Analysis of P resource taxation - European Environment Agency (EEA)

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Jan 7, 2016, 7:44:05 PM1/7/16
to Sustainable Phosphorus Platform

Report for EEA assesses feasibility and impacts of resource taxation for iron/steel, copper and phosphorus

An 82 page report (link for download below) to the European Environment Agency (EEA) analyses the feasibility and expected environmental and economic impacts of different possible European resource taxation mechanisms for non-renewable (non-energy) resources, looking in detail at iron/steel, copper and phosphorus.

Resource (or raw material) taxation can be applied at different levels: extraction (mining), first industrial use (e.g. for P, fertiliser production) or final consumption (e.g. for P, fertiliser use). In all cases, there are risks for any industry or use which is subject to international competition, because producers or users (mines, food production) outside Europe would not be subject to the tax. This can be neutralised through “Border Tax Adjustment” (BTA).

Avoiding penalising European industry or farmers

Although BTA taxation might be relatively feasible for e.g. imported fertilisers and phosphorus containing industrial substrates (phosphate rock, phosphoric acid), because of the relatively small number of players and the homogeneous nature of the products concerned, it would be much more complex for imported food and animal feeds (difficulty of defining phosphorus content, large number and wide range of importing companies and operators).

The report notes the challenge that “the agricultural sector faces strong international competition, that it is seen as a relevant economic sector, that it receives strong political support and many subsidies in most countries, and that it has a very strong lobby”.

Justification and advantages

The report identifies the following reasons for need for action on phosphorus:

  • Non-substitutable in its main use, agriculture
  • Considerable environmental impact
  • Geopolitical issues related to reserve distribution in different countries in the world
  • Tendency to mine lower grade rock
  • Impurities in phosphate rock, e.g. cadmium, uranium
  • EU is 92% dependent on imported phosphorus

It is noted that overall use efficiency is low (only around 10% of mined P is effectively used) and that use per hectare is highly variable between different European countries (from 3 to 13 kgP/ha/year).

A possible taxation scheme should therefore have as objectives

  • To secure long-term availability and reduce import dependency
  • To reduce phosphorus losses into surface water
  • To close the phosphorus cycle as far as possible, reducing inputs and outputs and developing recycling

In particular, the scheme should provide incentives to recycling, to reduction of losses from arable and animal farms, and to reduce the use of phosphate rock with high heavy metal contents.

Experience with phosphorus taxes

Experience from several EU states is summarised:

  • Finland: tax on fertilisers 1976, then on P 1990, then P and N 1992, repealed 1994
  • Netherlands: tax on farm N and P surpluses (MINAS Mineral Accounting System) 1998 – 2006
  • Denmark: tax on P in animal feeds 2005 – still in place
  • Austria: tax on fertilisers 1985 – 1994
  • Norway: tax on N and P in fertilisers 1998 – 2000
  • Sweden: tax and price regulation charge on fertilisers 1984 – 1994, replaced by a tax on cadmium content (still in place today)

Overall, analysis of these examples suggests that the taxes had little effect unless the level was quite high. However, there was a long-term effect of better information and awareness of farmers. The Netherlands MINAS tax on farm nutrient surpluses was considered effective, but had difficulties of administrative complexity, and has been replaced by regulatory policies using the same based (obligation for farm nutrient balances). The Sweden tax scheme is considered effective, probably because the level of taxation is relatively high (3.3€ per g cadmium exceeding 5gCa/tonneP) and because it was accompanied by action programmes to reduce use.

The report notes that these experiences did not include BTA on imported products containing phosphorus, such as food products.

Stimulating innovation and efficiency

The report notes that the prices of raw materials is often relatively low, so that taxation would have to be at a very high level to modify use patterns sufficiently to significantly reduce resource consumption, environmental impact.

Phosphorus in fertiliser, however, offers a specific case, in that it is non-substitutable and essential for agricultural production. An appropriate level of taxation on virgin mineral phosphorus use could thus potentially stimulate both improvements in efficiency of use on farms and innovation and implementation of recycling (better use of or phosphorus recovery and recycling from organic sources such as sewage or manures).

Short-term price elasticity for phosphate fertilisers is cited as maybe -0.1 to -0.25, suggesting that a 10-fold price increase would be needed to reduce use by 50%, assuming that this can be substituted by phosphorus from organic streams (sewage, manure).

A high potential for increasing phosphorus use efficiency is identified throughout the use chain, not just in fertiliser use, but also in food production and dietary choice.

The report notes that a tax on products implying high phosphorus use in their production (e.g. meat) could be more effective that a tax on phosphorus fertilisers, but would pose implementation issues because of difficulties in calculating how much phosphorus is needed to produce one kilogramme of meat. Nonetheless, the current reduced rate of VAT on meat could be questioned.

The report concludes that probably no single tax tool could effectively target all uses of phosphorus and that a phosphorus use tax should be part of a policy mix with other instruments. In particular, the report notes that there are a number of tools in agricultural policy, including bio-fuels policies and agricultural subsidies which could be adjusted to incite phosphorus use efficiency, reduce phosphorus losses, reduce soil erosion, and encourage phosphorus recycling.

Download the report:

“Material resource taxation, an analysis for selected material resources”, October 2015, 82 pages, ETC/SCP, ETC/WMGE and EEA

F. Eckermann and M. Golde UBA; M. Herczeg, Copenhagen Resource Institute (CRI), Denmark; M. Mazzanti, Sustainability Environmental Economics and Dynamic Studies (SEEDS), Italy; R. Zoboli, SEEDS and Research Institute on Sustainable Economic Growth (IRCrES), Italy; S. Speck, European Environment Agency (EEA), Denmark.


Mar 5, 2016, 10:20:15 AM3/5/16
to Sustainable Phosphorus Platform

I read that report quite thoroughly. It is mostly good sense. And mostly accepted knowledge. But I think it misses a few things.

The general thing people miss about taxes and economy in general is that costs on one side are always income on the other. Tax or fees levied do not have to go into a big dark hole. If fees collected are paid back into citizen's accounts it is possible to get a levelling effect, where the biggest consumers (and polluters) are also those who contribute the most.

This is the case in Alaska where oil income is shared out to all residents.
Congestion charges used to improve public transport are an example on those lines.

The other point, where making things more expensive is seen as problematic, brings on the other hand a situation where competing products are comparatively cheaper. Organically grown food will be relatively cheaper if there is a tax on phosphorus imports.

I also marvel at the arguments given for why it might be expensive and difficult to but an import fee on food based on its phosphorus content. I believe this viewpoint should not go unchallenged. There are bodies, procedures and policies for handling dangerous chemicals, substances of concern and the 300 controlled substances. Going sustainable creates work. That is a good thing.

The world is awash with experts who do this sort of thing every day. (I worked in a department in Ericsson that did export control so I have some insight.) If there is something that is highly controlled it is products, product classification, import/export declaration, country of origin, etc etc.

Finally, I marvel at how the "money as incentive" angle is used to support whatever argument you happen to be promoting. Is money an incentive?  If things are too expensive it's also an opportunity to compete. If you believe that then making non-sustaining things more expensive will surely work if they cost enough that alternatives can enter ( a point sort of made in the report.) If you do not believe that money is an incentive to behaviour change then you need to explain how that behaviour can be regulated otherwise.

Anyway, I felt compelled to write an opinion piece on the topic, aimed at a less sophisticated audience than ESPP. Do have a quick  read and add your perspective. I think it is time to challenge the idea that we cannot solve the circularity of phosphorus.

The report talks of a variety of approaches at the same time. That's the way to go if you ask me!

Regards to all on this thread!

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