Is taxation good for managing hazardous chemicals?

Chemical policy in the world currently mostly targets a limited number of highly hazardous chemicals. Since such substances have a great impact on environment and health, bans and use restrictions have been the most frequently used policy instruments. But what about taxation?

With growing concerns about the combined effects on health and ecosystems of low dose exposure from multiple chemicals, the demand for improved regulation of chemicals have increased. A newly published scientific article in the journal Sustainability calls for broader use of market-based instruments in chemicals management.

Researchers Daniel Slunge from the FRAM Centre at the University of Gothenburg and Francisco Alpizar from the Tropical Agricultural Research and Higher Education Center in Costa Rica have performed an analysis of worldwide experiences and lessons learned from using market-based instruments such as taxes, charges, subsidies, refund systems and tradable permits for managing hazardous chemicals. The analysis is based on a review of published and gray literature and an analysis of the OECD database on Policy Instruments for the Environment.

Daniel Slunge explains that the aim was to investigate the potential for increased use of risk-based taxation in the management of pesticides and other hazardous chemicals.

– In comparison with other environmental policy areas, we found relatively limited use of market-based instruments for chemicals management. But the is growing, not least in Scandinavia there are experiences from using taxes on pesticides, chemical fertilizers and on hazardous chemicals in consumer products. Also in low- and middle income countries we see a growing use of charges and fees for hazardous waste management.

Daniel Slunge further says that market-based instruments can provide important complements to bans and use restrictions as they by changing relative prices provide continuous incentives for substitution towards less hazardous chemicals.

– We, for example, found some evidence that risk-based taxation can be effective in reducing the environmental and health effects of pesticides.

However, the effectiveness of market-based instruments is closely linked to various contextual factors and their implementation is often met by resistance from specific interest groups. Therefore, the design of chemical taxes need to be based on knowledge and facts and carefully consider implementation feasibility. In for example Denmark, increased taxes on hazardous pesticides was accompanied by reduced property taxes on agricultural land. The costs and benefits of such trade-offs need to be carefully considered.

– I was surprised to see that many applications of chemical taxes never were evaluated, says Daniel Slunge and continues, while we have found several interesting applications, this is clearly an area were more research is needed and in the article we outline important knowledge gaps.

This research has been performed in collaboration with researchers within the Environment for Development Initiative and the Gothenburg Centre for Sustainable Development.

Read the full article: Market-Based Instruments for Managing Hazardous Chemicals: A Review of the Literature and Future Research Agenda.

The article was published in the journal Sustainability, in the special issue called Economics of Environmental Taxes and Green Tax Reforms.