness to Pay and Compensation Demanded Measures of Values', Journal of Environmental Economics and Management, vol. 18, 227±37. Krasner, S.D. (1984), Àpproaches to the State. Alternative Conceptions and Historical Dynamics', Comparative Politics, vol. 16, no. 2, 223±46. Kristoffersen, H.-E., J. Munksgaard and M. Jensen (1997), Kortlñgning af afgifter og tilskud inden for energiomraÊdet, Copenhagen: AKF Forlaget.

Bibliography 187

Kronsell, A. (1997), `Sweden: Setting a Good Example', in M.S. Andersen and D. Liefferink (eds), European Environmental Policy: The Pioneers, Manchester: Manchester University Press, 40±80. Kùdbranchens FñllesraÊd (1990), `Vedtñgter for kvñgafgiftsfonden', Copenhagen. Landbrugsministeriet (1991), Bñredygtigt landbrug: En teknisk redegùrelse, Copenhagen: Landbrugsministeriet. Landbrugsraadet (1990), `Vedtñgter for promilleafgiftsfonden', Copenhagen. Landbrugsraadet (1994), `Kommentarer til rapporten om grùnne afgifter og erhvervene', Letter to the Minister of Finance, dated 10 August. Landbruksdepartementet (1987a), `St.prp. nr. 1 (1987±1988) for budsjetterminen 1988, Landbruksdepartementet', Stortingsforhandlingerne 1987±1988, Oslo. Landbruksdepartementet (1987b), `St.prp. nr. 9 (1987±1988), vedlegg 7', Stortingsforhandlingerne 1987±1988, Oslo. Landbruksdepartementet (1988), `St.prp. nr. 1 (1988±1989) for budsjetterminen 1989, Landbruksdepartementet', Stortingsforhandlingerne 1988±1989, Oslo. Landbruksdepartementet (1989), `St.prp. nr. 1 (1989±1990) for budsjetterminen 1990, Landbruksdepartementet', Stortingsforhandlingerne 1989±1990, Oslo. Landbruksdepartementet (1990), `St.prp. nr. 1 (1990±1991) for budsjetterminen 1991, Landbruksdepartementet', Stortingsforhandlingerne 1990±1991, Oslo. Landbrukskomiteen (1987), `Budsjett-innst-S. nr. 9 (1987±88): Innstilling fra landbrukskomoteen om bevillinger paÊ statsbudsjettet for 1988 vedkommende Landbruksdepartementet', Stortingsforhandlingerne 1987±1988, Oslo. Landbrukskomiteen (1988), `Budsjett-innst-S. nr. 9 (1988±89): Innstilling fra landbrukskomoteen om bevillinger paÊ statsbudsjettet for 1988 vedkommende Landbruksdepartementet', Stortingsforhandlingerne 1988±1989, Oslo. Landbrukskomiteen (1989), `Budsjett-innst-S. nr. 9 (1989±90): Innstilling fra landbrukskomoteen om bevillinger paÊ statsbudsjettet for 1988 vedkommende Landbruksdepartementet', Stortingsforhandlingerne 1989±1990, Oslo. Landbrukskomiteen (1990), `Budsjett-innst-S. nr. 9 (1990±91): Innstilling fra landbrukskomoteen om bevillinger paÊ statsbudsjettet for 1988 vedkommende Landbruksdepartementet', Stortingsforhandlingerne 1990±1991, Oslo. Lane, J.-E. and S.O. Ersson (1991), Politics and Society in Western Europe, 2nd edn, London: Sage. Larsen, C., R.C. Meyhaff, S. Tams, P.L.B. Christiansen, J. Skjùtt-Larsen and T. Johannsen (1997), Grùnne afgifter og erhvervene, Roskilde Universitetscenter. Larsson, T. (1993), Det svenska statsskicket, Lund: Studentlitteratur. Lee, D.R. and W.S. Misiolek (1986), `Substituting Pollution Taxation for General Taxation: Some Implications for Efficiency in Pollution Taxation', Journal of Environmental Economics and Management, 13(4), 338±47. Leone, R.A. (1986), Who Profits: Winners and Losers and Government Regulation, New York: Basic Books.

188 Bibliography

Lijphart, A. (1971), `Comparative Politics and the Comparative Method', American Political Science Review, vol. 65, no. 3, 682±93. Linder, Stephen, H. and B.G. Peters (1989), Ìnstruments of government: perceptions and contexts', Journal of Public Policy, 9, 1, 35±58. Lipset, S.M. and S. Rokkan (1967), `Cleavage Structures, Party Systems, and Voter Alignments: An Introduction' in S.M. Lipset and S. Rokkan (eds), Cleavage Structures, Party Systems, and Voter Alignments: Cross-National Perspectives, New York/London: The Free Press/Collier-Macmillan, 1±64. Èrslag till yttrande o Èver delbetaÈnkande fraÊn miljo

ÈavgiftutredninLO (1989), `Fo Èpolitiken: Energi och gen (SOU 1989:83), Ekonomiska styrmedel i miljo

trafik', Stockholm 18 December 1989, 1989±auk-315. LO Industri (1998), Hùring ± grùnn skatt og Kyoto. (Available on internet: www.lo.no/loindustri/kyoto.htm). Lovbekendtgùrelse no. 65 (1996). `Bekendtgùrelse af lov om administration af Det Europñiske Fñllesskabs forordninger om markedsordninger for landbrugsvarer m.v', Lovtidende A, Copenhagen. Lundqvist, L.J. (1996), `Sweden' in P.M. Christiansen (ed.) Governing the Environment: Politics, Policy and Organization in the Nordic Countries, Nord 1996:5, Copenhagen: Nordisk MinisterraÊd, 257±336. Mackie, T. and M. Franklin (1992), Èlectoral Change and Social Change' in M.N. Franklin, T. Mackie and H. Valen, Electoral Change: Responses to Evolving Social and Attitudinal Structures in Western Countries, Cambridge: Cambridge University Press, 33±57. Majone, G. (1989), The Evidence, Argument & Persuasion in the Policy Process, New Haven: Yale University Press. Maloney, W.A., G. Jordan and A.M. McLaughlin (1994), Ìnterest Groups and Public Policy: The Insider/Outsider Model Revisited', Journal of Public Policy, 14, 1, 17±38. Maloney, W.A. and J.J. Richardson (1994), `Water Policy Making in England and Wales: Policy Communities Under Pressure?', Environmental Politics, 3, 4, 110±38. Marsh, D. (1995), `State Theory and the Policy Network Model', unpublished paper, Glasgow: Department of Government, University of Strathclyde. Marsh, D. and M.J. Smith (1996), Ùnderstanding Policy Networks: Towards a Dialectical Approach', unpublished paper, Department of Political Science and International Studies, University of Birmingham. Mazey, S. and J.J. Richardson (1992), Ènvironmental Groups and the EC: Challenges and Opportunities', Environmental Politics, 1, 4, 109±28. McKenzie, R. and G. Tullock (1981), The New World of Economics: Explorations into the Human Experience. Homewood Ill.: R.D. Irwin. McKenzie, R.T. and A. Silver (1967), `The Delicate Experiment: Industrialism, Conservatism and Working-Class Tories in England' in S.M. Lipset and S. Rokkan, (eds), Cleavage Structures, Party Systems, and Voter Alignments: CrossNational Perspectives, New York/London: The Free Press/Collier-Macmillan, 115±25. Mejeriforeningen (1996), `Vedtñgter for mñlkeafgiftsfonden', Copenhagen.

Bibliography 189

Micheletti, M. (1990), The Swedish Farmers' Movement and Government Agricultural Policy, New York: Praeger. È - och Energidepartementet (1989), Remiss till SOU 1989±83 and 84, StockMiljo holm. Miljù- og planlñgningsudvalget (1988), `Betñnkning over Forslag til lov om afgift at visse chlorflourcarboner og haloner (CFC) afgift', Folketingstidende, tillñg B, vol. 140, 1988±89, col. 290±6. Miljùverndepartementet (1989), Miljù og utvikling: Norges oppfùlging av Verdenskommisjonens rapport. Oslo: Miljùvernsdepartementet. Ministeriet for fùdevarer, landbrug og fiskeri (1997), Rapport om Produktions og Promilleafgiftfondenes virksomhed i regnskabsaÊret 1995, Copenhagen: Ministeriet for Fùdevarer, Landbrug og Fiskeri. Moe, T. (1989), `The Politics of Bureaucratic Structure', in J.E. Chubb and P.E. Peterson (eds) Can Government Govern?, Washington: Brookings, 267±329. Montgomery, W.D. (1972), `Markets in Licenses and efficient Pollution Control Programs', Journal of Economic Theory, 5(3), 395±418. Mueller, D.C. (1989), Public Choice II, Cambridge: Cambridge University Press. Mydske, P.K., A. Steen and A. Taarud (1994), `Land Use And Environmental Policy in Norway', in K. Eckerberg, P.K. Mydske, A. Niemi-Iilahti and K.H. Pedersen, eds, Comparing Nordic and Baltic Countries ± environmental problems and policies in agriculture and forestry, TemaNord 1994, Copenhagen: Nordic Council of Ministers 572. È ller-Rommel, F. (1989), `Green Parties and Alternative Lists under CrossMu È ller-Rommel (ed.), New Politics in Western National Perspective', in F. Mu Europe: The Rise and Success of Green Parties and Alternative Lists, Boulder: Westview Press, 5±19. Nannerup, N. (2001), Èquilibrium Pollution Taxes in a Two Industry Open Economy', European Economic Review (45)3, pp. 519±32. NaturvaÊrdsverket (1997), MiljoÈskatter i Sverige ± ekonomiska styrmedel i miljoÈpoÈ rlag. Also available in English: Envirlitiken, Stockholm: NaturvaÊrdsverkets Fo onmental taxes in Sweden ± economic instruments of environmental policy. Nedergaard, P., H.O. Hansen and P. Mikkelsen (1993), EF's landbrugspolitik og Danmark: Udvikling frem til aÊr 2000, Copenhagen: Handelshùjskolens Forlag. Nentjes, A. (1998), `Two Views of Emission Trading', Change, Vol. 44, November, 4±7. Niskanen, W.A. Jr. (1994), Bureaucracy and Public Economics, The Locke Institute, Cheltenham: Edward Elgar. Nordlinger, E.A. (1981), On the Autonomy of the Democratic State, Cambridge, Mass. and London: Harvard University Press. Ê rmelding 1988±89, Oslo: Norges Bondelag. Norges Bondelag (1989), A Ê rmelding 1989±90, Oslo: Norges Bondelag. Norges Bondelag (1990), A Ê rmelding 1991±92, Oslo: Norges Bondelag. Norges Bondelag (1992), A Ê rmelding 1992±93, Oslo: Norges Bondelag. Norges Bondelag (1993), A Norwegian Government (1998), Grùnne skatter (St.prp.nr.54 1997/98), Oslo. NOU (1991), Norsk Landbrukspolitikk: Utfordringer, maÊl og virkemidler: Hovedinnstilling, (no. 1991:2B), Oslo: Statens Forvaltningstjeneste.

190 Bibliography

NOU (1992), Mot en mer kostnadseffektiv miljùpolitikk i 1990±aÊrene (no. 1992:3), Oslo: Statens Forvaltningstjeneste. NOU (1996), Grùnne skatter ± en politikk for bedre miljù og hùy sysselsetting (no. 1996:9), Oslo: Statens Forvaltningstjeneste. Nutzinger, H.G. (1994), Èconomic Instruments for Environmental Protection in Agriculture: Some Basic Problems of Implementation' in H. Opshoor and K. Turner, eds, Economic Incentives and Environmental Policies: Principles and Practice, Dordrecht: Kluwer Academic Publishers. Oates, W.E. (1995), `Green Taxes: Can We Protect the Environment and Improve the Tax System at the Same Time?', Southern Economic Journal, 4, s. 915±22. OECD (1989), The Application of Economic Instruments for Environmental Protection, Paris: OECD Publications. OECD (1994), Managing the Environment: The Role of Economic Instruments, Paris: OECD Publications. OECD (1995), Environmental Taxes in OECD Countries, Paris: OECD Publications, 1995. OECD (1997), Evaluating Economic Instruments for Environmental Policy, Paris: OECD Publications. Olson, M. (1965), The Logic of Collective Action, Cambridge: Cambridge University Press. Olson, M. (1982), The Rise and Decline of Nations, New Haven: Yale University Press. Olson, M. (1992), Foreword in T. Sandler, Collective Action: Theory and Applications, Ann Arbor, University of Michigan Press. Olson, M. and R. Zeckhauser (1967), `Collective Goods, Comparative Advantage, and Alliance Efficiency', in R. Mc-Kean, ed., Issues in Defense Economics, New York: National Bureau. Opedal, S. and H. Rommetvedt (1995), `Nñrings og miljùorganisationernes politiske paÊvirkning', arbeidsnotat RF-95/111, Stavanger: Rogaland Research. Paldam, M. and G.T. Svendsen (2000), Àn essay on social capital: Looking for the fire behind the smoke', European Journal of Political Economy, 16, 339±66. Panebianco, A. (1988), Political Parties: Organisation and Power, Cambridge: Cambridge University Press. Parry, I.W.H. (1995), `Pollution Taxes and Revenue Recycling', Journal of Environmental Economics and Management, 29, S-64±S-77. Patten, C. (1990), `The Market and the Environment', Policy Studies, vol. 11, no. 2, 4±9. Pearce, D., A. Markandya and E.B. Barbier (1989), Blueprint for a Green Economy, London: Earthscan Publications. Pearce, D.W. and R.K. Turner (1990), Economics of Natural Resources and the Environment, New York and London: Harvester Wheatsheaf. Pedersen, A.B. (2000), `Design af grùnne afgifter i Norden. CO2±afgifterne og alliancen mellem kapital og arbejdere', Politica, vol. 32, no. 4, 435±52. Pedersen, M.N. (1987), `The Danish ``Working Multiparty System'': Break Down or Adaption', in H. Daalder, ed., Party Systems in Denmark, Austria, Switzerland, the Netherlands and Belgium, London: Francis Pinter, 1±60.

Bibliography 191

Peters, B.G. (1998), Comparative Politics: Theory and Methods, Basingstoke: Macmillan. Petersson, O. (1989), Maktens naÈtverk: En undersoÈkning av regeringskansliets È rlag. kontakter, Stockholm: Carlsons Bokfo Pigou, A.C. (1932 [1920]), The Economics of Welfare. London: Macmillan and Co. Reitan, M. (1997), `Norway: A Case of ``Splendid Isolation'' ', in M.S. Andersen and D. Liefferink, eds, European Environmental Policy: The Pioneers, Manchester: Manchester University Press, 287±330. Rhodes, R.A.W. (1981), Control and Power in Central±Local Government Relations, Farnborough: Gower Publishing Company. Rhodes, R.A.W. and D. Marsh (1992a), `New Directions in the Study of Policy Networks', European Journal of Political Research 21, 181±205. Rhodes, R.A.W and D. Marsh (1992b), `Policy Networks in British Politics: A Critique of Existing Approaches', in D. Marsh and R.A.W. Rhodes (eds), Policy Networks in British Government. Oxford: Clarendon Press. Ringius, L. (1999), `The European Community and climate protection', Report 1999:8, CICERO, Oslo, Norway. Robinson, M. (1992), The Greening of the British Party System, Manchester: Manchester University Press. Rokkan, S. (1966), `Norway: Numerical Democracy and Corporate Pluralism' in R.A. Dahl, ed., Political Oppositions in Western Democracies. New Haven: Yale University Press. Rommetvedt, H. (1992), `Norway: From Consensual Majority Parliamentarism to Dissensual Minority Parliamentarism', in E. Damgaard, ed., Parliamentary Change in the Nordic Countries, Oslo: Scandinavian University Press, 51±97. Salamon, L.M. (1981), `Rethinking Public Management: Third-Party Government and The Changing Forms of Government Action', Public Policy, 29, 255±75. È lin (1992), `Sweden: Changing Party Relations in a Sannerstedt, A. and M. Sjo More Active Parliament', in E. Damgaard ed. Parliamentary Change in the Nordic Countries, Oslo: Scandinavian University Press, 99±149. SaÈrlvik, B. (1974), `Sweden: The Social Bases of the Parties in a Developmental Perspective' in R. Rose, ed., Electoral Behavior: A Comparative Handbook, New York: The Free Press, 371±434. Schattschneider, E.E. (1975 [1960]), The Semisovereign People: A Realist's View of Democracy in America. Hinsdale, Illinois: The Dryden Press. Schmalensee, R., P.L. Joskow, A.D. Ellerman, J.P. Montero and E.M. Bailey (1998), Àn Interim Evaluation of Sulfur Dioxide Emissions Trading', Journal of Economic Perspectives, 12, 53±68. Schmidt, M. (1996), `When parties matter: A review of the Possibilities and Limits of Partisan Influence on Public Policy', European Journal of Political Research, vol. 30, no. 2, 155±83. Schmitter, P.C. (1985), `Neo-corporatism and the State' in Wyn Grant, ed., The Political Economy of Corporatism, London: Macmillan, 31±62.

192 Bibliography

È dselmedel', Svensk foÈrfattningssamling 1984, SFS 1984:409, `Lag om avgift paÊ go Stockholm. SFS 1984:410, `Lag om avgift paÊ bekaÈmpningsmedel', Svensk foÈrfattningssamling 1984, Stockholm. SFS 1988:638, `Lag om aÈndring i lagen (1984:410) om avgift paÊ bekaÈmpningsmedel', Svensk foÈrfattningssamling 1988, Stockholm. È dselmedel', SFS 1988:639, `Lag om aÈndring i lagen (1984:409) om avgift paÊ go Svensk foÈrfattningssamling 1988, Stockholm. SFS 1994:1706, `Lag om aÈndring i lagen (1984:410) om avgift paÊ bekaÈmpningsmedel', Svensk foÈrfattningssamling 1994, Stockholm. È dselmedel', SFS 1994:1707, `Lag om aÈndring i lagen (1984:409) om avgift paÊ go Svensk foÈrfattningssamling 1994, Stockholm. È dselmedel', SFS 1995:616, `Lag om aÈndring i lagen (1984:409) om avgift paÊ go Svensk foÈrfattningssamling 1995, Stockholm. È blom, G. (1968), Party Strategies in a Multipary System, Lund: StudentlitterSjo atur. Skatteministeren (1995), `Lovforslag nr. L 182, 1995: Forslag til lov om afgift af bekñmpningsmidler', Folketingstidende 1994±95, Tillñg A. Skatteudvalget (1995), `Betñnkning over Forslag til lov om afgift af bekñmpningsmidler', Folketingstidende 1994±95, Tillñg B. Skatteutskottet (1990), `Skatteutskottets betaÈnkande 1989/90:SkU31. Reformerad indirekt beskattning m.m.', Riksdagstrycket 1999/1990, Stockholm. Skatteutskottet (1995), `Skatteutskottets betaÈnkande 1994/1995: SKU29: È ndringar av vissa fo Èrfaranderegler m.m. fo Èr punktskatter', Riksdagstrycket A 1994/1995, Stockholm. Smith, M.J. (1990), The Politics of Agricultural Support in Britain: The Development of the Agricultural Policy Community, Aldershot: Dartmouth Publishing Company. Smith, M.J. (1993), Pressure, Power and Policy. State Autonomy and Policy Networks in Britain and the United States, New York, London: Harvester Wheatsheaf. Smith, S. (1995), `Green' Taxes and Charges: Policy and Practice in Britain and Germany, London: The Institute of Fiscal Studies. SOU (1983a), AnvaÈnding av vaÈxtnaÈring: BetaÈnkande av udredningen om anvaÈnding av kemiska medel i jord- och skogsbruket, no. 1983:10, Stockholm: Liber/AllÈ rlaget. maÈnna Fo SOU (1983b), BekaÈmpning av vaÈxtskadegoÈrare och ograÈs: BetaÈnkande av udredningen om anvaÈnding av kemiska medel i jord- och skogsbruket, no. 1983:11, StockÈrlaget. holm: Liber/AllmaÈnna Fo SOU (1984), Jordbruks och livsmedelspolitik. HuvudbetaÈnkande av 1983 aÊrs livsÈrlaget. medel-kommitteÂ, no. 1984:86, Stockholm: Liber/AllmaÈnna Fo SOU (1989), Ekonomiska styrmedel i miljoÈpolitiken. Energi och trafik, no. 1989:83, È rlaget. Stockholm: AlmaÈnna Fo SOU (1991), Konkurrensneutral energibeskattning, no. 1991:90, Stockholm. Statens Forurensingstilsyn (2000), Utslipp av karbondioksid (CO2) til luft, Downloaded from the following homepage 30 August, http://www.mistin. dep.no/data/tidsserie.asp?paramkode CO2 -UL.

Bibliography 193

Stavins, R.N. and B.W. Whitehead (1992), `Pollution Charges for Environmental Protection: A Policy Link Between Energy and Environment', Annual Reviews (Energy and Environment), 17, 187±210. Steen, A. (1988), Landbruket, staten og sosialdemokratene. En komparativ studie av interessekonflikterne i landbrukspolitikken i Norge, Sverige og England 1945± 1985, Oslo: Universitetsforlaget. Steiner, U. and G.T. Svendsen (2000), À European Acid Rain Program based on the US experience?', European Environment, vol. 10, 5, 220±9. Sterner, T. (1994), Ènvironmental Tax Reform: The Swedish Experience', European Environment, vol. 4, part 6, 20±5. Stones, R. (1992), `Labour and International Finance, 1964±1967' in D. Marsh and R.A.W. Rhodes, eds, Policy Networks in British Government, Oxford: Clarendon Press, 200±25. Streeck, W. and P.C. Schmitter (1985), `Community, Market, State ± and Associations? The Prospective Contribution of Interest Governance to Social Order' in W. Streeck and P.C. Schmitter, eds, Private Interest Government: Beyond Market and State, London: Sage Publication, 1±29. Strom, K. (1990), À Behavioral Theory of Competitive Political Parties', American Journal of Political Science, vol. 34, no. 2, 565±98. Svendsen, G.T. (1998a), Public Choice and Environmental Regulation: Tradable Permit Systems in United States and CO2 Taxation in Europe, New Horizons in Environmental Economics, Cheltenham: Edward Elgar. Svendsen, G.T. (1998b), `The US Acid Rain Program: Design, Performance and Assessment' Government & Policy: Environment and Planning C, 16, 723±34. Svendsen, G.T. (1998c), À General Model for CO2 Regulation: The Case of Denmark', Energy Policy, 26, 33±44. Svendsen, G.T. (1998d), `Towards a CO2 Market for the EU: The Case of the Electric Utilities', European Environment, 8, 121±8. Svendsen, G.T. (1999a), ÙS Interest Groups Prefer Emission Trading: A New Perspective', Public Choice, vol. 101, Issue 1/2, 109±28. Svendsen, G.T. (1999b), `The Idea of Global CO2 Trade', European Environment, 6, 232±7. Svendsen, G.T. and J.L. Christensen (1999), `The US SO2 Auction: Analysis and generalisation', Energy Economics, 21/5, 403±16. Svendsen, G.T., C. Daugbjerg, L. Hjùllund and A.B. Pedersen (2001), `Consumers, Industrialists and the Political Economy of Green Taxation: CO2 Taxation in the OECD', Energy Policy, 29(6), 489±97. Swedish Government (1984), `Regeringens proposition 1983/84:176 om È dsels- och bekaÈmpningsmedel', Riksdagstrycket 1983/84, Stockavgifter paÊ go holm. Swedish Government (1988), `Regeringens proposition 1987/88: 128 om milÈrbaÈttrande aÊtgaÈrder i jordbruket, m.m.', Riksdagstrycket 1987/88, StockÈfo jo holm. Swedish Government (1990a), `Regeringens proposition 1989/90:141 om vissa ekonomiska styrmedel inom miljùpolitikken m.m'., Riksdagstrycket, 1989/ 1990, Stockholm.

194 Bibliography

Swedish Government (1990b), `Regeringens proposition 1989/90: 111', Om reformerad mervaÈrdeskatt m.m., Stockholm. È rSwedish Government (1992), `Regeringens proposition 1991/92:150 med fo È r budgetaÊret 1992/93, m.m. slag om slutlig reglering av statsbudgetten fo (kompletteringsproposition), bilaga I:5', Riksdagstrycket 1992/1993. Stockholm. Swedish Government (1996), `Regeringens proposition 1996/97:29. Hùjning Èr industrien och vaÈxthusnaÈringen', Riksdagstrycket av koldioxidskatten fo 1996/1997, Stockholm. Tak, T. van der (1994), `Shades of Green: Political Parties and Dutch Environmental Policy', in M. Wintle and R. Reeve eds, Rhetoric and Reality in Environmental Policy: The Case of the Netherlands in Comparison with Britain, Aldershot: Avebury, 9±24. Tenfjord, A.-P. (1995), CO2±saka: Okonomisk interessepolitikk og miljùpolitiske maÊlsetjingar, Rapport 9507, Bergen: LOS-Senteret. Terkla, D. (1984), `The Efficiency Value of Effluent Tax Revenues', Journal of Environmental Economics and Management, 11(2), 107±23. Thaler, R. (1980), `Toward a positive theory of consumer choice', Journal of Economic Behavior and Organization, vol.1, 39±60. Tietenberg, T.H. (1985), Emissions Trading: An Exercise in Reforming Pollution Policy, Washington, DC: Resources for the Future. Tietenberg, T.H. (2000), Environmental and Natural Resource Economics, 5th edn, Addison Wesley Longman. Tullock, G. (1967), `The Welfare Costs of Tariffs, Monopolies, and Theft', Western Economic Journal, 5, 224±32. Turner, R.K., R. Salmons, J. Powell and A. Craighill (1998), `Green Taxes, Waste Management and Political Economy', Journal of Environmental Management, vol. 53, 121±36. Tweede Kamer (1995), `Wijziging van de Wet belastingen op milieugrondslag in verband met de invoering van een regulerende energiebelasting', Handelingen Eerste en Tweede Kamer, Staten-Generaal 1995±1996, 24250, TK 10. Ulph, A. (1996), Ènvironmental Policy Instruments and Imperfectly Competitive International Trade', Environmental and Resource Economics, Vol. 7, 333±55. UNEP (2000), http://www.grida.no/db/maps/ collection/climate5/russia.htm. UNFCCC (1997), http://www.cop3.de/. United Nations (2000): http://www.unfccc.de/resource/docs/convkp/kpeng. html. Vatn, A. (2000), Èfficiency and Fairness: The Norwegian Experience with AgriEnvironmental Taxation', in M.S. Andersen and R.-U. Sprenger, eds, Marketbased Instruments for Environmental Management: Politics and Institutions, Cheltenham: Edward Elgar, 111±28. Vedung, E. (1988), `The Swedish Five-Party Syndrome and the Environmentalists', in K. Lawson and P.H. Merkl, eds, When Parties Fail: Emerging Alternative Organizations, Princeton: Princeton University Press, 76±109. VROM (1998a), `Green Taxes: Questions and Answers', http://www.minvrom.nl (transcript 12 May 1999).

Bibliography 195

VROM (1998b), `Third National Environmental Policy Plan', http://www. minvrom.nl (transcript 12 May 1999). VROM (1999), `Green Taxes: Questions and Answers', http://www.minvrom.nl (transcript 6 August 1999). Vroom, B. de (1985), `Quality Regulation of the Dutch Pharmaceutical Industry: Conditions for Private Regulation by Business Interest Associations' in W. Streeck and P.C. Schmitter, eds, Private Interest Government: Beyond Market and State, London: Sage Publication, 128±49. Wallart, N. (1999), The Political Economy of Environmental Taxes, New Horizons in Environmental Economics, Cheltenham: Edward Elgar. Waller, R. (1994), `Conservative Electoral Support and Social Class' in A. Seldon and S. Ball, eds, Conservative Century: The Conservative Party since 1900, Oxford: Oxford University Press, 579±660. Ward, H. and D. Samways (1992), Ènvironmental Policy' in D. Marsh and R.A.W Rhodes, eds, Implementing Thatcherite Policies: Audit of an Era, Buckingham: Open University Press. WDR (World Development Report) (1996), From Plan to Market, The World Bank. Weale, A. (1992), The New Politics of Pollution, Manchester: Manchester University Press. Weaver, R.K. (1986), `The Politics of Blame Avoidance', Journal of Public Policy, vol. 6, no. 4, 371±98. Whiteley, P., P. Seyd and J. Richardson (1994), True Blues: the Politics of Conservative Party Membership, Oxford: Clarendon. Williamson, P.J. (1989), Corporatism in Perspective: An Introductory Guide to Corporatist Theory, London: Sage Publications. Wilson, J.Q. (1980), `The Politics of Regulation' in J.Q. Wilson ed., The Politics of Regulation. New York: Basic Books. Winter, S. (1994), Implementering og effektivitet, Herning: Systime. WTO (2000a), http://www.wto.org/wto/inbrief/inbr02.htm. WTO (2000b), http://www.wto.org/wto/about/dispute1.htm. Yin, R.K. (1994), Case Study Research: Design and Methods, 2nd edn Newbury Park, California: Sage Publications Inc. Zhang, Z.X. and A. Nentjes (1999), Ìnternational Tradable Carbon Permits as a Strong Form of Joint Implementation', in S. Sorell and J. Skea, eds, Pollution for Sale: Emissions Trading and Joint Implementation, Cheltenham: Edward Elgar, 322±42.


Index

Acid Rain Program, 15, 138±9, 141, 146, 148±50, 152, 165, 178 Agricultural Council, 25, 93, 100 Annex B country, 151±2, 160±1 auction, 146, 148±50, 152, 155, 160, 162±6 Black box, 6, 23, 41 Brundtland report, 64 budget maximization, 156, 165 bureaucratic preferences, 156 carbon leakage, 161 centralization, 75 Centre parties, 13, 54±6, 58, 60±1, 63, 65±8, 72, 78±9, 96, 109±11, 177 CFC, 59, 61±62, 64, 122 Chicago Board of Trade, 163 Christian Democratic Appeal, 68±70 cleavage block, 52±3 cleavage politics, 13, 45, 46±9, 51±4, 56, 59, 63±4, 68±9, 80 CO2 (carbon dioxide), 4±5, 12, 15, 18±43, 45, 47, 59, 61±4, 66±8, 70±1, 73±81, 122, 131, 133, 137±41, 143, 145, 147±52, 155, 157, 159±67, 175±6, 178 CO2 taxation, 4±5, 12, 18±27, 29±43, 47, 59, 62, 64, 66±7, 70, 73±81, 122, 131, 133, 139±40, 160, 165, 175±6 coal, 21, 34, 77, 169, 176 coalition building, 54 Coalition government, 51±2, 55±6, 63, 65, 70±1, 80, 92, 94, 118 command-and-control (CAC), see standard regulation compromise-seeking, 74

Conservative parties, 47, 55±6, 58±9, 63±7, 72±3, 78±80, 107, 109, 111, 118, 122, 176 consultative bureaucracy, 125 consumers, 2, 4, 8, 11±13, 18±31, 33, 35±6, 38±43, 45, 55, 59, 61, 64, 78, 81, 95, 100±5, 115, 122, 145, 155, 165, 169, 177 Corporate Tax, 70, 130, 132, 134 corporatism, 19 corporatist bureaucracy, 125 counterbalancing force, 99, 100, 104 decision-making, 6, 13, 18, 23, 27, 29±32, 35, 40±43, 68, 145, 156 delegated administration, see also private interest government, 125±7 Denmark, 4, 12±13, 18, 21±7, 29±32, 35±7, 39±43, 47, 52, 57±61, 72, 74, 80, 84±5, 91±2, 98±101, 104±7, 110, 112±16, 122, 124, 127, 133, 141, 152, 157, 160±1, 163, 175 differentiated tax, 4, 20±3, 26, 30±1, 35±6, 39±41, 43, 106, 108, 165, 176 double dividend, 3 drinking water, 57, 94±5 earmarking, 14, 90, 95, 99, 106, 130, 134 efficiency, 4±9, 107, 119±20, 122, 138, 142, 149, 153 emission trading, see permit trading energy-intensive polluters, 26±7, 29, 31, 34, 36, 38±9, 41±2, 77, 131, 145±6, 153±4, 165, 169, 171, 176 environmental bureaucracy, 70, 156±7

197

198 Index

environmental organizations, 24±5, 27, 33, 39, 139, 145±6, 150±6, 160, 164±5, 169 Environmental Protection Agency (EPA), 62, 147±8, 163 European Union, 37, 39, 70, 100, 106±7, 141, 151±2, 158, 160, 163, 167, 178 farm unions, 83, 93±5, 100±1, 106±7, 110±11, 126, 128, 133±4 fertilizer, 63±4, 83±5, 91±3, 95±9, 105±16, 124, 176 Finland, 4, 18, 21, 23, 41, 52, 122, 152, 175 firm trade, 138, 153, 157, 162±3, 165 fossil fuels, 25, 28, 36, 77, 142±3, 147, 154, 162 fossil fuel (fuels), 36, 77, 142±3, 147, 154, 162 gas, 21, 32, 34, 77, 141, 151, 155, 169, 175±6 GATT, 162 Germany, 52, 152, 158 governmental preferences, 152, 157, 165 governmental trade, 138, 156, 160, 163±5 Great Britain, 7, 13, 47, 52, 57±9, 73±7, 79±81, 86, 152, 158, 176 Green majority, 60, 92, 106 green taxation, see taxation green tax reform, 18, 24, 26, 30±1, 33, 35±7, 39±42, 64, 71, 78±80, 102, 176 group mobilization, 2, 12, 14, 17±19, 35, 41, 43, 45, 48, 88, 103, 107±8, 118, 126, 128±9, 131±2, 134, 144±5, 157±8, 161, 175 heavy crude oil, 64, 66 heavy process, 21±2, 28±30, 34, 41, 66, 162, 175 heterogeneous sectors, 7, 14, 15, 68, 70, 132, 135, 137

homogeneous sectors, 7, 14, 19, 133±5 hot air, 144, 155±61, 163±7 households, see consumers ideology, 49±50, 53±4, 65 incentive, 2, 12, 14, 19, 26, 28, 31, 43, 45, 117±18, 128±9, 131±3, 137, 142±4, 146, 156±8, 163, 177 individual net gain, 19±20 industrial organizations, 13, 24±5, 27±9, 31, 33, 37, 64, 71, 75, 127, 150, 163, 165, 169 industry, see producers institutionalization, 1, 47, 50±2, 54, 74, 86±8 Interest groups, 5, 12, 17±18, 23±4, 28, 31, 37, 45, 85±6, 89, 100, 111, 124±5, 139, 144, 153±4, 156, 163, 165±6 issue network, 86±9, 91 Japan, 151, 153, 158, 172 Kyoto Protocol, 4±5, 15, 34, 137±9, 141, 143, 150±3, 158, 160±1, 164±6 labour-intensive polluters, 27, 37, 131, 154 Labour parties, 47, 54±6, 58, 65±7, 83, 85, 111, 113, 115, 176 landfill, 58±9 left±right dimension (left±right scale), 66 legacy, 80 Liberal Democrats, 58, 69, 71 Liberal parties (party) (Liberals), 59±63, 65, 68±73, 78, 80, 83, 92, 107, 122, 176 light process, 21, 28±30, 34, 67, 77, 173 lobbyism, see rent-seeking loser(s) from regulation, 14, 34, 89, 129, 131±5, 137, 145

Index 199

macro-level analysis, 5, 13, 45, 117 manure, 68, 70, 72, 95±6, 98 market structure, 146, 148, 165 meso-level analysis, 5, 13, 85, 118 micro-level analysis, 5, 12, 17 monitoring, 58, 94, 146, 148, 152, 157, 160±1, 165±6, 172 national government, 155, 160 Netherlands, 4, 13, 18, 21, 23, 41, 52, 67±9, 71±2, 80, 122, 152, 172, 175 nitrate, 84, 92±4, 98, 107±8, 123 nitrogen oxides, 63 non-Annex B country (countries), 161 non-earmarking, 90, 95, 99, 106±7, 130 non-point pollution, 7, 123 Norway, 4, 12±13, 18, 21, 23, 31±7, 39±43, 47, 52, 62, 64, 65±7, 72, 80, 84±5, 91±2, 97±9, 103±5, 109±10, 112±15, 122, 126, 131, 152, 175 OECD, 3±4, 12, 18, 21, 23, 40±1, 57, 142, 172 office seeking, 52 party politics, 5, 11, 47, 51±2, 58, 65, 81 party system, 13, 45, 47±50, 52±4, 58, 68±9, 74, 80 permit, 5±7, 9, 12, 15, 32, 35, 71, 76, 135, 137±53, 155, 157±67, 177±8 permit price, 140±1, 147, 149±50, 155, 177 permit trading, 5, 7, 9, 12, 15, 137±9, 141±4, 146, 148±53, 157±66, 178 pesticide, 59, 61, 63±4, 83±5, 91±9, 106±14, 116, 123±4, 127±8, 133, 176±7 petrol, 21, 34, 66, 78, 169, 176 point pollution, 7, 123 Poland, 152, 160 policy community, 86±8, 99, 119

policy design, 5±7, 12±15, 17±18, 23, 26, 30, 40±2, 45, 47, 61, 70, 72, 80±1, 83±4, 89, 91±2, 98, 105, 107, 112±15, 117±20, 124, 128, 132, 134±5, 138±9, 146, 148, 152±3, 160, 165±6, 178 policy network, 10, 75, 83, 85±9, 91, 99, 100±4, 114, 118±19, 170, 172 policy recommendation, 5, 8, 14±15, 117, 139, 152, 160, 163, 166 policy transfer, 75 political constraint, 5, 11±12, 17, 83±4, 128, 153 political economy, 10, 120, 138, 160 pollution reduction, 3, 8, 14, 43, 121, 129, 142, 151, 155±6, 157, 160±1, 178 power, 13, 20, 25, 41, 48, 60±6, 69, 71, 74±5, 79±80, 83, 85, 87±9, 91±2, 99±107, 112±14, 116, 118±19, 128, 146±8, 156, 169 private interest government, 125±7 producers, 2, 5±6, 8, 13±15, 18, 20±43, 47±8, 55±6, 58±9, 61±2, 64, 66±7, 70±3, 75±81, 83±4, 88±90, 100, 106, 112, 115±19, 122±6, 128±35, 137±9, 145±6, 150±6, 159±60, 163±5, 167, 169, 172, 175±6, 178 production input, 14, 90, 98, 120, 123±4 public choice, 10, 12±13, 17±18, 20, 45, 118, 139 pure bureaucracy, 125 redistribution, 14, 61, 89, 93±4, 96, 106±7, 113, 120, 129±35, 137, 140, 155, 164 reimbursement, 14, 22, 26±7, 29±31, 33, 36, 41, 55, 61, 81, 89±91, 95±7, 99, 106±7, 113, 116, 120, 122±35, 139±41, 163, 175 rent-seeking, 11±12, 17±20, 23±6, 30±1, 34±7, 40±3, 45, 119, 131, 144, 146, 153, 155±6, 164±5, 175 research method, 9

200 Index

revenue raising, 57, 71 right-of-centre parties, 13, 55 Russia, 141±5, 152, 155, 157±61, 166, 171±2 sanction, 161±2, 166 selective incentive, see special reward Social democratic parties, 52, 54, 57, 59, 60±3, 68±9, 71, 74, 78±9, 84, 92, 106, 112, 115±16, 176 space heating, 21, 28±30 special reward, 144±5, 157±8, 162±3, 165 standard regulation, 2, 21, 70, 76, 120±2, 137±8, 146, 169, 175, 177 state revenue, 14, 55, 81, 89±90, 95±7, 99, 108±9, 113, 117, 125, 134 state structure, 74±5 subsidies, 8±9, 14, 30, 41, 57, 70±1, 81, 90, 94±9, 103, 110±11, 113±14, 124, 127, 130, 134, 155, 159, 176±7 sulphur dioxide (SO2 ), 29, 59, 61, 63±4, 66, 141, 147±50, 165 Sweden, 4, 12±13, 18, 21, 23, 33, 36±43, 47, 52, 62±3, 65, 72±5, 77±81, 84±5, 91±2, 95±6, 98±9, 101±5, 107, 109±10, 112±15, 122, 152, 175±6 target level, 4±5, 7, 14±15, 17, 24, 27, 30±3, 36, 42, 117, 141, 143, 145±7, 151, 159±60, 162±4, 166±7

taxation, 1±15, 17±43, 45±8, 53±9, 61±4, 66±81, 83±5, 89±99, 105±35, 137, 139±41, 144, 146, 155, 160, 163±4, 166, 175±7 tax rate, 8, 18, 20±4, 26, 28±31, 33±4, 38, 40±2, 58, 70±1, 77±9, 89±90, 93, 106, 109, 110±11, 117, 122, 129, 176 tax revenue, 14, 33, 38, 58±9, 61, 72, 81, 89±91, 93±6, 98±9, 106±9, 111, 113±14, 116, 120, 122, 124, 127±8, 130, 133±4, 139 trade level, 130, 152±7, 164 Ukraine, 152, 158±9, 166 uniform tax, 3, 17, 24, 26, 36, 39±40, 43, 45 unions (labour), 25, 29, 31±2, 35, 37±40, 42±3, 55, 70, 74, 77±8, 83, 100±1, 106±7, 110±11, 126, 133±4, 141, 145, 151±2, 154, 158, 160, 163±4, 167, 169±72 United Nations, 151±2 United States, 137±8, 141±3, 146, 150±2, 158±9, 161, 163, 166±7 Uruguay Round, 162 voluntary agreement, 29±31, 35, 42, 55, 70 voting mobility, 53 waste, 58±9, 61±3, 75, 78, 122, 176 water effluent, 68, 70±1, 125, 127 winner (from regulation), 14, 42, 89, 129, 131±4, 145 World Trade Organization, 161

Green Taxation in Question: Politics and Economic Efficiency in Environmental Regulation

Economic Efficiency in Law and Economics

Productivity, Efficiency and Economic Growth in China

Green History: A Reader in Environmental Literature, Philosophy and Politics

Green History: A Reader in Environmental Literature, Philosophy and Politics

Increasing Returns and Economic Efficiency

Environmental Politics and Policy in Industrialized Countries

Ecospeak: rhetoric and environmental politics in America

Politics and Practice in Economic Geography

Politics and Practice in Economic Geography

Economic Openness and Territorial Politics in China

Culture and Politics in Economic Development

Political Competition and Economic Regulation

Taxation, Wage Bargaining, and Unemployment (Cambridge Studies in Comparative Politics)

Taxation, Wage Bargaining, and Unemployment (Cambridge Studies in Comparative Politics)

Cooperation and Efficiency in Markets

Green Politics and Neoliberalism

Efficiency and Complexity in Grammars

Studies in International Taxation

Efficiency and Complexity in Grammars

Benefit-Cost Analysis in Environmental, Health, and Safety Regulation

Economic Change and the National Question in Twentieth-Century Europe

Energy Efficiency in Industry

Environmental Policy and Politics

Environmental Policy and Politics

Aggregation, Efficiency, and Measurement (Studies in Productivity and Efficiency)

Economic Change and the National Question in Twentieth-Century Europe

Economic Change and the National Question in Twentieth-Century Europe

Fuel Efficiency in Transportation

Green Taxation in Question: Politics and Economic Efficiency in Environmental Regulation

Economic Efficiency in Law and Economics

Productivity, Efficiency and Economic Growth in China

Green History: A Reader in Environmental Literature, Philosophy and Politics

Green History: A Reader in Environmental Literature, Philosophy and Politics

Increasing Returns and Economic Efficiency

Environmental Politics and Policy in Industrialized Countries

Ecospeak: rhetoric and environmental politics in America

Politics and Practice in Economic Geography

Politics and Practice in Economic Geography

Economic Openness and Territorial Politics in China

Culture and Politics in Economic Development

Political Competition and Economic Regulation

Taxation, Wage Bargaining, and Unemployment (Cambridge Studies in Comparative Politics)

Taxation, Wage Bargaining, and Unemployment (Cambridge Studies in Comparative Politics)

Cooperation and Efficiency in Markets

Green Politics and Neoliberalism

Efficiency and Complexity in Grammars

Studies in International Taxation

Efficiency and Complexity in Grammars

Benefit-Cost Analysis in Environmental, Health, and Safety Regulation

Economic Change and the National Question in Twentieth-Century Europe

Energy Efficiency in Industry

Environmental Policy and Politics

Environmental Policy and Politics

Aggregation, Efficiency, and Measurement (Studies in Productivity and Efficiency)

Economic Change and the National Question in Twentieth-Century Europe

Economic Change and the National Question in Twentieth-Century Europe

Fuel Efficiency in Transportation

Recommend Documents