E C O N O M I C I N S T R U M E N T S
Poland provides the right incentives
By Jim McNicholas
Poland disproves the theory that high pollution charges will slow economic development. With air pollution charges among the highest in the world, Poland experienced the highest economic growth in the CEE region from 1990-1997.Poland has the CEE region's largest and fastest growing economy, with annual growth at over 5 percent per year since 1994. According to recent statistics from the EBRD's Transition Report, it is also a regional front-runner in terms of many market-oriented reforms such as privatisation of enterprises and price liberalisation.
During this period of growth, Poland applied an extensive set of pollution charges to air, water, and waste, with three concrete benefits for the environment and economy.
First, pollution charges send direct signals to polluters: reducing pollution saves money! For example, faced with stiff charges for sulphur dioxide (SO2) emissions (USD 94/ton in 1996), private enterprises were encouraged to invest in pollution-abatement technology. So much so that private investments accounted for 25 to 32 percent of all environmental investments made in Poland between 1993 and 1996.
Second, between 1991 and 1996, charges on emissions of SO2 and nitrogen oxides (NOx) alone raised over USD 1 billion. Revenues generated were then recycled for spending on environmental protection measures via provincial and national environmental funds.
A recent study by the OECD, comparing environmental expenditures in CEE, the NIS and Western Europe, found that investment in pollution-abatement and control in Poland is proportionally among the highest in Europe. High pollution charges and the strong performance of the environmental fund system were cited as a partial explanation for this success.
Finally, it appears that Poland's policy approach is not an either environment or economy proposition. Pollution charges may actually contribute to further market restructuring and economic development by encouraging enterprises to use resources efficiently, invest in new technologies and reduce waste, production costs and prices to consumers.
In fact, Polish investments to cleaner production and modern environmentally friendly technologies, often competitive in western markets, may have accelerated economic growth.
The Polish pollution charge system has generally become regarded as a model in the region for successfully implementing economic instruments for raising earmarked investment funds. Future environmental policy goals in Poland focus on: further accenting the incentive effect of instruments; modifying pricing systems in the water and waste sector; introducing new product charges; and harmonizing environmental spending with EU policies. Research has also been initiated regarding the formation of a market for tradable emission permits for SO2 emissions.
