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Fiscal incentives to advance sound management of chemicals and sustainable chemistry. Review Paper for the Global Chemicals Outlook II

Författare Daniel Slunge
Francisco Alpizar
Publiceringsår 2019
Publicerad vid Environment for Development (EfD)
FRAM Centrum för framtidens kemiska riskanalyser och styrning
Göteborgs miljövetenskapliga centrum, GMV
Språk en
Ämnesord market-based instruments; chemicals; pesticides; risk; tax; charge; subsidy; policy; Global chemicals outlook II
Ämneskategorier Kemi, Nationalekonomi


Fiscal incentives are governmental policies that change the relative price of a given activity or input, either encouraging or discouraging its use. They can be created through the removal of existing price distortions that generate perverse incentives for overuse, or through the implementation of new market-based instruments such as taxes, charges, deposit-refund systems, subsidies and tradable permits. This paper discusses the use of market-based instruments within the broader array of policy instruments for chemical management and analyses factors that facilitate or impede their deployment in different institutional contexts. We also discuss the main challenges in using market-based instruments in the particular context of chemicals, and outline key policy options. The two main arguments in favour of market-based instruments is that they can be more cost-effective and better at promoting innovation than bans, use restrictions and technology standards. By allowing firms with different substitution costs to reduce their use of harmful chemicals at different levels of intensity and time scales, price-type instruments can incentivise a cost-effective reduction in the use of the targeted chemical. Moreover, by increasing the cost of using a specific chemical, market-based instruments can provide strong incentives to innovate in the search for cheaper alternatives. However, there are many situations where the use of market-based instruments for chemicals management is less appropriate, including when the health or environmental costs from exposure to a hazardous chemical are very high, when effects are location specific and when threshold effects are likely. Market-based instruments should be seen as complementing rather than replacing bans and use restrictions in chemicals management. In practice, we find a limited but increasing use of market-based instruments for managing hazardous chemicals. Examples in the agricultural sector include taxes on pesticides and inorganic fertilisers. Similarly, taxes have been used to phase out the use of chlorinated solvents in industry. Lately, taxes have been used to encourage substitution of phthalates and brominated flame retardants in products. Refund systems are increasingly used for products containing hazardous chemicals such as batteries, electronic equipment and vehicles. Although the use of market-based instruments is mainly found in high-income countries, a number of low- and middle-income countries are using such instruments for hazardous waste management. Good knowledge about context-specific factors, such as price elasticities, market structure, availability of substitutes and exposure characteristics for the targeted hazardous chemical, is essential for the design of market-based instruments. Importantly, because market-based instruments can be deployed at different stages of the life cycle of a given chemical, information on the relation between the use of the chemical and its damage function in all those stages is needed. However, in many cases, there is a lack of data, and assessments based on existing data are often surrounded by considerable uncertainties. Hence, there is a need for careful data collection and monitoring and evaluation of the performance of different policy instruments for chemicals management. Flexibility to adjust tax levels after observing market reactions is also necessary. Promising policy options for scaling up the use of market-based instruments in chemicals management include: - Expanding the use of risk-based taxation of hazardous chemicals. Learn from the recent implementation of risk-based taxation of pesticides in Denmark, Norway, France and Mexico. - Evaluating and addressing the effects of subsidies and other policies generating perverse incentives for increased use of hazardous chemicals in agriculture and other sectors. - Using charges to speed up the phasing out of substances of very high concern. - Evaluating the use of market-based instruments for groups of chemicals, such as taxes on flame retardants and phthalates. - Using legal requirements on extended producer responsibility, environmental liability and access to information to incentivise sound chemicals management in line with the polluter pays principle.

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