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环保税法ENVIRONMENTAL TAXATION LAW |
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ENVIRONMENTAL TAXATION LAW To Angela, Caroline and Amelia Environmental Taxation Law Policy, Contexts and Practice JOHN SNAPE School of Law, University of Warwick, UK and JEREMY DE SOUZA Consultant to White and Bowker, UK © John Snape and Jeremy de Souza 2006 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior permission of the publisher. The authors hereby assert their moral rights to be identified as the authors of the work, in accordance with the Copyright Designs and Patents Act 1988. Published by Ashgate Publishing Limited Ashgate Publishing Company Gower House Suite 420 Croft Road 101 Cherry Street Aldershot Burlington, VT 05401-4405 Hants GU11 3HR USA England British Library Cataloguing in Publication Data Snape, John Environmental taxation law : policy, contexts and practice 1.Environmental impact changes - Law and legislation - Great Britain I.Title II.De Souza, Jeremy 344.4'1046 Library of Congress Cataloging-in-Publication Data Snape, John. Environmental taxation law : policy, contexts and practice / John Snape and Jeremy de Souza. p. cm. Includes bibliographical references and index. ISBN 0-7546-2304-1 1. Environmental impact charges--Law and legislation--Great Britain. 2. Environmental impact charges--Law and legislation. I. De Souza, Jeremy. II. Title. KD3382.E58S63 2005 344.4104'6--dc22 2005048265 ISBN 0 7546 2304 1 Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall. Ashgate website: http://www.ashgate.com Contents About the Authors xi Authors’ Preface xiii Table of Cases xvii Table of Statutes xxv Table of Statutory Instruments li Table of Provisions of the European Treaty lxv Table of European Community Legislation lxix Table of Provisions of GATT 1994 lxxxi Table of Other Treaty Provisions lxxxiii Table of Abbreviations lxxxvii PART I: PROLOGUE 1 Preliminaries 3 1.1 Introduction 3 1.2 Terminology, approach and sources 5 1.3 International, European, national and regional contexts 19 1.4 Regulatory and taxation contexts 21 1.5 Institutional framework 34 1.6 Scheme of the book 34 2 Regulated Sectors 37 2.1 Introduction 37 2.2 Trade associations, policy-makers and pressure groups 38 2.3 Waste management industry 40 2.4 Energy industries and consumers 42 2.5 Mineral extraction industry 50 2.6 Air passenger and road freight transport sectors 51 2.7 Concluding remarks 53 PART II: POLICY AND CONTEXTS 3 Introduction to Part II 57 4 Institutional Framework 63 4.1 Introduction 63 4.2 Institutions of central, regional and local government 63 4.3 European Union institutions 92 4.4 International institutions 101 4.5 Concluding comments 106 vi Environmental Taxation Law 5 Technical Justifications 109 5.1 Introduction 109 5.2 Sustainable development 110 5.3 Taxation and sustainable development 112 5.4 Economic instruments and market failures 115 5.5 The efficient level of fiscal intervention 120 5.6 Concluding remarks 122 6 Regulatory Context 125 6.1 Introduction 125 6.2 Integrated Pollution Control, Integrated Pollution Prevention and Control and Environmental Assessment 127 6.3 Waste management regulation 134 6.4 Control of air and atmospheric pollution 144 6.5 Air passenger and road freight transport regulation 159 6.6 Regulation of mineral extraction 161 6.7 Regulation of contaminated land 161 6.8 Concluding comments 162 7 Taxation Context 163 7.1 Introduction 163 7.2 Taxes and tax subsidies 164 7.3 Status of the main levies and subsidies under consideration 176 7.4 Concluding comments 182 8 International Aspects 183 8.1 Introduction 183 8.2 Public international law 184 8.3 International environmental law 191 8.4 International trade law 200 8.5 International air transport law 221 8.6 International energy law 222 8.7 Concluding remarks 223 9 Conclusions on Part II 225 PART III: PRACTICE 10 Introduction to Part III 231 Part III, Section A: Environmental Levies and Other Economic Instruments Division 1: General 11 Design and Implementation 237 11.1 Introduction 237 11.2 Regulatory impact assessment 238 Contents vii 11.3 Design and implementation of the two post-1997 taxes 240 11.4 Review of landfill tax 248 11.5 Concluding comments 250 12 Community Law Aspects 251 12.1 Introduction 251 12.2 Regulatory aspects 253 12.3 Taxation aspects 293 12.4 Rules on free movement of goods 303 12.5 Concluding comments 305 Division 2: National Taxes 13 Aggregates Levy 309 13.1 Introduction 309 13.2 Operation of the tax 310 13.3 Problems caused by the legal structure 312 13.4 Meaning of ‘aggregate’ 315 13.5 The concept of ‘exempt processes’ 316 13.6 Administration of the levy 316 14 Climate Change Levy 317 14.1 Introduction 317 14.2 Tax base and rates 318 14.3 Reduced rates 319 14.4 Exemptions 319 14.5 Combined heat and power and renewable source electricity 321 14.6 Climate change agreements and the UK Emissions Trading Scheme 324 14.7 Administration of the levy 327 15 Landfill Tax 329 15.1 Introduction 329 15.2 Tax base and rates 329 15.3 Securing the tax base 331 15.4 Exemptions 333 15.5 Temporary disposals 335 15.6 Fly-tipping 335 15.7 Administration of the tax 337 16 Customs’ Administrative Model 339 16.1 Introduction 339 16.2 Registration 339 16.3 Deregistration 341 16.4 The form of registration 342 16.5 The problem of trusts 343 16.6 Groups, divisions and going concerns 344 viii Environmental Taxation Law 16.7 Non-UK residents 346 16.8 Site registration 347 16.9 The credit concept 348 16.10 Bad debt relief 350 16.11 Transitional provisions 351 16.12 Record keeping and inspection 352 16.13 Disputes 352 16.14 Irregularities 353 16.15 Enforcement 353 16.16 Problems for landowners 354 Division 3: Local Levies 17 Workplace Parking Levies 361 17.1 Introduction 361 17.2 Changes in planning practice 362 17.3 Double payment 362 17.4 Metropolitan schemes 363 17.5 Other schemes 363 17.6 Those subject to schemes 364 18 Road User Charging Schemes 365 18.1 Introduction 365 18.2 Central London 365 18.3 Other cities 368 18.4 Metropolitan schemes 369 18.5 Other schemes 369 Division 4: Other Economic Instruments 19 The Packaging Regime Route 373 19.1 Introduction 373 19.2 Packaging 374 19.3 Choice 375 19.4 Registration 375 19.5 Obligations once registered 375 19.6 Waste disposal obligations 377 19.7 The future of packaging waste recovery notes 378 20 Emissions and Waste Trading Schemes 381 20.1 Introduction 381 20.2 Design and implementation of the UK Emissions Trading Scheme 381 20.3 Subsequent development of the UK Emissions Trading Scheme 383 20.4 Operation of the UK Emissions Trading Scheme 389 20.5 The regime applicable to direct participants 390 20.6 Green Certificate trading 391 20.7 Landfill Allowances Trading Scheme (‘the LATS’) 392 Contents ix Division 5: The Instruments in Operation 21 Policies in Practice (1) 397 21.1 Introduction 397 21.2 The employment ‘double dividend’ 397 21.3 Hypothecation, ‘recycling’ of revenue and tax subsidies 399 21.4 Political and industrial aspects 406 21.5 The Renewables Obligation 423 21.6 The 2003 Energy White Paper 425 21.7 Problems with electricity supply industry structures 433 21.8 The case of aggregates levy 436 21.9 Water and the farmers 441 21.10 The effect of Community law and policy 449 Part III, Section B: Greening the UK Tax System Division 1: Removing Subsidies and Creating Incentives 22 Excise Duties 457 22.1 Introduction 457 22.2 Motor cars and their fuel 457 22.3 Heavy goods vehicles and their fuel 462 22.4 The emissions problem 463 23 Employee Taxes 465 23.1 Introduction 465 23.2 Income tax treatment of company cars 465 23.3 Environmentally-friendly transport 467 24 Business Taxes 469 24.1 Introduction 469 24.2 Nature and role of capital allowances 469 24.3 Motor cars 470 24.4 Environmentally-friendly equipment 470 24.5 Urban regeneration 471 24.6 Private residential landlords 472 24.7 Emissions trading scheme corporation tax and VAT treatment 473 24.8 Direct tax treatment of environmental trust contributions 475 Division 2: The Provisions in Operation 25 Policies in Practice (2) 479 PART IV: PROSPECTS AND NEW DIRECTIONS 26 Environmental Taxes and the Tax Base 483 26.1 Introduction 483 x Environmental Taxation Law 26.2 The consolidation of the tax base 485 26.3 The future of non-property-based taxes in the internet world 487 26.4 International trade treaty problem for federations and economic areas 492 26.5 Employer’s national insurance contributions 494 26.6 The advantage of environmental taxes 495 26.7 European Union limitations 496 27 Government Proposals 499 27.1 Introduction 499 27.2 Economic instruments and housing development 500 27.3 Road pricing for heavy lorries 501 27.4 Nationwide satellite-based congestion charging 503 27.5 Pricing air passenger transport 504 27.6 Litter taxes 508 27.7 Taxing incineration 509 27.8 Conclusions 510 28 The EU Emissions Trading Directive 513 28.1 Introduction 513 28.2 Background to the EU Emissions Trading Directive 514 28.3 Provisions of the EU ETS Directive 525 28.4 Transposition of the EU ETS Directive into UK law 529 28.5 Developments since transposition of the EU ETS Directive 532 28.6 Concluding observations 534 PART V: PROVISIONAL ASSESSMENT 29 The Current State of Play 537 29.1 The problem of measuring success 537 29.2 How do the UK taxes measure up to this standard? 537 29.3 Success stories 542 29.4 Comparing 1997 with 2004 542 Postscript 545 Select Bibliography 551 Index 557 About the Authors Jeremy de Souza was educated at Charterhouse and New College, Oxford. Articled to Mr John Emrys Lloyd of Farrer & Co, he subsequently became an assistant solicitor and associate at that firm. Between 1976 and 1996, after which he became a consultant (enabling him to devote more time to writing), he was the firm’s tax partner. During his 32 years with the firm, he contributed to the newsletters for the Agricultural Estates Group, the Employment and Pensions Group, the Charities Group and the Briefing Service for in-house lawyers. In 1999, he became a part-time consultant to White and Bowker in Winchester, and has contributed to that firm’s newsletters: The Law of the Land, W&B Charity Law, Private Client Newsletter and Ins and Outs. He was a member of The Law Society Revenue Committee’s Corporation Tax Sub- Committee between 1989 and 1992. Since 1995, he has been the Chairman of the Holborn and, from 2001, City of Westminster and Holborn, Law Society’s Revenue Committee, writing a monthly article in the monthly journals, Holborn Report and The Report. In 1969, he was a co-author of Reform of Taxation and Investment Incentives. He was a contributor to Volume 35 of The Encyclopedia of Forms and Precedents (Sale of Land) in 1989. He was co-author of The Property Investor and VAT in 1990 and of The Conveyancer’s Tax Primer in 1999. Since 1991, he has been the General Editor of the Sweet and Maxwell looseleaf, Land Taxation. Since 2001, he has been a contributor to The Lawyer’s Factbook. He has contributed articles to The Law Society’s Gazette, STEP Journal, Private Client Business, The British Tax Review, Taxation, The Tax Journal, The Estates Gazette, Property Law Journal, Rural Practice, The Environmental Law Review, Trust Law & Practice, Trusts & Estates Tax Journal, Hampshire Chronicle, Negotiator, Butler & Co Farming News, Christie’s Bulletin and The Investor’s Chronicle. He has also lectured on tax topics. In addition to being a solicitor, he belongs to the Society of Trust and Estate Practitioners, the Stamp Taxes Practitioners Group and the Royal Institute of International Affairs. John Snape was educated at St Mary’s College, Blackburn, and St Edmund Hall, Oxford. He qualified as a solicitor in 1989 and subsequently worked in corporate and commercial legal practice. In 1993, he joined Nottingham Law School, the Nottingham Trent University, moving to the University of Leeds in 2002. In 2005, he took up a lectureship at the School of Law, the University of Warwick. He has written on a range of legal topics, including property law and tax law. This page intentionally left blank Authorsʼ Preface During the last seven years or so, the government of the United Kingdom has embarked on a range of far-reaching social and economic reforms. Among these, none is more striking, especially to those who have followed its development, than the enterprise of environmental taxation. The use of a tax, for long regarded as a means of raising government revenue, redistributing wealth or of managing the economy, in order to discourage certain forms of undesirable industrial behaviour, had no systematic antecedent in UK law prior to 1997. Of course, there had for centuries been duties on cigarettes, petrol and alcohol, but no tax, not even landfill tax, introduced in the dying days of Prime Minister John Major’s government, had been researched and designed specifically to steer the behaviour of those liable to pay it. True, landfill tax had attempted to put a price on the environmental costs of landfilling waste but, except to a slight extent, it had not been intended, when originally designed and implemented, to steer behaviour. By contrast, the two main taxes introduced after 1997, climate change levy, which is a tax on the industrial, commercial and agricultural consumption of non-environmentally-friendly forms of energy, and aggregates levy, a tax on the extraction of minerals, have been specially designed, via their structures and rates, to encourage the use of alternative resources. This is not the only way in which, if the reader will forgive the pun, these environmental taxes have been groundbreaking. The other way in which they have marked a departure, which the authors regard as highly characteristic, is their use in combination with other economic instruments, such as trading schemes, green certificates, road and cordon pricing and special reliefs within non-environmental tax codes. All of the factors just rehearsed explain the book’s title. We cannot, against the policy background outlined above, treat of environmental taxes in isolation from the other instruments which are designed to complement them. So the range of instruments involved is not the least of the contexts envisaged by the title. However, we have tried to look for other contexts, primarily legal ones, which will help us to explain the various aspects of environmental taxation more usefully. As an energy tax, climate change levy is imposed on gas and electricity supplies. Both the gas supply industry and the electricity supply industry are sectors of extreme technical complexity, as a result of their privatisation, in another characteristic adventure, this time of a decade or more ago and a different government. Grafting climate change levy onto these post-nationalisation structures, without a consistent energy policy, has contributed to producing a tax of such extraordinary complexity that it would be impossible to appreciate its subtleties without a knowledge of ‘what lies beneath’. So discussions of the post-nationalisation energy sector structures and regulation have been included as well as environmental regulation and tax law. Again, since the regulation of air transport and road freight transport affects plans to introduce new airline taxes, emissions trading schemes and road pricing schemes, we have xiv Environmental Taxation Law also included a brief discussion of how these sectors are structured and regulated. In every case, we seek to provide, not just a UK context for the material but an EU-wide and international one also. We hope, as a result, that this book will be no less useful to the overseas reader than to the UK one. This brings us to another set of contexts: the European Union and international governance structures within which the UK’s economic instruments for environmental protection have been designed and implemented. The more obvious governance structure is the EU one, since the EU’s institutions – notably the European Commission – provide both the impetus for action at national level, via the Sixth Environmental Action Programme, and the terms on which that action can be taken, via the European Treaty and the legislation made thereunder. Finding the right level of governance is an important question with economic instruments. In its enthusiasm to introduce emissions trading, partly as a sweetener to sectors already hit both by Integrated Pollution Prevention and Control and climate change levy, the government managed, with the UK Emissions Trading Scheme, to turn, in Sorrell’s words, an ‘early start into a false start’. This is because the period of the last 18 months to two years has also seen the creation of the EU Emissions Trading Scheme, under which carbon dioxide emissions will be capped, parcelled out and traded among all the Member States of the enlarged Union. The government claims that the UK scheme, set up in 2002, will be good practice for the EU scheme, due to commence in January 2005. Its detractors claim that the UK scheme was an irrelevance, nonsensically unilateral and designed simply to buy off opposition to the government’s environmental policy from sectors most badly hit by climate change levy and IPPC. At the very least, there is a measure of over-regulation. Although less obvious, governance is also felt at the international level, via the United Nations-sponsored 1992 Framework Convention on Climate Change, and its 1997 Kyoto Protocol, as well as the rules of the WTO/GATT 1994-based system of multilateral agreements on international trade. Both the EU itself and its Member States are parties to both sets of agreements. Although there are signs that the position may be changing, the values of the latter, which have governed international trade at least since the mid-twentieth century, may be difficult or impossible to reconcile with those of the former, whose values are, of course, much newer. The influence of Kyoto is to be felt, not only in the creation of the two emissions trading schemes referred to above, each of which take Kyoto as their inspiration, but also in the design of environmental taxes. Climate change levy, an energy tax, neatly sidesteps design problems created by GATT 1994’s concept of the border tax adjustment and, in doing so, may sacrifice something of its environmental effectiveness. The trade-off just referred to is, of course, a matter of political judgement. No less characteristic of the UK’s environmental taxes and other economic instruments than their regulatory context and their place within European and international governance structures are the political choices they represent. These are shown both in present political compromises and in the political possibilities for the future. Lord Butler memorably described politics as ‘the art of the possible’. Whether the structuring of climate change levy as a downstream energy tax owed more to fear of the political consequences of taxing domestic energy consumption and alienating what remained of the coal industry, than it did to economic and environmental principles, is a matter for historians to debate. The authors have some well-founded suspicions on these Authors’ Preface xv points. Nevertheless, it remains the case that, with these taxes in place, it would remain open to a future government, in a time of falling revenues, to supplement the Exchequer by increasing the rates of aggregates levy and climate change levy instead of turning to the much more politically sensitive expedient of increasing rates of income tax. The mechanisms are all now in place, thanks to the enterprise of environmental taxation. The controversies on these points will surely continue. For our part, we have tried to offer a critical account of an area of UK policy, law and practice which has not, so far as we know, been systematically explored to date in this jurisdiction by any other lawyer authors. In an age when the expounding of a legal subject – however complex – does not perhaps enjoy the high reputation that once it did, we seek (as lawyers) to explain how the different instruments interact at a regulatory level. We do occasionally pass judgment but we do so, not on matters outside our expertise (neither of us being economists and, as yet, unwilling to succumb to the siren song of law and economics), but on the basis of the various accountability mechanisms in the UK’s unwritten constitutional arrangements. In the last 12 to 18 months, the panoply of Select Committees at Westminster has begun to take a keen interest in the flutter of creative activity in environmental regulation in Whitehall. In fact, these accountability mechanisms and the network of departments, committees, advisory bodies and executive bodies that have been involved in the design and implementation of the measures under discussion, feature prominently in what follows. We have included the explanations of who they are and what they do because of the difficulties facing the non-specialist or non-UK lawyer in finding his or her way through the myriad of institutional actors. What we offer, then, is a pragmatic, critical, account. We do not purport to offer any empirical conclusion but we think that we can at least provoke others to test our conclusions. Each of the authors brings something different to the book. John Snape is an academic lawyer with an interest in international economic law and in the crossovers between environmental regulation, energy law and tax law. Jeremy de Souza is a senior practitioner who retired from full-time practice as a partner in Farrer & Co. in 1996. He has written extensively on tax law matters and is referred to in reference books as a leading specialist in the environmental taxation area. Thus do we seek to bring together our different but hopefully complementary skills. Although each author has read and commented in detail on the work of the other, we have each taken responsibility for writing different Chapters. Setting aside the very short Chapters 3, 9 and 10, which are very much joint efforts, John Snape was responsible for Chapters 1–12 and 28, while Jeremy de Souza was responsible for Chapters 13–27 and 29. In addition, Jeremy carried out the herculean task of compiling the tables and indices. Warm thanks are due in several quarters and we would like to record them as follows: to Caroline de Souza and to Angela Kershaw, our respective wives, who, despite many commitments of their own, have taken time to bear with detailed verbal critiques of government policy; to former colleagues of John Snape at the University of Leeds, especially to Ann Blair, Michael Cardwell, Oliver Gerstenberg, Roger Halson and Anna Lawson, each for their wisdom and support; to colleagues of Jeremy de Souza at the City of Westminster and Holborn Law Society Revenue Committee and at White and Bowker, especially John Steel, Oliver Sowton and (in putting up xvi Environmental Taxation Law with interruptions to her printing facilities), Abi Martin. John Snape began work on the book in 2000/2001 in a period of sabbatical leave from Nottingham Law School, the Nottingham Trent University. His thanks are due to Professors Michael Gunn and Peter Kunzlik, as well as to colleagues at Nottingham Trent who shouldered his teaching and administrative responsibilities in the period of his absence. Over the period of writing the book, the subject matter has expanded almost daily. We must also record our thanks to John Irwin and Alison Kirk at Ashgate, for their patience and enthusiasm in awaiting a manuscript which therefore became rather later and rather larger than either of us authors could originally have envisaged. In the footnotes, we have tended to confine case references to Simon’s Tax Cases, the series now used by most UK tax academics and practitioners. References to other reports are to be found in the Tables. We have attempted to reflect developments and to state the law, unless otherwise indicated, as at 2 December 2004 (the date of the Pre-Budget Report). John Snape, Jeremy de Souza, 20 December 2004. Table of Cases Adey v. Trinity House, (1852) 22 LJQB 3 7.2.3 AGF Belgium v. EEC, C–191/94, [1996] ECR I–1859 7.2.2.3 Air Caledonie v. The Commonwealth, (1988) 165 CLR 462 7.2.2.2 Airservices Australia v. Canadian Airlines International Ltd, (1999) HCA 62 7.2.2.2 Alliance Against the Birmingham Northern Relief Road v. Secretary of State for the Environment, Transport and the Regions and Midlands Expressway Ltd, [1999] JPL 426 7.2.3 Amministrazione delle Finanze dello Stato v. Essevi and Salengo, C–142, 143/80, [1981] ECR 833 12.3.3.1 Andrews v. Hereford RDC, (1964) 10 RRC 1, [1963] RA 75, (1963) 185 EC 761, [1963] RVR 168 16.16 Apple & Pear Development Council v. Lewis, C–222/82, [1984] 3 CMLR 733 7.2.2.3 Aprle Srl, in Liquidation v. Amministrazione delle Finanze dello Stato, C–125/94, [1995] ECR I–2919 8.4.2 ARCO Chemie Nederland Ltd and others v. Minister van Volkshuisvesting; Ruimtelijke Ordening en Milieubeheer, Vereninging Dorpsbelang Hees and others v. Directeur van der Dienst Milieu en Water van de Provincie Gelderland, C–418, 419/97, [2002] QB 646 12.2.5.2 Asscher v. Staatssecretaris van Financien, C–107/94, [1996] STC 1025 12.3.1, 12.3.2 Aston Cantlow v. Wallbank, [2001] 3 WLR 1323, overruled by HL at [2003] 3 WLR 283 7.2.2.1 Attorney-General v. Wilts United Dairies Ltd, (1921) 124 LT 319, overruled at [1922] WN 217, 218 7.2.2.1 Attorney-General of British Columbia v. Attorney-General of Canada, [1937] AC 377 26.4 Attorney-General of Canada v. Attorney-General of Ontario, [1937] AC 326 26.4 Attorney-General of Canada v. Attorney-General of Ontario, [1937] AC 355 26.4 Attorney-General of New South Wales v. Homebush Flour Mills Ltd, (1937) 56 CLR 390 7.2.1 Australian Tape Manufacturers’ Association v. Commonwealth, (1993) 176 CLR 480 7.2.2.2 Ayrshire Employers Mutual Association v. IRC, (1946) 27 TC 331, [1946] 1 All ER, [1946] 1 All ER 637 26.3.3.1 Baker v. Greenhill, (1842) 114 ER 463 7.2.2.1 xviii Environmental Taxation Law Barclays Mercantile Business Finance Ltd v. Mawson, [2002] EWHC 1527 (Ch), [2002] STC 1068, reversed CA [2002] EWCA Civ 1853, [2003] STC 66, affirmed [2004] UKHL 51 26.3.3.1 Beco Products Ltd; BAG Building Contractors v. C & E Commrs, (2004) No. 18, 638, MAN/01/4 21.3.1 Bendall v. C & E Commrs, (2003) LON/00/1305 15.3 Benjamin v. Austin Properties Ltd, [1998] 19 EG 163, [1998] 2 EGLR 147, [1998] RA 53 17.3 Bergandi v. Directeur Général des Impôts, C–252/86, [1988] ECR 1343 12.3.3.1 Berkeley v. Secretary of State for the Environment, Transport and the Regions (No.1), [2001] 2 AC 603 6.2.4 Blackland Park Exploration Ltd v. Environment Agency, [2003] EWCA Civ 1795, [2003] All ER (D) 249 (Dec) 6.3.2.4 Brambletye School Trust Ltd v. C & E Commrs, LON/00/458 16.16 Bresciani v. Amministrazione della Finanze dello Stato, C–87/75, (1976) ECR 129 7.2.2.3 Brewster v. Kidgill, (1697) 88 ER 1239 7.2.2.1 Re Briant Colour Printing Co Ltd, [1977] 1 WLR 942, [1977] 3 All ER 968, 75 EGR 768, (1977) 244 EG 463, 121 SJ 592 16.16 British Insulated and Helsby Cables Ltd v. Atherton, [1926] AC 205, [1925] All ER Rep 623, 95 LJKB 336, 134 LT 289, 42 TLR 187, (1925) 10 TC 177 1.4.3.1, 24.7 Bulmer v. Bollinger, [1974] Ch 401 4.3.7 W Cadsky SpA v. Instituto Nationale per il Comercio Esterio, C–63/74, [1975] ECR 251 7.2.1, 12.3.3.2 Cape Brandy Syndicate v. IRC, [1921] 1 KB 64, (1920) 12 TC 358 26.3.3.1 Chemial Farmaceutici v. DAF SpA, C–140/79, [1981] ECR 1, [1981] 3 CMLR 350 12.3.3.1 Chemische Afvalstoffen Dusselforp BV and others v. Minister Van Volkshuisvesting, Ruimtelijke Ordening en Milieubeheer, C–203/96, [1998] 3 CMLR 873 12.2.5.1 Claimants under the Loss Relief Group Litigation Order v. I.R.C., [2004] EWHC 3588 (Ch), [2004] STC 594, reversed [2004] EWCA Civ 650, [2004] STC 1054 26.4 Clark v. Oceanic Contractors Inc, [1983] AC 130, [1983] STC 35 1.4.2.5 Cleanaway Ltd v. C & E Commrs, (2003) L.17 15.2 Cogis v. Amministrazione delle Finanze dello Stato, C–216/81, [1982] ECR 2701 12.3.3.1 Commission of the European Communities v. Belgium, C–2/90, [1992] ECR I–4431 12.4 Commission of the European Communities v. Denmark, C–106/84, [1986] ECR 833 12.3.3.1 Commission of the European Communities v. Denmark, C–302/86, [1989] 1 CMLR 619 12.2.5.1, 12.4 Commission of the European Communities v. France, C–90/87, [1981] ECR 283 7.2.2.3 Table of Cases xix Commission of the European Communities v. France, C–196/85, [1987] ECR 1597 12.3.3.1 Commission of the European Communities v. France, C–50/87, [1989] 1 CMLR 505 16.5 Commission of the European Communities v. Germany, C–18/87, [1988] ECR 5427 7.2.2.3 Commission of the European Communities v. Germany, C–442/92, [1995] ECR I–1097 12.2.5.2 Commission of the European Communities v. Germany, C–463/01, as yet unreported 12.4 Commission of the European Communities v. Italy, C–24/68, [1969] ECR 193, [1989] 1 CMLR 505 7.2.1, 7.2.2.3 Commission of the European Communities v. Italy, C–184/85, [1987] ECR 2013 12.3.3.1 Commission of the European Communities v. Italy, C200/85, [1986] ECR 3953 12.3.3.1 Commission of the European Communities v. Italy, C–466/99, [2002] ECR I–851 12.2.5.1 Commission of the European Communities v. United Kingdom, C–170/78, [1980] ECR 417 12.3.3.1 Commission of the European Communities v. United Kingdom, C–353/85, [1988] STC 251, [1988] 2 All ER 557, [1988] ECR 817 26.7 Commission of the European Communities v. United Kingdom, C–416/85, [1988] STC 456, [1990] 2 QB 130, [1989] 1 All ER 364, [1988] ECR 3127, 1988] 3 CMLR 169 26.7 Commission of the European Communities v. United Kingdom, C–35/00, [2002] ECR I–953 12.2.5.1 Commissioner of Inland Revenue v. Challenge Corp Ltd, [1987] AC 155, [1986] STC 548 26.3.3.1 Compagnie Commerciale de l’Ouest and others v. Receveur Principal des Douanes de las Pallice Port, C–78 to 83/90, [1994] 2 CMLR 425 12.3.3.1, 12.3.3.2 Congreve v. Home Office, [1976] QB 629 7.2.2.1 Cottle v. Coldicott, (1995) SpC 40 24.7 Craven v. White, [1989] AC 398, [1988] 3 All ER 495, [1988] STC 476 26.3.3.1 C & E Commrs v. Darfish Ltd, [2001] Env LR 3 15.3 C & E Commrs v. Dave, [2002] EWHC 969 (Ch), [2002] STC 900 16.13 C & E Commrs v. Glassborow, [1974] STC 142, [1975] QB 465, [1974] 1 All ER 1041 16.4 C & E Commrs v. Sinclair Collis Ltd, [2001] UKHL 30, [2001] STC 989 4.3.7 Dansk Denkavit ApS v. Skatteministeriet, C–200/90, [1992] ECR I–2217 1.2.1.4 Davies v. Hillier Nurseries Ltd, (2001) Env LR 726 19.2 Daymond v. South West Water Authority, [1976] AC 609 7.2.2.1 De Coster v. College des Bourgmestre et Echevins de Watermael-Boitsfort, C–17/00, [2002] 1 CMLR 12 12.3.1 xx Environmental Taxation Law Deutschmann v. Germany, C–10/65, [1968] CMLR 259 7.2.2.3 Diamantis v. Greece, C–373/97, [2000] ECR I–1705, [2001] 3 CMLR 41 26.3.2 Diammantarbeiders v. Indiamex, C–37–38/73, [1973] ECR 1600 8.4.1 Dispit Ltd v. C & E Commrs, (2004) L.19 15.4 Donckerwolcke, C–41/76, [1976] ECR 1921 8.4.1 East Midlands Aggregates Ltd v. C & E Commrs, (2003) A1, affirmed [2004] EWHC 856 (Ch), [2004] STC 1582 13.2 Ebbcliff Ltd v. C & E Commrs, (2003) L.16, reversed [2003] EWHC 3181 (Ch), [2004] STC 391affirmed [2004] EWCA (Civ) 1071, [2004] STC 1496 15.4, 26.3.3.1 Edwards v. Bairstow and Harrison, [1956] AC 14, [1955] 3 All ER 48, 36 TC 207 4.2.1.5 Emsland-Stärke v. Hauptzollamt Hamburg-Jonas, C–110/99 26.3.2 Ensign Tankers (Leasing) Ltd v. Stokes, [1992] 1 AC 655, [1992] 2 All ER 275, 64 TC 617, [1992] STC 226 26.3.3.1 Re Eurig Estate, (1999) 165 DLR (4th) 1 1.2.1.1, 1.2.1.2, 1.2.1.4, 7.2.1, 7.2.2.2 Euro Tombesi, C–304/94, C–330/94, C–342/94, C224/95, [1998] Env LR 59 6.3.2.1, 12.2.5.2 Lord Falmouth v. George (1828) 130 ER 1071 7.2.3 Fazenda Pública v. Câmera Muncipal do Porto (Ministério Público, third party), C446/98, [2001] STC 560 26.7 Fazenda Pública v. Fricarnes SA, C–28/96, [1997] STC 1348 26.7 Fazenda Pública v. Solisnor-Estaleiros Navais SA, C–130/96, [1998] STC 191 26.7 Fazenda Pública v. União das Cooperativas Abestacedores, C–347/95, [1997] STC 1337 26.7 Federal Commissioner of Taxation v. Farley, (1940) 63 CLR 278 26.4 Finanzamt Kohn-Altstadt v. Schumacker, C–279/93, [1995] STC 306, [1996] QB 28, [1995] All ER (EC) 319, [1995] ECR I–225, [1996] 2 CMLR 450 22.1 Ford España v. Spain, C–170.88, [1989] ECR 2305 7.2.1 Furniss v. Dawson [1984] AC 474, [1984] 1 All ER 530, 55 TC 324, [1984] STC 153 26.3.3.1 F A Gamble & Sons Ltd v. C & E Commrs, (1998) L.4 15.3 NV Giant v. Commune of Overijse, C–109/90, [1993] STC 651 26.7 GIL Insurance Ltd v. C & E Commrs, C–308/01, [2004] STC 961 21.10 Government of India v. Taylor, [1955] AC 491 1.4.2.5 Gregory v. Helvering, 293 US 465 (1935) 26.3.3.1 Harley v. C & E Commrs, (2001) L.13 15.4 Hoechst AG v. IRC and A-G, C–410/98, [2001] STC 452 26.4 Hoverspeed Ltd and others v. C & E Commrs, [2002] EWCA 1630 (Admin), reversed in part [2002] EWCA Civ 1804, [2003] STC 1273 22.1 Table of Cases xxi Andreas Hoves Internationaler Transport-Service SARL v. Finanzamt Borker, C–115/00 27.3 Iannelli & Volpi v. Meroni, C–74/76, [1977] 2 CMLR 688 7.2.2.3 ICI Chemicals & Polymers Ltd v. C & E Commrs, (1998) V&DR 15.3 Imperial Chemical Industries plc v. Colmer, C–264/96, [1999] 1 WLR 108, [1998] All ER (EC) 585, [1998] STC 874, [1998] 3 CMLR 293, [1998] CEC 861 21.1 Government of India v. Taylor, [1955] AC 491 1.4.2.5 IRC v. Alexander von Glehn & Co Ltd, (1919) 12 TC 232 24.7 IRC v. Burmah Oil Co Ltd, [1982] STC 30, 54 TC 200 26.3.3.1 IRC v. Church Commissioners for England, [1977] AC 329, [1976] 2 All ER 1037, (1976) 50 TC 516, [1976] STC 339 1.4.3.1 IRC v. Fitzwilliam, [1993] 1 WLR 1189, [1993] 3 All ER 184, 67 TC 614, [1993] STC 502 26.3.3.1 IRC v. McGuckian, [1997] 1 WLR 991, [1997] 3 All ER 817, 69 TC1, [1997] STC 908 26.3.3.1 IRC v. Océ van der Grinten, [2000] STC 951, [2001] 2 CMLR 9, C–58/01 7.2.2.1 IRC v. Scottish Provident Institution, [2004] UKHL 52 26.3.3.1 IRC v. Duke of Westminster, [1936] AC 1, [1935] All ER 259, 19 TC 490 26.3.3.1 Inter-Environnement Wallonie v. Regione Wallone, C–129/96, [1998] Env LR 625, [1998] 1 CMLR 1057 12.2.5.2 International Fruit Company NV v. Produktschap voor Groeten en Fruit, C–21–24/72, [1975] 2 CMLR 1 8.4.1 Laidlaw Transportation Inc v. Commissioner, 75 TCM (CCH) 2598 (1998) 26.3.3.1 Lancashire Waste Services Ltd v. C & E Commrs, (1999) L.8 15.3 John Laing & Son Ltd v. Kingswood Area Assessment Committee, [1949] 1 KB 344, [1949] 1 All ER 224, 47 LRG 64, 42 R & IT 15 16.16 Lawson v. Interior Tree, Fruit and Vegetable Committee of Direction, [1931] 2 DLR 193 7.2.1 Lindman, C–42/02 26.4 Lirutti and Bizzaro, C–175, 177/98, [2001] ECR I–6881 12.2.5.2 London County Council v. Williams, [1957] AC 362 16.16 Lower Mainland Dairy Products Sales Adjustment Committee v. Crystal Dairy Ltd, [1933] AC 168 7.2.1 Luton v. Lassels, [2002] HCA 13 7.2.2.2 MacCormick v. Federal Commissioner of Taxation, (1984) 158 CLR 672 7.2.2.2 McIntosh Plant Hire v. C & E Commrs, (2001) L.10 15.3 McKnight v. Sheppard, [1999] 3 All ER 491 1.4.3.1 J & S Mackie v. C & E Commrs, (2000) L.9 15.3 Macniven v. Westmoreland Investments Ltd, [2001] UKHL 6, [2001] 1 All ER 865, 73 TC 1, [2001] STC 237 26.3.3.1 Mayer Parry Recycling Ltd v. Environment Agency (No.1), [1999] Env LR 489 6.3.2.1 xxii Environmental Taxation Law Metal Industries (Salvage) Ltd v. ST Harle (Owners), [1962] SLT 114 1.4.3.1, 7.2.1 Minister of Justice for Dominion of Canada v. Levis City, [1919] AC 505 7.2.1 Pat Munro-(Alness) Ltd v. C & E Commrs, (2004) 13.2, 26.3.3.1 NSR Ltd v. C & E Commrs, (1999) L.7 15.3 Naturally Yours Cosmetics Ltd v. Customs and Excise Commissioners, C–230/87, [1988] STC 879, [1988] ECR 6365, [1988] 1 CMLR 797 4.3.7 Northern Suburbs Cemetery Reserve Trust v. Commonwealth, (1993) 176 CLR 555 7.2.2.2 Northwest Corp v. Commissioner of Internal Revenue, 108 TC 265 (1997) 21.3.3 Re OECD Local Costs Standard, Opinion 1/75, [1975] ECR 1355 8.4.1 Outokumpu Oy, C–213.96, [1998] ECR I–1777 12.3.3.1 Oval (717) Ltd v. C & E Commrs, LON/01/1070 14.4 Parkwood Landfill Ltd v. C & E Commrs, [2002] EWCA Civ 1717, [2002] STC 1536, reversing [2002] STC 417 6.3.2.1, 12.1, 15.3, 26.3.3.1 Pepper v. Hart, [1993] AC 593, [1993] 1 All ER 42, [1992] STC 898, 65 TC 421 26.3.3.1 Ponsonby v. C & E Commrs, [1988] STC 28 16.6 PreussenElektra AG v. Schleswag AG (Windpark Reussenköge III GmbH and another intervening), C–379/98, [2002] 2 CMLR 36 12.2.7.3 Procurer du Roi v. Dassonville, C–8/74, [1974] ECR 837 12.4 W T Ramsay Ltd v. IRC; Eilbeck v.Rawling, [1982] AC 300, [1981] 1 All ER 865, (1981) 54 TC 101, [1981] STC 174 26.3.3.1 Ratford v. Northavon District Council, [1987] 1 QB 357 16.16 R (on the application of British Aggregates Association and others) v. C & E Commrs, [2002] EWHC 926 (Admin), [2002] 2 CMLR 51, [2002] EuLR 394 1.4.2.3, 2.5, 8.4.5.1, 11.3.2, 12.1, 12.3.3.1, 21.8 R (on the application of Federation of Technological Industries and others) v. C & E Commrs and Attorney-General, [2004] EWHC 254 (Admin), [2004] STC 1008; [2004] EWCA (Civ) 1020, sub nom C & E Commrs and Attorney-General v. Federation of Technology Industries 26.3.2 R (on the application of The Mayor, Citizens of Westminster and others) v. The Mayor of London, [2002] EWHC 2440 (Admin) 6.2.4, 18.2 R v. Secretary of State for the Environment, Transport and the Regions, ex p. Spath Holme Ltd, [2001] 1 All ER 195, [2001] 2 WLR 15 26.3.3.1 R v. North Yorkshire County Council, ex parte Brown, [2000] 1 AC 397 6.2.4 Request for an Examination of the Situation in Accordance with Paragraph 63 of the Court’s Judgment in the 1974 Nuclear Tests case, [1995] ICJ Rep 288 8.2.3 Table of Cases xxiii Rewe v. Hauptzollamt Landau/Pfalz, C–43/75, [1976] ECR 181 12.3.3.1 Rewe-Zentrale AG v. Bundesmonopolverwaltung für Branntwein, C–120/78, [1979] ECR 649 12.4 Ricketts v. Colquhoun, (1924) 10 TC 118 23.1 Roome v. Edwards, [1981] STC 96 16.5 Saunders and Sorrell v. C & E Commrs, (1980) VATTR 53 16.4 Schöttle & Söhne OHG v. Finanzamt Freudenstadt, C–20/76, [1977] 2 CMLR 98 12.3.3.1 Import Prohibition of Certain Shrimp and Shrimp Products (‘the Shrimp-Turtle case’), (1999) 38 ILM 118 8.4.2 Société Centrale d’Hypothesques v. Cité de Quebec, [1961] QLR 661 7.2.1 Sociaal Fonds voor de Diamantarbeiders v. SA Ch Brachfeld & Sons and Chougal Diamond Co, C–2–3/69, [1969] ECR 211 8.4.3 Re Tax on Foreign Legations and High Commissioner’s Residence, (1943) SCR 208 (Can) 7.2.1 Thanet District Council v. Kent County Council, [1993] Env LR 391 6.2.3.1 Trail Smelter arbitration, (1939) 33 AJIL 182, (1941) 35 AJIL 684 8.3.1.2 Restrictions on the Imports of Tuna (‘the Tuna-Dolphin I Case’), (1991) 30 ILM 1598 8.4.2 Restrictions on the Imports of Tuna (‘the Tuna-Dolphin II Case’), (1994) 33 ILM 839 8.4.2 Re the Uruguay Round Treaties, Opinion 1/94, [1995] 1 CMLR 205 8.4.1 Standards for Reformulated and Conventional Gasoline (‘the US Gasoline Standards decision’), (1996) 35 ILM 274 8.4.2 Verrall v. Hackney LBC, [1983] 1 QB 445, [1983] 1 All ER 277, 81 LGR 218 16.16 Vessoso and Zanetti, C–206, 207/88, [1990] ECR I–1461 12.2.5.2 Vinal SpA v. Orbab SpA, C–46/80, [1981] ECR 77 12.3.3.1 Criminal Proceedings against de Walle and others, C–1/03 12.2.5.2 Weyl Beef Products BV v. Commission of the European Communities, C–T197/97, [2001] 2 CMLR 22 7.2.2.3 Westminster City Council v. National Asylum Support Service, [2002] UKHL 38 26.3.3.1 Williams v. Singer (No.2), (1920) 7 TC 387 16.5 Zanetti, C–359/88, [1990] ECR I–1509 12.2.5.2 Zurstrassen v. Administrations des Contributions Directes, C–87/99, [2001] STC 1102 22.1 This page intentionally left blank Table of Statutes Bill of Rights 1689 Art. 4 7.2.2.1, 11.2 Inland Revenue Board Act 1849 4.2.1.2 Constitution Act 1867 [Canada] s.92 1.2 Inland Revenue Regulation Act 1890 s.2 4.2.1.2 s.39 4.2.1.2 Finance (1909–1910) Act 1910 ss.1–42 29.2 ss.20–24 29.2 Parliament Act 1911 11.3.2 Settled Land Act 1925 16.5 Petroleum (Production) Act 1934 2.4.3 Town and Country Planning Act 1947 29.2 Parliament Act 1949 11.3.2 Wireless Telegraphy Act 1949 s.2(1) 7.2.2.1 Continental Shelf Act 1964 s.1(7) 1.4.3.2, 6.4.3.3 Gas Act 1965 6.4.3.2 Nuclear Installations Act 1965 6.4.3.2 Land Commission Act 1967 29.2 Parliamentary Commissioner Act 1967 Sched. 2 4.2.1.2 Sched. 3 4.2.1.2 xxvi Environmental Taxation Law Provisional Collection of Taxes Act 1968 11.3.2 Administration of Justice Act 1969 ss.12–15 4.2.1.5 Taxes Management Act 1970 s.2 4.2.1.5 s.3 4.2.1.5 s.4 4.2.1.5 s.31 4.2.1.5 s.56(6) 4.2.1.5 s.56A(1) 4.2.1.5 s.74(1) 11.3.3 s.100A(1) 11.3.3 Prevention of Oil Pollution Act 1971 s.2 6.4.3.3 European Communities Act 1972 4.2.2, 21.9.3.1 s.2(2) 6.2.4, 6.4.3.1, 28.4 Local Government Act 1972 s.1(1) 4.2.3 s.1(2) 4.2.3 s.1(3) 4.2.3 s.1(4) 4.2.3 s.2 4.2.3 s.79 4.2.3 s.270(1) 4.2.3 Marine Mammal Protection Act of 1972 [USA] 8.4.2 National Environmental Protection Act of 1972 [USA] 12.2.4 Fair Trading Act 1973 Part III 6.4.3.1 Finance Act 1973 1.4.2.5 Water Act 1973 s.30 7.2.2.1 Control of Pollution Act 1974 ss.60–67 6.6 Finance Act 1974 29.2 Table of Statutes xxvii Health and Safety at Work Act 1974 s.15 6.4.3.3 s.43 6.4.3.3 s.82 6.4.3.3 Sched. 3 6.4.3.3 Ministers of the Crown Act 1975 4.2.1.2 Development Land Tax Act 1976 29.2 Energy Act 1976 20.3 Interpretation Act 1978 Sched. 1 1.4.3.2 Customs and Excise Management Act 1979 s.6(1) 4.2.1.2 s.6(2) 4.2.1.2 s.138 16.15 s.139 16.15 s.141(1) 16.15 s.152(b) 16.15 Sched. 3 16.15 Hydrocarbon Oil Duties Act 1979 22.2 s.20AB 22.3 Sched. 1 para. 2 21.9.2 Isle of Man Act 1979 s.6 1.4.3.2 Tobacco Products Duties Act 1979 s.8H(8) 26.2.3 Comprehensive Environmental Response, Compensation and Liability Act of 1980 [USA] 8.2.3 Hazardous Substance Response Revenue Act of 1980 [USA] 27.2 Highways Act 1980 6.5.2 s.253 6.5.2 Gas Levy Act 1981 6.4.3.2 Civil Aviation Act 1982 6.5.3 s.77 6.5.2 xxviii Environmental Taxation Law National Audit Act 1983 s.3(1) 4.2.1.3 s.3(5) 4.2.1.3 s.4(3) 4.2.1.3 Building Act 1984 21.6.3 Inheritance Tax Act 1984 s.3A(6) 24.8 s.6(1) 1.4.3 s.10(1) 21.3.2, 23.8 s.268 1.4.3 Local Government Act 1985 4.2.3 Airports Act 1986 6.5.3 s.37 6.5.3 s.38(1) 6.5.3 Finance Act 1986 Sched. 20 para. 6(1)(a) 11.3.4 Gas Act 1986 4.2.1.3, 6.4.3.2 s.4AA 6.4.3.2 s.4AB 6.1 s.5 6.4.3.2 s.5(1)(a) 6.4.3.2 s.5(1)(b) 6.4.3.2 s.5(1)(c) 6.4.3.2 s.6A 6.4.3.2 s.7A(1) 2.4.2 s.8B 6.4.3.2 s.33BC 6.1 s.36A 6.4.3.2 s.41E 6.4.3.2 Sched. 2B 6.4.3.2 Single European Act 1986 [EU] 12.2.1 Petroleum Act 1987 Part I 6.4.3.2 Income and Corporation Taxes Act 1988 s.19 23.1 s.31A 24.6 s.31B 24.6 Table of Statutes xxix s.34(1) 16.16 s.74 24.1 s.74(1) 1.4.3.2 s.74(1)(a) 21.3.2, 24.8 s.74(1)(f) 21.3.3, 24.2.1, 24.7 s.131 23.1 s.145 23.1 s.154 23.1 s.155A 18.2 s.158(2) 23.2 s.197A 17.2 s.197AA 23.3 s.197AB 23.3 s.197AC 23.3 s.197AE 23.3 s.198 23.1 s.257(1) 7.2.4 ss.289–312 7.2.4 s.333 7.2.4 s.333A 7.2.4 s.349(2) 1.4.4.2 s.359 7.2.4 s.519(1) 24.1 s.552A(5)(g) 16.7 s.577 24.1 s.577A 24.1 s.830 1.4.3.2 s.839 16.10 Sched. 6 23.2 Local Government Finance Act 1988 Part III 4.2.3 Electricity Act 1989 1.4.2.2, 4.2.1.3, 6.4.3.1, 6.4.3.2, 12.2.6.3 s.3A(1)(b) 21.7.2 s.3A(2)(a) 21.7.2 s.3A(2)(b)(i) 21.7.2 s.3A(2)(b)(ii) 21.7.2 s.3B 6.1 s.4(1) 6.4.3.1 s.4(4) 6.4.3.1 s.5 6.4.3.1 s.6(1)(d) 2.4.1 s.6(9) 6.4.3.1 s.32 6.4.3.1 s.32(1) 6.4.3.1 s.32(1)(b) 6.4.3.1 xxx Environmental Taxation Law s.32(3) 6.4.3.1 s.32(3)(a) 6.4.3.1 s.32(3)(b) 6.4.3.1 s.32(8) 21.4.4 s.32A 21.4.4 s.32B 6.4.3.1 s.32B(1) 6.4.3.1 s.32B(3) 6.4.3.1 s.32BA 21.5 s.32C 6.4.3.1 s.33 6.4.3.1, 21.4.4 s.33(1)(a) 6.4.3.1 s.36 6.4.3.1 s.37 6.4.3.1 s.41A 6.1 s.41E 6.4.3.2 s.43(1) 6.4.3.2 s.43(2) 6.4.3.2 s.43(3) 6.4.3.2 s.43(4) 6.4.3.2 s.43(5) 6.4.3.2 s.43(6) 6.4.3.2 s.43(6A) 6.4.3.2 s.44A 6.3.1 s.44B 6.3.1 s.56C 6.4.3.2 s.113(3) 6.4.3.1 Sched. 8 6.4.3.1 para. 2(2) 6.4.3.1 para. 3(2) 6.4.3.1 Sched. 9 6.4.3.1 Sched. 12 para. 1(1) 21.4.4 Clean Air Act of 1990 [USA] 8.4.2 Environmental Protection Act 1990 1.4.4.2, 6.3.2, 14.2 Part I 4.2.3, 6.2.1, 14.6 s.1(5) 6.2.2 s.2(1) 6.2.2 s.2(4) 6.3.2 s.2(5) 6.2.2 s.5 6.2.2 s.6 6.2.2 s.6(1) 6.2.2 s.6(3) 6.2.2 s.7 6.2.2 Table of Statutes xxxi s.7(2) 6.2.2 ss.10–12 6.2.2 s.13 6.2.2 s.14 6.2.2 s.23 6.2.2 s.23(1)(a) 6.2.2 s.27 6.2.2 s.28(1) 6.3.2 Part II 1.4.2.1, 6.3.2, 6.7, 8.4.5.1, 15.2 s.33(1) 6.3.2 s.33(3) 6.3.2 s.33(4) 6.3.2 s.33(8) 6.3.2 s.33(9) 6.3.2 s.34 6.3.2 s.34(1) 6.3.2 s.34(2) 6.3.2 s.34(6) 6.3.2 ss.35–44 6.3.2 s.35(1) 6.3.2 s.35 15.3, 16.2 s.35(2) 6.3.2 s.35(2)(a) 16.5, 16.8, 16.16 s.35(3) 6.3.2 s.36(2) 6.3.2 s.36(3) 6.3.2 s.45 6.3.2, 21.4.1 s.45(3) 6.3.2 s.45(4) 6.3.2 s.45A 21.4.1 s.45B 21.4.1 s.47A 21.4.1 s.48(1A) 6.3.2 s.51 6.3.2, 21.4.1 s.52 21.4.1 s.52A 6.3.2 s.59 15.6 s.62 6.3.2.1 s.75 6.3.2.1 s.75(2) 6.3.2.1 s.75(4) 6.3.2.1 s.75(5) 6.3.2.1 s.75(6) 6.3.2.1 s.75(7) 6.3.2.1 s.75(7)(c) 15.6 s.75(9) 6.3.2.1 Part IIA 6.7, 8.2.3 xxxii Environmental Taxation Law s.78A(2) 6.7 s.78E 6.7 s.78F(2) 6.7 s.78M 6.7 s.79(1)(g) 6.6 s.79(1)(ga) 6.6 Part III 6.4.2 Sched. 1 6.2.2 Sched. 2B 6.3.2 Planning (Hazardous Substances) Act 1990 4.2.3 Town and Country Planning Act 1990 s.106 27.2 New Roads and Street Works Act 1991 7.2.3, 13.4 Planning and Compensation Act 1991 s.22 6.2.4 Local Government Finance Act 1992 4.2.3 Social Security Contributions and Benefits Act 1992 s.1(6) 1.4.3.2 s.10 23.2 s.172 1.4.3.2 Taxation of Chargeable Gains Act 1992 s.38(1)(b) 21.3.3 s.42 24.7 s.44 24.7 Sched. A1 para. 5(1A) 24.7 Clean Air Act 1993 4.2.3, 6.4.2 s.30(1) 6.4.3.3 s.30(3) 6.4.3.3 s.32(1) 6.4.3.3 s.63(1) 6.4.3.3 Ecotax Law 1993 [Belgium] s.369 1.2.1.5 Coal Industry Act 1994 Part I 6.4.3.4 s.7(1) 6.4.3.4 s.7(3) 6.4.3.4 Table of Statutes xxxiii s.23(2) 6.4.3.4 Part II 6.4.3.4 Part III 6.4.3.4 Part IV 6.4.3.4 Finance Act 1994 s.16(4) 16.15 ss.28–44 1.2.1.5 s.30(4) 1.2.1.5 s.35(1)(a) 16.7 s.57(11) 16.7 Sched. 6 1.2.1.5 Value Added Tax Act 1994 22.2 s.5(2)(b) 24.7 s.7 1.4.3.2 s.7(10) 24.7 s.9A 16.7 s.13 1.4.3.2 s.15(1) 1.4.3.2 s.33 24.1 s.43A 16.6 s.43AA 16.6 s.43B 16.6 s.43C 16.6 s.45 16.4 s.46 16.6 s.46(2) 16.4 s.46(3) 16.4 s.47 16.5, 16.10 s.48 16.7 s.51A 16.5 ss.59–67 7.2.3 s.77A 4.2.1.1, 11.3.3, 16.2, 26.3.2 s.83 4.2.1.5 s.84 4.2.1.5 s.94(2) 16.4 s.96(11) 1.4.3.2 Sched. 1 para. 1 16.2 para. 1A 16.2 Sched. 4 para. 3 8.4.5.1 Sched. 5 para. 1 24.7 Sched. 7A Group 1 21.4.2 xxxiv Environmental Taxation Law Group 1, Notes 3–6 14.4 Group 2 21.3.1 Group 2,, Note 1(h) 21.3.1 Group 3 21.3.1 Group 3, Note 4A 26.6 Group 3, Note 4B 26.6 Sched. 8 Group 1 21.9.2 Group 8, item 4(a) 1.2.1.5, 14.4, 16.16, 23.3 Group 8, item 4(c) 1.2.1.5, 16.16 Sched. 9A 16.2, 16.6 Sched. 10 paras 2–3 16.5 para. 3A(7)(a) 16.16 Sched. 11 para. 1(1) 4.2.1.2 para. 4(2) 4.2.2.1, 16.2, 26.3.2 para. 5(2) 16.9 para. 5(3) 16.9 Sched. 11A 26.3.3.1 Sched. 12 4.2.1.5 para. 5(1) 4.2.1.5 para. 7(4) 4.2.1.5 Vehicle Excise and Registration Act 1994 22.2 s.1(1C) 22.2.1 s.2(2)–(7) 22.2.1 Sched. 1 para. 9(1) 22.3 Sched. 2 para. 20A 21.9.2 Environment Act 1995 4.2.3, 6.3.2, 9.1 s.1(1) 4.2.1.3 s.4(1) 4.2.1.3 s.4(2) 4.2.1.3 s.4(3) 4.2.1.3 s.4(5) 4.2.1.3 s.5(1) 4.2.1.3 s.6(1) 4.2.1.3 s.39(1) 4.2.1.3 s.41 6.3.2 s.56(1) 4.2.1.3 s.93 1.4.2.2, 19.1 s.94 1.4.2.2, 19.1 s.95 1.4.2.2, 19.1 s.108(1) 4.2.1.3 Table of Statutes xxxv s.108(4) 4.2.1.3 Part IV 6.4.2 Finance Act 1995 s.154 21.4.4 Gas Act 1995 6.4.3.2 s.18(4) 6.4.3.2 Goods Vehicles (Licensing of Operators) Act 1995 6.5.3 s.2(1) 6.5.3 s.34 6.5.2 Finance Act 1996 1.4.2.1, 8.3.2 ss.39–69 1.4.2.1, 21.2, 26.1 s.39(2) 4.2.1.2 s.40 1.4.2.1 s.40(1) 15.3 s.40(2)(a) 15.3 s.40(2)(b) 15.3 s.40(2)(c) 15.3 s.40(3) 15.3 s.41 2.3, 15.3 s.41(1) 1.4.2.1 s.42(1) 1.4.2.1 s.42(2) 15.2 s.42(3) 15.2 s.42(4) 15.2 s.43(1)–(3) 15.4 s.43(4) 15.4 s.43A(1) 15.4 s.43A(2) 15.4 s.43A(4) 15.4 s.43A(5) 15.4 s.43A(6) 15.4 s.43B 15.4 s.43C 15.4 s.43C(2) 15.4 s.44 15.4 s.44A 15.4 s.45 15.4 s.47(2) 16.2 s.47(3) 16.2 s.47(4) 16.3 s.50(5) 15.6 s.51 16.9, 21.3 s.52 16.9, 16.10 xxxvi Environmental Taxation Law s.53 4.2.1.2, 16.9, 21.3 s.53(1) 4.2.1.2 s.53(2)(b) 4.2.1.2 s.54 16.13 s.54(3) 4.2.1.5 s.55 4.2.1.5, 16.13 s.58(1) 16.4 s.58(2) 16.4 s.58(3) 16.6 s.59 16.6 s.62(7)(a) 15.5 s.62(7)(b) 15.5 s.63 15.2 s.63(2) 15.2 s.64(1) 15.3 s.64(2) 15.3 s.64(3) 15.3 s.64(4) 15.3 s.65(1)(a) 15.3 s.65(1)(b) 15.3 s.65(2) 15.3 s.65(3)(a) 15.3 s.65(3)(b) 15.3 s.65(4) 15.3 s.65(7) 15.3 s.65(8) 15.3 s.66 1.4.2.5, 8.4.5.1 s.66(a) 15.3 s.67(a) 15.3 s.68 15.2 s.69(2)(a) 15.6 s.70 1.4.2.1 s.71 1.4.2.1 Sched. 5 1.4.2.1, 21.2, 26.1 paras 2–3 16.12 paras 4–5 16.12 para. 6 16.15 paras 7–10 16.12 paras 15–17 16.14 paras 18–23 16.14 para. 26 16.14 para. 27 16.14 para. 29 16.13 para. 31 16.15 para. 45 16.11 para. 46 16.11 para. 47 16.11 Table of Statutes xxxvii paras 48–60 15.3, 16.2, 16.16 para. 48(1) 16.16 para. 59 16.13 para. 57(1) 16.2 para. 60(3)(a) 16.2 Noise Act 1996 6.6 Finance Act 1997 s.37 26.1 ss.50–53 1.4.2.1 s.51 16.15 s.52 16.15 s.113 1.4.2.1 Sched. 5 1.4.2.1 paras 1–4 16.13 Finance (No.2) Act 1997 ss.1–5 8.6 Scheds 1–2 8.6 Income Tax Assessment Act 1997 [Commonwealth of Australia] subdiv. 400–A 21.3.3 subdiv. 400–B 21.3.3 Taxpayer Relief Act of 1997 [USA] 21.3.3 Finance Act 1998 s.42(1) 24.1, 24.7 s.153(2) 6.4.3.2 Fossil Fuel Levy Act 1998 6.4.3.1 Government of Wales Act 1998 4.2.2 s.1(2) 4.2.2 s.31 4.2.2 s.33 4.2.2 s.54 4.2.2 s.56 4.2.2 s.57 4.2.2 s.106 4.2.2 s.107 4.2.2 s.108 4.2.2 s.121 4.2.2 Sched. 2 4.2.2 xxxviii Environmental Taxation Law Human Rights Act 1998 s.3 11.3.4 Northern Ireland Act 1998 4.2.2 s.23 4.2.2 s.29 4.2.2 Petroleum Act 1998 6.4.3.2, 6.4.3.3 Part I 6.4.3.3 s.1 6.4.3.3 s.2 6.4.3.3 s.2(3) 6.4.3.3 s.4 6.4.3.3 s.4(1) 6.4.3.3 s.4(1)(e) 6.4.3.3 s.4(9) 6.4.3.3 s.15(2) 6.4.3.3 s.26 6.4.3.3 Part III 6.4.3.3 Part IV 6.4.3.3 Scotland Act 1998 1.3, 4.2.2 s.3 4.2.2 s.28 4.2.2 s.29 4.2.2 s.44 4.2.2 s.46 4.2.2 s.53(2) 4.2.2 s.73(1) 1.3 s.75 1.3 s.78 4.2.2 s.126(1) 1.3 s.126(2) 1.3 Sched. 5 4.2.2 Part IV 1.3 Finance Act 1999 5.1 s.49 17.2 s.124 1.4.2.1 Greater London Authority Act 1999 4.2.3 s.1 4.2.3 s.2 4.2.3 s.122(1) 4.2.3 s.173 4.2.3 s.295 1.4.2.4, 18.1 s.295(1) 18.4 Table of Statutes xxxix s.296 1.4.2.4, 17.1, 17.4 s.424(1) 4.2.3 Sched. 1 4.2.3 Sched. 10 para. 2 4.2.3 para. 3 4.2.3 Sched. 23 1.4.2.4, 18.1 para. 2 18.4 para. 4 18.4 para. 5 18.4 para. 7 18.4 para. 8 18.4 para. 9 18.4 para. 10 18.4 para. 11 18.4 para. 12 18.4 para. 16 18.4 para. 17 18.4 para. 18 18.4 para. 19 18.4 para. 20 18.4 para. 21 18.4 para. 22 18.4 Sched. 24 1.4.2.4, 17.1 para. 2 17.4 para. 3(1) 17.6 para. 3(2) 17.6 para. 3(4) 17.6 para. 7 17.4 para. 8 17.4 para. 11 17.4 para. 12 17.4 para. 13 17.4 para. 15 17.4 para. 17 17.4 para. 24 17.4 para. 25 17.4 para. 26 17.4 para. 27 17.4 para. 28 17.4 Mines and Quarries (Tips) Act 1999 6.3.2 Pollution Prevention and Control Act 1999 4.2.1.3, 6.2.1, 6.3.2, 14.6 s.2 6.2.3 Sched. 1, Pt I para. 1(1) 6.2.3 xl Environmental Taxation Law para. 1(2) 6.2.3 para. 1(3) 6.2.3 para. 1(4) 6.2.3 para. 4 6.2.3 para. 24 6.2.3 Law Initiating Ecological Tax Reform 1999 [Germany] 21.2 Competition Act 2000 4.2.1.3 Finance Act 2000 1.4.2.2 s.3(2)(a) 2.4.3 s.30 1.4.2.2 ss.140–142 1.4.2.1 s.148 2.4.1 Sched. 6 1.4.2.1 para. 1(2) 4.2.1.2 para. 2 1.4.2.2 para. 3 8.4.5.1, 14.2 para. 3(1) 1.4.2.2 para. 3(1)(d) 2.4.4 para. 3(1)(e) 2.4.4 para. 5 14.2 para. 5(1) 2.4.1 para. 6 14.2 para. 6(1) 2.4.2 para. 7 14.2 para. 7(2) 2.4.4 para. 8 1.4.2.2, 14.4 para. 9 14.4 para. 10 1.4.2.2, 5.6.1 para. 11 1.4.2.2, 8.4.5.1, 14.4 para. 11A 1.4.2.2, 14.3 para. 12 14.4 para. 13 14.4 para. 13A 14.4 para. 14 2.4.4, 14.4 para. 15 5.6.1, 14.4, 14.5 para. 16(2) 14.5 para. 17 14.2 para. 17(2) 14.5 para. 17(3) 14.5 para. 17(4) 14.5 para. 18 14.4 para. 18A 14.4 para. 19 5.6.1 para. 19(1)(a) 16.16 Table of Statutes xli para. 19(1)(b) 14.5 para. 19(1)(c) 14.5 para. 19(1)(d) 14.5 para. 19(2) 14.5 para. 19(3) 14.5 para. 19(4) 14.5 para. 19(4A) 5.6.1, 14.5 para. 19(5) 14.5 para. 19(6) 14.5 para. 19(7) 14.5 para. 19(8) 14.5 para. 20 14.5, 15.2 para. 20A 5.6.1 para. 20A(1)(a) 16.16 para. 20A(1)(b) 14.5 para. 20A(1)(c) 14.5 para. 20A(1)(d) 14.5 para. 20A(3) 14.5 para. 20A(4) 14.5 para. 20A(5) 14.5 para. 20A(6) 14.5 para. 20A(7) 14.5 para. 20A(8) 14.5 para. 20B 14.5 para. 21 14.9 para. 23(1) 14.2 para. 23(2) 14.2 para. 23(3) 14.2, 16.16 para. 24 14.4 para. 26(2) 16.9 para. 26(4) 16.9 para. 27 16.9 para. 27(5) 16.9 para. 28 16.9 para. 28(4) 16.9 para. 29 15.2, 16.9 para. 30(1) 16.9 para. 30(2) 16.9 para. 31 16.9 para. 32 16.9 para. 33(2) 16.9 para. 33(4) 16.9 para. 40(1) 1.4.2.2, 2.4.1, 2.4.2, 16.2, 16.16 para. 40(2) 1.4.2.2, 8.4.5.1, 16.2, 16.6, 16.9 para. 43 1.4.2.2, 14.3 para. 44 1.4.2.2, 5.6.1, 14.3, 14.6 para. 45 14.3, 14.6 xlii Environmental Taxation Law para. 46 5.6.1, 14.3 para. 47 14.3, 14.6 para. 48 14.3, 14.6, 16.16 para. 49 14.3, 14.6 para. 49(1) 14.6 para. 49(2) 14.6, 16.16 para. 50 14.3, 14.6, 16.16 para. 51 14.3, 14.6, 16.5, 21.9, 20.1 para. 55(1) 16.2 para. 62(1) 16.9 para. 62(1)(f) 16.10 para. 66 16.13 paras 70–71 16.14 paras 81–89 16.14 paras 92–95 16.14 para. 90 16.15 para. 97 16.15 para. 102 16.9 para. 114 16.7 para. 114(1) 16.7 para. 115 16.7 para. 116 16.6 para. 117 16.4 para. 118 16.6 para. 119 16.6 para. 120 16.6 para. 121 4.2.1.5, 16.13 para. 122 4.2.1.5, 16.13 paras 125–127 16.12 paras 128–134 16.12 para. 139 16.15 para. 142(1) 16.11 para. 142(2) 16.11 para. 142(3) 16.11 para. 142(4) 16.11 para. 142(5) 16.11 para. 143(1) 16.9 para. 143(2) 16.9 para. 147 1.4.2.5, 5.6.1 para. 148 5.6.1, 14.4 para. 149A 14.5 para. 150 16.7 para. 150(2) 14.2 para. 150(2)(a) 2.4.1 para. 150(3)(a) 2.4.2 para. 151 16.2, 16.5 para. 152 14.2, 14.5 Table of Statutes xliii para. 156 8.4.5.1, 16.5, 16.7, 16.9 Sched. 7 1.4.2.2 Sched. 37 1.4.2.1, 16.2 Transport Act 2000 4.2.3, 6.5.2 Part I 6.5 Part II 6.5 ss.163–177 1.4.2.3, 18.1 s.163(1) 18.5 s.163(2) 18.5 s.163(3) 18.5 s.164(1) 18.5 s.165(1) 18.5 s.166(1) 18.5 s.167 18.5 s.168 18.5 s.169 18.5 s.170 18.5 s.171 7.3.1, 18.5 s.172 7.3.3, 18.5 s.172(2) 7.3.3 ss.178–190 1.4.2.3, 17.1 s.178(1) 17.5 s.178(2)(a) 17.5 s.178(4) 17.5 s.178(5) 17.5 s.179(1) 17.5 s.180(1) 17.5 s.181(1) 17.5 s.182(1) 17.6 s.182(2) 17.6 s.182(3) 17.6 s.182(4) 17.6 s.183 17.5 s.184 17.5 s.186 7.3.1, 7.3.3, 17.5 s.187 17.5 s.188 17.5 s.198(1) 17.5, 18.5 Part III 6.5.2 Part IV 6.5 Sched. 12 7.3.1 para. 2 7.3.1 para. 3 17.5, 18.5 para. 7 7.3.1 Sched. 13 paras 1–18 1.4.2.3, 18.1 xliv Environmental Taxation Law paras 19–34 1.4.2.3, 17.1 Utilities Act 2000 1.4.2.2, 4.2.1.3, 6.4.3.1, 21.4.3, 21.4.4 s.1 6.4.3.2 s.1(1) 4.2.1.3 s.1(2) 4.2.1.3 s.5A 21.7.2 s.50 14.5 s.62 7.3.1, 21.4.4 s.63 21.4.4 s.66 6.4.3.1, 21.4.4 s.67 6.4.3.1 Sched. 8 6.4.3.1 Warm Homes and Energy Conservation Act 2000 21.4.2 Capital Allowances Act 2001 7.2.4, 11.3.4 s.45A 5.6.1, 21.3.1, 24.4 s.45B 5.6.1, 24.4 s.45C 5.6.1, 24.4 s.45H 21.3.1, 24.4 s.45I 21.3.1, 24.4 s.45J 21.3.1, 24.4 s.74(2)(b) 24.3 s.74(2)(c) 24.3 s.75(1) 24.3 ss.393A–393V 24.5.2 s.393E 24.5.2 Regulatory Reform Act 2001 4.2.1.2 Finance Act 2001 1.4.2.3 s.3 21.3 ss.16–49 1.4.2.3 s.16(1) 1.4.2.3, 13.1 s.16(2) 1.4.2.3, 8.4.5.1 s.16(3) 1.4.2.3, 2.5 s.16(4) 1.4.2.3 s.16(5) 4.2.1.2 s.16(6) 5.6.2 s.17(1) 1.4.2.3, 13.4 s.17(2) 1.4.2.3 s.17(2)(a) 13.2 s.17(2)(b) 1.4.2.3, 13.2 s.17(2)(c) 13.2 s.17(3) 13.2 s.17(3)(b) 13.2, 16.2 Table of Statutes xlv s.17(3)(b)(i) 13.2 s.17(3)(b)(ii) 13.2 s.17(3)(c) 13.2, 16.2 s.17(3)(d) 13.2, 16.2 s.17(3)(e) 13.2 s.17(3)(f) 13.2 s.17(4) 13.2 s.17(4)(a) 13.2, 13.4 s.17(4)(c) 13.2, 13.4 s.17(4)(d) 13.2, 13.4 s.17(4)(e) 13.2, 13.4 s.17(4)(f) 13.2, 13.4 s.17(5) 13.2 s.18 13.3 s.18(1)(a) 13.4 s.18(1)(b) 13.4 s.18(2)(a) 13.5 s.18(2)(b) 13.5 s.18(2)(c) 13.5, 21.8 s.18(3) 13.5 s.18(4) 13.4, 13.5 s.19 8.4.5.1 s.19(1) 8.4.5.1, 13.3 s.19(1)(a) 2.5 s.19(1)(b) 2.5, 8.4.5.1 s.19(1)(c) 2.5, 8.4.5.1 s.19(1)(d) 2.5 s.19(2)(a) 2.5, 13.3 s.19(2)(b) 13.2 s.19(2)(c) 13.2, 13.3 s.19(3)(a) 13.2 s.19(3)(b) 13.3, 16.4 s.19(3)(c) 13.2 s.19(3A) 13.2 s.20(1)(a) 13.2, 13.3 s.20(1)(b) 13.2, 13.3 s.20(1)(d) 13.2, 13.3 s.20(2) 13.2, 13.3 s.21 13.2, 13.2 s.21(1)(a) 13.3 s.21(1)(b) 13.3 s.21(2)(a) 13.3 s.21(2)(c) 13.3 s.21(2)(d) 13.3 s.22(1) 13.2, 16.2 s.22(1)(a) 13.3, 16.8, 16.16 s.22(1)(b) 13.3, 16.8 xlvi Environmental Taxation Law s.22(1)(d) 13.3, 16.8 s.22(1)(e) 13.3, 16.8, 16.16 s.22(1)(f) 13.3, 16.8, 16.16 s.22(2) 13.2, 13.3, 16.2, 16.5 s.22(3) 13.2, 16.2, 16.16 s.22(4) 13.3 s.24(2) 13.3, 16.2 s.24(2)(a) 13.2 s.24(3) 13.2 s.24(4)(a) 16.2 s.24(4)(b) 16.2 s.24(6) 13.2 s.24(6)(ca) 13.2 s.24(7) 13.2, 13.3, 16.2, 16.8 s.24(8) 13.2 s.26 16.15 s.30(1) 16.9 s.30(1)(a) 8.4.5.1 s.30(1)(f) 16.10 s.30A 14.3, 21.8 s.32(2)–(4) 16.13 s.33 16.7 s.34 16.7 s.34(1) 16.7 s.35 16.4 s.37 16.4 s.38 16.4 s.39 16.4 s.40 1.4.7, 16.13 s.40(1)(c) 16.4, 16.8 s.41 1.4.7, 16.13 s.41(1)(a) 16.8 s.43(1) 16.11 s.43(2) 16.11 s.44 5.6.2 s.46 16.14 s.65 5.6.1 s.92 23.5.3 s.92A 23.5.3 s.92B 23.5.3 s.109 1.4.2.3 s.110 1.4.2.3 s.111 1.4.2.3 Sched. 4 1.4.2.3 para. 1(1) 17.2 para. 1(1)(a) 13.2, 13.3 para. 2(2) 16.4 Table of Statutes xlvii para. 2(3) 16.6 para. 2(4) 16.4 Sched. 5 1.4.2.3 paras 14–16 16.15 Sched. 6 1.4.2.3 paras 1–4 16.14 para. 2(2) 8.4.5.1 para. 6 16.15 paras 7–9 16.14 Sched. 7 1.4.2.3 paras 2–4 16.12 paras 5–10 16.12 Sched. 8 1.4.2.3 para. 2 16.13 paras 6–7 16.14 Sched. 9 1.4.2.3, 16.4 Sched. 10 1.4.2.3 Sched. 17 para. 2 5.6.1 Sched. 22 5.5, 21.3.3 para. 1(4)(a) 24.5.1 para. 1(4)(b) 24.5.1 para. 1(5) 24.5.1 para. 2(6) 24.5.1 para. 8 24.5.1 para. 12 24.5.1 para. 31(3) 24.5.1 para. 31(4) 24.5.1 Finance Act 2002 s.123(1) 5.6.1 s.126 5.6.1 s.137 1.4.2.4, 7.2.3, 27.6 Sched. 2 para. 2 22.3 Sched. 5 para. 2 22.2.1 para. 3 22.2.1 Sched. 29 24.7 para. 2(1) 24.7 para. 3(1) 24.7 para. 9 24.7 para. 10 24.7 para. 11 24.7 para. 19(1)(b) 24.7 para. 19(2) 24.7 xlviii Environmental Taxation Law Sched. 38 para. 2 14.2 Anti–Social Behaviour Act 2003 15.6 Electricity (Miscellaneous Provisions) Act 2003 s.1 21.4.4 s.4 21.4.4 Finance Act 2003 14.4, 14.5, 21.1 s.18 4.2.1.1, 16.2 s.19 4.2.1.1, 16.2 s.82(2) 11.3.2, 11.3.3 s.106(3)(b) 11.3.2, 11.3.3 s.136 26.3.2 Sched. 5 11.3.2 Sched. 6 23.5.3 Sched. 14 para. 4(b) 11.3.2, 11.3.3 Sched. 22 11.3.2 Household Waste Recycling Act 2003 2.3, 21.4.1 Income Tax (Earnings and Pensions) Act 2003 1.4.3.1, 11.3.2 s.10(2) 23.1 s.62(2) 23.1 s.97 23.1 ss.133–144 23.2 s.201 23.1 s.150 23.2 s.233 23.3 s.237 17.2 s.242 23.3 s.243 23.3 s.244 23.3 s.318 18.2 s.328 23.1 Regional Assemblies (Preparations) Act 2003 4.2.3 Sustainable Energy Act 2003 21.7.1 s.1 21.7.1 s.1(1A) 21.7.1 s.1(1B) 21.7.1 s.1(1C) 21.7.1 s.2 21.7.1 s.2(1) 21.7.1 Table of Statutes xlix s.3 21.7.1 s.4 21.7.1 s.5 21.7.1 s.6 21.7.1 s.7 21.7.1 Waste and Emissions Trading Act 2003 1.4.2.1, 12.2.5.1, 27.7 Part 1 6.3.2 s.1 6.3.2, 20.7 s.2 20.7 s.3 20.7 s.4 20.7 s.4(1) 1.4.2.1 s.5 20.7 s.6 20.7 s.7 20.7 s.8 20.7 s.17 6.3.2 s.18 6.3.2 s.19 6.3.2 s.20 6.3.2 s.21(1) 20.7 s.21(2) 20.7 s.21(3) 20.7 s.22 1.4.2.1 s.22(1) 20.7 s.22(2) 20.7 s.23 20.7 s.24 1.4.2.1 s.24(1)(a) 1.4.2.5 s.24(1)(b) 1.4.2.5 s.24(1)(c) 1.4.2.5 s.24(1)(d) 1.4.2.5 s.25(1) 20.7 s.31 6.3.2, 26.3 s.31(2) 6.3.2 s.31(4) 6.3.2 s.32 6.3.2, 26.3 s.33 6.3.2, 26.3 s.37 20.7 s.38 20.3 s.39 20.3 Energy Act 2004 Part 1 6.4.3.1 Part 2 6.4.3.1 Part 3 6.4.3.1, 12.2.6.3 l Environmental Taxation Law s.81(2) 21.7.2 s.82(2) 21.7.2 s.115 21.5 s.115(2) 6.4.3.1 s.115(3) 6.4.3.1 s.116 6.4.3.1, 21.5 s.117 21.5 s.118 21.5 s.120 21.5 s.124 6.4.3.3 Chapter 3 6.4.3.3 s.172 21.7.2 Finance Act 2004 s.291 14.4 ss.306–319 26.3.3.1 Sched. 2 26.3.3.1 Sched. 15 para. 11(5)(d) 11.3.4 para. 20(1)(a) 11.3.4 Sched. 41 26.2.1 Housing Act 2004 21.6.1, 21.6.2 Planning and Compulsory Purchase Act 2004 7.4.3.1 Sustainable and Secure Buildings Act 2004 21.6.3 Table of Statutory Instruments Road Vehicle (Construction and Use) Regulations 1986, S.I. 1986 No. 1078 reg. 3(2) 6.5.2 reg. 97 6.5.2 Civil Aviation Authority (Economic Regulation of Airports) Regulations 1986, S.I. 1986 No. 1544 6.5.3 Environmental Assessment (Afforestation) Regulations 1988, S.I. 1988 No. 1207 6.2.4 Land Drainage Improvement Works (Assessment of Environmental Effects) Regulations 1988, S.I. 1988 No. 1217 6.2.4 Sludge (Use in Agriculture) Regulations 1988, S.I. 1989 No. 1263 6.3.2 Electricity (Non-Fossil Fuel Sources) (England and Wales) Order 1990, S.I. 1990 No. 263 6.4.3.1 Fossil Fuel Levy Regulations 1990, S.I. 1990 No. 266 reg. 28 6.4.3.1 Electricity (Non-Fossil Fuel Sources) (England and Wales) (Amendment) Order 1990, S.I. 1990 No. 494 6.4.3.1 Electricity (Non-Fossil Fuel Sources) (England and Wales) (No.2) Order 1990, S.I. 1990 No. 1869 6.4.3.1 Environmental Protection (Prescribed Processes and Substances) Regulations 1991, S.I. 1991, No. 472 6.2.2 reg. 4 6.2.2 Sched. 1 6.2.2 ch. 1 6.2.2, 6.4.3.1, 6.4.3.2, 6.4.3.3 ch. 2 6.2.2 ch. 3 6.2.2, 6.4.3.4 ch. 4 6.2.2 ch. 5 6.2.2 ch. 6 6.2.2 Sched. 4 6.2.2 Sched. 5 6.2.2 Sched. 6 6.2.2 lii Environmental Taxation Law Electricity (Non-Fossil Fuel Sources) (England and Wales) Order 1991, S.I. 1991 No. 2490 6.4.3.1 Environmental Protection (Duty of Care) Regulations 1991, S.I. 1991 No. 2839 6.2.3 Electricity (Northern Ireland) Order 1992, S.I. 1992 No. 231 (N.I.1) 6.4.3.1 Art. 35 6.4.3.1 Art. 36 6.4.3.1 Licensing of Air Carriers Regulations 1992, S.I. 1992, No. 2992 reg. 2 6.5.3 Batteries and Accumulators (Containing Dangerous Substances) Regulations 1994, S.I. 1994 No. 232 6.3.2 Waste Management Licensing Regulations 1994, S.I. 1994 No. 1056 6.2.3 reg. 16 6.2.3 reg. 16(1)(a) 6.2.3, 6.3.2 reg. 17 6.2.3 Sched. 3 6.2.3 para. 41(1) 6.2.3 Transfrontier Shipment of Waste Regulations 1994, S.I. 1994 No. 1137 6.3.2 Electricity (Non-Fossil Fuel Sources) (England and Wales) Order 1994, S.I. 1994 No. 3259 6.4.3.1 Electricity (Non-Fossil Fuel Sources) (Scotland) Order 1990, S.I. 1994 No. 3275 (S.190) 6.4.3.1 Value Added Tax Regulations 1995, S.I. 1995 No. 2518 reg. 8 16.4 reg. 101(2)(d) 24.7 reg. 102 24.7 Gas (Northern Ireland) Order 1996, S.I. 1996 No. 275 (N.I.2) 6.4.3.2 Environmental Licences (Suspension and Revocation) Regulations 1996, S.I. 1996 No. 508 6.2.3 Special Waste Regulations 1996, S.I. 1996 No. 972 6.3.2, 12.2.5.1 Landfill Tax Regulations 1996, S.I. 1996 No. 1527 4.2.1.2 reg. 2(1) 16.12 reg. 4(2) 16.8 reg. 4(3) 16.5 Table of Statutory Instruments liii reg. 5 16.3 reg. 6 16.3 reg. 7 16.4 reg. 8 16.4 reg. 9 16.6 reg. 17 16.9, 21.3.2 reg. 18 16.9, 21.3.2 reg. 19 16.9, 21.3.2 reg. 20 16.9, 21.3.2 reg. 21 21.3.2 reg. 23(a) 16.10 reg. 23(b) 16.10 reg. 23(c) 16.10 reg. 23(d) 16.10 reg. 23(e)(i) 16.10 reg. 25(a) 16.10 reg. 26 16.10 reg. 30 21.3.2 reg. 31 21.3.2 reg. 31(4) 21.3.2 reg. 31(5) 21.3.2 reg. 31(6) 21.3.2 reg. 31(6A) 21.3.2 reg. 32 21.3.2 reg. 33(1)–(1C) 21.3.2 reg. 33(2)(a) 21.3.2 reg. 33(2)(b) 21.3.2 reg. 33(2)(c) 21.3.2 reg. 33(2)(cc) 21.3.2 reg. 33(2)(d) 21.3.2 reg. 33(2)(da) 21.3.2 reg. 33(2)(da)(i) 21.3.2 reg. 33(2)(da)(ii) 21.3.2 reg. 33(2)(e) 21.3.2 reg. 33(2)(f) 21.3.2 reg. 33(2A) 21.3.2 reg. 33(3) 21.3.2 reg. 33(3A)(a) 21.3.2 reg. 33(3A)(b) 21.3.2 reg. 33(3A)(c) 21.3.2 reg. 33(3A)(d) 21.3.2 reg. 33(3A)(e) 21.3.2 reg. 33(3A)(f) 21.3.2 reg. 33(6) 21.3.2 reg. 33A 21.3.2 reg. 37 16.9 reg. 38 15.5 liv Environmental Taxation Law reg. 39 15.5 reg. 40 15.5 regs 41–44 15.2 reg. 44(5)–(8) 15.2 Landfill Tax (Qualifying Material) Order 1996, S.I. 1996 No. 1528 15.2 Carriage of Dangerous Goods by Road Regulations 1996, S.I. 1996 No. 2095 6.4.3.3 Electricity (Non-Fossil Fuel Sources) (England and Wales) Order 1997, S.I. 1997 No. 248 6.4.3.1 Producer Responsibility Obligations (Packaging Waste) Regulations 1997, S.I. 1997 No. 648 1.4.2.2, 12.2.5.1, 19.1 reg. 2(1)(a) 19.2 reg. 3(5)(b) 19.5 reg. 4 19.4 reg. 5 19.4 reg. 5B 19.5 reg. 6 19.4 reg. 6(4)(dd) 19.5 reg. 7 19.5 reg. 9(2) 19.4 reg. 10 19.4 reg. 11(1) 19.4 reg. 21B 19.5 reg. 25 19.4 Sched. 1 19.4 Sched. 2 19.5 Sched. 3 19.2 Sched. 10 19.5 Electricity (Non-Fossil Fuel Sources) (Scotland) Order 1997, S.I. 1994 No. 799 (S.76) 6.4.3.1 Mines (Notice of Abandonment) Regulations 1998, S.I. 1998 No. 892 6.4.3.4 Electricity (Non-Fossil Fuel Sources) (England and Wales) Order 1998, S.I. 1998 No. 2353 6.4.3.1 Civil Procedure Rules 1998, S.I. 1998 No. 3132 Sched. 1 para. 2 4.2.1.5 Table of Statutory Instruments lv Town and Country Planning (Environmental Impact Assessment) (England and Wales) Regulations 1999, S.I. 1999 No. 293 6.2.4, 12.2.4 Environmental Protection Act 1990 (Extension of Section 140) Regulations 1999, S.I. 1999 No. 396 6.3.2 Electricity (Non-Fossil Fuel Sources) (Scotland) Order 1999, S.I. 1999 No. 439 (S.24) 6.4.3.1 Motor Fuel (Composition and Content) Regulations 1999, S.I. 1999 No. 3107 6.4.3.1 Contaminated Land (England) Regulations 2000, S.I. 2000, No. 227 6.7 Air Navigation Order 2000, S.I. 2000 No. 1562 Art. 108 6.5.2 Pollution Prevention and Control (England and Wales) Regulations 2000, S.I. 2000 No. 1973, am. S.I. 2001 No. 503 6.2.1, 6.2.3, 6.3.2, 12.2.2, 14.6 reg. 2 6.3.2 reg. 2(1) 6.2.3 reg. 3 6.2.3 reg. 4(3)(c) 6.2.3 reg. 8 6.2.2 reg. 9(1) 6.2.3 reg. 11(1) 6.2.3 reg. 11(2) 6.2.3 reg. 11(3) 6.2.3 reg. 12 6.2.3 reg. 21 6.2.3 reg. 25 6.2.3 reg. 32 6.2.3 reg. 32(2) 6.2.3 reg. 32(3) 6.2.3 Sched. 1 6.2.2 Pt I, Ch. 1 s.1.1 6.2.3, 6.4.3.1 s.1.2 6.4.3.2 s.2.1–2.3 6.2.3 s.3.1–3.4 6.2.3 s.3.5 6.2.3, 6.4.3.2 s.3.6 6.2.3 s.4.1–4.8 6.2.3, 6.3.2 s.5.1 6.2.3 s.5.2 6.2.3, 6.3.2 s.5.3 6.2.3, 6.3.2 lvi Environmental Taxation Law s.5.4 6.2.3, 6.3.2 s.5.5 6.2.3, 6.3.2 s.6.1–6.9 6.2.3 Environmental Protection (Disposal of Polychlorinated Biphenyls and Other Dangerous Substances) (England and Wales) Regulations 2000, S.I. 2000 No. 1043 6.3.2 Climate Change Levy (Registration and Miscellaneous Provisions) Regulations 2001, S.I. 2001 No. 7 reg. 2(1) 16.2 reg. 2(2) 16.5 reg. 3 16.3 reg. 4 16.3 reg. 8 16.6 reg. 9 16.6 reg. 10 16.6 reg. 11 16.6 reg. 12 16.6 reg. 13 16.4 reg. 14 16.7 reg. 14(2) 16.7 reg. 14(3) 16.7 reg. 14(4) 16.7 reg. 14(4)(a) 16.7 reg. 14(6) 16.7 reg. 15 16.7 reg. 15(1) 16.7 reg. 16 16.7 reg. 17 16.7 reg. 17(1) 16.7 reg. 17(2) 16.7 reg. 17(3) 16.7 reg. 17(4)(a) 16.7 reg. 18 16.7 reg. 18(2)(b) 16.7 reg. 19 16.7 Climate Change Levy (General) Regulations 2001, S.I. 2001 No. 838 6.4.3.1 reg. 3 16.11 regs 6A–G 16.12 reg. 10(1)(b) 16.10 reg. 10(1)(c) 16.10 reg. 10(1)(d) 16.10 reg. 10(1)(e) 16.10 reg. 10(2) 16.10 reg. 10(7) 14.4, 16.10 Table of Statutory Instruments lvii reg. 34 14.4, 16.9 reg. 35 16.9 reg. 36 16.9 reg. 37 16.9 reg. 38 16.9 reg. 39 16.9 reg. 40 14.4, 16.9 reg. 41 14.2 reg. 44 14.6 regs 46–51 14.5 regs 51A–51M 14.5 reg. 52 14.4 reg. 54 14.2, 16.9 reg. 55 16.6 reg. 56 16.6 reg. 57 16.6 reg. 59 16.6 Sched. 1 16.9 Sched. 2 14.5 Social Security (Contributions) Regulations 2001, S.I. 2001 No. 1004 reg. 145 1.4.3.2 Offshore Combustion Installations (Prevention and Control of Pollution) Regulations 2001, S.I. 2001 No. 1091 28.4 Climate Change Levy (Electricity and Gas) Regulations 2001, S.I. 2001 No. 1136 14.2 Climate Change Levy (Use as Fuel) Regulations 2001, S.I. 2001 No. 1138 14.4 Climate Change Levy (Combined Heat and Power Stations) Prescribed Conditions and Efficiency Percentages Regulations 2001, S.I. 2001 No. 1140 14.4 reg. 5(3) 14.5 reg. 5(4) 14.5 Environmental Protection (Disposal of Polychlorinated Biphenyls and Other Dangerous Substances) (England and Wales) (Amendment) Regulations 2001, S.I. 2001 No. 3359 6.3.2 Aggregates Levy (Registration and Miscellaneous Provisions) Regulations 2001, S.I. 2001 No. 4027 reg. 2(1) 13.3, 16.2 reg. 2(3) 16.2, 16.5 reg. 2(6) 16.8 reg. 3(2) 13.2, 16.2 lviii Environmental Taxation Law reg. 3(3) 13.2 reg. 4 16.3 reg. 8 16.6 reg. 9 16.6 reg. 10 16.6 reg. 11 16.6 reg. 12 16.4 reg. 13 8.4.5.1, 16.4 reg. 13(1) 8.4.5.1 reg. 13(2) 8.4.5.1 reg. 13(2)(a) 8.4.5.1 reg. 14 16.7 reg. 14(2) 16.7 reg. 14(3) 16.7 reg. 14(4) 16.7 reg. 14(4)(a) 16.7 reg. 14(6) 16.7 reg. 15 16.7 reg. 15(1) 16.7 reg. 16 16.7 reg. 17 16.7 reg. 17(1) 16.7 reg. 17(2) 16.7 reg. 17(3) 16.7 reg. 17(4)(a) 16.7 reg. 18 16.7 reg. 18(2)(b) 16.7 reg. 19 16.7 Income Tax (Exemption of Minor Benefits) Regulations 2002, S.I. 2002 No. 205 reg. 3 23.3 reg. 4 23.3 Aggregates Levy (General) Regulations 2002, S.I. 2002 No. 671 reg. 4 16.2 reg. 5 13.2, 16.2, 16.11 reg. 6 13.2, 16.2 reg. 7 13.2, 16.2 reg. 8 13.2, 16.2 reg. 9 13.2, 16.2 reg. 10 13.2, 16.2 reg. 10(i) 16.9 reg. 10(j) 16.9 reg. 11 13.2, 16.2 reg. 12 16.9 reg. 12(1)(a) 16.10 Table of Statutory Instruments lix reg. 12(1)(c) 16.10 reg. 12(1)(e) 16.10 reg. 12(2) 16.10 reg. 13 16.9 reg. 34 16.6 reg. 35 16.6 reg. 36 16.6 reg. 37 16.6 Sched. 16.9 Air Navigation (Environmental Standards) Order 2002, S.I. 2002 No. 798 Art. 8 6.5.2 Finance Act 2001, section 16, (Appointed Day) Order 2002, S.I. 2002 No. 809 5.6.2 Fossil Fuel Levy (Amendment) Regulations 2001, S.I. 2001 No. 1200 6.4.3.1 Renewables Obligation Order 2002, S.I. 2002 No. 914 Art. 3(1)(b) 21.5 Art. 3(4) 21.5 Art. 7 21.5 Sched. 1 7.3.1, 21.5 Landfill (England and Wales) Regulations 2002, S.I. 2002 No. 1559 6.3.2, 12.2.5.1, 15.6 reg. 1(2) 6.3.2 reg. 2 6.3.2 reg. 3(2) 6.3.2 reg. 3(4) 6.3.2 reg. 4 6.3.2 reg. 4(b) 6.3.2 reg. 5 6.3.2 reg. 6(1) 6.3.2 reg. 6(2) 6.3.2 reg. 7(1) 6.3.2 reg. 7(2) 6.3.2 reg. 7(3) 6.3.2 reg. 7(4) 6.3.2 reg. 8 6.3.2 reg. 9(1)(a) 6.3.2 reg. 9(1)(c) 6.3.2 reg. 10(1) 6.3.2 reg. 10(2) 6.3.2 reg. 10(3) 6.3.2 reg. 11 6.3.2 reg. 12 6.3.2 lx Environmental Taxation Law reg. 13 6.3.2 reg. 14 6.3.2 Sched. 1 para. 1 6.3.2 para. 2 6.3.2 Air Navigation Order 2002, S.I. 2002 No. 1562 6.5.3 Art. 108 6.5.2 Aggregates Levy (Northern Ireland Tax Credit) Regulations 2002, S.I. 2002 No.1927 16.2 Aggregates Levy (Registration and Miscellaneous Provisions) (Amendment) Regulations 2002, S.I 2002 No. 1929 16.2 Transfer of Functions (Transport, Local Government and the Regions) Order 2002, S.I. 2002 No. 2626 4.2.1.2 Pollution Prevention and Control Regulations (Northern Ireland) 2003, S.R. (N.I.) 2003 No. 46 28.4 Energy (Northern Ireland) Order, S.I. 2003 No. 419 (N.I.6) 6.4.3.1, 6.4.3.2 Art. 58 6.4.3.1 Aggregates Levy (Registration and Miscellaneous Provisions) (Amendment) Regulations 2003, S.I. 2003 No. 465 13.2 Electricity (Guarantees of Origin of Electricity Produced from Renewable Energy Sources) Regulations (Northern Ireland) 2003, S.R. 2003 No. 470 6.4.3.1 Finance Act 2002, section 123, (Appointed Day Order 2003, S. I. 2003 No. 603 14.5 Climate Change Levy (General) (Amendment) Regulations 2003, S.I. 2003 No. 604 14.5 Landfill Tax (Amendment) Regulations 2003, S.I. 2003 No. 605 4.2.1.2 reg. 3(a) 21.3.2 reg. 4 21.3.2 reg. 5 21.3.2 Climate Change Levy (Use as Fuel) (Amendment) Regulations 2003, S.I. 2003 No. 665 14.4 Table of Statutory Instruments lxi Climate Change Levy (Combined Heat and Power Stations) Prescribed Conditions and Efficiency Percentages (Amendment) Regulations 2003, S.I. 2003 No. 861 14.5 Stamp Duty (Disadvantaged Areas) (Application of Exemptions) Regulations 2003, S.I. 2003 No. 1056 24.5.3 Value Added Tax (Amendment) (No.2) Regulations 2003, S.I. 2003 No. 1069 11.3.3 Income Tax (Exemption of Minor Benefits) (Amendment) Regulations 2003, S.I. 2003 No. 1434 23.3 Landfill Tax (Amendment) (No.2) Regulations 2003, S.I. 2003 No. 2313 21.3.2 Electricity (Guarantees of Origin of Electricity Produced from Renewable Energy Sources) Regulations 2003, S.I. 2003 No. 2562 6.4.3.1 reg. 1(2) 6.4.3.1 reg. 2(1) 6.4.3.1 reg. 4(1)(a) 6.4.3.1 reg. 4(1)(b) 6.4.3.1 reg. 5 6.4.3.1 reg. 6(1) 6.4.3.1 reg. 6(3) 6.4.3.1 reg. 7 6.4.3.1 reg. 8 6.4.3.1 Sched. 2 6.4.3.1 Climate Change Levy (General) (Amendment) (No.2) Regulations 2003, S.I. 2003 No. 2633 14.5 End-of-Life Vehicles Regulations 2003, S.I. 2003 No. 2635 19.7 Motor Fuel (Composition and Content) (Amendment) Regulations 2003, S.I. 2003 No. 3078 6.4.3.1 Greenhouse Gas Emissions Trading Scheme Regulations 2003 S.I. 2003 No. 3311 28.4 reg. 1 28.4 reg. 2 28.4 reg. 2(1) 28.4 reg. 8 28.4 reg. 10 28.4 reg. 11 28.4 reg. 11(7) 28.4 reg. 12 28.4 reg. 13 28.4 lxii Environmental Taxation Law reg. 14 28.4 reg. 16 28.4 reg. 18 28.4 reg. 19 28.4 reg. 19(3)(a) 28.4 reg. 19(15)(a) 28.4 reg. 19(16) 28.4 reg. 19(17) 28.4 reg. 20 28.4 reg. 21 28.4 reg. 22 28.4 reg. 23 28.4 reg. 24 28.4 reg. 25 28.4 Sched. 1 28.4 Part 2, para. 2 28.4 Environmental Protection (Waste Recycling Payments) (England) Regulations 2003, S.I. 2003 No. 639 21.4.1 Producer Responsibility Obligations (Packaging Waste) (England) (Amendment) Regulations 2003. S.I. 2003 No. 3294 19.5 Energy (2003 Order) (Commencement No. 2) Order (Northern Ireland) 2004, S.R. 2004 No. 71 (C.1) Art. 2 6.4.3.1 Sched. 6.4.3.1 Coal Industry Act 1994 (Commencement No. 7) and Dissolution of the British Coal Corporation Order, S.I. 2004 No. 144 (C.6) 6.4.3.4 Petroleum Licensing (Exploration and Production) (Seaward and Landward Areas) Regulations 2004, S.I. 2004 No. 352 6.4.3.3 Landfill Tax (Amendment) Regulations 2004, S.I. 2004 No. 769 reg. 3 21.3.2 Renewables Obligation (Amendment) Order 2004, S.I. 2004 No. 924 6.4.3.1, 21.5 Aggregates Levy (Northern Ireland Tax Credit) Regulations 2004, S.I. 2004 No. 1959 13.3 Environmental Assessment of Plans and Programmes Regulations 2004, S.I. 2004 No. 1633 6.2.4 Table of Statutory Instruments lxiii Excise Duties (Surcharges or Rebates) (Bioethanol) Order 2004, S.I. 2004 No. 3162 22.2.2 This page intentionally left blank Table of Provisions of the European Treaty Art. 2 12.2.1 Art. 3(1)(b) 12.2.1 Art. 3(1)(c) 12.2.1 Art. 3(1)(f) 12.2.1, 12.2.6.4 Art. 3(1)(l) 12.2.1 Art. 3(1)(u) 12.2.6.3 Art. 6 [ex-3c] 12.2.1, 12.2.4, 12.2.7.2 Art. 7(2) [ex-4(2)] 4.3.4 Art. 12 [ex-6] 12.2.6.4 Art. 14 [ex-7a] 12.3.1 Art. 23 [ex-9] 12.2.6.4, 12.3.3.2 Art. 24 [ex 10] 12.2.6.4 Art. 25 [ex-12] 7.2.1, 7.2.2.3, 12.2.6.4, 12.3.2.2 Art. 26 [ex-28] 12.2.6.4 Art. 27 [ex-29] 12.2.6.4 Art. 28 [ex-30] 12.2.6.4, 12.4 Art. 29 [ex-34] 12.2.6.4, 12.4 Art. 30 [ex-36] 12.2.6.4, 12.4 Art. 31 [ex-37] 12.2.6.4 Art. 43 [ex-52] 26.1 Art. 49 [ex-59] 12.3.1, 26.4 Art. 70 [ex-74] 12.2.6.4 Art. 71 [ex-75] 12.2.6.4 Art. 72 [ex-76] 12.2.6.4 Art. 73 [ex-77] 12.2.6.4, 12.2.7.4 Art. 74 [ex-78] 12.2.6.4 Art. 75 [ex-79] 12.2.6.4 Art. 76 [ex-80] 12.2.6.4 Art. 77 [ex-81] 12.2.6.4 Art. 78 [ex-82] 12.2.6.4 Art. 79 [ex-83] 12.2.6.4 Art. 80 [ex-84] 12.2.6.4 Art. 80(1) 12.2.6.4 Art. 80(2) 12.2.6.4 Art. 81 [ex-85] 12.3.2.1 Art. 81(1) 12.2.6.4 Art. 81(3) 12.2.6.4 Art. 82 [ex-86] 12.3.2.1 lxvi Environmental Taxation Law Art. 87 [ex 92] 8.4, 12.3.3, 12.3.5 Art. 87(1) 12.2.5.2, 12.2.7.1 Art. 87(2) 12.2.5.2, 12.2.7.1 Art. 87(3) 12.2.5.2, 12.3.5, 12.2.7.1, 12.2.7.4 Art. 87(3)(c) 12.2.7.2, 12.2.7.3 Art. 88 [ex 93] 4.3.2, 8.4, 12.5.2, 12.2.7.1 Art. 88(1) 12.2.7.1 Art. 88(2) 12.2.7.1 Art. 89 [ex-94] 12.2.5.2, 12.2.7.1 Art. 90 [ex-95] 7.2.2.3, 7.2.2.4, 8.4.1, 12.3.2.1, 12.3.2.2, 12.3.5 Art. 92 [ex-98] 12.3.2, 27.2 Art. 93 [ex-99] 4.3.1, 12.3.1, 12.3.2, 12.3.2.1 Art. 94 [ex-100] 12.2.1, 12.3.1, 12.3.2, 12.3.2.1 Art. 95 [ex-100a] 12.2.1 Art. 95(1)(a) 12.2.1 Art. 95(2) 4.3.1 Art. 95(3) 12.2.1 Art. 131 [ex-110] 8.4.1 Art. 132 [ex-112] 8.4.1 Art. 133 [ex-113] 8.4.1 Art. 133(3) 4.3.3 Art. 134 [ex-113] 8.4.1 Art. 135 [ex-115] 8.4.1 Art. 154 [ex-129b] 12.2.6.3 Art. 174 [ex-130r] 28.2.1 Art. 174(1) 1.2.1.5, 12.2.1 Art. 174(2) 8.2.3, 12.2.1 Art. 174(3) 12.2.1 Art. 175 [ex-130s] 4.3.1, 13.2.1, 13.2.2 Art. 175(1) 28.2.1 Art. 175(2) 1.2.1.5 Art. 175(2)(a) 12.2.1 Art. 189 [ex-137] 4.3.3 Art. 190(1) [ex-138(1)] 4.3.3 Art. 190(5) 4.3.3 Art. 191 [ex-138a] 4.3.3 Art. 192 [ex-138b] 4.3.3 Art. 199 [ex-142] 4.3.3 Art. 202 [ex-145] 4.3.2 Art. 203 [ex-146] 4.3.2, 28.2.3 Art. 204 [ex-147] 4.3.2 Art. 205(1) [ex-148(1)] 4.3.2 Art. 205(3) 4.3.2 Art. 207 [ex-151] 4.3.2 Art. 208 [ex-152] 4.3.2 Art. 211 [ex-155] 4.3.2 Art. 213 [ex-157] 4.3.2 Table of Provisions of the European Treaty lxvii Art. 214(1) [ex-158(1)] 4.3.2 Art. 214(2) 4.3.2 Art. 214(2) 4.3.3 Art. 220 [ex-164] 4.3.7 Art. 224 [ex-168] 4.3.7 Art. 226 [ex-169] 4.3.2 Art. 234 [ex-177] 4.3.7, 12.2.5.2, 12.3.2.1 Art. 251 [ex-189b] 4.3.3, 12.2.1, 12.3.2.1, 28.2.1 Art. 257 [ex-193] 4.3.4 Art. 258 [ex-194] 4.3.4 Art. 300(2) [ex-228(2)] 4.3.3 Art. 302 [ex-229] 4.3.2 Art. 303 [ex-230] 4.3.2 Art. 304 [ex-231] 4.3.2 Art. 307 [ex-234] 8.4.1 Art. 308 [ex-235] 12.2.1 Title VI [ex-V] 4.3.2 Title XIX [ex-XVI] 4.3.2 Treaty of Nice Art. 1(17) 4.3.3 Art. 1(21) 4.3.2 Art. 12(2) 4.3.1 Protocol on Enlargement 4.3.1 Euratom Treaty (1957) 4.3, 12.2.6.3 Art. 2 4.3, 12.2.6.3 Art. 30 12.2.6.3 European Coal and Steel Community Treaty (1957) 12.2.6.3 This page intentionally left blank Table of European Community Legislation 1 Directives Vehicle Noise Directive, 70/157/EEC 12.2.6.4 Diesel Fuels Directive, 72/306/EEC 12.2.6.4 Waste Oils Directive, 75/439/EC 12.2.5.1 Waste Framework Directive, 75/442/EEC 6.3.2, 12.1, 12.2.5.2 Art. 1 12.2.5.2 Art. 1(a) 6.3.2, 12.2.5.2 Art. 1(c) 12.2.5.2 Art. 3(1)(a) 12.2.5.2 Art. 3(1)(b) 12.2.5.2 Art. 5(1) 12.2.5.2 Art. 5(2) 12.2.5.2 Art. 7 12.2.5.2 Art. 9 12.2.5.2 Art. 10 12.2.5.2 Art. 11 12.2.5.2 Art. 12 12.2.5.2 Art. 14 12.2.5.2 Art. 15 12.2.5.2 Annex 1 12.2.5.2 Q 1 12.2.5.2 Q 2 12.2.5.2 Q 3 12.2.5.2 Q 6 12.2.5.2 Q 8 12.2.5.2 Q 10 12.2.5.2 Q 11 12.2.5.2 Q 12 12.2.5.2 Q 16 12.2.5.2 Annex IIA 12.2.5.2 D 1 12.2.5.2 D 6 12.2.5.2 D 10 12.2.5.2 D 11 12.2.5.2 lxx Environmental Taxation Law Annex IIB 12.2.5.2 R 1 12.2.5.2 R 2 12.2.5.2 R 3 12.2.5.2 R 4 12.2.5.2 R 8 12.2.5.2 R 9 12.2.5.2 Driver Training Directive, 76/914/EEC 12.2.6.4 Sixth VAT Directive, 77/388/EEC 1.2.1.4 Art. 2(1) 24.7 Art. 5(1) 24.7 Art. 9(1)(e) 24.7 Art. 11A(2)(a) 1.4.3.2 Art. 17(5) 24.7 Art. 19(1) 24.7 Art. 33 1.2.1.4, 27.2 Toxic and Dangerous Wastes Directive, 78/319/EEC 12.2.5.1 Wild Birds Directive, 79/11/EEC 21.4.4 Aircraft Noise Directive, 80/51/EEC 21.2.6.4 EIA Directive, 85/337/EEC 6.2.4, 12.2.4 Art. 5 6.2.4 Art. 6(2) 6.2.4 Annex IV 6.2.4 Sewage Sludge Directive, 86/278/EEC 12.2.5.1 Diesel Fuels Directive, 88/77/EEC 12.2.6.4 Combustion Plant Directive, 88/609/EEC 12.2.6.2 Chapter 2 Aircraft Directive, 89/629/EEC 12.2.6.4 Parent-Subsidiary Directive, 90/435/EEC 7.2.2.1 Council Directive 91/441/EEC 12.2.6.4 Batteries and Accumulators Directive, 91/157/EEC 12.2.5.1 Driving Licences Directive, 91/439/EEC 12.2.6.4 Hazardous Waste Directive, 91/689/EEC 6.3.2, 12.2.5.1 Art. 1(1) 12.2.5.1 Table of European Community Legislation lxxi Art. 1(3) 12.2.5.2 Art. 1(5) 12.2.5.1 Art. 2 12.2.5.1 Art. 2(1) 12.2.5.1 Art. 2(2) 12.2.5.1 Art. 2(3) 12.2.5.1 Art. 3 12.2.5.1 Art. 4 12.2.5.1 Art. 5 12.2.5.1 Art. 6(1) 12.2.5.1 Art. 8(3) 12.2.5.1 Annex I para. 1 12.2.5.1 para. 2 12.2.5.1 para. 3 12.2.5.1 para. 4 12.2.5.1 para. 5 12.2.5.1 Annex III 12.2.5.1 Vehicle Speed Directive, 92/6/EEC 12.2.6.4 Single Market Directive, 92/12/EEC 22.1 Aircraft Withdrawal Directive, 92/14/EEC 12.2.6.4 Habitats Directive, 92/43/EEC 21.4.4 Air Transport Directive, 92/81/EEC 16.16, 12.3.4 Excise Duties Directive, 92/82/EEC 12.3.4 Titanium Oxide Waste Directive, 92/112/EC 12.2.5.1 Fuel Sulphur Content Directive, 93/12/EC 12.2.6.3 Council Directive 93/59/EC 12.2.6.4 Council Directive 94/12/EC 12.2.6.4 Hydrocarbons Licensing Directive, 94/22/EC 12.2.6.3 Carriage of Dangerous Goods Directive, 94/55/EC 12.2.6.4 Packaging and Packaging Waste Directive, 94/62/EC 1.4.2.2, 6.2.1, 12.2.5.1, 12.4, 19.1 Art. 1(1) 12.2.5.1 lxxii Environmental Taxation Law Art. 3(1) 12.2.5.1 Art. 4 12.2.5.1 Art. 4(1) 12.2.5.1 Art. 4(2) 19.1 Art. 5 12.2.5.1 Art. 7(1)(a) 12.2.5.1 Art. 7(1)(b) 12.2.5.1 Art. 9(1) 12.2.5.1 Petrol Storage Directive, 94/63/EC 12.2.6.3 Vehicle Tax Incentives Directive, 96/1/EC 12.2.6.4 PCB/BCT Directive, 96/59/EC 12.2.5.1 Integrated Pollution Prevention and Control Directive, 96/61/EC 6.2.1, 6.3.2, 9.1, 12.2.2, 12.2.6.2, 14.4, 21.9, 28.1 Art. 1 12.2.2 Art. 2(3) 12.2.2 Art. 2(11) 12.2.2 Art. 3 12.2.2 Art. 4 12.2.2 Art. 5 12.2.2 Art. 8 12.2.2 Art. 9(3) 28.3 Annex 1 12.2.2 Air Quality Framework Directive, 96/62/EC 12.2.6.2, 21.4 Electricity Directive, 96/92/EC 12.2.6.3 Gas Directive, 98/30/EC 12.2.6.3 Fuel Quality Directive, 98/70/EC 12.2.6.3, 21.4 Air Quality First Daughter Directive, 1999/30/EC 12.2.6.2, 16.16, 21.4 Landfill Directive, 1999/31/EC 5.2, 5.6.3, 6.3.2, 12.2.5.1, 21.4.1, 20.3, 20.7 Art. 1 12.2.5.1 Art. 2(a) 12.2.5.2 Art. 2(g) 12.2.5.1 Art. 2(m) 12.2.5.1 Art. 5(1) 12.2.5.1 Art. 7 12.2.5.1 Art. 8 12.2.5.1 Art. 9 12.2.5.1 Art. 10 12.2.5.1 Table of European Community Legislation lxxiii Art. 12 12.2.5.1 Art. 13 12.2.5.1 Art. 13(c) 12.2.5.1 Art. 14 12.2.5.1 Sulphur Content Directive, 1999/32/EC 12.2.6.3, 21.4 Heavy Goods Vehicles Directive, 1999/62/EC 12.2.6.4 Art. 2(d) 12.2.6.4 Art. 4 12.2.6.4 Art. 5 12.2.6.4 Art. 6 12.2.6.4 Art. 7(4) 12.2.6.4 Art. 7(5) 12.2.6.4 Art. 7(7) 12.2.6.4 Art. 7(9) 12.2.6.4 Art. 7(10) 12.2.6.4 Art. 9(2) 12.2.6.4 Annex 1 12.2.6.4 Gas Fuels Directive, 1999/96/EC 12.2.6.4 End-of-Life Vehicles Directive, 2000/53/EC 19.6 Water Framework Directive, 2000/60/EC 21.9.3.3, 21.9.4 Air Quality Second Daughter Directive, 2000/69/EC 12.2.6.2 Incineration Emissions Directive, 2000/76/EC 12.2.6.2, 21.6.2, 27.7 SEA Directive, 2001/42/EC 6.2.4, 12.2.4 Art. 1 12.2.4 Art. 2(1) 12.2.4 Art. 3 12.2.4 Renewables Directive, 2001/77/EC 12.2.6.3 Art. 1 12.2.6.3 Art. 2(a) 12.2.6.3 Art. 3 12.2.6.3 Art. 3(2) 12.2.6.3 Art. 3(4) 12.2.6.3 Art. 5 6.4.3.1, 12.2.6.3 Art. 6(1) 12.2.6.3 Art. 7(1) 12.2.6.3 Large Combustion Plant Directive, 2001/80/EC 12.2.6.2, 21.4 lxxiv Environmental Taxation Law National Emission Ceiling Directive, 2001/81/EC 12.2.6.2, 21.4 Third Air Quality Daughter Directive, 2002/3/EC 12.2.6.2 Road Transport Working Time Directive, 2002/15/EC 12.2.6.4 Airport Noise Directive, 2002/30/EC 12.2.6.4 Noise Abatement Directive, 2002/49/EC 12.2.6.4 Energy Performance of Buildings Directive, 2002/91/EC 21.6.1, 21.6.2 Hazardous Substances in Electrical and Electronic Equipment Directive, 2002/95/EC 19.1 Waste Electrical and Electronic Equipment Directive, 2002/96/EC 19.1 Biofuels Directive, 2003/30/EC Art. 1 12.3.4 Art. 2(1)(a) 12.3.4 Art. 2(1)(b) 12.3.4 Art. 2(1)(c) 12.3.4 Art. 2(2) 21.9.3.1, 27.2 Art. 3(1)(a) 12.3.4 Art. 3(3) 12.3.4 Art. 4(1) 12.3.4 Electricity Acceleration Directive, 2003/54/EC 6.4.3.1, 12.2.6.3 recital 4 12.2.6.3 Art. 1 12.2.6.3 Art. 2(1) 12.2.6.3 Art. 2(3) 12.2.6.3 Art. 2(5) 12.2.6.3 Art. 2(7) 12.2.6.3 Art. 2(8) 12.2.6.3 Art. 2(9) 12.2.6.3 Art. 2(12) 12.2.6.3 Art. 2(3) 12.2.6.3 Art. 3 12.2.6.3 Art. 3(6) 20.3 Art. 6(2)(c) 12.2.6.3 Art. 8 12.2.6.3 Art. 9 12.2.6.3 Art. 10 12.2.6.3 Art. 11 12.2.6.3 Art. 11(3) 12.2.6.3 Art. 12 12.2.6.3 Table of European Community Legislation lxxv Art. 13 12.2.6.3 Art. 14 12.2.6.3 Art. 15 12.2.6.3 Art. 16 12.2.6.3 Art. 17 12.2.6.3 Art. 20(1) 12.2.6.3 Art. 21(1) 12.2.6.3 Art. 21(1)(a) 12.2.6.3 Art. 21(1)(b) 12.2.6.3 Art. 21(1)(c) 12.2.6.3 Gas Acceleration Directive, 2003/55/EC 6.4.3.2, 12.2.6.3 recital 4 12.2.6.3 Art. 1(1) 12.2.6.3 Art. 1(4) 12.2.6.3 Art. 1(7) 12.2.6.3 Art. 2(5) 12.2.6.3 Art. 2(7) 12.2.6.3 Art. 2(11) 12.2.6.3 Art. 2(24) 12.2.6.3 Art. 2(26) 12.2.6.3 Art. 2(27) 12.2.6.3 Art. 2(28) 12.2.6.3 Art. 2(29) 12.2.6.3 Art. 3 12.2.6.3 Art. 3(3) 12.2.6.3 Art. 3(4) 12.2.6.3 Art. 4 12.2.6.3 Art. 7 12.2.6.3 Art. 8 12.2.6.3 Art. 8(1) 12.2.6.3 Art. 9 12.2.6.3 Art. 10 12.2.6.3 Art. 11 12.2.6.3 Art. 12 12.2.6.3 Art. 13 12.2.6.3 Art. 14 12.2.6.3 Art. 15 12.2.6.3 Art. 18 12.2.6.3 Art. 23(1) 12.2.6.3 Art. 23(1)(a) 12.2.6.3 Art. 23(1)(b) 12.2.6.3 Art. 23(1)(c) 12.2.6.3 Art. 32(2) 12.2.6.3 Emissions Trading Directive, 2003/87/EC 20.3, 28.1 Art. 4 28.3, 28.4 lxxvi Environmental Taxation Law Art. 5 28.3, 28.4 Art. 6 28.3, 28.4 Art. 6(2) 28.3 Art. 6(2)(e) 28.3 Art. 7 28.4 Art. 8 28.3, 28.4 Art. 9(1) 28.3 Art. 9(3) 28.3 Art. 10 28.3 Art. 11(1) 28.3 Art. 11(2) 28.3 Art. 11(3) 28.3 Art. 12 28.3, 28.4 Art. 12(1) 28.3 Art. 12(2) 28.3 Art. 12(3) 28.3, 28.4 Art. 12(4) 28.3 Art. 14 28.3 Art. 15 28.3 Art. 16 28.3 Art. 16(1) 28.3 Art. 16(3) 28.3 Art. 17 28.3 Art. 18 28.3 Art. 19 28.3, 28.4 Art. 20 28.3 Art. 21 28.3 Art. 25 28.3 Art. 25(1) 28.3 Art. 26 28.3 Art. 27 28.3 Art. 27(2) 28.4 Art. 28 28.3 Art. 30(1) 28.3 Art. 32 28.1 Annex 1 28.3 Annex 2 28.3 Energy Products Directive, 2003/96/EC 12.3.4, 14.6, 27.6, 21.2, 21.3, 28.1 recital 7 12.3.4 recital 12 12.3.4 recital 13 12.3.4 recital 25 12.3.4 Art. 4(1) 12.3.4 Art. 14 12.3.4 Art. 14(1)(a) 12.3.4 Art. 14(1)(b) 12.3.4 Table of European Community Legislation lxxvii Art. 14(1)(c) 12.3.4 Art. 15 12.3.4 Art. 15(1)(c) 12.3.4 Art. 15(1)(d) 12.3.4 Cogeneration Directive, 2004/8/EC 12.2.6.3, 14.5 Art. 3(a) 12.2.6.3 Art. 4(1) 12.2.6.3 Art. 5(1) 12.2.6.3 Art. 6(1) 12.2.6.3 Art. 8(1) 12.2.6.3 Art. 8(2) 12.2.6.3 Art. 10 12.2.6.3 Art. 11 12.2.6.3 2 Regulations Unprofitable Transport Services Regulation, EEC/1191/69 12.2.7.4 Art. 2(1) 12.2.7.4 Road Transport Regulation, EEC/3820/85 12.2.6.4 Tachographs Regulation, EEC/3821/85 12.2.6.4 Council Regulation EEC/3975/87 Arts 3–19 12.2.6.4 Block Exemptions Regulation, EEC/3976/87 12.2.6.4 Art. 1(2) 12.2.6.4 Art. 6 12.2.6.4 European Environment Agency Regulation, EEC/1210/90 4.3.5 Air Route Access Regulation, EEC/2408/92 12.2.6.4 Art. 2(a) 12.2.6.4 Air Fares Regulation, EEC/2409/92 12.2.6.4 Airport Slots Regulation, EEC/95/93 12.2.6.4 Waste Management Regulation, EEC/259/93 6.3.2, 12.2.5.1, 12.2.5.2 Art. 2(a) 12.2.5.2 Art. 3 12.2.5.1 Art. 4 12.2.5.1 Art. 5 12.2.5.1 Art. 6 12.2.5.1 lxxviii Environmental Taxation Law Art. 7 12.2.5.1 Art. 8 12.2.5.1 Art. 13 12.2.5.1 Art. 14(1) 12.2.5.1 Art. 14(2) 12.2.5.1 Art. 15 12.2.5.2 Art. 16 12.2.5.1 Art. 18(1) 12.2.5.2 Art. 18(2) 12.2.5.1 Art. 19(1) 12.2.5.1 Art. 20 12.2.5.1 Art. 21(1)(a) 12.2.5.1 Art. 21(1)(b) 12.2.5.1 Art. 22 12.2.5.1 Countervailing Duty Regulation, EEC/2026/97 8.4.4 State Aid Regulation, EC/659/1999 12.2.7.1 Hushkit Regulation, EC/925/1999 12.2.6.4 Ozone Depletion Regulation, EC/2037/2000 12.2.6.2, 28.2.2 Commission Regulation, EC/1392/2001 28.2.2 State Aid to Coal Industry Regulation, EC/1407/2002 12.2.7.3 Council Regulation, EC/2371/2002 28.2.2 Transport Exemptions Regulation, EC/1/2003 Art. 39 12.2.6.4 Art. 41 12.2.6.4 Cross Border Electricity Exchanges Regulation, EC/1228/2003 12.2.6.3 CAP Reform Regulation, EC/1782/2003 27.3, 27.2 Art. 87 27.2 Council Regulation, EC/1788/2003 21.9.3.1 3 Council Decisions Council Decision 65/271/EC 12.2.7.4 Council Decision 93/591/EC 4.3.1 Table of European Community Legislation lxxix Council Decision 93/704/EC 12.2.6.4 Council Decision 94/69/EC 28.1 Council Decision 1999/468/EC 4.3.1 Council Decision 2002/358/EC 8.2.2 Council Decision 2002/1600/EC 12.2.3 This page intentionally left blank Table of Provisions of GATT 1994 Art. I 8.4 Art. II 7.2.2.4, 8.4, 8.4.3 Art. II(1) 8.4.3 Art. II(1)(a) 8.4.3 Art. II(1)(b) 8.4.3 Art. II(2) 12.3.2.2 Art. II(2)(a) 8.4.3, 8.4.5.1 Art. III 7.2.2.4, 8.4, 8.4.2, 8.4.3, 8.4.5.1 Art. III(2) 7.2.2.4, 8.4.3, 8.4.5.1, 12.3.2.1, 12.3.2.2 Art. III(8)(a) 8.4.3 Art. III(8)(b) 8.4.3 Art. VI 8.4, 8.4.2, 8.4.4 Art. VI(4) 4.4.1, 8.4.4 Art. XI(1) 8.4.2 Art. XVI 8.4, 8.4.3, 8.4.4 Art. XVI(A)(1) 8.4.4 Art. XX 8.4, 8.4.2, 8.4.4.1 Art. XX(b) 8.4.2 Art. XX(g) 8.4.2 Annex I 8.4.3, 8.4.4 Annex II 8.4.4 Annex III 8.4.4 WTO Agreement on Subsidies and Countervailing Measures, 1994 1.2.1.2, 1.2.1.4, 21.9 Art. 1 8.4.5.2 Art. 1.1, n 8.4.4 Art. 1.1(a)(1) 8.4.5.2 Art. 2 8.4.5.2 Art. 2.1 4.4.1 Art. 3 8.4.5.2 Art. 4 8.4.5.2 Art. 4.8 8.4.5.2 Art. 4.9 8.4.5.2 Art. 4.10 8.4.5.2 Art. 4.11 8.4.5.2 Art. 4.12 8.4.5.2 Art. 5 8.4.5.2 Art. 7 8.4.5.2 Art. 8 8.4.5.2 lxxxii Environmental Taxation Law Art. 8.1(a) 8.4.5.2 Art. 8.2(b) 8.4.5.2 Art. 8.2(c) 8.4.5.2 Arts 10–23 8.4.5.2 Art. 10, n35 8.4.5.2 Art. 14 8.4.5.2 Art. 17.3 4.4.1 Art. 25 8.4.5.2 Annex 1 para. (e) 8.4.5.2 para. (f) 8.4.5.2 para. (g) 8.4.5.2 WTO Agreement on Government Procurement 1994 8.5 Table of Other Treaty Provisions Chicago Convention on International Civil Aviation, 1944 6.1, 12.2.6.4, 16.16, 24.2 Statute of the International Court of Justice, 1945 Art. 38 8.2.1, 8.2.3, 8.2.4, 8.2.5 European Convention on Human Rights, 1950 4.2.2, 4.3.7, 11.3.4 First Protocol Art. 1 12.2, 11.3.4 Paris Convention, 1960 4.4.2 Art. 2 4.4.2 Art. 6 4.4.2 Art. 6.3 4.4.2 Art. 7 4.4.2 Vienna Convention on the Law of Treaties, 1969 Art. 2(1)(a) 8.2.2 Art. 3 8.2.2 Art. 4 8.2.2 Art. 26 8.2.2 Art. 31(1) 8.4.2 Art. 31(2) 8.4.2 Art. 31(3) 8.4.2 Art. 31(3)(a) 8.4.2 Art. 31(3)(b) 8.4.2 Art. 31(3)(c) 8.4.2 Art. 32 8.4.2 Art. 33 8.4.2 Stockholm Declaration of the United Nations Conference on the Human Environment, 1972 4.4.3 Principle 21 8.2.3 Convention on the Prevention of Marine Pollution by Dumping of Wastes or Other Matter (‘the London Dumping Convention’), 1972 (rev. 1993 and 1996) 4.4.4, 8.3.2 Washington Convention on International Trade in Endangered Species of Wild Flora and Fauna, 1973 4.4.4, 8.4.2 lxxxiv Environmental Taxation Law Geneva Convention for the Control of Long-Range Transboundary Air Pollution, 1979 4.4.3, 8.3.1.1, 8.3.1.5 Art. 2 8.3.2 Geneva Protocol on Long-term Financing of the Co-operative Programme for Monitoring and Evaluation of Long-Range Transmission of Air Pollutants in Europe, 1985 8.3.1.5 Helsinki Protocol on the Reduction of Sulphur Emissions or their Transboundary Fluxes, 1985 8.3.1.5 Sofia Protocol concerning the Control of Emissions of Nitrogen Oxides or their Transboundary Fluxes, 1988 8.3.1.5 Geneva Protocol concerning the Control of Emissions of Volatile Organic Compounds or their Transboundary Fluxes, 1991 8.3.1.5 Oslo Second Protocol on the Further Reduction of Sulphur Emissions, 1994 8.3.1.5 Bonn Convention on the Conservation of Migratory Species of Wild Animals, 1980 8.4.2 United Nations Convention on the Law of the Sea, 1982 7.4.3.1, 8.3.2 Annex VI 8.2.5 Vienna Convention for the Protection of the Ozone Layer, 1985 4.4.4, 8.3.1.1, 8.3.1.5, 12.2.6.2 Montreal Protocol on Substances that Deplete the Ozone Layer, 1987 4.4.4, 8.3.1.1, 8.3.1.5, 12.2.6.2 Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal, 1989 8.3.2, 8.4.5.1, 12.2.5.1 Preamble 8.3.2 Art. 1 8.3.2 Art. 4 8.3.2 Art. 4(1)(a) 8.3.2 Art. 6 8.3.2 Lomé IV Convention, 1989 8.3.2 International Convention on Oil Pollution Preparedness, Response and Co-operation, 1990 8.3.2 Bamako Convention, 1991 8.3.2 Art. 4(1) 8.3.2 Table of Other Treaty Provisions lxxxv Espoo Convention on Environmental Impact Assessment in a Transboundary Context, 1991 4.4.3 Convention on Transboundary Effects of Industrial Accidents, 1992 8.3.2 Declaration of the United Nations Conference on Environment and Development [‘the Rio Declaration’], 1992 4.2.1.3, 4.4.3, 8.3.1.3 Principle 2 8.2.3, 8.2.6 Principle 12 8.2.6 Principle 15 8.2.3, 8.2.6 Principle 16 8.2.3, 8.2.6 Principle 17 8.2.6 Johannesburg [‘the Earth Summit’], 2002 23.5 Convention on Biological Diversity, 1992 4.4.3, 4.4.4, 8.3.1.3, 21.3.2 Cartagena Protocol on Biosafety, 2000 26.5 United Nations Framework Convention on Climate Change, 1992 4.4.3, 4, 5.4, 8.1, 8.2.2, 8.3 Art. 2 8.3.1.3 Art. 4(1) 8.3.1.3 Art. 4(1)(a) 8.3.1.3 Art. 4(1)(b) 8.3.1.3 Art. 4(1)(c) 8.3.1.3 Art. 4(1)(d) 8.3.1.3 Art. 4(1)(f) 8.3.1.3 Art. 4(1)(g) 8.3.1.3 Art. 4(1)(i) 8.3.1.3 Art. 4(2) 8.3.1.3 Art. 4(,2)(a) 8.3.1.3 Art. 4(2)(b) 8.3.1.3 Art. 4(8) 8.3.1.3 Art. 7 8.3.1.3 Art. 8 8.3.1.3 Art. 9 8.3.1.3 Art. 10 8.3.1.3 Kyoto Protocol, 1997 4.4.4, 6.4, 8.1, 8.2.2, 8.3, 14.2, 21.3.1, 21.4.3, 16.16, 26.2, 20.2, 20.3, 28.1 Art. 3 8.2.2 Art. 6 8.2.2 Art. 12 8.2.2 Art. 17 8.2.2, 28.2.2 Art. 25.1 8.2.2 Annex A 2.4.3, 28.3 lxxxvi Environmental Taxation Law Marakesh Protocol, 2002 23.5, 26.2 North Atlantic Free Trade Area Treaty, 1993 26.4 Aarhus Convention on Access to Information, Public Participation in Decision-making and Access to Justice in Environmental Matters, 1998 4.4.3 Basel Protocol on Liability and Compensation for Damage Resulting from Transboundary Movements of Hazardous Wastes and their Disposal, 1999 8.3.2 Table of Abbreviations AB WTO Appellate Body AC Law Reports, Appeal Cases ACBE Advisory Committee on Business and the Environment ACEA Association des Constructeurs Européens d’automobiles ACP African-Caribbean-Pacific AG German form of public limited liability company A-G Attorney-General AJIL American Journal of International Law All ER All England Law Reports ALSF Aggregates Levy Sustainability Fund APD air passenger duty Art. Article ASBL Belgian form of limited liability company BAT best available techniques BATNEEC best available technology not entailing excessive cost BETTA British Electricity Trading and Transmission Arrangements BISD GATT Basic Instruments and Selected Documents Series BMW biodegradable municipal waste BNFL British Nuclear Fuels Ltd BSE bovine spongiform encephalopathy BTA border tax adjustment BTR British Tax Review BV Dutch form of private limited liability company BYIL British Yearbook of International Law CA Court of Appeal (England and Wales) CAP the Common Agricultural Policy CBA cost-benefit analysis CBI Confederation of British Industry CCP Common Commercial Policy CCT common customs tariff C & E Commrs HM Commissioners of Customs and Excise CDM Clean Development Mechanism CEE charge having an equivalent effect CFCs chlorofluorocarbons CFI Court of First Instance CFIT Commission for Integrated Transport CGT capital gains tax Ch. Law Reports, Chancery Division ch. chapter CH4 methane lxxxviii Environmental Taxation Law CHP combined heat and power CHPQA combined heat and power quality assurance CLR Commonwealth Law Reports CLSA Current Law Statutes Annotated CMLR Common Market Law Reports Conv The Conveyancer and Property Lawyer COREPER Committee of Permanent Representatives CO2 carbon dioxide CTE WTO Committee on Trade and the Environment CTP Common Transport Policy Defra Department of Environment, Food and Rural Affairs DETR Department of Environment, Transport and the Regions DLR Dominion Law Reports DNO distribution network operator DSO distribution system operator DTI Department of Trade and Industry EAD Electricity Acceleration Directive ECCP European Climate Change Programme ECHR European Convention on Human Rights ECJ Court of Justice of the European Communities ECOSOC Economic and Social Committee ECR European Court Reports ECSC European Coal and Steel Community ECT Energy Charter Treaty EEA European Environment Agency EELR European Environmental Law Review EFTA European Free Trade Area EG Estates Gazette EIA environmental impact assessment ELM Environmental Law and Management ELR Environmental Law Review ERUs emissions reduction units ENDS Report Environmental Data Services Report Env LR Environmental Law Reports EPA (US) Environmental Protection Agency EPD Energy Products Directive ER English Reports ESC Extra-Statutory Concession ESH Electricity Supply Handbook EST Energy Saving Trust EU European Union EU ETS European Union Emissions Trading Scheme Euratom European Atomic Energy Community EWCA Court of Appeal (of England and Wales) EWHC High Court of Justice (of England and Wales) FFL fossil fuel levy FS Fiscal Studies Table of Abbreviations lxxxix FSA Financial Services Authority GAAP Generally Accepted Accounting Practice GAAR General Anti-Avoidance Rule GAD Gas Acceleration Directive GATS General Agreement on Trade in Services GATT General Agreement on Tariffs and Trade GDP gross domestic product GEMA Gas and Electricity Markets Authority GHG greenhouse gas GLA Greater London Authority GM genetically modified GmbH German form of private limited liability company HC House of Commons HCA High Court of Australia HFCs hydroclorofluorocarbons Hals Halsbury’s Laws of England HL House of Lords HMSO Her Majesty’s Stationery Office (see TSO) IAEA International Atomic Energy Agency ICAO International Civil Aviation Organisation ICCLR International Company and Commercial Law Review ICJ International Court of Justice ICJ Rep Reports of Judgments and Advisory Opinions of the International Court of Justice ICLQ International and Comparative Law Quarterly IEA International Energy Agency IELTR International Energy Law and Tax Review IGC Inter-Governmental Conference IHT inheritance tax ILM International Legal Materials IPC Integrated Pollution Control IPPC Integrated Pollution Prevention and Control IPT Insurance Premium Tax IRC Commissioners of Inland Revenue JAMA Japanese Automobile Manufacturers Association JEEPL Journal for European Environmental and Planning Law JEL Journal of Environmental Law JEPP Journal of European Public Policy JI Joint Implementation JLE Journal of Law and Economics JPL Journal of Planning Law JWT Journal of World Trade KAMA Korean Automobile Manufacturers Association KG German limited partnership LAAPC Local Authority Air Pollution Control LATS Landfill Allowances Trading Scheme LEC levy exemption certificate xc Environmental Taxation Law LIFO last in, first out LJQB Law Journal Reports (New Series) Queen’s Bench (1831–1949) LNG liquified natural gas LPG liquified petroleum gas LS Legal Studies LT Law Times LTCS landfill tax credit scheme MEA multilateral environmental agreement MEP Member of the European Parliament MLR Modern Law Review MP Member of the UK House of Commons MSP Member of the Scottish Parliament MW megawatt NAFTA North American Free Trade Area NAP national allocation plan NDA Nuclear Decommissioning Authority NG natural gas NGG National Grid Group NICs national insurance contributions NIROC Northern Ireland Renewable Obligation Certificate NLJ New Law Journal NOA National Audit Office NOX collective term for nitrogen oxides N2O nitrous oxide NV Dutch form of public limited liability company NWRU National Waste Registration Unit ODPM Office of the Deputy Prime Minister OECD Organisation for Economic Co-operation and Development OED Oxford English Dictionary Ofgem Office of Gas and Electricity Markets OHG German partnership OJ Official Journal of the European Communities PCBs polychlorinated biphenyls PCTs polychlorinated terphenyls PERN package waste export recovery note PFCs perfluorocarbons PL Public Law PLC UK form of public limited liability company Porteous Andrew Porteous, Dictionary of Environmental Science and Technology, 3rd edn (Chichester: John Wiley, 2000) PQ Parliamentary Question PRN packaging waste recovery note PSA (departmental) public service agreement PSO public service obligation QB Law Reports, Queen’s Bench Division QPA Quarry Products Association RCEP Royal Commission on Environmental Pollution Table of Abbreviations xci REC regional electricity company REGO renewable energy guarantee of origin RIA regulatory impact assessment RICS Royal Institute of Chartered Surveyors RIIA Royal Institute of International Affairs RO Renewables Obligation ROC Renewables Obligation Certificate ROO 2002 Renewables Obligation Order 2002 RRC Ryde’s Rating Cases RSPB Royal Society for the Protection of Birds SA public limited company in France, the Iberian Peninsular and Latin America SARL Form of limited liability company in some EU Member States Sched. Schedule SCR Supreme Court Reports SDLT stamp duty land tax SEA strategic environmental assessment SEA 1986 Single European Act 1986 SEPA Scottish Environment Protection Agency SF6 sulphur hexafluoride SI statutory instrument SIP single income (or farm) payment SLT Scottish Law Times SO Parliamentary Standing Order SpA Italian form of limited liability company SpC Special Commissioners’ Decisions SROC Scottish Renewable Obligation Certificate STC Simon’s Tax Cases SWTI Simon’s Weekly Tax Intelligence TAF Trade Association Forum TC Tax Cases TED turtle excluder device TFL Transport for London TJ Tax Journal TN Treaty of Nice TPA third party access to gas and electricity transmission and distribution systems TR Tax Reports TREC tradeable renewable energy certificate TSO transmission system operator TSO The Stationery Office (see HMSO) UK ETS UK Emissions Trading Scheme UKHL United Kingdom House of Lords ULR Utilities Law Review UNCLOS United Nations Convention on the Law of the Sea UNCSD United Nations Commission on Sustainable Development UNECE United Nations Economic Commission for Europe xcii Environmental Taxation Law UNEP UN Environment Programme UNICE Union of Industrial and Employers’ Confederations of Europe V&DR VAT and Duties Reports VAT value added tax VATTR Value Added Tax Tribunal Reports VED vehicle excise duty WA written ministerial answer to a Parliamentary Question WCED World Commission on Environment and Development WIP Waste Implementation Programme WCA waste collection authority WDA waste disposal authority WFD Waste Framework Directive WH Westminster Hall debate of the House of Commons WIP Waste Implementation Programme WLR Weekly Law Reports WN Weekly Notes WPRG waste performance reward grant WRAP Waste and Resources Action Programme WRA waste regulation authority WS written Ministerial statement to Parliament WTO World Trade Organization WTA willingness to accept WTP willingness to pay PART I PROLOGUE This page intentionally left blank Chapter 1 Preliminaries 1.1 Introduction The concept of the environmental tax is a new and controversial presence in the European regulatory landscape. The UK has been a pioneer in the transformation of this new type of tax from a twinkle in the eye of the environmental economist to a legal reality. This book seeks to give a comprehensive but critical account of the law relating to environmental taxes in the UK. It discusses the policies which have shaped those taxes, together with their relationship both with other forms of environmental regulation, and with other (non-environmental) taxes. It also offers insights into the application of environmental taxes in practice. Throughout the book, UK law and policy is placed in its wider international and European contexts. In the absence of a general legislative definition,1 the ways in which environmental taxes are to be identified and classified are, of course, key elements in this first chapter. The discussion begins,2 however, by introducing the essence of some even more fundamental concepts, a number of which we shall encounter again and again: what is a tax? How does the concept differ from other levies, such as charges for government services? Within the concept of a tax, what distinction is to be drawn between direct and indirect taxes? What types of tax fall into each category? In each case, we explain the specific importance of each of these questions to the key term ‘environmental taxes’, both the nature and the classifications of which we discuss in some detail below.3 Having explained the importance of each of these questions, as well as indicating something of the policies that inform them, we then go on to set out the approach which we have adopted to the material under consideration. The purpose of the study, as already stated, is to offer a critical account of the subject matter; para. 1.2.2 explains the viewpoint from which the criticism is made. One of the all-embracing themes of the book is that of how – irrespective, almost, of the jurisdiction in which they are designed and implemented – the feasibility and design of environmental taxes (justified, as they often are, by reference to international environmental agreements), are subject to the law of international trade, as embodied in the 1994 revision of the General Agreement on Tariffs and Trade (‘GATT 1994’), and its related agreements, and in the institutions of the World Trade Organization (‘the WTO’). The UK is no exception to this general proposition and, furthermore, as a Member State of the EU, its own environmental levies are additionally subject to the provisions of the European Treaty. The nature and extent of both sets of treaty provisions, which coincide to a considerable extent, are considered in subsequent 1 None of the taxes with which this book is concerned are described as environmental taxes within the legislative codes that created them (see para. 1.4.2 below). 2 See para. 1.2.1 below. 3 See para. 1.2.1.5 below. 4 Environmental Taxation Law chapters.4 In this Introduction, the explanation of the essential concepts and of our approach to the subject matter as a whole, is followed by a brief introduction to the international and European context of the material, as well as to the place, within that setting, of the UK and its constituent countries.5 We seek to highlight throughout the book the governance questions to which these contexts give rise, since these help to explain, not only why European-wide action in the field of environmental taxation has proved so problematic, but also why the UK’s environmental taxes are of UK-wide application, rather than being found (as, for example, in Spain)6 in its constituent countries. So far as the non-UK reader is concerned, the chief usefulness of the present volume, it is hoped, will be found in the detailed critical exposition, against the background discussed above, of the UK’s environmental levies and their institutional framework. To this end, para. 1.4.2 below contains an introductory overview of the levies, most importantly (in the chronological order of their introduction), landfill tax, a levy on the landfilling of waste; climate change levy, a levy on the industrial, commercial and agricultural use of energy; and aggregates levy, which taxes the extraction of primary minerals. All of the levies have both a regulatory context7 and a taxation context and paras 1.4.2 and 1.4.3 seek to give an overview of those contexts. Although, as will be seen, HM Customs and Excise (‘Customs’) is the government department mainly responsible for the administration and enforcement of each of these levies,8 the non- UK reader (and possibly, also, even the UK reader new to the subject), will be struck by the myriad other bodies with some subsidiary role in at least the former process. Paragraph 1.5 briefly introduces these bodies, by way of a prelude to the detailed, as well as much more wide-ranging, discussion in Chapter 4 below. Together, the elements of the discussion in this chapter will equip the reader to appreciate the fiscal context of the levies to be discussed in the rest of the book. These opening remarks having been made, we turn first to certain basic issues of terminology and, specifically, to the idea of environmental taxes and the implications of the constituent elements of the term. 4 See Chapters 8 and 12 below. 5 See para. 1.3 below. 6 See, for example, Pedro M. Herrera, ‘Legal Limits on the Competence of Governments in Spain’, in Critical Issues in Environmental Taxation: International and Comparative Perspectives: Volume I, ed. by Janet Milne, Kurt Deketelaere et al. (Richmond: Richmond Law and Tax, 2003), pp. 111–23. This chapter is a distilled version of Herrera’s Spanishlanguage text, Derecho tributario ambiental (Madrid: Marcial Pons – Ministerio de Medio Ambiente, 2000). Neither of the present authors read Spanish. 7 Throughout the book, economic instruments (including regulatory taxes) are seen, not as an alternative to regulation, but as a form of regulation in themselves, albeit distinct from command and control regulation (see, for example, Robert Baldwin and Martin Cave, Understanding Regulation – Theory, Strategy and Practice (Oxford: Oxford University Press, 1999), pp. 1–2. 8 See para. 4.2.1.2(2) below. Preliminaries 5 1.2 Terminology, approach and sources The use of the term ‘environmental taxation’ in popular discourse tends to elide the particular significances of each of its two constituent elements. This para. 1.2 accordingly begins by setting out an initial definition of the concept of a tax and briefly explaining its relationship, first, with the distinct concept of a charge for government services and, secondly, with the concept of a fine. Both of these distinctions, important in the study as a whole, will be revisited in more detail in a later chapter.9 The term ‘levy’,10 also common in public finance literature, operates as a generic term for both taxes and charges: the allocation of a particular levy to one or other category, and the implications of that process, depend on isolating the characteristics of a tax, and distinguishing it from a charge (or fee) for government services. Within the concept of a tax is entrenched a further distinction which, in the specific context of environmental taxes, is also of considerable significance: that between direct and indirect taxes. We examine the distinction in some detail here, since it will be of fundamental importance in explaining the international aspects of environmental taxation,11 no less than its Community law implications.12 The preceding discussion forms the basis of an examination of the technical significance of the concept ‘environmental taxation’. This in turn leads into an explanation of the approach taken in the book to the range of material under consideration,13 as well as the sources to which we have referred. 1.2.1 Terminology 1.2.1.1 Taxes, fines and charges The UK’s constitutional arrangements, as will become apparent, have so far tended to discourage a narrow and prescriptive view of the tax as a legal concept.14 Fortunately, however, for constitutional reasons, there is in the Commonwealth jurisdictions a plethora of material on the legal nature of a tax and on its relationship with the concept of a charge or fee for government services.15 A convenient (and enduring) definition of the former concept was applied in the Canadian case of Re Eurig Estate.16 There, it was held that, assuming that it has legislative authority, a levy is a tax if it satisfies all of three conditions, that is, if it is: 1. legally enforceable; 2. levied by a public body; and 3. intended for a public purpose. 9 See Chapter 7 below. 10 See OED, ‘levy’ definition 2a. 11 See Chapter 8 below. 12 See Chapter 12 below. 13 See para. 1.2.2 below. 14 See para. 7.2.2.1 below. 15 See para. 7.2.1 below. 16 (1999) 165 DLR (4th) 1. 6 Environmental Taxation Law Each of these three characteristics, as well as the decision from which they are drawn, is analysed in more detail later in the study.17 For present purposes, however, they provide us with a suitable working definition of a tax. Whether and, if so, how, the tax concept is to be distinguished from a penalty or fine has been the subject of some debate. In asserting such a distinction, Hart, whilst acknowledging that it may often become blurred, expressed the distinction between fines and taxes in terms that the former involves ‘… an offence or breach of duty in the form of a violation of a rule set up to guide the conduct of ordinary citizens’.18 Hart’s expression of the distinction needs only to be stated for its problematic nature in relation to environmental taxes to be obvious; we shall return to it later in the book.19 By contrast with a tax or with a penalty, a ‘charge’ or ‘fee’ involves the provision of some service direct to a particular person, which is related to the amount charged but which does not preclude the possibility of a reasonable profit being made by the public body in question.20 Spackman says that the essence of a charge is that it ‘purchases a specific service and will generally vary with usage; the transaction should be a market exchange of a kind which the private sector could supply (as a principal rather than as an agent); and the charge should [emphasis added] merely cover the cost of providing the service’,21 in this last particular differing from the legal definition of a charge or fee.22 Conversely, the essence of a tax, it might be said, is that it is a payment to general government which is compulsory and in relation to which the benefit to the taxpayer is usually not in proportion to the payment.23 Obviously, certain payments will be difficult to allocate to one or other category.24 1.2.1.2 Direct and indirect taxes Within the tax concept, both economists and lawyers traditionally make a further distinction, that between direct and indirect taxes. The classic articulation of the distinction comes from the Principles of Political Economy of John Stuart Mill (1806–1873) and is as follows: Taxes are either direct or indirect. A direct tax is one which is demanded from the very persons who, it is intended or desired, should pay it. Indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another: such as the excise or customs. The producer or importer of a commodity is called upon to pay a tax on it, not with the intention to levy a peculiar 17 See para. 7.2.2.2 below. 18 H.L.A. Hart, The Concept of Law (Oxford: Clarendon Press, 1961), p. 39. 19 See para. 7.2.3 below. 20 See para. 7.2.1 below. 21 See Michael Spackman, ‘Hypothecation: a view from the Treasury’, in Ecotaxation, ed. by Timothy O’Riordan (London: Earthscan, 1997), pp. 45–51. 22 Ibid. 23 See Organisation for Economic Co-operation and Development, Revenue Statistics 1965– 2002 (Paris: OECD, 2003), p. 285. 24 See para. 7.3.1 below. Preliminaries 7 contribution upon him, but to tax through him the consumers of the commodity, from whom it is supposed that he will recover the amount by means of an advance in price.25 The distinction is sometimes expressed in terms of a dichotomy between those taxes imposed on products (that is, indirect taxes) and those imposed upon producers (that is, direct taxes).26 Thus, the key examples of direct taxes are ‘taxes on wages, profits, interests, rents, royalties, and all other forms of income, and taxes on the ownership of real property’, whilst indirect taxes are exemplified by ‘sales, excise, turnover, value added, franchise, stamp, transfer, inventory and equipment taxes, border taxes and all other taxes other than direct taxes and import charges’.27 In Re Eurig Estate,28 after referring to Mill’s characterisation of the distinction between direct and indirect taxes, the majority of the Supreme Court of Canada held that probate fees of the Ontario Court, being chargeable on a deceased individual’s executors in their representative capacity only, were direct taxes on the deceased’s estate, rather than indirect taxes levied on the executors personally. For the majority, Major, J. said that: Applying Mill’s definition, the tax would be indirect if the executor was personally liable for payment of probate fees, as the intention would clearly be that the executor would recover payment from the beneficiaries of the estate. However, the legislation does not make the executor personally liable for the fees. Payment is made by the executor only in his or her representative capacity … [A]s the amount is paid out of the estate by the executor in his or her representative capacity with the intention that the estate should bear the burden of the tax, the probate fees fall within Mill’s definition of a direct tax.29 Despite the fact that it is not free from difficulty in economic terms,30 the distinction between direct and indirect taxes has been highly influential, both in national legal orders (that is, in the laws of constitutions) and also in international and supranational legal orders (such as the EC and the GATT 1994-based system of multilateral trade agreements). In the context of constitutional law, the distinction between direct and indirect taxes has been used to delimit the respective taxing powers of federal and provincial legislatures. In Re Eurig Estate, for instance, the distinction was crucial 25 John Stuart Mill, Principles of Political Economy with Some of their Applications to Social Philosophy (‘People’s Edition’) (London: Longmans, Green, 1892), Book 5, ch. 3, pp. 495–6. See also Sir William Blackstone (1723–1780), Commentaries on the Laws of England, Book I, 16th edn by C.J.T. Coleridge (London: Butterworths, 1825), pp. 316–317. 26 See WTO Secretariat, Taxes and Charges for Environmental Purposes – Border Tax Adjustment (WT/CTE/W/47), para. 31. 27 See 1994 WTO Agreement on Subsidies and Countervailing Measures (see para. 8.4.4 below), fn 58 thereto. 28 See para. 1.2.1.1 above. 29 (1999) 165 DLR (4th) 1, para. 26. 30 See John Tiley, Revenue Law, 4th edn (Oxford: Hart Publishing, 2000), p. 18. One distinction might be that indirect taxes are ‘shifted into prices, not only more fully but more quickly’ than are direct taxes (see Organisation for Economic Co-operation and Development, Taxing Consumption (Paris: OECD, 1988), para. 1.12). See also Paul Demaret and Raoul Stewardson, ‘Border tax adjustments under GATT and EC law and general implications for environmental taxes’ (1994) 4 JWT 5, 14–16. 8 Environmental Taxation Law to deciding whether the tax in question was within the competence of the provincial legislature. This was because, in Canada, direct taxes could be levied by both federal and provincial governments. Indirect taxes, by contrast, were leviable only by the federal government.31 In the world trade context, the distinction between direct and indirect taxes is crucial to the operation of two principles of international business taxation, the origin principle and the destination principle. The origin principle requires that products should be taxed in the country where they are made, regardless of where they are consumed.32 The destination principle requires that, irrespective of where a commodity is produced, it should be taxed in the country where it is consumed.33 Direct taxes reflect the origin principle, since they imply the taxation of the producer rather than of the product. Indirect taxes may be imposed in order to reflect either the origin principle, in which case products are taxed in the country of their production, or the destination principle, in which case they are taxed in the country of their consumption. In the context of international trade, the almost invariable rule is for indirect taxes to be applied in accordance with the destination principle. This, of course, is because the universal application of the origin principle in a world of divergent indirect tax rates would tend to encourage consumers to source products from countries with lower rates of indirect taxes. The destination principle is put into effect through the rather misleadingly-named concept34 of the ‘border tax adjustment’ (the ‘BTA’).35 The BTA refers to the combined process of ensuring that products are exported from one country free of tax while being imported into another country subject to a tax designed to ensure that the products compete in tax terms on an equal footing with similar goods36 produced domestically.37 For present purposes, the crucial point is that, while the BTA is essential to giving effect to the destination principle, it has no application to the origin principle,38 with the result that, traditionally, the BTA has had no application in relation to direct taxes.39 31 See s.92, (Canadian) Constitution Act 1867. The rule might seem counter-intuitive to a European lawyer (but see Art 92, European Treaty (ex 98) (see para. 12.3.3.1(6) below)). 32 OECD (1988), para. 7.4. 33 OECD (1988), op. cit., para. 7.3. 34 Misleading, since, where exports are exempted from tax, or imports are taxed after importation, no adjustment is made at the border (see OECD (1988), op. cit., p. 121). The term (‘BTA’) is nonetheless in universal use. 35 See para. 8.4.3 below. 36 See Won-Mog Choi, Like Products in International Trade Law: Towards a Consistent GATT/WTO Jurisprudence (Oxford: Oxford University Press, 2003). 37 OECD (1988), op. cit., para. 7.3. See also WTO Secretariat, Taxes and Charges for Environmental Purposes – Border Tax Adjustment (WT/CTE/W/47), para. 28. See para. 8.4.3 below. 38 See the reports of the GATT panel of November 1976 in Domestic International Sales Corporations (‘DISCs’), GATT BISD 23d Supp 98, 114, 127 and 137 (1977), which were adopted by the GATT Council in December 1981 (see Demaret and Stewardson, op. cit., pp. 10–12). 39 See Kalle Määttä, Environmental Taxes – From an Economic Idea to a Legal Institution (Helsinki: Finnish Lawyers’ Publishing, 1997), p. 253, referring to Lans Bovenberg Preliminaries 9 Both the destination principle and the concomitant BTA have venerable theoretical pedigrees. They can each be traced back at least to David Ricardo (1772–1823), one of Mill’s intellectual mentors,40 who, taking the then topical example of corn, wrote in 1822 that: In the degree … in which [domestic indirect] taxes raise the price of corn, a duty should be imposed on its importation …, and a drawback of the same amount should be allowed on the exportation of corn. By means of this duty and this drawback, the trade would be placed on the same footing as if it had never been taxed, and we should be quite sure that capital would neither be injuriously for the interests of the country, attracted towards, nor repelled from it.41 Generally, although not invariably, environmental taxes fall into the category of indirect taxes. However, since discussions of environmental tax proposals have taken place both at the national and the international levels, some appreciation is necessary of the different types of direct tax, as well as of the various types of indirect tax. It is to these distinctions that we now turn. 1.2.1.3 Categories of direct taxes The main examples of direct taxes are those on income, profits and capital gains. In the UK, the key direct taxes are income tax, capital gains tax (‘CGT’), corporation tax42 and national insurance contributions (‘NICs’).43 Subject to the point made below about the classification of emissions and waste taxes,44 the main significance of direct taxes to environmental taxation is twofold: (1) the extent to which the taxes just referred to contain environmentally-damaging ‘tax subsidies’;45 and (2) whether and, if so then how, the statutory codes relating to them might be ‘greened’, that is, by incorporating reliefs, exemptions, etc., designed to encourage environmentallyfriendly behaviour.46 Additionally, however, there is the question of whether differential tax rates built into non-environmental tax codes (for example as in and Jocelyn Horne, ‘Taxes on Commodities: A Survey’, in Tax Harmonization in the European Community: Policy Issues and Analysis, ed. by George Kopits (Washington DC: International Monetary Fund, 1992), pp. 22–51. 40 See Samuel Hollander, The Economics of John Stuart Mill, vol. 1 (Toronto: University of Toronto Press, 1985), p. xii. 41 See David Ricardo, ‘On Protection to Agriculture’, in The Works and Correspondence of David Ricardo: Volume IV, Pamphlets and Papers 1815–1823, ed. by Piero Sraffa with M.H. Dobb (Cambridge: Cambridge University Press, 1951), p. 218. See also Adam Smith (1723–1790), The Wealth of Nations, ed. by D.D. Raphael (London: David Campbell, 1991), pp. 440–45. 42 All three of which fall within the OECD’s classification category 1000 (see OECD (2003), pp. 190–92). 43 See para. 1.4.3 below as to all of these. National insurance contributions fall within the OECD’s classification category 2000 (see OECD (2003), op. cit., p. 190). 44 See para. 1.4.2.1(1) below. 45 See para. 7.2.4 below. 46 See Chapters 22–25 below. 10 Environmental Taxation Law relation to the income tax treatment of a company car as a benefit in kind)47 and intended to put a price on environmentally-undesirable behaviour might themselves even be described as environmental taxes.48 1.2.1.4 Categories of indirect taxes In the context of environmental taxes, the most relevant category of indirect taxes is that of taxes on goods and services. This category, which appears as heading 5000 in the Organisation for Economic Co-operation and Development (‘OECD’)’s49 Classification of Taxes,50 comprises sales taxes, excise, turnover, value added, franchise, stamp, transfer, inventory and equipment taxes, border taxes and all other taxes other than direct taxes and import charges. Taxes on goods and services are in turn one of five categories of consumption taxes. The distinguished authors of the OECD’s 1988 report on consumption taxes51 identified five ways of taxing consumption:52 1 (as just mentioned) by imposing ‘taxes on goods and services themselves’; 2 through the use of ‘fiscal monopolies and public utilities’; 3 by making levies for the grant of licences; 4 by making other levies ‘that may contain an element of consumption taxation’; and 5 by a personal expenditure tax. Of these, 5 is not relevant in the present context, since it refers to an as yet theoretical alternative to existing consumption taxes. The most important to the present study of the classifications in the list are 1 and 3. Of the rest, 2 refers to the possibility that governments may produce or distribute certain goods and sell them at a higher price than if they had been sold untaxed in a competitive market.53 At the time that the 1988 report was written, the most important such goods would have been electricity and gas but, following the ‘unbundling’ of public utilities across Europe in the 1990s,54 this category is now so unimportant as not to be worth further consideration here. The residual category in 4 refers to the hypothesis that elements of consumption taxation may be discovered in taxes which are not specifically imposed on consumption.55 This leaves us with categories 1 and 3. Within the category of taxes on goods and services themselves, the authors of the OECD’s 1988 report drew a distinction between selective consumption taxes on 47 See para. 23.2 below. 48 See para. 1.2.1.5(2) below. 49 See para. 4.4.2 below. 50 OECD (2003), op. cit., pp. 283–300. 51 OECD (1988), op. cit. The report’s authorship was particularly, perhaps, distinguished, including (as it did) Professors Cedric Sandford and Sijbren Cnossen. 52 OECD (1988), op. cit., paras 1.7–1.13. 53 Ibid., op. cit., para. 1.9. 54 See paras 2.4, 6.4.3 and 12.2.6.3 below. 55 OECD (1988), op. cit., para. 1.11. Preliminaries 11 particular products or services, on the one hand, and general consumption taxes on the other.56 Examples of the former are excise duties on hydrocarbon oils. The latter, general consumption taxes, are further subdivided, however, into single stage taxes and multi-stage taxes.57 Single-stage, or ‘sticking’, taxes, may be levied at any one of the stages of supply,58 that is, from manufacturers to wholesalers, from wholesalers to retailers or from retailers to consumers. As will be apparent later on in this chapter, the UK’s indirect environmental taxes are of this single-stage type. Multi-stage taxes are, however, taxes levied each time goods or their components are sold.59 Unless credit is given for tax paid at each of the earlier stages,60 such taxes generate multiple taxation (hence their label as ‘cascade’ taxes) and are therefore generally regarded as bad. The common system of value added tax (‘VAT’), which does provide for such a system of credits, is not a cascade tax. Article 33 of the Sixth Council Directive on the Harmonisation of the Laws of the Member States relating to Turnover Taxes and a Common System of Value Added Tax (‘the Sixth VAT Directive’)61 bans multistage taxes similar to VAT. However: Without prejudice to other Community provisions … this Directive shall not prevent a Member State from maintaining or introducing taxes on insurance contracts, taxes on betting and gambling, excise duties, stamp duties and, more generally, any taxes, duties or charges which cannot be characterised as turnover taxes, provided however that those taxes, duties or charges do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers. Article 33 operates against the general background of the obligation on EU Member States, which dates from 1967, to replace their turnover taxes with VAT.62 In a series of decisions, the ECJ has construed Art 33 as banning the adoption by a Member State of any wide-based turnover tax that might rival VAT.63 In, for instance, Dansk Denkavit ApS v. Skatteministeriet,64 which concerned a now-repealed levy imposed in Denmark, the ECJ stated that: [F]or a tax to be characterized as a turnover tax, it is not necessary for it to resemble VAT in every respect; it is sufficient for it to exhibit the essential characteristics of VAT. 56 Ibid., op. cit., para. 1.8. 57 Ibid., op. cit., para. 1.8(b). 58 Note the potential significance of a ‘prior-stage’ indirect tax, that is, an indirect tax levied on goods or services used directly or indirectly in the manufacture of the product in question (see 1994 WTO Agreement on Subsidies and Countervailing Measures (see para. 8.4.4 below), fn 58 thereto). 59 OECD (1988), op. cit., para. 1.8(b). 60 See 1994 WTO Agreement on Subsidies and Countervailing Measures (see para. 8.4.4 below), fn 58 thereto. 61 Council Directive 77/388/EEC, (1977) OJ L145 1. 62 Council Directive on the Harmonisation of Legislation of Member States Concerning Turnover Taxes, Council Directive 67/227/EEC/EEC, (1967) OJ Sp Edn 14, Art 1. 63 See David Williams, EC Tax Law (London: Longman, 1998), p. 91. See para. 12.3.2 below. 64 C–200/90, [1992] ECR I–2217. 12 Environmental Taxation Law In the present case, the differences which have been mentioned [that is, by the Danish Government] do not affect the nature of a levy such as the Danish levy, which resembled VAT in all essential respects.65 Thus, within the Member States of the EU, it is in principle permissible for a singlestage consumption tax to be imposed, provided that it is not one that can be taken to mimic VAT.66 An obvious example of such a tax is that imposed on plastic bags in Eire.67 This provision gives rise to the possibility of indirect taxes on consumption with an environmental purpose and it is one which has been embraced by a number of Member States, including the UK. Category 3. in the list given above creates a conundrum for anyone involved in the study of taxes as regulatory instruments.68 As already stated, levies may be divided into taxes and charges, the latter having a quality of reciprocity which is not shared by the former. As suggested in the 1988 OECD report, however, there may be an intermediate category of levies made for services which are provided direct to the individual but which lack this element of reciprocity. Re Eurig Estate69 suggests that such levies are taxes rather than charges.70 The relevance of the category of indirect taxes to environmental taxes is that most, although not all, environmental taxes, are taxes on the consumption of goods and services (that is, ‘product taxes’) and are therefore indirect taxes. Subject to the points made below,71 the UK’s aggregates levy and landfill tax are probably both to be viewed in this way, whilst climate change levy and excise duties (excise duties being environmental taxes in a broad sense and only if there is some environmental differential) are certainly to be regarded as product taxes. 65 [1992] ECR I–2217 (para. 14). From its earlier jurisprudence, the ECJ concluded that the essential characteristics of VAT were that it ‘applies generally to transactions relating to goods or services; it is proportional to the price of those goods or services; it is charged at each stage of the production and distribution process; and finally it is imposed on the added value of goods and services, since the tax payable on a transaction is calculated after deducting the tax paid on the previous transaction’ ([1992] ECR I–2217 (para. 11)). 66 See, for example, the consideration of, respectively, national meat and dairy products marketing levies in Fazenda Pública v. Fricarnes SA, C–28/96, [1997] STC 1348, and Fazenda Pública v. União das Cooperativas Abestacedoras de Leite de Lisboa, C–347/95, [1997] STC 1337, stamp duty on construction contracts in Fazenda Pública v. Solisnor-Estaleiros Navais SA, C–130/96, [1998] STC 191, and a local tax upon the gross receipts from entertainment performances in NV Giant v. Commune of Overijse, C–109/90, [1993] STC 651. See also a case involving municipal parking charges, Fazenda Pública v. Câmera Municipal do Porto (Ministério Público, third party), C– 446/98, [2001] STC 560. 67 See para. 12.3.2 below. 68 Most environmental taxes being of this kind (see Chapter 5 below). 69 See paras 1.2.1.1 and 1.2.1.2 above. 70 See OECD (2003), op. cit., p. 286. 71 See para. 1.4 below. Preliminaries 13 1.2.1.5 Environmental taxes The preceding discussion enables us to reflect on the nature and classification of environmental taxes generally.72 This should serve as a useful introduction to setting out, in para. 1.2.2 below, the approach which we have taken to the material in the rest of the study, as well as the sources on which the authors have placed reliance in its preparation. Prior to that, however, it is worth noting the significance of the key word ‘environmental’, as it relates to the expression ‘environmental taxes’. Environmental taxes, as mentioned above, are one type of economic instrument for environmental protection, the other main examples being transferable permit systems, deposit-refund systems and financial assistance from government.73 Within the last category, that is, financial assistance from government, we include measures for ‘greening’ a tax system, so the concept of economic instruments is taken to include ‘green’ exemptions and reliefs which have been built into taxes such as income tax and corporation tax.74 Emissions trading systems, whilst schematically distinct from taxes, operate, in one or another form, in conjunction with two of the UK’s environmental taxes, that is, climate change levy and landfill tax. We shall therefore make extensive reference to them throughout the rest of the study. (1) The environmental aspect of environmental taxes The term ‘environmental’, as it is used in the expression ‘environmental taxation’, suggests a wide area of operation for the instruments under consideration in this book.75 This is consistent with the use of the word ‘environmental’ in relation to ‘environmental law’ and ‘environmental regulation’ generally. Krämer, for instance, in writing about the objectives, principles and conditions of European environmental law, looks (naturally enough) to the European Treaty for guidance on the scope of the notion of ‘the environment’. He says: It follows from Articles [174(1) (ex 130r(1)] and [175(2) (ex 130s(2))]76 that the environment includes humans, town and country planning, land use, waste and water management and use of natural resources, in particular of energy. This list, which was not meant to be exhaustive, includes practically all facets of the environment, in particular fauna and flora which are part of the natural resources, as well as climate. The inclusion of town and country planning makes it clear that ‘environment’ is not limited to the natural environment.77 72 No distinction is drawn in this book between the expressions ‘environmental taxes’, ‘ecological taxes’, ‘ecotaxes’ and ‘green taxes’. 73 Organisation for Economic Co-operation and Development, 1991 Recommendation of the Council on the Use of Economic Instruments in Environmental Policy, C(90)177/Final, January 31, 1991 (available from www.oecd.org). 74 See Part III, Section B below. 75 See Sean Coyle and Karen Morrow, The Philosophical Foundations of Environmental Law (Oxford: Hart Publishing, 2004). 76 See para. 12.2.1 below. 77 See Ludwig Krämer, EC Treaty and Environmental Law, 2nd edn (London: Sweet and Maxwell, 1995), p. 41. 14 Environmental Taxation Law Bell and McGillivray, quoting Einstein as having been reported to remark that ‘[t]he environment is everything that isn’t me’, adopt a wide definition of the terms for the general purposes of their textbook on UK environmental law. In discussing the expression ‘environmental law’, and therefore the scope of their book, they say: We intend to concentrate on those laws and practices which relate primarily to the protection of the whole or part of the general surroundings, as opposed to those where the true objective is the protection of public health, or individual people such as workers or consumers. [Emphasis added.]78 Finally, Winter defines the term ‘environmental law’ as follows: … the law regulating the relationship of us to nature, understood both as the world around us and as the nature we carry within ourselves.79 From all of the above, a number of areas of application for environmental taxes may be envisaged. Obvious applications of environmental taxes are in the waste management and water protection areas, as well as in the control of air and atmospheric pollution. Less obvious, perhaps, are resource use, town and country planning and (not specifically referred to in the above quotations) noise abatement. Although the UK has not yet applied an environmental tax in relation to water pollution80 or noise, landfill tax operates in the area of waste management, now being intended (at least in part) to assist in reducing the amount of waste being sent to landfill,81 while climate change levy is a key instrument in the control of air and atmospheric pollution.82 Landfill is unusual in that it can perhaps be identified quite clearly with a single environmental problem. The same may not, however, be true of some of the less obvious applications. In relation to resource use, it might be a matter for debate whether the predominant justification for the tax in question should be the conservation of resources or the control of pollution. This is the case, for example, with aggregates levy, which, besides being justified by reference to a need to conserve the supply of virgin aggregate, is also designed to address the problem of the noise and visual intrusion caused by quarrying.83 Similarly, with projects for road charging or cordon pricing (such as London’s congestion charge),84 it might be a matter for debate as to whether the predominant 78 Stuart Bell and Donald McGillivray, Ball and Bell on Environmental Law: The Law and Policy relating to the Protection of the Environment, 5th edn (London: Blackstone Press, 2000), p. 4. They also adopt the definition of the environment in the Environmental Protection Act 1990, s.1, that is that the environment consists of ‘all, or any, of he following media, namely, the air, water and land’ (ibid.). 79 Gerd Winter, ‘Perspectives for Environmental Law – Entering the Fourth Phase’ (1989) 1 JEL 39, quoted in John F. McEldowney and Sharron McEldowney, Environmental Law and Regulation (London: Blackstone, 2001), p. 78. 80 But see para. 29.1 below. 81 See para. 6.3 below. 82 See para. 6.4 below. 83 See para. 11.3.2 below. 84 See para. 18.2 below. Preliminaries 15 environmental concern should be traffic congestion or the pollution caused by motor vehicles. Even in the case of air and a,tmospheric pollution, there is the additional concern of the conservation of energy, something which (as we shall see) is a key element in climate change levy. All these points made, it should be stressed that environmental taxation, at least in the UK, tends not to operate specifically in relation to plants, animals and habitats.85 Finally, it should be noted that, in referring to the use of natural resources, in particular of energy, Krämer signposts the difficulties which have arisen from attempts, both at Community and Member State level, to ‘graft’ environmental policies onto the process of ‘unbundling’ Europe’s energy markets. This is a recurrent theme throughout the rest of the study, since the design of UK’s tax on the industrial, commercial and agricultural consumption of non-renewable energy, that is, climate change levy, evidently seeks to marry up apparently contradictory objectives within Community and UK energy policy itself.86 (2) The taxation aspect of environmental taxes It has already been stated that none of the UK’s environmental taxes are specifically referred to as such in the legislation which creates them.87 This may be problematic, since, as already mentioned, environmental taxes may be susceptible to different evaluative criteria from non-environmental taxes. The OECD has espoused different definitions at various times but the definition reproduced in its 1997 report, Environmental Taxes and Green Tax Reform88 has gained a certain currency. This states that: A tax falls into the category environmental if the tax base is a physical unit (or a proxy for it) of something that has a proven specific negative impact on the environment, when used or released.89 The intellectual appeal of this definition is that, in concentrating on the tax base, it emphasises the way in which a particular tax works, rather than whatever justification 85 It seems that the abolition in 1988 of the income tax charge on commercial woodlands was motivated by a desire to protect the income tax base by removing a tax shelter, rather than by environmental considerations. The same point applies to the (heavily circumscribed) inheritance tax (‘IHT’) relief in respect of growing trees and underwood forming part of an individual’s estate on death (see Inheritance Tax Act 1984, ss.125–30). 86 See para. 21.5.2 et seq., below. Helm likens New Labour’s capacity to formulate energy policy in this way to George Orwell’s ‘doublethink’, that is, ‘the power of holding two contradictory beliefs in one’s mind simultaneously, and accepting both of them’ (see Dieter Helm, Energy, the State, and the Market: British Energy Policy since 1979, revised edn (Oxford: Oxford University Press, 2004), p. 294). 87 Unlike, exceptionally, s.369 of the Ecotax Law in Belgium, in which an environmental tax, [‘écotaxe’] is defined as a ‘taxe assimilée aux accises, frappant un produit mis à la consomation en raison des nuisances écologiques qu’il est reputé générer’ (quoted in Määttä, op. cit., p. 41). 88 Paris: OECD, 1997. 89 OECD (1997), p. 18. 16 Environmental Taxation Law may be given for the introduction of the tax.90 The definition is certainly capable of capturing energy, landfill and severance taxes.91 Faced with the problem of categorisation (which may, or may not be significant),92 Määttä makes a useful distinction93 between environmental taxes in the strict sense and environmental taxes in the broad sense.94 Taxes which do not fall into either category (for example income tax and corporation tax) are, naturally enough, ‘nonenvironmental taxes’95 and this is so even if they embody environmentally-motivated design features.96 One tax which would appear to be a non-environmental tax, whatever the government’s protestations to the contrary, is air passenger duty (‘APD’), a flatrate indirect tax which, since 1994, has been chargeable on passenger flights from the UK.97 Tiley draws our attention to the fact that APD merely imposes an excise duty on an item which is zero-rated for VAT purposes,98 thus reducing the disparity between items which come within and those which are outside the VAT net.99 Environmental taxes in the strict sense are ‘taxes about which a long-established unanimity exists that they can be classified as environmental taxes’.100 The examples that Määttä instances are effluent taxes, taxes on beverage containers and incentivising tax differentiations between leaded and unleaded petrol. What each of these have in common, whether it is to reduce the flow of effluents into water, to reduce litter or to encourage consumers to buy unleaded petrol, is an intention to influence behaviour.101 Such environmental taxes are incentive environmental taxes, a category which includes, not only taxes whose revenues are less important than their capacity to steer behaviour, but also redistributive environmental taxes, some or all of the proceeds of which are used to incentivise taxpayers to purchase, for example, environmental protection equipment, such as energy-saving plant and machinery.102 90 Ibid., p.18. General definitions of environmental taxes which rely on their proffered justifications are, as Määttä reminds us, problematic (see Määttä, op. cit., p. 47). 91 Nevertheless, in its 2001 report, the OECD preferred the concept of the ‘environmentally related tax’ (see Organisation for Economic Co-operation and Development, Environmentally Related Taxes in OECD Countries: Issues and Strategies (Paris: OECD, 2001)). Severance taxes are taxes levied on the extraction of minerals; they are common in the US. 92 See Määttä, op. cit., p. 45. 93 Ibid., pp. 40–45. 94 Määttä actually uses the Latin tags of environmental taxes sensu stricto and those sensu largo but we have eschewed the use of the Latin here. 95 Määttä, op. cit., pp. 40–53. 96 Ibid., p. 41. 97 See Finance Act 1994, ss.28–44 and Sched. 6. It is an excise duty (ibid., s.40(1)) and, as such, is under the care and management of HM Customs and Excise. The rates are £10 per flight, for flights within Europe, and £20 for flights to destinations elsewhere (see Finance Act 1994, s.30(4)). 98 See Value Added Tax Act 1994, Sched. 8, Group 8, item 4(a), (c). 99 Tiley, op. cit., p. 11. See para. 27.5 below (proposed taxes on aviation). 100 See Määttä, op. cit., p. 41. 101 Anthony Ogus, ‘Corrective Taxes and Financial Impositions as Regulatory Instruments’ (1998) 61 MLR 767; Anthony Ogus, ‘Nudging and Rectifying: The Use of Fiscal Instruments for Regulatory Purposes’ (1999) 19 LS 245–66. 102 Ibid., p. 64. Preliminaries 17 The question raised earlier,103 of whether differential tax rates which are built into non-environmental tax codes and are intended to put a price on environmentallyundesirable behaviour, might themselves be described as environmental taxes, is thus answered in the affirmative, since the differential will itself constitute an environmental tax.104 A more difficult question arises, however, when taxes whose taxable characteristics are not, per se, the harmful characteristics of the product (for example a tax on the carbon content of fuels) but the product itself (for example a tax on plastic bags).105 Whether or not the revenue raised by a tax is earmarked (or ‘hypothecated’) for an environmental purpose might also determine whether or not a given tax is to be regarded as environmental in the strict sense.106 In connection with incentive environmental taxes, it should also be stressed that a tax which intentionally steers behaviour (that is, distorts the market) does not breach the neutrality principle. As Tiley says: ‘[t]he principle of neutrality simply asserts that all distortions should be conscious and so subject to justification through the political process’.107 By contrast with environmental taxes in the strict sense, environmental taxes in the broad sense are taxes as to ‘which no unanimity exists about the nature of the tax in the sense in question’.108 They are characterised by the fact that, whilst they are chiefly concerned with raising revenue, they also have considerable effects on the environment.109 Such taxes include, says Määttä, taxes on energy and taxes on motor transport.110 Taxes falling into one or other of the above categories can be divided into emissions taxes and product taxes in accordance with the official classifications of the OECD and the European Commission.111 The OECD’s classification is contained in the 1991 Recommendation of the Council on the Use of Economic Instruments in Environmental Policy.112 The key part of the 1991 Recommendation reads as follows: 2. Emission charges or taxes are payments on the emission of pollutants into air or water or onto or into soil and on the generation of noise. Emission charges or taxes are calculated on the basis of the quantity and type of pollutant discharged. …113 4. Product charges or taxes are levied on products that are harmful to the environment when used in production processes, consumed or disposed of. Product charges or taxes can act as a substitute for emission charges or taxes when charging directly for emissions is not feasible. They may be applied to raw materials, intermediate or final (consumer) products. Product tax differentiation may be designed for the same purpose.114 103 See para. 1.2.1.3 above. 104 Ibid., p. 48. 105 Ibid. 106 Ibid., pp. 49–50. See para. 11.2.2 below (hypothecation). 107 See Tiley, op. cit., p. 11. 108 See Määttä, op. cit., p. 41. 109 Ibid., pp. 50–51. 110 Ibid., p. 41. 111 See para. 4.3.2 below. 112 C(90)177/Final, 31 January 1991. See para. 8.2.6n below. 113 Paragraph 3 of the 1991 Recommendation refers to ‘User charges or taxes, [which are] payments for the costs of collective treatment of effluent or waste’. 114 C(90)177/Final, 31 January 1991. 18 Environmental Taxation Law The Commission’s classification is contained in its 1997 Communication on the use of environmental taxes and charges.115 This is generally to similar effect and is worth setting out in full: Emission levies involve payments that are directly related to the real or estimated pollution caused, whether emitted into air, water or on the soil, or due to the generation of noise. Existing examples are charges on emissions of NOx from large combustion plants, and charges on pollution to water from waste water treatment plants. Levies on the emission of noise exist in the field of aviation. In so far as these levies are applied to stationary sources (such as industrial plants) they will to a large extent fall outside the scope of this communication, as the cost of paying them falls only on domestic producers. Product levies are applied to raw materials and intermediate inputs such as fertilizers, pesticides, natural gravel, and ground water, and on final consumer products such as batteries, one way packaging, car tyres and plastic bags. Some product levies that have existed for many years, mainly in the field of energy, are increasingly regarded as contributing to the integration between environmental and energy policies. Typical examples are taxes on gasoline, diesel and heating oils and electricity.116 On the basis of the distinctions set out above, it is clear that environmental taxes imposed on products are indirect taxes; that they are subject to the destination principle;117 and that, as such, they are eligible for BTA.118 Equally clear is that environmental taxes imposed on producers are direct taxes; that they are subject to the origin principle;119 and that, being subject to the origin principle, they do not have the benefit of BTA. Effluent or emissions taxes (including carbon taxes)120 are, in principle, direct taxes; by the same token, energy taxes are, in principle, indirect taxes (that is, as product taxes). Problems of classification come with waste taxes, depending on the nature of the taxable event in relation to the tax in question.121 1.2.2 Approach and sources The title of the present volume reflects its emphasis on the legal aspects of the UK’s environmental levies. As was mentioned at the beginning, our overriding aim has been to give a comprehensive, contextual and critical account of the law relating to environmental taxation in the UK. Such an aim, although relatively modest, seems to us to be amply justified by the absence of any comparable account of the area. Our approach has been to centre the work on the legal analysis of the measures under consideration. Whilst this analysis has broadly been informed by scholarship on 115 Commission Communication, Environmental Taxes and Charges in the Single Market, COM (97) 9 final, (1997) OJ C224 6 (see para. 12.3.1 below). 116 COM(97) 9 final, para. 12. 117 See para. 1.2.1.2 above. 118 Ibid. 119 Ibid. 120 See Thomas C. Schelling, ‘Prices as Regulatory Instruments’, in Incentives for Environmental Protection, ed. by Thomas C. Schelling (London: MIT Press, 1983), pp. 1–40, esp. p. 15. 121 See para. 1.4.2(1) below (landfill tax). Preliminaries 19 environmental regulation, it has not been possible, in what is already rather a large book, to take a unifying theoretical standpoint, based, for example on the economic analysis of law.122 Such a theoretical approach will have to await another opportunity.123 In providing a comprehensive account of the material, we have referred to a range of sources, both theoretical and practical. The detailed reports on both environmental and energy law and policy appearing in the Financial Times124 have proved particularly valuable; the reader will find many references to them in the footnotes. So fast-moving are the areas of law and policy discussed in the book that it is difficult to imagine keeping abreast of regulatory developments without the data provided by that newspaper. We have also made much use of the Environmental Data Services Report (‘the ENDS Report’)125 which, containing, as it does, briefings on the latest developments in environmental regulation, is also invaluable. Again, there are many references throughout the footnotes to reports from this source. Finally, we have referred quite extensively to reports and other documentation published by Chatham House (the premises of the Royal Institute of International Affairs (‘the RIIA’) which operates from them).126 Website addresses were correct on 30 September 2004. 1.3 International, European, national and regional contexts The task of providing a clear account of the UK’s environmental taxes is complicated by a number of factors, at least one of which is not present in other areas of tax law. This is the interaction between environmental law and policy on the one hand, and tax law and policy on the other. We shall return to this interaction in paragraph 1.4 below. Another complicating factor is the place of UK environmental regulation, including its environmental taxes, within the international and European Community’s legal order. Before going any further, it would perhaps be helpful to give a brief indication of the issues raised by the place of the UK and its constituent countries in that legal order. The UK is almost, although not quite, a federal state.127 The detailed implications of this statement will be followed up at a later stage of the discussion.128 It should, however, be noted at the outset that, except in environmentally-related taxation matters, 122 This is the approach taken by Määttä, op. cit. See Richard Posner, Economic Analysis of Law, 6th edn (New York: Aspen, 2003). See also the discussion of Posner’s work in David Campbell and Sol Picciotto, ‘Explaining the interaction between law and economics: the limits of formalism’ (1998) 18 LS 249–78. 123 On this footing, we are content to accept the theoretical economic arguments and to analyse the findings of the bodies (mainly Parliamentary Select Committees – see para. 4.2.1.1(3) below) whose duty it is to report on how these theories have worked in practice. This is consistent with the approach taken in, for example, Baldwin and Cave, op. cit., throughout. 124 See www.ft.com. 125 See www.endsreport.com. 126 See www.chathamhouse.org.uk. Chatham House is the origin of the so-called ‘Chatham House Rule’, first promulgated in 1927. 127 See Chris Hilson, Regulating Pollution – A UK and EC Perspective (Oxford: Hart Publishing, 2000), p. 47. 128 See para. 4.2.2 below. 20 Environmental Taxation Law the Scottish Parliament and the (currently dissolved) Northern Ireland Assembly have full legislative powers in relation to the environment.129 Although the UK Parliament retains competence to pass primary legislation in relation to both England and Wales, the Welsh Assembly has competence as regards Wales in relation to secondary legislation. Since this includes the environment but, again, not environmentallyrelated taxation, and, since most environmental legislation is secondary legislation, the Welsh Assembly possesses considerable power in relation to the environment. Thus, except in relation to taxes, as Hilson points out, the result of this structure is that, ‘[t]he UK Parliament does not appear to have maintained any power to legislate on the environment for the UK as a whole’.130 One practical consequence of this situation is that environmentally-related statutory instruments covering the same subject-matter either exist in two forms, one relating to England and Wales and the other to Scotland,131 or, possibly, in three forms, relating to each of England, Wales and Scotland.132 A second, more important, point is that none of Wales, Scotland or Northern Ireland has any power to create its own environmental tax.133 If it is correct that the UK Parliament has not retained power to legislate on the environment for the UK as a whole, one explanation may be that the legislative activity of the UK Parliament in relation to environmental matters consists in transposing the provisions of European Directives. This is so, even though competence to legislate in the environmental sphere is shared between the Community and the Member States.134 Shared, too, is competence in relation to taxation (including environmental taxation), although, here, any decision must be unanimous135 as between the Member States of the EU. Finally, since the UK is a Member State of the EU, and since both the UK and the EU are members of the WTO, any taxes designed and implemented in the UK must comply with GATT 1994/WTO rules.136 These are very similar to Community rules on taxation and free movement of goods137 but, despite the existence of an ‘environmental’ exception,138 do not easily lend themselves to environmental measures. Thus, the 129 Ibid. 130 See op. cit., p. 47. 131 Where this situation obtains, we refer only to the SI for England and Wales, in the absence of some special consideration. This is simply for reasons of space and we hope not thereby to offend readers from UK countries other than England. 132 Or possibly three (four) forms, where there is a separate instrument for Northern Ireland under the current direct rule arrangements (see para. 4.2.2 below). 133 Or any other tax, for that matter. Part IV of the Scotland Act 1998 empowers the Scottish Parliament to pass a resolution with the effect of varying the basic rate of income tax by up to three percentage points, upwards or downwards, for a particular tax year (Scotland Act 1998, s.73(1)). If resolved upon, such a variation affects ‘Scottish taxpayers’, that is, individuals who are treated as resident in the UK and whose closest connection is with Scotland (Scotland Act 1998, s.75). The Act grants no other tax-raising power to the Scottish Parliament, however. ‘Scotland’ is defined in the Scotland Act 1998, s.126(1), (2). 134 See para. 12.2.1 below. 135 See paras 4.3.1, 12.2.1 and 12.3.2 below. 136 See para. 8.4.1 below. 137 See paras 12.3 and 12.4 below. 138 See para. 8.4.2 below. Preliminaries 21 rule that a direct tax (for example an emissions tax) cannot benefit from BTA has controversially contributed to the inhibition of taxes on carbon emissions.139 1.4 Regulatory and taxation contexts 1.4.1 Introduction One of the principal contextual aims of the book is to integrate our discussion of environmental taxes into a discussion of environmental regulation more generally. To this end, in subsequent chapters, we consider the UK’s environmental regulation, and the place of environmental levies and other economic instruments within it, prior to analysing the taxation context of those levies.140 The discussion of the regulatory context of the levies in Chapter 6 below is divided into the main areas of application of environmental taxes, that is, waste management and control of air and atmospheric pollution, as well as air passenger and road freight transport and mineral extraction. The regulatory background to each of these areas is discussed in some detail in Chapter 6. Meanwhile, it may assist the reader to have a brief regulatory and taxation overview, with emphasis, in relation to the former, on the economic instruments currently employed in the particular area of application. It is worth noting that, whilst landfill tax and climate change levy form part of a package of regulatory instruments in their respective areas of application, aggregates levy forms the sole, or at least the main,141 basis of environmental policy in the area to which it applies. Määttä would therefore classify aggregates levy as an independent environmental tax, climate change levy and landfill tax being complementary environmental taxes.142 1.4.2 Regulatory context of the UK’s environmental taxes 1.4.2.1 Waste management regulation The command and control framework of waste management law forms an intricate regulatory pattern.143 The main elements are: (1) the Integrated Pollution Prevention and Control (‘IPPC’) permit system, which covers, inter alia, the disposal of waste by 139 There are, of course, other formidable obstacles to such a tax! 140 See Chapters 6 and 7 below. 141 Town and country planning law and Environmental Impact Assessment also having a part to play (see para. 6.6 below). 142 See Määttä, op. cit., p. 70. 143 The expression ‘command and control’ is customarily used to refer to regulation involving the bringing of influence to bear on the regulated by requiring standards to be met, on pain of criminal sanction (for example via the imposition of fines). Since command and control typically relies on licensing processes involving payments to government or government agencies, it is often difficult for the layperson to distinguish such payments from taxation (see category 3 in para. 1.2.1.4 above). This, together with the fact that economic instruments (see para. 1.2.1.5 above) cannot operate satisfactorily without being backed up by criminal sanctions, makes the distinction between each type of regulation a rather slippery one (see Baldwin and Cave, op. cit., pp. 35–9). 22 Environmental Taxation Law incineration or by landfill, as well as waste recovery and fuel production from waste; (2) a waste management licensing system and a statutory duty of care in relation to the handling of waste (both under Part II of the Environmental Protection Act 1990); (3) the banning of the co-disposal of hazardous and non-hazardous wastes, of tyres144 and of liquid, clinical and hazardous wastes at landfill sites (pursuant to legislation implementing the Landfill Directive);145 (4) special rules for the disposal of special and hazardous wastes; and (5) rules on waste imports and exports.146 In addition to the above, however, the following economic instruments have a prominent part to play,147 most importantly, landfill tax. (1) Landfill tax Landfill tax was introduced in the Finance Act 1996.148 It is chargeable on taxable disposals of material as waste, by way of landfill, at landfill sites.149 The person liable to pay the tax charged on a taxable disposal is the landfill site operator.150 It is generally payable at a fixed amount for each whole tonne of material disposed of, plus a proportionately reduced sum for any additional part of a tonne, or, where less than a tonne is disposed of, just a proportionately reduced amount.151 Landfill tax is discussed in detail in Chapter 15 below but several key features of the levy will be apparent from the foregoing. First, there is no doubt that landfill tax is indeed a tax within the definition set out above.152 Secondly, it is also clearly an environmental tax, since its tax base is a physical unit of something that has ‘negative impact’ on the environment when released.153 Whether it is treated as a direct tax on emissions (as theoretically it might be) or an indirect tax on the consumption of landfill services (as in practice it is) is probably unimportant.154 (2) Packaging waste recovery notes Packaging waste recovery notes (‘PRNs’) are a market-creating mechanism for the recovery and recycling of packaging waste. They operated originally155 on a non- 144 That is, whole tyres. Landfilling shredded tyres will be banned in 2006 (see para. 6.3.2(4) below). 145 See para. 12.2.5.1(2)(b) below. 146 See para. 6.3 below (in relation to all of these). 147 Note also the projected waste performance reward grant (‘WPRG’), currently (December 2004) under consultation (see para. 6.3.3(5) below). 148 Finance Act 1996, ss.39–71, Sched. 5; Finance Act 1997, ss.50–53 and 113, Sched. 5; Finance Act 1999, s.124; Finance Act 2000, ss.140–42, Sched. 37. There are also at least ten statutory instruments specifically relating to landfill tax: these are referred to where appropriate in the text below. 149 Finance Act 1996, s.40. 150 Ibid., s.41(1). 151 Ibid., s.42(1). 152 See paras 1.2.1.1 above and 8.3.1 below. 153 See para. 1.2.1.5(2) above. 154 See Määttä, op. cit., p. 254. 155 Since 1 January 2004, both PRNs and the newly invented PERNs have operated under the auspices of Producer Responsibility Obligations (Packaging Waste) (England) (Amendment) Regulations 2003, S.I. 2003 No. 3294: see para. 19.8 below. Preliminaries 23 statutory basis and as an adjunct to a statutory command and control regime creating producer responsibility for packaging waste and imposing penalties for a range of offences. That regime obliges businesses of a certain size who deal in virtually any way with the packaging of goods to register with the relevant government agency;156 to take reasonable steps to recover and recycle particular percentages of packaging handled in the preceding year; and to submit a certificate of compliance to the agency at the end of the current year. Obligated business may meet their recovery obligation, either individually, or by joining a registered compliance scheme, which will fulfil the obligation on their behalf. The submission of PRNs is the main way in which obligated businesses, including compliance schemes, demonstrate their compliance. They acquire the PRNs either on their issue by accredited packaging waste reprocessors or by purchase on the open market from other organisations. Salmons epitomises PRNs by saying that, ‘[a]lthough not conceived as such when they were introduced in 1998, [PRNs] … have rapidly evolved into a functioning tradeable compliance credit system’.157 Packaging waste recovery notes are discussed in detail in Chapter 19 below. (3) The Waste Recycling Credits Scheme A waste recycling credits scheme (‘WRCS’) operates, which is designed to ensure that neither waste disposal authorities (‘WDAs’) nor waste collection authorities (‘WCAs’)158 are penalised for the costs of recycling. It is not considered further in this study.159 (4) The Landfill Allowances Trading Scheme (‘the LATS’) The framework for the landfill allowances trading scheme (‘the LATS’), which is due to come into operation in England and Wales in 2005, is contained in the Waste and Emissions Trading Act 2003. The relevant minister160 is empowered by the 2003 Act to allocate to WDAs, in each of the four countries of the UK, allowances which authorise the sending to landfill161 of specified amounts of biodegradable municipal waste (‘BMW’), for each year between 2004 and 2020.162 The LATS, a ‘cap and trade scheme’,163 is discussed in detail in para. 20.7 below. 156 That is, the Environment Agency (see para. 4.2.1.3 below). 157 See Roger Salmons, ‘A New Area for Application of Tradeable Permits: Solid Waste Management’, in Organisation for Economic Co-operation and Development, Implementing Domestic Tradeable Permits: Recent Developments and Future Challenges (Paris: OECD, 2002), pp. 187–226, esp. pp. 199–211. 158 See paras 2.3 and 6.3.2(1) below. 159 It is currently (December 2004) the subject of government consultation (see www.defra. gov.uk). 160 The identity of whom varies for England, Scotland, Wales and Northern Ireland (see Waste and Emissions Trading Act 2003, s.24(1)). 161 Defined in Waste and Emissions Trading Act 2003, s.22. 162 Waste and Emissions Trading Act 2003, s.4(1). 163 See Salmons, op. cit., esp. pp. 211–17. 24 Environmental Taxation Law 1.4.2.2 Control of air and atmospheric pollution This area of environmental regulation is dominated by the UK’s commitment under the Kyoto Protocol to reduce its 1990 levels of all greenhouse gases (‘GHGs’) by 12.5 per cent by 2010.164 Although there are command and control regimes relating to emissions and air quality, the chief regulatory instruments at work in the UK’s climate change programme are economic ones. They are as follows: (1) Climate change levy Climate change levy, which was enacted in the Finance Act 2000,165 has been imposed on supplies for industrial, commercial and agricultural purposes166 of electricity, gas, liquid natural gas, coal, lignite and coke,167 made after 31 March 2001.168 Excluded from the list of taxable commodities are hydrocarbon oil, road fuel gas and waste (within the scope of the Environmental Protection Act 1990).169 There is a series of environmentally-inspired exemptions, inter alia, for renewable source electricity and electricity generated in combined heat and power (‘CHP’) stations.170 Normally, the person liable to account for the levy is the person making the supply.171 However, where a taxable supply is made by a non-UK resident nonutility, the person liable to account for the levy charged on the supply is the person to whom the supply is made.172 Exports of taxable commodities are not within the scope of the levy, an exemption that mirrors the controversial aggregates levy relief for the supply of aggregate to a destination outside the UK.173 The levy is charged at different poundages, depending on the type of energy supplied, reduced rates being applicable to supplies to horticultural producers174 and to supplies made by certain facilities, where the operator has entered into a so-called ‘climate change agreement’.175 Climate change levy is discussed in detail in Chapter 14. Introduced 164 See para. 6.4.2 below. 165 Finance Act 2000, s.30, Scheds 6 and 7. See Stephen Smith, ‘Environmental and Public Finance Aspects of the Taxation of Energy’, in Environmental Policy: Objectives, Instruments and Implementation (Oxford: Oxford University Press, 2000), pp. 172–202. There are in addition around at least nine statutory instruments relating specifically to climate change levy, and these are referred to as relevant in the text below. 166 Finance Act 2000, Sched. 6, para. 8 (this effect is achieved by excluding supplies for domestic or charity use from the scope of the levy). 167 Finance Act 2000, Sched. 6, paras 2 and 3(1). Coke is the ‘solid porous fuel that remains after gases have been driven from coal by heating’; lignite is ‘a brownish black coal that is harder than peat but usually retains the texture of the original wood’ (see the Longman Concise English Dictionary (London: Longman Group, 1985)). 168 Finance Act 2000, Sched. 6, para. 10. 169 Ibid., para. 3. 170 See paras 14.3 and 14.4 below. 171 Finance Act 2000, Sched. 6, para. 40(1). 172 Ibid., Sched. 6, para. 40(2). 173 Finance Act 2000, Sched. 6, para. 11 (see para. 8.4.5.1 below). 174 Ibid., Sched. 6, para. 43. 175 Ibid., Sched. 6, para. 44. Gas for burning in Northern Ireland is exempted from the levy on a temporary basis (ibid., Sched. 6, para. 11A). Preliminaries 25 in Chapter 14, as a prelude to the discussion in Chapter 20, is the UK Emissions Trading Scheme (‘the UK ETS’), the UK ETS having been designed to bolster the network of climate change agreements. Despite its rather coy name, climate change levy is, like landfill tax, a true tax.176 It is also, on the basis of the 1997 OECD definition given above,177 an environmental tax, which takes energy consumption as a proxy for the carbon emissions released into the atmosphere when the various taxable commodities to which it applies are used or consumed. Since it is an energy tax rather than a carbon tax, as well as a tax on energy products rather than a tax on emissions, it is an indirect tax. It therefore makes use of BTA in taxing imports of taxable commodities, whilst exempting their exportation. (2) The UK Emissions Trading Scheme (‘the UK ETS’) The UK ETS was created in March 2002, under powers conferred on the Secretary of State for Environment, Food and Rural Affairs,178 by ss.3(5)(a) and 153, Environmental Protection Act 1990. Initial participation in the scheme was on a voluntary basis.179 There are two main types of participant in the UK ETS. First, there are ‘direct participants’, who undertook emissions reduction targets in return for incentive payments from a specially-designated government fund of £215 million. Emission reduction targets could either relate to carbon dioxide alone or to all six Kyoto GHGs.180 Secondly, there are ‘agreement participants’, whose emissions reduction target has been fixed, not in return for an incentive payment, but in return for a onefifth rate of climate change levy as parties to climate change agreements. For each year of the UK ETS, direct participants receive allowances corresponding to their emissions target for that year. Each direct participant must then possess enough allowances at the end of the year to cover its emissions during that year. If it does not have enough allowances, then the direct participant must buy more allowances from other participants, to cover its excess emissions. Failure to have enough allowances disentitles the direct participant to a slice of incentive payment and results in the tightening of the following year’s target. If, however, the direct participant has more than enough allowances, it may sell them to other participants. Likewise, where an agreement participant overachieves (that is, makes fewer emissions than its climate change agreement requires), then it is issued with allowances to the extent of the overachievement. It can then trade these with participants lacking sufficient allowances. Equally, where an agreement participant underachieves, it may either purchase allowances from other participants or pay the full rate of the levy. The detail of the UK ETS is discussed in Chapter 20 below. The scheme is an entirely novel concept in UK law and has been highly controversial, especially with 176 See para. 1.2.1.1 above and para. 7.3.1 below. 177 See para. 1.2.1.5 above. 178 See para. 4.2.1.2(1) below. 179 For an early legal assessment of the UK ETS, see Anthony Hobley, ‘The UK Emissions Trading System: Some Legal Issues Explored’, in Economics, Ethics and the Environment, ed. by Julian Boswall and Robert Lee (London: Cavendish Publishing, 2002), pp. 61–79. 180 See para. 8.3.1.4 below. 26 Environmental Taxation Law regard to the targets actually set. It is in part a ‘cap and trade scheme’ and in part a ‘baseline and credit scheme’.181 (3) The EU Emissions Trading Scheme (‘the EU ETS’) The EU ETS is due to start in January 2005.182 The Directive which creates the scheme183 is based on a provision of the European Treaty which requires the EU Council to decide on the Community action necessary to achieve the Treaty’s environmental objectives.184 It is thus a key example of Community level governance in an area where competences are shared, which, given the transboundary nature of the environmental problem that it is seeking to address, seems entirely appropriate.185 Participants in the EU ETS are the operators of specified industrial installations, each of which must have a permit in order to emit carbon dioxide. The initial limitation of the scheme to emissions of carbon dioxide is one point of difference with the UK ETS. Another difference is the compulsory nature of participation, initial participation in the UK ETS having been voluntary only. A third difference is that the installations covered include electricity generators, who were excluded from eligibility to participate in the UK ETS. Under the EU ETS, an operator of a specified installation is allocated with allowances for each year, which correspond to the relevant installation’s target for the year. This is a fourth point of difference with the UK ETS, the target being imposed rather than being agreed in return for a share in an incentivisation fund. Allocation of allowances is in accordance with a Community-wide emissions cap on the industries covered, the cap being divided between the Member States in accordance with so-called ‘national allocation plans’ (‘NAPs’). At the end of each year, the operator of the relevant installation is required, under the terms of its emission permit, to surrender allowances equal to the carbon dioxide that it has actually emitted in that year. If the operator has insufficient allowances to cover its emissions, then it must either purchase extra allowances from other operators or pay a penalty. However, if the operator has more than enough allowances to cover its emissions, then it may sell them to other operators. The detail of the EU ETS, which is basically a ‘cap and trade’ scheme similar to earlier US examples designed to combat acid rain,186 is discussed in Chapter 28 below. Whilst unquestionably groundbreaking, as the first trans-national emissions trading scheme, the design of the EU ETS has been described as ‘a pragmatic 181 See Kumi Kitamori, ‘Domestic GHG Emissions Trading Schemes: Recent Developments and Current Status in Selected OECD Countries’, in OECD (2002), pp. 69–103. 182 See the overview of the EU ETS in Fiona Mullins and Jacqueline Karas, EU Emissions Trading: Challenges and Implications of National Implementation (London: Royal Institute of International Affairs, November 2003), pp. 12–14. 183 See para. 28.1 below. 184 See para. 28.2.1 below. 185 See para. 1.3 above. 186 See Steve Sorrell, ‘Turning an Early Start into a False Start: Implications of the EU Emissions Trading Directive for the UK Climate Change Levy and Climate Change Agreements’, in Organisation for Economic Co-operation and Development, Greenhouse Gas Emissions Trading and Project-based Mechanisms (Paris: OECD, 2004), pp. 129–151, p. 130. Preliminaries 27 compromise between economic efficiency and political acceptability’.187 Even that pragmatic compromise may come in time to be severely tested. (4) The Renewables Obligation (‘the RO’) The Renewables Obligation was introduced in April 2002. It was imposed under powers granted to the relevant authorities by the Electricity Act 1989, as amended by the Utilities Act 2000. As its name suggests, unlike the UK ETS, there was nothing optional about it. The RO requires an electricity supplier to prove to the regulator, the Office of Gas and Electricity Markets (‘Ofgem’),188 that, either alone or in combination with other suppliers, it has supplied specified quantities of renewable source electricity189 to customers in Great Britain within a specified period. The supplier must satisfy the RO by producing so-called ‘Green Certificates’ or ‘ROCs’ to the regulator. Green Certificates are traded, since the RO may be satisfied by the production of certificates which were originally issued to a different supplier. Under the rules of the UK ETS, the holder of Green Certificates may convert them into UK ETS allowances; the converse is not, however, possible.190 The concept of Green Certificates is well-documented in the literature; they exist in various forms throughout OECD countries.191 1.4.2.3 Regulation of mineral extraction The key regulatory instrument here is, as mentioned above, aggregates levy. The levy was introduced in the 2001 Finance Act.192 It has been chargeable, since 1 April 2002, whenever quantities of taxable aggregate have been subjected to commercial exploitation.193 Aggregate is rock, gravel or sand, together with whatever substances are incorporated in the rock, gravel or sand or naturally occur mixed with it.194 Aggregate is not taxable, inter alia, if it has previously been used for construction purposes,195 a point which underlines the fact that the levy is aimed at reducing the environmental impact of commercial quarrying. The width of the ‘commercial exploitation’ notion means that it is envisaged that imported aggregate should be treated in the same way as aggregate originating in the UK. In line with 187 See Sorrell, op. cit., p.130. 188 See para. 4.2.1.3 below. 189 See para. 6.4.3.1(2)(a) below. 190 See paras 21.5 and 20.6 below. 191 The concept of Green Certificates is referred to in the literature as a ‘tradeable renewable energy certificate’ (a ‘TREC’). See the survey of TRECs in Richard Baron and Ysé Serret, ‘Renewable Energy Certificates: Trading Instruments for the Promotion of Renewable Energy’, in Organisation for Economic Co-operation and Development, Implementing Domestic Tradeable Permits: Recent Developments and Future Challenges (Paris: OECD, 2002), pp. 105–40. 192 Finance Act 2001, ss.16–49 and 109–11, Scheds 4–10. 193 Ibid., ss.16(1),(2) and 17(2). 194 Ibid., s.17(1). 195 Ibid., s.17(2)(b). 28 Environmental Taxation Law the points discussed above, the supply of aggregate to a destination outside the UK is relieved from the levy.196 Anyone who is responsible for subjecting aggregate to commercial exploitation is liable to pay the levy.197 It is payable at a fixed amount for each tonne of aggregate subjected to commercial exploitation, the amount of levy payable on a part of a tonne being the proportionately reduced amount.198 Aggregates levy is discussed in detail in Chapter 13 below. Like climate change levy and, despite an early governmental equivocation,199 its status as a tax is not in doubt.200 Unlike climate change levy, it is by comparison a relatively ‘small’ environmental tax, lacking a panoply of associated instruments. Secondly, it is clearly an environmental tax, the subjection to commercial exploitation of the material in question being a proxy for the environmental effects of quarrying. Although the argument that aggregates levy is a direct tax might be a good one, there is judicial authority to the effect that the levy is an indirect tax.201 On this basis, the BTA for which the tax provides is a lawful one. 1.4.2.4 Transport regulation Two economic instruments are currently in operation (setting aside, for example, excise duty differentials):202 1 Powers to introduce workplace parking levies were introduced by the legislation instituting the new Mayor and Assembly for Greater London.203 Similar powers were subsequently granted to other local authorities in England and Wales,204 which legislation also amended the earlier measures relating to London.205 Workplace parking levies are discussed in detail in Chapter 17 below. To the authors’ knowledge, no local authority has so far206 exercised these powers. 2 The legislation setting up the Mayor and Assembly for Greater London also introduced the concept of road user charging.207 Again, similar powers were subsequently granted to other local authorities in England and Wales,208 and again this legislation also amended the earlier provisions relating to London.209 196 See para. 8.4.5.1 below. 197 Finance Act 2001, s.16(3). 198 Ibid., s.16(4). 199 See para. 13.1 below. 200 See para. 7.3.1 below. 201 See R (on the application of British Aggregates Association and others) v. C & E Commrs, [2002] EWHC 926 (Admin), [2002] 2 CMLR 51, paras 68–78 (Moses, J.). 202 See para. 22.2 below. 203 Greater London Authority Act 1999, s.296 and Sched. 24. 204 Transport Act 2000, ss.178–190. 205 Ibid., Sched. 13, paras 19–43. 206 That is, as at December 2004. 207 Greater London Authority Act 1999, s.295 and Sched. 23. ‘Road user charging’ is used here in the sense of ‘cordon pricing’ (see Stephen Ison, Road User Charging: Issues and Policies (Aldershot: Ashgate, 2004), p. 14). 208 Transport Act 2000, ss.163–77. 209 Ibid., Sched. 13, paras 1–18. Preliminaries 29 In 2002, the government also took powers to tax road user by heavy lorries.210 Road user charging schemes are discussed in Chapter 18 below. To date,211 only Durham, in the northeast of England, has introduced a road user charging scheme outside London. 1.4.2.5 Geographical and jurisdictional considerations Each of landfill tax, climate change levy and aggregates levy apply throughout the UK. For most tax purposes, the UK consists of England, Wales, Scotland and Northern Ireland, plus, dating from the 1973 Finance Act, the territorial sea and continental shelf. Statutory provisions governing the territorial effect of a tax are, of course, of the first importance on traditional tax law principles.212 Although there is no special definition of the UK in Finance Act 1996, the nature of landfill tax means that such a definition may, in any event, be unnecessary. This is because Finance Act 1996, s.66, provides, inter alia, that land is a landfill site at a given time if at that time a site licence for the purposes of Part II of the Environmental Protection Act 1990 or an IPPC permit is in force in relation to the land, in each case authorising disposals in or on the land.213 In an electronic age, the attractions of such a ‘land-bound’ tax to the resourceful legislator are obvious, and this is again a point to which we shall return.214 In relation to aggregates levy, whose status as a property tax is rather more doubtful, the legislator has sought to achieve a comparable effect by casting very wide the net of accountability and registrability.215 This is a particularly worrisome feature of the levy, and it is with some relief that we find that the interpretation provisions of Finance Act 2000 (the principal statute relating to climate change levy) do define the UK, in the way familiar from non-environmental taxes as including the territorial waters adjacent to any part of the UK.216 It was mentioned above that all of the devolved administrations have extensive powers in relation to the environment.217 The non-tax measures referred to above illustrate some of the consequences of the proposition. A good example is the LATS. In England, the allocation of allowances under the LATS is the responsibility of the Secretary of State for Environment, Food and Rural Affairs;218 in Scotland, it is the responsibility of the Scottish Ministers;219 in Wales, it is the National Assembly 210 Finance Act 2002, s.137. 211 That is, as at December 2004. 212 Two fundamental jurisdictional principles, each of which reflects an axiom of international practice, apply with full force in UK tax law. See Government of India v. Taylor, [1955] AC 491 (in the absence of express agreement – which there is within the EU – one state will not enforce the revenue law of another state) and Clark v. Oceanic Contractors Inc., [1983] STC 35 (UK tax laws apply only in the UK). 213 See the discussion in para. 15.2 below. 214 See Chapter 26 below. 215 See para. 1.4.2.3 above and para. 13.3 below. 216 See Finance Act 2000, Sched. 6, para. 147. 217 See para. 1.3 above. 218 See Waste and Emissions Trading Act 2003, s.24(1)(a). See para. 4.2.1.2(1) below. 219 Ibid., s.24(1)(b). See para. 4.2.2 below. 30 Environmental Taxation Law for Wales;220 and in Northern Ireland, it is ,the Department of the Environment.221 Different commencement dates are proposed, for example, 1 October 2004 (Wales) and 1 April 2005 (Scotland) and there will be regional variations in the operation of the scheme. For example, in Wales, allowances will not be tradeable, while in Northern Ireland, although they will not be capable of being traded, they will be capable of being banked and borrowed.222 1.4.3 Taxation context of the UK’s environmental taxes 1.4.3.1 Relationship between environmental and non-environmental taxes There are seven main non-environmental taxes in the UK: income tax, VAT, national insurance contributions (‘NICs’),223 corporation tax, capital gains tax (‘CGT’), stamp duties (which are being supplemented, and largely replaced, by stamp duty reserve tax and stamp duty land tax) and inheritance tax (‘IHT’). Each one except IHT224 will be mentioned with sufficient frequency in the rest of the study for a brief note of its essential features to be justifiable at this stage,225 together with a brief note of its relevance to the environmental regulatory instruments mentioned above.226 1 Income tax is chargeable on the income of individuals, trusts and estates, for socalled ‘tax years’.227 In essence – although this is probably an over-simplification – the amount charged for each tax year is based on the statutory income of the person(s) in question for the tax year. The person’s statutory income is then reduced by any available personal allowances, with the remainder being taxed at the starting, basic or higher rates.228 220 Ibid., s.24(1)(c). See para. 4.2.2 below also. 221 Ibid., s.24(1)(d), reflecting the dissolution of the Northern Ireland Assembly and the reimposition of direct rule. 222 See 353 ENDS Report (2004) 47–48. 223 These ought to be treated as taxes, rather than charges, since payments are ‘graduated in a way which does not relate directly to the graduation in benefit’ (see Tiley, op. cit., p. 6, and Metal Industries (Salvage) Ltd v. ST Harle (Owners), [1962] SLT 114 (employers’ NICs are taxes)). As such, NICs are hypothecated taxes (see para. 11.2 below). 224 Inheritance tax is a tax which has but a small part to play in what follows. In essence, however, it is a tax on non-commercial transfers of capital, whether during an individual’s lifetime or on death. Lifetime transfers, where they are taxed, are taxed more favourably than transfers on death, the latter being taxed at double the rate of the former. 225 General guides to UK tax law which can be especially recommended are: Davies: Principles of Tax Law, ed. by Geoffrey Morse and David Williams, 4th edn (London: Sweet and Maxwell, 2000); Tiley, op. cit.; and Lesley Browning et al., Revenue Law – Principles and Practice, 22nd edn (London: LexisNexis Tolley, 2004). 226 These points are developed in much greater detail in the rest of the book, especially in Chapters 23 and 24 below. 227 6 April to the following 5 April. 228 Or the special rate on dividend income. Preliminaries 31 2 Capital gains tax is chargeable for tax years on the realised chargeable gains, less realised allowable losses, of individuals, trusts and estates. It is charged for individuals at the same rate as their marginal income tax rate, and for personal representatives and trustees at a single rate. 3 Corporation tax is chargeable at starting, small company and main rates, on the income and net chargeable gains of companies’ accounting periods. 4 National insurance contributions are chargeable on the earnings of employed earners, and payable by both the employee (‘primary contributions’) and by the employer (‘secondary contributions’). Primary and secondary contributions alike are calculated as percentages of the employee’s earnings for so-called ‘earnings periods’, from lower earning thresholds, up to an upper earnings limit. Certain general points can be made about the four taxes summarised above: (1) not all income is taxable (in the case of income tax and corporation tax), and not all payments are earnings (in the case of NICs); (2) in the case of income tax and corporation tax on income alike, the question of what is income and what is capital is, in general, ascertained by reference to the same tedious and rather arbitrary rules;229 (3) for both income tax and corporation tax on income, income must fall within one of the so-called ‘Schedules’ (A, D (Cases I and II) and F)230 to be taxable, except where (in the case of an individual) it is employment income, in which case it is taxed under the Income Tax (Earnings and Pensions) Act 2003; and (4) in the case of both CGT and corporation tax on chargeable gains, the realisation of gains on the disposal of business assets may generally be postponed when the assets in question are being replaced. An obvious way of ‘greening’ each of the above taxes (but especially income tax and corporation tax) is to create exemptions, deductions, reliefs or tax credits to reflect various ‘environmentally-friendly’ forms of behaviour.231 5 Value added tax is chargeable on domestic supplies of goods and services, on cross-border acquisitions from other Member States of the EU and upon imports from countries outside the EU. Depending on the circumstances, when it involves a cross-border supply, it may be charged either on the origin principle or on the destination principle.232 It differs from all of the taxes discussed above in a number of major respects: (1) it is an indirect, as opposed to a direct, tax;233 (2) rather than merely having a counterpart in other EU Member States, it is a European tax in the sense of being created pursuant to the terms of the European Treaty; and (3) it features a much more complex rate structure, a structure which in the UK context has been described as ‘… one of the most complex rate structures for VAT in the developed world’.234 229 See, for example, British Insulated and Helsby Cables Ltd v. Atherton, (1925) 10 TC 177; IRC v. Church Commissioners for England, [1976] STC 339. 230 Individuals, trusts and estates only, in the case of Schedule F. 231 See Chapters 23–25 below. The Scedules will be discontinued in 2005 for income tax. 232 See para. 1.2.1.2 above. 233 Ibid. 234 See Davies, op. cit., p. 385. 32 Environmental Taxation Law 6 Stamp duties have recently attained a significance in the UK tax system which only a few years ago would have seemed barely credible. This is in some measure due to recent legislative steps taken to ‘green’ the UK tax system235 but it is also symptomatic of a current tendency of governments to favour property and product taxes in an attempt to combat erosions in the tax base.236 Stamp duties are taxes on particular types of document, at rates that are either ad valorem or fixed. Provided that the strict requirements of s.74(1), Income and Corporation Taxes Act 1988, are met, payments in respect of environmental taxes for which no credit has been obtained237 should be deductible in calculating trading profits238 for the purposes of income tax and corporation tax. The same point should in principle apply for payments made under the PRN scheme, the UK ETS, the EU ETS and the RO.239 Penalties under, for example, the UK ETS or EU ETS, are presumably not deductible in calculating trading profits, however.240 Clearly not deductible for these purposes, furthermore, are civil penalties imposed under the three main environmental tax codes.241 Value added tax is, in principle, chargeable on the environmental taxinclusive amount of the price charged for, for example, landfill services supplied (landfill tax) or electricity supplied (climate change levy).242 1.4.3.2 Geographical and jurisdictional considerations In the cases of income tax and corporation tax on income, the general rule is that, where a person is resident in the UK, he is liable to tax on his worldwide income;243 where a person is not resident in the UK, then he is liable to tax only on income arising to him in the UK. These principles reflect a series of agreed assumptions about international taxation applicable to all OECD members, and which differ from state to state only in matters of detail.244 They are consistent with the idea, already referred to, that direct taxes are applied consistently with the origin principle.245 The 235 See Part II, Section B below. 236 See Chapter 26 below. 237 See para. 16.9 below. 238 Note the peculiar point on the deductibility of 10 per cent of contributions to environmental trusts (see paras 21.3.2 and 24.8 below). 239 See para. 24.7 below for a detailed discussion of these points. 240 See McKnight v. Sheppard, [1999] 3 All ER 491. 241 Ibid. See para. 16.14 below. 242 See the Sixth VAT Council Directive 77/388/EEC, Art 11A(2)(a), which states that, for the purposes of VAT, ‘the taxable amount shall include taxes, duties, levies and charges, excluding the value-added tax itself’. 243 This is subject to the qualification that, where an individual is resident in the UK but domiciled elsewhere, he will generally be taxed on his foreign income (and capital gains) ‘only if it is remitted to the UK’ (see summary in Browning et al., op. cit., para. [13.1]). 244 See also Williams, op. cit., p. 15, and, generally, Brian Arnold and Michael McIntyre, International Tax Primer, 2nd edn (The Hague: Kluwer, 2002) and Roy Rohatgi, Basic International Taxation (London: Kluwer, 2002), p. 12. 245 See para. 1.2.1.2 above. Preliminaries 33 same basic principles, with appropriate modifications, apply in relation to CGT and to corporation tax on chargeable gains.246 Because of double taxation in the case of a person resident in one jurisdiction who has a source of income in another, credits or exemptions are available either unilaterally, or under the provisions of the relevant double tax convention.247 Liability to each of NICs and VAT depend on a range of other rules, the effect of which may perhaps be summarised as follows. In relation to NICs, liability depends upon residence or presence in the UK.248 No doubt because of its nature, the position in relation to VAT is somewhat different. Liability to VAT depends on the State in which the supply, acquisition or importation249 has taken place, as to the determination of which there are detailed rules,250 reflecting the origin and destination principles discussed above.251 In relation to income tax, corporation tax and CGT, the UK is defined as Great Britain and Northern Ireland.252 However, it is also deemed to include the territorial sea of the UK and every designated area designated under the Continental Shelf Act 1964, s.1(7).253 As regards NICs, the Social Security Contributions and Benefits Act 1992 states that any reference to Great Britain in the Act ‘includes a reference to the territorial waters of the UK adjacent to Great Britain, [and] … any reference to the UK includes a reference to the territorial waters of the UK’.254 The theme is continued in the VAT legislation, the UK including, for the purpose of that tax, the territorial sea of the UK.255 The somewhat anomalous status of the Channel Islands and the Isle of Man should be noted in this context. They are not included within the general definition of the UK in the Interpretation Act 1978, Sched. 1. However, for VAT purposes only, the Isle of Man, although not the Channel Islands, and the UK are treated as a single area.256 246 It should not be assumed from this, however, that the position is straightforward, since there are detailed exceptions (see Whitehouse, op. cit., ch. 20 (CGT) and paras [32.121]– [32.140]). 247 See the discussions in Williams, op. cit., pp. 12–17, and Davies, op. cit., paras 26–07–26– 09. 248 Social Security Contributions and Benefits Act 1992, s.1(6) and Social Security (Contributions) Regulations 2001, S.I. 2001 No. 1004, reg. 145. 249 That is, from countries outside the EU. 250 Value Added Tax Act 1994, ss.7 (place of supply), 13 (place of acquisition) and 15(1) (place of importation). 251 See para. 1.2.1.2 above. 252 Interpretation Act 1978, Sched. 1. 253 See Income and Corporation Taxes Act 1988, s.830 (inserted following the discovery of oil in the North Sea (see para. 2.4.3 below)). 254 See Social Security Contributions and Benefits Act 1992, s.172. 255 See Value Added Tax Act 1994, s.96(11). 256 See the Isle of Man Act 1979, s.6. 34 Environmental Taxation Law 1.5 Institutional framework It has already been mentioned that Customs is the government department mainly responsible for administering each of landfill tax, climate change levy and aggregates levy.257 The detail of the department will be discussed in para. 4.2.1.2(2) below. For the moment, it should simply be noted that Customs is the department traditionally responsible for the administration of the UK’s indirect taxes, plus customs duties and excise duties. The overall position is not as straightforward, however, as this may suggest, since various ancillary aspects of the taxes are administered by other Departments and bodies. For example, with climate change levy, in addition to Customs, the Department for Environment, Food and Rural Affairs (‘Defra’), the Department of Trade and Industry (‘the DTI’) and Ofgem also have responsibility for related aspects of the levy. The relevant responsibilities of each of these are also examined in detail in Chapter 4 below. Direct taxes (that is, in this case, non-environmental taxes) are traditionally the responsibility of the Board of Inland Revenue (generally referred to simply as ‘the Revenue’). Again, the institutional detail of the Inland Revenue will be examined below.258 There are long-term plans to amalgamate the Revenue and Customs Departments, following the controversy surrounding a number of recent high-profile cases. The Revenue’s main interest in the subject matter of this book has been in devising the environmentally-inspired tax subsidies discussed in Chapters 23 and 24 below, with a view to ‘greening’ the UK’s direct tax system. It should be stressed that the institutional framework of the study as a whole is much wider than simply the departments and the executive body mentioned above. For the moment, however, the key point is that Customs has been the tax authority more closely involved with the UK’s environmental levies. The Department for Environment, Food and Rural Affairs, arguably, has become more involved in the economic instruments enterprise in the last seven or so years than either of them. 1.6 Scheme of the book All of the foregoing will have assisted the reader in gaining an idea of the basic concepts at work in the areas covered by the book, as well as the contexts in which those concepts operate. Chapter 2 looks at the industrial sectors whose activities are sought to be regulated by the instruments under discussion. This should assist in an appreciation of the design issues involved in each of the instruments under discussion. From Chapter 2 onwards, the discussion progresses in three main Parts. In Part II, we examine the institutional framework referred to in the previous paragraph in some detail. This is intended to give the reader some idea of the provenance of the various measures under discussion. The discussion is followed, in Chapter 5, by an analysis of the government’s proffered technical justifications for the environmental taxes referred to above. 257 See para. 1.1 above. 258 See para. 4.2.1.2(2) below. Preliminaries 35 The detail of the regulatory and taxation contexts referred to earlier in this introductory chapter forms the matter of Chapters 6 and 7. Chapter 8 then widens the scope of the discussion to look at the international context of the instruments under discussion. This is all the more necessary given the international context of the climate change problem which at least one of the taxes is professedly seeking to address. This discussion is intended to provide a context for the European aspects discussed in Chapter 12. Part III is mainly concerned with the fine detail of the measures outlined in the present chapter. It should thus be of interest, not only to practitioners, but also to policy-makers, reflecting, as it does, insights into both the practical operation of the measures under discussion and also the criticisms which can be made of them. As to the latter point, the key chapter is Chapter 21, which, rather ambitiously, seeks to draw together the various policy and industrial aspects of the measures under discussion. Practitioners will no doubt be very interested in the synthesis of the administrative provisions applicable to the three main environmental taxes, which are discussed in Chapter 16. Part IV concentrates on new directions in the great experiment with which the book is concerned. Chapter 28 is devoted to the EU ETS. Taxes and other measures canvassed but as yet not implemented are discussed in Chapter 27 of the book. Under discussion in Chapter 27, therefore, is a combination of measures, some already implemented, and some as yet only projected (for example an incineration tax and a pesticides tax). Finally, in Part V, we attempt to gather together the threads of the discussion, with a view to offering some general conclusions about the UK’s experience of environmental taxes thus far. This is the fruit of an immensely detailed review of the published sources but it is hoped that it will inspire readers to test through ‘empirical’ study some of the conclusions to which it points. The material under discussion is characterised by its diversity. To assist the reader in navigating it, we have included brief ‘orientation’ chapters at the beginning and end of Part II and at the beginning of Part III. Although they are very short and do not, in general, contain new material, they will help the reader to anticipate the main themes of each of the chief components of the book. This page intentionally left blank Chapter 2 Regulated Sectors 2.1 Introduction Having described the scope of the study, we next present a sketch of the structures of the main sectors whose activities are subject to the environmental levies, subsidies and other economic instruments introduced in the previous chapter. Such a brief description is justifiable by the need to refer, in general terms, to the environmental externalities created by particular sectors of industry. However, it is also desirable because, unless the reader has at least an outline knowledge of how the regulated sectors actually operate, together with some awareness of the commercial issues facing those sectors, it will be difficult to gain a full appreciation of the significance of the instruments under discussion. In this chapter, therefore, the reader will find brief descriptions of the sectors affected by the three environmental taxes and other instruments introduced in Chapter 1. The sectors in question are waste management, energy and mineral extraction. Of the three, the first and third are relatively straightforward and their discussion is therefore commensurately brief. With the energy sector, however, the position is somewhat different. With the obvious exception of oil, the relevant industries are all former state monopolies and the relevant post-nationalisation structures, especially those relating to electricity and gas, are extremely complex ones.1 The issues arising from these ex-state industries are not merely ones of technical complexity, however. The post-nationalisation structures have also proved more than a little difficult to reconcile with key objectives of environmental policy. Nowhere is this more apparent than in the problematic relationship between the UK’s energy policy and the design of climate change levy, together with its associated economic instruments. This is a theme to which we shall return at various points in the book. Landfill tax, climate change levy and aggregates levy are all single-stage indirect taxes.2 This being so, and although each impose considerable compliance burdens on the industries referred to above, the three taxes rely for their incentivising effect on the fact that, when chargeable, they are passed on to their customers. Of equal importance, therefore, to the structures of the three industries referred to above are those of the customers themselves. In outlining the waste management and mineral extraction industries, therefore, we have included some brief comments on the businesses and other bodies that they serve and on the impact on the latter of the instruments concerned. In the case of the energy sector, we have devoted a separate paragraph to enumerating briefly those industries which, as intensive users of energy, are particularly relevant to climate change levy and its associated 1 The regulatory provisions are discussed in para. 6.4 below. The role of the gas and electricity markets’ regulator, Ofgem, is discussed in para. 4.2.1.3 below. 2 See paras 1.4.2.1(1), 1.4.2.2(1) and 1.4.2.3 above. 38 Environmental Taxation Law instruments.3 Besides being liable to pay climate change levy on their energy use, they are shortly also to become participants in the EU Emissions Trading Scheme (‘the EU ETS’) which is scheduled for introduction in January 2005.4 The relationship between the levy and the EU ETS is an intricately-woven thread in the discussion both of the levy and of the EU ETS. It is further complicated, moreover, by the interaction of each one with the pre-existing UK Emissions Trading Scheme (‘the UK ETS’).5 Neither of the authors is, nor professes to be, a specialist in industrial economics or sectoral analysis. As discussed in para. 1.2.2 above, the principal aim of the book is to offer a critical account of the environmental taxes and other instruments making up its subject matter. The details which we have attempted to capture in the present chapter are therefore intended to be sufficient only to render more intelligible some of the technical issues involved in the larger discussion. It is for this reason that we have included at the end of the chapter a brief paragraph on the issues facing the air transport and road freight transport industries. Although the civil aviation industry falls outside the scope of existing economic instruments for environmental protection,6 its prospective inclusion in the EU ETS, together with the possibility of the ‘greening’ of airport charges,7 makes a quick sketch of the industry useful here. Likewise with the road freight transport industry, especially given that one of its trade associations has – surprisingly perhaps – given cautious support to the proposed scheme for charging heavy lorries by reference to road usage,8 which is now due to be introduced in 2007.9 Since the larger discussion involves an examination, not only of the institutional aspects of the instruments under consideration, but also of the processes by which they have passed into law, reference is often made in what follows to the responses of trade associations and environmental pressure groups to the various policy initiatives under discussion. We have also taken the opportunity to introduce, where appropriate, the main trade associations and environmental pressure groups that continue to participate in those processes. 2.2 Trade associations, policy-makers and pressure groups The commercial concerns of each of the sectors described in the present chapter are represented by a number of trade associations. Equally, the environmental externalities 3 Together with the landfilling of waste, these are activities covered by the Integrated Pollution Prevention and Control (‘IPPC’) regime (see para. 6.2.3 below). 4 See para. 28.3 below. 5 See Chapter 20 below. Unlike the UK ETS, the EU ETS includes power stations (see para. 28.3 below). However, the beautiful simplicity of this statement is disfigured by the fact that an electricity generator may convert Renewable Obligation Certificates into UK ETS allowances (see paras 6.4.3.1(2), 20.6 and 21.5 below). 6 That is, on the basis that air passenger duty is not an environmental tax (see para. 1.2.1.5(2) above). 7 See para. 2.6 below. 8 See para. 27.3 below. 9 See Wright, Financial Times, 6 February 2004, p. 5. Regulated Sectors 39 attributable to each of those sectors have long been the preoccupation of a number of high profile environmental pressure groups. The development of the present government’s policy on environmental levies, subsidies and other instruments has attempted conspicuously to build a consensus around their differing viewpoints.10 There is an extensive literature, not only on the relative influence of the interests of economic groups and ideas on policy-making generally, but also on their influence specifically on environmental policy-making.11 It is beyond the scope of this book either to attempt to add to that literature or to do more than to speculate on the relative weight of ideas and interest groups in shaping the various instruments under consideration. However, in describing the various industrial sectors affected by the levies, subsidies and other instruments under discussion, it is not inappropriate to begin by drawing attention to two organisations with high profiles in debates on economic instruments in environmental protection: the Confederation of British Industry (‘the CBI’)12 and the Friends of the Earth.13 The former body is generally recognised as being representative of the views of British business; the latter is one of the UK’s leading environmental pressure groups. The CBI’s activities are financed by industry and commerce; Friends of the Earth is largely financed by individual donations. Representatives of both groups are strident voices in the British media.14 The efforts of both bodies are highly coordinated and both have some greater or lesser international presence. Despite the undoubtedly high profiles of the organisations just referred to, it would be too simplistic to view the trade associations, the policy-makers and the environmentalists as representing three mutually antagonistic corners of a noisy triangular debate. Setting aside both the ritual complaints of regulated industries about the effects of regulation on competitiveness and the dissatisfactions of environmental campaigners on the lack of progress in attaining environmental goals, arguments about economic instruments in environmental protection tend to operate within a broad consensus of the need for some regulatory response to commonly recognised problems. Thus, even allowing for occasional exceptions,15 the contributions of each to the public debate on economic instruments for environmental protection tends to be a nuanced and balanced one. The CBI’s consistent viewpoint on economic instruments is well demonstrated from its comment in a policy brief of April 2002 that, although ‘… the use of environmental economic instruments can be justified, 10 This approach has often been attributed to Anthony Giddens’ argument for the renewal of social democracy in The Third Way: The Renewal of Social Democracy (Oxford: Polity Press, 1998) and The Third Way and its Critics (Oxford: Polity Press, 2000). Both books draw attention to the influence of ecological movements and the latter endorses the technical justifications for green taxes discussed in Chapter 5 below (see The Third Way and its Critics, pp. 100–101). 11 See, for example, Anthony Giddens, The Third Way: The Renewal of Social Democracy, pp. 54–64. 12 See www.cbi.org.uk. The current Director-General of the CBI is Sir Digby Jones, formerly senior partner of a large firm of Birmingham solicitors. 13 See www.foe.co.uk. 14 For example, Sir Digby Jones’s eloquent objections to the EU ETS on BBC’s Today programme on 19 January 2004. 15 See, for example, 348 ENDS Report (2004) 18–22, 20. 40 Environmental Taxation Law … the theory does not always translate well into practical design. This leads to sub-optimal results for both business competitiveness and the environment, which we believe the government should put right’.16 For its part, Friends of the Earth, commenting on the 2003 Pre-Budget Report,17 said that ‘[t]he Chancellor [that is, of the Exchequer]18 has accepted the concept of sustainability as a basis for the UK’s future economy. However recently steps taken have been increasingly cautious. The clearest indicator is the considerable fall in environmental taxation in years, for 9.7 per cent of total taxes in 1999 to 8.8 per cent in 2002’.19 Both assessments are, of course, highly problematic,20 although both accept the principle of using economic instruments in environmental protection. If, as is widely, although not universally, held to be the case, the government’s approach to the use of economic instruments has become unnecessarily cautious, this may itself be indicative of its preoccupation with creating an atmosphere of consensus around its policies on environmental economic instruments. Whether this preoccupation, with its seemingly endless streams of consultative documents and policy justifications, masks a rather less palatable reality, is something to which we shall presently return. Suffice it to say for the present that it is noteworthy that all of the trade associations referred to in the subsequent paras of this chapter have been involved, to a greater or lesser extent, and with varying degrees of success, in the consultations leading to the introduction of the instruments discussed in this book. The Department of Trade and Industry (the ‘DTI’), whose role in environmental regulation is discussed in a subsequent chapter,21 even supports22 a body called the Trade Association Forum (‘the TAF’),23 whose membership includes a number of the trade associations referred to in succeeding paras. 2.3 Waste management industry According to the trade association which represents firms providing waste management and associated services,24 almost 430 million tonnes of waste are generated in the UK 16 See Confederation of British Industry Business Environment Brief, Green Taxes: Rhetoric and Reality (London: April 2002), p. 1. This viewpoint is closely consistent with the view of the theory and reality of environmental taxes taken by a former Director-General of the CBI (see Adair Turner, Just Capital: The Liberal Economy (London: Pan Books, 2002), pp. 310–15). 17 See para. 21.3.2 below. 18 See para. 4.2.1.2(2) below. 19 See Friends of the Earth Briefing, Time for a Sustainable Economy? (London: Friends of the Earth, November 2003), p. 1. 20 The CBI’s in that it is always possibly to lament ‘the shadow between the idea and the reality’, especially from a viewpoint of some self-interest; the Friends of the Earth’s because a drop in revenue from environmental taxes might indicate that they are actually having some environmental effect! 21 See para. 4.2.1.2 below. 22 Together with the CBI and the TAF’s own membership. 23 See www.taforum.org. 24 The Environmental Services Association Ltd. See para. 2.2.3 below. Regulated Sectors 41 every year.25 The association divides this into four main categories, that is, waste arisings from agriculture, from mining and quarrying, from construction and demolition and, finally, from other industries, commerce and households. The waste arisings in the fourth category are estimated at 110 million tonnes per annum, over 45 per cent coming from the relevant industrial sectors, with a little over 27 per cent arising in each of the commercial and household sectors. Almost 60 per cent of all of the waste arising in the UK each year is, according to the same source, sent to landfill. The structure of the industry whose business it is to sort out, or at least to bury or burn, the mess referred to above has recently and usefully been outlined by Barrow.26 Responsibilities relating to the collection and disposal of waste are imposed by legislation on local authorities,27 although the services relating thereto are supplied under contract between those authorities and private sector firms which provide the collection and disposal services. Waste disposal is the responsibility of the waste disposal authority (‘WDA’), which is usually the county council,28 while waste collection is the responsibility of the waste collection authority (‘WCA’), usually the relevant district council.29 Where, instead of county and district councils, there is a unitary authority, the authority in question combines the collection and disposal functions. The relevant WCA contracts either with its own refuse collection service or a private sector firm for the collection of waste from commercial premises and households. Then, under the direction of the WDA, the firm takes the waste to a landfill site, incinerator or other disposal site. Landfill sites (usually disused quarries or mine workings) are generally owned and operated by private sector firms with whom the WDA has negotiated contracts. By Finance Act 1996, s.41, the landfill site operator is, of course, the person liable to pay the landfill tax charged on a taxable disposal.30 The contracts, made between WDAs and landfill site operators, specify minimum and maximum annual quantities of waste, are usually concluded for relatively long periods of time and contain provisions for renegotiation in appropriate circumstances. The gate price per tonne of waste, exclusive of landfill tax, is usually related to a price index for the contract term. The costs of collecting the waste and transporting it to the landfill site are borne by the WCA, while the WDA pays the gate price to the landfill site operator. It will thus be appreciated that the landfill tax collected by the site operator has itself been paid by a public authority out of public funds.31 The environmental effects of landfilling waste32 and the understandable public enthusiasm for recycling are well known. Landfill produces emissions to air, water and soil and causes disamenities such as visual intrusion, noise, odour, vermin and 25 See www.esauk.org/waste, from which some of the information in this paragraph is drawn. 26 Michael Barrow, ‘An Economic Analysis of the UK Landfill Permits Scheme’, (2003) 24 FS 361–81, 363. This paragraph is much indebted to the portrait of the industry structure contained in that paper. 27 See para. 6.3.2.1 below. 28 See para. 4.2.3 below. 29 Ibid. 30 See paras 1.4.2.1(1) above and 15.2 below. 31 See para. 21.4.1 below. 32 See, for example, Cambridge Econometrics, A Study to Estimate the Disamenity Costs of Landfill in Great Britain (London: Department for Environment, Food and Rural Affairs, 2003), section 1. 42 Environmental Taxation Law litter.33 Despite suggestions that recycling may be more equivocal a good than it may at first appear,34 enthusiasm for household recycling is undiminished.35 The waste management industry is characterised by a close engagement with policy development, both at the sectoral level, via the Environmental Services Association (‘the ESA’), and at the level of individual firms. The ESA, which is a member of the TAF,36 proclaims a vision of ‘an economically and environmentally sustainable waste management industry for the United Kingdom’ and, to this end, vows to assist, not only its members, but all levels of government in the UK, to achieve the vision.37 Among particular firms, especially prominent perhaps is Biffa Waste Services Ltd,38 which has issued a number of publications dealing with policy issues in waste management39 and has also funded mass-balance research40 through the landfill tax credit scheme (‘the LTCS’).41 2.4 Energy industries and consumers 2.4.1 Electricity The denationalised electricity42 industry in England and Wales43 comprises four main activities:44 generation,45 transmission, distribution and supply. Of these, 33 Cambridge Econometrics, op. cit., para. 1.5. 34 See, for example, the works referenced in Bjørn Lomborg’s The Skeptical Environmentalist: Measuring the Real State of the World (Cambridge: Cambridge University Press, 2001), p. 209. On the current status of Lomborg’s controversial work, see Houlder and MacCarthy, Financial Times, 18 December 2003, p. 15. See also Richard D. North, Life on a Modern Planet (Manchester: Manchester University Press, 2001). 35 This has recently been illustrated by the easy passage through Parliament of the symbolically important Household Waste Recycling Act 2003, originally a Private Member’s Bill introduced by a Labour MP, Mrs Joan Ruddock (see 346 ENDS Report (2003)). 36 See para. 2.2 above. 37 See www.esauk.org. 38 See www.biffa.co.uk. Interestingly, Biffa is a subsidiary of Severn Trent plc (www. severn-trent.com), a water utility. The latter acquired Biffa to diversify out of regulated water activities, which are subject to severe ‘capping’. 39 See www.biffa.co.uk. 40 See www.massbalance.org. 41 See para. 4.2.1.2(2) below. Biffa’s sponsorship of mass-balance research seems to have been hit by the government’s decision in November 2002 to withdraw two-thirds of the landfill tax credit scheme (‘the LTCS’) (see para. 21.3.2 below and 336 ENDS Report (2003)). 42 See Walt Patterson, Transforming Electricity: the Coming Generation of Change (London: Earthscan, 1999), pp. 3–5. Since electricity cannot be stored (except indirectly in pumped storage schemes), demand must exactly match supply. At every moment of every day, therefore, the electricity being fed into the system must match the electricity being used from the system. 43 Different arrangements apply for Scotland and Northern Ireland. 44 See Utility Week, The Electricity Supply Handbook 2004, 57th edn (Sutton: Reed Business Information, 2004), p. 13 (‘ESH’). See also www.energynetworks.org below. 45 With which ‘production’ is synonymous. Regulated Sectors 43 generation and supply are subject to competition, whilst transmission and distribution are monopolies.46 The two monopoly elements have been separated by legislation47 from the competitive elements,48 making the industry among the most liberalised electricity industries in the world. The first competitive activity, generation, refers to the conversion of primary and renewable energy sources into electricity.49 Most electricity is generated at power stations fired by gas or coal, or at nuclear power stations,50 with renewables as yet accounting for only a small proportion of the total electricity generated in the UK in each year.51 There are around 40 major electricity generators, including Powergen (UK) plc,52 RWE Innogy Holdings plc,53 Drax Power Ltd54 and British Energy plc.55 The second competitive element, supply, is the business of buying electricity in bulk from generators and selling it on to domestic, commercial and industrial consumers.56 The electricity industry therefore has a wholesale stage (generators and suppliers) and a retail stage (suppliers and customers). Under Finance Act 2000, sch. 6, paras 5(1) and 40(1), it is the supplier who is generally the person liable to account for climate change levy,57 which makes it a downstream, rather than an upstream, energy tax.58 The wholesale trade in electricity has taken place since March 2001 under the New Electricity Trading Arrangements (‘NETA’).59 A replacement for NETA, the British Electricity Trading and Transmission Arrangements (‘BETTA’), to include Scotland 46 See Callum McCarthy, ‘Ofgem: Characteristics and Issues of the British Electricity Market’ 12 [2001/2002] 6 ULR 170–72. 47 See para. 6.4.3.1 below. 48 The ‘unbundling’ of European energy markets has been a major theme of European Energy policy for decades (see Carlos Ocana et al., Competition in Electricity Markets (OECD/IEA, 2001) and para. 12.2.6.3 below). The unbundled energy markets of Europe, in which Enron was a major player, fortunately survived Enron’s collapse (see ‘Power play’, Economist, 24 July 2003). 49 ESH, p. 13. 50 See DTI/National Audit Office, Digest of United Kingdom Energy Statistics 2004 (London: HMSO, 2004). This is an annual publication. 51 Ibid. 52 See www.powergenplc.com. 53 See www.rweinnogy.com. 54 See www.draxpower.co.uk. See para. 21.4.3 below. 55 See www.british-energy.com. British Energy plc, whose core business is nuclear generation, is currently the subject of a proposed £5 billion government-backed rescue, the background to which has been heavily criticised by the House of Commons Public Accounts Committee (see Taylor, Financial Times, 12 February 2004, p. 2). See paras 6.4.3.1(3) and 21.4.3 below. 56 ESH, p. 13. 57 Being the holder of a supply licence under Electricity Act 1989, s.6(1)(d) (see Finance Act 2000, Sched. 6, para. 150(2)(a) and paras 7.4 and 15.1 below). 58 See para. 11.3.1 below. 59 The New Electricity Trading Arrangements replaced the ‘pool’ originally created on the privatisation of the electricity market in 1990. On the introduction of NETA, see, for example, ‘Beyond the pool’, Economist, 1 March 2001. For the background to NETA, see Dieter Helm, Energy: The State and the Market British Energy Policy since 1979, revised edn (Oxford: Oxford University Press, 2004), ch. 17. 44 Environmental Taxation Law as well as England and Wales, is expected to be introduced in 2005.60 The main electricity suppliers, among many, include npower Ltd61 and SEEBOARD Energy Ltd.62 The retail trade utilises published tariffs and involves the reading of meters, the issuing of bills and the processing of payments. The monopoly elements of the electricity industry, as mentioned above, are transmission and distribution. Transmission refers to the transport of electricity in bulk, on the national grid,63 from the generators’ power stations to the companies responsible for distributing the electricity to consumers.64 The sole owner and operator of the national grid is the National Grid Group (‘NGG’),65 which also operates the national transmission system for gas.66 Besides being interconnected to the transmission systems of Scotland and Northern Ireland,67 the national grid is connected to the French national grid.68 Distribution, the second monopoly activity, is the process of delivering electricity from the national grid, via regional distribution networks, to consumers.69 Each regional distribution network is owned and operated by a Distribution Network Operator (‘DNO’). There are presently 14 DNOs,70 including Aquila Networks plc71 (the West Midlands), Northern Electric Distribution Ltd72 (the North East) and Southern Electric Power Distribution plc73 and EDF Energy Networks (SPN) plc74 (London and the South East). Suppliers pay for electricity to be transmitted across the national grid and distributed to their customers.75 The probable effects on climate of burning the primary fuels used in electricity generation are both notorious and well-documented.76 The possible effects of nuclear power generation on the environment also remain controversial, possibly even more so.77 In these circumstances and, given the various legal and policy 60 See para. 6.4.3.1(4) below. 61 See www.npower.com. Npower is RWE Innogy’s retail business (see ESH, p. 94). 62 See www.seeboardenergy.com. SEEBOARD Energy is the retail business of EDF Energy (see ESH, p. 73). 63 Also referred to as the transmission grid. The most obvious manifestations of the national grid are the overhead pylons which carry the system of high voltage transmission lines. High voltage lines may travel underground instead, although underground cables are of course much more expensive to install and maintain than overhead ones. 64 ESH, p. 13. 65 See www.ngtgroup.com. 66 See para. 4.2.1.3 below. 67 See this para. below. 68 Thus facilitating the importation of ‘renewable electricity’ from France and Belgium (see 331 ENDS Report (2002)). 69 See ESH, p. 13. 70 Ibid., p. 36. 71 See www.aquila-networks.co.uk. 72 See www.ce-electricuk.com. 73 See www.scottish-southern.co.uk. 74 See www.edfenergy.com. 75 ESH, p. 13. 76 See, for example, the works referenced in Lomborg, op. cit., ch. 24. 77 See, for example, 348 ENDS Report (2004) 13 on emissions of radioactive gas from British Energy’s Hartlepool power station. Regulated Sectors 45 commitments,78 it is unsurprising that the renewable energy sector, especially in the shape of wind farms, has been growing,79 although it should be noted that NETA, among other factors, has not been favourable to renewables generators.80 Moreover, environmental benefits are promised by combined heat and power (‘CHP’) electricity generation, which enables the simultaneous generation of electricity and heat at the point of use.81 The electricity industry has been characterised since 1990 by considerable merger and acquisitions activity,82 which has produced corporate structures of extreme complexity.83 For over a decade, the industry’s trade association was the Electricity Association,84 but this has been replaced by three new associations, from the beginning of October 2003. The three new associations reflect the differing interests of the participators in the market: the Association of Electricity Producers;85 the Energy Networks Association;86 and the Energy Retail Association.87 There is also the British Wind Energy Association88 and the Combined Heat and Power Association.89 2.4.2 Gas Although, historically, gas has been produced from both coal and oil,90 the gas used in Britain today is natural gas, sourced from around 100 offshore gas fields around the UK.91 78 See para. 6.4 below. 79 See, for example, 348 ENDS Report (2004) 13. A number of suppliers offer ‘green electricity’ tariffs (see 348 ENDS Report (2004) 29–30). 80 See Ross Fairley and Karina Ng, ‘Green Energy in the NETA World’ 12[2001/2002] 3 ULR 57–60. See also para. 21.4.2 below. 81 See www.chpa.co.uk. See in this para. below. The term ‘combined heat and power’ is synonymous with ‘cogeneration’ and ‘total energy’. CHP/cogeneration/total energy refers to the simultaneous generation of useful thermal energy (such as heat or steam) and electricity in a single process (see Finance Act 2000, s.148, for the definition applicable to climate change levy). 82 See Electricity Association, Electricity Companies in the United Kingdom – a Brief Chronology, June 30, 2003 (still available from www.electricity.org.uk). 83 See Electricity Association, Who Owns Whom in the UK Electricity Industry, June 30, 2003 (still available from www.electricity.org.uk). 84 Whose website (www.electricity.org.uk) is/was a mine of useful information. 85 See www.aepuk.com. 86 See www.energynetworks.org. 87 See www.energy-retail.org.uk. 88 See www.bwea.com. 89 See www.chpa.co.uk. 90 This was so-called ‘town gas’, which, prior to the first commercial offshore gas finds in British Waters in November 1965, supplied the relatively small amounts of gas required in the UK. Town gas was smelly; natural gas, by contrast, is odourless and is artificially ‘stenched’, to enable leaks to be detected (see David Upton, Waves of Fortune: the Past, Present and Future of the United Kingdom Offshore Oil and Gas Industries (Chichester: John Wiley, 1996), pp. 20–22). 91 There is also an interconnector gas pipeline, permitting gas imports, which runs between Bacton, in East Anglia, and Zeebrugge in Belgium. Plans are currently under way for 46 Environmental Taxation Law The gas industry92 comprises six main activities: production, storage, shipment, transmission, distribution and supply. As with the electricity industry, legislation93 has separated transmission and distribution (the monopoly components) from production, shipment and storage and supply, all four of which are subject to competition. Gas production, the first competitive element, comprises the offshore extraction of gas, its delivery onshore under contracts concluded with gas shippers and its subsequent treatment at seven beach terminals located around the UK. There are around 30 offshore gas producers, including BP plc,94 Shell UK Exploration and Production plc 95 and ExxonMobil International Ltd.96 The second and third competitive elements, gas shipment and st,orage, refer to the activities of the gas shippers once the gas has been brought ashore. Shipment describes the process by which shippers arrange with the transmission system operator (‘the TSO’) for gas to be transported on, and taken out of, the national transmission system (‘NTS’). This is the wholesale stage of the gas industry, shippers also being responsible for the large-scale storage of gas in massive submarine gas storage facilities. The wholesale trade has taken place since March 1996 under the Network Code. There are around 90 shippers, including PowerGen Gas Ltd97 and Shell Gas Direct Ltd.98 Gas supply, the fourth competitive element, refers to the purchase of gas by suppliers from shippers and its onward sale to customers. Gas supply thus generally corresponds to the retail part of the industry, major suppliers including npower99 and British Gas.100 Under Finance Act 2000, Sched 6, paras 6(1) and 40(1), it is the supplier101 who is generally the person liable to account for climate change levy; this replicates the position for electricity and, as mentioned above, makes the tax a ‘downstream’ tax. The monopoly components of the gas industry, transmission and distribution, are the responsibility of the TSO, that is, NGG102 (‘Transco’).103 Transmission refers to upgrading the interconnector and for the construction of two further interconnectors (see Ofgem Factsheet 37, Securing Britain’s Gas Supply (London: Ofgem, 2003)). 92 It is, of course, somewhat artificial to split out the gas industry from the oil industry (see para. 2.4.3 below). However, we have embraced this artificiality, given that the sketch of the industry included here is intended chiefly to elucidate elements of climate change levy, which is inapplicable to supplies of hydrocarbon oil (see paras 1.4.2.2(1) above and 14.1 below). 93 See para. 6.4 below. 94 See www.bp.com. 95 See www.shell.co.uk. 96 See www.exxonmobil.com. 97 See www.powergen-power.co.uk. 98 See www.shellgasdirect.co.uk. 99 See www.npower.com. 100 See www.gas.co.uk. 101 Being the holder of a supply licence under Gas Act 1986, s.7A(1) (see Finance Act 2000, Sched. 6, para. 150(3)(a) and paras 6.4 and 14.1 below). 102 See para. 2.4.1 above. 103 See www.transco.uk.com. Regulated Sectors 47 the high pressure transport of gas in bulk on the NTS, from the beach terminals to 40 power stations,104 to a small number of large industrial consumers and to the 12 Local Distribution Zones (‘LDZs’). Distribution refers to the low pressure transport of gas on the LDZs, from the NTS to most business and to domestic consumers. As TSO, Transco is responsible for ensuring that the transmission and distribution systems remain in balance, being empowered to buy and sell gas to ensure that supply matches demand. Like the electricity industry, the gas industry has been for long characterised by considerable merger and acquisitions activity, many gas suppliers supplying electricity too. In 2003, the UK was only one of two G7 countries that at that time were self-sufficient in gas, although this was liable to change.105 Gas consumption, which is forecast to rise between 14 per cent between 2002 and 2011, presently stands at 113bn cubic meters per annum and has grown by 66 per cent since 1992.106 A significant proportion of this growth is explicable by the increased use of gas in electricity generation, 29.7 per cent of all gas consumption being accounted for in this way in 2002.107 As with the electricity industry’s trade associations, different associations represent the interests of different participators. The Energy Networks Association108 and the Energy Retail Association109 are relevant here just as in relation to electricity and a list of trade associations for gas (and also oil) appears on the DTI website.110 There is also the UK Offshore Operators Association,111 which represents the offshore oil industry as well as the offshore gas industry. One of the three fossil fuels,112 natural gas is used as a catch-all term for natural hydrocarbon gases associated with oil production, of which the main ones are methane (CH4) and some ethane (C2H6).113 Although the burning of natural gas produces minimal sulphur dioxide emissions, methane is one of the six GHGs listed in Annex A to the Kyoto Protocol.114 Scientific opinion is divided as to the sustainability of natural gas reserves.115 104 See para. 2.4.1 above. 105 Ofgem, op. cit. 106 Ofgem, op. cit. 107 Ofgem, op. cit. There is an exemption from climate change levy for taxable commodities used in the generation of electricity (see Finance Act 2000, Sched. 6, para. 14). 108 See para. 2.4.1 above. 109 Ibid. 110 See www.dti.gov.uk/sectors. 111 See www.ukooa.co.uk. 112 That is, coal, oil and natural gas, all of which are ‘derived from organic matter deposited over geological time-scales’ (Porteous). 113 Porteous. 114 See para. 8.3.1.4 below. 115 See Lomborg, op. cit., p. 126, for the (highly controversial!) view that natural gas becomes more abundant over time. 48 Environmental Taxation Law 2.4.3 Oil The UK has been a major producer of crude oil ever since the Argyll field in the North Sea became the first offshore oil field to become operational in June 1975.116 Because the offshore oil production industry has never been a state-owned industry,117 and since hydrocarbon oils are outside the scope of the climate change levy,118 the structure of the oil industry is not of central relevance to the present study. However, since oil refineries fall within the scope of the EU ETS,119 and since we devote a chapter below to a discussion of fuel excise duties,120 it may be useful simply to draw attention to the fact that the oil industry is usually seen as having ‘upstream’ and ‘downstream’ components. The upstream component includes the activities of exploration, production and transportation (via oil tankers and pipelines), while the downstream component involves the refining, distribution and supply of oil products, such as transport fuels. The main oil producers are the same group of around 30 companies who are also gas producers.121 As for gas, the interests of the main UK oil producers are represented by the UK Offshore Operators Association,122 while those of the downstream industry are represented by the UK Petroleum Industry Association (‘UKPIA’).123 Since the Second World War, oil has achieved a hegemony over coal as the main fossil fuel. The use of oil and its distillates such as petrol and DERV for transport purposes is a major source of carbon dioxide emissions.124 Carbon dioxide is, of course, one of the GHGs listed in Annex A to the Kyoto Protocol.125 It also does terrible damage when leaked or spilt from tankers, of course.126 The significance of oil should not simply be seen in terms of its use as a fuel. Oil is also used in the chemical industry for the production of ethylene, which is in turn used in the production of a range of end products, such as the higher glycols, acetic acid and acetic fibre and butadiene. 116 See Upton, op. cit., p. 56. Upton relates that oil was originally discovered in commerciallyworthwhile quantities on the British mainland at Eakring, near Sherwood Forest, in 1938, the discovery then being kept secret. The Petroleum (Production) Act 1934 had vested onshore petroleum reserves in the Crown (see Upton, op. cit., p. 20). 117 See Martha M. Roggenkamp et al., Energy Law in Europe: National, EU and International Law and Institutions (Oxford: Oxford University Press, 2001), paras 13.26 and 13.259. With the exception of the long-defunct British National Oil Company, the UK Government ‘has been content to licence the industry and collect its share of the rent’ (ibid., para. 13.259). 118 Finance Act 2000, s.3(2)(a). 119 See para. 28.3 below. 120 See paras 22.2 and 22.3 below. 121 See para. 2.4.2 above. 122 See www.ukooa.co.uk above. 123 See www.ukpia.com. 124 See, for example, Department of Environment, Transport and the Regions, A New Deal for Transport: Better for Everyone, 1998 (Cm 3950, 1998), paras 1.6–1.11. 125 See para. 8.3.1.4 below. 126 One thinks of the cases of Atlantic Empress in 1979 and Exxon Valdez in 1989. Regulated Sectors 49 2.4.4 Coal Following the privatisation of the coal industry in 1994, UK coal production has been entirely in the hands of private firms, the largest of which is UK Coal plc.127 Despite large helpings of state aid,128 and the fact that the privatisation arrangements meant that the coal industry’s biggest customers would be the electricity generating companies, the industry is now a shadow of its former self.129 In November 2002, there were 15 deep mines in the UK, producing about 18 million tonnes of coal per annum;130 in 1975, there were around 200 collieries, producing around 130 million tonnes of coal.131 The coal industry’s trade association is the Confederation of UK Coal Producers (‘Coalpro’).132 Climate change levy applies to supplies of coal and lignite, as well as to coke and semi-coke of coal and lignite.133 Tax is chargeable on any supply of these commodities where the supply is made in the course or furtherance of a business.134 However, coal supplies to electricity generators are generally exempt from the levy!135 The partial displacement of coal by oil as the most important fossil fuel has not eroded the status of coal as ‘Environmental Enemy No. 1’.136 Although it is the dirtiest of the fossil fuels, it is possible to reduce by various technological means the sulphur dioxide and nitrogen oxide emissions caused by the burning of coal.137 In addition to coal’s environmental costs, there are, of course, the social costs of what is still, even in 2004, an industry fraught with physical danger. 2.4.5 Energy-intensive sectors Certain sectors of industry are extremely high consumers of the three fossil fuels. Apart from oil refining and electricity generation, the main energy-intensive sectors are the steel industry, the chemical industry, the paper industry, the glass industry, the ceramics industry, the gypsum138 industry, the china clay industry, the cement and concrete industries and the aluminium industry. There is an umbrella trade organisation, the Energy Intensive Users Group,139 but also individual trade associations for each of the individual sectors themselves.140 The significance of 127 See www.ukcoal.com. 128 See para. 12.2.6.3 below. 129 See ‘Bottomless pits’, Economist, 18 April 2002. 130 See www.ukcoal.com. 131 See ‘Bottomless pits’, Economist, 18 April 2002. 132 See www.coalpro.co.uk. 133 Finance Act 2000, Sched. 6, paras 3(1)(d) and 3(1)(e). 134 Ibid., Sched. 6, para. 7(2). 135 Ibid., Sched. 6, para. 14. 136 See ‘Environmental enemy No 1’, Economist, 6 July 2002, p. 11. 137 See Lomborg, op. cit., p. 127, citing the work in Danish of Jesper Jesperson and Stefan Brendstrup. 138 Gypsum is hydrate calcium sulphate (CaSO4 .2H2O), which is used in the manufacture of plasterboard (Porteous). 139 See www.eiug.org.uk. There is a separate trade association for the cement and concrete industries, that is, the British Cement Association (see www.bca.org.uk). 140 See the links at www.euig.org.uk. 50 Environmental Taxation Law the energy-intensive sectors in the rest of the study is that they fall within the scope of the command and control Integrated Pollution Prevention and Control (‘IPPC’) regime.141 This, in turn, makes sector participators eligible to enter into climate change agreements (‘CCAs’) and thereby to obtain an 80 per cent reduction in climate change levy.142 As parties to CCAs, participators in each sector are likely also be Agreement Participants in the UK ETS.143 Not voluntary, however, will be the EU ETS which, from January 2005, will apply to all the energy-intensive sectors covered by the earlier instruments, as well as to electricity generation and oil refining.144 Before leaving energy and its heavy consumers, it is appropriate to mention the highly influential UK Emissions Trading Group (‘the ETG’), originally formed by the CBI and the Advisory Committee on Business and the Environment (‘ACBE’)145 ‘to represent the UK business interest in greenhouse gas emissions trading’.146 Although the ETG has been involved in the implementation of the EU ETS in the UK, it was the ETG that originally convinced the government of the need for the cash subsidy to get the UK ETS going,147 using the argument that the development of a market in GHG emissions would make the City of London a world leader in trading emissions.148 2.5 Mineral extraction industry There are, according to one of the quarry operators’ trade associations, around 1,300 quarries in the UK, producing £3bn worth of quarry products each year.149 Quarried, as opposed to recycled, aggregates, are generally referred to either as ‘virgin’ or ‘primary’ aggregates. For the purposes of this study, two points are perhaps significant. First, that the consumer of a considerable proportion of the products quarried in any year is the public sector, aggregates being of course essential to public sector construction projects (for example, school and university improvements, road maintenance and hospital building). Secondly, that the use of recycled aggregates in such projects seems to be increasing. For the purposes of aggregates levy, the chargeable person is the person responsible for subjecting aggregate to commercial exploitation,150 a concept which includes the removal of the aggregate from the quarry in question,151 its sale,152 its use for 141 See paras 6.2.3 and 12.2.2 below. 142 See para. 14.6 below. 143 See para. 1.4.2.2(2) above and para. 20.4 below. 144 See para. 1.4.2.2(3) above and para. 28.3 below. 145 See para. 4.2.1.4 below. 146 See www.uketg.com. 147 See para. 20.2 below. 148 See Helm, op. cit., pp. 358–9. This was at the time that there seemed to be a possibility that, with the possible imposition of withholding tax on interest payments on eurobonds, London would lose its pre-eminence in that particular field. 149 That is, the Quarry Products Association. See www.qpa.org. 150 Finance Act 2001, s.16(3). 151 Ibid., s.19(1)(a) and 19(2)(a). 152 Ibid., s.19(1)(b). See para. 13.2 below. Regulated Sectors 51 construction purposes153 or its mixing, other than in permitted circumstances, with any substance other than water.154 This means that the person primarily liable for aggregates levy will be the quarry operator. The quarrying industry has two main trade associations, the Quarry Products Association (‘the QPA’)155 and the British Aggregates Association.156 The latter was involved in an unsuccessful challenge to the legality of the aggregates levy in April 2002.157 The environmental costs of quarrying are controversial. Certainly, there has been by no means the same level of concern, at least at a European level, in relation to its effects as in relation, say, to emissions of GHGs and energy consumption. A later chapter158 will show how the government has characterised the environmental costs of quarrying in terms of noise, dust, visual intrusion and biodiversity loss.159 However, there remains the concern that the level of opposition to the tax, as compared to that mounted in relation to, say, climate change levy, is a sign that the government may not have succeeded in demonstrating the environmental case for the tax. 2.6 Air passenger and road freight transport sectors Two parts of the transport sector figure prominently in the present study: the road freight transport and the air transport industries. Although neither is currently subject to any form of environmental levy,160 yet, as mentioned above, there are currently plans for the introduction of a nationwide road-user charging (‘road pricing’) scheme for heavy lorries,161 as well as continuing concern about the international exemption from fuel duties applicable to aircraft fuel.162 In addition, the government has decided to work to bring the aviation industry within the EU ETS and has promised to prioritise the matter during the UK’s 2005 EU Presidency.163 The issues facing road freight transport and air transport therefore merit at least brief mention in the present context. The Freight Transport Association,164 which, together with the Road Haulage Association,165 is one of the two main trade associations for the road freight 153 Ibid., s.19(1)(c). 154 Ibid., s.19(1)(d). 155 See www.qpa.org. 156 See www.british-aggregates.com. 157 See R (on the application of British Aggregates Association and others) v. C & E Commrs, [2002] EWHC 926 (Admin), [2002] 2 CMLR 51. 158 See para. 11.3.2 below. 159 Ibid. 160 Air passenger duty is not an environmental tax (see para. 1.2.1.5(2) above). 161 See para. 27.3 below. 162 See paras 8.5 and 27.5 below. See also Friends of the Earth, op. cit., p. 10 and Chris Nash, ‘Transport and the Environment’, in Environmental Policy: Objectives, Instruments, and Implementation, ed. by Dieter Helm (Oxford: Oxford University Press, 2000), pp. 241– 59. 163 See Department for Transport, The Future of Air Transport: Summary (London: Department for Transport, 2003), p. 8. 164 See www.fta.co.uk. 165 See www.rha.net. 52 Environmental Taxation Law transport industry in the UK, estimates that road freight transport constitutes 64 per cent of domestic transport as a whole.166 The same source also figures that a total of around 65,000 companies operate the UK’s commercial vehicles fleet,167 which is a 31 per cent reduction on the figures for 1996.168 The reduction has mainly been among operators with less than half-a-dozen vehicles, with the number of businesses operating in excess of 50 vehicles actually increasing.169 Although heavy lorries are legendarily associated with graphic levels of noise, air pollution and congestion, it is clear that the sector as a whole is itself contending increasingly with congestion, whilst complaining vociferously about what it regards as disproportionately high levels of fuel duties and road taxes in comparison with other EU Member States.170 The proposed introduction of the road-user charging scheme for heavy lorries will be made sectorally possible only on the basis of reductions in fuel excise duties.171 The aviation industry in the UK, unlike a number of other EU Member States, has been entirely in private hands since British Airways was privatised in 1987.172 The main UK airlines include BMI British Midland, Britannia Airways, British Airways and Virgin Atlantic Airways, all of which are members of the industry’s trade association, the British Air Transport Association.173 Something in excess of 105 million passengers were carried on UK airlines in 2000, over 33 million on charter flights and nearly 72 million on scheduled flights.174 The airlines pay airport (or ‘landing’) charges to the owners of the industry’s infrastructure, the airports. Seven of the UK’s major airports are owned by BAA plc175 (that is, Aberdeen, Edinburgh, Gatwick, Glasgow, Heathrow, Southampton and Stansted), whilst Manchester Airport, in common with a number of others, is owned by the relevant local authority. The government’s White Paper on the future of air transport, of December 2003, identified aircraft noise and the property price blight caused by proposals for airport development as two areas of environmental concern.176 Besides envisaging schemes requiring airport operators to tackle the latter concern, the White Paper promised legislation on the air pollution side (‘when Parliamentary time permits’) to allow airport charges to have an emissions-related element.177 In addition, as mentioned above, and as an acknowledgement of the growing contribution of civil aviation to 166 See Freight Transport Association, Freight Transport: Delivering for a Successful Economy (Tunbridge Wells: Freight Transport Association, 2002), p. 2. The Road Haulage Association puts the figure rather higher, at 80 per cent! 167 Freight Transport Association, op. cit., p. 11. 168 Ibid. 169 Ibid. 170 Freight Transport Association, op. cit., p. 14. 171 Which is why the trade associations are broadly in favour of the scheme (see Wright, Financial Times, 6 February 2004, p. 5). 172 There is an excellent overview of the UK aviation sector in Whitaker’s Almanack 2004 (London: A. & C. Black, 2004), pp. 453–4, to which this paragraph is greatly indebted. 173 See www.bata.uk.com. 174 See Whitaker’s Almanack, above, p. 454. 175 See www.baa.plc. 176 See Department for Transport, The Future of Air Transport: Summary (London: Department for Transport, 2003), p. 3. 177 Ibid., p. 8. Regulated Sectors 53 carbon dioxide emissions, the government has committed itself to working to bring the aviation industry within the scope of the EU ETS.178 2.7 Concluding remarks The sketches of the regulated sectors given in this chapter are intended only to clarify some of the technical issues addressed in our wider critical account of the taxes and other instruments forming the subject matter of the study. It is appropriate that these sketches should detail the trade associations – both general and sectoral – representing the industries in question, since, consistently with the government’s attempts at consensus-building, they have engaged closely in the debates leading to the implementation of the instruments in question. This engagement is well, though not uniquely, illustrated by the involvement of the waste industry in governmental policy debates, both at a sectoral level and at the level of particular firms. An even more striking illustration is the success of the ETG in apparently influencing government policy on emissions trading so dramatically. However beautiful the empathy may – or may not – be as between government and industry, such a phenomenon is not more important in the context of the present study than the structures of the industries in question. It is not insignificant, for instance, that the main bodies intended to be incentivised by landfill tax are themselves taxraising, albeit local tax-raising, bodies. Equally, as regards climate change levy, it is not insignificant that the person liable to account for the tax, in the cases of gas and electricity, is not the generator – for such a thing would make the levy an ‘upstream tax’ – but the holder of the gas or electricity supply licence, which, in combination with other features of the tax, makes it a downstream levy on the industrial, commercial and agricultural consumption of non-renewable energy. If, as is widely believed, this structure severely compromises the environmental effectiveness of the levy, it is no less important than the effect of the structure of the electricity industry on the potential for greater levels of renewables generation.179 Accordingly, even if the industry sketches given above may appear somewhat cursory, they should at least enable a closer understanding of the evaluative issues to be referred to later in the study. Whatever the technical strengths and weaknesses of climate change levy may be, there is at least some measure of agreement of the environmental problem that it is seeking to address. This, no doubt, goes a considerable way to legitimising the tax in the eyes of those in industry who are most closely affected by it. The same cannot, alas, be said for aggregates levy; the highly problematic environmental basis of this tax, as well as the difficulties of making it acceptable to those affected by it, will concern us in later chapters. The difficulties of justifying aggregates levy, an existing tax, contrast rather vividly with the ease with which the application of economic instruments might be justified, at least in environmental terms, to correct the externalities created by the civil aviation industry. 178 Ibid. 179 See para. 21.6.1 below. 54 Environmental Taxation Law Although, in this chapter, we have referred to the environmental externalities created by each of the sectors under discussion, we have sought mainly to highlight the structures of those industries. This is not because we are not, in Joanne Scott’s words, ‘on the side of the angels’,180 or that we do not care for environmental issues. It is simply that such issues are covered in other texts by specialists in the fields. We have sought merely to illuminate, if only briefly, the often obscure factual background to the regulatory and fiscal issues to be discussed in the rest of the study. 180 See Joanne Scott, EC Environmental Law (London: Longman, 1998), p. 1. PART II POLICY AND CONTEXTS This page intentionally left blank Chapter 3 Introduction to Part II Although we have already referred to the fact that various aspects of the UK’s environmental economic instruments, including the three main environmental taxes, are administered by several different government departments, we have not so far elaborated on that statement. This part of the book accordingly continues our account with an analytical discussion of the roles of those departments. Such is the intricacy of the web of departmental involvement that this discussion is unfortunately rather long and detailed. However, as the material much later in the book unfolds, and the references to the different departments and government agencies accumulate, we think that the discussion will have proved indispensable, especially for the reader whose ‘home’ jurisdiction is one other than the UK. This is not simply because it may be convenient to gather all this information into one place. It is also because standard reference works on environmental, energy and transport regulation or, for that matter, tax law have not, historically, been written specifically with environmental economic instruments in mind. The discussion of government departments in Chapter 4 forms part of an overview of the institutions of UK government divided into the central (that is, the national), the regional and the local. Our discussion of central government begins, however, not with government departments, but with a discussion of the committee structure of the UK parliament. The reader may wonder why we have deemed such a discussion of the nature and role of Parliamentary Committees to be relevant at this stage. The reason, quite simply, is that, in Part III of the book, we refer rather extensively to reports of Parliamentary Select Committees in attempting to map how the various instruments under consideration have operated in practice. It is our contention that, for the lawyer or political scientist, there is no more valuable source for discovering what effect the various instruments are actually having (as it were) on the ground. However, though valuable, Select Committee reports are the products of a somewhat idiosyncratic system and, rather than accepting them at face value, it is well to be aware of the weaknesses, as well as the strengths, of the committee system as it exists at Westminster. The early sections of Chapter 4 accordingly attempt to convey some sense of these points. Besides Select Committees, whose role is to hold the government to account after the event, there are also the Standing Committees, whose duty it is to scrutinise legislation and thereby to ensure a measure of accountability before the event. We have included a brief discussion of the composition of these Committees, and the conditions under which they work, especially with regard to the length of time allowed for debate, because pressures on parliamentary time seem too often to have prevented the proper scrutiny of much of the legislation discussed in this book. This is a matter to which we return in Part III below. Whilst the accountability of the relevant government departments to parliament is an important theme of this Part II, so also is the accountability of the various bodies 58 Environmental Taxation Law which have been delegated to administer different aspects of the measures under consideration. These are bodies such as the Environment Agency, which itself has responsibility for the unit tasked with administering the system of PRNs, and Ofgem, which, among other things, is responsible for monitoring the operation of the RO and for issuing Green Certificates. The National Audit Office (‘the NAO’), which is discussed in the same part of Chapter 4 (as an executive non-departmental body), has, however, the distinctive statutory task of providing financial advice and assurance on the application of public funds. In later chapters, we shall see how its qualified approval of the UK ETS, in a special report on the scheme, has disappointed many who regard the incentive payments made under the UK ETS to have been a serious misapplication of public funds. The discussion of these bodies is then followed by a brief outline of various advisory bodies, such as the Commission for Integrated Transport (‘CFIT’), whose activities feature prominently in the public debate on environmental matters in the UK, and whose nature and role must be understood in order to assess the nature and value of their various contributions. All of the foregoing relates to central government but, as mentioned in para. 1.3 above, the UK has for some years past had a quasi-federal structure. The almost non-existent tax-raising powers of each of the devolved governments, together with the national application of the UK’s environmental levies, means that this is not as important a point, at present at least, as it may at first appear. However, it will also be recalled that the devolved governments do have responsibility for various matters other than taxation, such as environment and energy, which means that, at various points throughout the book, we shall be drawing attention to regional differences in the material under discussion. Also, as is perhaps implied by the foregoing, some emphasis should be placed on the phrase ‘at present’, since the absence of tax-raising powers vested in the devolved governments will almost certainly lead in time to discussions at governmental level, either as to whether these restrictions should be removed, or as to whether it is nonetheless possible, even as matters currently stand, for the devolved governments to create economic instruments which nonetheless fall short of taxes properly so called. A significant part of the discussion in Chapter 4 is therefore devoted to the detail of the devolution arrangements. It will be appreciated that, just as the relevant issues differ somewhat as between central and regional government, so also do they vary at the local level. Suffice it to say, at this stage, that local government in the UK has even more limited taxation powers than its regional counterpart. For instance, although they are empowered to collect and retain local taxes, local authorities have no control over the structure of those taxes. Subject to two exceptions, there is therefore no question of unilaterally imposed environmental levies at local level. The two exceptions, of course, are the statutorily-conferred powers to impose workplace parking levies and road user charging schemes which, to date (December 2004), remain overwhelmingly and conspicuously unimplemented. That said, as will be seen, local authorities do have extensive powers in relation to environmental command and control regulation and the nature and extent of those powers are also briefly described in Chapter 4. The near-federal nature of the UK, and the issues relating to environmental regulation, whether by economic instruments or by command and control, are mirrored in the near-federal nature of the EU. Of all global regional organisations, the EU is the most developed and, as we shall see in Part III, it shares competences Introduction to Part II 59 in both the environmental and taxation spheres with its Member States. In such circumstances and, given the international context to be described in a moment, it is not surprising that there have been a number of key Community-level initiatives over the last decade or so to tackle air and atmospheric pollution, the quintessentially transnational environmental issue. Early attempts at a carbon/energy tax failed but – against the expectations of many – the EU-wide emissions trading system, the ‘EU ETS’, did not fail and it is due to become a reality in January 2005. Although the detail of these measures is for consideration in Part III, this Part of the book underlines the importance of these issues by describing the relative nature and roles of the EU institutions which have had some part in the design of the EU ETS and may yet need to adjudicate on disputes arising from its implementation. Most importantly, of course, there are the European Commission, the Council of the European Union and the European Court of Justice (‘the ECJ’), each of which, together with other Community institutions, have played a part in bringing the EU ETS to fruition. Just as the 1990s saw an attempt to create an EU-wide carbon/energy tax, so also did they witness academic suggestions for a global excise on carbon. Interesting as this notion has been, it is not however the reason for the inclusion in the latter part of Chapter 4 of a discussion of international organisations. Even a cursory glance through this volume will indicate the considerable influence on the development of environmental taxes and other economic instruments of the Paris-based Organisation for Economic Co-operation and Development (‘the OECD’). The reader is accordingly introduced to the OECD as a way of illustrating the provenance of many of the economic ideas which recur throughout the study. Equally important in this process, however (especially as regards the development of emissions trading) is the United Nations (‘UN’), whose 1992 Framework Convention on Climate Change, with its 1997 Kyoto Protocol, has provided the international consensus which, with the notable exceptions of the US, China and (until September 2004) Russia, has enabled concepts such as multinational emissions trading schemes even to be conceivable. The UN’s benevolent role in these matters is frequently contrasted with that of the World Trade Organization (‘the WTO’), whose GATT 1994-based system of multilateral agreements on international trade is still seen as a major obstacle to the development on a global scale of economic instruments for environmental protection. If it were necessary to illustrate the pervasive influence of the OECD in the realm of environmental taxes and their associated instruments, it would be necessary to look no further than the technical justifications offered by the UK government for the package of economic instruments introduced in the UK since 1997. Chapter 5 analyses an HM Treasury policy document, which sets out these technical justifications in some detail. The discussion covers four main areas, of which the second, third and fourth, dealing respectively with the taxation of environmental ‘bads’, the correction of market failures resulting from pollution and the price level at which intervention in the market should be determined, follow closely the OECD’s thinking on these matters, as expressed in various policy documents and recommendations. The discussion of these justifications is offered in this part as a prelude to the account in Part III of the processes by which the UK’s main environmental levies passed into law. We asserted at the beginning of the book that the distinctive characteristic of the UK’s environmental taxation enterprise was the use of environmental taxes in 60 Environmental Taxation Law combination with other economic instruments and with traditional command and control instruments.1 The UK’s environmental taxes therefore have both a taxation context and a regulatory context, involving environmental, market and transport regulation. Given the regulatory nature of the taxes themselves, it is perhaps useful to consider regulatory context first. Chapters 6 and 7 seek to explore the two contexts in detail, bearing in mind that readers whose ‘home’ discipline is tax law will be unfamiliar with the regulatory background, just as those whose ‘home’ discipline is environmental or energy law and regulation will be unfamiliar with the taxation context. Chapter 6 therefore attempts the ambitious task of describing within a single chapter the regulatory landscape of which environmental taxes are now such a prominent feature. The discussion is largely concerned to map out the environmental regulation of waste, of air and atmospheric pollution, of aircraft emissions and road congestion, as well as the loss of amenity caused by mineral extraction. However, it also contains a detailed discussion of the economic regulation of the ‘unbundled’ energy markets, as well as an examination of the economic regulation of air passenger and road freight transport. The reader might wonder why we have cast the net so wide. So far as the energy markets are concerned, the authors’ contention is that it is not possible to appreciate the technical legal problems associated especially with climate change levy, nor yet the renewables generation policies that its exemptions and exclusions are designed to complement, without understanding the economic regulation of the energy sector. Chief among these problems is the status, already discussed, of climate change levy as a downstream energy tax.2 Parallel comments apply to the economic regulation of air transport, given the continued interest of both the European Commission and the UK government either in bringing air transport within the EU ETS or (an interest evinced so far by the Commission only) in imposing an environmental tax on airliners’ profligate consumption of kerosene.3 While Chapter 6 considers the status of economic instruments as environmental regulation, Chapter 7 discusses the tax context of those instruments. This part of the discussion, which is more analytical than the rather descriptive material in Chapter 6, has two main aspects. First, we are concerned to expand the definition of a tax offered in Chapter 1 and to investigate whether and, if so, which payments made by those regulated by the UK’s economic instruments are payments of taxes. Secondly, we seek initially to identify the provisions by which it has been sought to ‘green’ the UK’s non-environmental tax codes. These latter are indeed economic instruments and are perhaps best seen as a form of financial assistance from government.4 Since, irrespective of whether they occur in the codes on environmental or nonenvironmental taxes, they involve an element of revenue foregone by government, such incentivising ‘green’ measures can be seen as tax expenditures or tax subsidies. This is borne out, for example, by the state aid implications of the climate change levy exemptions and reliefs which are discussed in Part III below. Chapter 9 seeks to draw together the strands of the discussion in Part II but, before that, Chapter 8 seeks to place the economic instruments under discussion in the 1 See Authors’ Preface above. 2 See para. 2.4.1 above. 3 See Done, Financial Times, 4 October 2004, p. 8. 4 See para. 1.2.1.5 above. Introduction to Part II 61 context of the UK’s international obligations. Whilst it may well be the case that, at least in the environmental and world trade spheres, the UK’s role on the international stage is as a Member State of the EU, such a statement obscures two little-known but important analytical points. First, that, although the UK’s Kyoto obligations are reallocated with other EU Member States under the so-called ‘burden-sharing agreement’, the UK has, in its own right, both signed and ratified the Kyoto Protocol. Secondly, that, whilst the ECJ subsequently held that it should not have been, the UK was itself a signatory, along with 14 other Member States, to the GATT 1994 Uruguay Round Treaties signed at Marrakesh in April 1994. These points apart, it is nonetheless the case that, both in its own right and as an EU Member State, any economic instrument designed and implemented by the UK government must satisfy, not only the rules of Community law, to be discussed in Part III below, but also those of GATT 1994. The inability of the Kyoto mechanisms to ‘mesh’ satisfactorily with the rules of GATT 1994/WTO is a key theme in Chapter 8. This page intentionally left blank Chapter 4 Institutional Framework 4.1 Introduction It is not easy to locate the UK’s environmental taxes and other economic instruments into the framework of institutions responsible for their design, implementation and administration. This is in part a function of the wide range of governmental, Community and international institutions which have had at least some involvement in each of these processes. It is also, however, an aspect of the authors’ dilemma in deciding what, in an already large book, should be regarded as significant in the involvements of these various institutional actors. With regard to the former point, we have divided the discussion into three main parts. First, a description of the institutions of UK central, regional and local government with an interest, or potential interest, in the design, implementation and operation of the taxes and other instruments under consideration. Next, the same, although for the relevant EU institutions, and finally the same again for the relevant international institutions. Far from being counter-intuitive, this working outwards from the UK’s domestic institutions emphasises that, unlike other forms of environmental regulation, environmental taxes at least have implications for national sovereignty. In each case, we emphasise the question of who is, or was, responsible for what, since this remains one of the most opaque aspects of the combination of economic instruments currently being operated in the UK. In relation to the other point made at the beginning of this chapter, we have contented ourselves with merely drawing attention to the presence or absence of accountability mechanisms in relation each of the institutions under discussion. It is not possible, obviously, in a book of this nature, to embark upon a legitimacy-oriented examination of the taxes and other instruments under consideration. 4.2 Institutions of central, regional and local government The initial stage of the discussion is intended to reflect the three main levels of UK government: the central, the regional and the local. Within the first of these, we make a fourfold division into the respective roles of the UK Parliament; of the departments of government; of non-departmental agencies and public bodies; of bodies with an advisory role; and of bodies with a judicial role, namely the courts. The first of these involves a discussion of the Committee system, the key accountability mechanism in the UK’s parliamentary system. The discussion of the second, that is, of government departments, is further subdivided into a consideration of those involved in environmental, energy and transport regulation and those involved in taxation. Discussion of the third and fourth (that is, the advisory bodies and the courts) is, for reasons of space, relatively short. When it comes to regional 64 Environmental Taxation Law and local government, a detailed discussion is necessary, given the former’s role in developing environmental policy, as well as the role of the latter in tackling traffic congestion. 4.2.1 Central government Following devolution and the other constitutional reforms introduced after 1997,1 the expression ‘central government’ has come to be used in order to distinguish the institutions of government of the UK as a whole, not only from local government, but also from the devolved governments of Wales, Scotland and Northern Ireland.2 Central government in the UK has never been characterised by a strict separation of powers. The principal executive body under the UK’s unwritten constitution is the Cabinet, headed by the Prime Minister,3 but all of its 20 or so members are also members of one or other House of the UK Parliament. Equally, the UK Parliament is not simply a legislature, since it sets up Select Committees of Inquiry and Committees tasked with scrutinising the administration.4 The structures of central government, as they have developed since 1997, are such as to make the scrutinising role of the UK Parliament no less important, although often considerably less effective, than once it was. This is a theme to which we shall return, not only in the present chapter, but throughout the book. 4.2.1.1 The UK Parliament (1) Generally Subject to the provisions of Community law, the UK Parliament sitting at Westminster has responsibility both for the general shape of environmental, energy and transport regulation in England and Wales5 and for the taxation law of the UK as a whole. 1 The date is of some significance to the present study, since the General Election in May of that year was when the current Labour Government was returned for the first time. It was returned again in 2001, on the back of a reduced voter turnout. As at 8 September 2004, the government had 407 seats (a majority of 159), the Conservatives (the main Opposition party) had 163 seats and the Liberal Democrats had 55 (see www.parliament. uk/directories/hcio/stateparties.cfm). With the exception of landfill tax, the economic instruments discussed in this book are from the period 1997 onwards (see para. 11.4 below). 2 See paras 1.3 above and 4.2.2 below. 3 Currently (December 2004) The Rt Hon. Tony Blair, MP. 4 See O. Hood Phillips and Paul Jackson, Constitutional and Administrative Law, ed. by Paul Jackson and Patricia Leopold, 8th edn (London: Sweet and Maxwell, 2001), paras. 2–020. 5 See www.parliament.uk. The leading reference works on the law and customs of the UK Parliament are Sir Thomas Erskine May’s Treatise on the Law, Privileges, Proceedings and Usages of Parliament, ed. by Donald Limon, W.R. McKay, et al., 22nd edn (London: Butterworths, 1997) and Griffiths and Ryle on Parliament: Functions, Practice and Procedures, ed. by Robert Blackburn and Andrew Kennan, 2nd edn (London: Sweet and Maxwell, 2003). For a comprehensive, but more succinct account, see Hood Phillips and Jackson, op. cit., Part II. Institutional Framework 65 Being the UK’s highest legislative authority, Parliament may not only pass laws for the UK as a whole but also for any part of it individually.6 Made up of the Queen in Parliament, the House of Lords and the House of Commons, the House of Lords consists of life peers, hereditary peers,7 the Law Lords8 and 26 Church of England diocesan bishops, while the House of Commons comprises a membership (‘MPs’) elected by universal adult suffrage.9 The maximum length of a Parliament is five years, elections to the Commons being by secret ballot, with (unlike in other countries) voting in parliamentary elections being non-compulsory. Proposed Acts of Parliament, in draft form, are referred to as Bills, and must normally be passed by both Houses before becoming law.10 Of the various stages through which legislation passes before becoming law,11 of greatest interest for the purposes of the present study is the Committee Stage, since this is the point at which Bills have traditionally been considered clause by clause and amendments made by a Standing Committee of the House of Commons.12 With the exceptions of the UK ETS, which was created under pre-existing statutory powers,13 and PRNs, which seem to have developed almost by accident, all of the economic instruments discussed in this book have a statutory basis. Whether it can be inferred from this that they have all been fully debated is a matter which we leave until Chapter 11.14 (2) Standing Committees The principal purpose of Standing Committees is to consider and to amend Bills that have been through their Second Reading and stand committed to one of the 6 By way of illustration, Hood Phillips and Jackson, op. cit., record that, ‘in the first two years of devolution [see para. 1.3 a,bove], 14 Bills that fell within the legislative powers of the Scottish Parliament [see para. 4.2.2 below] were passed by Westminster’. They note, however, that the consent of the Scottish Parliament was sought and given in each case. 7 Albeit now elected by their peers, except in the case of a few office holders. 8 See para. 4.2.1.5 below. 9 See above, n, for the state of the parties as at 8 September 2004. The total number of seats is 659, consisting of 529 for England, 40 for Wales, 72 for Scotland and 18 for Northern Ireland. 10 Bills may be public, private or hybrid, although only public ones are referred to in this book (see Hood Phillips and Jackson, op. cit., for further information on the consequences of the distinction). Most Private Members’ Bills are public Bills. 11 It is not appropriate to detail the procedure here, although it should be noted that, of the stages in the passing of a Bill, legally the most informative tends to be the ‘Committee Stage’, since it involves a detailed technical debate on the text of the Bill, rather than a broader argument over political priorities. Nonetheless, as the Committee Stage of the parts of Finance Bill 2000 relating to climate change levy demonstrated, even apparently technical debate can uncover important information about the nature of a tax. 12 See Kenneth Bradshaw and David Pring, Parliament and Congress (London: Constable, 1972), ch. 5 (esp. pp. 258–62) for a comparison of the UK system with that of the committee system of the US Congress. 13 See para. 1.4.2.2 above. 14 See para. 11.3 below. 66 Environmental Taxation Law Committees.15 The Standing Orders16 of the House of Commons allow the appointment of as many Standing Committees, consisting of anything between 16 and 50 members, as may be necessary for the consideration of Bills in this way. Members of the Standing Committees are nominated by the Committee of Selection, a body which is required to have regard both to the qualifications of members and to the composition of the House in making such nominations. Standing Committee debates are often extremely searching and, although they have little or no interpretative status, the minutes of their debates17 provide fascinating clues, not only as to the strengths and weaknesses of the clauses of a Bill, but also (via, mainly, the contributions of MPs from the parties other than that of government) as to the possible governmental motivation in shaping them as they are.18 This is well illustrated by the Standing Committee debates on climate change levy.19 Whilst Standing Committee debates are an important factor in the accountability of the parliamentary process, it is important to note that the government of the day has drastic powers to curtail debate on particular Bills. Of these, the most controversial is probably what is referred to as ‘the Guillotine’, a procedure the increased use of which in the current parliament is a matter of mounting concern to a number of commentators. The procedure, the more formal title of which is an Allocation of Time Order, allows a government minister to move either that: (1) particular dates and days be allocated to the various stages of a particular Bill, or (2) that the relevant Committee must report the Bill to the Commons by a certain date, the detail being left to the Business Committee of the House or to a business subcommittee of the Committee.20 Guillotine motions are debated in each case for a maximum of three hours and are almost invariably subject to a division.21 The procedure inevitably means that large parts of Bills, including ones of great importance, might receive very little parliamentary scrutiny. A particularly striking example of the consequences of this situation is the curtailment of debate on the provisions of the 2003 Finance Bill.22 (3) Select Committees Before moving on to consider the government departments, it is important to comment on another aspect of the Committee system of the UK Parliament. This is the operation of House of Commons Select Committees,23 especially the departmental ones. Select 15 That is, public Bills. 16 As to which, see Hood Phillips and Jackson, op. cit., para. 11–004. 17 Available in Hansard on the web at www.parliament.uk. Finance Bill 2003, for instance, was considered by Standing Committee B (see below, passim). 18 See Robert Baldwin and Martin Cave, Understanding Regulation – Theory, Strategy and Practice (Oxford: Oxford University Press, 1999), ch. 3, for the significance of this point. 19 HC, Standing Committee H, 7th and 8th Sittings, 16–18 May 2000. 20 See Hood Phillips and Jackson, op. cit., para. 11–014. 21 As to which, see Hood Phillips and Jackson, op. cit., para. 11–010. 22 HC, 1 July 2003, cols 178–180 (Report). 23 These are most relevant to the present study, although it should be noted that the House of Lords also has a number of Select Committees, for example, on the EU, on Science and Technology and on Economic Affairs (see www.parliament.uk). Institutional Framework 67 Committees are made up of MPs chosen by the Selection Committee, such MPs being either regularly re-appointed or appointed from time to time.24 The powers and authority of Select Committees, which include the power to send for persons, papers and records, are delegated to them by the House.25 The eight Committees of particular importance in the present context are the Environmental Audit Committee; the Environment, Food and Rural Affairs Committee; the Transport Committee; the Treasury Committee; the Trade and Industry Select Committee; the Public Accounts Committee; the Science and Technology Committee; and the Public Administration Committee. Some comments on some of these might be appropriate. The Trade and Industry Select Committee has the task of examining, on behalf of the House of Commons, the expenditure, administration and policy of the Department of Trade and Industry (‘the DTI’).26 Likewise, the remit of the Treasury Committee is to examine the same three areas in relation to HM Treasury, the Board of Inland Revenue, the Board of HM Customs and Excise27 and certain related public bodies. The Transport Committee, which dates from July 2002, was one of two committees appointed to replace the former Transport, Local Government and the Regions Committee.28 It examines the expenditure, administration and policy of the Department for Transport29 and the public bodies associated with it. All three of the Treasury, the Trade and Industry and the Transport Committees are, as their names suggest, departmental Select Committees. Of the remaining three Select Committees referred to above, the Environment, Food and Rural Affairs Committee is a Departmental Committee, whilst the Environmental Audit Committee and the Committee of Public Accounts (‘the Public Accounts Committee’) are not. The first of these oversees the work of Defra,30 while the second, which dates from 1997, is intended to monitor ‘… the contribution made by Government departments and agencies to environmental protection and sustainable development and … [to audit] … progress against targets’.31 One of the predecessor Committees to the Environment, Food and Rural Affairs Committee, the Environment, Transport and Regional Affairs Committee, produced an early report on the operation of landfill tax in 1999.32 24 In their present form, Select Committees are a development of a change in the system made when Mr Richard Crossman was Leader of the House. Before that, scrutiny was through the Estimates Committee, before the event, the Public Accounts Committee (which obviously still exists) after the event, and with other Committees scrutinising Statutory Instruments (a vital task still performed by that Committee) and (while they still existed) enquiring into the operation of nationalised industries. 25 Standing Orders of the House of Commons – Public Business 2002(2), SO 152 (see www. publications.parliament.uk). 26 See www.parliament.uk. 27 See below in this para. 28 See below in this para. for the process of reorganisation that has resulted in the formation of Defra. 29 See below in this para. 30 Ibid. 31 See www.parliament.uk. 32 That is, House of Commons Environment, Transport and Regional Affairs Committee, The Operation of the Landfill Tax, HC Papers, Session 1998–1999, HC 150–I (London: Stationery Office, 1999). 68 Environmental Taxation Law The sixth of the Select Committees listed above, that is, the Public Accounts Committee, is also rather important in the present context. Consisting of not more than 16 members, and chaired by a member of the Opposition,33 the Public Accounts Committee’s task is to examine how funds granted by Parliament to meet public expenditure have been spent. The Committee reports to Parliament, one day in each session being devoted to debating its reports. The government undertakes to make a reply to the debate, which is an indication of the importance attached to the Committee’s work. The Public Accounts Committee is the only committee that has, in the shape of the NAO,34 a strong bureaucracy.35 In recent years, both the Science and Technology Committee and the Environmental Audit Committee have produced reports highly critical of the government’s climate change policy and of the three economic instruments designed to tackle air and atmospheric pollution (that is, climate change levy, the UK ETS and the RO). The reports in question are analysed later in the book.36 The strength of the system of Select Committees is said to be that the Committees are allowed to choose the questions that they examine. However, whatever accountability this might be thought to lend to the parliamentary process may be compromised by the way in which their membership is selected. Although, as mentioned above, there is a Selection Committee tasked with appointing MPs to the Select Committees, the House of Commons Liaison Committee’s 2000 report found that nominations were in fact controlled by the party whips.37 Despite the potentially negative impact on public confidence of such a system, the government rejected reform to the selection process on the basis that it would result in less time being spent on substantive questions than upon questions of Committee membership.38 Other accountability concerns arise out of the use of the Guillotine. The procedure was used before the Second Reading of the Finance Bill 2003, an extremely complex and controversial piece of legislation, even by the standards of Finance Bills.39 Indeed, the increasing size of Finance Bills since the mid-1990s has brought the Committee system very close to collapse. 33 Since 2001, the Conservative, Mr Edward Leigh, MP. 34 See para. 4.2.1.3 below. 35 See Hood Phillips and Jackson, op. cit., para. 12–020n. 36 See para. 21.6.2 below. 37 See House of Commons Liaison Committee, Shifting the Balance: Select Committees and the Executive, HC 1999–2000 (London: Stationery Office, 2000). 38 HM Government, The Government’s Response to the First Report from the Liaison Committee on Shifting the Balance, 2000 (Cm 4737, 2000). 39 An example is provided by cll 18 and 19, Finance Bill 2003, which introduced a new s.77A and an amended Sched. 11, para. 4(2), to Value Added Tax Act 1994. These provisions give draconic powers to HM Customs and Excise to collect tax owing by an independent third party from a bona fide trader who they think might have been negligent in not noticing that he was dealing with a defaulter. On the Second Reading, The Rt Hon. Dawn Primarolo, MP, the Paymaster-General (see para. 4.2.1.2 below) referred to certain ‘in-built safeguards’ [HC, 6 May 2003, col. 629] but in Standing Committee B, Mr John Healey, MP, the Economic Secretary to the Treasury (see para. 4.2.1.2 below, also) ran into a barrage of opposition, including some from Labour backbenchers, and gave an undertaking that Customs would only exercise the powers after having given a written warning [Hansard HC, 15 May 2003, col. 066]. Institutional Framework 69 4.2.1.2 Government departments Government departments, or ministries, originated from three sources. First, there were the holders of the Great Offices of State, insofar as they were political, rather than ceremonial – only one of these, that of Lord High Chancellor, still exists and is about to be abolished, but a second, Lord High Treasurer, is technically in commission; second, the position of Secretary of State, which is technically a single office held jointly by a number of people, specialist responsibilities only being allocated since 1782;40 and, thirdly, what were originally committees of the Privy Council,41 called ‘boards’,42 being absorbed into ministries following the First World War,43 they being, in turn, amalgamated into departments from the 1970s onwards. The head of each department is now a Secretary of State, who will also be a member of the Cabinet.44 The Secretary of State will be assisted by a number of junior ministers of two ranks – Minister of State and Parliamentary Under-Secretary of State – and will divide the responsibilities of his department between them. Whilst questions of policy are always reserved to a minister for decision, the detailed administrative and research work involved in policy development has traditionally been carried out by non-political civil servants appointed during good behaviour.45 During the spring and summer of 2003, however, there was increasing concern as to the position of special advisers, not least the authority of the Prime Minister’s Chief of Staff’s authority to give instructions to civil servants.46 Statutory authority is usually required both for the creation of new departments and for the transfer of functions between them. The latter may, under the Ministers of the Crown Act 1975, be effected by Order in Council. Environmental regulation has been an area of government policy beset by departmental reorganisations in recent years. 40 See David Kynaston, The Secretary of State (Lavenham: Terence Dalton, 1978). 41 The Privy Council is a body that used to advise the Crown on government policy, a role which is now taken by the Cabinet. One of its roles is to make secondary legislation in cases where a statute has delegated legislative powers to her Majesty in Council. 42 The last surviving such Board being the Board of Trade, the post of President of the Board of Trade now being held by the Secretary of State for Trade and Industry (see below). The title was last used by Mr Michael Heseltine, the deputy Prime Minister in the Major Government. 43 The first ‘minister’ was Mr David Lloyd George, when asked to take responsibility for Munitions in 1915. He had been a senior minister and it would not have been appropriate to rate him as President of a Board. The last full department minister was Mr Nick Brown, whose Ministry of Agriculture, Fisheries and Food was absorbed into Defra after the food and mouth disease outbreak of February 2001. Departmental ministers were sometimes not in the Cabinet. The rank of Minister of State, which is now the senior grade of nondepartmental minister, was first created for Mr Richard Law (the son of the former Prime Minister Andrew Bonar Law) in 1943. 44 Since the June 2003 reshuffle, this principle is almost honoured in the breach, with the Scotland and Wales Offices being entrusted to ministers with primary responsibilities elsewhere, that is, Transport and Leadership of the House of Commons respectively. 45 See Hood Phillips and Jackson, op. cit., paras 18–021–18–031. 46 Timmins, Financial Times, 12 September 2003, p. 6. 70 Environmental Taxation Law Most government departments are subject to the supervision of the Parliamentary Commissioner for Administration (‘the Ombudsman’) in cases of maladministration.47 (1) Environmental, energy and transport regulation At least four departments of central government contribute to the design, implementation and enforcement of various aspects of environmental regulation, that is, the Cabinet Office;48 the Department for Environment, Food and Rural Affairs (‘Defra’);49 the Department of Trade and Industry (‘the DTI’);50 and the Department for Transport (‘the DFT’).51 In addition to these four, the Foreign and Commonwealth Office52 and the Department for International Development53 each have a role to play in international environmental policy issues. A further department, the Office of the Deputy Prime Minister (‘the ODPM’),54 might also be added to the list, since this has responsibility for a wide range of policy issues touching on environmental matters, including housing, planning, devolution and regional and local government. The ODPM and the DFT were together, prior to May 2002, parts of the Department of Transport, Local Government and the Regions (‘the DTLR’), a Ministry that is now itself defunct. The government describes the role of the Cabinet Office as being ‘to support the Government’s delivery and reform programme’55 by helping other departments to strike a balance between under- and over-regulating. Whilst not having a direct involvement in the evolution of the UK’s environmental taxes and other economic instruments, one of the Units within the Cabinet Office, that is, the Regulatory Impact Unit, seems to have been highly influential in translating regulatory theory into practice. Part of the Unit’s role is to work with other government departments, agents and regulators to help ensure that regulations are fair and effective.56 However, it has also been responsible for promoting a ‘business friendly’ approach to the enforcement of regulation57 and for supporting the work of the Better Regulation 47 See the Parliamentary Commissioner Act 1967, Scheds 2 and 3. See also Sir Cecil Clothier, ‘The Value of an Ombudsman’ [1986] PL 204 and Mary Seneviratne, Ombudsmen: Public Services and Administrative Justice (London: Butterworths, 2002). 48 See www.cabinet-office.gov.uk. 49 See www.defra.gov.uk. 50 See www.dti.gov.uk. 51 See www.dft.gov.uk. 52 See www.fco.gov.uk. 53 See www.dfid.gov.uk. 54 See www.odpm.gov.uk. Although the position of Deputy Prime Minister is not one recognised by the constitution, the title has been awarded to a senior minister during Wartime Coalitions and at various times since 1962. The Rt Hon. John Prescott, MP has held this title since May 1997. 55 See www.cabinet-office.gov.uk/min-org/organisation/index.asp. 56 See www.cabinet-office.gov.uk/regulation/Role/Index.htm. 57 See also the Regulatory Reform Act 2001, which gives ministers extensive powers to use secondary legislation to reform primary legislation (subject to certain safeguards) as well as a reserve power to set out a code of good enforcement practice. Institutional Framework 71 Task Force.58 The Prime Minister’s Strategy Unit,59 another of the Units within the Cabinet Office60, is tasked with addressing long-term cross-sectoral problems. One such problem is that of how to reduce dependence on landfill as the primary method of disposing of waste, to which the Unit has responded by developing the government’s ‘Waste Not, Want Not’ policy,61 to which reference will be made as relevant in the rest of the study.62 The remit of Defra is a wide one, including pollution issues (for example, policies on waste and recycling), climate change policies and international negotiations on sustainable development.63 The Department is headed by the Secretary of State for Environment, Food and Rural Affairs, who is a Cabinet member.64 The selfproclaimed aim of Defra, shortly after its formation in 2001, was to: … enhance the quality of life through promoting: a better environment; thriving rural economies and communities; diversity and abundance of wildlife resources, a countryside for all to enjoy, sustainable and diverse farming and good industries that work together to meet the needs of consumers.65 The Department is the culmination of a complex process of organisation and reorganisation after the General Elections of 1997 and 2001. In 1997, the then Department of Transport was merged with the then Department of the Environment, to form the Department of Environment, Transport and the Regions (‘the DETR’).66 58 Established in 1997 to promote the idea of better, as opposed to, de- regulation (see Cabinet Office Press Release CAB 85/97, New Better Regulation Task Force Launched, 17 September 1997). 59 See www.strategy.gov.uk. 60 Its work has since been taken over by the Performance and Innovation Unit. 61 See Cabinet Office Strategy Unit, Waste Not, Want Not: A Strategy for Tackling the Waste Problem in England (London: Cabinet Office Strategy Unit, 2002). 62 See paras 6.3.2 and 21.4.1 below. 63 As to sustainability, Defra is responsible for the £58.6m Aggregates Levy Sustainability Fund (‘the ALSF’) (see para. 21.3.1 below). Financed, as its name suggests, by receipts from aggregates levy, the ALSF makes grants for: ‘improving areas where aggregates extraction has taken place; helping to reduce demand for primary materials by research into alternatives; encouraging the recycling and re-use of aggregates and promoting new methods for extracting and moving aggregates to reduce environmental damage’ (see Defra News Release, Cleaner Quarries and Fewer Lorries, 11 April 2002). Funds are distributed through various agencies, including the Countryside Agency (see www.countryside.gov. uk), English Heritage (see www.english-heritage.org.uk), English Nature (see www. english-nature.org.uk) and the Waste and Resources Action Programme (‘WRAP’) (see www.wrap.org.uk and www.aggregain.org.uk – this latter is an information database funded through the ALSF). 64 Currently (December 2004), the original holder, The Rt Hon. Mrs Margaret Beckett, MP. 65 Department for Environment, Food and Rural Affairs: Aims and Key Tasks, Defra, 2001, quoted in David Hughes et al., Environmental Law, 4th edn (London: Butterworths LexisNexis, 2002), p. 33. 66 Secretary of State for the Environment, Transport and the Regions Order 1997, S.I.1997 No. 2971. 72 Environmental Taxation Law The thinking had been to integrate transport and environment policies,67 so it was surprising when, following the 2001 General Election, the two policy areas were again uncoupled, transport being moved to the newly-formed Department for Transport, Local Government and the Regions (‘the DTLR’), with environment being moved to another newly-formed ministry, Defra.68 The main other component in Defra, besides the ‘environmental’ part of the DETR, was the larger part of the Ministry of Agriculture, Fisheries and Food, whose responsibilities for the promotion of public health and for the safeguarding of agriculture had long been regarded as being in mutual conflict.69 Below the Secretary of State for Environment, Food and Rural Affairs, who has overall responsibility for all departmental issues, there are two Ministers of State, respectively for Environment and Agri-Environment70 and for Rural Affairs and Urban Life.71 There are then two Parliamentary Under Secretaries, to whom the responsibilities of food, farming and sustainable energy,72 and Nature Conservancy and fisheries73 have been allocated. Directly responsible to the Secretary of State is the Permanent Secretary, a civil servant, to whom a number of Directorates and Directorates General report directly. Most importantly, for present purposes, these include the Legal Services Directorate General, different Directorates of which deal with state aid issues,74 investigations and prosecutions on behalf of the Department, waste regulation and climate change; and the Environmental Protection Directorate General, whose responsibilities include waste management policy and policy on climate, energy and environmental risk. Within Defra is also the ‘shadow’ Emissions Trading Authority, which is responsible for the administration of the UK ETS,75 and the Combined Heat and Power Quality Authority. In sum, Defra has been responsible for the design, implementation and operation of PRNs,76 the LATS (in England),77 climate change agreements under climate change levy78 and the UK ETS.79 As if all this were not enough, it has also been tasked with the preparation of the UK’s national allocation plan (‘NAP’) under the EU ETS.80 67 Department of the Environment Press Release 216, 11 June 1997. 68 See the Secretaries of State for Transport, Local Government and the Regions and for Environment, Food and Rural Affairs Order 2001, S.I. 2001 No. 2568. 69 Most notably, of course, in relation to the BSE crisis of the mid-1990s and the foot and mouth crisis of 2001. 70 Currently (December 2004) Mr Elliot Morley, MP (who replaced The Rt Hon. Michael Meacher, MP in June 2003). 71 Currently (December 2004) The Rt Hon. Alun Michael, MP. 72 Currently (December 2004) Lord Whitty, the former General Secretary of the Labour Party, who also deals with all the Department’s business in the House of Lords. 73 Currently (December 2004) Mr Ben Bradshaw, MP. 74 See para. 12.2.7 below. 75 The government had signalled its intention to establish this as an independent statutory body when Parliamentary time allows. 76 See para. 1.4.2.1(2) above. 77 See para. 1.4.2.1(4) above. 78 See para. 1.4.2.2(1) above. 79 See para. 1.4.2.2(2) above. 80 See para. 1.4.2.2(3) above and para. 28.5 below. Institutional Framework 73 The DTI, which dates from 1983,81 is responsible for trade policy, not only within the UK, but also as regards the UK’s relationship with the EU and its Member States, as well as third countries. At the head of the DTI is the Secretary of State for Trade and Industry, who, like the Secretary of State for Environment, Food and Rural Affairs, is a member of the Cabinet.82 Directorates within the Department deal with, inter alia, company law, competitiveness, international trade policy83 and matters relating to the production, generation and supply of energy.84 As regards the last of these: The … [Energy Group] is committed to working with others to ensure competitive energy markets while achieving safe, secure and sustainable energy supplies. Its role is to set out a fair and effective framework in which competition can flourish for the benefit of customers, the industry and suppliers, and which will contribute to the achievement of the UK’s environmental and social objectives. These include the alleviation of fuel poverty, and maintaining the security and diversity of the UK energy sources.85 Thus, within the Group are units dealing with energy strategy, British Energy plc,86 nuclear and coal liabilities, energy markets, energy innovation and business and licensing and consents. Certain aspects of emissions trading are the responsibility of the strategy unit; European Commission approval for state aids are dealt with by the British Energy unit;87 international treaties and negotiation, as well as electricity trading reform and regulatory issues are covered by the energy markets unit;88 renewables and coal state aid and industry sponsorship are dealt with by the energy innovation and business unit; and oil and gas environmental matters are dealt with by the licensing and consents unit. The DTI, in conjunction with Defra, was responsible in February 2003 for the Energy White Paper, Our Energy Future – Creating a Low Carbon Economy.89 In connection with the promotion of a low carbon economy, the DTI has a further significance, as being one of four sponsors90 of a body called the Carbon Trust.91 An independent company limited by guarantee, the Carbon Trust was set up by 81 That is, following the amalgamation of two other ministries. Its origins can be traced much further back, however. 82 Currently (December 2004), The Rt Hon. Mrs Patricia Hewitt, MP. 83 Including relations with the WTO and the OECD (see paras 4.4.1 and 4.4.2 below). 84 See www.dti.gov.uk/energy. 85 See www.dti.gov.uk/energy/about.shtml. 86 See para. 21.4.4 below. 87 Ibid. 88 See paras 2.4 above and 6.4.3 below. 89 DTI/Defra, Our Energy Future: Creating a Low Carbon Economy, 2003 (Cm 5761, 2003). See further Chapters 20 and 21 below. 90 The others are the Department for Environment, Food and Rural Affairs (see para. 4.2.1.2(1) below); the Scottish Executive (see para. 4.2.2 below); from the National Assembly for Wales and from the Northern Ireland Assembly (see para. 4.2.2 below for both). The Carbon Trust, whose total funding is £50 million per annum, also receives part of the receipts from climate change levy (see para. 21.3.1 below). 91 See www.thecarbontrust.co.uk. This is a singularly uninformative website, high on political rhetoric and low on technical information. 74 Environmental Taxation Law the government ‘in partnership with business’, to invest in the development and deployment of low carbon technologies.92 Since July 2002, it has had responsibility for the everyday administration of the enhanced capital allowances scheme for expenditure on specified environmentally-friendly energy equipment.93 The members of the board of directors of the Carbon Trust are primarily, though not exclusively, from the private sector. The Carbon Trust has a sibling called the Energy Saving Trust (‘the EST’),94 set up by the pre-1997 Conservative Government after the United Nations’ Conference on Environment and Development at Rio de Janeiro in 1992.95 The EST runs two schemes aimed at stimulating the market: the Community Energy programme and the Photovoltaic Demonstration programme.96 It is difficult to see the justification for either body, or why the functions of either body could not be transferred to central government.97 The DFT is the result of a further stage in the reorganisation process outlined above in relation to Defra. In 2002, the DTLR was split yet again, certain of its transport functions being moved to this new ‘Department for Transport’.98 The idea was for the DFT to provide a stronger focus on delivering the government’s transport strategy.99 Its self-proclaimed aim is ‘transport that works for everyone’ and, to that end, it works in partnership with others to ‘tackle congestion; improve accessibility; reduce casualties; respect the environment; and support the economy’.100 It describes itself as working with Defra on air-quality, climate change and sustainability and with HM Treasury,101 Defra and with the DTI on the government’s Powering Future Vehicles strategy. The DFT has four groups, that is, the Railways, Aviation, Logistics, Maritime and Security Group; the Strategy, Finance and Delivery Group; the Roads, Regional and Local Transport Group; and the Driver and Vehicle Operator Group.102 92 See House of Commons Science and Technology Committee, 4th Report. Towards a Non- Carbon Fuel Economy: Research, Development and Demonstration (HC Papers, Session 2002–2003, HC 55–I) (London: Stationery Office, 2003), para. 38. See further para. 21.3.1 below. 93 See para. 21.3.1 below. 94 See www.est.org.uk. 95 See paras 8.2.3 and 8.3.1.3 below. 96 The Community Energy programme is funded by Defra (see para. 4.2.1.2(1) below) and managed by the EST and the Carbon Trust and the Photovoltaic Demonstration programme is funded by the DTI. In 2002–2003, the EST’s budget was £90 million, made up of funds from central and regional government (see Towards a Non-Carbon Fuel Economy: Research, Development and Demonstration, above, para. 43). 97 See Towards a Non-Carbon Fuel Economy: Research, Development and Demonstration, above, para. 44. 98 See the Transfer of Functions (Transport, Local Government and the Regions) Order 2002, S.I. 2002 No. 2626. Note the difference in nomenclature between the post-2002 ‘Department for Transport’ and the pre-1997 ‘Department of Transport’. 99 See www.dft.gov.uk. 100 Ibid. 101 See para. 4.2.1.2(2) below. 102 The DVLA is also part of the DFT. Institutional Framework 75 (2) Taxes and tax policy Governmental responsibilities in relation to taxation are located in three departments: HM Treasury;103 the Board of Inland Revenue;104 and the Commissioners of Customs and Excise.105 The latter two are to be amalgamated under the name ‘HM Revenue and Customs’, a process outlined briefly below. Her Majesty’s Treasury has ultimate responsibility for the other two departments in the list, each being one of the UK’s two tax authorities.106 However, the Treasury’s responsibilities extend far beyond tax administration, covering ‘the supervision and control of national finance’,107 as well as the development and coordination of economic policy. The Department’s responsibility for economic policy is of relatively recent origin.108 That it is today one of the most important of the Department’s functions is, however, plain from the Treasury’s website,109 where the Department’s aim and objectives are set out. The former includes a specific commitment to the environment.110 The Treasury Board111 comprises the First Lord of the Treasury, that is, the Prime Minister,112 the Chancellor of the Exchequer113 and five Junior Lords.114 (Although called ‘Lords’, these posts are held by members of the House of Commons.) The Chancellor is the key Finance Minister and under him are a number of Junior Ministers, that is, the Chief Secretary to the Treasury,115 the Paymaster- 103 See www.hm-treasury.gov.uk. The Treasury has, over the years, been the subject of several interesting studies, for example, Joel Barnett, Inside the Treasury (London: André Deutsch, 1982) and Colin Thain and Maurice Wright, The Treasury and Whitehall (Oxford: Oxford University Press, 1995). 104 See www.inlandrevenue.gov.uk. 105 See www.hmce.gov.uk. 106 An introductory outline of the operational aspects of the two authorities has already been given (see para. 1.5 above). 107 See Hood Phillips and Jackson, op. cit., para. 18–007. 108 See Edmund Dell, The Chancellors (London: HarperCollins, 1996), p. 110. 109 See www.hm-treasury.gov.uk. 110 See www.hm-treasury.gov.uk/about/about_aimsobject.cfm. 111 Which constitutes, technically and historically, the Commissioners running the Treasury while the office of Lord High Treasurer is vacant (as indeed it has been since the Duke of Shrewsbury was appointed by Queen Anne on her deathbed in 1714). 112 As First Lord of the Treasury. The post of Prime Minister was not created until 1905, although the person so regarded usually held that position since the era of Sir Robert Walpole (1721–1742). Since the early 1970s, the Prime Minister has also been Minister for the Civil Service. 113 Currently (December 2004), The Rt Hon. Gordon Brown, MP, New Labour’s original appointment in May 1997 and the Chancellor with the longest tenure since Nicholas Vansittart (1812–1823). 114 Although they are used to sign statutory instruments, in practice the junior Lords of the Treasury are medium ranking House of Commons whips who rank considerably below Parliamentary Under-Secretary in the political hierarchy. The Chief Whip holds the (nominal) position of Parliamentary Secretary to the Treasury and the next three in seniority the posts of Treasurer, Vice-Chamberlain and Comptroller of HM Household (see, further, Hood Phillips and Jackson, op. cit., para. 18–007). 115 Who is the Cabinet Minister responsible for expenditure, currently (December 2004) The Rt Hon. Paul Boateng, MP. 76 Environmental Taxation Law General,116 the Financial Secretary to the Treasury117 and the Economic Secretary to the Treasury.118 Of these, the Chief Secretary to the Treasury is also, like the Chancellor, a Cabinet Minister. The Paymaster-General used – before the proposed departmental amalgamation – to be responsible for the Inland Revenue and has overall responsibility for each Finance Bill. Responsibility for Customs and Excise used to lie with the Financial Secretary to the Treasury. The fact that the Treasury has two Cabinet Ministers tends to underline the popular impression that the Treasury is the senior department of government. The Treasury is made up of seven main Directorates, each of which consists of a number of Directorate Standing Teams. Environmental taxes are dealt with by the Budget and Public Finances Directorate and, within that, by the Environment and Transport Taxes and Saving Incentives Team. The Treasury’s key contribution to the evolution of policy relating to environmental taxes and other economic instruments is reflected in its policy document of 2002, Tax and the environment: using economic instruments.119 The Board of Inland Revenue is responsible for the administration of the UK’s direct taxes.120 By the Inland Revenue Regulation Act 1890, s.2, the Board of Inland Revenue is constituted by a quorum of Commissioners,121 who ‘may do and order and direct and permit to be done throughout the United Kingdom or in any part thereof all acts, matters, and things related to inland revenue’.122 Currently, four of the nine Commissioners have specific areas of responsibility, which the Revenue’s website lists as Strategic Service Delivery, General Policy and Technical, Corporate Services and the Valuation Office Agency.123 Below the level of the Board, the structure of the Department is a complex one,124 made the more so by the Department’s ongoing programme of reorganisation.125 The three aspects that are worthy of note in the 116 Currently (December 2004) The Rt Hon. Dawn Primarolo, MP, who has been the principal Treasury Minister in charge of the Inland Revenue since May 1997. 117 In September 2004, Miss Ruth Kelly, MP was replaced by Mr Stephen Timms, MP. He had been her predecessor in the post. 118 Currently (December 2004), Mr John Healey, MP, whose primary responsibility is for HM Customs and Excise. 119 See Chapter 5 below. 120 See para. 1.5 above. The Board of Inland Revenue was originally constituted under the Inland Revenue Board Act 1849. 121 Usually two. The current membership of the Board, the last permanent Chairman of which was Sir Nicholas Montagu, KCB, until his retirement in March 2004, can be viewed at www. inlandrevenue.gov.uk/board. Mrs Ann Chant is the current acting Chairman. In Budget 2004, delivered on 17 March 2004, proposals were announced for the amalgamation of the Inland Revenue with Customs. Shortly thereafter the government started advertising for an individual of major corporate experience to manage the merger, in the course of which it was anticipated that a significant reduction in personnel would be achieved. 122 ‘Inland revenue’ is defined, in Inland Revenue Regulation Act 1890, s.39 as ‘… the revenue of the United Kingdom collected or imposed as stamp duties, taxes, and placed under the care and management of the Commissioners, and any part thereof’. 123 See www.inlandrevenue.gov.uk/board. 124 The organisation of the Department is envisaged as being along the lines of a Next Steps Executive Agency (see para. 4.2.1.3 below). 125 See, for example, Inland Revenue, Annual Report 2003, pp. 16–17. Institutional Framework 77 present context are: first, the Revenue Policy Division, at least three units of which have an input into the environmentally-inspired provisions of the direct tax codes;126 secondly, the Strategic Service Delivery Division, which contains the units concerned with enforcement; and, thirdly, the Solicitor’s Office, which conducts the Board’s civil litigation in England, Wales and Scotland, as well as its prosecutions in England and Wales. Within the second of these, the UK is divided up into a large number of Tax Districts in a regional structure. Inspectors and Collectors of Taxes, who are to act under the Board’s direction, are appointed for each of these Districts and are assisted by the specialist units in the same Division.127 Given its direct tax-orientation, the Revenue has not had a close involvement with environmental taxes; it has, however, contributed to the ‘greening’ of the UK’s direct tax system, through the measures discussed in Chapters 23 and 24 below and has been working on the income tax and corporation tax treatment of the UK ETS, as well as of the EU ETS.128 Whereas the Board of Inland Revenue is responsible for the administration of the UK’s direct taxes, the Commissioners of Customs and Excise are tasked with administering its indirect taxes. Indirect taxes include, of course, not only VAT and duties of customs and excise, but also landfill tax, climate change levy and aggregates levy. By the Customs and Excise Management Act 1979, s.6(1): Her Majesty may from time to time, under the Great Seal of the United Kingdom,129 appoint persons to be Commissioners of Customs and Excise, and any person so appointed shall hold office during Her Majesty’s pleasure and may be paid such remuneration and allowances as the Treasury may determine. Subsection (2) of s.6 then goes on to provide that, in addition to specific duties imposed by statute, and subject to the general control of the Treasury, the Commissioners ‘… shall be charged with the duty of collecting and accounting for, and otherwise managing, the revenues of customs and excise’. This involves the care and management of the taxes and duties laid on them, enforcing restrictions and prohibitions, dealing with individual taxpayer’s affairs and dealing with criminal investigations.130 Specifically entrusted to the Commissioners are the care and management of VAT;131 the care and management of landfill tax;132 the care and management of climate change levy;133 and the care and management of aggregates levy.134 However, the Department has also been responsible for the management of the consultations relating to the design, implementation and ongoing review of each of these taxes.135 126 For example, the Benefits and Expenses Team, which deals with transport-related benefits, company cars and vans and green transport. See further Chapter 23 below. 127 For example, the National Insurance Contributions Office, the Tax Credit Office, etc. 128 See para. 24.7 below. 129 See Hood Phillips and Jackson, op. cit., paras 18–001–18–003, as to the Great Seal. 130 See, for example, Customs and Excise, Annual Report 2001–2002, p. 113. 131 Value Added Tax Act 1994, Sched. 11, para. 1(1). 132 Finance Act 1996, s.39(2). 133 Finance Act 2000, Sched. 6, para. 1(2). 134 Finance Act 2001, s.16(5). 135 See paras 11.3 and 11.4 below. 78 Environmental Taxation Law The Department was reorganised from April 2001 to focus all of Customs’ operational activities into two ‘core’ functions: first, the Business Services and Taxes Directorate; and, secondly, the Law Enforcement Directorate.136 As part of this reorganisation, an attempt was made to simplify the Department’s management structure, as well as to separate support services from so-called ‘front-line functions’. The two ‘core’ functions, though largely self-explanatory, perhaps merit some brief elaboration. Landfill tax, climate change levy and aggregates levy, as well as VAT and excise duties, are collected and managed by Business Services and Taxes. Law Enforcement’s functions are primarily in relation to indirect tax fraud, it having responsibility for investigation, detection and the recovery of criminal assets. Within Business Services and Taxes, there is a team that deals exclusively with environmental taxation issues, including not only aggregates levy, climate change levy and landfill tax, but also the environmental aspects of excise duties and air passenger duty.137 Other teams, whilst not being solely dedicated to environmental taxes, deal with the environmental aspects of the VAT code (for example, reduced rates of tax for domestic installation of energy-saving materials).138 An important function of Customs in the context of the environmental taxes is the Commissioners’ oversight of Entrust, the regulatory body for the landfill tax credit scheme (‘the LTCS’).139 Section 53 of the Finance Act 1996 gave power to the Commissioners to make regulations for securing that a landfill site operator would be entitled to a credit against landfill tax if he paid a sum to an environmental body, that is, one whose objects are or include the protection of the environment and in relation to which certain other prescribed conditions are satisfied.140 The same section also gave power to Customs to make regulations for requiring environmental bodies to be approved by a regulatory body.141 The Landfill Tax Regulations 1996, as amended,142 accordingly contain detailed provisions both as to approved bodies and as to the appointment of the regulatory body, that is, Entrust.143 Customs have also been given control of the LRUC Management Authority, which has been set up to run the lorry road user charge.144 Both Customs and the Revenue are subject to the supervision, not only of the Ombudsman,145 but also of the Revenue Adjudicator, whose function is to examine complaints from taxpayers about the manner in which the Department in question 136 As with the Revenue, this has been inspired by the Next Steps Executive Agencies (see para. 4.2.1.3 below). 137 See para. 1.2.1.5(2) above. 138 See para. 21.3.1 below. 139 See www.entrust.org.uk. See also paras 16.9 and 21.3.2 below. For details of the LTCS, see www.ltcs.org.uk. 140 See Finance Act 1996, s.53(1). 141 See Finance Act 1996, s.53(2)(b). 142 See Landfill Tax Regulations 1996, S.I. 1996 No. 1527, as subsequently amended, most recently by Landfill Tax (Amendment) Regulations 2003, S.I. 2003 No. 605. See further para. 21.3.2 below. 143 Entrust’s website states that the body is funded by an enrolment fee from approved bodies and an administrative fee of 2 per cent of landfill operators’ donations. 144 See para. 27.3 below. 145 See the beginning of para. 4.2.1.2(1) above. Institutional Framework 79 conducts the taxpayer’s affairs.146 The office is rendered all the more important because of both Departments’ enforcement powers, particularised as necessary throughout the rest of the study.147 Because of its ‘policing’ role,148 Customs has the widest prosecution and enforcement powers of any government department. Controversy over their handling of a number of high-profile cases,149 no less than the involvement of the Boards of both the Inland Revenue and Customs and Excise in a PFI scheme involving an offshore intermediate lessor with existing tax losses,150 prompted the Treasury to announce a major review of the way in which the two departments operate.151 It was announced on 17 March 2004, that the amalgamation of the two bodies is to result from this.152 In May 2004, the chairman153 and deputy chairman154 of the amalgamated Department, to be called ‘HM Revenue and Customs’,155 were named. 4.2.1.3 Non-departmental public bodies and agencies Of primary relevance to the environmental regulation strand in this account are a number of non-departmental public bodies and agencies. There are essentially four separate bodies: the Environment Agency;156 the Gas and Electricity Markets Authority; the Office of Gas and Electricity Markets;157 and the National Audit Office.158 All four are executive non-departmental bodies (or ‘quangos’),159 rather 146 See, for example, the useful summary of the Revenue Adjudicator’s functions in Lesley Browning et al., Revenue Law – Principles and Practice, 22nd edn (London: Lexis Nexis Tolley, 2004), para. 2.52. 147 See, esp. para. 16.12 below. 148 For example, in relation to smuggling, etc. 149 Resulting in Customs’ prosecuting role being brought under the direct supervision of the Attorney-General. 150 See House of Commons Treasury Select Committee, Tenth Report of Session 2002–03, HC 834, Inland Revenue Matters (published 23 July 2003). 151 See HM Treasury Press Release 78/03, Chancellor Announces Major Review of Inland Revenue and HM Customs and Excise, 2 July 2003. The issues are of some standing. Tiley quotes Denis Healey (Lord Healey), the Labour Chancellor from 1974 to 1979, as saying in his memoirs (characteristically) that the Inland Revenue, like Customs and Excise, ‘considered itself to be at least as independent of the Treasury as the three armed servi,ces were of the Ministry of Defence!’ (see John Tiley, Revenue Law, 4th edn (Oxford: Hart Publishing, 2000), p. 58n, quoting Denis Healey’s The Time of My Life (London: Michael Joseph, 1989), p. 373). 152 The Inland Revenue has recently absorbed the Contributions Agency, which was responsible to the Department of Social Security for the collection of NICs. 153 Mr David Varney, from a leading listed company. 154 Mr Paul Gray, a Second Permanent Secretary from a Ministry. 155 See, for example, Anon., Financial Times, 13 July 2004, p. 8 (discussing job losses as a result of the projected merger of the two departments). 156 See www.environment-agency.gov.uk. 157 See www.ofgem.gov.uk. 158 See www.nao.gov.uk. 159 That is, quasi-autonomous non-governmental organisation. 80 Environmental Taxation Law than Next Steps Executive Agencies.160 To the list might be added at least two other bodies, who figure to a greater or lesser extent in what follows: the Civil Aviation Authority,161 which deals with the economic and safety regulation of UK aviation and airlines, and the Coal Authority,162 which is responsible for licensing coal mining operations and ensuring the safety of abandoned mine workings.163 Set up under the Environment Act 1995, the Environment Agency took over a range of functions and powers, including those of her Majesty’s Inspectorate of Pollution, of the National Rivers Authority and, in relation to waste-management, of local authorities.164 The Agency is funded partly by Defra and the National Assembly for Wales and partly by its own activities (for example, levies on local authorities and licence fees).165 It is organised on a regional basis, with the water management boundaries being based on the National Rivers Authority’s eight river catchment areas, and the pollution control functions being organised largely on the same areas, but with modifications to match the local authority boundary closest to the water management boundary.166 By s.4(1), Environment Act 1995, the principal aim of the Agency is to discharge its functions so to protect or enhance the environment, taken as a whole, as to contribute to the objective of achieving sustainable development.167 The principal aim is qualified in two ways: (a) it is subject to, and the discharge of the Agency’s functions must be in accordance with, other statutory provisions, including those of the Act itself; and (b) the Agency must take into account any likely costs. Whether or not the wording of the principal aim creates a legally enforceable duty, in view of its wide scope, is uncertain. As to (a), the principal aim is overridden by other statutory provisions in cases where such 160 Environment Act 1995, s.1(1), establishes the Environment Agency as an independent body corporate. As to Next Steps Executive Agencies and the constitutional issues they raise, see Hood Phillips and Jackson, op. cit., para. 18–023. 161 See www.caa.co.uk. 162 See www.coal.gov.uk. 163 For completeness, we should also mention the roles of the Office of Fair Trading (www. oft.gov.uk) and of the Competition Commission (www.competition-commission.org.uk) in relation to the privatised electricity and gas markets discussed in Chapter 2 above and Chapter 6 below. 164 The history of the Environment Agency is usefully outlined in Bell and McGillivray, op. cit., pp. 162–163. The Agency has a Scottish equivalent in the Scottish Environment Protection Agency (‘SEPA’), see www.sepa.org.uk. 165 See, for example, Environment Agency, Annual Report and Accounts 2001–2002. 166 See Susan Wolf and Neil Stanley, Wolf and Stanley on Environmental Law, 4th edn (London: Cavendish, 2003), p. 38. 167 The Rio Declaration (see paras 8.2.3 and 8.2.6 below) contains 27 Principles of international environmental law, which together constitute the main outlines of the concept of sustainable development. There is no definition of the term in the Environment Act 1995, the Agency’s own guidance using the Brundtland Report’s definition, that is: ‘[D]evelopment that meets the needs of the present without compromising the ability of future generations to meet their own needs’. The Brundtland Report (World Commission on Environment and Development, Our Common Future (Oxford: Oxford University Press, 1987) was the work of the World Commission on Environment and Development (‘WCED’) and its definition of sustainable development has been described as ‘somewhat Delphic’ (see Patricia Birnie and Alan Boyle, International Law and the Environment, 2nd edn (Oxford: Oxford University Press, 2002)), p. 41. See, further, Bell and McGillivray, op. cit., pp. 39–46. Institutional Framework 81 provisions place the Agency under a duty to have regard to particular considerations or to carry out particular acts. The latter qualification, that is, in (b), includes the costs to any person and to the environment.168 The Secretary of State must give guidance from time to time to the Agency with respect to the objectives that he considers it appropriate for the Agency to pursue in the discharge of its functions.169 Specifically, such guidance must include advice on how, having regard to the Agency’s responsibilities and resources, it is to achieve the objective of sustainable development.170 Prior to issuing such guidance, the Secretary of State is obliged to consult the Environment Agency and any other appropriate bodies or persons.171 One of the key functions of the Agency, in the context of the present study, is its administrative and enforcement role, via its National Waste Registration Unit (‘NWRU’) of the system of producer responsibility for packaging waste and the non-statutory PRN regime.172 Other duties are imposed upon the Agency by ss.5 and 6, Environment Act 1995. Section 5(1) provides that the Agency’s pollution control powers are to be exercisable for the purpose of preventing or minimising, or remedying or mitigating the effects of, pollution of the environment. A very general duty is likewise imposed on the Agency by s.6(1), which provides that the Agency must, ‘to such extent as it considers desirable, … generally promote the conservation and enhancement of the natural beauty and amenity of inland and coastal waters’ (plus associated land), ‘the conservation of flora and fauna that are dependent on an aquatic environment’ and ‘the use of such waters and land for recreational purposes’. Section 39(1) of the Environment Act 1995 imposes a duty on the Agency to ‘take into account the likely costs and benefits of the exercise or non-exercise of a power’ conferred on it, by or under an enactment, or its exercise in the manner in question. However, the subsection continues, the duty does not apply if it is considered unreasonable to embark upon this calculation by reference to the nature or purpose of the power in question or in the circumstances of the particular case. The Agency’s own guidance suggests that one consequence of this wording is that there is no duty to conduct a cost/benefit assessment in relation to an enforcement decision.173 The Agency’s enforcement powers, including those of inspection and entry, are wide, and are set out in Environment Act 1995, s.108. Subsection (1) of s.108 provides that the powers are exercisable for the purpose of: determining whether any pollution control legislation is being complied with; exercising or performing any of the Agency’s pollution control functions; and determining ‘whether and, if so, how, such a function should be exercised or performed’. Subsection (4) of s.108 empowers an officer appointed by the Agency, inter alia, to enter premises; to be accompanied by a police officer in certain circumstances; and make any necessary investigation. The Agency has published its policy in relation to the prosecution of environmental offences.174 168 Environment Act 1995, s.56(1). 169 Ibid., s.4(2). 170 Ibid., s.4(3). 171 Ibid., s.4(5). 172 See para. 1.4.2.1(2) above and Chapter 19 below. 173 Environment Agency Sustainable Development Series SD3, Taking Account of Costs and Benefits, para. 11.1. 174 See www.environment-agency.gov.uk. 82 Environmental Taxation Law The Office of Gas and Electricity Markets (‘Ofgem’) regulates the UK’s gas and electricity industries.175 It carries out its work subject to the direction of the first of the bodies in this list, the Gas and Electricity Markets Authority (‘GEMA’), a body corporate with the primary duty of carrying out its functions in the way best calculated to protect the interests of gas and electricity consumers, wherever appropriate by promoting effective competition. The Gas and Electricity Markets Authority was established by the Utilities Act 2000 to carry out the functions formerly carried out by the Director General of Gas Supply and the Director General of Electricity Supply, as well as the other functions assigned to it under that Act.176 By s.1(2), Utilities Act 2000, GEMA’s functions are performed by it on behalf of the Crown. It must make arrangements with the Gas and Electricity Consumer Council for cooperating and exchanging information. As to Ofgem, according to its website, Ofgem’s work concentrates on the following areas: making gas and electricity markets work effectively; regulating monopoly businesses intelligently; securing Britain’s gas and electricity supplies; and meeting its increased social and environmental responsibilities.177 The Office has enforcement powers under the Competition Act 1998. Finally, there is the National Audit Office (‘the NAO’), established by the National Audit Act 1983. The NAO is tasked with providing independent information, advice and assurance, both to the public at large and to Parliament, about the financial operations of government departments and other bodies that receive public funds. The NAO is made up of the Comptroller and Auditor-General and the staff appointed by him.178 The NAO’s expenses are defrayed out of money provided by Parliament,179 neither the Comptroller and Auditor-General nor any of his staff being regarded as holding office under her Majesty or as discharging any functions on behalf of the Crown.180 4.2.1.4 Advisory bodies Before going on to consider regional and local government, reference should briefly be made at this point to four advisory bodies: the Royal Commission on Environmental Pollution (‘RCEP’);181 the Advisory Committee on Business and the Environment (‘ACBE’);182 the Commission for Integrated Transport (‘CFIT’);183 and the Commission on Sustainable Development.184 175 Under the Gas Act 1986 and the Electricity Act 1989 (as amended by the Utilities Act 2000). 176 Utilities Act 2000, s.1(1). 177 See www.ofgem.gov.uk. 178 National Audit Act 1983, s.3(1). 179 Ibid., s.4(1). 180 Ibid., s.3(5). 181 See www.rcep.org.uk. 182 See www.defra.gov.uk/environment/acbe/default.htm. 183 See www.cfit.gov.uk. 184 See www.sd-commission.gov.uk; see also the Defra sustainability website: www.defra. gov.uk/environment/sustainable/index.htm. The Sustainability Commission’s Chairman is Sir Jonathon Porritt, CBE. Institutional Framework 83 The Royal Commission on Environmental Pollution is an independent standing body established in 1970, to advise the Queen, the government, parliament and the public on environmental issues. As a standing Royal Commission, with its own secretariat, it is, as Bell and McGillivray say, ‘a rather rare beast’.185 Besides its 20- odd reports,186 the most visible aspect of its work, it also responds to consultations and submits memoranda to Committees of the UK Parliament.187 Despite being described as ‘constitutionally independent’ from government departments, its funding is provided by Defra, which requires the Commission to supply it with evidence that the funding has been put to good use and that RCEP is providing value for money.188 The other three committees mentioned above can be dealt with fairly briefly. The Advisory Committee on Business and the Environment (‘ACBE’) ‘provides for dialogue between government and business on environmental issues and aims to help mobilise the business community in demonstrating good environmental practice and management’.189 Hughes et al. pinpointed the problem with ACBE as being that, given that there was no attempt to combine the interests of the industrial sector and pro-environment groups in ACBE’s membership, there was a danger that it would become, or would be seen as becoming, ‘an institutionalised form of lobbying for industry’.190 These words proved prophetic in relation to the UK Emissions Trading Group,191 the body formed by ACBE and the CBI192 jointly, in July 1999, to represent the business interest in emissions trading.193 The role of CFIT was identified in the government’s 1998 White Paper194 as being ‘… to provide independent advice to government on the implementation of integrated transport policy, to monitor developments across transport, environment, health and other sectors and to review progress towards meeting … [the government’s objectives under its 10-year transport plan]’.195 Since then, CFIT has championed a number of 185 See Bell and McGillivray, op. cit., p. 157. 186 Some of the most important of these have been its Fifth Report, Air Pollution Control: An Integrated Approach, 1976 (Cmnd 6371, 1976); its Tenth Report, Tackling Pollution – Experiences and Prospects, 1984 (Cmnd 9149, 1984); its Eleventh Report, Managing Waste: The Duty of Care, 1985 (Cmnd 9675, 1985); its Twelfth Report, Best Practicable Environmental Option, 1988 (Cmnd 310, 1988); its Twentieth Report, Transport and the Environment – Developments since 1994, 1997 (Cm 3759, 1997); its Twenty-first Report, Setting Environmental Standards, 1998 (Cm 4053, 1998); and its Twenty-second Report, Energy – The Changing Climate, 2000 (Cm 4749, 2000). 187 See para. 4.2.1.1 above. 188 See Hughes et al., op. cit., p. 54. 189 See www.defra.gov.uk/environment/acbe/default.htm. 190 See Hughes et al., op. cit., p. 55. 191 See www.uketg.com. 192 See para. 2.2 above. 193 As the incentive payments made under the UK ETS have graphically demonstrated (see paras 12.2.7.2, 20.1 and 20.4 below). 194 Department of the Environment Transport and the Regions, A New Deal for Transport: Better for Everyone, 1998 (Cm 3950, 1998). For the DETR, and its subsequent fate, see para. 4.2.1.2(1) above. 195 See A New Deal for Transport, para. 4.4. 84 Environmental Taxation Law causes, including congestion charging, in relation to which it provides excellent upto- date information via its website.196 Finally, the Commission on Sustainable Development is the successor to the UK Round Table on Sustainable Development and to the British Government Panel on Sustainable Development.197 The Commission was originally set up in October 2000, following up a commitment to do so in the 1999 report A Better Quality of Life.198 Its task is to monitor government progress in relation to sustainable development across all relevant fields and specifically to identify policies currently undermining such progress, with a view to their remediation. Recently, it has produced a detailed response to the joint Treasury and DFT consultation paper on the use of economic instruments in regulating the environmental effects of aviation.199 4.2.1.5 The court system The quasi-federal structure of the UK has a single tax system and three different legal systems.200 The legal system of England and Wales has a different system of appeals from those of Scotland and Northern Ireland. The factor common to all three systems is the ultimate appeal to the House of Lords and to the European Court of Justice (‘the ECJ’). In this para, we outline briefly the legal system of England and Wales, as it relates to tax and environmental matters.201 Taxpayers may appeal against assessments to income tax, CGT and corporation tax under certain conditions.202 They may choose whether to appeal to the General Commissioners or to the Special Commissioners. The General Commissioners are part-time and unpaid, often lay people rather than experts, and assisted by a clerk, who is usually a solicitor.203 The Special Commissioners, by contrast, are barristers, advocates or solicitors of at least ten years’ standing.204 The Commissioners, when they hear a case, have the right to look anew at any matter of law or fact referred to them, and they can dismiss or alter an assessment in any way they consider to be justified.205 By Value Added Tax Act 1994, ss.83 and 84, VAT appeals are made to the VAT and Duties Tribunals,206 which consist of a chairman sitting either with two 196 See www.cfit.gov.uk/congestioncharging/index.htm. 197 As Hughes et al. point out, this body is not to be confused with the United Nations Commission on Sustainable Development (see para. 4.4.3.1 below). 198 Cm 4345, 1999. See para. 5.2 below. 199 See www.sd-commission.gov.uk/pubs/aviation/index.htm. For a discussion of the joint report itself, see para. 27.5 below. 200 See Davies: Principles of Tax Law, ed. by Geoffrey Morse and David Williams, 4th edn (London: Sweet and Maxwell, 2000), para. 2–06. 201 See, for example, Smith, Bailey and Gunn on the Modern English Legal System, ed. by S.H. Bailey, J.P.L. Ching, M.J. Gunn and D.C. Ormerod, 4th edn (London: Sweet and Maxwell, 2002). 202 Taxes Management Act 1970, s.31. 203 Ibid., ss.2, 3. 204 Ibid., s.4. 205 Davies, op. cit., para. 1–12. 206 Value Added Tax Act 1994, Sched. 12. Institutional Framework 85 other members or with one other member or alone.207 Tribunal chairmen must have held a right of audience before the tribunal for at least seven years.208 By Finance Act 1996, s.54(3), a person affected by a decision of Customs on landfill tax may by notice in writing require them to review the decision. Thereafter, appeal lies to a VAT and Duties Tribunal under Finance Act 1996, s.55. Virtually identical procedures apply for the purposes of climate change levy209 and for aggregates levy.210 Such, in essence, is the relevant system of tax appeals. If the involvement of the UK courts in tax matters is as a result of appeals against assessments, in environmental, energy and transport matters it tends to occur as a result of applications for judicial review of administrative decisions,211 for example, refusals to grant licences under the various command and control mechanisms212 or refusals of, or the imposition of conditions on, planning permissions.213 Review may be sought in the High Court on a number of grounds, including procedural flaws, procedural unfairness and irrationality. It is seen as providing a valuable accountability mechanism after the event.214 The High Court of Justice is divided into three administrative Divisions: the Queen’s Bench, Chancery and Family Divisions. It is served by over 100 High Court judges. The Chancery Division hears appeals from the General and Special Commissioners on points of law only.215 However, appeals from VAT and Duties Tribunals lie to the Administrative Court of the Queen’s Bench Division, since they are treated as administrative law appeals.216 Applications for judicial review are generally made to the Queen’s Bench Division Administrative Court. Appeals from both the Chancery Division and the Queen’s Bench Division go to the Court of Appeal (Civil Division). Around 35 Lords Justices of Appeal serve the Court of Appeal, but Law Lords may also occasionally sit. There is usually a panel of three judges on the hearing of appeals, decisions being taken by a majority of them. The House of Lords, sitting in its judicial capacity, is the final court of appeal within the UK legal systems. Appeals are usually heard by five Law Lords, their decision being by a simple majority. Appeals may reach the Lords either from the Court of Appeal or, under the so-called ‘leapfrog procedure’, direct from the High Court.217 207 Ibid., Sched. 12, para. 5(1). 208 Ibid., Sched. 12, para. 7(4). 209 Finance Act 2000, Sched. 6, paras 121 and 122. 210 Finance Act 2001, ss.40 and 41. 211 See, generally, de Smith, Woolf and Jewell, Judicial Review of Administrative Action, 5th edn (London: Sweet and Maxwell, 1995). See also Chris Hilson, Regulating Pollution – A UK and EC Perspective (Oxford: Hart Publishing, 2000), pp. 52–53 and 61–64. There is also a useful overview at Wolf and Stanley, op. cit., pp. 64–66. 212 See Chapter 6 below. 213 See para. 6.4.3.1(3) below. 214 But see Hilson, passim, on the value of this. 215 Taxes Management Act 1970, s.56(6) and 56A(1). For the distinction between points of law and points of fact, see, for example, Edwards v. Bairstow and Harrison, [1956] AC 14. 216 See Civil Procedure Rules 1998, S.I. 1998 No. 3132, Sched. 1, para. 2; Davies, op. cit., para. 1–12. 217 Administration of Justice Act 1969, ss.12–15. 86 Environmental Taxation Law 4.2.2 Devolved regional government The UK is now close to being, as already mentioned, a federal state.218 This has had a number of paradoxical consequences. England is now the only part of the UK that does not have its ‘own particular institutions’,219 and MPs in the UK Parliament who represent Scottish seats may vote in the UK Parliament on matters that do not affect Scotland.220 There are three devolution schemes, that is, those for each of Wales, Scotland and Northern Ireland. They have certain similarities:221 1 unlike in the UK Parliament, there is a single legislative chamber; 2 elections are based on proportional representation; 3 powers are delegated by central government to the regions ‘without relinquishment of sovereignty’; 4 there is the same scheme for referring devolution issues to higher courts; 5 each of the devolved bodies is subject to the 1950 European Convention on Human Rights and the Human Rights Act 1998; 6 the Executive in each province is constituted from elected members, although the functions and powers of each Executive differs considerably; 7 whereas Wales and Northern Ireland are entirely dependent for revenue on Westminster, the Scottish Parliament may increase or decrease the basic rate of income tax fixed by the UK Parliament by a maximum of 3 per cent;222 and 8 whereas the Scottish Parliament has primary legislative power in relation to pollution for Scotland, and the Northern Ireland Assembly has that power in relation to Northern Ireland, the UK Parliament retains this power in relation to England and Wales. Setting aside such similarities, the devolution scheme for each province is rather different. At the time of writing, the Northern Ireland Assembly has been dissolved, following a period of suspension.223 The Government of Wales Act 1998 provides for the election of a National Assembly for Wales224 for a term of four years, no provision existing for early 218 See para. 1.3 above. See also Hilson, op. cit., p. 47, referring to for the distinction between devolution and federalism, B. Burrows and G. Denton, Devolution or Federalism? Options for a United Kingdom (London: Macmillan, 1980). 219 See Hood Phillips and Jackson, op. cit., para. 5–042. 220 This is the so-called ‘West Lothian Question’, so-called after the Constituency of the MP who reputedly first raised the possibility in the 1970s (Mr Tam Dalyell, MP): see Hood Phillips and Jackson, op. cit., para. 5–045. 221 See Hood Phillips and Jackson, op. cit., paras 5–013–5–019, to which the following material in para. 4.2.2 is considerably indebted. 222 See para. 1.3 above. 223 It was suspended from midnight on 14 October 2002 and dissolved on 28 April 2003. Elections to the new Assembly were held, but the majority parties on both sides of the political divide changed and, as at December 2004, they had been unable to reach an accommodation. 224 See www.wales.gov.uk/index.htm. Institutional Framework 87 dissolution.225 The same period is provided for by the Scotland Act 1998, although the Scottish Parliament226 may force an election ‘before the end of its four year term if such a move has the support of two-thirds of its members, or if a vacancy arises in the office of First Minister and no member is able to win sufficient support to form a new government within 28 days’.227 The Northern Ireland Act 1998 also provides for the election of the Northern Ireland Assembly for four years.228 The Welsh Assembly, a body corporate,229 has no power to enact primary legislation, although it does have the power to enact secondary legislation (called ‘Assembly Orders’). The Secretary of State for Wales230 is required to ‘carry out such consultation [that is, with the Welsh Assembly] about the government’s legislative programme for the session as appears to him to be appropriate’.231 By s.33 of the Government of Wales Act 1998, the Welsh Assembly may consider and make ‘representations [to the UK government] about any matter affecting Wales’. Besides enacting Assembly Orders, the Welsh Assembly may issue policy statements in the form of circulars and give guidance on the exercise of statutory powers. Within this pattern of possibilities and constraints, the powers of the Welsh Assembly are broad, covering agriculture, forestry, fisheries and food, culture, economic development, education and training, the environment, health and the health services, highways, housing, industry, local government, social services, sport and recreation, tourism, town and country planning, transport, water and flood defence and the Welsh language.232 Limitations on the Assembly’s powers are contained in ss.106, 107 and 108, Government of Wales Act 1998 (respectively EU obligations, human rights and international obligations). By s.121, Government of Wales Act 1998, the Assembly must set a new economic agenda for Wales as well as promote sustainable development. Like the Welsh Assembly, the Scottish Parliament only has functions falling within its devolved competencies.233 Unlike the Welsh Assembly, however, the Scottish Parliament has a general power to make laws234 that fall within its legislative competence.235 Thus, whilst being unable to modify provisions of, for example, the Human Rights Act 1998 and parts of the European Communities Act 1972, and whilst being unable to legislate in certain areas,236 the Scottish Parliament may legislate in a wide range of areas, including local government (and even ‘local taxes to fund local 225 Government of Wales Act 1998, s.3(2). A provision for early dissolution was deemed unnecessary, since the Welsh Assembly has no power to refuse to pass government Bills. 226 www.scottish.parliament.uk. 227 See Hood Phillips and Jackson, op. cit., para. 5–028 (Scotland Act 1998, ss.3 and 46). 228 Northern Ireland Act 1998, s.31(1). 229 Government of Wales Act 1998, s.1(2). 230 A Cabinet Minister (see para. 4.2.1 above). The office is currently held by The Rt Hon. Peter Hain, MP (December 2004), whose main function is Leader of the House of Commons. 231 Government of Wales Act 1998, s.31. 232 Ibid., Sched. 2. 233 See Colin Reid and Gerardo Ruiz-Rico Ruiz, ‘Scotland and Spain: The Division of Environmental Competencies’ (2003) 52 ICLQ 209–25. 234 Scotland Act 1998, s.28. 235 Ibid., s.29. 236 Ibid., Sched. 5. 88 Environmental Taxation Law authority expenditure’), fishing, forestry and economic development. In particular, as mentioned above, the Scottish Parliament may vary the basic rate of income tax up to three percentage points up or down but (not mentioned above), in the event that it reduces the basic rate, it must make a payment to the Board of Inland Revenue to make up the resulting shortfall, out of the Scottish Consolidated Fund.237 The (dissolved)238 Northern Ireland Assembly’s powers fall somewhat between those of the Welsh Assembly and of the Scottish Parliament.239 Like the Scottish Parliament, it has a general legislative power but, unlike the Scottish Parliament, the power is somewhat closely restricted. Crown matters, defence, elections, Parliament, international relations, treason and national security are all so-called ‘excepted matters’,240 on which the Northern Ireland Assembly has no power to legislate. Even where it does have power to legislate, however, the Assembly must act within its legislative competence and not, for example, pass an Act that is incompatible with human rights or European law. The Executive takes different forms, and has different powers, in each of the three provinces. With Scotland, there is a Scottish Executive (‘the Scottish Ministers’), consisting of a First Minister, other ministers and the Scottish Law Officers,241 the Executive exercising devolved executive powers on behalf of the Crown.242 In Northern Ireland, a complicated structure (designed to move Northern Ireland towards power-sharing) provides for the election of a First Minister and Deputy First Minister by the Assembly. Their fellow ministers on the Northern Ireland Executive Committee are elected by the Assembly, by a system of proportional representation designed to ensure that parties have ministerial posts in proportion to their strength in the Assembly. The Queen continues to exercise executive power in Northern Ireland, except with respect to ‘transferred matters’, where ministers on the Executive Committee and their departments exercise it on her behalf.243 With Wales, since the Assembly is the executive, there is a Welsh Assembly Cabinet, made up of the Assembly First Secretary, the Chairman of the Executive Committee and the Assembly Secretaries.244 The First Secretary is known as the First Minister, and the other members of the Executive Committee as ministers. None of these have powers by virtue of their office. Unlike under either of the Scotland or Northern Ireland settlements, the Welsh Cabinet exercises its functions on behalf of, and in cooperation with, the Assembly. The devolved administrations in Wales and Scotland have been responsible for allocating allowances under the LATS, each choosing different commencement 237 Ibid., s.78. 238 Following the 2003 Election in which the Democratic Unionist Party became the majority party on the Unionist side and Sinn Fein on the Nationalist side. 239 See www.ni-assembly.gov.uk. 240 Northern Ireland Act 1998, Sched. 2. 241 Scotland Act 1998, s.44. See www.scotland.gov.uk. 242 Ibid., s.53(2). 243 Northern Ireland Act 1998, s.23. 244 Government of Wales Act 1998, s.56. See the website: www.wales.gov.uk. The Executive Committee is the formal name of the Welsh Assembly Cabinet, the Welsh Assembly having exercised its power to designate it as such. Institutional Framework 89 dates.245 In Northern Ireland, following the re-imposition of direct rule, allocation has been the responsibility of the Department of the Environment for Northern Ireland.246 Under all three sets of arrangements, Committees have an important part to play. Section 54 of the Government of Wales Act 1998 requires the Assembly to create, not only the Executive Committee247 but also subject committees, a subordinate legislation scrutiny committee, an audit committee and regional committees, these being elected by the Assembly.248 Besides being able to hold the administration to account, the subject committees have a role in scrutinising legislation. In Northern Ireland, s.29 of the Northern Ireland Act 1998 provides for the establishment of statutory committees ‘to advise and assist each minister in the formulation of policy’. These committees have both scrutinising functions in relation to legislation and the power to hold the Executive Committee to account. Finally, the Scottish Parliament has mandatory committees (for example, standards, finance, audit, equal opportunities, European, etc) but it has also established special subject committees, one of which is that for Transport and the Environment. Unlike with the Government of Wales and Northern Ireland Acts, the Scotland Act 1998 does not contain detailed provisions on the establishment of committees. The relationship between the UK and the devolved institutions is dealt with in a 1999 Memorandum of Understanding,249 together with a number of supplementary agreements. There is also a Joint Ministerial Committee to supply a central coordination of the relationships between the devolved institutions and the UK.250 4.2.3 Local government Local government in England and Wales ‘consists of the administration by locally elected bodies of powers conferred and duties imposed by Parliament’.251 England, except London and the Isles of Scilly, is divided into counties and, within those counties, into districts.252 Districts and counties may each be either metropolitan or non-metropolitan.253 A non-metropolitan county, a district or a London Borough is a principal area.254 Although each principal area must have a principal council,255 245 See para. 1.4.2.5 above. 246 See www.doeni.gov.uk. This is currently (December 2004) the responsibility of the Secretary of State for Northern Ireland and the Northern Ireland Office. 247 See above in this para. 248 Government of Wales Act 1998, s.57. 249 Scottish Executive, Memorandum of understanding and supplementary agreements between the United Kingdom Government, Scottish Ministers and the National Assembly for Wales, 1999 (Cm 4444, 1999). (Subsequently revised in 2001 as Cm 5240.) 250 On both the Memorandum of Understanding and the Joint Ministerial Committee, see Hood Phillips and Jackson, op. cit., paras 5–0475–049. 251 See 29(1) Hals, para. 1 (to which this para. 4.2.3 is indebted). 252 Local Government Act 1972, s.1(1). 253 Ibid., ss.1(2)–1(4) (but note that metropolitan county councils were abolished by the Local Government Act 1985). 254 Local Government Act 1972, s.270(1). 255 Ibid., ss.2 and 270. 90 Environmental Taxation Law there is an exception to this rule where, instead of both a district council256 and a county council, there is a unitary authority.257 All three of counties, districts and London Boroughs are local authorities within the legislative terminology.258 Constituted as corporations, local authorities are persons distinct in law from the residents of the areas that they govern. To the extent that Parliament, whether by primary or secondary legislation, has provided for ministers of central government to direct, control or supervise the exercise of their powers and duties, local authorities are subordinate to the direction, control and supervision of central government.259 Councillors for each principal area are elected by local government electors260 by universal adult suffrage. Councillors, who must not be in paid employment with the local authority in question, are elected for four years and must have a sufficient local connection.261 Local authorities have for long collected and retained local taxes,262 in relation to which they have wide powers of enforcement, but they have no control over the structure of those taxes nor of the rules that provide for the imposition of liability or the grant of relief.263 Under the terms of the Transport Act 2000, however, they have acquired powers to impose workplace parking levies264 and to create road user charging schemes.265 The exercise of these powers is discussed elsewhere in the book.266 Waste disposal authorities, usually county councils,267 are subject to the LATS,268 designed to restrict the landfilling of biodegradable municipal waste, while both WDAs and WCAs269 have the benefit of the much older WRCS, which is designed to ensure that WCAs are not penalised for the costs of recycling.270 256 A district council may petition for borough status (see Local Government Act 1972, s.245). 257 Sometimes referred to as ‘single tier’ authorities. The government has taken powers in Regional Assemblies (Preparations) Act 2003 to initiate referenda in the English regions with a view to setting up Regional Authorities in place of one of the tiers of government. Where set up, such authorities are likely to have environmental responsibilities. 258 Local Government Act 1972, s.270(1). In England, there are at present 34 non-metropolitan counties, which are all divided into non-metropolitan districts, 45 unitary authorities and 238 non-metropolitan districts. 259 See 29(1) Hals, para. 1. 260 Local Government Act 1972, s.270(1). 261 Ibid., s.79. 262 That is, council tax (see Local Government Finance Act 1992) and the uniform business rate (see Local Government Finance Act 1988, Part III). Council tax is a property tax payable in respect of domestic property to contribute to the cost of local government. The uniform business rate, which is payable on non-residential property, is also a property tax. The uniform business rate is fixed by central government but council tax rates are determined locally. 263 Brief accounts of both council tax and the uniform business rate can be found in CCH Editions, CCH Tax Handbook 2003–04 (Banbury: CCH, 2003), para. 10050. 264 See Chapter 17 below. 265 See Chapter 18 below. 266 Ibid. 267 See para. 2.3 above. 268 See para. 1.4.2.1(4) above. 269 See para. 2.3 above. 270 See para. 1.4.2.1(3) above. Institutional Framework 91 By contrast with their still somewhat limited tax-raising powers, the continuing involvement of local authorities with environmental regulation has been only slightly diminished with the transfer of their waste management functions to the Environment Agency in the mid-1990s.271 Their involvement covers town and country planning under the planning legislation; the investigation and abatement of statutory nuisances under the Environmental Protection Act 1990; the control of smoke emissions, under the Clean Air Act 1993; the authorisation of certain atmospheric emissions under the Environmental Protection Act 1990, Part I, and under the Pollution Prevention and Control Act 1999; the identification of areas of contaminated land under the Environmental Protection Act 1990, Part IIA; and, in the case of County Councils, London Borough Councils and district councils, responsibilities as so-called ‘hazardous substance authorities’, under the Planning (Hazardous Substances) Act 1990.272 Local authorities have extensive powers of enforcement in relation to these matters. London is still a special case in the complex of local government in the UK. In addition to the 32 London Borough Councils is the Greater London Authority (‘GLA’), which was created by the Greater London Authority Act 1999.273 It consists of the Mayor of London and the London Assembly.274 The GLA has eight main areas of responsibility: transport, planning, economic development and regeneration, the environment, police, fire and emergency planning, culture and health. In relation to transport, s.154 of the Greater London Authority Act 1999 provides for the creation of Transport for London (‘TFL’). Transport for London has a number of different functions, including the provision of public passenger transport services to, from or within Greater London.275 The Mayor of London is elected and holds office for four years;276 he has the duty of setting the annual budgets for the GLA277 and its functional bodies,278 including TFL. The Mayor appoints the members of TFL and the other functional bodies.279 On the environmental front, he is responsible for the London biodiversity action plan, the municipal waste management strategy, the London Air Quality Strategy and the London Ambient Noise Strategy. The London 271 That is, under the Environment Act 1995 (see para. 4.2.1.3 above and para. 6.3.2.1(1) below). 272 This list is based on the more detailed one in Wolf and Stanley, op. cit., pp. 54–55. 273 See www.london.gov.uk. 274 Greater London Authority Act 1999, ss.1, 2 and Sched. 1. 275 Ibid., s.173. 276 The first Mayor, Mr Ken Livingstone (who had been the last Leader of the old Greater London Council abolished in 1985), was elected, as an independent, on 4 May 2000 (see www.london.gov.uk). He was readmitted to the Labour Party before his five year expulsion period had expired in order to stand as the official Labour candidate in the 2004 election. He won that election also. It should be noted that the office of Mayor of London is entirely separate and distinct from the ancient office of the Lord Mayor of London. The latter’s authority is confined to the City, that is, ‘the square mile’ financial district. 277 Greater London Authority Act 1999, s.122(1). 278 The four functional bodies are each separate bodies corporate: TFL, the London Development Agency, the Metropolitan Police Authority and the London Fire and Emergency Planning Authority (see Greater London Authority Act 1999, s.424(1)). 279 Greater London Authority Act 1999, s.154, Sched. 10, paras 2 and 3. 92 Environmental Taxation Law Assembly, which consists of 25 elected members,280 has 14 constituency members, that is, one constituency member for each Assembly constituency, and 11 London members, that is, members for the whole of Greater London.281 4.3 European Union institutions Some tension between environmental regulation, on the one hand, and taxation, on the other, is apparent from an examination of the place of each of these areas in the institutional framework of the EU.282 Whilst there is broad consensus among Member States as to the role of environmental concerns in EU policy-making,283 the scope, and even the meaning, of tax harmonisation, is very much more controversial.284 Not discussed below, although, given the importance of energy policy in the study, nonetheless relevant to the subsequent discussion in the book, is the European Atomic Community (‘Euratom’). Eurotom was created in 1957, to support the Member States’ non-military nuclear industries, by sponsoring research, laying down safety standards, overseeing implementation issues and monitoring the distribution of fissionable material.285 4.3.1 The Council of the European Union286 By Art. 203, European Treaty (ex 146), ‘[t]he Council shall consist of a representative of each Member State at ministerial level, authorised to commit the government of that Member State’.287 From this wording, it follows that Council members are therefore politicians rather than civil servants.288 Also by Art. 203, European Treaty 280 Defined ibid., s.424(1). 281 Ibid., s.2. 282 For the institutional framework of the EU, see: Stephen Weatherill and Paul Beaumont, EU Law, 3rd edn (London: Penguin, 1999), chs 2–6 and Paul Craig and Gráinne de Búrca, EU Law: Text, Cases and Materials, 3rd edn (Oxford: Oxford University Press, 2003), ch. 2. See also Sir Leon Brittan, ‘Institutional Development of the European Community’ [1992] PL 567; J. Lewis, ‘The Methods of Community in EU Decision-Making and Administrative Rivalry in the Council’s Infrastructure’ (2000) 7 JEPP 67; A. Stevens, with H. Stevens, Brussels Bureaucrats? The Administration of the European Union (Basingstoke: Palgrave, 2001); and Neill Nugent, The Government and Politics of the European Union, 5th edn (London: Palgrave Macmillan, 2003). 283 See Chapter 12 below. 284 Ibid. 285 Euratom Treaty, Arts 1 and 2. See Energy Law in Europe: National, EU and International Law and Institutions, ed. by Martha M. Roggenkamp et al. (Oxford: Oxford University Press, 2001), paras 3.120–3.123. 286 The name is the result of Council Decision 591/93/EC, (1993) OJ L281 18. The Council of the European Union must not be confused with the European Council (that is, the Heads of State or government of the Member States, plus the President of the Commission (see Craig and de Búrca, op. cit., pp. 71–75)). 287 http://ue.eu.int/en/main.htm. 288 Craig and de Búrca, op. cit., p. 65. Institutional Framework 93 (ex 146), it is provided that the office of President is to be held in turn by each Member State in the Council for a term of six months in the order decided by the Council acting unanimously. Council meetings, of which there are approximately 80–100 per year, are generally arranged according to the subject matter under discussion, different ministers attending from the Member States according to the subject matter under consideration. Article 204, European Treaty (ex 147) provides that the Council shall meet ‘when convened by its President, on his own initiative or at the request of one of its members or of the Commission’. By Art. 202, European Treaty (ex 145), the Council must ensure that the objectives set out in that Treaty are attained. To this end, it must: ‘… ensure co-ordination of the general economic policies of the Member States’. However, neither this wording nor, indeed, the wording of the rest of Art. 202, conveys a sense of the true role of the Council as a legislative body. Such a sense is apparent only from a consideration of the European Treaty as a whole: 1 The Council’s approval is required for legislative proposals by the European Commission. The Council must generally act by a majority of its members, whether simple or qualified,289 the nature of the majority depending on the Treaty Art. under which a particular measure is enacted.290 However, in certain crucially important areas, it is provided that Council approval must be unanimous.291 Under Title XIX, European Treaty (ex XVI), on the Environment, the areas in which the Council’s decisions must be unanimous are specified as follows: a. ‘provisions primarily of a fiscal nature’; b. measures affecting town and country planning; c. quantitative management of water resources or affecting, directly or indirectly, the availability of those resources; d. land use; and e. measures ‘significantly affecting a Member State’s choice between different energy sources and the general structure of its energy supply’. Excepted from d. are waste management and measures of a general nature.292 289 Qualified majority voting, which is a system of weighted voting, is provided for by Art. 205(2) (ex 148). The Treaty of Nice, together with its Protocol on the Enlargement of the EU and Declaration 20 of the Declarations adopted by the Nice IGC, has effected a number of amendments, both current and prospective, to Art. 205(2), European Treaty (see Craig and de Búrca, op. cit., pp. 155–6). The Treaty of Nice came into force on 1 February 2003 (see Art. 12(2), TN), the Republic of Ireland having deposited its instruments of ratification in December 2002. For all this, see http://europa.eu.int. 290 See Art. 205(1), European Treaty (ex 148). 291 Abstentions cannot block a measure that requires unanimity (see Art. 205(3) (ex 148(3)). For the cases where unanimity is required, see Weatherill and Beaumont, op. cit., pp. 89–91. 292 See Art. 175, European Treaty (ex 130s), as amended by TN. 94 Environmental Taxation Law Environmental issues not mentioned in this list must normally be dealt with by qualified majority voting.293 In relation to taxation, two Arts are significant: Art. 93, European Treaty (ex 99), and Art. 95(2), European Treaty (ex 100a). Both of these appear in Title VI, European Treaty (ex V) on Common Rules on Competition, Taxation and Approximation of Laws. Article 93, European Treaty, provided for the unanimous harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation to the extent that such harmonisation was necessary in the run up to the completion of the internal market on 31 December 1992.294 Article 95(2), European Treaty, reaffirms the need for unanimity when the Council is considering a proposal of the European Commission relating to fiscal provisions, provisions relating to the free movement of persons and provisions relating to the rights and interests of employed persons. 2 By Art. 208, European Treaty (ex 152) the Council may request the European Commission to undertake ‘… any studies the Council considers desirable for the attainment of the common objectives, and to submit to it any appropriate proposals’. This is a powerful weapon in the hands of the Council, since it can be used to require the Commission to consider specific legislative proposals,295 which can themselves be evolved through COREPER296 and its workin,g parties. 3. Since the Council can delegate powers to the Commission, under which the latter may make detailed regulations in a particular area, and since such regulations can be closely scrutinised by the Council, the Council can exercise close control over delegated legislation.297 4.3.2 The European Commission The College of Commissioners consisted until 1 May 2004, of 20 members298 and, since enlargement, consists of 25. They are chosen on the grounds of their general competence and on the basis that their independence is beyond doubt.299 Individual Commissioners are appointed for a renewable period of five years.300 Under the former wording of Art. 214(2), European Treaty (ex 158), the Commissioners and the Commission President were appointed by common accord of the Member States, 293 See para. 12.2.1 below. 294 See also Art. 14 (ex 7a). As to whether there may still be life in Art. 93, European Treaty, see David Williams, EC Tax Law (Longman: London, 1998), p. 34. 295 See Brittan, op. cit., pp. 568–9. 296 Article 207 (ex 151) provides that a committee consisting of the Permanent Representatives of the Member States (‘COREPER’) is to be responsible for preparing the work of the Council and for carrying out the tasks assigned to it by the Council. See Lewis, op. cit., generally. 297 See Council Decision 468/99/EC, (1999) OJ L184 23. 298 www.europa.eu.int/comm/index_en.htm. See Neill Nugent, The European Commission (Basingstoke: Palgrave, 2001). 299 Art. 213 (ex 157). 300 Art. 214(1) (ex 158). Institutional Framework 95 subject to a vote of approval by the European Parliament. Following the entry into force of the Treaty of Nice, these provisions have been modified, as a result of which the European Parliament should in future have a greater say in the appointment process.301 By Art. 213, European Treaty, (ex 157) the Commission had to include at least one, and no more than two, Commissioners from each Member State.302 Each Commissioner has a specific portfolio.303 From November 2004, each Member State of the enlarged EU is to have only one Commissioner. If and when the European Constitutional Treaty, which was agreed in principle in June 2004 but has not yet been signed or ratified, comes into force, the procedure for selecting the Commission will change. The Council will have a full-time president. It will also, by weighted majority voting, propose a candidate for the approval of the Parliament for the post of President of the Commission. Once confirmation has been received, the Commission will be selected by its President and the Council taking into account suggestions made by Member States. One member of the Commission will be the Union Minister for Foreign Affairs, a position which is seen as forming part of a geographically spread troika with the two presidents. From 2014, the size of the Commission is to be reduced from one per Member State to two-thirds of the Member States, with an equal rotation of representation. Thus each Member State will be represented in the Commission for only two five yearly periods out of three. Under the present arrangements, particular legislative proposals usually begin in one or more304 of the Commission’s Directorates General (‘DGs’). The DGs of greatest relevance to the present study are: Energy and Transport,305 Environment,306 Taxation and the Customs Union307 and Trade.308 From the relevant DG, the draft of the proposal is then sent to the personal staffs (or cabinets) of the relevant Commissioners 301 See Art. 214(2), as amended by Art. 1(21), TN. The Council, meeting in the composition of Heads of State or government and acting by qualified majority, nominates the person it intends to appoint as Commission President. This nomination must be approved by the European Parliament. The Council, acting by qualified majority and by common accord with the nominee for President, adopts a list of the other proposed Commissioners, drawn up in accordance with the proposals made by each Member State. The President and other Commissioners are then subject to a vote of approval by the European Parliament. Following this, the Council, by qualified majority, appoints the President and the other members of the Commission. 302 This arrangement changed in November 2004, following enlargement (see Craig and de Búrca, op. cit., pp. 55–6). 303 So far as relevant to the present study, they had been, prior to mid-November 2004 (when the Prodi Commission’s extended mandate came to an end): Mr Frits Bolkestein (Internal Market, Taxation and Customs Union); Mrs Loyola de Palacio (Energy and Transport); Mrs Margot Wallström (Environment) and Mr Pascal Lamy (Trade). Only Mrs Wallström is a member of the new (Barroso) Commission, but she has not retained her previous environment portfolio (see, for example, Avril, Figaro, 28/29 August 2004, p. 4). 304 See Laura Cram, ‘The European Commission as a Multi-Organisation: Social Policy and IT Policy in the EU’ (1994) 1 JEPP 194. 305 www.europa.eu.int/comm/dgs/energy_transport?index_en.html. 306 www.europa.eu.int/comm/dgs/environment/index_en.htm. 307 www.europa.eu.int/comm/dgs/taxation_customs/index_en.htm. 308 http://europa.eu.int/comm/trade/index_en.htm. 96 Environmental Taxation Law and thence to the weekly meeting of the chefs de cabinet. Having been considered in that forum, the proposal then goes to the College of Commissioners, ‘which may accept it, reject it or suggest amendments’.309 The Commission has three main functions, that is: as the initiator of legislation, as guardian of the Treaties and as the Community’s executive. It has the right of initiation in relation to the Treaties because, under their common format, when making legislation, the Council and the European Parliament act on a proposal from the Commission.310 This right of initiation is a particularly powerful weapon in the Commission’s hands, since it enables it to develop policies via its work programme for a particular year. Increasingly, for example, in relation to energy, the Commission is making use of industry for its policy development.311 Undoubtedly, the most striking achievement of the Prodi Commission (1999-2004), in the environmental sphere, has been the design and implementation of the EU ETS.312 The Commission’s role as guardian of the Treaties arises from Art. 211, European Treaty (ex 155), first indent: [The Commission shall] … ensure that the provisions of this Treaty and the measures taken by the institutions pursuant thereto are applied. This wording enables the Commission to bring two types of proceedings: 1 actions under Art. 226, European Treaty (ex 169) against Member States who are in breach of Community law; and 2 investigations and adjudications on Treaty violations (for example, in relation to unlawful state aids under Art. 88, European Treaty (ex 93)).313 Craig and de Búrca describe the Commission’s powers under (1) and (2) as ‘judicial powers’. State aids have a particular importance in the context of the law and policies under discussion in this book and are discussed in detail in Chapter 12 below.314 Finally, some of the most important of the Commission’s executive powers, so far as environmental and tax policy is concerned, are in the field of external relations. Three of these can be enumerated as follows: 1 to determine and conduct the EU’s external trade relations; 2 to negotiate and manage the EU’s various external agreements with third countries and groups thereof; and 3 to represent the EU at a range of international organisations.315 309 See Craig and de Búrca, op. cit., p. 58. 310 Ibid., pp. 59–60. 311 See Peter Cameron, Competition in Energy Markets (Oxford: Oxford University Press, 2002), p. 284. 312 See para. 28.2 below. 313 See para. 12.2.7 below. 314 Ibid. 315 See Nugent, Government and Politics, op. cit., p. 145. Institutional Framework 97 The most important of the negotiations referred to in 1 are the tariff negotiations conducted under the auspices of the WTO.316 As to 3, Art. 302, European Treaty (ex 229) stipulates that it is for the Commission to ensure the maintenance of all appropriate relations with the organs of the UN and of its specialised agencies; Art. 303, European Treaty (ex 230) stipulates that the Community must establish all appropriate forms of communication with the Council of Europe; and Art. 304, European Treaty (ex 231) provides that the Community shall ‘… establish close cooperation with the Organisation for Economic Co-operation and Development, the details of which shall be determined by common accord’. 4.3.3 The European Parliament The European Parliament consists ‘of representatives of the peoples of the States brought together in the Community’.317 Until June 2004 it had 626 Members; the ceiling on membership of 700 in the European Treaty, as amended by the Treaty of Amsterdam, has been increased to 732 by the Treaty of Nice.318 Supporting the Parliament in its work is a secretariat numbering thousands. The Bureau of the Parliament is the body responsible for organisational, staff and administrative matters, as well as the Parliament’s budget. The Bureau consists of the President,319 plus the 14 Vice-Presidents, each of whom hold office for twoand- a-half years. Both President and Vice-Presidents are elected by the Parliament as a whole. The Bureau is assisted by five Quaestors, who also oversee financial and administrative matters concerning MEPs. By Art. 190(5), European Treaty, (ex 138(5)) the Parliament must, after seeking an opinion from the Commission and with the approval of the Council acting unanimously, lay down the regulations and general conditions governing the performance of the duties of MEPs. Also, by Art. 199, European Treaty (ex 142), the Parliament must adopt its own procedural rules.320 Committees play an important part in the Parliament’s work. It has 17 standing committees, plus a range of subcommittees, with provision also being made for committees of inquiry and temporary committees. Of the 17 standing committees, particularly relevant in the present context are: the Committee on Industry, External Trade, Research and Energy;321 the Committee on the Environment, Public Health and Consumer Policy;322 and the Committee on Regional Policy, Transport and Tourism.323 The Committee on the Environment, Public Health and Consumer Policy unsuccessfully floated 73 amendments to the proposal for the EU ETS on its first reading in October 2002.324 316 See para. 4.4.1 below and para. 8.4 below. 317 Art. 189, European Treaty (ex 137). See www.europarl.eu.int. 318 See Art. 1(17), TN. 319 That is, of the Parliament. 320 (1999) OJ L202 1. 321 See www.europarl.eu.int/meetdocs/committees/itre. 322 See www.europarl.eu.int/meetdocs/committees/envi. 323 See www.europarl.eu.int/meetdocs/committees/rett. 324 See para. 28.2.3 below. 98 Environmental Taxation Law Of the eight political groupings in the Parliament elected in June 2004,325 the largest is the European People’s Party, with 276 seats;326 next is the Party of European Socialists, which has 202; and third is the enlarged Group of the European Liberal, Democrat and Reform Party, with 84 seats. There are then several smaller groupings, including the Greens and (for the first time) Eurosceptics, plus various MEPs who are unaligned.327 Members of the European Parliament (‘MEPs’) are elected by direct universal suffrage,328 although the representative legitimacy of the institution is undermined by the fact that the number of MEPs for each Member State is far from proportionate to population size, with the result that smaller countries are disproportionately overrepresented. 329 Unhelpful too is the fact that, despite litigation and amendment to the European Treaty by the Treaty of Amsterdam, the uniform electoral procedure provided for by Art. 190, European Treaty (ex 138) has never come into existence.330 Finally, the turnout in Member States for European Parliament elections has been worryingly low.331 Substantial powers are exercised by the Parliament in three areas: legislative, budgetary and supervisory. The third of these involves the monitoring of the activities of the other institutions by questions and committees of inquiry. The legislative powers of the Parliament have been greatly enhanced by successive Treaty amendments, the general effect of which has been to extend the sphere of operation of the codecision procedure.332 The procedure, which applies wherever the European Treaty refers to it for the adoption of an act, accords equal status to the Council and to the Parliament in the adoption of Community legislation. It prevents the adoption of a measure without the approval, not only of the Council, but also of the Parliament.333 In the process, the procedure places emphasis on the legislative text in question being approved by both bodies. In relation to the Parliament’s legislative role, a number of points are important in the present context. First, although the Parliament has no right to initiate legislation, it does have the power, by a majority of MEPs, to request the Commission to submit an appropriate proposal on matters ‘on which it considers that a Community act is 325 See Art. 191, European Treaty (ex 138a). 326 It consists of Christian Democrats and European Democrats and is a party of the centreright. 327 See www.europarl.eu.int/presentation/default_en.htm. 328 See Art. 190(1), European Treaty (ex 138). 329 See Craig and de Búrca, p. 76. See also, ibid., p. 77, for a breakdown of the composition of the Parliament in terms of seats numbers to Member States, both before and after enlargement. 330 See Craig and de Búrca, p. 76. 331 See, for example, The 1999 Elections to the European Parliament, ed. by Juliet Lodge (Basingstoke: Palgrave, 2001). Craig and de Búrca (op. cit., p. 78n, cite the fact that turnout in the EU as a whole apparently dropped from 56.5 per cent in the 1994 elections to 49.7 per cent in 1999, the turnout in the first elections held in 1979 having been 63 per cent. 332 The procedure is contained in Art. 251, European Treaty (ex 189b) and is summarised in Craig and de Búrca, op. cit., pp. 144–6. 333 See Craig and de Búrca, op. cit., p. 144. Institutional Framework 99 required for the purpose of implementing [the] Treaty’.334 Secondly, not merely does the Parliament have the power to censure the Commission,335 ever since the Treaty of Amsterdam, its approval must also be sought in relation to the appointment of the President of the Commission.336 Taken together with the changes made by the Treaty of Nice to the appointment procedure of the President,337 this marks a significant change in the political nature of the Commission, as well as in the procedure by which the President of the Commission is appointed.338 Despite all of these legitimising factors, there are still a number of areas in which the Parliament has no role. In the present context, a surprising one perhaps is the Parliament’s meaningful exclusion from matters involving international agreements.339 Article 133(3), European Treaty (ex 113(3)) does not accord to the Parliament any role in the negotiation of such agreements and Art. 300(2), European Treaty (ex 228(2)) merely gives the Parliament the right to be informed about matters such as their suspension. 4.3.4 The Economic and Social Committee The Economic and Social Committee (‘ECOSOC’) is an advisory body representing the various socio-economic organisations in the Member States.340 Article 7(2), European Treaty (ex 4(2)) provides that the Council and Commission are to be assisted by ECOSOC and also by the Committee of the Regions, acting in an advisory capacity. Although the Commission or Council may, without being obliged to do so, consult ECOSOC on certain matters, in other cases, particular Treaty Arts require that ECOSOC must be consulted. The Committee, which has 224 members appointed for four years by the Council, acting unanimously,341 has an increasing role to play in the legitimisation of the EU institutions.342 This is underlined by the fact that the TN has altered Art. 257 (ex 193), to provide that ECOSOC must consist of ‘representatives of the various categories of economic and social activity’, especially ‘representatives of producers, farmers, carriers, workers, dealers, craftsmen, professional occupations and representatives of the general public’. 334 Art. 192, European Treaty (ex 138b). 335 Art. 201, European Treaty (ex 144). 336 Art. 214(2), European Treaty (ex 158(2)). 337 See para. 4.3.2 above. 338 See Craig and de Búrca, op. cit., p. 82, referring to Simon Hix, ‘Executive Selection in the European Union: Does the Commission President Investiture Procedure Reduce the Democratic Deficit?’, in European Integration after Amsterdam, ed. by K. Neunreither and A. Weiner (Oxford: Oxford University Press, 2000), pp. 95–111. 339 See para. 8.4.1 below. 340 See www.esc.eu.int/pages/en/home.asp. 341 See Art. 258, European Treaty (ex 194). 342 See ECOSOC, The ESC: A Bridge between Europe and Civil Society (Brussels: European Economic and Social Committee, 2001). 100 Environmental Taxation Law 4.3.5 The European Environment Agency An agency rather than an EU institution, the European Environment Agency (‘EEA’)343 gathers and supplies information to assist in the implementation of Community policy on environmental protection and improvement. Established in 1993,344 it must publish a report on the state of the environment every three years345 but it has no enforcement or policing powers. It has also published material on the implementation and environmental effectiveness of environmental taxes.346 4.3.6 The Committee of the Regions Tasked with providing opinions on matters of particular regional concern, the membership of the Committee of the Regions is drawn from local and regional bodies, rather than from governments. 4.3.7 Court of Justice of the European Communities and Court of First Instance Finally, the ECJ sits in Luxembourg, and its task is to ensure that Community law is observed in the interpretation and application of the European Treaty.347 Inter alia, the ECJ has jurisdiction to give preliminary rulings concerning the interpretation of the European Treaty and the validity and interpretation of acts of the Community institutions.348 Where such an issue is raised before any court or tribunal of a Member State, the court or tribunal may, if it considers that a decision on the issue is necessary to enable it to give judgment, request the ECJ to give a ruling thereon.349 The Court of Appeal of England and Wales, in Bulmer v. Bollinger,350 laid down guidelines for determining whether a reference was necessary for these purposes.351 ‘Where any such question is raised in a case pending before a court or tribunal of a Member State against whose decisions there is no judicial remedy under national law, [reads the relevant Treaty Art.] that court or tribunal must bring the matter before [the ECJ]’.352 The Court of First Instance, designed to relieve the pressure on the ECJ, has, since 1993, heard judicial review cases, as well as actions for damages against 343 See www.eea.eu.int. 344 See Council Regulation EEC/1210/90, (1990) OJ L120 1. 345 See European Environment Agency, Europe’s Environment: The Third Assessment (Luxembourg: Office for Official Publications of the European Communities, 2003). 346 See European Environment Agency, Environmental Taxes – Implementation and Environmental Effectiveness (Copenhagen: European Environment Agency, 1999). 347 Art. 220, European Treaty (ex 164). 348 Art. 234, European Treaty (ex 177). 349 Art. 234, first indent, European Treaty (ex 177). 350 [1974] Ch. 401. 351 See also, for example, Naturally Yours Cosmetics Ltd v. C & E Commrs, C–230/87, [1988] STC 879. This was a case of a VAT and Duties Tribunal obtaining a ruling direct from the ECJ. 352 Art. 234 (ex 177), European Treaty (second indent). See, for example, the reference from the House of Lords in C & E Commrs v. Sinclair Collis Ltd, [2001] STC 989. Institutional Framework 101 Community institutions, although not proceedings brought by the Member States or the Community Institutions.353 It should be noted that the ECJ is a completely distinct entity from the European Court of Human Rights, the latter having been established by the European Convention on Human Rights of 1950. 4.4 International institutions354 4.4.1 World Trade Organization The World Trade Organization is the pre-eminent international trade association.355 It is intended to ‘provide the common institutional framework for the conduct of trade relations among its members’.356 It is the product of the most recent (1986– 1993) round of trade negotiations under the General Agreement on Tariffs and Trade (‘GATT 1994’), a process which has become known as the Uruguay Round. The four principal instruments that establish the WTO and create the multilateral trading system of which it is the principal institution are as follows: 1 the Final Act embodying the results of the Uruguay Round of Multilateral Trade Negotiations;357 2 the Agreement establishing the World Trade Organization;358 3 the General Agreement on Tariffs and Trade in Goods, 1994 Revision (‘GATT 1994’);359 and 4 the General Agreement on Trade in Services (‘GATS’).360 The supreme decision-making body of the WTO, which meets at least once every two years, is the Ministerial Conference. After that, the next level down is the General Council, which meets on a number of occasions every year and is made up mainly of heads of delegations and ambassadors in Geneva. The General Council, which is responsible for issues of governance not dealt with by the Ministerial Conference, also meets under the guise of the Trade Policy Review Body and the Dispute Settlement Body. One of the roles assumed by the Dispute Settlement Body is the appointment of ‘Panels’ to investigate and report on complaints. Another is the adoption of reports 353 See Art. 224, European Treaty (ex 168). 354 In addition to the website details given below, see Bowett’s Law of International Institutions, 5th edn, by Philippe Sands and Pierre Klein (London: Sweet and Maxwell, 2001). 355 See www.wto.org. Most of the WTO-related legal texts and other documents mentioned below, together with summaries thereof, can be downloaded from this site. 356 See Art. 2(1), Agreement Establishing the World Trade Organization. 357 (1994) 33 ILM 1. 358 (1994) 33 ILM 13. 359 (1994) 33 ILM 28. 360 (1994) 33 ILM 46. 102 Environmental Taxation Law of the Appellate Body (the ‘AB’). The AB was established during the Uruguay Round by the Dispute Settlement Understanding,361 with the power to hear appeals on questions of law from GATT panels. Consisting of seven members, the AB is a standing body, unlike the GATT panels. The members of the AB are individuals of recognised authority with expertise in law, international trade and the GATT/WTO agreements. They are elected by the Dispute Settlement Body for a four-year period that can be renewed once.362 The various organs of the WTO obviously require massive technical support, such support being the responsibility of the WTO Secretariat, based in Geneva, and headed by the WTO’s Director-General.363 The Director-General of the WTO is appointed by the Ministerial Conference and his responsibilities are ‘exclusively international in character’, since he is not to seek nor to accept ‘instructions from any government or any other authority external to the WTO’.364 The WTO system requires compliance with the decisions both of the Panels of the AB. The enforcement procedure operates by removing the right of a WTO member to suspend WTO concessions or to take other measures against another member. In the words of Sands and Klein, ‘the entire scheme militates strongly against unilateral determinations and establishes a central role for the [Dispute Settlement Body] …’.365 The importance of the WTO agreements to environmental levies and subsidies in general, whether existing or projected, is profound and far-reaching.366 In recognition of this fact, the WTO founded the Committee on Trade and Environment. Unfortunately, despite the fact that it is tasked with investigating ‘the relationship between the provisions of the multilateral trading system and charges and taxes for environmental purposes’, it has so far achieved relatively little.367 The rules contained 361 That is, the Understanding on Rules and Procedures Governing the Settlement of Disputes (1994) 33 ILM 112. 362 Art. 17(3), Dispute Settlement Understanding, reads: ‘The Appellate Body shall comprise persons of recognised authority, with demonstrated expertise in law, international trade and the subject matter of the covered agreements generally. They shall be unaffiliated with any government. The Appellate Body membership shall be broadly representative of membership in the WTO. All persons serving on the Appellate Body shall be available at all times and on short notice, and shall stay abreast of dispute settlement activities and other relevant activities of the WTO. They shall not participate in the consideration of any disputes that would create a direct or indirect conflict of interest.’ 363 The details of the post are contained in the Agreement Establishing the World Trade Organization, Art. VI. The current holder is HE Dr Supachai Panitchpakdi of Thailand, whose three-year term began in September 2002. His predecessor was The Rt Hon. Michael Moore, a former Prime Minister of New Zealand (see para. 8.2.1n below), who held the position from September 1999. 364 Art. VI(4), Agreement Establishing the World Trade Organization. 365 See Bowett, op. cit., para. 12–073. 366 See Zen Makuch, ‘The World Trade Organization and the General Agreement on Tariffs and Trade’, in Greening International Institutions, ed. by Jacob Werksman (London: Earthscan, 1996), pp. 94–115. 367 See Ole Kristian Fauchald, Environmental Taxes and Trade Discrimination (London: Kluwer Law International, 1998), p. 4. Institutional Framework 103 in GATT 1994 create an international legal structure that raises considerable design problems for them.368 4.4.2 Organisation for Economic Co-operation and Development The Organisation for Economic Co-operation and Development (‘the OECD’) is the successor to an organisation called the Organisation for European Economic Cooperation. 369 It has been very influential, at least since the early 1970s, in developing the economic arguments in favour of environmental levies and subsidies.370 The organs of the OECD are the Council, the Committees and the Secretariat. Of these, the principal one is the Council, which is ‘the body from which all acts of the Organisation derive’.371 The Council, which consists of Ministers or Permanent Representatives of the member countries, develops priorities for the OECD’s activities and produces directives on future work. The Organisation has a rule that decisions and recommendations of the Council must be passed unanimously.372 There is one vote per member country. The unanimity rule has never become a veto, however, because of the provision that abstentions do not invalidate decisions nor prevent them from becoming binding on other members.373 Thus, decisions bind only those member countries that have voted for them and once their own constitutional procedures have been complied with.374 The Committees, which number over 200, consist of experts and officials from member countries. The OECD’s most recent work on environmentally-related taxes has been produced by the Joint Meeting of Experts on Tax and Environment, which is convened under the joint auspices of the Committee on Fiscal Affairs and the Environment Policy Committee.375 Individuals who are members of the Committees are thus in a position to feed OECD thinking into the development of national policies. The Secretariat, headed by a Secretary-General,376 includes individuals seconded from academia, commerce and industry, who compile and analyse economic data.377 Indeed, the OECD’s work on environmental levies and subsidies has been of an economic, rather than of a legal, nature.378 368 See paras 1.2.1.4 above and 8.4.5 below. 369 The older organisation (‘the OEEC’) had been established in 1948 to administer American aid to Europe under the Marshall Plan (see Bowett, op. cit., para. 6–021). The OECD was established by the Convention signed in Paris on December 14, 1960 and which came into force on 30 September 1961. 370 See Chapter 5 below. 371 1960 Paris Convention, Art. 7. 372 Ibid., Art. 6. 373 Ibid. 374 Ibid. 375 See Organisation for Economic Co-operation and Development, Environmentally Related Taxes in OECD Countries (Paris: OECD, 2001), p. 3. 376 Currently (December 2004), Mr Donald J. Johnston, since June 1996. 377 See the Organisation’s database of environmentally-related taxes in OECD countries, at: www.oecd.org. 378 See the Bibliography of Organisation for Economic Co-operation and Development, Environmentally Related Taxes in OECD Countries (Paris: OECD, 2001), pp. 137–42. 104 Environmental Taxation Law Article 1 of the 1960 Paris Convention states the purposes of the OECD as being: – to achieve the highest sustainable economic growth and employment and a rising standard of living in member countries, while maintaining financial stability, and thus to contribute to the development of the world economy; – to contribute to sound economic expansion in member as well as non-member countries in the process of economic development; and – to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obligations. Thus, by Art. 2 of the 1960 Paris Convention, member countries assume duties regarding the efficient use of economic resources, regarding research and regarding the general economic development of both member and non-member countries.379 Possibly because of the highly technical nature of the OECD’s work, possibly because of its status as a debating forum and possibly because of the unanimity rule referred to above, the institutional accountability or otherwise of the OECD has not been the focus of such attention as that accorded to the WTO. In 1974, in response to the oil crisis, the OECD established an autonomous agency, called the International Energy Agency,380 funded by member countries via the OECD itself, primarily to ensure energy security. Although its remit is fairly wide, one of its key areas of activity is the relationship between energy and the environment.381 4.4.3 United Nations subsidiary bodies The United Nations’ General Assembly has established two subsidiary bodies to deal with environmentally-related matters: the UN Environment Programme (‘UNEP’)382 and the UN Commission on Sustainable Development (‘the UNCSD’).383 The former dates from 1972, following the Stockholm Conference on the Human Environment;384 the latter was established in 1992, on the basis of the mandate given by the UN Conference on Environment and Development.385 The United Nations Economic Commission for Europe (‘the UNECE’)386 has also had an important role to play in promoting international environmental agreements.387 379 1960 Paris Convention, Art. 2. See also Organisation for Economic Co-operation and Development, Policy Brief. Environmentally related taxes: Issues and strategies (OECD; Paris, 2001). Organisation for Economic Co-operation and Development, OECD Environment Programme 2003–2004 (Paris: OECD, 2003). 380 See www.iea.org. 381 See Roggenkamp, op. cit., paras 3.133–3.179. The IEA’s constituent instrument is the International Energy Programme, a treaty document created following the suggestion for greater solidarity in energy matters among OECD member countries, originally made by US Secretary of State, Henry Kissinger, in 1973 (ibid., paras 3.133–3.134). 382 See www.unep.org. 383 See www.un.org/esa/sustdev/csd/csd12/csd12.htm. 384 See para. 8.2.3n below. 385 See para. 8.2.3 below. 386 See www.unece.org and www.unece.org/env/welcome.html. 387 For example, in the promotion of the 1979 Geneva Convention for the Control of Long- Range Transboundary Air Pollution (see Chapter 8 below); the 1991 Espoo Convention Institutional Framework 105 The United Nations Commission on Sustainable Development, which meets in New York or Geneva, and is supported by a secretariat in the former city, is the main UN body for sustainable development issues, and has the task of monitoring progress and making recommendations on the implementation of Agenda 21.388 The United Nations Environment Programme, which is based in Nairobi, is the sole UN body exclusively dedicated to international environmental matters, with a range of tasks, including those of promoting international environmental cooperation, providing policy guidance on environmental programmes within the UN and promoting scientific knowledge and information. The United Nations Environment Programme is made up of 58 members who are elected by the General Assembly and has an Environmental Secretariat, chaired by an Executive Director. Although it has been responsible for the promotion of a number of international agreements, not least the 1985 Vienna Convention for the Protection of the Ozone Layer389 and for the 1992 Convention on Biological Diversity,390 the underfunding of its operations, no less than its relative lack of status within the UN structure, means that its performance continues to disappoint many people.391 The UN’s closest environmental association is the 1992 UN Framework Convention on Climate Change and its 1997 Kyoto Protocol. Each of these raise certain interesting issues at an institutional level. As will be seen in Chapter 8 below,392 and as is well-known, these international agreements commit the developed parties thereto (referred to as ‘Annex I Parties’)393 to targets for the reduction of their GHG emissions.394 One of the economic instruments for achieving these targets is the Clean Development Mechanism (‘the CDM’), which ‘marks an interesting and innovative new structure in international institutional arrangements, including a formal role for non-state actors’.395 Given that the present book is much concerned with the energy markets and with the relationship between energy and the environment, as a background to energy taxation, it is perhaps useful at this juncture to mention the existence of the International Atomic on Environmental Impact Assessment in a Transboundary Context (1991) 30 ILM 802; and (see Chapter 8 below) the 1998 Aarhus Convention on Access to Information, Public Participation in Decision-making and Access to Justice in Environmental Matters (1999) 38 ILM 517 (in force 30 October 2001). 388 See Chapter 8 below. 389 See para. 8.3.1.1 below. 390 See para. 8.3.1.3 below. 391 Proposals for a new UN specialised agency are discussed by Daniel Esty in Greening the GATT: Trade, Environment and the Future (Washington DC: Institute for International Economics, 1994). See also Birnie and Boyle, op. cit., pp. 54–7. 392 See paras 8.3.1.3 and 8.3.1.4 below. 393 The Annex I Parties, not all of whom have ratified the Protocol (see para. 8.2.2 below), are: Australia, Austria, Belarus, Belgium, Bulgaria, Canada, Czechoslovakia, Denmark, European Community, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Russian Federation, Spain, Sweden, Switzerland, Turkey, Ukraine, United Kingdom and the US. 394 See para. 8.3.1.4 below. 395 Bowett, op. cit., para. 4–024. See para. 8.3.1.4 below. 106 Environmental Taxation Law Energy Agency (‘the IAEA’).396 Despite its name, the IAEA, which works closely with Euratom, is an independent intergovernmental agency founded in 1957, which is obliged to report to the UN in certain situations.397 Also relevant to proposals to introduce emissions trading schemes for airlines is the International Civil Aviation Organisation (‘the ICAO’),398 a specialised agency of the UN, which is the treaty organisation of the 1944 Chicago Convention on International Civil Aviation. 4.4.4 Various international treaty organisations Before closing this part of the chapter, it is useful briefly to refer for completeness to some of the myriad treaty organisations covering environmental matters. It might also help to refer to one of the most recent of international treaty organisations, the 1994 Energy Charter Treaty. No doubt the significance of such organisations has been enhanced somewhat by the relative unimportance of the UNEP. For instance, the 1973 Washington Convention on International Trade in Endangered Species of Wild Fauna and Flora399 has a Conference of the Parties, which meets at least every two years to consider amendments to the provisions limiting trade in listed species.400 Similar Conferences exist for the 1992 Convention on Biological Diversity referred to above;401 for the 1985 Vienna Convention for the Protection of the Ozone Layer, also mentioned above, as well as its 1987 Montreal Protocol;402 for the 1992 UN Framework Convention on Climate Change;403 for the 1997 Kyoto Protocol;404 for the 1972 London Dumping Convention;405 and for the 1989 Basel Convention.406 The Energy Charter Treaty which, as its name suggests, is limited in scope to the energy sector, nonetheless has an obvious environmental significance. It is independent of the EU and has its own Secretariat and Conference, both of which are based in Brussels.407 4.5 Concluding comments Finally, it falls to us to gather together the main strands of the discussion. We began this chapter by considering the organs of central government: Parliament, government departments, public bodies and agencies and advisory bodies. Thence, 396 See www.iaea.org/worldatom. 397 See Roggenkamp, op. cit., paras 3.49–3.57. 398 See www.icao.int. 399 See para. 8.4.2n below. 400 See www.wcmc.org.uk/CITES/eng/index.shtml. 401 See www.biodiv.org. 402 See para. 8.3.1.5 below. 403 See para. 8.3.1.3 below. 404 See para. 8.3.1.4 below. 405 See para. 8.3.2 below. 406 Ibid. 407 See www.encharter.org. See para. 8.6 below. Institutional Framework 107 we analysed the contribution to the design, implementation and enforcement of taxes and other economic instruments, of what is a considerable range of government departments, non-departmental public bodies, agencies and advisory bodies. The chief characteristic of this institutional pattern was one of almost overwhelming complexity but, so far as central government was concerned, it indicated that, in the UK, chief responsibility for the design and implementation of economic instruments lies, not with any one body, but mainly with Customs, with Defra and, so far as they relate to electricity, with Ofgem. Next, we considered the devolution schemes applicable to Wales, Scotland and Northern Ireland. The present significance of these to the subject matter is constrained by the fact that, although all of them have environmental competencies, importantly in relation to the LATS, only Scotland has any tax raising power, and that is not relevant to environmental taxation. It seems inevitable, at this juncture, that pressure for additional tax-raising powers will increase, pre-eminently, perhaps, in the environmental taxation field. With regard to the wider picture, we have seen that the ability of the EU institutions to create environmental taxes is circumscribed by the fiscal veto provisions of the European Treaty provisions. The successful creation of the EU ETS marks a neat sidestepping of the problems which had been associated with the ‘shelved’ EU carbon/energy tax.408 The close relationship of the EU institutions with the OECD, with its commitment to the development of policy in the environmental taxation field, will ensure however that its work on environmental taxes and other economic instruments retain considerable influence globally. Meanwhile, the impact on the possibilities for certain kinds of environmental taxes (especially carbon taxes), of the rules of the multilateral trading system, in GATT 1994, continue to be controversial and we return to them in Chapter 8 below. 408 Note, however, the Energy Products Directive of December 2003 (see para. 12.3.4 below). For the carbon/energy tax proposal, see para. 28.1n below. This page intentionally left blank Chapter 5 Technical Justifications 5.1 Introduction This chapter analyses the reasons that the UK government has itself provided, via HM Treasury, for regulating by means of environmental taxes and other economic instruments. These reasons should be seen in the broader context of the government’s policy on sustainable development.1 The chapter takes the form of a commentary on HM Treasury’s 2002 paper containing the government’s most recent detailed justifications for its policy on the use of economic instruments in pollution regulation.2 Our discussion assumes that, in its legislative programme on the use of economic instruments for this purpose, the government is acting in pursuit of the public interest.3 This is in keeping with the disciplinary approach explained in Chapter 1 above.4 The assumption as to public interest objectives serves to underline the important distinction between the technical justification for introducing a particular measure and a theory about why the measure has in fact been introduced. It does not necessarily imply that, in a particular instance, there will be found to be a disparity been the two, since a theory that seeks to explain why a measure has been introduced may reaffirm the public interest reason. In other words, the proffered reason, which is a good reason, may also be the real reason.5 We have sought specifically to emphasise in this chapter the profferred reasons, rather than the theoretical arguments for green levies generally. Although there is some discussion of the latter, this has been minimised for reasons of space.6 The 2002 Treasury paper covers aggregates levy, climate change levy and landfill tax, as well as explaining the rationale for the UK ETS7 and the RO.8 It does not deal 1 See para. 4.2.1.3n above and para. 5.2 below. 2 HM Treasury, Tax and the Environment: Using Economic Instruments (London: HMSO, 2002), available from the Treasury’s website, at www.hm-treasury.gov.uk. It is referred to alternately below as ‘the 2002 paper’, ‘the 2002 Treasury paper’, ‘the paper’ or ‘the Treasury paper’. 3 See Robert Baldwin and Martin Cave, Understanding Regulation – Theory, Strategy and Practice (Oxford: Oxford University Press, 1999), p. 9n, for a survey of the relevant literature on why and how the motivation or explanation for regulation may differ from the regulation’s technical justification. 4 See para. 1.2.2 above. 5 The allusion is to a statement attributed to an eminent American financier (see Jean Strouse’s Morgan: American Financier (London: Harvill Press, 1999), p. xiii). 6 See, generally, for example, Environmental Policy: Objectives, Instruments, and Implementation, ed. by Dieter Helm (Oxford: Oxford University Press, 2000), esp. Part One. The literature is vase (see nn in this book, passim). 7 See para. 1.4.2.2(2) above. 8 See para. 1.4.2.2(4) above. 110 Environmental Taxation Law in any detail with the nascent LATS,9 possibly since the enabling legislation was introduced in the House of Lords at or around the time that the paper was published.10 Also not dealt with in much detail in the 2002 paper is the diverse package of measures introduced in 1999 and 2000 which were designed to assist in dealing with traffic congestion and road traffic pollution.11 These are the income tax reliefs introduced in Finance Act 1999, to encourage employees to choose environmentally friendly ways of commuting,12 and the provisions allowing local authorities to implement road user charging and workplace parking levy schemes,13 brought in by the Transport Act 2000. The present chapter is divided into four parts:14 an overview of the government’s policy with regard to sustainable development; a discussion of the government’s taxation objectives in the light of that policy; a review of the economic arguments for using fiscal measures to contribute to sustainable development by correcting market failures resulting from pollution; and, finally, an examination of how the decision to use fiscal measures for this purpose is taken and the price level at which intervention in the market is determined. Our discussion of how economic policy on environmental taxes and other economic instruments has been translated into reality appears in Chapter 11 below.15 5.2 Sustainable development In a rather surprising ordering of the material, the third chapter of the 2002 Treasury paper is devoted to the government’s sustainable development targets and indicators.16 It draws on the former DETR’s17 Sustainable Development Strategy White Paper, in which the government’s aim is stated as being ‘to achieve a better quality of life for everyone, now and for future generations’.18 The White Paper reflects the government’s approach to the commitments made at the 1992 Earth Summit in Rio; this is somewhat different from that taken by the previous – Conservative 9 See para. 1.4.2.1(4) above. 10 The Waste and Emissions Trading Bill was only introduced in the House of Lords on November 14, 2002. 11 Although certain of these are used as brief examples in paras 6.18–6.23 of the 2002 paper. 12 See para. 23.3 below. 13 See Chapters 17 and 18 below. 14 Corresponding to the subject matter of four of the chapters of the 2002 paper. 15 See para. 11.3 below. 16 See Giles Atkinson, ‘Sustainable Development and Policy’, in Helm, op. cit., pp. 29–47, and Victoria Jenkins, ‘Placing Sustainable Development at the Heart of Government in the UK’ (2002) 22 LS 578–601. 17 See para. 4.2.1.2(1) above. 18 See Department of Environment, Transport and the Regions, A Better Quality of Life: A Strategy for Sustainable Development in the United Kingdom, 1999 (Cm 4345, 1999). This was a revision of the previous Conservative Government’s strategy, Sustainable Development, the UK Strategy, 1994 (Cm 2426, 1994). Technical Justifications 111 – administration prior to May 1997. The Rio Declaration, it will be recalled, contains the 27 Principles of international environmental law that together constitute the main outlines of the sustainable development concept.19 The 2002 paper reflects the 15 headline indicators of the Sustainable Development Strategy White Paper, grouped into four ‘dimensions’. Only two of these four dimensions specifically contain indicators relating to environmental matters and they read as follows: Effective protection of the environment: – emissions of greenhouse gases; – days when air pollution is moderate or high [sic]; – road traffic; – rivers of good or fair quality; – populations of wild birds; and – new homes built on previously-developed land. Prudent use of natural resources: – waste arisings and management.20 These indicators, which ‘should move in the right direction over time’,21 are designed to show, in an accessible way, the progress that society as a whole is making towards sustainable development.22 The government acknowledges in the paper that, helpful as these indicators are in providing a snapshot of society’s progress, they do not measure impacts directly, since, for example, road traffic levels are not in themselves measures of emissions affecting air quality, GHG emissions, congestion or noise implications of road use.23 Nonetheless, in reaching its aim of achieving a better quality of life, now and for future generations,24 the government clearly sees them as being very useful.25 The government’s comments on performance to date on the environmental, dimensions of sustainable development have an air of disarming candour about them.26 As to 19 Ibid. and para. 4.2.1.3n above. 20 The other two groups of headline indicators are: ‘(1) maintaining high and stable levels of economic growth and employment, which group comprises: total output of the economy (‘GDP’), investment in public, business and private assets and proportion of people of working age who are in work; and (2) social progress which recognises the needs of everyone, and which comprises: poverty and social exclusion (fuel poverty etc.); qualifications at age 19; expected years of healthy life; homes judged unfit to live in; and level of crime’ (see 2002 paper, Box 3.1, p. 9). The social dimension had been missing from the 1994 Conservative strategy. 21 See 2002 paper, para. 3.1. 22 Ibid., para. 3.3. 23 Ibid., para. 3.4. 24 The reference to future generations echoes the definition of sustainable development used in the Brundtland Report of 1987 (see para. 4.2.1.3n above). 25 Ibid., para. 3.1. 26 That is, as distinct from economic growth and social progress. Progress against the environment-related indicators contained in the White Paper is set out in Annex A to the 2002 paper. The material in Annex A is derived from Department for Environment, Food and Rural Affairs, Achieving a Better Quality of Life – Review of Progress towards 112 Environmental Taxation Law GHGs, although on current trends, the UK is one of the few EU Member States likely to meet its Kyoto target, after 2012 emissions targets ‘are likely to become tighter, and the UK needs to be ready to take further action to continue to reduce emissions in the longer term’.27 Likewise, with the amount of biodegradable municipal waste sent to landfill, despite the fact that the Landfill Directive28 fixes a reviewable target of a 35 per cent reduction on 1995 levels by 2020, ‘volumes of waste sent to landfill have continued to rise over recent years’.29 Most worrying of all for the government, perhaps, is the situation with regard to the environmental effects of transport, since ‘[a]lthough the fuel efficiency of new vehicles is improving, transport continues to be a major user of energy and source of carbon dioxide emissions’.30 Lastly, in this third chapter of the 2002 paper, the Treasury seeks to illustrate its own commitment to making progress on the headline indicators by drawing attention to the various Departmental Public Service Agreements (‘PSAs’). The PSAs, which closely reflect the headline indicators referred to above, set out each Department’s priorities and give targets against which the Department in question’s progress can be monitored.31 For instance, the Treasury has agreed to: ‘Protect and improve the environment by using instruments that will deliver efficient and sustainable outcomes through evidence-based policies’; Defra32 has promised to: ‘[p]romote sustainable development across government and the country as a whole as measured by achieving positive trends in the government’s headline indicators of sustainable development’; and the DFT33 has promised to: ‘Reduce congestion on the inter-urban trunk road network and in large urban areas in England below 2000 levels by 2010’.34 It is interesting that the DFT seems to view the chief environmental problem of too much road traffic as primarily one of congestion, rather than of emissions. This is fully in tune with modern economic thinking on the subject. 5.3 Taxation and sustainable development Against the background of government policy on sustainable development, the 2002 Treasury paper begins35 by recalling the government’s Statement of Intent Sustainable Development in 2001 (London: Defra, 2002), available from www.sustainabledevelopment. gov.uk. 27 See 2002 paper, para. 3.6. 28 Council Directive 99/31/EC, (1999) OJ L182 1 (see para. 12.2.5.1(2) below). See further para. 6.3.2.4 below. 29 See 2002 paper, para. 3.7. 30 Ibid., para. 3.8. 31 Ibid., para. 3.11. 32 See para. 4.2.1.2(1) above. 33 Ibid. 34 See 2002 paper, Annex B (pp. 51–2). This is not a complete list of the PSAs, which are quite extensive, and, specifically, does not include the promise of the ODPM (see para. 4.2.1.2(1) above), also extracted in Annex B to the 2002 paper. 35 Ibid., ch. 2. Technical Justifications 113 on environmental taxation dated 2 July 1997.36 An important passage in the 1997 document is reproduced in the 2002 paper and reads as follows: How and what governments tax sends clear signals about the economic activities they believe should be encouraged or discouraged, and the values they wish to entrench in society. Just as work should be encouraged through the tax system, environmental pollution should be discouraged.37 The Statement of Intent goes on to say that, accordingly, where environmental taxes ‘met the general tests of good taxation’, then the government would use them to achieve its economic objectives, which were expressed as follows: The Government’s central economic objectives are the promotion of high and sustainable levels of growth and high levels of employment. By that we mean that growth must be both stable and environmentally sustainable. Quality of growth matters; not just quantity … [T]he Government will explore the scope for using the tax system to deliver environmental objectives – as one instrument, in combination with others like regulation and voluntary action.38 Over time, the Government will aim to reform the tax system to increase incentives to reduce environmental damage. That will shift the burden of tax from ‘goods’ to ‘bads’;39 encourage innovation in meeting higher environmental standards; and deliver a more dynamic economy and a cleaner environment, to the benefit of everyone.40 The translation of this statement of policy into a legal reality is discussed below.41 The Treasury seeks to draw a distinction between ‘[t]axes on broad aspects of economic activity such as energy, waste and transport’42 and ‘much smaller taxes which target specific environmental impacts’.43 The former, presumably meaning climate change levy, landfill tax and environmentally-friendly excise duty differentials, the 2002 paper states, raise significant levels of revenue which can be used to ‘offset’ other taxes. The latter, by contrast, ‘would be unlikely to raise very much revenue and therefore would not have any significant impact on the overall tax 36 That is, Budget day. This was the Rt Hon. Gordon Brown, MP’s first Budget as Chancellor (see HM Treasury, Tax Measures to Help the Environment, News Release, 2 July 1997, available from HM Treasury’s website at www.hm-treasury.gov.uk). 37 See Tax Measures to Help the Environment, above. 38 Probably for presentational reasons, the government contrasts the use of economic instruments, such as environmental levies and subsidies, with regulation. In reality, the idea of regulation is wide enough to encompass the economic instrument concept, and it is in this wider sense that the term is used in this study (see Baldwin and Cave, op. cit., pp. 1–2, and Chapter 1 above). See also Chris Hilson, Regulating Pollution – A UK and EC Perspective (Oxford: Hart Publishing, 2000), p. 103. 39 See Department of the Environment, First Report of the British Government Panel on Sustainable Development (Sir Crispin Tickell, Chairman) (London: 1995), p. 12. See also, more recently and (possibly) more influentially, Anthony Giddens, The Third Way and its Critics (Cambridge: Polity Press, 2000), pp. 100–101. 40 See Tax Measures to Help the Environment, above. 41 See Ch. 11 below. 42 See 2002 paper, para. 2.10. 43 Ibid., para. 2.11. 114 Environmental Taxation Law base’.44 There is no clue from the brief discussion of the ‘much smaller taxes’ whether those alluded to are actual or as yet only proposed, although the context seems to suggest that the latter meaning is intended.45 If this conclusion is correct, then these paragraphs of the 2002 paper underline the point made elsewhere in the present book that the hypothecation of tax revenues, even in the context of environmental taxes, is something that the Treasury still strongly resists.46 The government instead limits itself to saying that the significant levels of revenue raised by green taxes ‘can be used to offset other taxes’.47 The first part of its subsequent claim that: The Government has used revenue from taxes such as the climate change levy and aggregates levy to reduce employers’ national insurance contributions and has also introduced enhanced capital allowances to reduce costs of investments in environmentallyfriendly technologies …48 is examined below, as also is the rather laconic statement which follows the one just quoted, that is, that: ‘Some of the revenue [that is, from taxes such as the climate change levy and aggregates levy] has also been used to support related spending programmes’.49 From a technical point of view, it should be noted that the reference to the use of environmental tax revenues to reduce labour taxes is commonly known as ‘the employment double dividend’ and is much contested by economists.50 The Treasury specifically relates each of the levies and subsidies discussed in this study to the government’s sustainability policy. Thus, the goal of the totality of 44 Ibid. 45 Unless this is a reference to road user charging schemes. 46 See para. 11.2 below. As discussed there, the landfill tax code contains some mechanisms by which an effect akin to hypothecation is achieved (see para. 11.2 below). The Treasury’s resistance to hypothecation is highlighted by the fact that, in para. 2.11 of the 2002 paper, it is stated that, with the much smaller taxes targeting specific environmental impacts, ‘… there may be a stronger case for using most or all of the revenue to encourage a response to the tax’. 47 See 2002 paper, para. 2.10. 48 Ibid. 49 Ibid. See para. 21.3 below. 50 A subject on which there is a considerable literature: see, for example, Lawrence Goulder, Environmental Taxation and the ‘Double Dividend’: A Reader’s Guide (Cambridge, MA: National Bureau of Economic Research, 1994); Stephen Smith, ‘Green’ Taxes and Charges: Policy and Practice in Britain and Germany (London: Institute for Fiscal Studies, 1995), p. 14; Kalle Määttä, Environmental Taxes – From an Economic Idea to a Legal Institution (Helsinki: Finnish Lawyers’ Publishing, 1997), pp. 157–8; ed. by Timothy O’Riordan, Ecotaxation (London: Earthscan, 1997), Part II; C.J. Heady et al., Study on the Relationship Between Environmental/Energy Taxation and Employment Creation (Bath: University of Bath, 2000); Organisation for Economic Co-operation and Development, Environmentally-Related Taxes in OECD Countries: Issues and Strategies (Paris: OECD, 2001), paras 1.6.2 and 2.3; Adair Turner, Just Capital: The Liberal Economy (London: Macmillan, 2002), pp. 310–11; and Kurt Kratena, Environmental Tax Reform and the Labour Market: The Double Dividend in Different Labour Market Regimes (Cheltenham: Edward Elgar, 2002). See also the 2002 paper, paras 7.9–7.13, esp. para. 7.11. Technical Justifications 115 climate change levy, of the UK ETS,51 of the RO52 and of tax reliefs such as capital allowances for expenditure on energy-saving plant and machinery,53 is to assist the UK in meeting its carbon emissions reduction targets under the post-Kyoto EU burden-sharing agreement.54 The objectives of the other levies, given their nature and scope, is closer to home. Aggregates levy is designed to ‘tackle environmental costs of aggregate extraction including noise, dust visual intrusion [and], biodiversity loss’, whilst the goal of landfill tax is ‘[t]o internalise [the] environmental costs of landfill e.g. methane emissions, nuisance, groundwater pollution; to give better price signals for alternatives to landfill; and to assist in meeting waste targets in [the] most efficient way’.55 Landfill tax is to be supported by the LATS,56 whose aim is to restrict the landfilling of biodegradable municipal waste.57 5.4 Economic instruments and market failures Government policy with regard to tax and the environment is thus to use the tax system to ensure the attainment of environmental objectives and to reform it to increase incentives to reduce environmental damage.58 The basis on which the policy is justified is that of welfare economics, a discipline which has achieved a ‘near hegemonic status’ as a theoretical basis for pollution control.59 Under the heading ‘Why not leave it to the market?’, the 2002 paper justifies the use of economic instruments such as environmental taxes by reference to market failures and their distributional effects.60 To the lawyer, the discussion reads almost as a digest of the economic learning in this area.61 Both a vibrant and influential academic literature62 and the ‘soft law’63 and other policy documentation produced by the OECD64 make a persuasive welfare economics case for the use of economic instruments in environmental regulation, the broad outlines of which might be summarised as follows. The economic rationale for 51 See para. 1.4.2.2(2) above. 52 See para. 1.4.2.2(4) above. 53 See 2002 paper, paras 6.39–6.47. See also Chapter 24 below. 54 See paras 8.2.2n and 8.3.1.4 below. 55 See 2002 paper, Table 7.1 (p.42). 56 See para. 1.4.2.1(4) above. 57 Ibid. 58 See Tax Measures to Help the Environment, above. 59 See Hilson, op. cit., pp. 6–8. 60 See 2002 paper, ch. 4. 61 As to which, see, for example, Tom Tietenberg, Environmental and Natural Resource Economics, 3rd edn (New York: Harper Collins, 1992), to take one distinguished text from among many. 62 See Benjamin J. Richardson and Kiri L. Chanwai in ‘Taxing and Trading in Corporate Energy Activities: Pioneering UK Reforms to Address Climate Change’ (2003) 14(1) ICCLR 18–27, 19. 63 See para. 8.2.6 below. 64 See para. 4.4.2 above. 116 Environmental Taxation Law environmental regulation via economic instruments65 is the elimination of economic waste in situations where ‘the unregulated price of a good does not reflect the true cost to society of producing that good’.66 Baldwin and Cave, in a review of the relevant arguments, provide the following example: [A] … manufacturer of car tyres might keep costs to consumers down by dumping pollutants arising from the manufacturing process into a river. The price of the tyres will not represent the true costs that production imposes on society if clean-up costs are left out of account. The resultant process is wasteful because too many resources are attracted into polluting activities (too many tyres are made and sold) and too few resources are devoted by the manufacturer to pollution avoidance or adopting pollution-free production methods.67 The disparities between ‘true social costs’ and ‘unregulated price’ are ‘spillover’ costs, which environmental economists generally refer to as ‘externalities’68 or ‘diseconomies’.69 Some form of regulation – of state intervention – is necessary to compel the internalisation of such spillover costs, on the polluter pays principle.70 There has been a market failure, that is, a specific instance of where ‘the competitive outcome of markets is not efficient from the point of view of the economy as a whole’.71 The correction of market failures by regulation might take the form of traditional command and control mechanisms, voluntary mechanisms or economic instruments, including environmental taxes or charges.72 The inspiration for the last of these possibilities is usually attributed to the distinguished early-twentieth century economist, Arthur Pigou.73 Pigou’s writing is sometimes portrayed as being much 65 See Chapter 6 below. 66 Stephen Breyer, ‘Typical Justifications for Regulation’, in A Reader on Regulation, ed. by Robert Baldwin, Colin Scott and Christopher Hood (Oxford: Oxford University Press, 1998), pp. 59–92, p. 68. 67 See Baldwin and Cave, op. cit., pp. 11–12. 68 See Breyer, op. cit., p. 68. Spillover costs are the norm, but Breyer acknowledges also the possibility of a ‘spillover benefit’ in a different situation, for example where ‘honeybees fertilise nearby apple orchards, the beekeepers provide a spillover benefit to the orchard owners, so long as the latter do not pay the former for their service’ (ibid.). 69 Or ‘external diseconomies’: see, for example, Määttä, op. cit., p. 7. 70 See Baldwin and Cave, op. cit., p. 12. 71 See 2002 paper, para. 4.2. Factors other than externalities may cause market failure, for example, information failures, the absence of perfect competition and even government intervention itself (see the 2002 paper, para. 4.9, and Baldwin and Cave, ch. 2). 72 A voluntary approach, rather than a tax, has been adopted, for the time being, in relation to pesticide use (see para. 21.9.5 below). A bid for a voluntary arrangement was tried, and failed, in relation to aggregates levy (see para. 11.3.2 below). The role of voluntary measures is discussed in para. 7.8 of the 2002 paper. 73 Hence the expression ‘Pigouvian taxes’, which is sometimes used as a synonym for pollution (that is, environmental) taxes (see para. 1.2.1.5 above). Arthur Cecil Pigou (1877–1959) held the Chair of Political Economy at the University of Cambridge from 1908 until 1944. Memorably, Pigou saw the inspiration of economic science as being the ‘sordidness of mean streets and the joylessness of withered lives’. His ideas for pollution taxes were expounded in The Economics of Welfare, 4th edn (London: Macmillan, 1952), Part II, chs 2 and 3, and in A Study in Public Finance, 3rd edn (London: Macmillan, 1947), Technical Justifications 117 more straightforward than it is; in Andersen’s words, ‘Pigou is much more cautious about his pollution taxation scheme than certain of his followers’.74 The academic rationale for correcting market failure is mirrored in the OECD’s policy documentation: The basic theoretical premise behind the introduction of environmental instruments, including environmentally related taxation, to correct for [sic] environmental damage is the existence of negative environmental externalities in unregulated economies. A negative externality is a cost that one economic agent imposes on another but does not take into account when making production or consumption decisions. When the costs of pollution or resource use are not reflected in prices, market inefficiencies result with excessive production or consumption of products and activities that impose social costs. Externalities exist because of the public goods nature of the environment. In the absence of property rights for clean air, clean water, etc. economic agents use these services without regard for the impact their decisions have on other economic agents, including future generations. Even where charges or taxes are raised on a polluting activity, for example on municipal waste disposal, often they do not fully internalise the cost of the externality. Where environmental costs are fully internalised into the price of a product or activity a reallocation of resources in the economy occurs according to fair and efficient prices.75 Besides the internalisation of externalities, the OECD material also claims for economic instruments in general opportunities to realise static and dynamic efficiencies.76 Static efficiency implies that marginal abatement costs are equalised between polluters, without the need for regulators to seek out information about the abatement costs of particular firms.77 Dynamic efficiency implies that firms have an ‘ongoing incentive to reduce pollution abatement costs, rather than simply to meet specific standards, which require constant review’.78 Both the academic rationale and the OECD policy statements are closely reflected in Chapter 4 of the 2002 paper.79 The paper acknowledges the possibility, not only of negative externalities, but also of positive externalities.80 An example of a positive externality would be a developer cleaning up contaminated land, since this would encourage the regeneration of the area surrounding that land.81 Negative externalities, on the other hand, might include, for example, ‘the visual and noise impacts of quarries’, says the Treasury.82 It supplies a further example of negative Part II, ch. 8, both of which are far more difficult reading than the oft-seen ‘summaries’ of his work may appear to suggest. 74 See Mikael Skou Andersen, Governance by green taxes: making pollution prevention pay (Manchester: Manchester University Press, 1994), p. 5. 75 See OECD, op. cit., para. 1.1. 76 Ibid., paras 1.3 and 1.4. 77 Ibid., para. 1.3. 78 Ibid., para. 1.4. 79 Both are referred to in the Bibliography thereto (see the 2002 paper, pp. 57–58). 80 A possibility contemplated by Pigou himself: see the example of the lighthouse in A Study in Public Finance, above, p. 94, and Breyer’s example of the honeybees in n above. 81 See 2002 paper, para. 4.5. 82 Ibid., para. 4.5. 118 Environmental Taxation Law externalities which develops, though not expressly, the one given by Baldwin and Cave: In a simple example, two firms, a factory and a fishery, use the same river as an input good. By using the river to dispose of waste, the factory imposes costs on the fishery and reduces its productive capacity; but the market does not reflect this cost in prices because there are no property rights for the pollution.83 There would be an overall gain for the economy as a whole if the amount of pollution was set where the marginal benefit accruing to the factory from each additional unit of waste disposal was equal to the marginal cost to the fishery of each additional unit of river pollution … The efficient outcome cannot occur while the factory does not face the full costs of its activities – its own private costs and the wider social costs.84 Moreover, the Treasury embraces the concepts of static and dynamic efficiency, referred to above. It emphasises that a ‘well-designed economic instrument can equalise the marginal abatement costs between polluters’, because industries that face lower abatement costs will cut back on pollution relatively more.85 Also, since polluters are required to pay tax for ‘residual emissions’, as well as for abatement costs, they will have a strong financial incentive to invest in technological developments providing greater environmental protection.86 Having identified environmental market failures, Chapter 4 of the 2002 paper then goes on to look at their distributional implications. Environmental externalities can lead to differential impacts on different sectors of the economy and on different income groups; they also impose costs on those not responsible for the externalities. Traffic congestion, according to the Treasury, impacts on business in a different way from that in which it impacts on other sectors.87 Air pollution not only impacts disproportionately on low income groups in the inner cities but, on a transboundary scale, it impacts more severely on less developed than on more developed countries. Again, adverse effects on air quality, river pollution, sulphur emissions and climate change, can have international and even global implications, not just for this generation but for the ones to come.88 To the extent that addressing these distributional impacts requires value judgments to be made, these should, says the Treasury, ‘be underpinned by economic analysis so that the debate is wellinformed’. 89 It should be said that a number of objections could be made to the classical rationale described above, although they do not seem currently to garner much favour and are not reflected in government policy. It has, for instance, been argued that ‘spillover costs do not call for government intervention but, rather, for a rearrangement of 83 This seems to be intended to refer to a regulation-free situation. 84 See 2002 paper, Box 4.1, p. 13. 85 See 2002 paper, para. 6.9. 86 Ibid., para. 6.10. 87 This part of the 2002 paper is a little difficult to follow. If business is defined as economic activity, it is difficult to exclude anyone from its scope. 88 Ibid., para. 4.14. 89 Ibid., para. 4.17. Technical Justifications 119 private property rights’.90 Ronald Coase, writing in 1960, famously took this position, arguing that where there are ‘well-defined property rights, and where the costs of bargaining are small enough, the affected parties can bargain with one another and agree on an efficient allocation of resources’.91 Thus, in the examples given above, those suffering from the pollution would get together and offer to pay the polluter either to clean up or to adopt a pollution-free production method.92 Such an argument might be significant in the context of small-group externalities, where there are only a few affected parties whose rights have clearly been defined93 but the unreality of the argument in relation to large-group externalities is apparent as soon as it is stated. Even more unreal would be this argument in relation to mass externalities, such as emissions causing climate change. The costs of bargaining become ever more significant with the increase in the number of people affected, and a ‘clear consensus is harder to obtain’.94 In this situation, there is a continuance of spillover costs, because of the bargaining costs to those affected in banding together.95 Especially in the light of the subsequent development of environmental regulation, it now seems almost inconceivable that arguments based upon a rearrangement of private property rights could ever reassert themselves at a political level, at least in relation to mass externalities. As the Treasury itself says, ‘if the market does not reflect costs properly, there will implicitly be subsidies within the economy to those causing pollution …’.96 Be that as it may, governments should clearly beware of justifying every environmental intervention in terms of spillover cost. Breyer suggests that, if the spillover rationale is to be ‘intellectually useful, [it] should be confined to instances where the spillover is large, fairly concrete, and roughly monetizable’.97 One can always find some – broadly defined – spillover cost rationale for regulation, since ‘there is always some possible beneficial effect in reversing a market-made decision’.98 In fairness to the authors of the 2002 Treasury paper, this is a problem of which they are clearly aware, since they refer to market failures caused by information failures, the absence of competition and government intervention.99 Besides providing general justifications for the creation of environmental levies and subsidies, the Treasury specifically states the justification for all except one of the measures that have actually been taken as being the correction of negative 90 See Breyer, op. cit., p. 69. This paragraph is indebted to Breyer’s analysis of the objections to the rationale rehearsed in the 2002 paper. 91 See Ronald Coase, ‘The Problem of Social Cost’ (1960) 3 JLE 1–44 (in Kalle Määttä’s succinct summary (see Määttä, op. cit., pp. 7–8)). 92 See Breyer, op. cit., p. 59. 93 See Määttä, op. cit., p. 8. 94 See Breyer, op. cit., p. 69, and the works cited therein: J Buchanan, ‘An Economic Theory of Clubs’ (1965) 32 Economica 1; Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups (Cambridge, MA, London: Harvard University Press, 1965). 95 See Breyer, op. cit., p. 69. 96 See 2002 paper, para. 4.6. 97 See Breyer, op. cit., p. 72. 98 Ibid. 99 See 2002 paper, para. 4.9. 120 Environmental Taxation Law externalities.100 The exception is the positive externality which is intended to be corrected by corporation tax relief at a notional 150 per cent of expenditure for the costs of remedial work on contaminated land.101 5.5 The efficient level of fiscal intervention Having elucidated the concept of market failures caused by externalities, the Treasury then poses, in Chapter 5 of the paper, three further issues for policy consideration.102 These are the questions of: 1 how the government decides whether intervention in order to address the externality is worthwhile; if so, 2 what the most efficient extent of any intervention would be; and 3 whether it would be most appropriate to intervene at the local, at the national or at the international level. The Treasury reports that the government recognises that, given that decisions should be made on the basis of good scientific evidence, the precautionary principle103 should be invoked where the scientific case is uncertain and, in accordance with the principles of good regulation, the intervention should be proportionate and consistent. The question of whether intervention would be worthwhile is answered using a costbenefit analysis (‘CBA’), part of the regulatory impact assessment (‘RIA’) procedure discussed below.104 ‘Cost-benefit analysis’ is not here being used in a lay sense but is ‘a highly specialised decision-making tool developed by economists, which provides a formal, systematic assessment of the costs and benefits of a proposed course of action’.105 The aim of CBA is to find the point at which the total benefits of control outweigh the total costs by the greatest margin, since this will be the optimal level of pollution control. This is unlikely to be the level eventually adopted, however, since other factors have a part to play in the process of decision-making.106 The CBA involves a two-stage process, whereby an environmental good is first valued, with the cost of taking action then being subjected to economic appraisal. Valuing environmental goods involves either inferring the ‘price’ of those goods or the cost of remediating damage caused by pollution. The price of environmental goods 100 Ibid., Tables 6.1 (p. 23) and 7.1 (p. 42). 101 See Finance Act 2001, Sched 22. See paras 6.7, 7.3.4 and 24.5.1 below. 102 See 2002 paper, ch. 5. 103 See para. 8.2.6 below. 104 See 2002 paper, para. 5.2. Somewhat later in ch. 5, and somewhat inconsequentially, given what has gone before, the 2002 paper emphasises the importance of cost-benefit analysis in high-level target setting (see 2002 paper, para. 5.20). See also para. 11.2 below and ‘Cost-Benefit Analysis and Environmental Policy’, in Helm, op. cit., pp. 48–74. 105 See Hilson, op. cit., p. 73. He gives a full discussion of the process at Hilson, op. cit., pp. 73–78, as to which see Chapter 11 below also. 106 See Hilson, op. cit., pp. 73–74. Technical Justifications 121 may be inferred either from consumers’ behaviour or from their stated valuation of a good. Customers’ behaviour may be tested, as appropriate, by using hedonic pricing techniques, by travel cost models or by random utility models.107 Stated valuations involve eliciting estimates of consumers’ willingness to pay (‘WTP’) or willingness to accept (‘WTA’) a particular outcome, through the use of specially-designed questionnaires. The cost of remediating damage, by contrast, is measured simply by estimating the costs involved in removing the source of the pollution. Inferring the price of an environmental good places emphasis on the value of that good to society, whereas measuring the cost of remediating the damage places emphasis on the resource implications of the environmental damage.108 The latter, says the Treasury, is useful for testing data obtained by the former (price inference) method. The implications of valuing the environmental good having been described, the Treasury then goes on to consider how the government subjects the cost of taking action to economic appraisal. Economic appraisal also helps to determine the most efficient extent of any intervention. There is a standard appraisal method, which is contained in what is colloquially known as the Treasury Green Book,109 although the government acknowledges that, particularly where significant changes are required, the costs of taking action may be difficult to substantiate. The Treasury uses as an example the process through which the former DETR went in deciding whether to impose what became the aggregates levy and, in the event that it was imposed, what would be the appropriate rate at which it should be charged.110 Essentially, the latter question involved estimating how much people valued avoiding the effect of quarrying for rock, sand or gravel both in their locality and in landscapes of national importance.111 In the aggregates levy consultation, 10,000 people, residing in the vicinity of 21 aggregates production sites, including quarries,112 were asked how much they would 107 For the distinctions between these, see Hilson, p. 74, and the 2002 paper, para. 5.10. 108 Pigou had not been particularly troubled about fixing the appropriate rate of tax, although he did refer to an inquiry in Manchester showing that an annual loss of £290,000 resulted from ‘the extra laundry costs, artificial light and damage to buildings as a result of heavy air pollution’ (quoted in David Gee, ‘Economic Tax Reform in Europe: Opportunities and Obstacles’, in Ecotaxation, ed. by Timothy O’Riordan (London: Earthscan, 1997), pp. 81–105, p. 87). 109 That is, HM Treasury, The Green Book: Appraisal and Evaluation in Central Government: Treasury Guidance (London: TSO, 2003). The methodology described therein involves, for example, discounting future costs and benefits to reflect the value that society places on the consumption of goods and services now, as compared with future consumption. 110 See para. 11.3.2 below. 111 See 2002 paper, Box 5.1, p. 19. See London Economics, The Environmental Costs and Benefits of the Supply of Aggregates (DETR: London, 1998); Susana Mourato and David Pearce, Environmental Costs and Benefits of the Supply of Aggregates: A Review of the London Economics Report (DETR: London, 1998); and London Economics, The Environmental Costs and Benefits of the Supply of Aggregates Phase 2 (DETR: London, 1999) (this last is referred to below as ‘Phase Two’). 112 The list of 21 was made up of eight sites carrying out sand and gravel operations; eight sites with hard rock quarries; three sites carrying out recycling operations and two marine aggregate wharves (see Phase Two, above, Annex 7). Phase Two included Swinden Quarry, a hard rock quarry near Skipton, North Yorkshire, in the Yorkshire Dales National Park (see Phase Two, photographs at Annex 6 thereto). 122 Environmental Taxation Law pay in the form of taxes, over a five-year period, for the quarry to be closed.113 This was a way of attributing a value to the environmental damage by those directly affected, so these were referred to as the ‘local surveys’. Following this, another 1,000 people, living in 21 postcode areas not located near quarries, were asked what they would pay to close a quarry in a National Park. This was a way of attributing a value to the damage by those who were only indirectly affected, so these were referred to as the ‘national survey’. The results of both local and national surveys having been processed, national estimates were calculated for the average amount that people were willing to pay for the environmental benefit of shutting down a quarry. The national average, though weighted according to the type of output, was calculated to be £1.80 per tonne.114 Finally, as to the question of whether, with regard to an externality, it is most appropriate to intervene at a local, national or international level, the Treasury makes some interesting distinctions. Road traffic congestion is characterised as a localised problem, best tackled using a road user charging (‘congestion charging’ or ‘cordon pricing’) scheme,115 at a local level. Problems of a national nature only (not particularised in detail) are best dealt with at the UK level,116 whilst transboundary problems (such as acid rain) are best dealt with at a European level and global problems (such as climate change) are best dealt with at an international level.117 5.6 Concluding remarks Following our discussion in Chapter 4 of the institutional structures within which environmental levies and subsidies are developed, implemented and enforced, we have sought to elucidate in the current chapter the technical justifications for these instruments. Thus, the Treasury, and therefore, UK government, justifies its green levies and subsidies primarily by reference to its policy on sustainable development, which is itself designed to implement the environmental commitments to which the UK is bound by various international treaties.118 We have seen how the economic arguments for economic instruments as a means of carrying through these commitments, have achieved an almost unchallengeable status, such that they may be 113 See Phase Two, para. 2.2. The specially-designed questionnaires used a specially-evolved (stated) contingent valuation method, based on WTP. In relation to the early closure of the quarry in question, people were generally asked to assume that the site was restored in keeping with the surrounding landscape, and that the workers found new employment (see 2002 paper, Box 5.1, p. 19, second para). See, generally, Valuing Environmental Preferences – Theory and Practice of the Contingent Valuation in the US, EU and Developing Countries, ed. by Ian J. Bateman and Ken G. Willis (Oxford: Clarendon Press, 1999). 114 When the aggregates levy was eventually introduced in April 2002, the rate was put at the more conservative £1.60 per tonne (see para. 13.2 below). 115 See 2002 paper, paras 5.26 and 5.32. 116 Ibid., paras 5.26 and 5.30. 117 Ibid., paras 5.26 and 5.28–5.29. 118 See Chapter 8 below. Technical Justifications 123 seen to prevail even where the evaluation methods they employ are, to say the least, controversial. That these arguments also have a part to play in the ongoing review of taxes dating back before 1997 is illustrated by the ongoing review of landfill tax, which will be considered in a later chapter.119 The 2002 Treasury paper is a profoundly interesting document, not least because, despite being separated from the government’s original Statement of Intent on environmental taxation by almost five years, it is remarkably consistent with that original Statement. In para. 8.6 of the paper, the Treasury states its aims of continuing to explore the use of economic instruments to achieve environmental and sustainable development objectives; of continuing to keep under review the impact of environmental policy on innovation; and of continuing to engage with stakeholders120 on the use and design of economic instruments.121 It also states its intentions of taking the lessons of the UK experience to European and international discussions on the issues surrounding the use of economic instruments in meeting environmental challenges.122 What is particularly interesting about the final chapter of the 2002 paper, however, is that, at the very end, it clearly acknowledges the limitations of the economic discipline as a basis for policy making, whilst at the same time emphasising the arguments that the discipline has to offer. In para. 8.4, it is said that ‘[e]conomics provides a useful framework for assessing the extent and nature of government action to deal with environmental issues, helping to inform judgments on how to balance environmental, economic and social impacts. So far as possible [it continues], the actions that the government takes and the targets that it sets or agrees to need to reflect the costs and benefits of those actions’. 119 See para. 11.4 below. 120 See above, n. 121 See 2002 paper, p. 45. 122 Ibid. This page intentionally left blank Chapter 6 Regulatory Context 6.1 Introduction The main purpose of the present chapter is to locate the UK’s environmental levies and their associated economic instruments within the broader context of UK environmental and market regulation.1 It would be possible to evolve a number of different structures, more or less theoretical, for such an investigation. Pragmatically, the one that we have evolved is to identify the range of regulatory instruments used to address particular environmental concerns, their selection being suggested by the spheres of operation of the various environmental levies and their associated economic instruments. Before turning, in the next chapter, to particular examples of the instruments just referred to, it will be necessary to introduce a pervasive feature of the regulatory scene, not only in the UK, but in the rest of the EU also: Integrated Pollution Prevention and Control (‘IPPC’). Our discussion of this concept, together with that of its older national forebear, Integrated Pollution Control (‘IPC’), is designed to form a backdrop to the subsequent examination of the specific regimes relating to the regulation of waste management,2 the control of air and atmospheric pollution;3 the regulation of air passenger and road freight transport,4 the regulation of mineral extraction5 and (briefly) the regulation of contaminated land.6 The list just recited of the various regulatory spheres as they have developed in Western Europe draws attention both to possible overlaps between the categories (for example, as between air and atmospheric pollution and transport regulation) and to the need to separate environmental regulation out from market regulation. Both are, in a sense, forms of economic regulation, depending on how widely the boundaries of economic science are set. To that extent, to draw a line of demarcation between the ‘environmental’ and ‘the market’ is artificial.7 Nonetheless, that the dichotomy 1 See, inter alia: Stuart Bell and Donald McGillivray, Environmental Law, 5th edn (London: Blackstone, 2000); Richard Burnett-Hall, Environmental Law (London: Sweet and Maxwell, 1995); David Hughes et al., Environmental Law, 4th edn (London: Butterworths LexisNexis, 2002); John F. McEldowney and Sharron McEldowney, Environmental Law and Regulation (London: Blackstone, 2001); Susan Wolf and Neil Stanley, Wolf and Stanley on Environmental Law, 4th edn (London: Cavendish, 2003); Justine Thornton and Silas Beckwith, Environmental Law, 2nd edn (London: Sweet and Maxwell, 2004); and Maurice Sunkin, David Ong and Robert Wight, Sourcebook on Environmental Law, 2nd edn (London: Cavendish, 2002). 2 See para. 6.3 below. 3 See para. 6.4 below. 4 See para. 6.5 below. 5 See para. 6.6 below. 6 See para. 6.7 below. 7 See Authors’ Preface above. 126 Environmental Taxation Law is to be found in the legislative materials under consideration appears to us to be incontrovertible. This is especially true, for instance, of energy regulation,8 where, as stated elsewhere, the ‘unbundling’ of formerly nationalised industries, such as gas and electricity supply, has been accompanied by the parallel but distinct development of environmental law and policy.9 More recently still, there have been attempts to graft onto the unbundling process a series of measures to safeguard environmental interests.10 The problems raised by this afterthought are, of course, a central preoccupation of the book. In what follows, we have tended to give the greatest weight to the explanation of regulatory issues which are either not covered elsewhere in the book or of which some preliminary understanding is necessary in order to be able to gain some insight into the strengths and weaknesses of the various levies and subsidies under consideration later on. In indicating in the present chapter the place of environmental levies and subsidies in the overall regulatory jigsaw, we have tended simply to cross-refer to the more detailed explanations of them which appear elsewhere in the study. In order to highlight the economic instruments, such as the environmental taxes, we have also adopted the traditional classification of command and control instruments, on the one hand, and economic instruments on the other. We are, of course, aware of the fact that, whilst superficially appealing, such a dichotomy may, on close examination, cease to exist. For instance, waste management licensing is seen as a command and control instrument, yet the licence fee may be viewed as an economic one, a pure case of the polluter having to pay. Likewise, an emissions trading system may seem to typify the concept of the economic instrument, yet no such system will succeed unless there is built into it a system of sanctions for non-compliance.11 We begin, as mentioned above, with cross-sectoral regulation. After considering IPC and IPPC, we go on briefly to consider the Environmental Impact Assessment (‘EIA’) regime and the newer regime for Strategic Environmental Assessment (‘SEA’). Like much of what follows, the policy inspiration here is a Community-wide one and, to the extent that these two concepts shift attention back to the process of planning operations with potentially very significant environmental impacts, they are of the greatest significance to an important element in the rest of the study. Ironically, as we shall see, EIA and SEA may actually prove of particular significance in the 8 See Energy Law in Europe: National, EU and International Law and Institutions, ed. by Martha M. Roggenkamp et al. (Oxford: Oxford University Press, 2001). See also United Kingdom Oil and Gas Law, ed. by Terence Daintith and Geoffrey Willoughby (London: Sweet and Maxwell, 1984); Patricia D. Park, Energy Law and the Environment (London: Taylor and Francis, 2002); and Energy Law and Regulation in the European Union, ed. by Robert H. Tudway et al. (London: Sweet and Maxwell, 1999). 9 It seems appropriate to deal with UK energy regulation first, since, during the 1990s, the ‘British model of privatisation’ has been taken up by the European Commission (see Dieter Helm, Energy, the State and the Market: British Energy Policy since 1979, revised edn (Oxford: Oxford University Press, 2004), pp. 372–3). 10 See, for example, s.4AB, Gas Act 1986, and s.3B, Electricity Act 1989 (Guidance on social and environmental matters) and s.33BC, Gas Act 1986, and 41A, Electricity Act 1989 (Promotion of the efficient use by consumers of gas/electricity). 11 See para. 1.4.2.1 above. Regulatory Context 127 electricity sector, where there is currently some evidence that they are hindering the development of renewables generation.12 6.2 Integrated Pollution Control, Integrated Pollution Prevention and Control and Environmental Assessment 6.2.1 Introduction United Kingdom environmental regulation takes effect within the framework created by two overarching regulatory regimes: Integrated Pollution Control (‘IPC’) and Integrated Pollution Prevention and Control (‘IPPC’). The basis of the IPC regime is Part I of the Environmental Protection Act 1990, whilst that of IPPC is the Integrated Pollution Prevention and Control Directive,13 as transcribed into the law of England and Wales by the Pollution Prevention and Control Act 1999 and the Pollution Prevention and Control (England and Wales) Regulations 2000.14 The IPC regime represents an early attempt to coordinate the control of pollution by specific regulation of all of the emissions from certain prescribed industrial processes.15 The objective of IPPC, by contrast, is much wider, the general approach of the IPPC legislation being to ‘prevent, reduce and (if possible) to eliminate pollution and environmental impact as a whole’.16 Integrated Pollution Prevention and Control has enhanced the role of local authorities17 in the prevention and control of pollution;18 it should have replaced IPC by 2007. 6.2.2 Integrated Pollution Control Part I of the Environmental Protection Act 1990 creates two systems of pollution regulation: IPC, now under the control of the Environment Agency,19 and Local Authority Air Pollution Control (‘LAAPC’). The former was intended to regulate the most seriously polluting processes, whilst the latter was intended for those processes which are clearly in need of regulation but which are not so grave as to require centralised control. 12 See para. 6.2.4 below. 13 Council Directive 96/61/EEC, (1996) OJ L25,7 26 (see para. 12.2.2 below). 14 S.I. 2000 No. 1973. According to Bell and McGillivray, op. cit., the IPPC Directive was one of the first items of Community environmental legislation to be transposed and implemented in the devolved UK (ibid., p. 383). See paras 1.3 and 4.2.2 above. 15 For the background, see Royal Commission on Environmental Pollution, Fifth Report on Air Pollution Control: An Integrated Approach (Cmnd 6731, 1976). 16 Bell and McGillivray, op. cit., p. 386. 17 See para. 4.2.3 above. 18 See the Pollution Prevention and Control (England and Wales) Regulations 2000, S.I. 2000 No 1973, reg. 8 and Sched. 1 (Part A and Part B Installations within each Section of the Sched). See also Wolf and Stanley, op. cit., p. 291, for a further explanation. 19 See para. 4.2.1.3(1) above. 128 Environmental Taxation Law By s.6(1), Environmental Protection Act 1990, no person must carry on a prescribed process ‘except under an authorisation granted by the enforcing authority and in accordance with the conditions to which it is subject’. Additionally, by Environmental Protection Act 1990, s.2(5), the Secretary of State for Environment, Food and Rural Affairs20 may, by regulations, ‘prescribe any description of substance as a substance the release of which into the environment is subject to control’ under s.6 of the Act. A prescribed process is a process21 for the carrying on of which an authorisation is required by regulations.22 The regulations in question, the Environmental Protection (Prescribed Processes and Substances) Regulations 1991,23 contain two lists of processes, ‘A’ and ‘B’, in Sched. 1 thereto, the more seriously polluting processes falling within List A. Prescribed substances appear within Scheds 4–6, Environmental Protection (Prescribed Processes and Substances) Regulations 1991. Within Sched. 1, the prescribed processes are grouped within six chapters, according to sector: 1 fuel production processes, combustion processes and associated processes;24 2 metal production and processing;25 3 mineral industries;26 4 the chemical industry;27 5 waste disposal and recycling;28 and 6 other industries.29 Schedule 4 contains prescribed substances released into the air; Sched. 5 contains prescribed substances released into water; and Sched. 6 contains prescribed substances released into land. The exemptions appearing in the Environmental Protection (Prescribed Processes and Substances) Regulations 1991, reg. 4, apply to those processes in which the amount of a prescribed substance released is very small. Authorisations are covered by Environmental Protection Act 1990, s.6 and Sched. 1. It is a criminal offence to carry on a prescribed process or to discharge a prescribed substance without prior authorisation.30 This is punishable, on summary conviction, by a fine not exceeding £20,000 or by imprisonment for a term not exceeding three months (or both). On conviction on indictment, it is subject to an unlimited fine or to imprisonment for a term not exceeding two years or to both.31 20 See para. 4.2.1.2(1) above. 21 See Environmental Protection Act 1990, s.1(5). 22 Ibid., s.2(1). 23 S.I. 1991 No. 472, as amended at least eight times. 24 Environmental Protection (Prescribed Processes and Substances) Regulations 1991, S.I. 1991 No. 472, Sched. 1, ch. 1. 25 Ibid., Sched. 1, ch. 2. 26 Ibid., Sched. 1, ch. 3. 27 Ibid., Sched. 1, ch. 4. 28 Ibid., ch. 5. 29 Ibid., Sched. 1, ch. 6. 30 Environmental Protection Act 1990, s.23(1)(a). 31 Ibid. Regulatory Context 129 The enforcing authority, as mentioned above, is either the Environment Agency32 or the local authority.33 List A processes are designated for central control, whilst List B processes are designated for local control.34 Section 7, Environmental Protection Act 1990, deals with the imposing of conditions on the grant of authorisations. By s.6(3), Environmental Protection Act 1990, on an application for an authorisation, the enforcing authority shall: … either grant the authorisation subject to the conditions required or authorised to be imposed by section 7 … or refuse the application. In s.7 are stated the considerations that the enforcing authority may take into account in granting an authorisation and the objectives for which the conditions may be imposed. Among these objectives is that of ensuring that, in carrying on a prescribed process, the best available techniques not entailing excessive cost (‘BATNEEC’) will be used for preventing or reducing the release of prescribed substances.35 The enforcing authority has wide powers, including: 1 varying and revoking authorisations;36 2 serving enforcement notices37 and prohibition notices;38 and 3 power to take reasonable steps to remedy the harm.39 6.2.3 Integrated Pollution Prevention and Control Section 2, Pollution Prevention and Control Act 1999, empowers, inter alia, the Secretary of State for Environment, Food and Rural Affairs, to make regulations for particular purposes, including: 1 establishing standards, objectives or requirements in relation to emissions;40 2 authorising the making of plans for the setting of overall limits, the allocation of quotas or the progressive improvement of standards or objectives;41 and 3 authorising the making of schemes for the trading or other transfer of quotas so allocated.42 Most importantly, Sched. 1, Pt 1, para. 4, of the 1999 Act empowers the Secretary of State to prohibit persons from operating any installations or plant of any specified 32 See para. 4.2.1.3 above. 33 See para. 4.2.3 above. 34 Environmental Protection Act 1990, s.5. 35 Ibid., s.7(2). 36 Ibid., ss.10–12. 37 Ibid., s.13. 38 Ibid., s.14. 39 Ibid., s.27. 40 Pollution Prevention and Control Act 1999, Sched. 1, Pt 1, para. 1(1). 41 Ibid., Sched. 1, Pt 1, para. 1(2). 42 Ibid., Sched. 1, Pt 1, para. 1(3). 130 Environmental Taxation Law description or otherwise carrying on any activities of any specified description, except under a permit in force under regulations and in accordance with any conditions to which the permit is subject.43 The Pollution Prevention and Control Act 1999 also empowers the Secretary of State for Environment, Food and Rural Affairs to make schemes for fees and charges in respect of applications for the grant, variation, subsistence, transfer or surrender of permits or testing substances and regulations may require charges to be so framed as to cover expenditure.44 Pollution Prevention and Control (England and Wales) Regulations 200045 represent the exercise of these powers in England and Wales. The basic provision of Pollution Prevention and Control (England and Wales) Regulations 2000 is that ‘no person shall operate an installation or mobile plant except under, and to the extent authorised by, a permit granted by the regulator’.46 An installation is a stationary technical unit where prescribed activities are carried out and any other location on the same site where any other directly associated activities are carried out.47 Mobile plant is plant designed to move or to be moved, whether on roads or otherwise, and which is likewise used to carry out prescribed activities.48 The descriptions of these activities are immensely detailed, but cover: 1 combustion activities, gasification, liquefaction and refining activities, in the energy industries;49 2 the production and processing of metals and the surface treating of metals and plastic materials, in the production and processing of metals;50 3 the production of cement and lime, activities involving asbestos, manufacturing glass and glass fibre, the production of other mineral fibres, other mineral activities and ceramic production, in the mineral industries;51 4 in the chemical industry, producing both organic and inorganic chemicals, chemical fertilisers, plant health products and biocides, pharmaceutical products and explosives, manufacturing activities involving carbon disulphide or ammonia and the storage of chemicals in bulk;52 5 the disposal of waste by landfill, as well as the disposal of waste other than by incineration or landfill, the recovery of waste and the production of fuel from waste, in the waste management industry;53 and 43 Pollution Prevention and Control Act 1999, Sched. 1, Pt 1, para. 1(4). 44 Ibid., Sched. 1, Pt 1, para. 24. 45 S.I. 2000 No. 1973. 46 Pollution Prevention and Control (England and Wales) Regulations 2000, S.I. 2000 No. 1973, reg. 9(1). 47 Ibid., reg. 2(1). 48 Ibid., reg. 2(1). 49 Ibid., Sched. 1, Pt 1, Ch. 1, Section 1.1. 50 Ibid., Sched. 1, Pt 1, Ch. 1, Sections 2.1–2.3. 51 Ibid., Sched. 1, Pt 1, Ch. 1, Sections 3.1–3.6. 52 Ibid., Sched. 1, Pt 1, Ch. 1, Sections 4.1–4.8. 53 Pollution Prevention and Control (England and Wales) Regulations 2000, S.I. 2000 No. 1973, Sched. 1, Pt 1, Ch. 1, Sections 5.1–5.5. Regulatory Context 131 6 other activities, that is, paper, pulp and board manufacturing activities; carbon activities; tar and bitumen activities; coating activities, printing and textile treatments; the manufacture of dyestuffs, printing ink and coating materials; timber activities; activities involving rubber; the treatment of animal and vegetable matter and food industries; and intensive farming.54 When determining the conditions to be attached to a permit, the regulator is obliged to take account of certain general principles.55 Installations and plant should be operated in such a way that: (a) all the appropriate preventative measures are taken against pollution, in particular through application of the best available techniques [BAT]; and (b) no significant pollution is caused.56 Regulation 12, Pollution Prevention and Control (England and Wales) Regulations 2000, specifies the conditions that must be included in a permit, and the concept of best available techniques (‘BAT’) is elaborated in reg. 3. There, ‘best’ is defined as meaning the most effective techniques in achieving a high general level of protection of the environment as a whole; ‘available’ means those techniques that have been developed ‘on a scale that allows implementation in the relevant industrial sector under economically and technically viable conditions’; and ‘techniques’ includes ‘both the technology used and the way in which the installation is designed, built, maintained, operated and decommissioned’. Regulation 4 contains particular provision for the case where the regulator has to decide whether or not a person is a ‘fit and proper person to carry out a specified waste management activity’.57 A person will not be fit and proper to carry out those activities if, for example, he has not made adequate financial provision to discharge his obligations under the permit.58 The IPPC regulator59 has a large number of enforcement powers, including the power to serve enforcement notices;60 the power to serve a revocation notice, revoking all or part of the activities authorised by the permit;61 and the power to serve a suspension notice if it considers that the operation of an installation involves an imminent risk of serious injury.62 There is also a range of criminal offences 54 Ibid., Sched. 1, Pt 1, Ch. 1, Sections 6.1–6.9. 55 Ibid., reg. 11(1). 56 Ibid., reg. 11(2). There are additional principles in the case of mobile plant (see reg. 11(3)). 57 See point 5 above. 58 See Pollution Prevention and Control (England and Wales) Regulations 2000, S.I. 2000 No. 1973, reg. 4(3)(c). 59 Who may be either the Environment Agency (see para. 4.2.1.3 above) or the relevant local authority (see para. 4.2.3 above). 60 Pollution Prevention and Control (England and Wales) Regulations 2000, S.I. 2000 No. 1973, reg. 24. 61 Ibid, reg. 21. 62 Ibid., reg. 25. 132 Environmental Taxation Law involving permits,63 the maximum penalty on summary conviction being a fine of up to £20,000 and/or imprisonment for a period of up to six months, with the maximum penalty on conviction on indictment being an unlimited fine and/or imprisonment for a period up to five years.64 6.2.4 Environmental Impact Assessment and Strategic Environmental Assessment It is important at this stage to note a second overarching set of provisions which are designed to ensure that, when a public authority is considering plans for public and private projects, it takes account of their environmental impacts.65 These provisions originate from the Environmental Impact Assessment Directive (‘the EIA Directive’), which is examined in some detail in a later chapter of the study,66 the legislative basis of the provisions being s.2(2) of the European Communities Act 1972. In England and Wales, the EIA Directive has been implemented by the Town and Country Planning (Environmental Impact Assessment) (England and Wales) Regulations 1999,67 together with a number of other sets of regulations which cover projects falling outside the scope of the law on town and country planning.68 The requirement for an EIA in relation to specific projects has been considered in a number of important cases in this jurisdiction, including R v. North Yorkshire County Council, ex parte Brown69 and Berkeley v. Secretary of State for the Environment, Transport and the Regions (No. 1).70 In the former case, the House of Lords rejected an argument by the County Council that there had been no necessity for an EIA in a case where it had simply imposed conditions on a planning permission of indefinite duration originally granted in 1947 for the working of Wensley Quarry, at Prestonunder- Scar, in the Yorkshire Dales. The Council had imposed the conditions under s.22 of the Planning and Compensation Act 1991 and, in support of its argument, it had contended that s.22 involved merely the detailed regulation of activities for which the principal consent had already been given in 1947. Clearly unimpressed with the argument, Lord Hoffmann said: The procedure created by the Act of 1991 was not merely a detailed regulation of a project in respect of which the substantial environmental issues had already been considered. The purpose of the procedure was to give the mineral planning authority [that is, the Council] a 63 Ibid., reg. 32. 64 Ibid., regs 32(2) and 32(3). 65 See Stephen Tromans and Karl Fuller, Environmental Impact Assessment: Law and Practice (London: LexisNexis Butterworths, 2003). 66 See para. 12.2.4 below. 67 S.I. 1999, S.I. No. 293. 68 For example, the Environmental Assessment (Afforestation) Regulations 1988, S.I. 1988 No. 1207, and the Land Drainage Improvement Works (Assessment of Environmental Effects) Regulations 1988, S.I. 1988 No. 1217. 69 [2000] 1 AC 397. 70 [2001] 2 AC 603. Regulatory Context 133 power to assess the likely environmental effects of old mining permissions which had been granted without, to modern ways of thinking, any serious consideration of the environment at all.71 Similarly, in the Berkeley case, the House of Lords dismissed the argument put on behalf of the Secretary of State that, where substantial compliance with the EIA Directive’s requirements could be demonstrated by reference to public documents, the fact that no EIA had actually taken place did not invalidate a planning permission. In dismissing this argument also, Lord Hoffmann said: My Lords, I do not accept that this paper chase72 can be treated as the equivalent of an environmental statement73 … The point about the environmental statement contemplated by the Directive is that it constitutes a single and accessible compilation, produced by the applicant at the very start of the application process, of the relevant environmental information and the summary in non-technical language.74 Although both the Brown and the Berkeley cases involved the interpretation of the predecessor regulations dating from 1988, they each illustrate the strictness with which the courts approach the question of whether there has been compliance with the requirements of the Directive.75 Against the background of a transposition of the EIA Directive, which has hardly been free from difficulty, the ODPM76 consulted in spring 200477 on the implementation of the Strategic Environmental Assessment (‘SEA’) Directive.78 This was transposed into UK law, on time, in July 2004, via four separate sets of regulations for each of the UK’s four countries.79 Attention has recently been focused on SEAs since they are needed for the development of arrays of coastal wave power devices for electricity generation. The lack of an SEA for the southwest coast of England has been a matter of considerable concern to developers (and others) looking to wave power as a form of renewables generation.80 71 [2000] 1 AC 397, 405. 72 That is, a close reading of the documentation actually submitted in the case. 73 That is, as required by Council Directive 85/337/EEC, (1985) OJ L175 40, Arts 5, 6(2) and Annex IV. See para. 12.2.4 below. 74 [2001] 2 AC 603, 617. 75 But see the argument on the failure to carry out an EIA in R (on the application of The Mayor, Citizens of Westminster and others) v. The Mayor of London, [2002] EWHC 2440. See para. 18.2 below. 76 See para. 4.2.1.2(1) above. 77 See Office of the Deputy Prime Minister, Consultation Document on Implementation of SEA Directive (2001/42/EC), March 2, 2004 (available from www.odpm.gov.uk). 78 See para. 12.2.4 below. 79 See, for example, for England, Environmental Assessment of Plans and Programmes Regulations 2004, S.I. 2004 No. 1633. See also para. 1.3 above. 80 See 346 ENDS Report (2003). 134 Environmental Taxation Law 6.3 Waste management regulation 6.3.1 The international and European Union background United Kingdom waste management regulation operates within the broader context of public international law and Community law on the regulation of waste. That broader context is considered in Chapters 8 and 12 below. 6.3.2 Command and control The regulation of waste management has, until very recently, been dominated by command and control regulation.81 The key set of provisions appears in Part II of the Environmental Protection Act 1990, but account must also be taken of the relationship between Part II, Environmental Protection Act 1990, and both IPC (in Part I of the same statute) and IPPC (in the Pollution Prevention and Control Act 1999).82 The Environmental Protection Act 1990, ss.44A and 44B, place an obligation on the Secretary of State for Environment, Food and Rural Affairs to prepare a national waste strategy for England and Wales. This is currently contained in what was then the DETR’s83 Waste Strategy 2000 for England and Wales, of May 2000.84 Three principal targets of the strategy are: to reduce, by 2005, the amount of industrial and commercial waste sent to landfill to 85 per cent of 1998 levels; to recover value from 45 per cent of municipal waste by 2010 and to recycle or compost at least 30 per cent of household waste by that date; and to recover value from two-thirds of municipal waste by 2015, with at least 33 per cent of household waste being recycled or composted by the same date. Following concern that the targets in Waste Strategy 2000 would not be met, the Strategy was reviewed by the Cabinet Office Strategy Unit85 in November 2002 in its now-famous Waste Not, Want Not document.86 The Strategy Unit criticised Waste Strategy 2000 for giving too little attention to minimising waste (the Strategy not containing any waste minimisation targets)87 and for failing to create ‘… the economic and regulatory framework and enough associated policy tools to deliver tangible improvements in waste minimisation, re-use and recycling’.88 Waste Not, Want Not made over 30 recommendations for taking forward and monitoring by Defra.89 The recommendations included raising landfill tax to £35 per tonne for 81 See Duncan Laurence, Waste Regulation Law (London: Butterworths, 1999). 82 See para. 6.2 above. 83 See para. 4.2.1.2(1) above. 84 Department of Environment, Transport and the Regions, Waste Strategy 2000 for England and Wales (Cm 4693, 2000). 85 See para. 4.2.1.2(1) above. 86 Cabinet Office Strategy Unit, Waste Not, Want Not: A Strategy for Tackling the Waste Problem in England (London: Cabinet Office Strategy Unit, 2002). 87 Ibid., p. 30. 88 Cabinet Office Strategy Unit, op. cit., p. 30. 89 Ibid., pp. 116–39. Regulatory Context 135 active waste90 and keeping under review the case for an incineration tax.91 They were subsequently implemented in the government’s Waste Implementation Programme (‘WIP’), which began in June 2003.92 6.3.2.1 Environmental Protection Act 1990, Part II There are three main elements in the Environmental Protection Act 1990: 1 a waste management licensing system; 2 a statutory duty of care in relation to how waste is handled; and 3 a reorganisation of the functions of the regulatory authorities between Waste Regulation Authorities (‘WRAs’), Waste Disposal Authorities (‘WDAs’) and Waste Collection Authorities (‘WCAs’). The WRAs were formerly the County Councils93 but, as a result of amendments made to the Environmental Protection Act 1990 by the Environment Act 1995, the WRA is now the Environment Agency.94 Generally speaking, the WDA is the County Council is a non-metropolitan area and the District Council in a metropolitan area.95 The WDA has a duty to arrange for the disposal of controlled waste (that is, household, industrial and commercial waste)96 collected by the WCA in the area in question.97 The WCA has a duty to arrange for the collection of household waste and of commercial waste when so requested.98 Although, in certain circumstances, a WCA may charge for the collection of household waste, the collection of such waste is generally free of charge. The same is not true of industrial or commercial waste, the collection and disposal of which is subject to the payment of some reasonable amount.99 Crucial to the whole system, of course, is the definition of ‘waste’ itself. Although it is possible to restate this definition in brief compass, the definition in practice gives rise to a range of potentially extremely complex issues. ‘Waste’ is defined in Environmental Protection Act 1990, s.75(2), as: 90 Ibid., p. 124. 91 Ibid., p. 127. 92 See Department for Environment, Food and Rural Affairs, WIP: One Year On, June 2004, available from www.defra.gov.uk. 93 See para. 4.2.3 above. 94 See para. 4.2.1.3 above. 95 See para. 4.2.3 above. See also Wolf and Stanley, op. cit., p. 203. The authors would like to acknowledge a particular debt to this work in this para. 6.3. 96 See Environmental Protection Act 1990, s.75(4), and the Controlled Waste Regulations 1992, S.I. 1992 No. 588 (see Thanet District Council v. Kent County Council, [1993] Env LR 391). ‘Household waste’ is defined in the Environmental Protection Act 1990, s.75(5); ‘industrial waste’ is defined in the Environmental Protection Act 1990, s.75(6); and ‘commercial waste’ is defined in the Environmental Protection Act 1990, s.75(7). 97 Ibid., s.51. 98 Ibid., s.45. 99 Ibid., s.45(4). 136 Environmental Taxation Law … any substance or object in the categories set out in Schedule 2B to this Act which the holder discards or intends or is required to discard; and for the purposes of this definition – ‘holder’ means the producer of the waste or the person who is in possession of it; and ‘producer’ means any person whose activities produce waste or any person who carries out pre-processing, mixing or other operations resulting in a change in the nature or composition of this waste.100 Environmental Protection Act 1990, Sched. 2B, provides a non-exhaustive list of items that count as waste (for example, off-specification products, residues from industrial processes and pollution abatement processes, adulterated materials, etc.) when they have been discarded.101 Thus, for the purposes of Environmental Protection Act 1990, s.75, in determining whether an item is ‘waste’, it is crucial to decide whether it has been ‘discarded’.102 What constitutes discarding has been a matter of considerable controversy in the context of landfill tax,103 since that tax is charged on disposals of material as waste.104 In the context of Environmental Protection Act 1990, the ECJ has held that ‘discard’ has a special meaning that includes both the consignment of waste for disposal and the consignment of waste to a recovery operation.105 This definition was followed by Carnwath, J. in Mayer Parry Recycling Ltd v. Environment Agency (No. 1),106 where it was held that a company, part of whose business involved receiving scrap metal and dealing with it so that steel manufacturers could use it for making other items, was managing ‘waste’.107 Besides the concept of ‘controlled waste’, there is also that of ‘special waste’. Special waste is controlled waste in respect of which the Secretary of State for Environment, Food and Rural Affairs has made an order under the Environmental Protection Act 1990, s.62.108 It includes waste that is especially ‘… dangerous or 100 This incorporates the definition in the Waste Framework Directive, Council Directive 75/442/EEC, (1975) OJ L194 39, Art. 1(a). Waste falling within this definition is therefore often known as ‘Directive Waste’. 101 See para. 12.2.5.2 below. 102 See, for example, J. Cheyne and M. Purdue, ‘Fitting definition to purpose: the search for a satisfactory definition of waste’, [1995] 7 JEL 149. See also the articles cited at para. 12.2.5.2n below. 103 See para. 15.2 below. 104 See para. 1.4.2.1(1) above. 105 See Criminal proceedings against Euro Tombesi and others, Joined Cases C–304/94, C–330/94, C–342/94 and C–224/95, [1997] ECR I–3561; Inter-Environnement Wallonie ASBL v. Region Wallonne, C–129/96, [1998] 1 CMLR 1057; and ARCO and EPON, Joined Cases C–418–419/97, [2002] QB 646. See further para. 12.2.5.2 below. 106 [1999] Env LR 489. See also Parkwood Landfill Ltd v. C & E Commrs, [2002] STC 1536. 107 With the result that it therefore required the appropriate licences under the regulations described in (a) below. In Mayer Parry Recycling Ltd v. Environment Agency (No. 1), Carnwath, J. held that the material continued to be waste until the completion of the recovery process (as to the position when that process has been completed, see Castle Cement v. Environment Agency, [2001] EWHC Admin 224 (Stanley Burnton, J.); [2001] Env LR 46). 108 See Environmental Protection Act 1990, s.75(9). Regulatory Context 137 difficult to treat, keep or dispose of’ (for example, because it is explosive, flammable or carcinogenic, etc.).109 The exclusions from the definition of commercial waste in the Environmental Protection Act 1990, s.75, include waste from any mine or quarry.110 (1) Waste management licensing system Environmental Protection Act 1990, ss.35–44, contain a framework for the management of waste. The detail is contained in the Waste Management Licensing Regulations 1994.111 Both sets of provisions are intended to comply with the Waste Framework Directive (‘the WFD’).112 Details of the basic provisions of the 1990 Act are as follows:113 a. Section 35(1) gives the following definition of a waste management licence: … a licence granted by a waste regulation authority114 authorising the treatment, keeping or disposal of any specified description of controlled waste in or on specified land or the treatment or disposal of any specified description of controlled waste by means of specified mobile plant. Subsections (3) and (4) of s.33, Environmental Protection Act 1990, give the Secretary of State for Environment, Food and Rural Affairs the power to exempt certain activities from the licensing system. The activities thus exempted include those covered by other statutory controls (for example, IPC)115 as well as those falling within an exhaustive list,116 which includes the temporary storage of waste, on the site where it is produced, pending its collection.117 b. The licence is granted to the person who is in occupation of the land (that is, to ‘the site operator’) or, in the case of a mobile waste treatment plant, the person who operates the plant.118 c. The Environment Agency’s circumscribed discretion in relation to the grant of licences is contained in Environmental Protection Act 1990, s.36. The Agency must refuse to issue a licence if planning permission is required in relation to the land and no such planning permission is in force.119 Otherwise, the Agency 109 See Special Waste Regulations 1996, S.I. 1996 No. 972. 110 See Environmental Protection Act 1990, s.75(7), and the Mines and Quarries (Tips) Act 1969. 111 S.I. 1994 No. 1056. 112 See para. 12.2.5.1(1) below. 113 It should be noted, of course, that the grant of a waste management licence does not obviate the need to comply with town and country planning law (see Hughes, op. cit., pp. 423–6). 114 That is, the Environment Agency (see para. 4.3.2(1) above). 115 Waste Management Licensing Regulations 1994, S.I. 1994 No. 1056, reg. 16 (see below). 116 Ibid., reg. 17 and Sched. 3. 117 Ibid., Sched. 3, para. 41(1). 118 Environmental Protection Act 1990, s.35(2). 119 Ibid., s.36(2). 138 Environmental Taxation Law must not reject the application if it is satisfied that the applicant is a fit and proper person, unless: … it is satisfied that its rejection is necessary for the purpose of preventing– (a) pollution of the environment; (b) harm to human health; or (c) serious detriment to the amenities of the locality …120 d. The grant of a licence may be made subject to such terms and conditions relating to the activities that the licence authorises and to the precautions to be taken and works to be carried out.121 e. Section 43, Environmental Protection Act 1990, provides for there to be a right of appeal from decisions of the Environment Agency to the Secretary of State. f. By Environmental Protection Act 1990, s.33(1), it is an offence to deposit, treat, keep or dispose of controlled waste except in accordance with a waste management licence.122 Breach of the section makes the wrongdoer liable to imprisonment for up to six months or a fine not exceeding £20,000 or both (on summary conviction); or to imprisonment for up to two years and/or a fine (on conviction on indictment).123 g. Fees are payable to the Agency for the grant, modification, transfer, etc., of the waste management licence.124 This is a practical example of the polluter pays principle.125 (2) Statutory duty of care as to handling of waste Section 34 of the Environmental Protection Act 1990, imposes a duty on various categories of persons (including importers, producers and carriers) to take all such measures applicable to them in that capacity as are reasonable in the circumstances: a. ‘to prevent contravention by any other person’ of Environmental Protection Act 1990, s.33;126 b. to ‘prevent the escape of waste from his control or that of any other person’; and c. on the transfer of the waste, to secure that the transfer is to an authorised person or for authorised transport purposes only and to ensure that sufficient written description of the waste is provided to anyone to whom the waste is transferred.127 120 Ibid., s.36(3). 121 Ibid., s.35(3). 122 Ibid., s.33(1). 123 Ibid., s.33(8) and (9). The penalties are harsher in relation to special waste (see s.33(9) and para. 6.3.2.6 below). 124 See Environment Act 1995, s.41, and the Environmental Licences (Suspension and Revocation) Regulations 1996, S.I. 1996 No. 508. 125 See para. 6.2.3 above. 126 See para. 6.3.2.1(1)(a) above. 127 Environmental Protection Act 1990, s.34(1) (see also Environmental Protection (Duty of Care) Regulations S.I. 1991 No. 2839). Regulatory Context 139 The only exception to the duty of care is for occupiers of domestic property with regard to household waste produced on their property.128 Breach of the duty of care in s.34 is a criminal offence. It is punishable, on summary conviction, by a fine not exceeding the statutory maximum and, on conviction on indictment, by a fine.129 6.3.2.2 Integrated Pollution Control Regulation 16(1)(a) of the Waste Management Licensing Regulations 1994130 provides that the recovery or disposal of waste under an IPC authorisation, where the activity is, or forms part of, a process designated for central control,131 is exempt from the need for a waste management licence. Moreover, no condition can be attached to an IPC authorisation that regulates the final disposal of directive waste in or on land.132 6.3.2.3 Integrated Pollution Prevention and Control The IPPC applies to the disposal of waste by incineration,133 by landfill134 or by other specified means.135 It also applies to the recovery of waste136 and the production of fuel from waste.137 Prior to June 2002,138 landfill sites were either subject to the Waste Management Licensing Regulations 1994139 or to the IPPC Regime. If a landfill site fell outside the wording of the relevant definition in the Pollution Prevention and Control (England and Wales) Regulations 2000,140 then it would fall within the licensing system of Part II of the Environmental Protection Act 1990.141 The IPPC regime has recently been extended to all landfill sites pursuant to the measure discussed in the following para.142 128 Environmental Protection Act 1990, s.34(2). 129 Ibid., s.34(6). 130 S.I. 1994 No. 1056. See para. 6.3.2.1(1)(a) above. 131 That is, under Environmental Protection Act 1990, s.2(4). 132 Ibid., s.28(1). 133 See the Pollution Prevention and Control (England and Wales) Regulations 2000, S.I. 2000 No. 1973, Sched. 1, Pt 1, Ch. 1, section 5.1. 134 Ibid., Sched. 1, Pt 1, Ch. 1, section 5.2. 135 Ibid., Sched. 1, Pt 1, Ch. 1, section 5.3. 136 Ibid., Sched. 1, Pt 1, Ch. 1, section 5.4. 137 Ibid., Sched. 1, Pt 1, Ch. 1, section 5.5. 138 See the Landfill (England and Wales) Regulations 2002, S.I. 2002 No. 1559, reg. 1(2). 139 See para. 6.3.2(1)(a) above. 140 See S.I. 2000 No. 1973, Sched. 1, Pt 1, Ch. 1, section 5.2. 141 See para. 6.3.2.1(1)(a) above. 142 See the Landfill (England and Wales) Regulations 2002, S.I. 2002 No. 1559, reg. 6(1). See para. 6.3.2.4 below. 140 Environmental Taxation Law 6.3.2.4 Implementation of the Landfill Directive The Landfill Directive143 aims for a 65 per cent reduction, on the basis of 1995 waste arisings, in the amount of methane producing, biodegradable household and municipal waste that is disposed of in landfill sites.144 Although the means by which the Waste and Emissions Trading Act 2003 seeks to achieve these targets are largely in the form of economic instruments,145 Part 1 of the 2003 Act places a duty on the Secretary of State for Environment, Food and Rural Affairs to set the maximum amount of biodegradable municipal waste to be sent to landfill from each of the UK’s constituent countries.146 The UK, as an EU Member State which sent more than 80 per cent of its collected municipal waste to landfills in 1995, qualifies for the fouryear derogation from the 2016 target.147 The need to comply with the terms of the Landfill Directive148 has also given rise to the creation of a special regulatory regime for landfill sites. The regime is contained in the Landfill (England and Wales) Regulations 2002.149 The 2002 regulations apply to ‘landfills’, the concept of a landfill being defined, subject to certain exclusions,150 as ‘a waste disposal site for the deposit of the waste onto or into land’.151 Specifically excluded from the scope of the regulations, among other things, is ‘the use of suitable inert waste for redevelopment, restoration and filling-in work or for construction purposes’.152 The regulations operate by modifying the conditions under which an IPPC permit relating to the disposal of waste in a landfill (referred to as a ‘landfill permit’)153 may be granted under the Pollution Prevention and Control (England and Wales) Regulations 2000.154 Besides specifying the conditions to be contained in a landfill permit,155 procedures for accepting waste at landfills156 and the inspection, control and monitoring of landfills by the Environment Agency,157 the regulations contain four key sets of provisions: 143 Council Directive 99/31/EC, (1999) OJ L182 1. 144 See para. 12.2.5.1(2)(b) below. 145 See para. 6.3.3 below. 146 Waste and Emissions Trading Act 2003, s.1. 147 See para. 12.2.5.1(2)(b) below. 148 Council Directive 99/31/EC, (1999) OJ L182 1. 149 S.I. 2002, No. 1559. 150 Ibid., regs 3(4) and 4. 151 Ibid., reg. 3(2). See Blackland Park Exploration Ltd v. Environment Agency, [2003] EWCA Civ 1795, [2003] All ER (D) 249 (Dec). There, the CA (Simon Brown, Mummery and Scott Baker, L.JJ.) held that the disposal of hazardous liquid industrial wastes through a borehole into strata around 1,000 metres below sea level was a deposit ‘into land’ within the 2002 regulations and that the site was therefore a ‘landfill’. 152 S.I. 2002, No. 1559, reg. 4(b). 153 Ibid., reg. 6(2). 154 S.I. 2000, No. 1973. See para. 6.2.3 above. 155 S.I. 2002, No. 1559, reg. 8. 156 Ibid., reg. 12. 157 Ibid., regs 13 and 14. Regulatory Context 141 1 when considering the grant of planning permission for a landfill, the relevant planning authority must take into consideration specific matters relating to its location which indicate that the landfill ‘does not pose a serious environmental risk’;158 2 before granting a landfill permit, the Environment Agency must classify the landfill as a landfill for hazardous waste,159 a landfill for non-hazardous waste160 or a landfill for inert waste161 and must ensure that the classification is given in the landfill permit;162 3 an absolute ban on the acceptance at landfills of certain types of waste, including any waste in liquid form (including waste waters but not including sludge);163 infectious hospital and clinical wastes;164 whole tyres (from July 2003);165 and shredded tyres (from July 2006);166 4 a requirement for the landfill site operator to ensure that the charges it makes cover the costs of setting up and operating the landfill, of his financial provision in relation to his obligations under IPPC and the estimated costs of the eventual closure and after-care of the site.167 The provision summarised at 2 above thus bans co-disposal of hazardous and nonhazardous waste. Furthermore, in relation to the classifications within the provisions at 2 above, the site operator168 must generally169 ensure that the landfilled waste has been subject to prior volume-reducing or safety treatment.170 He must also ensure that he accepts for landfilling only waste which will not have specified adverse effects to the environment or human health.171 Finally, if the landfill permit relates to non-hazardous waste, the operator must landfill only municipal waste, other nonhazardous waste and stable, non-reactive hazardous waste.172 Besides placing the target-setting duty on the Secretary of State, Part 1 of the Waste and Emissions Trading Act 2003 requires the appropriate authority for each country 158 Ibid., reg. 5 and Sched. 2. 159 Ibid., reg. 7(2). See 12.2.5.1(3) below. 160 Ibid., reg. 7(3). 161 Ibid., reg. 7(4). 162 Ibid., reg. 7(1). 163 Ibid., reg. 9(1)(a). In Blackland Park Exploration Ltd v. Environment Agency, [2003] EWCA Civ 1795, [2003] All ER (D) 249 (Dec), Scott Baker, L.J. commented that the appellant company was said to be the only company in the UK bringing liquid waste onto a site for disposal by means of an injection well (see judgment, paras 1 and 4). 164 See S.I. 2002, No. 1559, reg. 9(1)(c). 165 Ibid., reg. 9(1)(e). 166 Ibid., reg. 9(1)(f). 167 See S.I. 2002, No. 1559, reg. 11. 168 See the Pollution Prevention and Control (England and Wales) Regulations 2000, S.I. 2000 No. 1973, reg. 2 (see S.I. 2002, No. 1559, reg. 2). 169 But see S.I. 2002 No. 1559, reg. 10(1). 170 Ibid. 171 S.I. 2002, No. 1559, reg. 10(2) and Sched. 1, paras 1 and 2. 172 Ibid., No. 1559, reg. 10(3). 142 Environmental Taxation Law of the UK173 to develop a national strategy to reduce the amount of biodegradable municipal waste sent to landfills.174 In addition, where a local authority is a two-tier authority,175 the WDA and the WCAs within its area must usually176 develop a joint strategy for the management of waste from households and similar waste.177 Finally, although the 2003 Act empowers WDAs to direct WCAs to deliver their waste in a separated state,178 it also requires the WDA to make payments to the WCA to cover the cost of doing this.179 6.3.2.5 Measures relating to specific types of waste Certain categories of waste have their own disposal rules.180 For example, special provisions apply to the disposal of waste oils;181 to the disposal of polychlorinated biphenyls (‘PCBs’) and polychlorinated terphenyls (‘PCTs’);182 to the disposal of waste from the titanium dioxide industry;183 to the agricultural use of sewage sludge;184 and to the recovery and controlled disposal of batteries and accumulators which are spent and contain quantities of mercury, cadmium or lead.185 6.3.2.6 Measures relating to hazardous (‘special’) waste Section 62 of the Environmental Protection Act 1990 provides that, where the Secretary of State for Environment, Food and Rural Affairs considers that a particular kind of controlled waste is particularly dangerous or difficult to treat, keep or dispose of, so that special provision is needed in relation to it, then he must make regulations 173 See para. 4.2.2 above (that is, the Secretary of State in England, the Scottish Ministers in Scotland, the National Assembly for Wales and the Department of the Environment in Northern Ireland). 174 Waste and Emissions Trading Act 2003, ss.17–20. 175 See para. 4.2.3 above. 176 Waste and Emissions Trading Act 2003, s.33. 177 Ibid., s.32. 178 Environmental Protection Act 1990, s.48(1A) (as inserted by the Waste and Emissions Trading Act 2003, s.31(2)). 179 Ibid., s.31(4)). 180 The categories listed here all originate in Community law. See para. 12.2.5.1(2) below. 181 See the Waste Management Licensing Regulations 1994, S.I. 1994 No. 1056 and the Special Waste Regulations 1996, S.I. 1996 No. 972. 182 See the Environmental Protection Act 1990 (Extension of Section 140) Regulations 1999, S.I. 1999 No. 396 and the Environmental Protection (Disposal of Polychlorinated Biphenyls and Other Dangerous Substances) (England and Wales) Regulations, S.I. 2000 No. 1043 (amended by the Environmental Protection (Disposal of Polychlorinated Biphenyls and Other Dangerous Substances) (England and Wales) (Amendment) Regulations 2001 (S.I. 2001 No. 3359). 183 This is a prescribed process under the Environmental Protection Act 1990, Part 1 (see para. 6.2.2 above). 184 See the Sludge (Use in Agriculture) Regulations 1989 (as amended), S.I. 1989 No. 1263. 185 See the Batteries and Accumulators (Containing Dangerous Substances) Regulations 1994, S.I. 1994 No. 232. Regulatory Context 143 for dealing with such ‘special waste’.186 The regulations made under the section are the Special Waste Regulations 1996,187 as amended. 6.3.2.7 Measures relating to the importation and exportation of waste Although the Waste Shipment Regulation188 is directly applicable in the UK, it has been transposed into UK law by the Transfrontier Shipment of Waste Regulations 1994.189 6.3.3 Economic instruments The main economic instruments in UK waste management regulation have for long been landfill tax, packaging waste recovery notes (‘PRNs’) and the waste recycling credits scheme. To these will shortly be added the LATS, a form of tradeable landfill allowance.190 6.3.3.1 Landfill tax An outline of the tax has been given at para. 1.4.2.1(1) above.191 It is discussed in detail in Chapter 15 below. 6.3.3.2 Packaging waste recovery notes (‘PRNs’) Again, an outline of the role of PRNs has been given above at para. 1.4.2.1(2). There is a more detailed discussion in Chapter 19. 6.3.3.3 Waste Recycling Credits Scheme A note on the WRCS has been given at para. 1.4.2.1(3) above. It is not considered further in this study. 6.3.3.4 Landfill Allowances Trading Scheme (‘the LATS’) The Landfill Allowances Trading Scheme (‘the LATS’), which is now due to begin in 186 See para. 6.3.2.1 above. 187 S.I. 1996 No. 972. 188 Council Regulation EEC/259/93, (1993) OJ L30 1. See para. 12.2.5.1(4) below. 189 S.I. 1994 No. 1137. 190 See paras 1.4.2.1(4) above and 20.7 and 21.3.2 below. 191 See D.N. Pocklington and R.E. Pocklington, ‘The United Kingdom Landfill Tax – Externalities and External Influences’, [1998] JPL 529–545; Patricia Park, ‘An Evaluation of the Landfill Tax Two Years on’, [2000] JPL 3–13; and Inger Brisson and Jane Powell, ‘The UK Landfill Tax’, in Environmental Policy: Objectives, Instruments and Implementation, ed. by Dieter Helm (Oxford: Oxford University Press, 2000), pp. 260–80. 144 Environmental Taxation Law April 2005 in England and Wales,192 is discussed in para. 20.7 below. There is again an outline of the LATS in para. 1.4.2.1(4) above. 6.3.3.5 The Waste Performance Reward Grant In January 2004, Defra issued a consultation paper on the introduction, in 2005/2006, of a Waste Management Performance Reward Grant (‘WPRG’), which is intended to provide incentives for local authorities to improve their recycling levels.193 6.4 Control of air and atmospheric pollution 6.4.1 The international and European Union background Issues of air and atmospheric pollution are nothing if not transboundary in their scope. The measures discussed in this part of the chapter should therefore be understood within the public international and Community contexts discussed in Chapters 8 and 12 below. 6.4.2 Environmental regulation If the IPC and IPPC regimes are put to one side,194 then, with two main exceptions,195 and unlike with waste management, the instruments for carrying into effect the UK’s climate change programme196 are primarily economic ones. That programme is based on the UK’s commitment under the Kyoto Protocol to reduce its 1990 levels of all greenhouse gases by 12.5 per cent by 2010.197 The two main exceptions to the predominance of economic instruments in the area are the command and control regimes for regulating emissions contained in the Clean Air Act 1993 and the mechanism for ensuring air quality contained in Part IV of the Environment Act 1995. The former empowers local authorities198 to bring criminal proceedings in respect of a range of prohibited activities involving the emission of smoke, dust and grit.199 The latter places a duty on the Secretary of 192 But not in Wales and Scotland, where the scheme began on 1 October 2004 (see 358 ENDS Report (2004) 44–45). 193 See Department for Environment, Food and Rural Affairs, Consultation Paper on the Design of the Waste Performance Reward Grant, 7 January 2004 (available from www. defra.gov.uk). 194 See paras 6.2.2 and 6.2.3 above. 195 Note should also be taken of the statutory nuisance provisions to be found in the Environmental Protection Act 1990, Part III (see Wolf and Stanley, op. cit., Ch. 9). 196 See Department of Environment, Transport and the Regions, Climate Change: the UK Programme, 2000 (Cm 4913, 2000). 197 See Chapter 8 below. 198 See para. 4.2.3 above. 199 See, for example, ss.1 (prohibition of dark smoke from chimneys), 2 (prohibition of dark smoke from industrial premises), 14 (height of chimneys for furnaces) and 15 (applications Regulatory Context 145 State for Environment, Food and Rural Affairs200 to prepare, publish and keep under review a National Air Quality Strategy.201 Setting aside the measures to which reference has just been made, the government’s climate change policy rests on the combination of four economic instruments:202 1 climate change levy; 2 the UK Emissions Trading Scheme (‘the UK ETS’); 3 the EU Emissions Trading Scheme (‘the EU ETS’); and 4 the Renewables Obligation (‘the RO’). Each of these have been outlined at the beginning of the study203 and are discussed ,in detail in the rest of the book.204 Both climate change levy and the EU ETS rely heavily on IPPC concepts. 6.4.3 Energy regulation 6.4.3.1 Electricity (1) Overview The electricity supply industry205 in England and Wales206 is regulated by the Electricity Act 1989, which has been substantially amended by the Utilities Act 2000.207 Besides creating the new regulator, Ofgem,208 Utilities Act 2000 made the distribution of electricity a separate licensable activity from transmission,209 abolished the concept of public electricity suppliers,210 reformulated the relevant duties of the Secretary of State for Trade and Industry211 and introduced standard conditions for the grant of licences in the industry. for approval of height of chimneys for furnaces). See the discussion of the Clean Air Act 1993 in Wolf and Stanley, op. cit., pp. 335–42. 200 See para. 4.2.1.2(1) above. 201 See Department of Environment, Transport and the Regions, Air Quality Strategy for England, Wales, Scotland and Northern Ireland, 2000 (Cm 4548, 2000). 202 See Benjamin J. Richardson and Kiri L. Chanwai, ‘Taxing and trading in corporate energy activities: pioneering UK reforms to address climate change’, (2003) 14(1) ICCLR 18–27. 203 See para. 1.4.2.2 above. 204 See Chapter 14 below (climate change levy); Chapter 20 (the UK ETS); Chapter 28 (the EU ETS); and paras 6.4.3.1(2)(a) above and 21.5 below (the RO). 205 The use of this term is common but, properly speaking, supply is only one of four elements in the sector (see para. 2.4.1 above). 206 Ibid. See also Tudway, op. cit., Ch. 25. 207 Unless otherwise indicated, all references to the Electricity Act 1989 are to the Act as amended by the 2000 Act. See Roggenkamp et al., op. cit., paras 13.177–13.240. 208 See para. 4.2.1.3 above. 209 Both terms are defined in Electricity Act 1989, s.4(4). See also para. 2.4.1 above. 210 Defined in Electricity Act 1989, s.6(9), as originally enacted, as ‘… any person who is authorised by a licence … to supply electricity … to premises in his authorised area’. 211 See para. 4.2.1.2(1) above. 146 Environmental Taxation Law The Electricity Act 1989 is divided into three parts: Part I creates, under the supervision of Ofgem, a regulatory structure for the electricity supply industry. By s.4(1), the generation, transmission, distribution or supply of electricity is unlawful unless the activity in question is authorised by an appropriate licence.212 This general rule is, however, subject to the power given by s.5 to the Secretary of State for Trade and Industry213 to create exemptions from the rule by secondary legislation. Part II of the Act deals with the industry’s structure and the privatisation of the parts which make it up; and Part III provides for measures to ensure the security of electricity installations, for dealing with civil emergencies and for making government loans in relation to matters of public security (for example, nuclear reprocessing). In Part I, ss.32–3, as amended, contain measures relating to the promotion of renewable sources of energy.214 Further changes to the regulation of the electricity industry are authorised by the Energy Act 2004, passed on 22 July 2004.215 These will be in three main areas: the creation of a new body to ensure the decommissioning and clean-up of public sector civil nuclear sites; the promotion of renewable energy sources; and the creation of a single wholesale electricity market for Great Britain, to be called ‘BETTA’, which, although it will replace NETA,216 will be based upon the latter, which itself replaced the Electricity Pool217 as recently as 2001. The Electricity Act 1989, as amended by Utilities Act 2000, applies both to England and Wales and to Scotland.218 In Northern Ireland, the relevant legislation is contained in the Electricity (Northern Ireland) Order 1992,219 as amended by the Energy (Northern Ireland) Order 2003.220 The New Electricity Trading Arrangements did not apply to Scotland or Northern Ireland. The introduction of BETTA under the Energy Act 2004 will, as mentioned above, extend to Scotland but not to Northern Ireland. (2) Renewable energy sources (a) Renewables Obligation (‘RO’) Section 32, Electricity Act 1989, as amended by Utilities Act 2000, empowers the Secretary of State to impose by order the so-called ‘Renewables Obligation’ (‘the RO’) on designated electricity suppliers.221 The RO is considered in more detail 212 The licences held by particular companies in the industry are usefully listed in Utility Week, The Electricity Supply Handbook 2004, 57th edn (Sutton: Reed Business Information, 2004). 213 See para. 4.2.1.2(1) above. 214 See para. 6.4.3.1(2) below. 215 There had been thought to be some danger of the Bill being lost (see Taylor, Financial Times, 1 April 2004, p. 4). 216 See para. 2.4.1 above. 217 As described by Tudway, op. cit., ‘[t]he Pool mechanism was a contractual arrangement between parties to the Pooling and Settlement Agreement, which set wholesale buying and selling prices for electricity’ (ibid., para. 25–49). 218 Electricity Act 1989, s.113(3). 219 S.I. 1992 No. 231 (N.I. 1). 220 S.I. 2003 No. 419 (N.I. 6). 221 Electricity Act 1989, s.32(1). Regulatory Context 147 later in the study222 but, since the nature of the mechanisms introduced by it fall for consideration in the next chapter,223 it will be useful to include here a brief discussion of the primary legislation which creates the legislative framework for the secondary legislation to be discussed later. By s.32(3), the RO is that: … the designated electricity supplier must, before a specified day (or before each of several specified days, or before a day specified in each year), produce to [the Gas and Electricity Markets Authority]224 evidence of a specified kind showing – (a) that it has supplied to customers in Great Britain during a specified period such amount of electricity generated by using renewable sources as is specified in relation to such a supplier; or (b) that another electricity supplier has done so (or that two or more others have done so); or (c) that, between them, they have done so. For the purposes of s.32, renewable sources are defined as sources of energy other than nuclear fuel or fossil fuel but including waste of which ‘not more than a specified proportion is waste which is, or is derived from, fossil fuel’.225 Section 32B(1) stipulates that an order under s.32 may provide for Ofgem226 to issue from time to time a so-called ‘Green Certificate’227 to the operator of a generating station or to an electricity supplier. The production by the supplier of a Green Certificate (or ‘ROC’) to Ofgem is ‘sufficient evidence’ of the facts certified for the purposes of s.32(3) above.228 A Green Certificate certifies two matters: (a) that the generating station or, in the case of a certificate issued to an electricity supplier, a generating station specified in the certificate, has generated from renewable sources the amount of electricity stated in the certificate; and (b) that it has been supplied to customers in Great Britain (or the part of Great Britain stated in the certificate). In practice, it has been inferred from s.32(3)(b) above that, once issued, Green Certificates can be traded between suppliers, since that subsection seems to assume that a supplier can comply with the RO by producing Green Certificates originally issued to another supplier.229 222 See para. 21.5 below. 223 See para. 7.3.1 below. 224 See para. 4.2.1.3 above. 225 Electricity Act 1989, s.32(8). 226 The section actually refers to ‘the Authority’, that is, to the Gas and Electricity Markets Authority (‘GEMA’), whose functions are exercised through Ofgem. See para. 4.2.1.3 above. 227 This is the term used in the heading to s.32B but they are also known as Renewables Obligation Certificates (‘ROCs’). That section has been amended by Energy Act 2004, s.116. 228 Electricity Act 1989, s.32B(3). 229 See para. 21.5 below. 148 Environmental Taxation Law Section 32C states that an order under s.32 may provide that, instead of producing a Green Certificate/Green Certificates, an electricity supplier may meet its RO, whether in whole or in part, by making a payment to Ofgem.230 This power is then backed up by provisions on fixing the amount of the payment,231 as well as a rule on the application of the revenue generated under s.32C. The rule as to the application of the revenue thereby received is contained in s.32(3), which provides that Ofgem ‘must pay the amounts received to electricity suppliers in accordance with a system of allocation specified in the order’. The order in due course made by the Secretary of State under Electricity Act, ss.32–2C, is the Renewables Obligation Order 2002 (‘ROO 2002’),232 which came into force on 1 April 2002.233 Section 32A(1)(b) states that an order under s.32 may make general provisions in relation to the RO imposed by the order and, in particular, may specify that only electricity generated using certain types of renewable source is to count towards discharging the RO. In ROO 2002, this leads to the creation of the concept of ‘eligible renewable sources’,234 which is made to exclude most hydro generating stations commissioned before April 2002.235 The reasons for this exclusion, as well as the other main provisions of ROO 2002 are discussed in detail in a subsequent chapter.236 The provisions just described apply in England and Wales. In Scotland, the powers conferred by Electricity Act 1989, ss.32–2C, are exercisable by the Scottish Ministers. The Renewables Obligation (Scotland) Order 2002237 was made in exercise of these powers and came into force on 1 April 2002. In Northern Ireland, the Department of Enterprise, Trade and Investment was given power to impose an RO by the Energy (Northern Ireland) Order 2003.238 Like the system for England and Wales, each of the Scotland and Northern Ireland systems envisage the trading of Green Certificates (in Scotland called ‘SROCs’ and in Northern Ireland called ‘NIROCs’). The combination of the RO and Green Certificates together replace the previous combination of Non-Fossil Fuel Orders (‘NFFOs’) and fossil fuel levy (‘FFL’).239 Since some further reference will be made to the nature and purpose both of NFFOs and of FFL,240 it may be useful briefly to describe the earlier instruments here, notwithstanding their subsequent abolition.241 230 Electricity Act 1989, s.32C(1), replaced in part by Energy Act 2004, s.115(2). 231 Ibid., s.32C(2), replaced in part by Energy Act 2004, s.115(3). 232 S.I. 2002, No. 914 (as amended by the Renewables Obligation (Amendment) Order 2004, S.I. 2004 No. 924). 233 S.I. 2002, No. 914, Art. 1(1). 234 Ibid., Art. 8(1). 235 Ibid., Art. 8(2). 236 See para. 21.5 below. See also para. 12.2.6.3(2) below. 237 S.S.I. 2002 No. 163. 238 S.I. 2003 No. 419 (N.I. 6). 239 See Utilities Act 2000, s.66, and Sched. 8. 240 See paras 21.4.4n and 21.6.1 below. 241 The writers are indebted for this explanation to the valuable contemporary annotations to the Electricity Act 1989 by Patrick McAuslan and John F. McEldowney in [1989] 2 CLSA, pp. 29–52–29–54. Regulatory Context 149 Section 32, Electricity Act 1989, as originally enacted, empowered the Secretary of State to order public electricity suppliers242 – that is, by the making of a NFFO – to ensure that specified proportions of their electricity supplies were acquired from non-fossil fuel generators. Such generators could include, under the original provisions, not only water, wind and solar generators,243 but also nuclear ones.244 Between 1990 and 1998, five NFFOs were made,245 each one being followed by a tendering process for electricity generation contracts in each category specified in the relevant NFFO.246 Only the earliest of the NFFOs (the so-called ‘NFFO 1’)247 included nuclear generators within the categories of non-fossil fuel generators. The shift is perhaps explained by a greater emphasis originally being placed upon diversity (that is, security) of supply rather than upon environmental concerns as such.248 Fossil fuel levy was imposed under Electricity Act 1989 to subsidise the additional costs on suppliers which NFFOs created, since it was foreseen that non-fossil fuelgenerated electricity would tend to be more expensive than electricity generated at fossil-fuel-powered stations. The now-repealed s.33, Electricity Act 1989, accordingly empowered the Secretary of State, by regulations, to impose FFL both on suppliers who were subject to an NFFO and also on other persons who were licensed to supply electricity within the authorised areas249 of such suppliers.250 Although FFL, which was payable each month to the Director General of Electricity Supply,251 was charged on suppliers, the levy was actually borne by electricity consumers, since it 242 A term which is now superseded (see para. 6.4.3.1(1)n above). 243 See Electricity Act 1989, s.32(9) (as originally enacted). 244 This may be gathered from the wording of Electricity Act 1989, ss.32(8) and 32(9) (as originally enacted). 245 That is, Electricity (Non-Fossil Fuel Sources) (England and Wales) Order 1990, S.I. 1990 No. 263 (as amended by S.I. 1990 No. 494) and Electricity (Non-Fossil Fuel Sources) (England and Wales) (No. 2) Order 1990, S.I. 1990 No. 1859 (together referred to as ‘NFFO 1’); Electricity (Non-Fossil Fuel Sources) (England and Wales) Order 1991, S.I. 1991 No. 2490 (‘NFFO 2’); Electricity (Non-Fossil Fuel Sources) (England and Wales) Order 1994, S.I. 1994 No. 3259 (‘NFFO 3’); Electricity (Non-Fossil Fuel Sources) (England and Wales) Order 1997, S.I. 1997 No. 248 (‘NFFO 4’); and Electricity (Non- Fossil Fuel Sources) (England and Wales) Order 1998, S.I. 1998 No. 2353 (‘NFFO 5’). Contracts under NFFOs 1 and 2 have now terminated; those under NFFOs 3–5 will continue, however, the last contract being due to terminate in 2018. Contracts under NFFOs 3–5 are in fact replacement contracts, the originals having terminated when NETA commenced (see Tudway, op. cit., para. 25–54). 246 See, for example, 284 ENDS Report (1998) for the schemes which were awarded contracts under NFFO 5. 247 That is, Electricity (Non-Fossil Fuel Sources) (England and Wales) Order 1990, S.I. 1990 No. 263 (as amended) and Electricity (Non-Fossil Fuel Sources) (England and Wales) (No. 2) Order 1990, S.I. 1990 No. 1859. 248 See McAuslan and McEldowney, op. cit., pp. 29–50–29–51 (‘General Note’). 249 A superseded concept. See Electricity Act 1989, s.6(9) (as originally enacted). 250 See Electricity Act 1989, s.33(1)(a) (as originally enacted). See also the Fossil Fuel Levy Act 1998. 251 An office which is now abolished (see Utilities Act 2000, s.1(3), and para. 4.2.1.3 above). 150 Environmental Taxation Law was incorporated in their electricity bills. After deduction of administrative expenses, the revenue from the levy was distributed each month to public electricity suppliers in accordance with the regulations made under s.33, Electricity Act 1989.252 Fossil fuel levy therefore operated as a mechanism for supporting non-fossil fuel-generated electricity.253 In parallel with the arrangements for England and Wales, three NFFOs were made for Scotland,254 prior to their replacement, with appropriate savings, by ROO 2002. Confusingly, the three orders were together known as the ‘Scottish Renewables Obligation’ (or ‘SRO’).255 As in the UK, FFL had been introduced to compensate the two companies licensed to generate, transmit, distribute and supply electricity in the post-privatisation structure.256 Section 66, Utilities Act 2000, which had abolished FFL in England and Wales, did the same for Scotland.257 In Northern Ireland, prior to March 1, 2004,258 Northern Ireland Electricity plc was obliged to secure quantities of generation capacity from renewable energy sources under Art. 35 of the Electricity (Northern Ireland) Order 1992.259 The concomitant Northern Ireland FFL260 was abolished by Art. 58 of the Energy (Northern Ireland) Order 2003. (b) Renewable energy guarantees of origin (‘REGOs’) The Electricity (Guarantees of Origin of Electricity Produced from Renewable Energy Sources) Regulations 2003 are designed to transpose into the law of England and Wales and of Scotland261 the provisions of Art. 5 of the Renewables Directive.262 Article 5 imposes an obligation on Member States to ensure that the origin of electricity produced from renewable energy sources can be guaranteed as such by creating systems for granting guarantees of origin. 252 See the Fossil Fuel Levy Regulations 1990, S.I. 1990 No. 266, reg. 28. 253 Note that Utilities Act 2000, s.67, enables provision to be made for FFL to be continued in relation to the outstanding contracts entered into under NFFOs (see the Fossil Fuel Levy (Amendment) Regulations 2001, S.I. 2001 No. 1200 and other post-2000 S.I.s dealing with FFL). 254 That is, the Electricity (Non-Fossil Fuel Sources) (Scotland) Order 1994, S.I. 1994 No. 3275 (S. 190); Electricity (Non-Fossil Fuel Sources) (Scotland) Order 1997, S.I. 1997 No. 799 (S. 76); and Electricity (Non-Fossil Fuel Sources) (Scotland) Order 1999, S.I. 1999 No. 439 (S. 24). 255 See Tudway, op. cit., para. 25–08. 256 That is, Scottish Power plc and Scottish and Southern Electricity plc. 257 Utilities Act 2000 applying, as it does, to England and Wales and Scotland but not to Northern Ireland. 258 See the Energy (2003 Order) (Commencement No. 2) Order (Northern Ireland) 2004, S.R. 2004 No. 71 (C. 1), Art. 2 and Sched. 259 S.I. 1992 No. 231 (N.I. 1). The 2003 Electricity Order does, however, have saving powers for existing contracts entered into under the pre-existing powers. 260 Which had been introduced by Art. 36, S.I. 1992 No. 231. 261 See S.I. 2003 No. 2562, reg. 1(2). The equivalent provision for Northern Ireland is the Electricity (Guarantees of Origin of Electricity Produced from Renewable Energy Sources) Regulations (Northern Ireland) 2003, S.R. 2003 No. 470. 262 That is, European Parliament and Council Directive 2001/77/EC (see para. 12.2.6.3 below). Regulatory Context 151 The key provision of the Regulations is to be found in reg. 3, which provides for guarantees of origin, ‘certifying that the electricity in respect of which the certificate is issued was electricity produced from renewable energy sources’,263 to be issued by Ofgem.264 Each renewable energy guarantee of origin (‘REGO’) is issued in respect of one kilowatt hour of electricity produced from renewable energy sources.265 The general rule, contained in reg. 4(1), is that the only person who may request Ofgem to issue a REGO is the producer of the electricity.266 However, where electricity has been purchased under an arrangement originally made under an NFFO,267 the only person who may request the issue of a REGO is generally the relevant NFFO purchaser.268 Moreover, in order to issue a REGO under reg. 4, Ofgem must be satisfied that the electricity covered by the request was produced from renewable resources.269 Renewable Energy Guarantees of Origin may be transferred to persons other than the original maker of the request by amendment to an electronic register of REGOs to be maintained by Ofgem.270 In circumstances such that access to plants is denied to, or information is withheld from, the Authority, then it may refuse to issue REGOs271 and it may also revoke them in certain circumstances.272 Finally, reg. 9 contains provisions relating to the recognition and non-recognition of REGOs issued in Northern Ireland and other EU Member States. This reflects the stated aim of the Renewables Directive as being to promote an increase in the contribution of renewable energy sources to the production of electricity in the internal market.273 No amendment is made by the Regulations either to ROO 2002274 or to the Climate Change Levy (General) Regulations 2001.275 It would therefore appear that REGOs neither provide a means of complying with the RO276 nor do they provide entitlement to exemption from climate change levy.277 263 S.I. 2003 No. 2562, reg. 2(1). 264 See para. 4.2.1.3 above. 265 S.I. 2003 No. 2562, reg. 6(3). Renewable energy sources are defined as ‘… renewable non-fossil energy sources, that is, wind, solar, geothermal, wave, tidal, hydropower, biomass, landfill gas, sewage treatment plant gas and biogases’ (see S.I. 2003 No. 2562, reg. 2(1)). 266 S.I. 2003 No. 2562, reg. 4(1)(b). 267 See para. 6.4.3.1(2)(a) above. 268 S.I. 2003 No. 2562, reg. 4(1)(a). In Scotland, the reference is to the relevant SRO purchaser (see para. 6.4.3.1(2)(a) above). 269 See S.I. 2003 No 2562, reg. 6(1). 270 Ibid., reg. 7 and Sched. 2. 271 Ibid., reg. 5. 272 Ibid., reg. 8. 273 See para. 12.2.6.3(2) below. 274 See para. 6.4.3.1(2)(a) above. 275 S.I. 2001 No. 838. See paras 14.1–14.3 below. 276 See para. 6.4.3.1(2)(a) above. 277 See para. 14.4 below. 152 Environmental Taxation Law (3) Other aspects of electricity regulation In addition to the regulatory framework discussed above, the UK’s electricity supply industry is subject to at least four other regulatory regimes: competition law, planning law, IPC278 and IPPC.279 Competition in the electricity supply industry is regulated both by general UK competition law and by the specific licensing provisions applicable to the electricity supply industry discussed above.280 The general provisions are exercisable in relation to the industry concurrently, but subject to conditions,281 by the Director General of Fair Trading and by Ofgem.282 These general provisions include the power under the Fair Trading Act 1973, Part III, to take proceedings in relation to courses of conduct detrimental to consumers;283 the power to refer monopoly situations to the Competition Commission;284 and the power to take action in relation to courses of conduct restricting, distorting or preventing competition.285 So far as planning law is concerned,286 Electricity Act 1989, ss.36 and 37 impose special conditions on the construction of certain power stations and overhead lines.287 Section 36 currently provides that a generating station with a capacity greater than 50 MW must not be constructed, extended or operated, except in accordance with a consent granted by the Secretary of State for Trade and Industry.288 Section 37 likewise provides that, subject to certain de minimis exceptions, the consent of the Secretary of State is likewise required for an overhead line to be installed or kept installed. Although the power under s.36 has been used to impose the moratorium on the construction of gas-fired power stations,289 both s.36 and s.37 are coming under increasing scrutiny as presenting obstacles to the development of renewables generators, specifically wind farms. Under Electricity Act 1989, Sched. 8, notice of applications for consent under ss.36 and 37 must be served on the local planning authority. If the planning authority objects, then a public inquiry 278 See para. 6.2.2 above. 279 See para. 6.2.3 above. 280 See para. 6.4.3.1(1) above. 281 See Electricity Act 1989, ss.43(4)–43(6A). 282 Ibid., s.43. 283 Ibid., s.43(1). 284 Ibid., s.43(2). 285 Ibid., s.43(3). 286 These issues are well discussed in John Grady, ‘Climate Change and Great Britain’s Electricity Generation Policy’, [2003] IELTR 105–15, p. 114. See also Jonathan Evans, ‘The Implications of the United Kingdom’s Long-Term Energy Policy for its Renewables Market’, [2003] IELTR 233–8. It should be noted also that, on 13 May 2004, the Planning and Compulsory Purchase Act 2004, with the avowed purpose of ‘speeding up the planning system’, received the Royal Assent, although it is to be brought into effect in ongoing stages. 287 Other provisions relate to the fuelling of power stations, compulsory acquisition of land and street works (see the outline in Tudway, op. cit., paras 25–75–25–77). There are also some relatively little-noted provisions in Electricity Act 1989, s.38 and Sched. 9 on the preservation of amenity and fisheries. 288 General planning law applies to generating stations with a capacity of less than 50 MW. 289 See Grady, op. cit., p. 114. See also para. 21.4.3 below. Regulatory Context 153 must be held.290 In relation to objections from persons other than local planning authorities, the Secretary of State may order the holding of a public inquiry if he thinks it appropriate to do so.291 Objections have been raised by the Ministry of Defence, alleging the impact of wind turbines on radar signals and dangers from the turbines to low-flying aircraft,292 and by the Royal Society for the Protection of Birds (‘the RSPB’),293 given that the proposed locations of the wind farms are nearly all in areas of international importance for birds.294 Wind farms also give rise to concerns over s.37, given that such installations are generally located in remote areas and that the cost of installing overhead wires is a fraction of that of laying wires underground. More generally, the planning of overhead electricity cables as well as of nuclear power stations, as well as nuclear fuel installations, is subject to the EIA regime discussed above.295 There have traditionally been few statutory provisions specifically relating to the decommissioning of nuclear power stations, the matter usually having been dealt with in site licences granted under the Nuclear Installations Act 1965. The provisions of Part 1 of the Energy Act 2004 creates a new statutory decommissioning framework. This is one of a number of reforms to the sector to which it is necessary to refer next. Finally, it should, of course be noted that electricity generation is a combustion activity within the scope of the IPPC regime.296 Likewise, combustion processes are caught by IPC.297 (4) Regulatory reform in the electricity sector There are, at the time of writing, two sets of further reforms at various stages of development: those in the recently passed Energy Act 2004 and, insofar as they are not dealt with in that Act, certain other measures that are designed to transpose into UK law the provisions of the Electricity Acceleration Directive (the ‘EAD’).298 It is 290 See Electricity Act 1989, Sched. 8, para. 2(2). 291 Ibid., Sched. 8, para. 3(2). 292 See, for example, Taylor, Financial Times, 1 March 2004, p. 4. But see the case for the Ministry of Defence presented in the letter from Williams, Financial Times, 5 March 2004, p. 18. 293 See www.rspb.org.uk. 294 See 350 ENDS Report (2004) 10–11. The ENDS correspondent reports that the RSPB objected to 27 wind farms between 1998 and 2003. It is also reported that the RSPB has confirmed its opposition to the 1,000MW London Array, proposed by Shell and Powergen, on the basis that the Thames Estuary ‘supports large numbers of wintering red-throated divers’ (ibid.). 295 See para. 6.2.4 above. 296 See Pollution Prevention and Control (England and Wales) Regulations 2000, S.I. 2000 No. 1973, Sched. 1, Section 1.1. See para. 6.2.3 above. 297 See the Environmental Protection (Prescribed Processes and Substances) Regulations 1991, S.I. 1991 No. 472, Sched. 1, Ch. 1. 298 European Parliament and Council Directive 2003/54/EC, (2003) OJ L176 37. The provisions of the EAD are discussed in detail in a subsequent chapter (see paras 12.2.6.3(1) and 12.2.6.3(2) below). 154 Environmental Taxation Law the DTI’s intention to implement the latter by a mixture of statutory instrument under European Communities Act 1972, s.2(2) and other administrative action.299 The Energy Act 2004 affects the electricity sector in three main areas.300 First, it provides for the establishment of the Nuclear Decommissioning Authority (‘NDA’), for the creation of a new Civil Nuclear Police Authority and for the authorisation of government expenditure in relation to the restructuring of British Energy.301 Next, the Act provides for a number of matters in relation to renewables generation. These provisions include measures relating to the development of offshore renewable energy sources in accordance with the rights conferred on the UK under the 1982 UN Convention on the Law of the Sea (‘the UNCLOS’)302 as well as provisions for the mutual recognition of NIROCs.303 Finally, the Energy Act 2004 establishes the basis for the creation of a single wholesale electricity market for the whole of Great Britain (that is, England and Wales and Scotland but not Northern Ireland), to be called the British Electricity Trading and Transmission Arrangements (‘BETTA’), based on NETA;304 for a new licensing system applicable to electricity interconnectors, to bring them under the authority of Ofgem; and for the Secretary of State to have the power to appoint additional inspectors in relation to inquiries under Electricity Act 1989, ss.36 and 37.305 The new licensing system reflects the fact that there has hitherto been no relevant legislation in Great Britain on the regulation and exemption of interconnectors. The elements of the EAD which are not covered by the Energy Act 2004 provisions are, as mentioned above, to be implemented by a combination of statutory instrument and administrative action. They relate to fuel disclosure,306 dispute settlement and reporting requirements.307 6.4.3.2 Gas The counterpart of the Electricity Act 1989 in the context of the gas industry is the Gas Act 1986.308 Like the 1989 Act, the 1986 Act has, however, been extensively 299 For a detailed review of the changes, see Department of Trade and Industry, Consultation: Implementation of EU Directive 2003/54 Concerning Common Rules for the Internal Market in Electricity, February 2, 2004 (available from www.dti.gov.uk/energy). 300 Within these broad heads are some interesting sub-areas, for example, a special insolvency regime for energy licensees in Chapter 3 of Part 3, following the coal power station insolvency debacle referred to in para. 21.4.2 below. 301 See Energy Act 2004, Part 1. For the background, see paras 2.4.1 above and 21.4.3 below. 302 See para. 8.3.2 below. 303 Energy Act 2004, Part 2. For NIROCs, see para. 6.4.3.1(2)(a) above. 304 The provisions relating to BETTA originally appeared, in January 2003, in a draft Electricity (Trading and Transmission) Bill. 305 Energy Act 2004, Part 3. 306 That is, a requirement for electricity suppliers to specify their fuel mix to customers (see para. 12.2.6.3(1) below). 307 See Department of Trade and Industry, op. cit., para. 1.8, where the changes are summarised. 308 See Roggenkamp et al., op. cit., paras 13.114–13.166. Regulatory Context 155 amended by subsequent legislation (in this case, by the Gas Act 1995, as well as by the Utilities Act 2000). However, the 1986 Act did not consolidate the whole of the relevant legislation and parts of the Gas Act 1965, as well as the Energy Act 1976 remain in force.309 The gas industry’s regulator has, since the Utilities Act 2000, been Ofgem,310 the 2000 Act having brought the two industries into line with each other in this respect. It should be noted, however, that, generally speaking, the liberalisation of the gas industry in Great Britain has preceded that of electricity supply. Although the 2000 Act substituted the new regulator and redefined the duties of the Secretary of State,311 many of the most important liberalisation measures had already been taken in the Gas Act 1995. The Gas Act 1986, as amended, is divided into three Parts, only the first of which is relevant in the present context. This Part contains elements of the regulatory structure for the industry, which is placed under Ofgem’s supervision. By s.5, the transportation,312 supply313 or shipment314 of gas is unlawful without the appropriate licence. However, the storage of gas is still regulated by the Gas Act 1965, whilst exploration for gas and gas production are subject to their own licensing regime.315 The requirement for a licence for each of transportation, supply and shipment is, as for electricity, subject to the Secretary of State’s power to grant exemptions under s.6A, Gas Act 1986. Schedule 2B, which is incorporated by s.8B, Gas Act 1986, contains the Gas Code, which relates to the rights and obligations of licence holders and consumers and related matters. The DTI has identified a number of areas in which legislative action is required in order for UK law to comply with the provisions of the Gas Acceleration Directive (the ‘GAD’).316 These include the need for a new licensing system for gas interconnectors, which appears in the Energy Act 2004, as well as a regulated TPA system and exemptions for LNG import terminals and storage facilities, to be effected by modifying the 1986 Act and the Petroleum Act 1998. The legislation discussed above applies both to England and Wales and to Scotland.317 The gas industry in Northern Ireland is regulated by the provisions of the Gas (Northern Ireland) Order 1996318 and the Energy (Northern Ireland) Order 2003.319 309 Unlike gas levy, which was provided for by the Gas Levy Act 1981 and abolished by Finance Act 1998, s.153(2), for 1998–1999 onwards. The levy financed certain aspects of the denationalisation arrangements introduced by the Gas Act 1986 (see Tudway, op. cit., para. 23–43). 310 Utilities Act 2000, s.1. 311 Gas Act 1986, s.4AA. 312 Ibid., s.5(1)(a). 313 Ibid., s.5(1)(b). 314 Ibid., s.5(1)(c). 315 See, for example, Tudway, op. cit., Ch. 23. 316 European Parliament and Council Directive 2003/55/EC, (2003) OJ L176 57. See paras 12.2.6.3(1) and 12.2.6.3(2) below. 317 Gas Act 1995, s.18(4). 318 S.I. 1996 No. 275 (N.I. 2). 319 S.I. 2003 No. 419 (N.I. 6). 156 Environmental Taxation Law Very similar points apply in relation to competition law issues as obtain in relation to electricity supply.320 Thus, for instance, s.36A, Gas Act 1986 tracks very closely s.43 of the Electricity Act 1989 and, likewise, s.41E of the 1986 Act (which deals with references to the Competition Commission) tracks the wording of s.56C of the Electricity Act 1989. The planning of installations, whether on- or offshore for the extraction of natural gas, of installations for its storage and of gas pipelines is subject to the EIA regime discussed above.321 Gasification and associated processes are also, of course, subject to the IPC322 and IPPC regimes.323 Both off- and onshore oil and gas exploration and production are subject to the environmental controls outlined in the next para. below. The decommissioning of offshore oil and gas installations is covered by Part I of the Petroleum Act 1987. 6.4.3.3 Oil Most of the regulatory framework for the oil industry is contained in the Petroleum Act 1998 and in delegated legislation made thereunder by the Secretary of State for Trade and Industry.324 However, clean air legislation confers powers on the Secretary of State for Transport325 to regulate the composition and content of motor fuels326 and health and safety at work legislation confers powers on the same Minister in relation to the transport and storage of petroleum.327 The five Parts of the Petroleum Act 1998 include provisions relating to the ownership of petroleum328 reserves, the grant of licences to search, bore for and get petroleum,329 the construction and use of submarine pipelines330 and the abandonment of offshore installations.331 Section 2 of the Act provides that: 320 See para. 6.4.3.2(3) above. 321 See para. 6.2.4 above. 322 See the Environmental Protection (Prescribed Processes and Substances) Regulations 1991, S.I. 1991 No. 472, Sched. 1, Ch. 1. 323 See the Pollution Prevention and Control (England and Wales) Regulations 2000, Sched. 1, Section 1.2. See para. 6.2.3 above. 324 See para. 4.2.1.2(1) above. See Roggenkamp et al., op. cit., paras 13.25–13.94. The discussion in the text is by reference to offshore (seaward) oil and gas only. For a useful discussion of the regulation of the onshore (landward) industry, see Hughes, op. cit., pp. 402–4. 325 See para. 4.2.1.2(1) above. 326 See Clean Air Act 1993, ss.30(1), 30(3), 32(1) and 63(1). 327 See Health and Safety at Work Act 1974, ss.15, 43, 82 and Sched. 3. 328 The definition of petroleum in Petroleum Act 1998, s.1, emphasises the artificiality of dealing with it separately from natural gas (see para. 2.4.2 above). So defined, it ‘includes any mineral oil or relative hydrocarbon and natural gas existing in its natural condition in strata; but does not include coal or bituminous shales or other stratified deposits from which oil can be extracted by destructive distillation’. 329 Petroleum Act 1998, Part I. 330 Ibid., Part III. 331 Ibid., Part IV. Regulatory Context 157 [H]er Majesty has the exclusive right of searching and boring for and getting petroleum … (including petroleum in Crown Land)332 which for the time being exists in its natural condition in strata in Great Britain or beneath the territorial sea adjacent to the United Kingdom. Subject to petroleum rights being vested in Her Majesty the Queen in this way, the Secretary of State for Trade and Industry may grant licences ‘to such persons as he thinks fit’ to ‘search and bore for and get [the] petroleum’ covered by the Act. Section 4 enjoins the Secretary of State to make regulations relating to applications for licences, including the model clauses to be incorporated in such licences.333 The construction and use of submarine pipelines is similarly restricted, s.14 requiring that any company334 wishing to construct or use a pipeline335 in, under or over the UK’s territorial sea or continental shelf336 may do so only with the written authorisation of the Secretary of State. Oil and gas exploration and production is subject to its own environmental control regime. Besides oil pollution offences such as that of discharging oil or an oily mixture into UK territorial waters (which can be committed wherever the pipeline in question is located),337 environmental protection provisions are incorporated in the exploration and development licences granted under s.4.338 The planning of oil refineries, of installations for the extraction of petroleum and of oil pipelines is subject to the EIA regime discussed above.339 Refining mineral oils and its associated activities are subject to the IPC340 and IPPC regimes.341 The powers delegated as above to the Secretary of State for Transport have recently been exercised in order to ensure UK law’s compliance with standards contained in Community law.342 Thus the lead and sulphur content of fuels, as well as their transport and storage, is regulated by a number of statutory instruments,343 each of which transpose Directives in these areas. To these powers, Energy Act 2004, s.124 has added an enabling power for the Secretary of State to impose renewable transport fuel obligations on particular 332 Defined in Petroleum Act 1998, s.2(3). 333 Petroleum Act 1998, s.4(1)(e). See the Petroleum Licensing (Exploration and Production) (Seaward and Landward Areas) Regulations 2004, S.I. 2004 No. 352. 334 Authorisations may not be issued to individuals! (See Petroleum Act 1998, s.15(2).) 335 Defined in ibid., s.26. 336 See Continental Shelf Act 1964, s.1(7). 337 See Prevention of Oil Pollution Act 1971, s.2. 338 See the Petroleum Licensing (Exploration and Production) (Seaward and Landward Areas) Regulations 2004, S.I. 2004 No. 352. 339 See para. 6.2.4 above. 340 See the Environmental Protection (Prescribed Processes and Substances) Regulations 1991, S.I. 1991 No. 472, Sched. 1, Ch. 1. 341 See Pollution Prevention and Control (England and Wales) Regulations 2000, S.I. 2000 No. 1973, Sched. 1, Section 1.2. See para. 6.2.3 above. 342 See para. 12.2.6.3(5) below. 343 See the Motor Fuel (Composition and Content) Regulations 1999, S.I. 1999 No. 3107; the Motor Fuel (Composition and Content) (Amendment) Regulations 2003, S.I. 2003 No. 3078; and the Carriage of Dangerous Goods by Road Regulations 1996, S.I. 1996 No. 2095. 158 Environmental Taxation Law types of transport fuel supplier. Unusually, such Orders have to be approved by an affirmative vote in the UK Parliament. 6.4.3.4 Coal Most of the legislation regulating the coal industry dates from the denationalisation of the industry in the mid-1990s. The main statute is the Coal Industry Act 1994, which sets out a basic regulatory framework, although this should be read in the context of the general law of town and country planning.344 The 1994 Act establishes the Coal Authority as the industry’s regulatory body,345 provides for the licensing of coal-mining operations,346 sets out the rights and obligations of coal mine operators347 and contains various supplementary provisions relating to matters such as access to information.348 The central idea in the 1994 Act is that, the interests of the British Coal Corporation349 in unworked coal mines having vested in the Coal Authority,350 the latter has the power to grant coal-mining licences to persons wishing to conduct mining operations on the land to which the application relates.351 In addition to the town and country planning law referred to above, the planning of both underground and open cast coal mines, of fossil fuel storage facilities and coke ovens are among the items subject to the EIA regime discussed above.352 Finally, coal production falls within the scope both of the IPC/LAAPC353 and of the IPPC regime.354 The abandonment of coal mines, with the potential for land contamination355 that may result, is subject to the notification and other procedures in the Mines (Notice of Abandonment) Regulations 1998.356 344 Currently (December 2004) the subject of the massive reform referred to at para. 6.4.3.1(3) above. The impact of planning policy on coal mining is usefully discussed in Hughes, op. cit., pp. 399–402. Town and country planning is outside the scope of the present volume. 345 Coal Industry Act 1994, Part I. See para. 4.2.1.3 above. 346 Ibid., Part II. 347 Ibid., Part III. 348 Ibid., Part IV. 349 Dissolved on 27 March 2004 (see Coal Industry Act 1994, s.23(2) and the Coal Industry Act 1994 (Commencement No. 7) and Dissolution of the British Coal Corporation Order 2004, S.I. 2004 No. 144 (C.6)). 350 Coal Industry Act 1994, s.7(3). The vesting date was 31 October 1994, pursuant to Coal Industry Act 1994, s.7(1). 351 Coal is thus an exception to the general rule of English property law that ‘land’ includes all mines and minerals beneath it (see Coke on Littleton, para. 4a). 352 See para. 6.2.4 above. 353 See the Environmental Protection (Prescribed Processes and Substances) Regulations 1991, S.I. 1991 No. 472, Sched. 1, Ch. 3. For LAAPC, see para. 6.2.2 above. 354 See the Pollution Prevention and Control (England and Wales) Regulations 2000, S.I. 2000 No. 1973, Sched. 1, Section 3.5. See para. 6.2.3 above. 355 See para. 6.7 below. 356 S.I. 1998 No. 892. Regulatory Context 159 6.5 Air passenger and road freight transport regulation 6.5.1 The international and European Union background Since the environmental issues raised by air transport and by road freight transport are largely (though not exclusively)357 questions of air and atmospheric pollution, they have a significant transboundary aspect. Again, the measures discussed in this part of the chapter should therefore be understood within the public international and Community contexts discussed in Chapters 8 and 12 below. 6.5.2 Environmental regulation Given the origins of the environmental aspects of transport policy in policy on air and atmospheric pollution, the ministerial predilection for economic instruments (both existing and, as yet, only imaginary) in the transport arena should occasion little surprise. It is perhaps curious, however, that neither the air transport nor the road freight transport sector is currently subject to any form of environmental levy.358 That said, there continues to be a seemingly endless discussion of the policy options, each of which are reviewed elsewhere in this study.359 For the present, such economic instruments as do exist are embodied in excise duty differentials,360 income tax provisions on company cars and fuel benefits361 and in the provisions of the Transport Act 2000. This last was the result of the government’s July 1998 White Paper, A New Deal for Transport: Better for Everyone.362 The Act ranges over at least four distinct areas, the one with the most obvious environmental significance appearing in Part III.363 The provisions of Part III give to local authorities364 powers to implement two important economic instruments: workplace parking levies and road user charging schemes. Each of these is discussed in detail in Chapters 17 and 18 below and there is also a brief introductory outline of both concepts in the opening chapter above.365 357 When, for example, loss of amenity through road traffic congestion is considered. 358 See para. 2.6 above. 359 See paras 2.6 above and 27.3 below (nationwide road-user charging scheme for heavy lorries); paras 2.6 above and 27.5 below (possibility of allowing airport charges to have an emissions-related element); and para. 2.6 above and 27.5 below (possibility of bringing the aviation industry within the scope of the EU ETS). 360 See para. 22.2.1 below. 361 See para. 23.2 below. 362 Cm 3950, 1998. 363 This is, of course, an artificial statement, since the Transport Act 2000’s provisions on local transport (Part II) and railways (Part IV) also have profound environmental implications. Part IV establishes the Strategic Rail Authority, sets out its objectives and functions and generally ‘makes provision for the better regulation of the railway industry’. Part II requires local transport authorities to prepare and publish local transport plans for ‘safe, integrated, efficient and economic transport facilities in their areas’ (Explanatory Notes, paras 10 and 14). 364 See para. 4.2.3 above. 365 See paras 1.4.2.4(1) and (2) above. 160 Environmental Taxation Law It should be recognised that, in addition to the economic instruments – actual or projected – just referred to, specific command and control measures deal with particular environmental issues raised by transport. For example, legislation imposes requirements on airport operators as to the noise and vibration caused by aircraft366 as well as on airline operators, with regard to engine emissions and noise certificates.367 Equally, in addition to generally-applicable measures relating to vehicle construction and use, such as the control of emissions368 and noise,369 there are specific provisions relating to environmental matters in the licensing of goods vehicle operators.370 More generally, there is extensive legislation relating to the acquisition and use of land for the construction of highways371 as well as legislation enabling a highways authority to make agreements with adjoining landowners to mitigate the injurious effects of highways by tree-planting, etc.372 6.5.3 Transport regulation The main statutes regulating the civil aviation industry are the Civil Aviation Act 1982 and the Airports Act 1986, in each case together with the relevant secondary legislation. Transport Act 2000, Part I, establishes a public-private partnership for the provision of air traffic services.373 The road haulage industry is regulated both by the Road Traffic Acts and by a special goods vehicle licensing regime.374 The basic provision of the latter is that, subject to certain exceptions, an operator’s licence is required in order for any person to use a goods vehicle on a road, for the carriage of goods for hire or reward, or for or in connection with any trade or business carried on by him.375 The Civil Aviation Authority (‘the CAA’),376 which may charge for the statutory functions that it discharges in relation to civil aviation,377 has, since 1971, been responsible for the operational, economic and technological regulation of the civil air transport industry. The operation of airports is subject to the CAA’s licensing system,378 as is the carryin,g of passengers or cargo for remuneration.379 An airport operator may only 366 See Civil Aviation Act 1982, s.77 and the Air Navigation Order 2000, S.I. 2000 No. 1562, Art. 108. These provisions mean that the scope for private individuals to bring legal action over aircraft noise is severely limited. 367 Air Navigation (Environmental Standards) Order 2002, S.I. 2002 No. 798, Art. 8. 368 See Road Vehicles (Construction and Use) Regulations 1986, S.I. 1986 No. 1078, reg. 3(2), Table. 369 Ibid., reg. 97. 370 See para. 6.5.3 below. See Goods Vehicles (Licensing of Operators) Act 1995, s.34. 371 See, generally, Highways Act 1980. 372 See Highways Act 1980, s.253. 373 That is, National Air Traffic Services Ltd (‘NATS’). See Transport Act 2000, Pt I. 374 That is, the Goods Vehicles (Licensing of Operators) Act 1995. 375 Goods Vehicles (Licensing of Operators) Act 1995, s.2(1). 376 See para. 4.2.1.3 above. 377 Civil Aviation Act 1982, s.11(1). 378 See, generally, the Air Navigation Order 2000, S.I. 2000 No. 1562. 379 See the Licensing of Air Carriers Regulations 1992, S.I. 1992 No. 2992, reg. 2. Regulatory Context 161 make airport charges with the authorisation of the CAA380 and then only when the airport has, having achieved a certain level of turnover, become subject to the economic regulation of the CAA.381 6.6 Regulation of mineral extraction Like transport, issues arising from quarrying are hardly a discrete area of environmental regulation. However, there is a range of general measures relating to noise pollution382 and, in enacting the aggregates levy provisions of Finance Act 2001, the government’s professed aims were to introduce an economic instrument similar to landfill tax that would reflect the environmental costs of aggregates quarrying, in terms of noise, dust, traffic, visual impacts, blasting, etc.383 Mineral development is subject to the general law on town and country planning,384 responsibility therefore being with local authorities, and may require an EIA to be carried out.385 An outline of aggregates levy appears at para. 1.4.2.3 above and there is a detailed account in Chapter 13 below. 6.7 Regulation of contaminated land The historical legacy of contaminated land is dealt with in Environmental Protection Act 1990, Pt II, and in the Contaminated Land (England) Regulations 2000.386 A duty is imposed on local authorities387 to inspect their areas to identify contaminated land,388 details of which are entered on a public register and, although agreement as to the costs of clean up may be reached between those responsible, local authorities are empowered to serve remediation notices389 on the appropriate person or persons,390 the failure to comply with which without reasonable excuse is a criminal offence.391 380 See Airports Act 1986, s.38(1) and the Civil Aviation Authority (Economic Regulation of Airports) Regulations 1986, S.I. 1986 No. 1544. 381 See Airports Act 1986, s.37. 382 See, generally, Environmental Protection Act 1990, s 79(1)(g) and (ga); Noise Act 1996; Control of Pollution Act 1974, ss.60–67. 383 See paras 5.5 above and 11.3.2 below (see also para. 13.1 below). 384 See Mark Stallworthy, Sustainability, Land Use and Environment (London: Cavendish, 2002); Hughes et al., op. cit., Ch. 13. 385 See para. 6.2.4 above. 386 S.I. 2000 No. 227. 387 See para. 4.2.3 above. 388 See the definition in Environmental Protection Act 1990, s.78A(2) as ‘any land that appears to the local authority to be in such a condition, by reason of substances in, on or under the land, that significant harm is being caused or there is a significant possibility of such harm being caused or pollution of controlled waters is being, or is likely to be, caused’. 389 Environmental Protection Act 1990, s.78E. 390 Ibid., s.78F(2). 391 Ibid., s.78M. 162 Environmental Taxation Law 392 See Chapter 5 above. The command and control regulation control regulation in Environmental Protection Act 1990, Part IIA is backed-up by an economic instrument in the form of a generous but closely restricted tax deduction, outlined in para. 7.3.4.2 below and detailed in para. 24.5.1 below. 6.8 Concluding comments Only the briefest of glances at the present chapter will show the reader how far the idea of environmental levies and their associated economic instruments has gained ground in the regulatory landscape of the UK within the last decade. In seeking to place environmental taxation within the context of environmental regulation generally, this chapter has highlighted the regulatory nature of the taxes and other levies under consideration. Such an emphasis is both necessary and appropriate. An evaluation of the UK’s environmental taxation provisions which was divorced from their regulatory context would be, at the very least, incomplete. It will be recalled from earlier in the study392 that the government views environmental levies and other economic instruments very much in terms of their cumulative effect, that is, as part of a diet of measures together designed to deliver environmental improvements. Thus it is important to realise that, in some areas, their significance may be greater than in others. Hitherto, for example, economic instruments have played a relatively insignificant role in waste management regulation, where command and control has dominated. Equally, however, economic instruments dominate the regulation of air and atmospheric pollution. As mentioned at the beginning, by examining in this chapter the regulation of the industries whose products fall within the scope of the various environmental taxes and other economic instruments, we hope to begin the process of drawing attention to possible anomalies as between the respective purposes and effects of what we have referred to respectively, and pragmatically, as market regulation and environmental regulation. What falls to us next is the task of examining the duality of environmental levies and other economic instruments. Though spoken of, quite correctly, as regulatory instruments, environmental levies and subsidies also fall to be considered in their taxation context. Accordingly, in Chapter 7, we shall begin an examination of the issues involved in describing and evaluating environmental levies and other economic instruments in taxation terms. Chapter 7 Taxation Context 7.1 Introduction In previous chapters, discussion has been focused on the regulatory qualities of the UK’s environmental taxes and other economic instruments. Attention is narrowed in the present chapter to an examination of the nature of these instruments in tax law. The division of the material is designed to highlight the complimentary but distinct nature of the two contexts. The chapter is divided into two main parts. In the earlier of these, we explore the concepts of ‘taxes’ and ‘tax subsidies’. In the course of the former discussion, we shall be building on the definition of a tax introduced in Chapter 1 and, by reference to case-law from different legal traditions, attempting to explain the relationship between taxes and other, related but distinct, concepts. Thus, we shall be considering the distinction between a tax and a charge, or fee, for government services, as well as the relationship between the tax concept and those of tolls, penalties and fines. The rise of environmental taxation has necessitated the revisiting of these basic distinctions, none of which have traditionally been seen, from the legal point of view, as important ones in the UK. Secondly, we introduce the concept, not of a tax, but of a ‘tax expenditure’, or ‘tax subsidy’, something not so far alluded to in the book. If the legal concept of a tax is crucial to understanding the significance of the various environmental levies, then the idea of a tax expenditure is no less important to understanding what is required, at least in part,1 in order to ‘green’ a tax system. Such tax expenditures or tax subsidies, if designed to incentivise environmentallyfriendly behaviour, can properly be characterised as economic instruments for environmental protection, since they represent a form of financial assistance from government.2 We shall be particularising them in UK law in Part III, Section B below. The second main part of the discussion in the present chapter is the complex task of analysing the legal nature of the various payments under consideration in the book. These comprise, not only the environmental levies and environmentally-inspired subsidies currently at work in the UK tax system, but also items such as payments to government agencies on the grant of licences. The discussion in the latter part of the chapter builds on the distinctions drawn in the earlier part, in attempting to confirm which of the current environmental levies can properly be described as taxes, and in describing the legal nature of ‘green’ subsidies within the non-environmental tax codes.3 1 Greening a tax system can, of course, involve bringing items within the tax base, just as it is taken to refer introducing environmentally-friendly exemptions and reliefs. 2 See para. 1.2.1.5 above. 3 See para. 1.4.3.1 above. 164 Environmental Taxation Law We turn first to the distinctions between each of charges – or fees – for government services, taxes, tolls, fines and penalties. 7.2 Taxes and tax subsidies 7.2.1 Taxes distinct from charges (or fees) Tiley isolates the characteristics of a charge or fee, as distinct from a tax, as follows:4 1 with a charge, ‘some service must be provided direct to the individual’;5 2 a charge must be related to the service provided, not varied according ‘to some other criterion … such as the value of that person’s property’ or his ability to pay;6 and 3 ‘it is no objection that a charge may result in a profit’ to the levying authority, ‘provided only that the profit is a reasonable one’.7 Re Eurig Estate,8 it will be recalled, insists on there being three criteria for identifying a tax, as distinct from a charge. A levy is a tax if it is: compulsory,9 levied by a public body and intended for a public purpose.10 These points are made on the basis of Commonwealth authorities. They are much more precise than either the case-law of the ECJ discussed below on the meaning of the expression ‘taxation’ as it is used in Art. 90, European Treaty (ex 95),11 or GATT 1994/WTO jurisprudence on the construction of the GATT 1994 equivalent of Art. 90, Art. III(2), GATT 1994.12 However, the Commonwealth authorities are consistent with the proposition a levy will fall outside the scope of Art. 25, European Treaty (ex 12), which bans customs duties as between EU Member States, only if it 4 See John Tiley, Revenue Law, 4th edn (Oxford: Hart Publishing, 2000), p. 4. 5 Re Tax on Foreign Legations and High Commissioner’s Residence, [1943] SCR 208 (Can) (Duff, C.J.). 6 Société Centrale d’Hypothesques v. Cité de Quebec, [1961] QLR 661. Thus, in Re Eurig Estate (1999) 165 DLR (4th) 1 (see para. 1.2.1.1 above), one of the reasons that the probate fee was held to be a tax was that it varied with the size of the estate, there being no link between the amount of the fee and the cost of the service for granting letters probate. 7 Minister of Justice for Dominion of Canada v. Levis City, [1919] AC 505. 8 (1999) 165 DLR (4th) 1. 9 And therefore enforceable by law (see (1999) 165 DLR (4th) 1, para. 17); see also, for example, Attorney-General of New South Wales v. Homebush Flour Mills Ltd, (1937) 56 CLR 390. 10 (1999) 165 DLR (4th) 1, para. 15. On the public purpose requirement, see Lower Mainland Dairy Products Sales Adjustment Committee v. Crystal Dairy Ltd, [1933] AC 168, 175–176 (Lord Thankerton); and Lawson v. Interior Tree, Fruit and Vegetable Committee of Direction, [1931] 2 DLR 193, 197–198 (Duff, J.). 11 See para. 7.2.2.3 below. 12 See para. 8.4.3 below. Taxation Context 165 can be shown that there was a genuine bargain between the trader and the state, that is, that the trader receives a specific, identifiable benefit in return for the sum paid, and that the sum paid is proportionate to the benefit received.13 7.2.2 Taxes defined In order to further refine the definition of a tax on which the discussion has so far proceeded, four areas of law fall for consideration:14 1 UK case-law on the concept of a tax; 2 Commonwealth case-law on the concept of a tax; 3 Case law of the ECJ on the meaning of ‘taxation’ as it is used in the European Treaty; and 4 Jurisprudence of the WTO Dispute Settlement Body and the AB on the meaning of ‘internal taxes or other internal charges’ as the phrase is used in GATT 1994. It will be apparent to the reader that these four areas of law have been chosen for their relevance to the UK, given its status as a member of each of the Commonwealth, of the EU and of the WTO.15 It should, however, be noted that the scope of the concept of a tax has been given detailed consideration in many national jurisdictions, most notably, perhaps, those of the USA and Germany.16 Of the areas listed above, 2 and 3 yield fairly detailed information on the characteristics of a tax, whilst 1 and 4 are, possibly for historical reasons, relatively uninformative. 7.2.2.1 UK case-law on the concept of a tax In Chapter 1 above, we stated that the UK’s constitutional arrangements have so far tended to discourage a narrow and prescriptive view of a tax as a legal concept.17 13 See para. 12.3.3.2 below. See Commission v. Italy, C–24/68, [1969] ECR 193; W. Cadsky SpA v. Instituto Nazionale per il Commercio Esterio, C–63/74, [1975] ECR 281; and Ford España v. Spain, C–170/88, [1989] ECR 2305. 14 That is, from the UK perspective. 15 See para. 8.4.1 below. 16 Not considered further in this volume, although see, for example, Paul Marchetti, ‘Distinguishing Taxes from Charges in the Case of Privileges’ (1980) 33 NTJ 233–6. It has recently been reported that the US Supreme Court is about to consider the nature of the tax concept in US law in a case involving the beef levy (see Waldmeir, Financial Times, 27 September 2004, p. 12). See also, in the context of the term ‘taxes’, as used in the OECD’s model double taxation convention, Klaus Vogel, Klaus Vogel on Double Taxation Conventions, 3rd edn (The Hague: Kluwer Law, 1997), pp. 146–8 and 205. 17 See para. 1.2.1.1 above. The Bill of Rights 1689, Art. 4, simply states that: ‘ … levying Money for or to the Use of the Crown, by Pretence of Prerogative, without Grant of Parliament, for longer Time, or in other Manner than the same is or shall be granted, is illegal’. See also 8(2) Hals, para. 228, esp. n3 and the references cited therein; O. Hood Phillips and Paul Jackson, Constitutional and Administrative Law, ed. by Paul Jackson and Patricia Leopold, 8th edn (London: Sweet and Maxwell, 2001), paras 3–008–3010; and E.C.S. Wade and A.W. Bradley, Constitutional and Administrative Law, ed. by A.W. Bradley and K.D. Ewing, 11th edn (London: Longman, 1993), pp. 366–7. 166 Environmental Taxation Law Probably for this reason, such English law authorities as actually exist on the nature of a tax are unsatisfactory.18 Following devolution,19 however, the exact legal meaning of the concept of a tax will need to be considered before much longer.20 Three well-known cases illustrate the historically impressionistic approach of English courts to the concept. 1 In Congreve v. Home Office,21 the CA declared unlawful and void the Home Secretary’s threatened revocation of certain television licences. The CA clearly assumed that the television licence fee was a form of taxation, although the judges did not consider the issue in any detail.22 2 Daymond v. South West Water Authority,23 concerned charges for household sewage and sewerage disposal services. The claimant, whose property was not connected to the main drainage system, and was situated 400 yards from the nearest sewer, received a demand for payment of charges for sewerage and sewage disposal services. He refused to pay the charges and sought a declaration that the demand was unlawful, since the water authority had no power under the Water Act 1973, s.30, to demand charges other than those for services performed, facilities provided or rights made available to him by the authority. The House of Lords24 held that, where a provision stated only that a statutory body could demand, take and recover such charges for the services that it performed, then the body in question could charge only those who availed themselves of its services. It followed that the body was not empowered to charge the claimant for services of which he did not avail himself. Whilst emphasising that the conclusion of the majority was a matter of statutory construction, Viscount Dilhorne asked: Is it to be inferred that it was the intention of Parliament that [water authorities] … should be at liberty to charge anyone they thought fit in Great Britain? That has only to be stated 18 See, for example, Brewster v. Kidgill, (1697) 88 ER 1239 (Holt, C.J.); Baker v. Greenhill, (1842) 114 ER 463, at 470 (Lord Denman, C.J.); Attorney-General v. Wilts United Dairies Ltd, (1921) 124 LT 319, 322–323 (Bailhache, J., overruled by CA and HL at [1922] WN 217, 218); Government of India v. Taylor [1955] AC 491; and Aston Cantlow v. Wallbank, [2001] 3 WLR 1323, para. 40 (Sir Andrew Morrit, V.C.), overruled by HL at [2003] 3 WLR 283 (esp. para. 133) (Lord Scott of Foscote). 19 See para. 1.3 above. 20 On the near-federal nature of the UK, see, for example, Chris Hilson, Regulating Pollution – A UK and EC Perspective (Oxford: Hart Publishing, 2000), p. 47. 21 [1976] QB 629. 22 The background to the case was interesting. The Home Secretary had announced, on 29 January 1975, that the colour television licence fee would be increased from £12 to £18 on April, 1 that year, and had made an order to that effect under the Wireless Telegraphy Act 1949, s.2(1). In order to avoid the increase in the fee, some 24,500 licence holders had applied for new £12 licences, before 1 April and before their existing licences had expired. The Home Secretary acted in purported exercise of a statutory discretion to revoke these overlapping licences. 23 [1976] AC 609. 24 Lords Wilberforce and Diplock dissenting. Taxation Context 167 to be rejected for it is, to my mind, inconceivable that Parliament should have intended to entrust such an extensive power of taxation to a non-elected body. Is it then to be inferred that it was intended to give them only power to charge those living in their area and those who came into it and made use of their services … ? I think that such a limitation must be implied.25 Lord Kilbrandon took a similar approach: For my part I do not consider … [the relevant statutory wording] adequate, if any other meaning is open, to empower an ad hoc nonrepresentative body to impose what is in truth a tax, namely an impost under the head of charges for services … upon persons who do not directly receive such advantages.26 3 IRC v. Océ van der Grinten27 concerned withholding tax under the 1980 UK/ Netherlands Double Tax Treaty. The Inland Revenue had appealed against the Special Commissioner’s28 referral of a double taxation issue to the ECJ. The UK subsidiary of a Dutch parent company had declared dividends of £13 million in a particular year when the former UK imputation system (now abolished) was in force.29 The Revenue argued that, pursuant to the double tax treaty, the parent was liable to pay tax at 5 per cent on the total of the dividends distributed, plus the tax credit received on those dividends. The parent argued that the 5 per cent was a withholding tax and, as such, was forbidden by the Parent-Subsidiary Directive.30 In agreeing that the case should be referred to the ECJ,31 Jacob, J. held that the concept of a withholding tax was a global question of Community law. His Lordship also commented reluctantly, at the specific request of counsel on both sides, on the issue of whether the 5 per cent was a ‘tax’ in UK law: The [tax credit] stems from the distribution of profits by the subsidiary. It is the distribution of profits by way of dividend which causes the [tax credit] to be given to the parent. And the amount of the [tax credit] represents part of the profits distributed. So the abatement of the [tax credit] by the 5 per cent … is in substance a reduction in what the parent gets compared with what it would get if there were no abatement. Putting it another way, as a result of the abatement the Crown ends up with more money and the taxpayer less. Most people would call the difference a ‘tax’ and I do too. Since the ‘tax’ stems from the distribution it seems equally right to call the deduction a ‘tax on (or in respect of) the distribution’.32 25 [1976] AC 609, 640. 26 [1976] AC 609, 651. 27 [2000] STC 951. 28 See para. 4.2.1.5 above. 29 For the detail of the UK imputation system, inapplicable after 5 April 1999, see, for example, Chris Whitehouse, Revenue Law – Principles and Practice, 16th edn (London: Butterworths, 1998), paras 29.62–29.65. 30 Council Directive 90/435/EEC, (1990) OJ L225 6. 31 See Océ van der Grinten v. Commissioners of Inland Revenue, C–58/01. The ECJ does not, however, shed any light on the issue under consideration here. 32 [2000] STC 951, para. 14. 168 Environmental Taxation Law The reasons for Jacob, J.’s evident impatience at counsels’ request was presumably that the concept of a tax had already been considered by the Special Commissioners33 in some detail. 7.2.2.2 Commonwealth case-law on the concept of a tax Commonwealth case-law, of course, is the source of the definition of a tax upon which reliance has so far been placed (that is, compulsory, levied by a public body and intended for a public purpose).34 To these three may be added the fourth criterion, which determines the lawfulness or otherwise of the tax thus identified. This fourth criterion, it will be recalled, is that the tax must have been imposed under the authority of the legislature.35 In Re Eurig Estate itself, the province of Ontario had imposed an ad valorem probate fee, which varied according to the size of estates. The appellant was the executor of the estate of her late husband. She applied to the Ontario Court (General Division) for an order that she be issued letters probate without payment of the probate fee and for a declaration that the regulation which required that payment was unlawful. The basis of her argument was that the fee was in reality a tax and was invalid, either because it was an indirect tax (and thus outside the powers of the provincial legislature)36 or because, as a direct tax, the constitutional requirements for its implementation had been violated. Originally unsuccessful before the Ontario Court, the appellant appealed to the Ontario Court of Appeal, where her appeal was dismissed. Eventually the case reached the Supreme Court of Canada. Major, J., for the majority of the Supreme Court,37 applied the three criteria listed above, in holding that the probate fee was a tax: 1 the fee was compulsory and therefore enforceable by law: although probate was not the foundation of the executor’s title, but only ‘the authentic evidence of it’, that authentication was ‘nonetheless a practical and legal necessity in most cases’.38 2 The fee was levied by a public body, since probate fees in Ontario were levied by the Ontario Court (General Division).39 3 The fees were intended for a public purpose, since the revenue obtained from probate fees was ‘used for the public purpose of defraying the costs of court administration in general … not simply to offset the costs of granting probate’.40 Having held that the probate fee was therefore clearly a tax, Major, J. held that, although it was a direct tax – and therefore within the competence of the provincial 33 [2000] STC(SC) 127. 34 (1999) 165 DLR (4th) 1. See para. 1.2.1.1 above. 35 (1999) 165 DLR (4th) 1, para. 16. 36 See para. 1.2.1.2 above. 37 Bastarache and Gonthier, JJ. dissented. 38 (1999) 165 DLR (4th) 1, para. 17. 39 Ibid., para. 18. 40 Ibid., para. 20. Taxation Context 169 legislature41 – it had not been implemented in accordance with the constitutional requirements for a direct tax.42 To the three characteristics of a tax enumerated in Re Eurig Estate may be added the following subsidiary points:43 1 A levy is not prevented from being a tax by the fact that raising revenue is not the government’s main reason for imposing it (see Northern Suburbs Cemetery Reserve Trust v. Commonwealth).44 2 For a levy to be capable of being a tax, it must be possible to identify ‘the criteria by reference to which liability to pay the tax is imposed’ and to demonstrate that the process of applying the criteria is not arbitrary or capricious (see MacCormick v. Federal Commissioner of Taxation).45 3 The three criteria for the existence of a tax should not be regarded as providing an exhaustive definition of a tax (see Air Caledonie v. The Commonwealth).46 For example, in relation to the requirement that the levy must be made by a public body, it has been held that a levy on blank tapes, to be paid to a body ‘set up by the music industry’ to compensate performers, was nonetheless a tax (see Australian Tape Manufacturers’ Association v. The Commonwealth).47 7.2.2.3 European Union case-law on the meaning of ‘taxation’ The ECJ has had to consider the meaning of the expression ‘taxation’ as it occurs in Art. 90, European Treaty (ex 95). Article 90 provides: No Member State shall impose, directly or indirectly, on the products of other Member States any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products. Furthermore, no Member State shall impose on the products of other Member States any internal taxation of such a nature as to afford indirect protection to other products. As interpreted by the ECJ, ‘taxation’ in this context is a broad term. For the purposes of Art. 90, taxation ‘includes not only taxes levied by central government but any fiscal or parafiscal levy48 imposed by or with the authority of any level of government, including levies charged by or for quasi-official bodies and allocated to a specific purpose’.49 41 Ibid., para. 27. See para. 1.2.1.2 above. 42 Ibid., paras 28–37. 43 See Tiley, op. cit., p. 5, to which the summaries in these paragraphs are much indebted. The test was considered in Airservices Australia v. Canadian Airlines International Ltd, [1999] HCA 62 and in Luton v. Lessels, [2002] HCA 13. 44 (1993) 176 CLR 555 (High Court of Australia). 45 (1984) 158 CLR 622 (High Court of Australia). 46 (1988) 165 CLR 462, para. 6 (High Court of Australia). 47 (1993) 176 CLR 480 (High Court of Australia). 48 See para. 12.3.3.1 below. 49 See Paul Farmer and Richard Lyal, EC Tax Law (Oxford: Clarendon Press, 1994), p. 46. 170 Environmental Taxation Law The approach of the ECJ in relation to Art. 90 is illustrated by the following cases: 1. In Deutschmann v. Germany,50 when concluding that the then Arts 12 (now 25) and 95, European Treaty, were mutually exclusive, the ECJ did not consider there to be a relevant distinction between taxes and charges for services in the context of Art. 90, European Treaty (ex 95). Advocate General Gand said: From the fact that Article 95 appears in a chapter entitled ‘steuerliche Vorschriften’ (‘Fiscal provisions’) and from its closeness to Article 98, the Federal Republic draws the conclusion that it only applies to taxes in the strict sense … Fiscal terminology, already uncertain in the national legal systems, is all the more so when it is transferred to the Common Market sphere; such an exegesis seems to us to be rather useless and of little help in solving the problem put to us [that is, as to whether Art. 95 of the European Treaty applied to fees charged on the grant of import licences]. 2 In Iannelli & Volpi v. Meroni,51 the ECJ had to consider two cases involving, inter alia, Art. 90, European Treaty (ex 95). One case involved subsidies of newsprint purchased by Italian newspaper publishers, the paper being produced in Italy with levies being paid by manufacturers and importers of paper and cardboard. The other was about charges levied in relation to the processing of citrus concentrates imported to Germany. One of the points that the court made about the scope of Art. 90, was: Since Article 95 of the Treaty refers to internal taxation of any kind the fact that a tax or levy is collected by a body governed by public law other than the State or is collected for its benefit and is a charge which is special or appropriated for a specific purpose cannot prevent its falling within the field of application of Article 95 of the Treaty.52 3 Apple and Pear Development Council v. Lewis53 involved a research and development body established by statutory instrument, which body’s activities were financed by charges on fruit growers. One issue was whether the charges were covered by Arts 28 and 29, European Treaty (ex Arts 30 and 34). The ECJ said: … the charges, being measures of a fiscal nature or of equivalent effect, fall within the scope, not of those Articles, but of Articles 9 to 16 and 95 of the Treaty. Since the charge in question does not apply to imported produce and only affects produce intended for export in the same way as produce sold on the home market, it does not raise any problem in relation to the last-mentioned articles either.54 50 C–10/65, [1965] CMLR 259. 51 C–74/76, [1977] 2 CMLR 688. See also AGF Belgium SA v. European Economic Community, C–191/94, [1996] ECR I–1859; Weyl Beef Products BV v. Commission, Case T–197/97, [2001] 2 CMLR 22. 52 [1977] 2 CMLR 688, para. 19. 53 C–222/82, [1984] 3 CMLR 733. 54 [1984] 3 CMLR 733, para. 30. Taxation Context 171 Although unwilling to make fine distinctions between taxes and related concepts for the purpose of Art. 90, European Treaty, the ECJ has been obliged to distinguish, for the purposes of Art. 25, European Treaty (ex 12) between taxes and charges having an effect equivalent to customs duties. Customs duties55 as well as charges having equivalent effect,56 are of course prohibited as between Member States of the EU, by Art. 25, European Treaty (ex 12). A charge having an equivalent effect (a ‘CEE’) is defined in a key passage in the following terms: Any pecuniary charge, however small and whatever its designation and mode of application, which is imposed unilaterally on domestic or foreign goods by reason of the fact that they cross a frontier, and which is not a customs duty in the strict sense, constitutes a charge having equivalent effect … even if it is not imposed for the benefit of the State, is not discriminatory or protective in effect and if the product on which the charge is imposed is not in competition with any domestic product … It follows from Article [90] … et seq. that the concept of a charge having equivalent effect does not include taxation which is imposed in the same way within a State on similar or comparable domestic products, or at least falls, in the absence of such products, within the framework of general internal taxation …57 A charge may, however, escape Art. 25, if it can be shown that, rather than having an effect equivalent to a customs duty, the charge is a tax and therefore subject to the discipline of Art. 90. In Commission v. France,58 a tax, in this context, was defined as a levy relating to: … a general system of internal dues applied systematically to categories of products in accordance with objective criteria irrespective of the origin of the products …59 in circumstances such that there is no identical or similar domestic product. This is not the only way in which an item may escape Art. 25, however. A levy will not count as a CEE if either it counts as consideration for a service supplied by the importing State to the importer60 or it was imposed pursuant to mandatory requirements of Community Law (that is, it was an administrative charge).61 Given the purpose for which the complementary Arts 90 and 25 fall to be interpreted, these distinctions are unsurprising. Overall, however, they are consistent with a number of the subsidiary points about taxes made in the Commonwealth cases, that is, that: 1 the fact that the levy is allocated to a specific, as opposed to a general, purpose does not prevent it from being a tax; 55 See, generally, Timothy Lyons, EC Customs Law (Oxford: Oxford University Press, 2001). 56 See Commission v. Italy, C–24/68, [1969] ECR 193 (the ‘statistical levy case’). 57 [1969] ECR 193, paras 9 and 11. 58 C–90/87, [1981] ECR 283. 59 [1981] ECR 283, para. 14. 60 Bresciani v. Amministrazione Italiana delle Finanze, C–87/75, [1976] ECR 129. 61 See Commission v. Germany, C–18/87, [1988] ECR 5427. 172 Environmental Taxation Law 2 a levy may be a tax where it is imposed by, and paid to, a body set up under statutory powers, rather than directly to the government itself; and 3 it must not be arbitrary or capricious, that is, it must be possible to identify the criteria by reference to which liability to pay the tax is imposed.62 7.2.2.4 GATT 1994/WTO jurisprudence on the meaning of ‘internal taxes and other internal charges’ The equivalent provision to Art. 90, European Treaty (ex 95) as regards the trade relations of EU Member States with third countries, is Art. III(2), GATT 1994.63 Article III, which is considered in more detail later in the book,64 reads (so far as relevant) as follows: 1. The contracting parties recognize that internal taxes and other internal charges … affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, … should not be applied to imported or domestic products so as to afford protection to domestic production. 2. The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover, no contracting party shall otherwise apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in paragraph 1. It will be apparent to the reader that, instead of the expression ‘internal taxation of any kind’, which is the expression used in the (later) European Treaty, Art. III(2), GATT 1994,65 refers to ‘internal taxes and other internal charges’. The use of the word ‘charges’ in Art. III(2), rather than the wider expression ‘levies’, emphasises the fact that the Art. was not drafted mindful of the classification of taxes and charges as two different types of ‘levy’.66 Given its purpose,67 it is plain that one of the main purposes of Art. III(2), however, is to distinguish, not between taxes and other types of levy, but between internal taxes, on the one hand, and customs duties, on the other. In short, customs duties, which are subject to the discipline of GATT 1994, Art. II,68 though clearly taxes,69 are not internal taxes. What makes a 62 Arts 25 (ex 12) and 90 (ex 95), European Treaty, are discussed in detail in Stephen Weatherill and Paul Beaumont, EU Law, 3rd edn (London: Penguin, 1999), chs 13 and 14; and Farmer and Lyal, op. cit., ch 3. 63 See para. 12.3.3.1(1) below. 64 See para. 8.4.3 below. 65 Originally, Art. III(2), GATT 1947. 66 See para. 1.2 above. 67 See para. 8.4.3 below. 68 Ibid. 69 See Kenneth W. Dam, The GATT: Law and International Economic Organization (London: University of Chicago Press, 1970), p. 115. As such, they are indirect taxes (see para. 1.2.1.2 above). Taxation Context 173 tax an internal tax, and therefore subject to GATT 1994, Art. III(2), rather than GATT 1994, Art. II, is revisited below.70 The distinction is one on which GATT and WTO institutions seem to have been remarkably reluctant to rule definitively. What is at least clear is that: (1) the mere fact that it is collected or enforced ‘at the time or point of importation’ does not prevent the tax in question from being an internal tax;71 and (2) that, although described as internal taxes, levies may nonetheless be in reality import (that is, customs) duties, if: (a) they are collected at the time of, and as a condition to, the entry of the goods into the importing country, and (b) they apply exclusively to imported products without being related in any way to similar charges collected internally on like domestic products.72 7.2.3 Taxes distinct from tolls, penalties and fines Tolls73 have existed for centuries, both at common law and under statute, in relation to roads and bridges, street trading, markets, fairs and shipping and navigation. So far as roads are concerned, the necessary powers for tolls to be charged, whether by a highway authority or a concessionaire, have for long been taken by legislation.74 Historically, rights to take tolls or dues in relation to the use of a port or harbour have also been conferred by immemorial usage or grant as well as by statute, tolls in relation for example, to harbours being required to be reasonable in amount.75 Where a toll road has been constructed pursuant to an order made under the New Roads and Street Works Act 1991, the Secretary of State is not required to impose restrictions on the levels of tolls charged.76 Such distinctions between tolls and taxes as historically there might have been (that is, as to restrictions on amount and the need for statutory authority) are not, however, relevant to the projected lorry road user charge, which is straightforwardly characterised as a tax in the 2002 enabling legislation.77 70 See para. 8.4.3 below. 71 Note Ad Art. III, GATT 1994 (reproduced at World Trade Organization, The Legal Texts: the Results of the Uruguay Round of Multilateral Trade Negotiations (New York: Cambridge University Press, 1999), p. 479). See para. 8.4.3n below. 72 GATT 1947 Committee Report from the 1948 Havana Conference, quoted in John H. Jackson, World Trade and the Law of GATT (Indianapolis: Bobbs-Merrill, 1969), section 12.3 (esp. pp. 280–81), in turn referred to in the same author’s The World Trading System, 2nd edn (Cambridge, MA: MIT Press, 1997), p. 397. 73 The word ‘toll’, or tolnetum, is defined to be a sum of money which is taken in respect of some benefit’ (see Bramwell and Willes (counsel) in argument, in Adey v. Trinity House, (1852) 22 LJ QB 3). See also para. 12.2.6.4(2)n below. 74 For example, as in relation to the M6 toll road, north of Birmingham (see para. 27.3n below), constructed under the New Roads and Street Works Act 1991. 75 See Lord Falmouth v. George (1828) 130 ER 1071 (fishing boats paying a toll for use of a capstan at Sennen Cove in Cornwall). 76 See Alliance Against the Birmingham Northern Relief Road v. Secretary of State for the Environment, Transport and the Regions and Midlands Expressway Ltd, [1999] JPL 426. The Birmingham Northern Relief Road is the M6 toll road referred to above. The legal background to the construction of the road is examined in the judgment of Latham, J. 77 See Finance Act 2002, s.137(1). 174 Environmental Taxation Law Civil penalty provisions appear throughout the VAT code78 and have been transposed into the codes for each of aggregates levy, climate change levy and landfill tax.79 Environmental taxes are closer to civil penalties in terms of the function that they serve than are fiscal taxes, such as corporation tax and VAT.80 This proposition seems to be particularly well illustrated by landfill tax. Even at the current main rate, the level of the tax considerably exceeds the externalities associated with landfill. At the ultimate rate of £35 per tonne, as currently projected under the landfill tax escalator,81 the rate of the tax will clearly be a penal one. The significance of this point is that, unlike taxes, penalties are not deductible in calculating trading profits under Schedule D, Case I.82 The same point applies to fines that are imposed by the courts for breaches of offences created by command and control environmental and health and safety legislation.83 7.2.4 Tax subsidies distinct from taxes Having distinguished taxes from related but distinct concepts, it is necessary to describe the various legal concepts that are together categorised as tax subsidies or ‘tax expenditures’.84 As indicated above, tax expenditures are not ‘free-standing’ concepts, such as taxes and charges, but are rather elements within the structure of taxes themselves. The concept of the tax expenditure was defined by Willis and Hardwick as: … an exemption or relief which is not part of the essential structure of the tax in question but has been introduced into the tax code for some extraneous reason – eg in order to ease the burden for a particular class of taxpayers, or to provide an incentive to apply income in a particular way, or perhaps to simplify administration. The term is used to cover, not merely specific exemptions but also gaps in the charge as a result of which receipts or benefits which represent or are equivalent to income are not subjected to tax. The choice of the term ‘tax expenditure’ indicates that, because they are not inherent in the structure of the tax, these reliefs are equivalent in terms of revenue foregone to direct government expenditure and should in general be judged by the same criteria.85 Two of the different legal forms that tax expenditures may take (that is, exemptions and reliefs) have been mentioned already. Within the structure of the various UK taxes, however, there are a range of other forms that tax expenditures may take. 78 See, for example, ss.59–67, Value Added Tax Act 1994. 79 See para. 16.14 below. 80 See Kalle Määttä, Environmental Taxes – From an Economic Idea to a Legal Institution (Helsinki: Finnish Lawyers’ Publishing, 1997), pp. 207–10. 81 See para. 15.2 below. 82 See para. 1.4.3.1 above. 83 See Susan Wolf and Neil Stanley, Wolf and Stanley on Environmental Law, 4th edn (London: Cavendish, 2003), pp. 60–64. 84 These terms are treated as being synonymous (see, for example, Määttä, op. cit., p. 28). 85 J.R.M. Willis and P.J.W. Hardwick, Tax Expenditures in the United Kingdom (London: Heinemann, 1978), p. 1. The quotation is limited to income only because Willis and Hardwick’s study was confined to income tax and CGT. Taxation Context 175 The distinctions between these various possibilities can be illustrated by reference to income tax.86 1 Exemptions remove certain items from the scope of the tax altogether (for example income from personal equity plans87 or certain employee benefits in kind).88 2 Permitted deductions are deductible in calculating income from particular sources (for example trading expenses).89 Within this category can be included the logically necessary concept of capital allowances. Within the UK system, capital expenditure is not deductible from income, allowance instead being made for certain categories of such expenditure through the elaborate system of capital allowances.90 3 Charges on income are deductible in calculating total income from all sources, though the range of payments capable of qualifying as such is now very narrow (certain interest payments by individuals are still of this kind).91 4 Personal allowances and reliefs can, in certain cases, be deducted from total income from all sources (for example the personal allowance).92 5 Income tax reductions give rise to credits against tax (for example the income tax reduction provided for by the enterprise investment scheme (‘EIS’)).93 This last form of tax expenditure has become particularly popular with certain OECD governments. It should be emphasised that these are the tax expenditures within the income tax code only; as mentioned above, the legal form that tax expenditures take depends on the tax code in question.94 86 See para. 1.4.3.1 above. This part of the para. draws heavily on the useful list in CCH Tax Handbook 2003–04 (Banbury: CCH, 2003), para. 1840. 87 Although no new personal equity plans (‘PEPs’) can now be taken out, existing ones continue to benefit from provisions allowing the income therefrom to be exempt from income tax. 88 See Income and Corporation Taxes Act 1988, ss.333 and 333A and regulations thereunder (although note that no new PEP subscriptions have been permitted since 5 April 1999, having been replaced by Individual Savings Accounts or ‘ISAs’). 89 See Chapter 24 below. 90 Ibid. Capital allowances are so complex that they are governed by their own statute, that is, the Capital Allowances Act 2001; in the late 1960s, they were, for a time, replaced by investment grants, a system which favoured loss-making businesses, such as the (then) nationalised industries. As discussed in Chapter 24 below, there is a tension in the capital allowances system between the provision of a highly stylised system of depreciation and their use as policy incentives. 91 See, for example, Income and Corporation Taxes Act 1988, s.359 (interest on loan to buy machinery or plant). 92 See Income and Corporation Taxes Act 1988, s.257(1): these have to be distinguished from the mass of credits and deductions which have been added to the PAYE system since 1997 and which do not relate to tax allowances at all, even though they may be income based, for example, working family tax credit and student loan repayments. 93 See Income and Corporation Taxes Act 1988, ss.289–312. 94 This legal form is in each case described below. 176 Environmental Taxation Law Tax expenditures in general have a double significance in the context of the present study. Within the environmental tax and charging codes,95 they will tend to limit the effectiveness of the regulatory instrument, and we should therefore expect them to be difficult, although not impossible, to justify in terms of regulatory principle. Conversely, it might be expected that tax expenditures within the non-environmental tax codes96 should relatively easily be justifiable in regulatory terms. 7.3 Status of the main levies and subsidies under consideration 7.3.1 Environmental levies Within the scope of this book are at least ten extant economic instruments, or categories thereof, that are of an environmental nature and that involve the making of payments. Possible payments include the following: 1 payments of aggregates levy; 2 payments of climate change levy; 3 payments of landfill tax; 4 payments of workplace parking levies; 5 payments under road user charging schemes; 6 payments made under the UK ETS; 7 payments made under the RO; 8 payments made under the EU ETS; 9 payments made for licences and permits (for example IPPC permits) under command and control legislation; and 10 payments of airport landing charges. There is no doubt that landfill tax, climate change levy and aggregates levy are taxes. It is unclear whether licensing schemes relating to workplace parking levies or to road user charging impose taxes or charges; it is thought that taxes are more likely to arise under the former than under the latter. The payments referred to below under the UK ETS and RO also seem closer to charges than to taxes. The importance of the distinction is not yet a constitutional one as it is in the context of the Commonwealth jurisdictions referred to above. However, it may have a distinction in assessing the acceptability of the levies in question. Charges, it will be recalled, involve the provision of a service direct to the individual, a relationship between the service and the charge and no more than a reasonable profit accruing to the service provider. Payments of charges are requited, whereas payments of taxes are not. Licensing schemes for workplace parking and road user charging schemes each involve the provision of a service direct to individuals. The service in the former case is the provision of licences to park a certain num,ber of cars at, or in the vicinity of, 95 See Part III, Section A below. 96 Ibid., Section B below. Taxation Context 177 particular premises, such licences being granted in favour of occupiers of premises. In the latter case, the service is the provision of licences for motor vehicles to enter a certain area at certain times, the registered keeper of the vehicle generally being the person in whose favour the licence is granted. In the case of workplace parking levies, vehicles are classified as ‘licensed units’ and the amount payable is based on the charge per unit. Section 186, Transport Act 2000, allows for variations in the charges according to different days or times of day, different parts of the licensing area, different classes of motor vehicles or different numbers of licensed units. Although Transport Act 2000, s.171, provides for the basic elements that must be included in the order establishing the charging scheme, the local authority is free to determine the levels of charge. There would therefore appear to be greater scope for the level of the charge to be related to the service provided, as opposed to extraneous criteria, in the case of road user charging schemes. The question of whether the profit accruing to the service provider is reasonable is, of course, a nebulous one. Suffice it to say that Transport Act 2000, Sched. 12, contains financial provisions common to both types of scheme. The net proceeds of both types of scheme are found by subtracting the expenses of establishing or operating the scheme from the gross proceeds;97 net proceeds must be hypothecated (that is, earmarked)98 such that they can only be spent in support of the authority’s local transport plan for the first ten years of a scheme’s life;99 and, in accordance with the general rule that local authorities must spend net proceeds only on things that offer value for money, they are required to prepare a ten-year general plan for spending the proceeds.100 The UK ETS has already been outlined.101 The relevant feature of the scheme for present purposes is that, where participants make more emissions than their targets for a particular year, it will be necessary for them to purchase extra allowances. Where there is a failure to do this then, as an agreement participant, it will be necessary to pay the full rate of the levy, while, as a direct participant, the incentive payment will be lost and a tighter target will be imposed for the following year. It is thought that, since the right to retain the specific benefit conferred – that is, either a tax reduction or an incentive payment – is purchased at a price determined by the market, such payments are not to be regarded as taxes but are more in the nature of fees or charges. However, any loss of the incentive payment seems properly characterised as a penalty, with the loss of the climate change levy reduction resulting in a payment of the levy (that is, in the payment of tax rather than a penalty). With the RO, which has again been described above,102 electricity suppliers are obliged to prove that they have supplied specified quantities of renewable source electricity to customers in Great Britain within a specified period.103 In order to 97 Transport Act 2000, Sched. 12, para. 2. 98 See para. 11.2 below. 99 Transport Act 2000, Sched. 12, para. 7. 100 Ibid., Sched. 12, paras 8–10. 101 See para. 1.4.2.2(2) above. 102 See para. 1.4.2.2(4) above. 103 See Utilities Act 2000, s.62, and Renewables Obligation Order 2002, S.I. 2002 No. 914, Sched. 1. 178 Environmental Taxation Law comply with the RO, suppliers must produce ROCs or Green Certificates to Ofgem. Where a supplier cannot produce the requisite Green Certificates, it may either pay a penalty to Ofgem for each MWh it is short of its obligation or purchase ROCs from other suppliers willing to trade them. Ofgem pays the funds collected in penalties to suppliers in proportion to the amount of renewable energy they have sourced.104 To the extent that the supplier has had to pay for Green Certificates, such payments seem best characterised as fees or charges, since the payment is made directly to avoid the penalty and its amount is determined by the market place. Payments to Ofgem are, of course, in the nature of penalties. Whatever technical issues may be raised by the levies discussed above, it is clear that each of landfill tax, climate change levy and aggregates levy are taxes. They are payable to a public body, that is, HM Customs and Excise; they are compulsory, in the sense that satisfaction of the relevant conditions for liability and the absence of any exemption or relief gives rise to a liability to pay them, which liability is backed up by elaborate sanctions; and their proceeds are intended for a public purpose. This is so, even though part of the revenue raised by the three taxes is, by various means, hypothecated.105 It will be recalled from the ECJ case-law that the fact that a levy is allocated to a specific, as opposed to a general, purpose does not prevent it from being a tax.106 It is also unimportant to the status of these levies as taxes whether raising revenue is the government’s primary purpose in imposing them.107 7.3.2 Non-environmental levies There is no issue as to the status of the UK’s seven main non-environmental taxes as such.108 7.3.3 Tax subsidies within environmental levies The nature of the main exemptions within the environmental levies is summarised below. The exemptions in question are analysed in detail in the relevant paragraphs of the rest of the study. 1 Landfill tax:109 The exemptions from the tax relate to: disposals of material removed from water; disposals of materials removed from contaminated land; the 104 Richardson and Chanwai draw attention to the fact that energy supply companies may pass on the costs of purchasing renewable energy to their customers and refer to the suggestion in recent retail energy prices that the RO has added 3 per cent to consumers’ electricity bills (see Benjamin J. Richardson and Kiri L. Chanwai, ‘Taxing and Trading in Corporate Energy Activities: Pioneering UK Reforms to Address Climate Change’ (2003) 14(1) ICCLR 18–27). 105 See paras 11.2.2 and 21.3 below. 106 See para. 7.2.2.3 above. 107 See para. 7.2.2.2 above. 108 See para. 1.4.3.1 above. 109 See para. 1.4.2.1(1) above. Taxation Context 179 use of inert materials for site restoration; the disposal of inert waste at quarries; and the disposal of the remains of dead domestic pets.110 The exemptions all operate by removing the operation in question from the scope of the concept of the taxable disposal. Tax rates are differentiated according to whether the waste in question is general or inert waste.111 2 Climate change levy:112 Excluded from the levy are direct supplies for domestic or non-business charitable use and any supply made before 1 April 2001.113 Exempted from the levy are: gas supplies for burning in Northern Ireland;114 gas supplies for burning outside the UK; supplies for use in public transport, on the railways, or international shipping; supplies to producers of taxable commodities other than electricity; supplies other than for use as fuel, that is, the electrolytic processes, steam reformation, dual use functions and non-heating uses specified in regulations; supplies where the person supplied intends the commodity to be used as fuel in a recycling process; and supplies of renewable source and good quality combined heat and power (‘CHP’) electricity.115 Excluded supplies are outside the scope of climate change levy, whereas exempt supplies are ones that, if not exempted, would have been within the scope of the levy. There are reduced rates of tax for horticultural producers installations within the IPPC regime that have entered into climate change agreements.116 The exemptions and reduced rate provisions were subsidies for which state aid clearance was required.117 3 Aggregates levy: The exemptions from aggregates levy operate either by exempting the aggregate itself or by exempting the spoil and other by-products of a process, that is, an exempt process. Exempt aggregate includes aggregate consisting wholly or mainly of coal, lignite, slate or shale and the spoil or waste from an industrial combustion process or from the smelting or refining of metal.118 Exempt processes include the cutting of any rock to produce stone with one or more flat surfaces; any process by which certain substances (including anhydrite and ball clay) are extracted or separated from any aggregate; and any process for the production of lime or cement, from lime alone or lime and another substance.119 The levy is charged at a single rate.120 110 See para. 15.3 below. 111 See para. 15.1 below. 112 See para. 1.4.2.2(1) above. 113 See para. 14.3 below. 114 On a temporary basis only (see para. 14.2 below). 115 See para. 14.3 below. 116 See para. 14.1 below. 117 See para. 12.2.7 below. 118 See para. 13.4 below. 119 See para. 13.5 below. 120 See para. 13.2 below. 180 Environmental Taxation Law 4 Workplace parking levies: Transport Act 2000, s.187, grants powers to set exemptions, reduced rates or limits on workplace parking charges by regulations.121 5 Road user charging: Transport Act 2000, s.172, provides the power for regulations to set exemptions from charges, reduced rates or limits on charges which will apply to all charging schemes. By s.172(2), any charging scheme will be able to set additional exemptions, reductions or limits as the authority wishes, subject to approval. Under the Central London scheme, a discount of 90 per cent of the standard £5 charge is available to residents living within the congestion charging zone, and there is also a range of exemptions for particular types of vehicle. Some of these are of a purely environmental nature (for example for electrically propelled vehicles) but they are not exclusively so.122 6 The UK Emissions Trading Scheme: Direct participants in the UK ETS are eligible to receive incentive payments, calculated in accordance with the rules of the Scheme. Agreement participants are entitled to a reduced rate of tax. Both mechanisms were in the nature of subsidies, for which state aid clearance was required.123 7.3.4 Environmental subsidies within non-environmental levies Below are summarised the main environmental exemptions and reliefs within the non-environmental tax codes. They are discussed in detail as indicated in the relevant paras of the rest of the book. 7.3.4.1 Employee taxes (1) Income tax a. Exemptions: In general, the earnings of an office or employment, including the value of any benefits in kind (usually their ‘cash equivalent’), are chargeable to income tax under the Income Tax (Earnings and Pensions) Act 2003.124 However, a number of relevant items are outside the scope of, what was, until 5 April 2003, Schedule E, altogether. These include: the provision for employees of works bus services; financial or other support for bus services used by employees; the provision for employees’ use of cycles or cyclists’ safety equipment; payments made to employees for carrying other employees travelling on business; the provision of up to six free meals per annum for employees cycling to work; and the use of works minibuses for certain shopping trips from work.125 Although not a case of exemption, the rules for bringing into charge the ‘cash equivalent’ of vehicles and fuel are not as favourable as once they were. The 121 There are as yet (December 2004) no such schemes but the first workplace parking levy scheme is likely to be introduced in Nottingham in April 2005 (see para. 17.1 below). 122 See para. 18.2 below. 123 See para. 12.2.7 below. 124 See para. 1.4.3.1 above. 125 See para. 23.3 below. Taxation Context 181 amount of the cash equivalent is now based on the car’s carbon dioxide emissions, no allowance being made for high business mileage or the age of the car.126 b. Permitted deductions: These are very restricted and, significantly, do not include the expenses of ordinary commuting.127 (2) National insurance contributions Since the tax base of National insurance contributions (‘NICs’) is the employed earner’s earnings, albeit in separate legistaion from that applicable to income tax, the general rule is that a payment in kind, or by way of the provision of services, board and lodging or other facilities is to be disregarded in the calculation of earnings.128 On this basis, and without more, all of the items within the income tax exemptions that are not ‘earnings’ for NICs purposes would fall outside the scope of NICs. However, the position is not as simple as this, since certain items that do not qualify as ‘earnings’ under the general definition are nonetheless brought within the scope of NICs. These include non-cash vouchers, the range of exemptions for which is apt not to include, for example, vouchers provided to employees for use on works buses.129 7.3.4.2 Business taxes 1 Income tax and corporation tax: The scope of capital allowances in respect of expenditure on machinery and plant covers at least two areas of ‘green’ expenditure: expenditure on cars which are either electrically propelled or have low carbon dioxide emissions and on energy-saving plant and machinery of a type specified by the government.130 One hundred per cent allowances are available in both cases. Additionally, 100 per cent allowances are available against rental income for the conversion of space above shops into small selfcontained flats.131 Relief for acquisitions as trading stock, or as capital assets of a trade or a property business, for expenditure on remedial works on contaminated land, is also available. Tax relief is available on a notional 150 per cent of expenditure, which may explain why it is very closely circumscribed.132 2 Value added tax: A 5 per cent VAT rate is available for grant-aided installation in dwellings of energy saving materials and heating equipment.133 3 Stamp duties: There is an exemption from stamp duty land tax (‘SDLT’) for both conveyances and transfers and leases of land. This is subject to a value cap for residential properties but is complete for non-residential ones until 2006.134 126 See para. 23.2 below. 127 See para. 23.1 below. 128 See Social Security (Contributions) Regulations 2001, S.I. 2001 No. 1004, reg. 25 and Sched. 3, Part II, para. 1. 129 See para. 23.3 below. 130 For details, see paras 21.3.1, 24.3 and 24.4 below. 131 See para. 24.5.2 below. 132 See para. 24.5.1 below. 133 See para. 21.3.1 below. 134 See para. 24.5.3 below. 182 Environmental Taxation Law 7.4 Concluding comments Throughout the study thus far, the pattern of the overall discussion has been one of a gradual move from the general to the specific. The material in the present and previous chapter has been designed to shown how environmental taxes and other economic instruments can be analysed both in environmental and energy law terms and in tax terms. Environmental taxation law occupies a difficult terrain across what in the UK, at least, have traditionally been regarded as entirely distinct areas of law. Chapter 8 International Aspects 8.1 Introduction This chapter seeks to complete the conspectus of the contexts of environmental taxation law by locating the UK’s environmental levies and subsidies within the framework both of international environmental law and the multilateral rules on the taxation of international trade. The discussion unfolds in three main stages, followed by two brief paras dealing with subsidiary issues. Paragraph 8.2 provides a general introduction for the non-specialist to the nature and sources of public international law. Some idea of this background material is necessary for a full appreciation of the topics considered elsewhere in the chapter, since the principal instrument in both the international environmental and the international trading contexts is the treaty, or international agreement. A significant part is played also, however, at least in the environmental context, by more controversial concepts, such as customary international law and so-called ‘soft law’, including declarations and recommendations. The principal characteristics of these sources of law are also delineated in para. 8.2. This background material is of some significance, in terms of the study as a whole, since it helps to explain the extent and shape of the environmental and taxation rules applicable within the EU and its Member States. Such internal EU issues will form the subject matter of Chapter 12 below. The main theme of the present chapter, however, is the UK’s environmental and taxation ties, via the law and institutions of the EU, with the world beyond the EU’s borders. International agreements have, of course, been reached on a number of the most serious environmental problems, most importantly air and atmospheric pollution. Chief among these, arguably, is the 1992 United Nations Framework Convention on Climate Change and its eponymous Kyoto Protocol of 1997. The details of the main agreements in this sector are explored in para. 8.3, where they are briefly related to the economic instruments justified in the UK by reference to those agreements.1 Although there is some discussion of the main international agreements concluded in order to control pollution by waste, this is relatively brief, since these have been by no means as influential in the creation of the UK’s waste tax as have been the initiatives of the European Commission. Discussion of these initiatives is accordingly postponed to the consideration of internal EU issues in Chapter 12 below. The third main stage of the discussion, contained in para. 8.4, seeks to locate the UK, together with its existing green levies and subsidies, within the framework of the 1994 revision of the General Agreement on Tariffs and Trade (‘GATT 1994’). In doing so, it seeks to elucidate the nature of the relationship between the international environmental agreements referred to above and the system of multilateral trade agreements based on GATT 1994. Since UK environmental regulation, as it relates to 1 See Chapter 6 above for details of the UK’s transposition of its international and EU obligations into domestic law. 184 Environmental Taxation Law air and atmospheric pollution, has its origins in international environmental law then, to the extent that regulatory instruments comprise environmental levies and subsidies, those already in existence must be consistent with the relevant provisions of GATT 1994, while the discussion of those as yet only envisaged must take place with those provisions in mind. Besides explaining the place of the UK’s existing environmental taxes and other economic instruments in the environmental and trade contexts, the present chapter therefore paves the way for the discussion of new directions in these areas in Part IV of the book. Prior to summing up on Part II of the book, in Chapter 9, we briefly highlight two further relevant areas of public international law: those relating to energy and to air transport. The international aspects of each of these areas are not major themes in Parts III and IV but they do embody some key factors regarding the possibilities for future policy directions, especially, in the case of air transport, in relation to international tax or emissions trading schemes for airlines. The fact that air transport falls outside the provisions of the Kyoto Protocol is one of the Protocol’s most striking features. We begin this chapter, however, with a brief examination of the nature and sources of public international law, with special relevance to examples drawn from international environmental law and the law of international trade. 8.2 Public international law 8.2.1 Preliminary Within the scope of public international law2 are the intersecting areas of international environmental law and world trade law.3 The expression ‘international environmental law’,4 invariably used but not universally accepted,5 is a convenient way of describing the whole body of public and private international law relating to environmental issues,6 much of which originates in a series of UN-sponsored international agreements. Alongside the international agreements on the environment is the GATT 1994-based system of multilateral agreements on international trade that are administered by the World Trade Organization (‘the WTO’).7 The extent, if any, to which the objectives of the two sets of treaties are reconcilable is one of the great questions of our time.8 The crux of the legal argument is that, at present, international 2 See, generally, I. Brownlie, Principles of Public International Law, 5th edn (Oxford: Oxford University Press, 1999). 3 That is, insofar as the latter relates to the rules and institutions of the world trading system, as opposed to the rules and principles of the conflict of laws in relation, for example, to international contracts. 4 See Philippe Sands, Principles of International Environmental Law, 2nd edn (Cambridge: Cambridge University Press, 2003). 5 See, for example, Brownlie, op. cit., ch. 12. 6 See Patricia Birnie and Alan Boyle, International Law and the Environment, 2nd edn (Oxford: Oxford University Press, 2002), pp. 1–2. 7 See para. 4.4.1 above. 8 The WTO’s position is discussed in Michael Moore, A World Without Walls – Freedom, Development, Free Trade and Global Governance (Cambridge: Cambridge University International Aspects 185 policy neither endorses any general environmental exception to the principle of free trade, nor does it seek to give free trade priority over environmental protection.9 Public international law is usually divided into ‘hard law’ and ‘soft law’ components. As set out in Art. 38 of the 1945 Statute of the International Court of Justice, the sources of international law, that is, the ‘hard’ law component, are: … international conventions, whether general or particular, establishing rules expressly recognised by the contesting states;10 (b) international custom, as evidence of a general practice accepted as law; (c) the general principles of law recognised by civilised nations; (d) subject to the provisions of Article 59,11 judicial decisions and the teachings of the most highly qualified publicists of the various nations, as subsidiary means for the determination of rules of law. None of these forms of hard law is necessarily such as to create rights upon which private persons can rely, nor can they invariably be used as the basis for legal action against the state or other public authority, in the way that European legislation may sometimes be used.12 They do, however, create rules and principles that are enforceable between one state and another in respect of the relations between them. It is useful briefly to describe the forms of hard law in turn, although it should Press, 2003). Moore, a former Prime Minister of New Zealand, was the Director-General of the WTO from 1999 to 2002. For a somewhat different view, see The Case Against the Global Economy and for a Turn Toward the Local, ed. by J. Mander and E. Goldsmith (San Francisco: Sierra Club Books, 1996). The problems of evaluating the arguments on each side and of the absence of data are summarised in, for example, Gerd Winter, ‘The GATT and Environmental Protection: Problems of Construction’ (2003) 15 JEL 113–40 (esp. pp. 113–15). 9 Birnie and Boyle, op. cit., p. 698. The chapter of Birnie and Boyle entitled ‘International Trade and Environmental Protection’ was contributed by Thomas J. Schoenbaum. As Schoenbaum points out (Birnie and Boyle, ibid.), the preamble to the 1994 Marrakesh Agreement Establishing the World Trade Organization recognises that expanding the production of, and trade in, goods and services, must allow for: ‘… the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development …’. See also the Rio Declaration, Principle 12, referred to in para. 8.2.6 below. The bald statement of the legal issue in the text barely does justice to the range of economic, political and even moral issues surrounding it. For an insight into the strength of the various arguments, see the websites of the myriad charitable and political organisations engaged in the debate. 10 The concept of international conventions includes treaties, ‘acts’, ‘agreements’, ‘covenants’, ‘pacts’, ‘protocols’, etc. 11 It is by virtue of Art. 59 that the decisions of the ICJ have no binding force except as between the parties and in respect of the case under consideration. 12 Stuart Bell and Donald McGillivray, Ball and Bell on Environmental Law: The Law and Policy relating to the Protection of the Environment, 5th edn (London: Blackstone Press, 2000), p. 91. For the direct effect of EU law and actions for damages against Member States, see, for example, Stephen Weatherill and Paul Beaumont, EU Law, 3rd edn (London: Penguin, 1999), ch. 11. 186 Environmental Taxation Law perhaps be stressed that, among the five, treaties and custom are the main sources of international law in general.13 8.2.2 Treaties Treaties are defined in the 1969 Vienna Convention on the Law of Treaties14 as ‘international agreements concluded between states in written form and governed by international law, whether embodied in a single instrument or in two or more related instruments and whatever their particular designation’.15 The basic principle of the law of treaties is that a treaty cannot be applied until it has been ratified and come into force.16 The process of ratifying, and hence, of the coming into force of a treaty, can – unless the two take place at the same time17 – be a slow and painful one. As an extreme example, the 1997 Kyoto Protocol18 to the 1992 United Nations Framework Convention on Climate Change19 (always referred to as ‘the Kyoto Protocol’) provided that the Protocol would enter into force on the ninetieth day after the date on which not less than 55 parties to the 1992 Convention, including those that accounted in total for at least 55 per cent of the total 1990 carbon dioxide emissions of those parties, had deposited their instruments of ratification, acceptance or accession.20 The law and procedure applicable to making, operating and terminating treaties21 are contained in the 1969 Vienna Convention. The most recent multilateral environmental agreements (‘MEAs’) have been signed by the EU, as the relevant regional economic integration organisation.22 This means that both the EU and its Member States may be parties to the MEA in question. In the case of the Kyoto Protocol, the burden of the EU’s commitment to an 8 per cent reduction in greenhouse gas emissions by 2010 is thus shared between the EU Member States under a so-called ‘burden-sharing agreement’.23 13 Anthony Aust, Modern Treaty Law and Practice (Cambridge: Cambridge University Press, 2000), p. 10. 14 The 1969 Vienna Convention was drafted by the International Law Commission, a body established in 1947 by the UN General Assembly, with the object of promoting the progressive development of international law and its codification (see Aust, op. cit., pp. 6–7). 15 1969 Vienna Convention, Art. 2(1)(a). 16 Ibid., Art. 26. 17 Aust, op. cit., p. 75. 18 (1998) 37 ILM 22. 19 (1992) 31 ILM 851. 20 Kyoto Protocol, Art. 25(1). 21 Although the 1969 Vienna Convention does not apply to oral agreements, this does not affect the legal force of such agreements, ‘or the application to them of any of the rules in the Convention to which they would be subject under international law independently of the Convention, such as customary international law’ (see 1969 Vienna Convention, Art. 3 and Aust, op. cit., pp. 7 and 16). 22 See Bell and McGillivray, op. cit., p. 87. 23 See now Council Decision 02/358/EC, (2002) OJ L130 1. Article 4 of the Kyoto Protocol allowed parties thereto to fulfil their commitments thereunder jointly; EU Member States accordingly entered into the burden-sharing agreement of 16–17 June 1998 (Doc. 9702/98 International Aspects 187 Recent developments in the interpretation of GATT 1994 have indicated that GATT 1994 should be interpreted, not in accordance with GATT 1994 interpretation norms, but with the provisions of Arts 31–33 of the 1969 Vienna Convention.24 The principles contained in these articles, headed ‘Interpretation of Treaties’, may briefly be summarised as follows: 1 Article 31(1) provides for the interpretation of treaties ‘in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose’; Art. 31(2) then states what the context comprises; and Art. 31(3) specifies what, together with the context, must be taken into account, that is: ‘any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;25 any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation;26 and any relevant rules of international law applicable in the relations between the parties’.27 2 Article 32 allows recourse to supplementary means of interpretation (including travaux préparatoires) to confirm the meaning resulting from the application of Art. 31 or to determine the meaning where interpretation under Art. 31 leaves the meaning ambiguous or obscure or leads to a manifestly absurd or unreasonable result. 3 Generally speaking, by Art. 33, a treaty is equally authoritative in each language in which it has been authenticated. 8.2.3 Customary international law Customary international law, the second source of hard law referred to in Art. 38 of the ICJ statute, consists of two elements: ‘(1) a general convergence in the practice of states from which one can extract a norm (standard of conduct); and (2) opinio juris, the belief by states that the norm is legally binding on them’.28 Such a definition needs only to be stated for it to be evident that the ascertainment of the relevant custom in a particular case is potentially fraught with difficulty, involving, as it may, both research and the exercise of careful judgment.29 As to (1), the practice of states is thought to cover any act or statements by a state from which views about of 19 June 1998, Annex I). The burden-sharing agreement actually allows Greece, Spain, Iceland, Portugal and Sweden to increase their greenhouse gas emissions, these being offset by greater than expected reductions in other Member States, notably the UK! (see Maurice Sunkin, David Ong and Robert Wight, Sourcebook on Environmental Law, 2nd edn (London: Cavendish, 2002), pp. 99, 143 and 148). See further P.G.G. Davies, ‘Global warming and the Kyoto Protocol’ (1998) 47 ICLQ 446–61. 24 See Birnie and Boyle, op. cit., p. 704, and paras 8.4.2(2) and 8.4.2(3) below. 25 1969 Vienna Convention, Art. 31(3)(a). 26 Ibid., Art. 31(3)(b). 27 Ibid., Art. 31(3)(c). 28 Aust, op. cit., p. 10. See Malcolm Shaw, International Law, 5th edn (Cambridge: Cambridge University Press, 2003), pp. 65–92. 29 See Birnie and Boyle, op. cit., p. 16. 188 Environmental Taxation Law customary law may be inferred30 whilst, as to (2), the belief that the practice is obligatory by virtue of the existence of a rule of law requiring it, is a subjective requirement.31 To customary international law may be owed, in the environmental context, the precautionary principle or ‘precautionary approach’, the polluter pays principle32 and the preventive principle. Principle 15 of the 1992 Declaration of the United Nations Conference on Environment and Development, made at the UN Conference on Environment and Development held in Rio de Janeiro in 1992 (‘the Rio Declaration’)33 states that: In order to protect the environment, the precautionary approach shall be widely applied by states according to their capabilities. Where there are threats of serious or irreversible damage, lack of full scientific certainty shall not be used as a reason for postponing costeffective measures to prevent environmental degradation. In his dissenting opinion in a famous ICJ decision,34 one judge described the precautionary approach as one that was gaining increasing support as part of the international law of the environment.35 As to the polluter pays principle, this is reflected in Principle 16 of the Rio Declaration, which runs as follows: National authorities should endeavour to promote the internalisation of environmental costs and the use of economic instruments, taking into account the approach that the polluter should, in principle, bear the cost of pollution, with due regard to the public interest and without distorting international trade and investment. The 1990 International Convention on Oil Pollution Preparedness, Response and Cooperation, as well as the 1992 Convention on the Transboundary Effects of Industrial Accidents, referred to the polluter pays principle as ‘… a general principle of international environmental law’.36 The principle has for long been promoted by the OECD37 and is specifically referred to in Art. 174(2), European Treaty (ex 130r) as one of the bases 30 See M. Akehurst, ‘Custom as a Source of International Law’ (1974–75) 47 BYIL 1. 31 See Nicaragua v. US, [1986] ICJ Rep. 14, 108–109. 32 See Bell and McGillivray, op. cit., p. 92. 33 UN Doc. A/CONF151/26/Rev. 1, reproduced in Sunkin, Ong and Wight, op. cit., p. 69. 34 Request for an Examination of the Situation in Accordance with Paragraph 63 of the Court’s Judgment in the 1974 Nuclear Tests case, [1995] ICJ Rep. 288. 35 [1995] ICJ Rep. 288, 342 (Judge Weeramantry). 36 In the US, this has been taken to surprising lengths, under the ‘Carter Act’ (Comprehensive Environmental Response, Compensation, and Liability Act 1980), for instance resulting in a UK investment trust, Fleming American Investment Trust plc, which had owned a factory nearly a century before, in a previous guise, having to contribute towards the clean-up costs. 37 See, for example, Organisation for Economic Co-operation and Development, Environmentally-Related Taxes in OECD Countries: Issues and Strategies (Paris: OECD, 2001), p. 16, which contains the OECD’s definition of the polluter pays principle, as originally expressed by the organisation in 1972. The OECD there emphasises that, in the context of environmentally related taxation, the principle is a non-subsidisation principle, ‘meaning simply that governments should not as a general rule give subsidies to their industries for pollution control’ (ibid.). International Aspects 189 of Community policy on the environment. Finally, the preventive principle, that is, the prohibition of any activity which actually causes, or will cause, environmental damage or pollution,38 is reflected in Principle 2 of the Rio Declaration: States have, in accordance with the Charter of the United Nations and the principles of international law, the sovereign right to exploit their own resources pursuant to their own environmental and developmental policies, and the responsibility to ensure that activities within their jurisdiction or control do not cause damage to the environment of other states or of areas beyond the limits of national jurisdiction.39 8.2.4 General principles of law General principles of law recognised by civilised nations are the third source of law referred to in Art. 38 of the Statute of the ICJ. It is unclear whether the reference here is to the principles of international law (for example, as to the freedom of the seas) or simply to the principles of domestic legal systems (for example, as to the admissibility of evidence in legal proceedings). It appears, however, that this source is most frequently used, when it is used at all, in order to reason from analogy in relation, for example, to rules of procedure, evidence and jurisdiction. ‘General principles of law’ thus have little specific application to environmental issues but are of general significance in international law.40 8.2.5 Judicial decisions and jurisprudential writing Finally, Art. 38 of the ICJ statute refers to ‘judicial decisions and the teachings of the most highly qualified publicists of the various nations, as subsidiary means for the determination of rules of law’. This is expressly subject to Art. 59 of the ICJ statute, which provides that the decisions of the ICJ have no binding force, ‘except as between the parties and in respect of the case under consideration’. Subject to this qualification, the judicial decisions referred to here are those of the ICJ itself; of other international courts (including arbitral tribunals);41 of the European Court of Human Rights;42 of the International Tribunal for the Law of the Sea43 and of the 38 See Sunkin, Ong and Wight, op. cit., p. 49. 39 See also Principle 21 of the 1972 Stockholm Declaration of the United Nations Conference on the Human Environment, reproduced in Sunkin, Ong and Wight, op. cit., p. 63. 40 See Birnie and Boyle, op. cit., p. 20. 41 See Brownlie, op. cit., pp. 19–24 and Robert Jennings, ‘The Judiciary, International and National, and the Development of International Law’ (1996) 45 ICLQ 1–12. But see the comment in Bowett’s Law of International Institutions, ed. by Philippe Sands and Pierre Klein, 5th edn (London: Sweet and Maxwell, 2001), para. 13–042, where the learned editors note that: ‘What the Court has not done is refer to judgments of other international courts, no doubt bearing in mind its position as the “principal judicial organ of the United Nations”. Whether this approach is tenable over the long term, given the increased specialisation of various areas of international law, remains unclear’. 42 See para. 4.3.7 above. 43 Set up under the 1982 Law of the Sea Convention, Annex VI (not discussed elsewhere in this book). 190 Environmental Taxation Law national courts of particular states.44 With regard to the writings of publicists, besides including the writings of eminent international lawyers, these may also include reports of international codification bodies, such as, for example, the International Law Commission. 8.2.6 Soft law Besides the various sources of hard law, there is what is usually referred to as ‘soft law’. The idea behind the terminology is to show that the relevant document is not law as such but that specific attention must be accorded to it because of the influence that it exerts on the international scene. Bell and McGillivray draw together a number of examples of soft law. It is characterised, they say, by the fact that ‘… it contains general norms rather than specific rules … [and] provides a guide as to how disputes might be resolved rather than hard-and-fast rules applying to specific situations’.45 Their list of examples consists of the following: 1 declarations; 2 principles; 3 recommendations; and 4 standards.46 Two of these merit some comment in the present context. Besides reflecting the agreed aspirations of the international community, declarations also contribute to the creation of customary international law and the consolidation of existing customs. The Rio Declaration, setting out 27 Principles of international environmental law, which together constitute the main outlines of the concept of sustainable development,47 is a key example of this form of soft law. Principles 2 (the preventive principle), 15 (the precautionary principle) and 16 (the polluter pays principle) have already been mentioned. Other Principles of some importance in the present context are Principles 12 and 17. Principle 12 reads as follows: States should co-operate to promote a supportive and open international economic system that would lead to economic growth and sustainable development in all countries, to better address the problems of environmental degradation. Trade policy measures for environmental purposes should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade. Unilateral actions to deal with environmental challenges outside the jurisdiction of the importing country should be avoided. Environmental measures addressing transboundary or global environmental problems should, as far as possible, be based on an international consensus. 44 See para. 4.2.1.5 above. 45 Bell and McGillivray, op. cit., p. 94. 46 That is, other than those that do have the force of law, for example, Community regulations that impose standards (see, for example, John F. McEldowney and Sharron McEldowney, Environmental Law and Regulation (London: Blackstone Press, 2001), esp. pp. 12–14). 47 See Birnie and Boyle, op. cit., pp. 44–47. International Aspects 191 Principle 17 provides for environmental impact assessments (‘EIAs’):48 Environmental impact assessment, as a national instrument, shall be undertaken for proposed activities that are likely to have a significant adverse impact on the environment and are subject to a decision of a competent national authority. As to recommendations, also of some significance in the present study are OECD recommendations on the development of environmental policy. These include the 1991 OECD Council Recommendation on the use of economic instruments in environmental policy,49 which sought to make a general case for the more consistent and extended use of economic instruments. Amongst its main exhortations were the following: that Member countries: i. make a greater and more consistent use of economic instruments as a complement or a substitute to other policy instruments such as regulations, taking into account national socio-economic conditions; ii. work towards improving the allocation and efficient use of natural and environmental resources by means of economic instruments so as to better reflect the social cost of using these resources; iii. make effort to reach further agreement at international level on the use of environmental policy instruments with respect to solving regional or global environmental problems as well as ensuring sustainable development … The special importance of such a Council Recommendation is that it is a unanimous recommendation from OECD member governments to themselves.50 8.3 International environmental law Having illustrated the main sources of public international law by reference to the environment and international trade, we now turn to look in somewhat more detail at MEAs in two sectors: air and atmospheric pollution and the disposal of waste. The discussion of each of these topics will then be related to the economic instruments which have been deployed in the UK to assist in the achievement of that country’s obligations under international law. 48 See paras 6.2.4 above and 12.2.4 below. 49 Recommendation of the Council on the Use of Economic Instruments in Environmental Policy, 31 January 1991 – C(90)177/Final. See Organisation for Economic Co-operation and Development, Environmental Policy: How to Apply Economic Instruments (Paris: OECD, 1991). See para. 1.2.1.5(2) above. 50 See Bowett, op. cit., para. 11–007; also, David Williams, EC Tax Law (Longman: London, 1998), p. 11. 192 Environmental Taxation Law 8.3.1 Air and atmospheric pollution 8.3.1.1 Introduction Reference has already been made to the 1992 United Nations Framework Convention on Climate Change, as well as to the 1997 Kyoto Protocol thereto.51 These are considered in somewhat more detail in the present para., together with (briefly): 1 the 1979 Geneva Convention for the Control of Long-Range Transboundary Air Pollution (‘the 1979 Geneva Convention’)52 and its related Protocols; 2 the 1985 Vienna Convention for the Protection of the Ozone Layer;53 and 3 the 1987 Montreal Protocol on Substances that Deplete the Ozone Layer.54 Before describing the treaty sources of air and atmospheric pollution regulation, it is important to note the principle of customary international law applied in the famous Trail Smelter arbitration.55 8.3.1.2 The Trail Smelter arbitration Still the only example of an international adjudication on transboundary air pollution, the Trail Smelter arbitration saw the application by the arbitral tribunal of the principle that: … no state has the right to use or permit the use of its territory in such a manner as to cause injury by fumes in or to the territory of another or the properties or persons therein, when the case is of serious consequence and the injury is established by clear and convincing evidence.56 The arbitral tribunal had been established to determine whether damage had been caused in the state of Washington by smoke emissions from a smelter located in Canada, seven miles from the US border. If it had, then the tribunal had to decide the level of compensation that had to be paid and the measures that had to be taken in order to prevent further damage. Having determined the causation question on scientific evidence, and in reliance on the principle extracted above, the tribunal went on to lay down a regime for the operation of the smelter in the future, in reliance on a precursor to the preventive principle.57 The nature of the Trail Smelter principle, applicable as it is only in claims between states, has meant that it has been of limited utility,58 although it seems to be a good basis for a general principle that customary 51 See paras 8.1 and 8.2.2 above. 52 (1979) 18 ILM 1442. 53 (1987) 26 ILM 1529. 54 Ibid., 1550. This is generally taken to be a particularly successful agreement. 55 (1939) 33 AJIL 182 and (1941) 35 AJIL 684. 56 (1941) 35 AJIL 684, 716. 57 See para. 8.2.3 above. 58 See Birnie and Boyle, op. cit., p. 505. International Aspects 193 international law forbids one state from significantly harming another’s environment through transboundary pollution. 8.3.1.3 The 1992 United Nations Framework Convention on Climate Change Together with the Convention on Biological Diversity,59 the 1992 United Nations Framework Convention on Climate Change (‘the Framework Convention’)60 was opened for signature at the United Nations’ Conference on Environment and Development at Rio de Janeiro in 1992 (the conference known as ‘the Earth Summit’). Having entered into force in March 1994, the Framework Convention has now been signed by 166 parties, 188 parties having ratified it, accepted it, approved it or acceded to it.61 Article 2 of the Framework Convention states its objective as being the: … stabilisation of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. Such a level should be achieved within a time frame sufficient to allow eco-systems to adapt naturally to climate change, to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner. Among other things, by Art. 4 of the Framework Convention, the states parties undertake to: 1 develop, periodically update and publish national inventories of anthropogenic emissions by sources and removals by sinks of all greenhouse gases not controlled by the Montreal Protocol;62 2 ‘formulate, implement, publish and regularly update national and, where appropriate, regional programmes containing measures to mitigate climate change’;63 3 ‘promote and cooperate in the development, application and diffusion … of technologies, practices and processes that control, reduce or prevent anthropogenic emissions’ as above in all relevant sectors, including the energy, transport, industry, agriculture, forestry and waste management sectors;64 4 ‘promote sustainable management and conservation of all greenhouse gases not controlled by the Montreal Protocol, including biomass, forests and oceans as well as other terrestrial, c,oastal and marine eco-systems’;65 59 (1992) 31 ILM 818. 60 (1992) 31 ILM 851. 61 That is, as at 23 September 2004 (see www.unfccc.de/resource/convkp.html). Acceptance and approval has the same effect as ratification and accession has the same effect ratification but is not preceded by signature (see Aust, op. cit., p. xxxiii). 62 Framework Convention, Art. 4(1)(a). For the Montreal Protocol, see para. 8.3.1.5 below. 63 Framework Convention, Art. 4(1)(b). 64 Ibid., Art. 4(1)(c). 65 Ibid., Art. 4(1)(d). 194 Environmental Taxation Law 5 so far as feasible for the states parties so to do, to take climate change considerations into account in policy-making: … and employ appropriate methods, for example impact assessments, formulated and determined nationally, with a view to minimising adverse effects on the economy, on public health and on the quality of the environment, of projects or measures undertaken by them to mitigate or adapt to climate change; …66 6 promote and cooperate in scientific, technological, technical, socioeconomic and other research related to the climate system;67 and 7 ‘promote and cooperate in education, training and public awareness related to climate change and encourage the widest participation in this process’.68 By Art. 4(2) of the Framework Convention, developed country parties, as well as certain other parties,69 commit themselves to taking the lead in modifying longer-term trends in anthropogenic emissions consistent with the objective of the Convention and specifically to ‘adopt national policies and take corresponding measures on the mitigation of climate change, by limiting … anthropogenic emissions of greenhouse gases and protecting and enhancing … greenhouse gas sinks and reservoirs’.70 Under Art. 4(2)(b) of the Framework Convention, the same parties must submit within six months of the Framework Convention coming into force, and periodically thereafter, detailed information on the matters referred to above, ‘with the aim of returning individually or jointly to their 1990 levels these anthropogenic emissions of carbon dioxide and other greenhouse gases not controlled by the Montreal Protocol’.71 This information, continues Art. 4(2)(b), will be periodically reviewed by the Conference of the Parties. Financial resources to enable the developing country parties to meet their obligations and to assist them in coping with the effects of climate change are to be provided by the developed country parties72 under Arts 2(3) and 2(4). By Art. 4(8), the parties agree to give full consideration to what actions are necessary under the Framework Convention to assist developing country parties that may be, for example, small island countries, countries with low-lying coastal areas, countries prone to natural disasters, etc. Article 7 establishes the Conference of the Parties as the supreme body of the Framework Convention, with the function of reviewing its implementation, etc, and (by Art. 8) a secretariat is to be established, together with a subsidiary body for scientific and technological advice and a subsidiary body for implementation.73 66 Ibid., Art. 4(1)(f). 67 Ibid., Art. 4(1)(g). 68 Ibid., Art. 4(1)(i). 69 Ibid., Annex I. 70 Ibid., Art. 2(a). 71 Ibid., Art. 2(b). 72 Ibid., Annex II. 73 Ibid., Arts 9 and 10. International Aspects 195 8.3.1.4 The Kyoto Protocol The 1997 Kyoto Protocol74 to the Framework Convention, although notoriously not yet in force,75 sets out the detail of the legally-binding greenhouse gas (‘GHG’) emissions reduction targets. Article 3 provides, in part: 1. The Parties included in Annex I76 shall, individually or jointly, ensure that their aggregate anthropogenic carbon dioxide equivalent emissions of the greenhouse gases listed in Annex A do not exceed their assigned amounts, calculated pursuant to their quantified emission limitation and reduction commitments inscribed in Annex B and in accordance with the provisions of this Article, with a view to reducing their overall emissions of such gases by at least 5 per cent below 1990 levels in the commitment period 2008 to 2012. 2. Each Party included in Annex I shall, by 2005, have made demonstrable progress in achieving its commitments under this Protocol … The GHGs listed in Annex A are six in number: 1 carbon dioxide (CO2); 2 methane (CH4); 3 nitrous oxide (N2O); 4 hydrofluorocarbons (HFCs); 5 perfluorocarbons (PFCs); and 6 sulphur hexafluoride (SF6). Annex B contains differentiated targets for the Annex I parties with, for example, the EU having a reduction target of 8 per cent, the US 7 per cent and Japan 6 per cent. In this connection, it should be noted that, under the burden-sharing agreement referred to above,77 the EU’s 8 per cent commitment is translated into a commitment on the part of the UK to reduce its 1990 levels of all greenhouse gases by 12.5 per cent by 2010.78 Besides detailing the targets, however, the Kyoto Protocol also includes provisions for the parties to use economic instruments to achieve their targets (the so-called ‘Kyoto flexible mechanisms’), including the following: 1 emissions trading schemes; 2 joint implementation (‘JI’); and 3 the Clean Development Mechanism (‘the CDM’).79 74 (1998) 37 ILM 22. 75 That is, as at December 2004. See para. 20.2 below. 76 That is, to the Framework Convention (see para. 8.3.1.3 above). See also para. 4.4.3n above (Annex I parties). 77 See para. 8.2.2n above. 78 See Chapter 12 below and para. 8.2.2n above. 79 See Scott Barrett, ‘Political Economy of the Kyoto Protocol’, in Environmental Policy: Objectives, Instruments, and Implementation, ed. by Dieter Helm (Oxford: Oxford University Press, 2000), pp. 111–41. 196 Environmental Taxation Law Emissions trading schemes are provided for by Art. 17, which states: The Conference of the Parties shall define the relevant principles, modalities, rules and guidelines, in particular for verification, reporting and accountability for emissions trading. The Parties included in Annex B may participate in emissions trading for the purposes of fulfilling their commitments under Article 3. Any such trading shall be supplemental to domestic actions for the purpose of meeting quantified emission limitation and reduction commitments under that Article. Joint implementation, provided for by Art. 6, allows the parties listed in Annex I to the Framework Convention, for the purpose of meeting their commitments under Art. 3, to: … transfer to, or acquire from, any other such Party emission reduction units [‘ERUs’] resulting from projects aimed at reducing anthropogenic emissions by sources or enhancing anthropogenic removals by sinks of greenhouse gases in any sector of the economy. The exercise of this power is subject to a number of provisos, including those that any such project must have the approval of the parties involved and that the acquisition of ERUs be supplemental to domestic actions for meeting Art. 3 commitments.80 Theoretically at least, such JI projects are a cost-efficient way for global targets to be achieved since, at the margin, it is cheaper for some countries to abate their greenhouse gases compared to other countries.81 The CDM, which is defined in Art. 12, has the stated purpose of assisting non-Annex I parties to achieve sustainable development and to contribute to the Framework Convention’s ultimate objective,82 whilst also assisting Annex I parties to meet their commitments under Art. 3.83 This is to be achieved through the method elaborated in Art. 12(3), by which non-Annex I parties benefit from project activities resulting in certified emission reductions, that is, ‘credits’, which credits may then be used by Annex I parties to contribute to compliance with part of their quantified emission limitation and reduction commitments under Art. 3. A major source of GHG emissions, of course, is international civil aviation. Of the six GHGs listed in Annex A to the Kyoto Protocol, the most relevant to aviation is carbon dioxide. Article 2(2) of the Protocol gives the Annex I parties responsibility for limiting or reducing GHG emissions from aviation bunker fuels, international aviation emissions being excluded from the Protocol’s emissions reduction targets. This is to be achieved by working through the ICAO,84 the relevant UN specialised agency. 80 Kyoto Protocol, Arts 6(1)(a) and 6(1)(d). 81 See A.D. Ellerman, H.D. Jacoby and A. Decaux, The Effects on Developing Countries of the Kyoto Protocol and Carbon Dioxide Emissions Trading (Washington DC: World Bank Policy Research Paper 2019, 2000). See also Zhong Xiang Zhang, ‘Greenhouse Gas Emissions Trading and the World Trading System’ (1998) 32 JWT 219–39. 82 See para. 8.3.1.3 above. 83 Kyoto Protocol, Art. 12(2). 84 See para. 4.4.3 above. International Aspects 197 8.3.1.5 Other relevant agreements It remains briefly to consider the other treaties referred to above, that is, the 1979 Geneva Convention and its related Protocols; the 1985 Vienna Convention for the Protection of the Ozone Layer;85 and the 1987 Montreal Protocol on Substances that Deplete the Ozone Layer.86 The 1979 Geneva Convention for the Control of Long-Range Transboundary Air Pollution (‘the 1979 Geneva Convention’)87 came into force in 1983. It is ‘the only major regional multilateral agreement devoted to the regulation and control of transboundary air pollution’,88 and was negotiated through the United Nations Economic Commission for Europe (‘UNECE’).89 It applies to pollution having ‘adverse effects in the area under the jurisdiction of another state at such a distance that it is not generally possible to distinguish the contribution of individual emission sources or groups of sources’.90 The contracting parties promise only to ‘endeavour to limit and, as far as possible, gradually reduce and prevent air pollution including long-range transboundary air pollution’.91 However, each contracting party also ‘… undertakes to develop the best policies and strategies including air quality management systems, and, as part of them, control measures compatible with balanced development, in particular by using the best available technology which is economically feasible and low and non-waste technology’.92 The institutions of the 1979 Geneva Convention comprise an executive body, made up of environmental advisers to UNECE governments93 and a secretariat provided by the UNECE.94 So far, five protocols related to the 1979 Geneva Convention have entered into force,95 with three others having been adopted.96 85 (1987) 26 ILM 1529. 86 Ibid., 1550. 87 (1979) 18 ILM 1442. 88 Birnie and Boyle, op. cit., p. 508. 89 See www.unece.org. 90 1979 Geneva Convention, Art. 1(b). 91 Ibid., Art. 2. 92 Ibid., Art. 6. 93 Ibid., Art. 10. 94 Ibid., Art. 11. 95 That is, the 1984 Geneva Protocol on Long-term Financing of the Co-operative Programme for Monitoring and Evaluation of the Long-Range Transmission of Air Pollutants in Europe, (1985) 24 ILM 484; the 1985 Helsinki Protocol on the Reduction of Sulphur Emissions or Their Transboundary Fluxes, (1988) 27 ILM 707; the 1988 Sofia Protocol Concerning the Control of Emissions of Nitrogen Oxides or Their Transboundary Fluxes, (1989) 28 ILM 212; the 1991 Geneva Protocol Concerning the Control of Emissions of Volatile Organic Compounds or Their Transboundary Fluxes, (1992) 31 ILM 568; and the 1994 Oslo Second Protocol on the Further Reduction of Sulphur Emissions, (1994) 33 ILM 1540. 96 The Protocol on Heavy Metals and the Protocol on Persistent Organic Pollutants (see www.unece.org/env). 198 Environmental Taxation Law The 1985 Vienna Convention for the Protection of the Ozone Layer97 and its 1987 Montreal Protocol98 were negotiated under the auspices of the United Nations Environment Programme (‘UNEP’).99 In advance of firm scientific proof as to harm to the ozone layer caused by chlorofluorocarbons (‘CFCs’), the Convention seeks to address increasing concerns over the possibility. Parties are to take ‘appropriate measures’, including the adoption of legislation and administrative controls, to protect human health and the environment ‘… against adverse effects resulting or likely to result from human activities which modify or are likely to modify the ozone layer’.100 The 1987 Montreal Protocol to the Convention sets clear targets for reducing and ultimately eliminating consumption of ozone damaging chemicals. 8.3.1.6 UK domestic law In order to meet its commitments under the Kyoto Protocol, as translated into the European context by the EU’s burden-sharing agreement,101 the UK has introduced three economic instruments: climate change levy, the UK ETS and the Renewables Obligation (‘RO’), a structure for trading in renewable energy supply obligations. Climate change levy has been outlined in para. 1.4.2.2(1) above and is discussed in detail in Chapter 14 below. The UK ETS was introduced in para. 1.4.2.2(2) above and is discussed in detail in Chapter 20 below. The RO was outlined in paras 1.4.2.2(4) and 6.4.3.1(2)(a) above and is discussed in para. 21.5 below. The EU ETS, also having Kyoto-based objectives, has been outlined at para. 1.4.2.2(3) above and is discussed in detail in Chapter 28 below. 8.3.2 International transportation and dumping of waste The regulation of waste by international agreement has concentrated on two principal aspects: 1 the transport of, and trade in, waste between countries; and 2 the disposal of waste outside national jurisdictions, that is, on the high seas.102 In addition, whilst the definition of the concept of waste in EU law is a relatively wide one, public international law on waste concentrates on hazardous waste. The reasons for these emphases are not hard to discern: sensitivities concerning national sovereignty and the problems of opportunities for arbitrage. As to the former, any treaty designed to regulate the transport and disposal of waste within the jurisdictions of states would constrain unacceptably the freedom of action of national governments.103 As to arbitrage, costs of waste disposal rose with the tightening of 97 (1987) 26 ILM 1529. 98 (1987) 26 ILM 1550. 99 See www.unep.org. 100 1985 Vienna Convention, Art. 2 (see para. 12.2.6.2 below). 101 See para. 8.3.1.4 above. 102 See Sunkin, Ong and Wight, op. cit., p. 343. 103 Ibid., p. 344. International Aspects 199 disposal regulation in the US and Europe. The result of this was that hazardous wastes were historically either dumped at sea or exported to less developed countries where, because of lower standards, disposal costs were less.104 International measures taken to address these problems lie outside the scope of the present study. Since, however, they would be a relevant element in assessing the feasibility of some form of global economic instrument, a brief indication of their nature and scope is justifiable here. There are four key measures:105 1 the 1972 Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter (‘the London Dumping Convention’);106 2 the 1989 Basel Convention on the Control of Trans-boundary Movements of Hazardous Wastes and their Disposal (‘the 1989 Basel Convention’);107 3 the 1999 Basel Protocol on Liability and Compensation for Damage Resulting from Trans-boundary Movements of Hazardous Wastes and their Disposal (‘the Basel Protocol’);108 and 4 the 1991 Bamako Convention.109 Revised in 1993, the London Dumping Convention (‘the LDC’) will eventually be replaced by a 1996 Protocol, although the latter is not yet in force.110 The LDC operates within the general principles laid down in the 1982 UN Convention on the Law of the Sea (‘the UNCLOS’). Under the LDC, the states parties are obliged to take all practicable steps to prevent the pollution of the sea by the dumping of waste and other hazardous matter, such dumping being prohibited or regulated according to which of three lists a particular substance belongs. Besides the UNCLOS and the LDC, there are a number of agreements relating to specific regions, that is, to the North Sea, the Baltic, the North East Atlantic, the Mediterranean and the South Pacific. The 1989 Basel Convention, although not accepted by African states, attempts to establish a global regime for the control of international trade in hazardous and other wastes.111 It confirms the sovereign right to ban imports, whether on a unilateral, bilateral or regional basis, but the exercise of this right must be notified to the other parties through the Convention’s Secretariat;112 it promotes disposal at source and 104 See Bell and McGillivray, op. cit., p. 467. 105 But note also (not discussed in the text) the 1989 Lomé IV Convention made between the EU and a group of African, Caribbean and Pacific countries (prohibits export of hazardous wastes from the EU to these countries) and the 1991 and 1994 Decisions by OECD Member States prohibiting trade in hazardous wastes, whether for disposal or recycling and/or recovery, between themselves and non-OECD countries (OECD Decisions I/22 (1992) and II/12 (1994)). 106 (1972) 11 ILM 1294. 107 (1989) 28 ILM 657. 108 Reproduced in Sunkin, Ong and Wight, op. cit., pp. 369–80. Not yet in force. Described in Birnie and Boyle, op. cit., pp. 435–6. 109 (1991) 30 ILM 775. 110 See Birnie and Boyle, op. cit., p. 420. 111 1989 Basel Convention, Art. 1. 112 Ibid., Preamble and Art. 4(1)(a). 200 Environmental Taxation Law embodies the principle of minimising the generation of hazardous waste;113 and, most significantly, in the conduct of international trade in hazardous wastes, the 1989 Basel Convention requires the prior, informed and written consent of both transit and import states.114 The Basel Protocol, adopted in 1999 but not yet in force,115 provides for liability (strict and otherwise) for environmental damage arising from international trade in hazardous wastes. As mentioned above, African states did not accept the 1989 Basel Convention. Rather than being parties to a compromise between regarding trade in waste as an emerging market opportunity or a growing environmental threat, they decided, in the Bamako Convention, to ban imports of hazardous wastes into Africa from non-parties altogether,116 and to regulate trade in waste among African states themselves. Whilst none of the above is of direct relevance to the existing pattern of economic instruments in UK waste regulation,117 it may become relevant if moves for global regulation of waste disposal using economic instruments118 gather momentum. Noting the problems surrounding international waste regulation mentioned above, however, it is not surprising that ‘soft’ forms of public international law have had a part to play in the international regulation of waste disposal. In this connection, the influence of the OECD has been decisive. Reference has already been made to the 1991 OECD Council Recommendation on the use of economic instruments in environmental policy.119 Specifically in relation to waste management, it made five recommendations, covering financing (user) charges, emission charges, product charges and deposit-refund systems.120 8.4 International trade law The legal implications of the intersection of the various types of agreement discussed above, of their consequent implementation and reflection in national policies and their relationship with the regulation of world trade, are extremely complex.121 This part 113 1989 Basel Convention, Art. 4. 114 Ibid., Arts 4 and 6. 115 See S.D. Murphy, ‘Prospective Liability Regimes for the Transboundary Movement of Hazardous Wastes’ (1994) 88 AJIL 24–75. 116 Bamako Convention, Art. 4(1). The prohibition is confined to non-parties to the Bamako Convention and membership of the Convention is restricted to Member States of the Organisation of African Unity (‘OAU’), since March 2001 the African Union (not discussed elsewhere in this book). 117 See para. 6.3 above. 118 Such as the Austrian waste tax. 119 See para. 8.2.6 above. 120 OECD Council Recommendation C(90)177/Final, January 31, 1991, paras 41–45 (see para. 1.2.1.5 above). 121 See Ole Kristian Fauchald, Environmental Taxes and Trade Discrimination (London: Kluwer Law International, 1998). For a brief, although extremely useful account, see Michael J. Trebilcock and Robert Howse, The Regulation of International Trade, 2nd edn (London: Routledge, 1999), ch. 15. The classic account of GATT 1994/WTO in English is John H. Jackson’s The World Trading System, 2nd edn (Cambridge, MA: MIT Press, International Aspects 201 of the chapter cannot, of course, attempt an exhaustive analysis of this conjunction. The aim of this next main part of the chapter is a much more modest one: it is simply to show why and how, as an EU Member State, the UK’s environmental taxes and other economic instruments, introduced pursuant to the international agreements discussed above, are subject to the discipline of GATT 1994122 and its associated Uruguay Round agreements.123 As a preliminary to that discussion, a brief overview of the most relevant GATT 1994 articles may be useful. Besides reminding the reader of the outlines of world trade law, these should also be useful in drawing attention to the close correspondence between the GATT discipline and the rules for intra-EU trade contained in the European Treaty.124 a. GATT 1994, Art. I, provides for general most-favoured nation treatment; b. GATT 1994, Art. II, provides for schedules of concessions (or ‘bindings’) with regard to customs duty rates and the freezing of rates of other duties and charges. Article II has some significance in the context of environmental levies and is considered in greater detail below; c. GATT 1994, Art. III, bans protective and discriminatory internal tax and protective quantitive regulations. Article III is deeply significant in the context of environmental taxes and is subjected to detailed analysis below. Similar prohibitions, as Lyons points out,125 are to be found in Arts 90 and 28, European Treaty (ex 95 and 30);126 d. GATT 1994, Art. VI ‘permits the imposition of anti-dumping and countervailing duties’, a possibility with which the basic EC measures are consistent. Again, this is of potential significance in relation to economic instruments and is considered below; e. GATT 1994, Art. XVI, contains provisions limiting state subsidies, which are again mirrored in the European Treaty (see Arts 87 and 88 (ex 92 and 93));127 and f. GATT 1994, Art. XX, contains general exceptions to GATT, including those which are sometimes described as the ‘environmental exceptions’, although it 1997), although, possibly since it predates many of the developments discussed in para. 8.4.2 below, it somewhat understates environmental issues in the context of the system it describes. 122 See Kirsten Borgsmidt, ‘Ecotaxes in the Framework of Community Law’ [1999] EELR 270–81. 123 GATT 1994 and its associated Uruguay Round agreements, as well as decisions of the Appellate Body from 1996 onwards, are available from the WTO website, that is, www. wto.org. For a hard copy version of the agreements, see World Trade Organization, The Legal Texts: the Results of the Uruguay Round of Multilateral Trade Negotiations (New York: Cambridge University Press, 1999). 124 Grateful acknowledgement is made to a similar survey in Timothy Lyons’s EC Customs Law (Oxford: Oxford University Press, 2001), p. 14, to which the present paragraph is indebted. 125 See Lyons, op. cit., p. 14. 126 See paras 12.3.3.1 below and 12.4 below. 127 See para. 12.2.7 below. 202 Environmental Taxation Law should be noted that the term ‘environment’ does not appear. The relevance of Art. XX to the present area is both obvious and intricate and is revisited in detail below. The discussion in para. 8.4 begins by examining how the GATT 1994 rules constrain the freedom of action of member countries, including Member States of the EU, with regard to fiscal policy (see para. 8.4.1 below). Paragraph 8.4.2 then considers in detail the so-called ‘environmental exceptions’ to GATT 1994 that are contained in Art. XX. Article XX is the focus of a developing jurisprudence, the significance of which to the international development of environmental taxes is widely-agreed to be absolutely crucial.128 The analysis of the case law on Art. XX is then followed by a detailed examination (in para. 8.4.3 below) of Arts II and III, GATT 1994, and the possibility of the incorporation in the design of environmental taxes the concept of the border tax adjustment. Together with para. 8.4.4, on GATT 1994 anti-subsidy rules, para. 8.4.3 provides a context for the examination of the shape of the UK’s environmental levies and subsidies in para. 8.4.5. 8.4.1 Restrictions on fiscal policy under GATT 1994 The necessity for such of the UK’s tax law rules as touch upon international trade to comply with the relevant rules of GATT 1994 derives both from the UK’s membership of the EU and from the UK’s and the EU’s membership of the WTO. When the European Economic Community Treaty (the Treaty of Rome) was concluded in 1957, the EEC’s founding members were already bound by GATT 1947.129 What is now Art. 131, European Treaty,130 espoused objectives corresponding closely to those of GATT 1947, and Art. 307, European Treaty (ex 234) provided that rights and obligations arising from agreements concluded before January 1958 between one or more Member States, on the one hand, and one or more non-Member States (that is, ‘third countries’), on the other, were not to be affected by the provisions of the EEC Treaty. Even though the Community was not a GATT 1947 contracting party, the ECJ subsequently held that the Community was bound by GATT 1947 by a process of substitution for the Member States.131 In International 128 See, for example, Geert van Calster, ‘Topsy-Turvy: the European Court of Justice and Border (Energy) Tax Adjustments – Should The World Trade Organization follow suit?’, in Critical Issues in Environmental Taxation, ed. by Janet Milne et al. (Richmond: Richmond Law and Tax, c.2003), pp. 311–41 esp. pp. 332–5. 129 See the Preamble to GATT 1947. In 1957, there were six Member States of the EEC: France, the Federal Republic of Germany, Italy, the Netherlands, Belgium and Luxembourg (see, for example, Weatherill and Beaumont, op. cit., pp. 1–5 for the early history of the EEC). Four of the six had been original signatories to GATT 1947, whilst Italy had signed GATT 1947 in 1950 and West Germany in 1951 (see www.wto.org/english/thewto_e/ gattmem_e.htm). 130 Articles 131–135, European Treaty (ex 110–15), set out the EU’s (incomplete) common commercial policy (‘the CCP’). 131 See Dominic McGoldrick, International Relations Law of the European Union (London: Longman, 1997), pp. 194–5. International Aspects 203 Fruit Company NV v. Produktschap voor Groenten en Fruit,132 the ECJ reached the conclusion that ‘… in so far as, under the EEC Treaty, the Community has assumed competences previously exercised by the member-States in the sphere of application of [GATT 1947] …, the provisions of [GATT 1947] … have the effect of binding the Community’.133 The ECJ began by noting that, ‘… at the time of concluding the Treaty instituting the European Economic Community, the member-States were bound by the undertakings of [GATT 1947]’.134 It then inferred from the EEC Treaty, and especially from Arts 131 (ex 110) and 307 (ex 234), European Treaty, a desire on the part of the Member States to abide by the terms of GATT 1947.135 Referring to the Community’s assumption of the functions inherent in its tariff and trade policy, the Court said that this marked the Member States’ readiness to bind the Community by the obligations which they had contracted under GATT 1947.136 Finally, and especially since the establishment of the common customs tariff (‘the CCT’),137 ‘… the Community, acting through its institutions, … [had] appeared as a participant in the tariff negotiations and as a party to the agreements … concluded within the framework of [GATT 1947] …’.138 The International Fruit case illustrates, therefore, that, although Member States remained parties to GATT 1947, the EU took on the principal role in conducting the relationship between the Member States and the other contracting parties. The position just summarised was subsequently developed following the EU’s becoming an original member of the WTO in 1995.139 In Re the Uruguay Round Treaties,140 the ECJ explained in detail the competences of each of the EU and its Member States in relation to the WTO agreement, which had been signed in Marrakesh in April 1994.141 The Court interpreted Art. 133, European Treaty (ex 113) as according competence to the EU to conclude multilateral agreements on trade in goods, to the exclusion of its Member States, the EU and its Member States having joint competence, subject to certain exceptions,142 in relation to trade in services (under the General Agreement on Trade in Services (‘GATS’)) as well as trade-related aspects of intellectual property rights (under the TRIPS agreement).143 132 C–21–24/72, [1975] 2 CMLR 1 (decision, December 1972). 133 [1975] 2 CMLR 1, para. 18. 134 Ibid., para. 10. 135 Ibid., paras 12 and 13. 136 Ibid., paras 14 and 15. 137 That is, on 1 July 1968. For a valuable discussion of the CCT, see Timothy Lyons, op. cit., esp. (in the present context) pp. 58–60. 138 [1975] 2 CMLR 1, paras 16 and 17. 139 See Asif Qureshi, The World Trade Organization (Manchester: Manchester University Press, 1996), pp. 164–91. For further details, see the WTO website: www.wto.org. 140 Opinion 1/94, [1995] 1 CMLR 205. 141 The Uruguay Round of GATT 1947 was concluded in December 1993, the WTO Agreement being signed in April 1994 in Marrakesh. 142 That is, those provisions of GATS and TRIPS that relate to cross-frontier supplies of services (‘GATS’) and the means of enforcement of intellectual property rights (‘TRIPS’), each of which fell within Art. 133, European Treaty (ex 113) and therefore the exclusive competence of the EU. 143 That is, Trade-Related Aspects of Intellectual Property Rights. 204 Environmental Taxation Law It followed that when, following the conclusion of the Uruguay Round, not only the EU but also its Member States,144 had signed the WTO agreement, incorporating GATT 1994, GATS and TRIPS, the latter should not (in the Court’s opinion) have done so. Indeed, the fact that Arts 131–135, European Treaty (ex 110–15), relating to the common commercial policy (‘the CCP’), deny individual Member States any freedom of action in relation to GATT 1947/GATT 1994 has been reaffirmed in a succession of ECJ decisions.145 On its accession to the EU in 1973, the UK’s trade policy was thus already subject to the rules of GATT 1947. Following the signature of the WTO agreement in 1994, by the EU and its Member States, that policy is now constrained by their membership of the WTO.146 The restraints placed on the EU and its Member States by GATT 1994, Williams tells us, are fundamental, being ‘… a form of basic law to that constitution’.147 As a member of the WTO, the EU has a duty to ensure that the UK, as an EU Member State, complies with the requirements of GATT 1994. As will be seen in Chapter 12, the rules of the European Treaty mirror the rules of GATT in many respects.148 Nonetheless, the obligation of the UK as an EU Member State to comply with the EU’s international obligations is independent of, and separate from, the duties imposed on it as a result of the creation of the single market.149 Thus, in the design and implementation of the UK’s environmental taxes, it is necessary for policy makers to keep in mind the potential legal implications of the UK’s and the EU’s membership of the WTO and the subjection of its tax law to the discipline of GATT 1994. 144 Of which there were at that time only 12. 145 See, for example, Re OECD Local Costs Standard, Opinion 1/75, [1975] ECR 1355; International Fruit Company NV v. Produktschap voor Groenten en Fruit, C–21–24/72, discussed in the text above; Diamantarbeiders v. Indiamex, C–37–38/73, [1973] ECR 1600, Donckerwolcke, C–41/76, [1976] ECR 1921. See the discussion in Stefano Inama and Edwin Vermulst, Customs and Trade Laws of the European Community (The Hague: Kluwer Law International, 1999), para. 1.1. For a qualification to the point made in the text, see Inama and Vermulst, op. cit., para. 1.3.5. 146 See David Williams, EC Tax Law (Longman: London, 1998), p. 9. 147 Williams, op. cit., p. 10. 148 This similarity was an important part of the ECJ’s reasoning in International Fruit Company NV v. Produktschap voor Groenten en Fruit, C–21–24/72, discussed in the text above. In referring to the Members States’ desire to abide by the terms of GATT 1947, the Court said that the Members States’ readiness ‘… to respect the undertakings of the General Agreement results as much from the provisions of the EEC Treaty itself as from the declarations made by the member-States when they presented the Treaty to the Contracting Parties of the General Agreement in accordance with Article XXIV of the latter’ ([1975] 2 CMLR 1, para. 12). See, further, Lyons, op. cit., pp. 11–20. 149 Williams, op. cit., p. 71. Thus, Art. 90, European Treaty (ex 95), which applies to intra- Community trade, is both similar to, and crucially different from, Art. III, GATT 1994 (see below in this chapter and para. 12.3 below). International Aspects 205 8.4.2 Environmental exceptions to GATT 1994 restrictions Before considering in detail the WTO provisions of most relevance to environmental taxes and other economic instruments (that is, those on customs duties, internal taxes and subsidies), it is useful to refer to the general exceptions to the GATT discipline, contained in GATT 1994, Art. XX (‘General Exceptions’). Interestingly, the terms ‘environment’ and ‘environmental’ do not appear; instead, the relevant wording runs as follows: Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures:150 … (b) necessary to protect human, animal or plant life or health; … (g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption; … Four general points might be made about this wording:151 1 clearly, it does not suggest any straightforward means of reconciling the tensions between free trade and environmental protection referred to above; 2 the burden of demonstrating that one of the exceptions in Art. XX is applicable in a particular case falls upon the party seeking to use it as a defence;152 mainly because Art. XX is construed strictly, the burden has not often been discharged; 3 Article XX, GATT 1994, is the subject of a developing jurisprudence, which may see some resolution of the international environmental law/world trade law tension referred to in para. 8.2.1 above; and 4 If Art. XX, GATT 1994 applies, then it disapplies the relevant GATT 1994 rule, for example, Art. III or Art. VI. Three cases help to particularise the point made in 2 above.153 They represent a developing jurisprudence, so 1 below must be read subject to 2 and 3. 1 In Restrictions on Imports of Tuna154 (‘the Tuna-Dolphin I case’), the US had imposed restrictions on imports of yellowfin tuna because of concerns that they 150 This introductory wording is referred to as ‘the chapeau’ of the Article. 151 For a fuller treatment, see, for example, Birnie and Boyle, op. cit., pp. 701–2. 152 See Canada – Administration of the Foreign Investment Review Act, GATT, BISD 30 Supp 140 (1984), para. 5.20. 153 Each decision is notoriously long, if not complex. Great assistance has been derived in the following summaries from the summaries in Trebilcock and Howse, op. cit., ch. 15; Birnie and Boyle, op. cit., pp. 701–14; and Bell and McGillivray, op. cit., pp. 105–8. 154 (1991) 30 ILM 1598. 206 Environmental Taxation Law were caught using methods dangerous to dolphins, a protected species under the US Marine Mammal Protection Act. A GATT dispute settlement panel upheld Mexico’s complaint that this violated GATT 1947, Art. XI(1) and rejected a justification based on Art. III, GATT 1947.155 The panel also held that the exemptions in GATT 1947, Arts XX(b) and XX(g) did not apply. In relation to Art. XX(b), the panel held that ‘necessary’ did not simply mean ‘needed’ but that no other reasonable alternative existed,156 whilst, under Art. XX(g), it held that ‘relating to’ and ‘in conjunction with’ meant ‘primarily aimed at’.157 Since the restrictions were imposed to force other countries to change their environmental policies, they were not ‘necessary’, within Art. XX(b), nor were they ‘primarily aimed at’ conserving exhaustible natural resources. The decision in the Tuna- Dolphin I case was not, however, adopted by the GATT Council.158 Note that the dispute settlement panel accepted that dolphins were an ‘exhaustible natural resource’ within Art. XX(g), GATT 1947. 2 Standards for Reformulated and Conventional Gasoline159 (‘the US Gasoline Standards decision’) concerned the reformulated and conventional gasoline programmes created under the US Clean Air Act 1990. Under both programmes, changes were required in the composition of gasoline sold to consumers, with 1990 being used as the baseline year. The US Environmental Protection Agency (‘EPA’) distinguished, in their baseline establishment rules, between foreign and domestic producers and refiners. Domestic refiners were allowed to establish individual 1990 baselines, whilst foreign refiners had to use instead the EPA’s statutory baselines. The WTO Appellate Body (‘the AB’) held that the scheme was caught by the chapeau of Art. XX as ‘unjustifiable discrimination’ and a ‘disguised restriction on international trade’.160 In so doing, the AB applied a two-stage test: In order that the justifying protection of Article XX may be extended to it, the measure at issue must not only come under one or another of the particular exceptions – paragraphs (a) to (j) – listed under Article XX; it must also satisfy the requirements imposed by the opening clauses of Article XX. The analysis is, in other words, two-tiered: first, provisional justification by reason of characterization of the measure under Article XX(g); second, further appraisal of the same measure under the introductory clauses [that is, the chapeau] of Article XX.161 The AB held that the second clause of Art. XX(g) appeared to ‘… refer to governmental measures like the baseline establishment rules being promulgated 155 See para. 8.4.3 below for a full treatment of Art. III, GATT 1994. 156 (1991) 30 ILM 1598, para. 5.28. 157 Ibid., para. 5.31. 158 The reasoning in Tuna-Dolphin I was also followed by the panel in Restrictions on Imports of Tuna, (1994) 33 ILM 839 (the Tuna-Dolphin II case), which was again not adopted by the GATT Council. 159 (1996) 35 ILM 603 (see Birnie and Boyle, op. cit., p. 701). 160 (1996) 35 ILM 603, 633. 161 Ibid., 626. International Aspects 207 or brought into effect together with restrictions on domestic production or consumption of natural resources … The clause is a requirement of evenhandedness in the imposition of restrictions, in the name of conservation, upon the production or consumption of exhaustible natural resources’.162 Furthermore, when considered in the light of the introductory clauses of Art. XX, it was clear that the baseline establishment rules involved arbitrary or unjustified discrimination. The US had failed adequately to explore means of mitigating the administrative problems that it had relied on in imposing the statutory baselines on foreign refiners; it had also failed to count the costs for foreign refiners of denying them individual baselines.163 Note that the wide view of ‘exhaustible natural resources’ taken by the dispute settlement panel in the Tuna-Dolphin I case was accepted by the AB, the latter agreeing that ‘clean air’ was an exhaustible natural resource within Art. XX(g).164 Furthermore, the AB found that the baseline establishment rules related to the conservation of natural resources,165 given their primary aim, and having regard to their purpose and effect.166 3 Finally, in Import Prohibition of Certain Shrimp and Shrimp Products,167 (‘the Shrimp-Turtle case’), a national US measure required countries exporting shrimp to the US to show either that their fishing environments did not pose a threat of the incidental taking of sea turtles168 in the course of shrimp harvesting, or that their fishing industry was regulated to standards comparable to those in force in the US. Countries exporting to the US to which either possibility applied were so certified; those to which neither possibility applied were banned from exporting shrimp to the US. Applying the two-tiered test in the US Gasoline Standards decision, the AB held that the measure was not justified under Art. XX, GATT 1994. Although the measure qualified for provisional justification under Art. XX(g), it failed to meet the requirements of the chapeau thereto.169 a. In finding that the measure was provisionally justified under Art. XX(g), the AB took a similarly wide view of exhaustible natural resources as had been 162 Ibid., 624–5. 163 Ibid., 632. The panel observed that: ‘There was more than one alternative course of action available to the United States in promulgating regulations implementing the … [Clean Air Act]. These included the imposition of statutory baselines without differentiation as between domestic and imported gasoline. This approach, if properly implemented, could have avoided any discrimination at all. Among the other options open to the United States was to make available individual baselines to foreign refiners as well as domestic refiners’ (see (1996) 35 ILM 603, 629). 164 See (1996) 35 ILM 603, 613–14, the Panel already having accepted this point also. 165 See the opening words of Art. XX(g). 166 (1996) 35 ILM 603, 623. 167 (1999) 38 ILM 118. 168 Five species of sea turtles fell within the regulations: loggerhead (Caretta caretta), Kemp’s ridley (Lepidochelys kempi), green (Chelonia mydas), leatherback (Dermochelys coriacea) and hawksbill (Eretmochelys imbricata). 169 See para. 8.4.2 above. 208 Environmental Taxation Law taken in the two previous decisions. It rejected an argument put forward by India, Pakistan and Thailand as joint appellees that ‘exhaustible natural resources’ referred to finite resources such as minerals, rather than biological or renewable resources, the AB noting that living species were capable of depletion, exhaustion and extinction.170 Referring to the UNCLOS,171 to the Convention on Biological Diversity,172 to the Rio Declaration173 and to other international environmental agreements,174 it found that the relevant species of sea turtle were ‘exhaustible’ because they were recognised as endangered species.175 In referring to these instruments, the AB was following the general rule in the 1969 Vienna Convention, Art. 31(3), allowing account to be taken of relevant rules of international law applicable in the relations between the parties.176 As regards the remaining requirements for the measure to fall within Art. XX(g), the AB found that the measure related to177 the conservation of exhaustible natural resources: Focusing on the design of the measure here at stake, it appears to us that … [it] is not disproportionately wide in its scope and reach in relation to the policy objective of protection and conservation of sea turtle species. The means are, in principle, reasonably related to the ends.178 Finally, the AB found that the measure was an ‘even-handed’ one, the measure being made effective in conjunction with restrictions on domestic production or consumption.179 b. Although the AB was satisfied as to the provisional justification for the measure under Art. XX(g), it then went on to find that the measure failed to meet the requirements of the chapeau to Art. XX. The chapeau, it will be recalled, makes the application of the General Exceptions in Art. XX subject to the requirement that the measure in question must not be applied ‘… in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail’. 170 (1999) 38 ILM 118, para. 128. 171 See para. 8.3.2 above. 172 See para. 8.3.1.3 above. 173 See para. 8.2.3 above. 174 Including, not mentioned elsewhere in this chapter, the 1973 Washington Convention on International Trade in Endangered Species of Wild Fauna and Flora, (1973) 12 ILM 1085 and the 1979 Bonn Convention on the Conservation of Migratory Species of Wild Animals, (1980) 19 ILM 15. 175 (1999) 38 ILM 118, para. 132. Bell and McGillivray, op. cit., pp. 107–8, regard it as significant that the sea turtles’ exhaustibility depended on the fact that they were already recognised as endangered, not because action was required to prevent endangering them. 176 See para. 8.2.2 (point 1) above and Birnie and Boyle, op. cit., p. 704. 177 See the opening words of Art. XX(g), GATT 1994. 178 (1999) 38 ILM 118, para. 141. 179 Ibid., paras 143–4: see the second part of Art. XX(g), GATT 1994. International Aspects 209 The AB concluded that the measure in question was rigid and inflexible;180 that the certification processes followed by the US were ‘singularly informal and casual’, to the point that they could result in the negation of rights of WTO members;181 and that the measure lacked transparency and fairness.182 For all three reasons, the measure amounted to arbitrary discrimination between countries where the same conditions prevailed.183 Besides being arbitrary, the measure constituted a means of unjustifiable discrimination: i. The measure lacked flexibility, since the US inquired only into whether exporting country used TEDs (that is, ‘turtle excluder devices’) not whether they authorised comparable methods;184 ii. the measure also had the effect of banning imports of shrimp to the US which had been caught using TEDs, where the shrimp had originated in the waters of countries not certified under the measure;185 iii. thirdly, the US had failed to engage the appellees, as well as other countries exporting shrimp to the US, ‘… in serious, across-the-board negotiations with the objective of concluding bilateral or multilateral agreements for the protection and conservation of sea turtles, before enforcing the import prohibition against the shrimp exports of those other [WTO] Members’.186 Among other things, the US had failed to take account of Principle 12 of the Rio Declaration.187 Finally, iv. the US had made differing levels of effort in transferring the TED technology to other countries. Far greater efforts had been made to transfer the technology to 14 wider Caribbean/western Atlantic countries than to other exporting countries, including the appellees.188 In the light of the above decisions, it may well be the case that Art. XX, GATT 1994 will come to play a greater role in rendering certain types of environmental tax lawful which would otherwise fall foul of its discipline. The most obvious candidate would be a carbon tax, which, as a direct tax, is not, on present learning, capable of incorporating a BTA,189 even on environmental grounds. 8.4.3 GATT 1994 provisions on customs duties and internal taxes Articles II and III, GATT 1994, distinguish between customs duties and import charges, on the one hand, and internal taxes and charges, on the other. The distinction 180 Ibid., para. 177. 181 Ibid., para. 181. 182, Ibid., para. 183. 183 Ibid., para. 184. 184 Ibid., para. 164. 185 Ibid., para. 165. 186 (1999) 38 ILM 118, para. 166. 187 See para. 8.2.6 above. 188 (1999) 38 ILM 118, para. 175. 189 See para. 1.2.1.2 above. 210 Environmental Taxation Law forms the basis of two different sets of rules. Article III is of the greater relevance in the present context, since it allows the imposition of levies that are indirect – as opposed to direct190 – on domestic and imported products alike. Such blanket imposition is necessary in the case of environmental levies, as with other levies, to guarantee both the competitiveness of domestic products as well as the ‘tax base’ of the environmental levy in question. In relation to customs duties and import charges, Art. II(1)(a), GATT 1994, requires WTO members to accord to the commerce of other members a treatment no less favourable than that provided for in the agreed schedules of concessions annexed to the WTO agreement. Thus, Art. II(1)(b), GATT 1994, reads: The products described in … the Schedule relating to any contracting party, which are the products of territories of other contracting parties, shall, on their importation into the territory to which the Schedule relates, and subject to the terms, conditions or qualifications set forth in that Schedule, be exempt from ordinary customs duties in excess of those set forth and provided therein.191 The obligation contained in Art. II(1) is generally referred to as the ‘tariff-concession obligation’, the tariff commitments of each country or regional trading organisation in the schedules to the WTO agreement being referred to as ‘bindings’ or ‘concessions’. These schedules range from the voluminous, in the cases of the EU and the US, to the relatively brief, in the case of less developed countries.192 In accordance with the CCP provisions of the European Treaty discussed above, Member States of the EU are represented at the WTO by the European Commission,193 which has the sole right to speak for its Member States at virtually all WTO meetings, including tariff negotiations.194 Furthermore, just as the European Treaty bans Member States from unilaterally imposing customs duties on goods from third countries,195 so also does it outlaw charges having equivalent effect to customs duties on imports from nonmember countries.196 So far as internal taxes and charges are concerned,197 Art. III, GATT 1994 subjects them to the so-called ‘national treatment obligation’. Article III(1) articulates the general policy goal that internal taxes and charges ‘… should not be applied to imported or domestic products so as to afford protection to domestic production’.198 Referring to the goal mentioned in Art. III(1), Art. III(2) then goes on to require that: 190 Ibid. 191 GATT 1994, Art. II(1)(b). 192 The maximum tariffs are contained in Part I of each country’s or customs territory’s fourpart goods schedule (see www.wto.org). 193 See para. 4.3.2 above. 194 For further details, see Williams, op. cit., pp. 62–4. 195 Sociaal Fonds voor de Diamantarbeiders v. SA Ch Brachfeld & Sons and Chougal Diamond Co, C–2/69 and 3/69, [1969] ECR 211. 196 Aprile Srl, in Liquidation v. Amministrazione Delle Finanze dello Stato, C–125/94, [1995] ECR I–2919, para. 34. 197 See para. 7.2.2.4 above. 198 Besides internal taxes and charges, GATT 1994, Art. III(1) refers to ‘laws, regulations and requirements’. International Aspects 211 The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover, no contracting party shall otherwise apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in [Art. III(1)]. Exceptions to the national treatment obligation are limited, and are set out in Art. III(8). They consist of an exception for government purchases,199 as well as one for the payment of subsidies exclusively to domestic producers.200 These are in addition to the general exceptions in GATT 1994, Art. XX referred to above. It is plain from Art. III, GATT 1994, that the design of new internal taxes and charges in WTO member countries must comply with the national treatment obligation. Turning back to Art. II(2)(a), GATT 1994, we find it stated that the provisions of Art. II (which covers customs duties and import charges) do not prevent WTO members from imposing at any time on the importation of any product ‘a charge equivalent to an internal tax, in respect of the like domestic product, or in respect of an article from which the imported product has been manufactured or produced, whether in whole or in part’.201 However, Art. II(2)(a) also says that any such charge must be imposed consistently with the provisions of Art. III(2).202 When taken together, it is apparent from the wording of Arts II and III that the distinction between a customs duty and an internal tax or other charge does not depend on when or where the levy in question is imposed.203 Instead, it depends on whether the levy on imported products is also borne by like domestic products. If it is, then the levy falls within Art. III; if it is not, then the levy falls within Art. II.204 In other words, an internal tax or charge, provided it complied with Art. III(2), could be applied at the border with the third country. Subject to the application of the border tax adjustment (‘BTA’) rules, Art. III(2) is not prima facie infringed, therefore, by an internal tax or other charge, imposed by an EU/WTO member, which is designed simply to ensure parity of tax treatment between domestic products and third country products and which is imposed at the border. Whilst the BTA concept is a simple one to articulate, its application to environmental taxes involves a number of difficult questions.205 Briefly, a BTA is designed to put 199 GATT 1994, Art. III(8)(a). 200 Ibid., Art. III(8)(b). 201 This division is then underlined by a note to GATT 1994, Art. III in Annex I, which states that ‘… [a]ny internal tax or other internal charge … which applies to an imported product and to the like domestic product and is collected or enforced in the case of the imported product at the time or point of importation, is nevertheless to be regarded as an internal tax or other internal charge … and is accordingly subject to the provisions of Article III’. 202 See above in this para. 203 Birnie and Boyle, op. cit., p. 729. 204 See WTO Secretariat, Taxes and Charges for Environmental Purposes – Border Tax Adjustment (WT/CTE/W/47), para. 55. 205 See 1.2.1.2 above. See also Paul Demaret and Raoul Stewardson, ‘Border Tax Adjustments under GATT and European Law and General Implications for Environmental Taxes’ (1998) 28 JWT 5–65. 212 Environmental Taxation Law into effect the general principle of international indirect taxation206 that goods should be taxed where they are used or consumed.207 The definition of a BTA used by the WTO was originally used by the OECD and defines a BTA as: … any fiscal [measure] which put[s] into effect, in whole or in part, the destination principle (that is, which enable[s] exported products to be relieved of some or all of the tax charged in the exporting country in respect of similar domestic products sold to consumers on the home market and which enable imported products sold to consumers to be charged with some or all of the tax charged in the importing country in respect of similar domestic products).208 The phenomenon of BTAs is assumed throughout GATT 1994, not only in Arts II and III, but also, as will be seen, in Art. XVI, GATT 1994.209 It rests in turn on a second assumption that is made in GATT 1994, that is, that of the distinction between direct and indirect taxes.210 As explained at the beginning of the book, only indirect taxes are eligible for BTA.211 Thus, only internal indirect taxes imposed by an EU/WTO member state, which are designed to ensure parity of tax treatment between domestic products and third country products (whether or not they are imposed at the border), are capable of satisfying GATT 1994 requirements. The availability of BTA for environmental taxes, under GATT/WTO rules, is a major technical consideration in their design. The idea of a carbon tax, as mentioned above, has famously been controversial in this context. How the UK’s environmental levies have sought to address the technical challenge involved is considered below. 8.4.4 GATT 1994 anti-subsidy rules The WTO’s anti-subsidy rules are to be found in GATT 1994, Arts VI (anti-dumping and countervailing duties) and XVI (subsidies), as well as in the 1994 WTO Agreement on Subsidies and Countervailing Measures (‘the Subsidies Agreement’).212 Here, no less than in the Art. III context, the distinction between direct and indirect taxes,213 and the consequent availability of BTA, are crucial technical questions. Article VI, GATT 1994, permits WTO members to deal with the problem of dumping, that is, the introduction of the products of one country into the commerce 206 See para. 1.2.1.2 above. 207 Ibid. 208 WT/CTE/W/47, para. 28. 209 The 1970 WTO Working Party on Border Tax Adjustments agreed that the main provisions of GATT relating to BTA codified practices that existed in commercial treaties when it was drafted (see WTO Secretariat, Taxes and Charges for Environmental Purposes – Border Tax Adjustment (WT/CTE/W/47), para. 29). 210 See para. 1.2.1.2 above. 211 WT/CTE/W/47, para. 33–35. See para. 1.2.1.2 above. 212 See, generally, Konstantinos Adamantopoulos and Marìa J. Pereyra-Friedrichsen, EU Anti-Subsidy Law and Practice (Bembridge: Palladian, 2001), and A. Leigh Hancher, Tom Ottervanger and Piet Jan Slot, EC State Aids, 2nd edn (London: Sweet and Maxwell, 1999), ch. 5. 213 See para. 1.2.1.2 above. International Aspects 213 of another country at less than the normal value of the products, by the imposition of countervailing duties. Article XVI, GATT 1994, deals with the related, but distinct, phenomenon of subsidisation by Governments of exporting countries; it is divided into a Section A, entitled ‘Subsidies in General’, and a Section B, headed ‘Additional Provisions on Export Subsidies’. Article XVI(A)(1) obliges WTO members to notify to the Ministerial Conference the granting or maintaining of ‘… any subsidy, including any form of income or price support, which operates directly or indirectly to increase exports of any product from, or to reduce imports of any product into, its territory’. Article XVI(B)(4) bans the direct or indirect grant of ‘… any form of subsidy on the export of any product other than a primary product which subsidy results in the sale of such product for export at a price lower than the comparable price charged for the like product to buyers in the domestic market’. The Subsidies Agreement, which dates from the Uruguay Round, deals with two major areas: the regulation of subsidies that impact on international trade and advice to WTO members on the best ways of protecting their domestic industries from those subsidies.214 The Subsidies Agreement is incorporated in Community law via the 1997 Council Regulation on Protection against Subsidized Imports from Countries not Members of the European Community (usually referred to as ‘the Basic Regulation’ or ‘the Countervailing Duty Regulation’).215 The Basic Regulation is intended to provide greater transparency and effectiveness in the application by the European Community of the rules laid down in the Subsidies Agreement, as regards subsidised imports into the EU. It does not affect the virtually identical obligations of the EU and its Member States under the Subsidies Agreement, which continues to govern claims by third countries in respect of governmental subsidies in the EU as a whole or any of its Member States.216 In practice, these provisions have presented far fewer problems for environmental taxes than have those of Art. III, GATT 1994. The Interpretative Note Ad Article XVI, GATT 1994 makes it plain that: The exemption of an exported product from duties or taxes borne by the like product when destined for domestic consumption, or the remission of such duties or taxes in amounts not in excess of those which have accrued, shall not be deemed to be a subsidy. Moreover, Art. VI(4), GATT 1994, states that the exemption of exported products from taxes borne by like domestic products, as well as the refund of such taxes, cannot be subject to anti-dumping or countervailing duties. The principles of Arts VI and XVI are then underlined in the footnote to Art. 1.1 of the Subsidies Agreement, which reads: In accordance with the provisions of Article XVI of GATT 1994 (Note to Article XVI) and the provisions of Annexes I through III of this Agreement, the exemption of an 214 See Raymond Luja, ‘WTO Agreements versus the EC Fiscal Aid Regime: Impact on Direct Taxation’ (1999) 27 Intertax 207–25, esp. pp. 207–11. 215 Council Regulation EC/2026/97, (1997) OJ L288 1. 216 The granting of subsidies by EU Member States to their national industries is dealt with by the state aid rules (see Arts 87–89, European Treaty (ex 92–94)), insofar as such subsidies affect trade between Member States (see para. 12.2.7 below). 214 Environmental Taxation Law exported product from duties or taxes borne by the like product when destined for domestic consumption, or the remission of such duties or taxes in amounts not in excess of those which have accrued, shall not be deemed to be a subsidy. Thus, when designing environmental taxes or, indeed, other economic instruments, it is necessary for the UK to take into account the anti-subsidy rules. 8.4.5 UK environmental levies and subsidies in the GATT 1994 context 8.4.5.1 GATT 1994 aspects of the UK’s environmental taxes The design of each of aggregates levy and of climate change levy is conceptually somewhat similar. One area in which this conceptual similarity is apparent is the attempted assimilation of the international dimension of each tax to the discipline both of GATT 1994 and of the European Treaty.217 Aggregates levy and climate change levy are unusual among the existing UK environmental levies, as having a cross-border dimension. Although conceived within the GATT 1994/European Treaty discipline, landfill tax is designed in such a way as to obviate the need for dealing specifically with cross-border issues. A substantially similar point might obviously be made about the concepts of workplace parking levies and road user charging schemes. Landfill tax, it will be recalled, is charged on a disposal of material as waste by way of landfill at a landfill site.218 By Finance Act 1996, s.66, a site is a landfill site at any given time if one of five alternative types of licence is in force in relation to the land, which authorises disposals on the land.219 Since a landfill site, as so defined, must necessarily be within the UK,220 there is no need within the landfill tax code for any special provisions relating to the taxation of imports of waste from, and exports of waste to, other Member States of the EU or to third countries.221 Moreover, the structure of rates and exemptions does not differentiate between waste generated within the UK or outside it. Given these design features of the tax, there would therefore seem to be no issue in relation to any of the arts of GATT 1994 discussed above. However, by contrast with the landfill tax code, each of the aggregates levy and climate change levy codes contain provisions relating to imports and exports of the products in question. As such, certain aspects of each may be difficult to justify under the GATT 1994 discipline, although the true position is unclear. On one view, the structure of the taxes means that, in the absence of special factors, no GATT 1994 issue is likely to arise, irrespective of Art. XX. This view is based on a close reading of the respective tax codes in the light of the GATT 1994 provisions. It can be summarised as follows. 217 See Chapter 12 below. 218 See paras 1.4.2.1(1) above and 15.2 below. 219 See para. 15.2 below. 220 Generally, this is a landfill permit (see para. 6.3.2.4 above). 221 Such international trade in waste is in any event restricted by the requirements of the 1989 Basel Convention, the European Waste Shipment Regulation and other international agreements (see paras 8.3.2 above and 12.2.5.1(4) below). International Aspects 215 The aggregates levy provisions relating to the importation of aggregates appear in Finance Act 2001, ss.16(2) and 19(1). Together, these two subsections impose a charge to aggregates levy whenever taxable aggregate is subjected to commercial exploitation in the UK, such exploitation being made to include the two situations envisaged in s.19(1), that is, when: … (b) …[taxable aggregate] becomes subject to an agreement to supply it to any person; [or] (c) it is used for construction purposes … Whatever the other ambiguities of the wording of s.19 may be,222 a number of points seem clear, no less from the section itself, as from the structure of the tax as a whole. First of all, it is apparent that, when applied to imports of aggregates, the levy is an internal tax within Art. III, GATT 1994, rather than a customs duty or charge with equivalent effect under GATT 1994, Art. II. This is because the concept of subjecting taxable aggregate to commercial exploitation in the UK makes no distinction between aggregate originating within the UK or that originating outside it. The tax is charged on imported and domestic products alike. Secondly, it seems unlikely that aggregate imported into the UK from a third country would be subject, even indirectly, to a charge to the levy in excess of the amount applied to domestically-produced aggregate. Thirdly, aggregates levy is clearly an indirect tax,223 in respect of which the BTA built into its structure is designed to ensure parity of treatment between domestic aggregate and third country aggregate.224 As to the second of these factors, unlikely as it may be that there is any indirect discrimination, it is not inconceivable that, whilst the tax appears on its face to be non-discriminatory, various circumstances in the market place or elsewhere might have the effect in a particular case of ‘tilting the scales against the imported product’.225 A similar conclusion, as regards the treatment of imports of taxable commodities from third countries, seems possible in the case of climate change levy. With climate change levy, all supplies of taxable commodities which are not excluded or exempt from the levy count as taxable supplies,226 irrespective of whether the supplier is resident in the UK.227 In the absence of special factors, climate change levy is thus again a tax borne by domestic and imported like products alike, and lawful under GATT 1994 as an internal indirect tax for ensuring parity of tax treatment between domestic and third country products.228 222 See paras 13.2 and 13.3 below. 223 See para. 1.4.2.3 above. 224 See para. 12.4 below. 225 See Jackson, op. cit., p. 216. 226 Finance Act 2001, Sched. 6, para. 2(2). 227 For the definition of ‘resident in the UK’ for these purposes, see Finance Act 2000, Sched. 6, para. 156, discussed at para. 16.7n below. 228 Under Finance Act 2000, Sched. 6, para. 40(2), the person liable to account for the levy charged on the supply is the person to whom the supply is made. Where either of these requirements is missing, then Customs have wide powers to appoint a resident tax representative (see para. 16.7 below). For the formalities associated with imports of 216 Environmental Taxation Law As regards the treatment of exports within the aggregates levy code, Finance Act 2001, s.30(1)(a), provides for the making of relevant regulations for the purpose of conferring entitlement to tax credits on the exportation of aggregate ‘in the form of aggregate’. The relevant regulations accordingly appear in the Aggregates Levy (General) Regulations 2002,229 reg. 13: (1) This regulation applies to a person who has commercially exploited taxable aggregate and who has accounted for the aggregates levy chargeable on that commercial exploitation. (2) Such a person is entitled to a tax credit in respect of any aggregates levy accounted for in respect of that commercial exploitation where the taxable aggregate in question – (a) is exported or removed from the United Kingdom without further processing; …230 There is judicial authority for the proposition that this provision is cast in terms of a tax credit, rather than an exemption, to reflect the fact that it cannot be ascertained whether aggregate otherwise taxable is in fact exempt until it is known what has happened to the aggregate in question.231 In any event, it would seem plain from the provisions just discussed that there is no unlawful subsidy under GATT 1994, since the effect of the tax credit is merely to remit taxes in amounts not exceeding those that have accrued.232 Moreover, the remission on exportation of duties and taxes borne by a like product when destined for domestic consumption does not entitle a third country to impose anti-dumping or countervailing duties.233 Within the climate change levy code, the exportation of commodities is covered by the wording of Finance Act 2000, Sched. 6, para. 11. This provides that, where a taxable commodity234 is caused to be exported from the UK, then the supply is exempt from the levy, provided that the recipient has previously notified the supplier that he intends to cause the relevant commodity to be exported from the UK and has taxable commodities, see HM Customs and Excise Notice CCL 1, Climate Change Levy (March 2002), pp. 13–14 (available from www.hmce.gov.uk). 229 S.I. 2002 No. 671. See para. 16.9 below. 230 See also HM Customs and Excise Notice AGL 1, Aggregates Levy (March 2003), pp. 21– 2 for the formalities (available from www.hmce.gov.uk). 231 See R (on the application of British Aggregates Associates and others) v. C & E Commrs, [2002] EWHC 926 (Admin), [2002] 2 CMLR 51, para. 29 (Moses, J.). See paras 12.1, 12.3.3.1 below. 232 See para. 8.4.4 above. 233 Ibid. 234 Finance Act 2000, Sched. 6, para. 3 (see para. 14.1 below). It should be noted that, although a distinction between goods and services is not part of the structure of climate change levy, the commodities which fall within its scope are also subject to customs duties as goods under the CCT (for the categories into which they fall, see the ‘TARIC’ web-pages on the EU website, www.europa.eu.int). This is consistent with the classification of the supply of any form of power, heat, refrigeration or ventilation as a supply of goods in the VAT legislation (see Value Added Tax Act 1994, Sched. 4, para. 3). TARIC, it should be noted, is the single register representing the collected tariffs on goods imported into, and exported from, the EU (see Williams, op. cit., p. 62n). International Aspects 217 no intention of causing it to be brought back into the UK thereafter.235 Again, so far as third countries are concerned, there would seem to be no unlawful subsidy, since the exemption is expressly permitted by GATT 1994 provisions on subsidies and countervailing duties.236 On the basis of the foregoing, and in the absence of special factors, there would appear to be little possibility for conflict between the GATT 1994 provisions and those of the domestic legislation. However, it is instructive to reflect on certain other features of the two taxes, insofar as they relate to imports, in the light of possible bases for green taxes generally.237 As we noted much earlier in this study,238 the OECD distinguishes between three possible forms of environmental tax or charge: those based on the emission of pollutants, including (in the case of air) noise, into various media (‘emission taxes’); those based on the cost of collective treatment of effluent or waste (‘user taxes’); and those based on products (including raw materials, intermediate or final products) that are harmful to the environment when used in production processes (‘product taxes’).239 There is clearly an environmental link between the first and third of these and, indeed, the OECD acknowledges that ‘product … taxes can act as a substitute for emission … taxes when charging directly for emissions is not feasible’.240 Since the scope of landfill tax is geographically limited, the fact that it appears to be a hybrid of an emissions tax and a user tax241 does not seem to raise any issue. However, the other two green taxes discussed above, not being geographically limited, appear to give cause for some concern, if only at the margins. This is because both climate change levy and aggregates levy may be regarded as a hybrid of an emissions tax and a product tax. The reason why this is significant is that, whilst BTA is lawful for taxes on products under GATT 1994, Art. III(2), it is not lawful to apply it to taxes on emissions, since such taxes are regarded within GATT 1994 as a tax on the producer.242 Both points are well made by a close reading of Arts II(2)(a) and III, GATT 1994. Article II(2)(a), the outline of which has already been mentioned, provides: Nothing in this Article shall prevent any contracting party from imposing at any time on the importation of any product … [authors’ emphases] a charge equivalent to an internal tax imposed consistently with the provisions of paragraph 2 of Article III in respect of the like domestic product or in respect of an article from which the imported product has been manufactured or produced in whole or in part. 235 See HM Customs and Excise Notice CCL 1, Climate Change Levy, above, p. 10, and HM Customs and Excise Notice CCL1/3, Reliefs and Special Treatments for Taxable Supplies (available from www.hmce.gov.uk). 236 See para. 8.4.4 above. 237 See Chapter 5 above. 238 See para. 1.2.1.5(2) above. 239 See OECD Council Recommendation C(90)177/Final, paras 2–4. See also para. 1.2.1.5(2) above. 240 OECD Council Recommendation C(90)177/Final, para. 4. 241 See para. 1.2.1.5(2) above. 242 See Birnie and Boyle, op. cit., p. 730. 218 Environmental Taxation Law If each of the taxes is properly seen as a product tax, then the two articles are clearly not infringed. However, if they are properly seen as taxes on emissions, that is, on resource use, then they fall foul of Art. II(2)(a).243 The position is, in the view of the present writers, unclear.244 8.4.5.2 GATT 1994 aspects of UK tax subsidies In Chapter 7, when examining the taxation, as opposed to the regulatory, context of the UK’s green levies and subsidies, we divided the discussion of subsidies into tax subsidies within the environmental levies and environmental subsidies within the non-environmental taxes.245 Tax subsidies within the green levies were characterised as having been introduced into the structure of the levy in question for reasons, not of regulatory efficiency, but of sectoral competitiveness. By contrast, green subsidies within the non-environmental tax codes were characterised as having been introduced into the structure of the tax for reasons of regulatory efficiency. For present purposes, it is proposed to treat the two types of subsidy together, whilst noting their difference of function. The question here is whether, in either case, the subsidies in question are such as to infringe the relevant provisions of the Subsidies Agreement.246 In common with the rest of the discussion in the present chapter, the analysis is intended to be read not simply in connection with existing subsidies, upon which it does not purport to offer a conclusive view, but also with those that have already been, or may yet be, proposed.247 The Subsidies Agreement begins by defining the concept of a ‘subsidy’,248 with ‘specificity’249 as the fundamental condition of actionability. It then divides subsidies into three categories, each of which is subject to different rules: 1 prohibited subsidies;250 2 actionable subsidies;251 and 3 non-actionable subsidies.252 243 A related, but different, problem does not however seem to arise with climate change levy, although it might have done with a more traditionally-conceived carbon tax. If a tax were to be imposed on energy consumed in the production process of a product, then it would be extremely doubtful whether the tax would be lawful under art II(2)(a), GATT 1994. Article II(2)(a) permits the imposition of a tax under Art. III, GATT 1994, only on an article ‘from which’, that is, not ‘with the help of which’, the ‘imported and the like domestic product were produced’ (see Birnie and Boyle, op. cit., p. 731). See para. 1.2.1.4n above. 244 See, generally, WT/CTE/W/47, above. 245 See paras 8.3.3 and 8.3.4 above. 246 See para. 8.4.4 above. 247 See Chapter 27 below. 248 Subsidies Agreement, Art. 1. 249 Ibid., Art. 2. 250 Ibid., Art. 3. 251 Ibid., Art. 5. 252 Ibid., Art. 8. International Aspects 219 For the purposes of the Subsidies Agreement, a subsidy includes a financial contribution by a government or public body within the territory of a WTO member where, among other things, ‘government revenue that is otherwise due is foregone or not collected (for example, fiscal incentives such as tax credits)’.253 However, a benefit must thereby be conferred.254 Article 2 of the Subsidies Agreement distinguishes specific subsidies from those which are non-specific. Non-specific subsidies are ones which are generally available to all enterprises or industries in the WTO member country. Specific subsidies are those access to which is, formally or in fact, confined to certain specific enterprises, industries, groups of enterprises or industries, or to enterprises in a specific geographical region.255 Only specific subsidies are actionable under the Subsidies Agreement.256 Where a subsidy is prohibited, the complaining WTO member may seek the removal of the subsidy through the WTO dispute settlement mechanism, a procedure which may result in its being authorised to take appropriate, proportionate countermeasures.257 There is no need for the complaining member to demonstrate adverse effects. Prohibited subsidies include the following: (e) The full or partial exemption, remission or deferral specifically related to exports, of direct taxes or social welfare charges paid or payable by industrial or commercial enterprises. (f) The allowance of special deductions directly related to exports or export performance, over and above those granted in respect to production for domestic consumption, in the calculation of the base on which direct taxes are charged. (g) The exemption or remission, in respect of the production and distribution of exported products, of indirect taxes in excess of those levied in respect of the production and distribution of like products when sold for domestic consumption.258 If a subsidy, rather than being prohibited, is one which is actionable, the WTO complaining member must follow a very similar procedure to the one just described.259 However, the complaining member must obviously demonstrate that the conditions for actionability are made out. These are that the subsidy in question has adverse effects consisting of injury to the complaining member’s domestic industry, the nullification or impairment of benefits under GATT 1994, or serious prejudice to its interests.260 It follows from this that, even if a subsidy is actionable, it will not have a relevant adverse effect on international trade if its economic effects are confined 253 Ibid., Art. 1, esp. Art. 1.1(a)(1). 254 Ibid., Art. 14, which excludes certain items from the scope of a ‘benefit’. 255 This neat summary of the intricacies of Art. 2, Subsidies Agreement, is adopted from Hencher et al., op. cit., para. 5–012. 256 Subsidies Agreement, Art. 8.1(a). 257 Ibid., Art. 4, esp. Art. 4.8–4.12. 258 Ibid., Annex I, paras (e)–(g). 259 Ibid., Art. 7. 260 Ibid., Art. 5. 220 Environmental Taxation Law within national borders.261 The procedure in relation to an actionable subsidy may again result in the complaining WTO member being authorised to take proportionate countermeasures.262 Finally, if a subsidy is non-actionable, then it cannot be challenged under the dispute settlement procedure, provided however that it has been duly notified in advance to the WTO’s Committee on Subsidies and Countervailing Measures.263 Non-actionable subsidies are ones which are either non-specific or specific but meet the conditions of Art. 8 of the Subsidies Agreement. Article 8 comprises three categories: 1 assistance for certain research activities, subject to stringent conditions; 2 assistance to disadvantaged regions within the territory of a Member given pursuant to a general framework of regional development and non-specific (within the meaning of Article 2) within eligible regions … [subject to the satisfaction of detailed criteria]; …264 3 assistance to promote adaptation of existing facilities to new environmental requirements imposed by law and/or regulations which result in greater constraints and financial burdens on firms … [subject to the satisfaction of detailed criteria].265 Under Arts 10–23 of the Subsidies Agreement, read in conjunction with GATT 1994, Art. VI, WTO members may impose countervailing duties in conjunction with invoking the dispute settlement mechanism in cases of prohibited and actionable subsidies, although not subsidies that are not actionable.266 From the foregoing, it is apparent that, as regards all of the tax subsidies identified in Chapter 7 above: 1 all are subsidies within Art. 2 of the Subsidies Agreement; 2 if access to any of them is, formally or in fact, confined to certain specific enterprises, industries, groups of enterprises or industries, or enterprises in a specific geographic region, then they are specific subsidies; 3 one of them appear to be prohibited subsidies; 4 any specific subsidies that have a relevant adverse effect beyond the borders of the UK will entitle a complaining WTO member (for example, the EU, via the European Commission) to take steps under the dispute settlement mechanism; and 5 any that are specific but non-actionable will be incapable of challenge by the EU or any other WTO member. 261 See Hancher et al., op. cit., para. 5–013. 262 Subsidies Agreement, Art. 7. 263 Ibid., Art. 25. 264 Ibid., Art. 8.2(b). 265 Ibid., Art. 8.2(c). 266 Ibid., note 35 (Art. 10). International Aspects 221 8.5 International air transport law We referred at the beginning of the chapter to the need to allude, if only briefly, to international agreements governing air transport. This is in order to provide a context for the discussion in Chapter 27 below267 of proposals to introduce new economic instruments in relation to the noise and carbon emissions externalities caused by air transport. The key multilateral treaty, as mentioned in Chapter 4 above, is the 1944 Chicago Convention on International Civil Aviation,268 as amended and clarified by subsequent policy guidance issued by the International Civil Aviation Organization (‘the ICAO’).269 The UK, in common with most other developed countries, including the EU Member States,270 is a party to the Chicago Convention. The Chicago Convention is significant in the context of the present book for two reasons. One of these, of course, is the exclusion already mentioned of international aviation emissions from the scope of the 1997 Kyoto Protocol targets.271 The other is that Art. 24 (a) of the Chicago Convention provides that: Fuel, lubricating oils, spare parts, regular equipment and aircraft stores on board an aircraft of a contracting State, on arrival in the territory of another contracting State and retained on board on leaving the territory of that state shall be exempt from customs duty, inspection fees or similar national or local duties and charges. The subsequent ICAO policy guidance referred to above strongly recommends that ‘any environmental levies on air transport which States may introduce should be in the form of charges rather than taxes272 and that the funds collected should be applied in the first instance to mitigating the environmental impact of aircraft engine emissions’; that there should be no fiscal purpose to the charges; that such charges should be related to costs; and that they should not discriminate against air transport as compared with other transportation modes.273 Although the Chicago Convention is the fundamental multilateral agreement on civil aviation, it should be noted that there is also a network of bilateral agreements, made between pairs of states and based on the UK/US ‘Bermuda II’ agreements, and having the chief purpose of shielding national airlines from competition.274 Such bilateral agreements reflect the ICAO’s traditional policy guidance275 of 267 See para. 29.8 below. 268 International Civil Aviation Organization Doc. 7300/8, Convention on International Civil Aviation, 8th edn (Montreal: ICAO, 2000), available from www.icao.int. See also para. 4.4.3 above. 269 See, especially, International Civil Organization Doc. 8632, ICAO’s Policies on Taxation in the Field of International Air Transport, 3rd edn (Montreal: ICAO, 2000) and ICAO Council Resolution on Environmental Charges and Taxes, 9 December 1996 (available from www.icao.int). 270 Before enlargement in 2004. 271 See para. 8.3.1.4 above. 272 See para. 7.2.1 above. 273 See 1996 Council Resolution, paras 4 and 5. 274 See Rosa Greaves, EC Transport Law (Harlow: Pearson Education, 2000), pp. 65–7. 275 See International Civil Organization Doc. 8632, above. 222 Environmental Taxation Law recommending ‘the reciprocal exemption from all taxes levied on fuel taken on board by aircraft in connection with international air services, …, and also … [the reduction or elimination of] taxes related to the sale or use of international air transport’.276 8.6 International energy law The Energy Charter Treaty (‘the ECT’)277 is, in origin, the most recent of the multilateral agreements referred to in this chapter, having been opened for signature at Lisbon in December 1994.278 Its purpose is to ‘establish a legal framework in order to promote long-term co-operation in the energy field, based on complementarities and mutual benefit …’.279 Although the scope of the ECT is limited to one sector, it creates a range of legal obligations and rights within the energy sector relating to investment and trade, while also creating a number of rights and obligations which relate to the environment. The ECT is an extremely innovative document, making explicit reference to the philosophy of economic liberalism, while also holding out the possibility of at least in part having direct effect in signatory countries.280 The basic tenor of the ECT investment provisions, which appear in Part III thereof, is to ensure that investors receive a basic minimum standard of fair treatment from the contracting parties. These include a commitment to accord to the investments of investors ‘fair and equitable treatment’.281 By Art. 13, a contracting party may not nationalise or expropriate the investment of another contracting party, except subject to certain conditions, one of which is the payment of ‘prompt, adequate and effective compensation’. In the present context, Art. 13, which deals with expropriation, has a twofold importance. First, it certainly covers windfall and other confiscatory taxation, such the windfall tax imposed on the UK’s privatised utilities in 1997.282 Secondly, it might, according to Waelde, cover expropriation by exorbitant environmental 276 See 1996 Council Resolution, recital d. 277 See para. 4.4.4 above. The text of the Energy Charter Treaty is available from the website referred to in that para. 278 This paragraph is heavily indebted to Energy Law in Europe: National, EU and International Law and Institutions, ed. by M. Roggenkamp et al. (Oxford: Oxford University Press, 2001), ch. 4 (authored by Craig Bamberger, Jan Linehan and Thomas Waelde). 279 Energy Charter Treaty, Art. 2. 280 See the painstaking examination of the Energy Charter Treaty’s provisions in Thomas Waelde, ‘International Investment under the 1994 Energy Charter Treaty’ (1995) 29 JWT 5–72. 281 Energy Charter Treaty, Art. 10. 282 See para. 2.4 above. The windfall tax was created by Finance (No.2) Act 1997, ss.1–5 and Scheds 1–2. The problem was that most of the original allottees had sold out and so the ‘clawback’ was against investors who had not received the alleged ‘benefit’. See Dieter Helm, Energy, the State and the Market: British Energy Policy since 1979, revised edn (Oxford: Oxford University Press, 2004), pp. 288–90, and Thomas Waelde, ‘Renegotiating Previous Governments’ Privatisation Deals: The 1997 UK Windfall Tax on Utilities and International Law’ (1997) 2 Journal of the Centre for Energy, Petroleum and Mineral Law and Policy (available from www.dundee.ac.u/cepmlp). International Aspects 223 regulation.283 However, Art. 13 must be read subject to Art. 21 on taxation, which provides that nothing in the ECT creates rights or imposes obligations with regard to the domestic tax laws of the contracting parties and, if there is any inconsistency between Arts 13 and 21, Art. 21 is to prevail. The ECT’s trade provisions, which are set out in Art. 29 of the ECT, are designed, in essence, to bring the trade of contracting parties who are not parties to GATT 1994 into line with the provisions of GATT 1947.284 As regards environmental matters, Art. 19, ECT, contains merely hortatory commitments of good environmental practice. It is a pity that it is not possible here, for reasons of space, to go into greater detail on the ECT; it has been described as ‘arguably the most innovative of the modern international economic treaties’.285 The ECT: … breaks away from the pattern of multilateral trade agreements by making Governments directly accountable to aggrieved investors before non-national tribunals for important duties specified in the [ECT]. It also pushes the concept of state responsibility further than in traditional international law by formulating a concept of State responsibility for regulating private enterprises.286 8.7 Concluding remarks This chapter has covered two main sets of multilateral agreements in detail: the MEAs, mainly UN-sponsored, which cover matters of international environmental law, and the GATT 1994-based system of multilateral trade agreements administered by the World Trade Organization. In addition, we have briefly considered the interaction of each of these two main sets of agreements with the sectorally-specific multilateral agreements on international aviation law (most importantly the 1944 Chicago Convention on International Civil Aviation) and international energy law (as embodied in the 1994 Energy Charter Treaty). The heart of the discussion in the present chapter has been the problem of reconciling the objectives of international trade law with those of international environmental law. In the EU as a whole, as we shall see,287 meeting the GHG emissions reduction targets in the Kyoto Protocol has meant, inter alia, the introduction of the EU Emissions Trading Scheme (‘the EU ETS’), which specifically envisages the linking of the EU ETS with the Kyoto flexible mechanisms of JI and the CDM from 2008. The EU ETS is more easily assimilated to GATT 1994 than would be an EU-wide carbon/energy tax, given the problems that the latter presents for the GATT 1994 concept of the BTA.288 283 See Thomas Waelde, ‘Sustainable Development and the 1994 Energy Charter Treaty: Between Pseudo-Action and the Management of Environmental Investment Risk’, in International Economic Law with a Human Face, ed. by Freidl Weiss, Erik Denters and Paul de Waart (The Hague: Kluwer Law International, 1998), pp. 223–70. 284 See Roggenkamp et al., op. cit., pp. 188–9. 285 Ibid., p. 208. 286 Ibid. See Energy Charter Treaty, Arts 7(6) and 22. 287 See Chapter 28 below. 288 See para. 1.2.1.2 above. 224 Environmental Taxation Law The UK, for its part, has decided to meet its own emissions reduction targets through three economic instruments, that is, the RO, the UK ETS and climate change levy. The last of these avoids the problems associated with the BTA by being structured as a product, rather than an emissions, tax. Setting aside the three instruments just referred to, the two other main environmental taxes have also clearly been designed with the GATT 1994 discipline in mind. Aggregates levy, although obviously not inspired by Kyoto, sacrifices adherence to the possibility, under GATT 1994, of rebating exports. Landfill tax, whose scope does not extend to imports and exports of waste, neatly sidesteps technical considerations under GATT 1994 altogether. The key question for the present is whether it would be possible to design a future environmental tax which was lawful, not because it satisfied general GATT 1994 norms, but because it was held to be exonerated from the general GATT 1994 discipline by Art. XX. One of the most problematic aspects of Kyoto is the exclusion from its scope of aircraft emissions. The ECT may act as a ‘brake’ on increases in rates of energy taxes Chapter 9 Conclusions on Part II We began this part by alluding to the intricate web of departmental involvement in the design and implementation of the UK’s environmental taxes and other economic instruments. In fact, as has also been explained, the range of relevant institutional actors at the central government level is even wider than this would suggest, since it includes advisory bodies, such as the Advisory Committee on Business and the Environment (‘ACBE’) and non-departmental public bodies and agencies, such as Ofgem and the Environment Agency. In summary, the involvement of the various departments, bodies and agencies of central government in the instruments under discussion in the book is as follows. The biggest of the environmental taxes, climate change levy, has been, subject to one particular aspect,1 designed, implemented and administered by HM Customs and Excise. Customs is responsible for registering holders of electricity supply licences, that is, the privatised utilities and, in the case of a non-resident supplier, the consumer, as the persons liable to account for the tax. The Department is also responsible for making the credits and repayments referred to in Chapter 16 below.2 Furthermore, Customs is empowered to enter and search premises for, as well as to copy and remove, documents, as well as to take samples. Customs’ wide-ranging powers in relation to the levy also include those of charging interest on overdue tax, imposing civil penalties for incorrect returns and taking criminal proceedings in cases of fraudulent evasion of the tax. Their enforcement powers include arrest, distress and diligence and the provision of security. The existence of each of these powers, which are discussed in detail in Chapter 16 below, underline the oft-made point that economic instruments are not necessarily any less exhaustive of administrative time and effort than are the more traditional command and control ones. They also underscore the importance to economic instruments of ‘backstop’ penalty regimes. The mechanism by which Customs is held to account is a combination of Parliamentary scrutiny (via the various Select Committees)3 and scrutiny by the courts (via judicial review).4 Although, as will been seen in Chapter 21 below, there have been a range of Select Committee reports relating, among other things, to the operation of climate change levy, there has, to the authors’ knowledge, been not a single judicial review case involving Customs’ administration of the levy. It was ment,ioned in Part I of the book that a key characteristic of climate change levy is its operation in combination with three other economic instruments, that is, the UK Emissions Trading Scheme (‘the UK ETS’), the EU Emissions Trading Scheme (‘the EU ETS’) and the Renewables Obligation (‘the RO’). Unlike the levy, however, 1 See below in this chapter. 2 See para. 16.9 below. 3 See para. 4.2.1.1(3) above. 4 See para. 4.2.1.5 above. 226 Environmental Taxation Law various aspects of these instruments are managed by various different departments, public bodies and agencies. Furthermore, the exception to Customs’ control of climate change levy administration referred to above consists of the responsibility of Defra for the administration of the system of climate change agreements.5 Of the three other instruments, Defra is responsible for administering the UK ETS and for the production of the UK’s national allocation plan (‘NAP’) under the EU ETS. Interestingly, however, the regulator of the EU ETS, in relation to installations located in England and Wales, will be, not Defra, but instead the Environment Agency.6 Finally, Ofgem is responsible for monitoring the operation of the RO and for issuing the Green Certificates which are used as a way of demonstrating compliance with it. Each of the Environment Agency and Ofgem are accountable, in the sense of having to give an account of their activities in an annual report.7 In addition, they are subject, of course, to Select Committee scrutiny and to judicial review. As to the latter, it is perhaps rather surprising, in view of the astonishing complexity of the climate change agreement system, that there have been no reported judicial review proceedings relating to it. This is especially so when it is considered that, as was pointed out in the Standing Committee debates on Finance Bill 2000, the effect of the climate change agreement system was to give the Secretary of State a discretion to fix the rate of the levy as between different businesses.8 What is truly surprising, given the enormous complexity both of the levy and its interaction with its associated economic instruments, is that is the least-litigated of the UK’s environmental taxes. There have, in fact, to the authors’ knowledge, been no reported cases involving the levy. By contrast with the intricate regime surrounding climate change levy, aggregates levy is, has already been mentioned, a self-standing economic instrument. The sole regulatory authority for the tax is therefore HM Customs and Excise. The peculiarities of the tax mean that Customs has some unusually wide powers, however, in relation to registration for the tax. These include a power to determine the boundaries of a site, which is a point discussed in Chapter 16 below.9 This is in addition to the provision for joint and several liability to the tax from among a class.10 As with climate change levy, Customs is also tasked with dealing with tax credits and repayments of tax.11 Customs is also empowered, as for climate change levy, to enter and search premises for documents and samples. Again, Customs’ powers in relation to aggregates levy include those of charging interest on overdue tax, imposing civil penalties for incorrect returns and taking criminal proceedings where appropriate. Their enforcement powers for the levy again include arrest, distress and diligence and the provision of security. In a contrast with climate change levy, however, Customs did fall prey to an – albeit unsuccessful – judicial review action in relation 5 See paras 1.4.2.2(1) and 4.2.1.2(1) above. 6 See para. 28.4 below. 7 See para. 21.5 below. 8 HC, Standing Committee H, 8th Sitting, 18 May 2000, c.2.30 pm. 9 See para. 16.2 below. 10 Ibid. 11 See para. 16.9 below. Conclusions on Part II 227 to aggregates levy.12 There has also been litigation on Customs’ exercise of their power to exclude registrables from registration.13 Like aggregates levy, landfill tax has, until very recently, been a self-standing environmental tax. However, as discussed below, the need to comply with the Landfill Directive has shifted the policy emphasis away from the internalisation of externalities, to the need to meet the targets laid down in the Directive.14 With this shift has come an attempt to coordinate the tax with other economic instruments, in the form of packaging waste recovery notes (‘PRNs’) and the Landfill Allowances Trading Scheme (‘the LATS’). Thus, whilst Customs remains in charge of landfill tax, the responsibility for the design and implementation of economic instruments in waste management as a whole lies with the Environment Agency, as regards PRNs, and, as regards the LATS, with a combination of Defra and (so far as England at least is concerned) local authorities, via their WDAs.15 The same comments as to the accountability and responsibilities of Customs apply in relation to landfill tax as in relation to the other taxes referred to above. It is striking that, despite its relative longevity, none of the litigation on landfill tax16 has involved judicial review. All the reported cases have been tax disputes between Customs, on the one hand, and the taxpayer on the other. This may be because the legislation creating the tax – that is, Finance Act 1996 – contains fewer provisions conferring a discretion on the Commissioners. We have already commented on the UK’s quasi-federal structure. Its significance in relation to the material discussed above in this Part II is that of fixing the appropriate level of fiscal intervention. There was some discussion of this point in Chapter 5 above, in the context of the technical justifications for the instruments under discussion. Indeed, on reflection, it is rather strange that, having referred to the fact some environmental problems (for example climate change), are best dealt with at an international level, the 2002 Treasury paper does not take account of the unilateral action typified by each of the UK ETS and climate change levy.17 In seeking to address possibly the largest environmental issue of all, that is, the emissions responsible for global warming, on a unilateral basis, each of these two instruments may be said, in Steven Sorrell’s words, to have turned ‘an early start into a false one’.18 At the same time, it must be stressed that the problem is the political one of acceptance, easier to achieve unilaterally, perhaps, than on an EU basis, a point that is vividly illustrated by the EU carbon/energy tax proposal19 and which may yet have consequences for 12 That is, R (on the application of British Aggregates Association and Others) v. C & E Commrs, [2002] EWHC 926 (Admin), [2002] 2 CMLR 51 (see para. 11.3.2 below). 13 See para. 13.2 below. 14 See para. 6.3.2.4 above. 15 See para. 1.4.2.1(4) above. 16 See para. 15.3 below. 17 See para. 5.5 above. 18 See Steve Sorrell, ‘Turning and Early Start into a False Start: Implications of the EU Emissions Trading Directive for the UK Climate Change Levy and Climate Change Agreements’, in Organisation for Economic Co-operation and Development, Greenhouse Gas Emissions Trading and Project-based Mechanisms (Paris: OECD, 2004), pp. 129–51. 19 See para. 28.1n below. 228 Environmental Taxation Law the EU ETS. However, just as some environmental problems are best dealt with at the international level, so also are others best dealt with locally or regionally. The current inability of the devolved administrations in the UK to levy environmental taxes comparable to those levied, for example, in Spain, will no doubt for this reason come under greater scrutiny in the future. Equally, the same issue may arise in relation to local authorities, although their general failure to exercise the environmental taxation powers contained in the Transport Act 2000 (that is, in relation to the imposition of workplace parking levies and congestion charging)20 does not suggest that, at least in the absence of a more general overhaul of local government finance, this is presently a particularly fruitful line of inquiry. If the level of governance at which environmental levies are sought to be imposed is one factor affecting their political acceptability, so also is their status as taxes. In Chapters 6 and 7 above, for the purposes of explaining the relationship between environmental taxes and other types of environmental regulation, we looked in turn at the regulatory context and taxation context of environmental levies. It goes without saying that this separation is in a way artificial. However, it will also have been clear that, even where regulation is command and control based, in fixing standards, the range of possible payments, for example, for licences, is still considerable and encompasses payments which might fairly be regarded as taxes. That is why Chapter 7 has taken some time to separate out taxes, properly so called, from concepts which may at first appear similar but which are crucially different. The question of whether a particular payment under a regulatory regime is a tax has a double significance for the rest of the book. The first is that, as a tax, a payment is susceptible to fairly well-established criteria for separating out taxes which are well designed from those which are not. Of course, some allowance is necessary in this context for the nature of the taxes under discussion as environmental, rather than as fiscal, taxes. These are matters to which we shall allude in Chapter 29. However, evaluation is not the only significance of designating particular payments as taxes and thereby segregating them from concepts which may at first appear similar. There is also an analytical and legal reason. This is that the nature of a payment as a tax and, in the cases mentioned at the beginning of the book, its allocation to one or other of the categories of ‘direct’ or ‘indirect’ taxes,21 has a universal significance in the law of constitutions and in the law of treaties. We have already hinted at the potential significance of a precise definition of a tax in the devolution of powers to the regions of the UK. However, it also has a significance for the issues discussed in Chapter 8; not, perhaps, for the use of the term in GATT 1994 but certainly for the pricing of air transport and the ban in the 1944 Chicago Convention on taxes on aircraft fuel.22 We shall return to this issue in Chapter 27. 20 See para. 1.4.2.4 above. 21 See para. 1.2.1.2 above. 22 See paras 8.5 above and 12.2.6.4(3) below. PART III PRACTICE This page intentionally left blank Chapter 10 Introduction to Part III In Part II, we examined the institutional, theoretical and regulatory contexts in which the UK has evolved its policies on environmental taxes and their associated economic instruments. In this Part, we examine the practical operation of each instrument, both in terms of an analysis of the legal shape that they have ultimately taken and in terms of the findings of Parliamentary Select Committees on the way in which they have thus far operated. The discussion in Part III is split into two Sections, the earlier (A) dealing with the UK’s environmental taxes and their associated economic instruments, the latter (B) covering the ‘greening’ of the UK tax system. Such a division of the material is sanctioned, for example, by the approach of the OECD in successive reports.1 Within Section A of Part III, we have made a fivefold division of the material. Division 1 of Section A consists of two chapters, the earlier (Chapter 11) dealing with the process by which each of the post-1997 environmental taxes came to be designed and implemented, as well as the process in which the pre-1997 tax, landfill tax, has been monitored. We have not included an account of the design and implementation of the UK ETS in Chapter 11, thinking it more natural for that history to be traced in the Chapter which deals with the UK ETS.2 Likewise, the design and implementation of the EU ETS is analysed as part of the general discussion of the EU ETS in Chapter 28 below.3 Chapter 12, the later part of Division 1, is devoted to analysis of those areas of Community law which have had the most immediate impact on the design and implementation of the UK’s environmental taxes and their associated economic instruments. Section A, Division 2, is devoted to the detailed analysis of the tax codes relating to each of aggregates levy, climate change levy and landfill tax. These three taxes have broadly similar administrative structures, so it was decided to deal with these together, in Chapter 16. The third Division of Part III, Section A, is devoted to the two local levies introduced in earlier chapters, that is, workplace parking levies and road user charging schemes. The environmental tax or charge, especially the Pigouvian tax,4 is the archetype of the economic instrument. However, as has been often stated, each of landfill tax and climate change levy operate as one of a combination of economic instruments. These other economic instruments are the subject matter of Division 4 of Part III. Thus, packaging waste recovery notes (‘PRNs’) are discussed in Chapter 19, while 1 See, for example, Organisation for Economic Co-operation and Development, Environmental Taxes and Green Tax Reform (Paris: OECD, 1997). 2 See para. 20.2 below. 3 See para. 28.2 below. 4 See para. 5.4 above. 232 Environmental Taxation Law the Landfill Allowances Trading Scheme (‘the LATS’) is discussed in para. 20.7. Each of these operate in conjunction with landfill tax. The UK Emissions Trading Scheme (‘the UK ETS’), which is discussed in Chapter 20, operates in conjunction with climate change levy and with the Renewables Obligation (‘the RO’), the detail of which has already been considered in Chapter 6 above.5 As from January 2005, these three instruments will operate alongside the EU ETS, the detailed discussion of which is allocated to a separate chapter in Part IV.6 Whilst much has been written about the theoretical possibilities presented by environmental taxes and other economic instruments, data on how they have operated in practice, especially in relation to their broader regulatory context, is altogether much scarcer. In the UK, a valuable source of information are the reports of Parliamentary Select Committees, and these are analysed, so far as they relate to the instruments under discussion, in Chapter 21. Although Select Committee evaluation of the various instruments has tended to concentrate on their efficiency and effectiveness in relation to their avowed environmental goals, this is not the only aspect on which it is possible to comment in the light of experience. We return to some of the possible criticisms in Chapter 29 below. One of the key justifications for environmental taxes, however, has been their potential for delivering the so-called ‘employment double dividend’. How this has translated into reality in the UK over the last seven years or so is also discussed in Chapter 21. Section B of Part III, by far the shorter of the two Sections, is devoted to nonenvironmental levies and to the measures taken so far by the UK government, both to remove hidden subsidies within those levies which tend to encourage environmentallyunfriendly behaviour, and to introduce tax incentives for more environmentallyfriendly behaviour. We have made a three-way partition of the material, the second and third of which, employee taxation (Chapter 23) and business taxation (Chapter 24) are essentially self-explanatory. Excise duties, relating, as they do, to motor vehicles, are not susceptible to quite so straightforward a thematic allocation and have therefore been considered separately, in Chapter 22. The elements of these three chapters are predictable enough and, whilst they are mainly concerned with the statutory removal of subsidies and the provision of incentives, they are not entirely confined to this territory. An important issue also covered in Chapters 23 and 24, one to which brief reference was made in Chapter 1 above, is that of the interaction of environmental levies with non-environmental ones. 5 See para. 6.4.3.1(2) above. 6 See Chapter 28 below. PART III, SECTION A ENVIRONMENTAL LEVIES AND OTHER ECONOMIC INSTRUMENTS This page intentionally left blank Division 1 General This page intentionally left blank Chapter 11 Design and Implementation 11.1 Introduction The key HM Treasury policy document, from 2002, on the use of economic instruments in environmental regulation,1 has already been discussed in some detail in a previous chapter.2 One topic that has not yet been discussed in detail, however, is the outline of the process of policy development which is presented in the 2002 paper. Chapter 7 of the 2002 paper is devoted to providing illustrations of the process by which policy has been developed in relation to environmental taxes and other economic instruments. The sole purpose of the present chapter is to examine the discussion in the 2002 paper by reference to the stages by which the UK’s environmental taxes have passed into law. Its concern, in other words, is to demonstrate how the economic theories discussed in an earlier chapter of the book3 have actually been translated into practice. The discussion in the present chapter is divided into three main parts. Paragraph 11.2 offers an overview of the design and implementation process deployed when new regulation, in whatever form, is proposed. This is based on the concept of the ‘regulatory impact assessment’ (the ‘RIA’). Regulatory impact assessment, which is not to be confused with environmental impact assessment (‘EIA’),4 is the process by which a government department compares the benefits of regulatory proposals with their costs, on the basis that, if the latter are thought to be excessive in relation to the former, the proposals in question should be abandoned.5 Subsequently, in para. 11.3, we trace the policy development process in relation to the design and implementation of the two post-1997 environmental taxes, that is, climate change levy and aggregates levy.6 The story of landfill tax is rather different from the other two taxes, given that, when the present government came to power in 1997, the tax was already in existence.7 What has instead happened with landfill tax, is that an ongoing process of review and legislative amendment has taken place that has seen the original policy objectives of the tax transformed from the relatively modest one, of internalising the externalities caused by the landfilling of waste, to its enlistment in the much more ambitious 1 HM Treasury, Tax and the Environment: Using Economic Instruments (London: HMSO, 2002). This is referred to below as ‘the 2002 Treasury paper’ or, simply, ‘the paper’. 2 See Chapter 5 above. 3 Ibid. 4 See para. 6.2.4 above and para. 12.2.4 below. 5 See Chris Hilson, Regulating Pollution – A UK and EC Perspective (Oxford: Hart Publishing, 2000), p. 49. 6 This is derived in part from Jeremy de Souza and John Snape, ‘Environmental Tax Proposals: Analysis and Evaluation’ (2000) ELR 74–101. 7 See para. 15.1 below. 238 Environmental Taxation Law project of meeting the targets imposed by the Landfill Directive.8 This process of reorienting the objectives of the tax is traced in paragraph 11.4 below. We restrict the coverage in this chapter to the development of the three environmental taxes referred to above. The background to the design and implementation of the seven other main economic instruments is, however, discussed in various places elsewhere in the book.9 11.2 Regulatory impact assessment 11.2.1 Overview The explanation of the development process in the 2002 paper is cast in terms of a general description of the stages of the RIA, with outline accounts of how that process was in fact followed through in relation to the design and implementation of each of aggregates levy and climate change levy.10 These outline accounts are elaborated in the discussion below. Regulatory impact assessment replaced the previous Conservative Government’s two separate ‘compliance cost assessment’11 and ‘regulatory appraisal’ procedures.12 Although a unified process, the inspiration behind RIA is essentially the same as those earlier procedures, however,13 since it is ‘an assessment of the impact of policy options in terms of the costs, benefits and risks of a proposal’.14 In accordance, therefore, with RIA procedures in the field, the stages involved in the development and implementation of environmental taxes and other economic instruments are described in the 2002 paper as follows:15 8 See para. 6.3.2.4 above and para. 12.2.5.1(2)(b) below. 9 See paras 19.1 below (background to PRNs); 20.7 below (background to the LATS); 20.2 below (background to the UK ETS); 28.2 (background to the EU ETS); 21.5 (background to the RO); 17.1 (workplace parking levies); and 18.1 (road user charging schemes). 10 The 2002 paper also contains a summary of the pesticides tax consultation, which is discussed in para. 21.9.5 below, and which has not as yet (December 2004) resulted in a pesticides tax being imposed. 11 See Department of Trade and Industry, Checking the Cost of Regulation: A Guide to Compliance Cost Assessment (London: HMSO, 1996). 12 See Cabinet Office Deregulation Unit, Regulation in the Balance: A Guide to Regulatory Appraisal Incorporating Risk Assessment (London: Cabinet Office, 1996). 13 See Cabinet Office, Better Policy Making: A Guide to Regulatory Impact Assessment, 2003. 14 See Better Policy Making: A Guide to Regulatory Impact Assessment, para. 1.1. In August 1998, the Prime Minister, the Rt Hon. Tony Blair, MP, ‘announced that no policy proposal which has an impact on business, charities or voluntary bodies, should be considered by Ministers without an RIA being carried out’ (ibid., para. 1.2). See para. 4.2.1.2(1) above. 15 In the chapter below, press releases and other documents issued during the development and implementation process have been referenced where possible to Simon’s Weekly Tax Intelligence (‘SWTI’), as a ready source of reference. Reports of Parliamentary debates in Hansard are available on the web from 1989 onwards, at www.parliament.uk. Design and Implementation 239 1 the establishment of the long-term goal or environmental objective for the economic instrument in question; 2 the institution of a long consultation period; 3 an announcement by an ‘early signal’ that the government is minded to intervene, or further intervene, in the market; 4 the active collection of evidence; 5 an announcement, again by an ‘early signal’, of the government’s choice of economic instrument; 6 the consideration of how best to use the revenue raised; 7 a willingness to consider voluntary alternatives;16 8 the easing of the adjustment to the new instrument by introducing other fiscal measures which facilitate investment in new technology; 9 the provision of compensation and relief for the groups most seriously affected by the instrument; 10 a commitment to ongoing monitoring and evaluation of the instrument; 11 a commitment to future policy flexibility; and 12 a commitment, if possible, to working internationally.17 It should be emphasised that the 12 stages listed above can, and indeed do, run in parallel: stage 3 above, for instance, leaves scope for additional discussion with interested parties18 on the possibilities for voluntary arrangements as an alternative to a tax (see stage 7 above).19 11.2.2 Hypothecation and recycling of revenues Stage 6 above had been a matter of considerable debate prior to the introduction in 2001 and 2002, respectively, of climate change levy and aggregates levy, part of the revenue from each of which has been ‘earmarked’ or ‘hypothecated’ for particular purposes since the introduction of each respective tax. This was because HM Treasury, in common with finance ministries generally in developed countries, had traditionally resisted the notion of the earmarking of taxes.20 Hypothecated taxes were very much the exception in the UK’s taxation landscape.21 Even the LTCS (the tax rebate which had operated since 1996 in conjunction with landfill tax)22 represented what O’Riordan characterised as a clever ruse ‘to accommodate the “sustainability reality” of quasi-hypothecation to the “other world” reality of Treasury-speak that hypothecation has not taken place’.23 16 See 2002 paper, ch. 6. 17 Ibid., Table 7.1 (first column), pp. 42–3. 18 The government’s term is ‘stakeholders’ (see the Foreword to the 2002 paper by The Rt Hon. Gordon Brown, MP, Chancellor of the Exchequer). See para. 4.2.1.2(2) above. 19 See 2002 paper, para. 7.5. 20 See Martin Daunton, Just Taxes: The Politics of Taxation in Britain, 1914–1979 (Cambridge: Cambridge University Press, 2002), pp. 6 and 35. 21 Notoriously so, after the case of the road fund tax of the 1920s (see para. 21.2 below). 22 See para. 21.3.2 below. 23 See Timothy O’Riordan, ‘Editorial Introduction to the Hypothecation Debate’, in Ecotaxation, ed. by Timothy O’Riordan (London: Earthscan, 1997), pp. 37–44, p. 40. 240 Environmental Taxation Law 11.3 Design and implementation of the two post-1997 taxes 11.3.1 Climate change levy The 2002 Treasury paper24 traces the proposals for climate change levy back to the March 1998 report of the Advisory Committee on Business and the Environment (‘ACBE’).25 This decided in favour of a policy framework over the long term within which, without harming competitiveness, businesses in the UK could produce carbon savings. However, as Helm points out,26 the idea of a carbon tax – as opposed to an energy tax – was much older, and economic instruments had been advocated in a Government White Paper as long ago as 1990.27 Subsequently, in his March 1998 Budget speech, the Chancellor of the Exchequer, the Rt Hon. Gordon Brown MP, announced that Sir Colin Marshall, then the chairman of British Airways and President of the CBI,28 would head ‘a Government review into economic instruments to improve the industrial and commercial use of energy’.29 If, as has subsequently been claimed, this announcement was the prelude to a merely ‘paper’ exercise, then the manner in which it was expressed – in terms of energy consumption, rather than carbon emissions – may well suggest a foregone conclusion.30 Nonetheless, Marshall forthwith invited all interested parties to submit their views, before 1 August 1998, on how industry and commerce could best contribute to tackling climate change. He also met a wide range of what the government refers to as ‘stakeholder groups’ to discuss the issues involved.31 Finally, with the support of a task force of senior civil servants from HM Treasury, the former DETR,32 from the DTI33 and from Customs,34 he published a 64-page report in November of the Hypothecation can take a number of subtly different forms (ibid., pp. 45–51, referring to Charging for Government: User Charges and Earmarked Taxes in Principle and Practice, ed. by R.E. Wagner (London and New York: Routledge, 1991) and M. Wilkinson, ‘Paying for Public Spending: Is There a Role for Earmarked Taxes?’ (1994) 15 FS 119–35. 24 See 2002 paper, Table 7.1. 25 Advisory Committee on Business and the Environment, Climate Change: A Strategic Issue for Business, March 1998 (London: Department of Transport, Environment and the Regions, 1998). See para. 4.2.1.4 above. 26 See Dieter Helm, Energy, the State, and the Market: British Energy Policy since 1979, revised edition (Oxford: Oxford University Press, 2004), p. 354. 27 See Department of the Environment, This Common Inheritance: Britain’s Environmental Strategy, 1990 (Cmnd 1200, 1990), pp. 271–8. 28 Sir Colin had become Lord Marshall of Knightsbridge by the time of the publication of his report in November 1998. As Helm points out, ‘Marshall had not been previously known for his environmental expertise, but he did have wide industrial experience, and therefore could be regarded as better able to ‘sell’ an unpopular tax to industry’ (see Helm, op. cit., p. 354). 29 Hansard HC, 17 March 1998, cols 1108–9. 30 See Helm, op. cit., pp. 354–5. 31 See 2002 paper, para. 7.26. 32 See para. 4.2.1.2(1) above. 33 Ibid. 34 See para. 4.2.1.2(2) above. Design and Implementation 241 same year.35 The evidence collected in this period of just over four months, and set forth in the Marshall Report, seems to represent the extent of the consultation and active evidence collection involved in the production of the Marshall Report. A total of around 140 individuals, companies and other organisations had responded to the original request for views.36 The Marshall Report concluded that ‘the leading option for a tax would appear to be a downstream tax on the final use of energy by industrial and commercial consumers’, rather than an upstream carbon tax on energy suppliers, with the rates of tax reflecting ‘at least in broad terms’ the carbon content of different fuels.37 However, Marshall cautioned that the design of any tax should ensure that combined heat and power (‘CHP’) was not disadvantaged and that the tax should aim, wherever possible, ‘to increase incentives for the take-up of renewable sources of energy’.38 The report also recommended the full ‘recycling’ of tax revenues to business, possibly through carbon trust-type schemes, and that any measures taken should be ‘subject to detailed consultation about their design’.39 When the Chancellor made his Budget speech in March 1999, he confirmed that the government had decided to implement Marshall’s recommendations from April 2001.40 The Chancellor also announced that the levy would be brought in, after further consultation with the industry, on a revenue-neutral basis, with ‘no overall increase in the burden of taxation on business’.41 To this end, the introduction of the levy would be accompanied by a reduction in the main rate of employers’ NICs42 from 12.2 per cent to 11.7 per cent.43 The Chancellor’s announcement was followed by a further period of consultation with various interested parties, during which the Rt Hon. Patricia Hewitt, at that time the Financial Secretary to the Treasury,44 was asked to make a statement in the House of Commons,45 on 24 June 1999, on the climate change levy generally. The Minister described in broad terms the purpose of the levy, briefly explained why the government expected the levy to involve no increase in the overall burden of tax on business, and recognised a need for the government to give special consideration to the position of energy-intensive industries. The purpose of the levy was to encourage energy efficiency in business, which in turn would enable the government to meet its target for reducing greenhouse gas emissions laid down by the Kyoto Protocol.46 There would be no increase in the overall burden of tax on business, since the revenue 35 Lord Marshall, Economic Instruments and the Business Use of Energy (London: HM Treasury, 1998). 36 Ibid., Table A.3, p. 34. 37 Ibid., p. 21. 38 Ibid., p. 3. 39 Ibid., p. 2. 40 See 2002 paper, para. 7.27. 41 See Hansard HC, 9 March 1999, col. 181. 42 See para. 1.4.3.1 above. 43 See Hansard HC, 9 March 1999, col. 181. 44 See para. 4.2.1.2(2) above. 45 See para. 4.2.1.1(1) above. 46 As modified by the EU burden-sharing agreement (see para. 8.3.1.4 above). 242 Environmental Taxation Law raised by the levy would fund a 0.5 per cent cut in the main rate of employer’s NICs. The position of energy-intensive industries would be reflected in lower rates of levy for those energy intensive sectors which agreed targets with the government for improving the efficiency of their energy consumption.47 Mrs Hewitt had revealed the fact that negotiations between the government and representatives of energy-intensive industry sectors were already ongoing when she made her Parliamentary statement on 24 June 1999. On 27 July 1999, a matter of some four weeks later, the Treasury announced that three Ministers, including Mrs Hewitt, had met representatives of these sectors.48 Mrs Hewitt stressed that it was the Government’s wish to co-operate, not only with industry, but with other interested parties, in order to make sure that the “environmental effectiveness” of the projected climate change levy was maximised, while attempting to ensure that the levy did not compromise the competitiveness of industry. In the same announcement, Mrs Hewitt indicated that the exemption for coal and gas used in chemical reactions would be extended to electricity, following representations on the point.49 In his Pre-Budget Statement of 9 November 1999,50 the Chancellor of the Exchequer announced further structural amendments to climate change levy. These amendments had two main strands, one of which was the introduction of climate change agreements51 and the measures needed to implement them.52 The other strand was described as a recognition of the need to increase the environmental effectiveness of the levy. This was to be achieved in two ways: by the exemption from the levy of electricity generated from renewable sources of energy and good quality CHP stations;53 and by the creation of a further bolster to the levy in the form of the introduction, from the tax year 2001/2002,54 of enhanced income tax and corporation tax relief for expenditure on energy-saving investments.55 The 2002 Treasury paper referred to above sees the exemptions for renewable source and CHP electricity56 as evidence of the government’s willingness to compensate sectors that would otherwise have been particularly badly affected by the introduction of the 47 See House of Commons Written Answers, vol. 110, cols 461, 462, 24 June 1999. On the same occasion, Mrs Hewitt gave a somewhat elliptical explanation for the imposition of the levy on CHPs, as originally envisaged (see para. 14.4 below). 48 HM Treasury Press Release, 27 July 1999 (reproduced in [1999] SWTI 1348). The Rt Hon. Michael Meacher, MP, the Environment Minister, and Mr John Battle, MP, the Trade and Industry Minister, were the other ministers involved. 49 [1999] SWTI 1348, 1349. 50 See Hansard HC, 9 March 1999, col. 889. 51 See para. 1.4.2.2(1) above and para. 14.6 below. 52 See HM Treasury Press Release, 9 November 1999 (reproduced in [1999] SWTI 1818). 53 As envisaged at the time, ‘renewable energy sources’ would included solar power, wind, wave and tide and hydroelectricity; solid renewables, such as wood, straw and waste; and gaseous renewables such as landfill and sewage gas (see HM Customs and Excise, Budget 99: A Climate Change Levy – A Consultation Document (HM Customs and Excise: London, 1999), p. 4). 54 That is, from April 2001. 55 See HM Treasury Press Release, 9 November 1999 (reproduced in [1999] SWTI 1816). 56 The exemptions were enacted as Finance Act 2000, Sched. 6, paras 15 and 19 (see paras 14.4 and 14.5 below). Design and Implementation 243 levy and underscores the point by stating that the levy was designed to be revenueneutral and that it was not designed to apply to the domestic sector because of issues of fuel poverty.57 Likewise, the same document sees the enhanced income tax and corporation tax relief, in the form of generous capital allowances, as evidence of the government’s commitment to support investment in new technology in order to ease adjustment to the levy. These measures were eventually enacted, to coincide with the introduction of the levy, in the Finance Act 2001.58 Published with the 1999 Pre-Budget Report was a detailed description of the design of climate change levy.59 Useful though this description was, practitioners had to wait until 26 November 1999 for Customs to publish drafts of the clauses creating the levy, designed to be included in Finance Bill 2000.60 On 11 November 1999, as the draft clauses were being awaited, Mr Stephen Timms MP, the new Financial Secretary to the Treasury, had emphasised that any expectations that particular sectors or firms had, for being exempted from the levy, would be disappointed.61 Just before Christmas 1999, it was confirmed that the Secretary of State and representatives of energy-intensive sectors had reached climate change agreements.62 Climate change levy passed into law in the Finance Act 2000, although it was expressly provided that any supply made before 1 April 2001 was excluded from its scope.63 Thereafter, although the rates of the levy have been reviewed annually as part of the Budget process, they have so far remained unchanged.64 The impact of the levy is being monitored by Customs, with details of the environmental outcomes being published, not only in pre-Budget report documentation but that relating to the Budgets themselves.65 The government’s commitment to future policy flexibility, with the climate change levy is reflected, says the 2002 Treasury paper, in two developments that have occurred since its introduction in April 2001: the introduction of the general exemption for electricity produced in good quality CHP stations66 or from coal mine methane67 and from certain secondary recycling processes;68 and the introduction of the UK ETS in April 2002,69 with its link to the levy via climate change agreements.70 57 See 2002 paper, Table 7.1. 58 See Capital Allowances Act 2001, ss.45A–45C, as inserted by Finance Act 2001, s.65, and Sched. 17, para. 2. 59 Reproduced in [1999] SWTI 1794–1798. 60 See House of Commons Written Answers, vol. 339, col. 255, 26 November 1999. 61 Ibid., vol. 337, col. 768, 11 November 1999. 62 See Brown, Financial Times, 22 December 1999, p. 3. 63 Finance Act 2000, Sched. 6, para. 10. 64 See 2002 paper, Table 7.1. The levy rates as finally enacted are given in paras 14.1 and 14.2 below. 65 2002 paper, Table 7.1. 66 Finance Act 2002, s.123(1), inserting new para. 20A in Sched. 6, Finance Act 2000. 67 Ibid., s.126, inserting new paragraph 19(4A) in Sched. 6, Finance Act 2000. 68 Business Brief 18/02, Climate change levy – new exemption for certain recycling processes, 8 July 2002. 69 See para. 1.4.2.2(2) above. 70 See 2002 paper, Table 7.1. See para. 14.6 below. 244 Environmental Taxation Law 11.3.2 Aggregates levy Whereas the goal of climate change levy has an international significance, that of aggregates levy is much more specific, possibly even parochial. Also, whereas climate change levy is one of three economic instruments designed to tackle climate change, aggregates levy is the key regulatory instrument in relation to mineral extraction.71 With some linguistic imprecision, the 2002 Treasury paper describes the goal of aggregates levy as being ‘to tackle the environmental costs of aggregate extraction including noise, dust, visual intrusion and biodiversity loss’.72 At the same time, the government has stressed that it is essential that there continues to be an adequate supply of aggregates.73 The government approached the issue of whether or not to create, as it was originally called, an ‘aggregates tax’, with considerable dedication, if not zeal.74 In his very first Budget speech, barely eight weeks after the current government was first returned in 1997, the Chancellor announced that he was considering the imposition of a tax on aggregates extraction, together with one on water pollution:75 The extraction of aggregates – including stone, sand and gravel – involves significant environmental costs and damage to the landscape, which may go beyond that recognised in the scope and level of the landfill tax. Too little is also being done to discourage water pollution. The environmental case for charges on polluters needs to be examined carefully. After a period of consultation, I will return with any proposals in those two areas in my next Budget.76 This was the early signal that intervention in the market for primary aggregates was likely, although it is not identified as such in the 2002 paper.77 The DETR accordingly commissioned a research project from London Economics78 which, beginning in September 1997, undertook an investigation of the environmental costs and benefits of the supply of aggregates.79 The London Economics report was published by the DETR in April 1998.80 It indicated, as many had expected that it would, that aggregates extraction had considerable environmental costs which were not already subject to regulation.81 It also identified a number of areas in which further work would be necessary, since it had only been possible to take a small sample of sites and the work, which involved 71 The other being town and country planning regulation. 72 See para. 5.3 above, quoting 2002 paper, Table 7.1, p. 42. 73 See, for example, HM Treasury, Pre-Budget Report 1998, 3 November 1998, para. 5.60. 74 See para. 13.1 below. 75 See para. 21.9 below. 76 The aggregates tax proposals obviously progressed; the water tax proposals did not (see para. 21.9 below). 77 See 2002 paper, Table 7.1, p. 42. 78 A private sector specialist economics consultancy (see www.londecon.co.uk). 79 See Phase Two, para. 1.1. 80 That is, The Environmental Costs and Benefits of the Supply of Aggregates, above. 81 That is, mainly the town and country planning legislation (see para. 6.6 above). Design and Implementation 245 a fairly novel methodology, had been carried out in a relatively short time.82 The DETR therefore asked David Pearce83 and Susana Mourato, of University College, London, to review the work (which became ‘Phase One’ of the research) and to identify possible improvements to it. Although they did suggest a number of ways of improving the methodology, in June 1998 Pearce and Mourato concluded that, given Phase One’s objectives, the methodology was appropriate.84 The government then commissioned further research from London Economics, the nature and scope of which has been discussed in an earlier chapter.85 The results of this research, referred to above as ‘Phase Two’, were accordingly published, again by the DETR, on 9 March 1999.86 The work undertaken consisted of a combination of: 1 an assessment of local impacts through a survey of just under 10,000 people within five miles of ‘representative’ sites, interpreted as involving an average environmental cost of 70p per tonne; and 2 a separate national survey of public attitudes to measure the cost of quarrying in areas designated for special protection from development, for example, National Parks and Areas of Outstanding Natural Beauty, interpreted as involving external costs of £6 per tonne. The DETR concluded that ‘the costs of quarrying Britain’s construction aggregates – in terms of local and national environment – are significant’, putting the annual cost at £250m. This considerable amount of work was designed to establish the long-term goal of a prospective tax and, as mentioned in the 2002 paper, was part of the process of evidence collection. Meanwhile, in June 1998, Customs had issued a consultation paper on a potential aggregates tax, proposing a conceptually similar tax to landfill tax, which would be charged on a volume basis and applied at the point of first sale, use or transfer of the material away from the site of extraction.87 This was the beginning of a consultation period that was eventually to last for the best part of two years, no doubt justifying the 2002 paper in its claim that there was an extensive consultation with the industry from 1998 onwards.88 Five months later, the Quarry Products Association (‘the QPA’)89 offered an alternative to a tax in the form of a set of voluntary measures. The 82 That is, something over seven months. 83 According to Helm, op. cit., p. 346n, David Pearce had been a significant influence on This Common Inheritance (see para. 11.3.1n above) and especially its advocacy of economic instruments. 84 See Environmental Costs and Benefits of the Supply of Aggregates: A Review of the London Economics Report (see para. 5.5n above). 85 Ibid. 86 The DETR said that this research was ‘one factor’ to be taken into account by the Chancellor of the Exchequer. 87 See HM Customs and Excise, Consultation on a Proposed Aggregates Tax, 15 June 1998. 88 See 2002 paper, Table 7.1, p. 42. 89 See para. 2.5 above. 246 Environmental Taxation Law Chancellor referred both to the offer of voluntary measures and to the consultation process in his Pre-Budget Report of 3 November 1998, reiterating that, in the light of the responses to the consultation and of the proposals made by the aggregates industry, the government was still considering the imposition of a tax.90 At this stage, however, the Pre-Budget Report simply confirmed that Ministers had offered to consider the industry’s proposals for some alternative to the imposition of a tax. Whatever these proposals were, they would, however, ‘have to amount to a deliverable package of measures which would permanently secure equivalent or greater benefits than a tax’.91 Nonetheless, the Pre-Budget Report referred with approval to the fact that the industry had latterly taken certain steps to curtail its activities in the National Parks, and indicated that there might be scope to build on that positive approach in dealing with the remaining environmental impacts of the industry’s activities.92 This somewhat conciliatory approach was still in evidence on Budget Day 199993 when, referring to the publication of the Phase Two report,94 the Economic Secretary to the Treasury,95 said: … [B]efore coming to a final decision on whether to proceed with a tax, the Government would first like to pursue the possibility of an enhanced voluntary package of environmental improvements with the industry. Should the industry not be able to commit to an acceptably improved offer, or fail to deliver an agreed package of voluntary measures, the Government would [sic] introduce a tax.96 The Economic Secretary accordingly announced that Ministers would be meeting representatives of the quarrying industry to begin these negotiations. In the atmosphere of all this co-operation, it was therefore somewhat surprising when, in April 1999, Customs issued a summary of the responses to its June 1998 consultation, together with a set of draft legislative provisions.97 Undeterred, the QPA submitted a revised package of voluntary measures in July 1999, but these again proved to be unacceptable to the government. In the Pre-Budget Report of November 1999, the Chancellor looked for more: The Quarry Products Association submitted a revised package of voluntary environmental measures to the Government in July. The Government welcomed this package, which shows some improvement on their original package, notably in the areas of aggregates transport and air quality. In particular there is an extra £20 million a year from seven major companies to promote and develop recycling. But this continues to fall short of what is necessary to match the overall environmental and economic effects of a tax on primary 90 See Pre-Budget Report 1998, para. 1.33. 91 Ibid., para. 5.63. 92 Ibid. 93 That is, 9 March 1999. 94 See above in this para. 95 See para. 4.2.1.2(2) above. 96 See HM Treasury News Release HMT 8, Reducing the Environmental Impact of Quarrying, 9 March 1999. 97 Customs and Excise News Release, 30 April 1999, reproduced in [1999] SWTI 859, 881. Design and Implementation 247 aggregates. So the Government is minded to introduce a tax in the next Budget unless the industry can further improve on this package.98 For one reason or another, the QPA failed subsequently to improve on their July 1999 package. The relevant part of the 2000 Budget Report reads as follows: Since the [1999] Pre-Budget Report, there have been further discussions about the content of the industry’s voluntary package. But the industry has made delivery of the voluntary package conditional on undertakings from the Government on procurement policy which were unacceptable. The Government has therefore decided to introduce an aggregates levy99 which will come into effect from April 2002.100 The 2,002 paper is adamant that the consultation process that had ended so unsuccessfully for the industry is evidence of the government’s willingness to consider a voluntary approach to the problem of environmental damage caused by aggregates extraction.101 The postponement of the commencement of the levy for another two years from the date on which its introduction was announced constituted, according to the 2002 paper, an early signal of the choice of economic instrument, comparable to the way in which climate change levy had been announced in the 1999 Budget, for implementation in 2001.102 The outline of the tax offered in the 2000 Budget Report shows how much importance the government attached to the ideas of recycling revenue,103 of making a commitment to supporting new technology to ease adjustment and of compensating the groups who would be hardest hit by the tax:104 To further the Government’s aim of shifting the burden of taxation from ‘goods’ to ‘bads’ the revenues from the levy will be fully recycled to the business community through a 0.1 percentage point reduction in employers’ NICs and a new Sustainability Fund. The Government will be consulting shortly on how this fund can best be used to deliver local environmental improvements.105 Accordingly, in June 2000, Customs issued draft clauses for comment, and, in August 2000, the government consulted on the best uses for the sustainability fund which it was proposing to sent up with the benefit of receipts from the tax. In the Pre-Budget 98 See Stability and Steady Growth For Britain, 1999 (Cm 4479, 1999), para. 6.95. Despite the ominous tone of the Pre-Budget Report, the quarrying industry remained confident that an aggregates tax would not be introduced, after all (see, for example, Daniel Lyons and Richard Mackender, ‘The Environment and the Pre-Budget Report’, TJ, 29 November 1999, pp. 11–12). 99 Note the change of name (see para. 13.1 below). 100 HM Treasury, Budget Report 2000, 21 March 2000, para. 6.90. 101 See 2002 paper, Table 7.1, p. 42. 102 Ibid., Table 7.1, p. 42. 103 A point which is reflected in the relevant statutory provisions also (see Finance Act 2001, s.44). 104 See 2002 paper, Table 7.1, p. 42. 105 HM Treasury, Budget Report 2000, 21 March 2000, para. 6.94. 248 Environmental Taxation Law Report of November 2000, the Chancellor announced that the government would allocate £35 million to the aggregates levy sustainability fund (‘ALSF’), and that it would be introduced in April 2002, along with the levy itself. In July 2000, the QPA, having failed to stop the levy, had submitted a proposal for reductions in tax rates if the industry reached defined environmental standards. In the 2001 Budget, the Chancellor announced that he was interested in principle in the idea of a differentiated rate of tax,106 a point which might be taken to substantiate the claim made in the 2002 paper that rates of tax would be reviewed annually, as part of the Budget process. The levy duly began operation on 1 April 2002, pursuant to the Treasury power contained in Finance Act 2001107 to provide for its commencement date by statutory instrument.108 An application by the British Aggregates Association109 for judicial review of the legislation, based, among other things, on alleged breaches of Community law and of the European Convention on Human Rights, was dismissed by Moses, J. on 19 April 2002.110 11.4 Review of landfill tax When the present government came to power in May 1997, landfill tax had already been in operation for seven months.111 The goals of the tax, as originally articulated, were: – [t]o ensure that landfill waste disposal is properly priced, which will promote greater efficiency in the waste-management market and in the economy as a whole; and – To apply the ‘polluter-pays’ principle and promote a more sustainable approach to waste management in which we produce less waste, and reuse or recover value from more waste.112 As reformulated in the 2002 paper, the tax’s goals are ‘to internalise the environmental costs of landfill’, exemplified by methane emissions, nuisance and groundwater 106 HM Treasury, Budget 2001: Investing for the Long Term – Building Opportunity and Prosperity for All, 7 March 2001 (see [2001] SWTI 475, 479). 107 See Finance Act 2001, s.16(6). 108 Finance Act 2001, Section 16, (Appointed Day) Order 2002, S.I. 2002 No. 809. 109 See para. 2.5 above. 110 See R (on the application of British Aggregates Association and Others) v. C & E Commrs, [2002] EWHC 926 (Admin), [2002] 2 CMLR 51. See paras 12.1, 12.3.3.1 and 12.3.5 below. 111 See Jane Powell and Amelia Craighill, ‘The UK Landfill Tax’, in O’Riordan, op. cit., pp. 304–18; Bob Davies and Michael Doble, ‘The Development and Implementation of a Landfill Tax in the UK’, in Organisation for Economic Co-operation and Development, Addressing the Economics of Waste (Paris: OECD, 2004), pp. 63–80; and Inger Brisson, ‘The UK Landfill Tax’, in Environmental Policy: Objectives, Instruments, and Implementation, ed. by Dieter Helm (Oxford: Oxford University Press, 2000), pp. 260–80. 112 See HM Customs and Excise, ‘Landfill Tax’, A Consultation Paper, 1995, quoted in Powell and Craighill, op. cit., p. 307. Design and Implementation 249 pollution; to give better price signals for alternatives to landfill; and to assist meeting waste targets in the most efficient way.113 The last of these marks a significant shift in policy, since, in order to ‘steer’ behaviour, the level of the tax will be vastly in excess of the externalities which it was originally introduced to address.114 The tax was originally, and continues to be, chargeable on taxable disposals of material as waste, by way of landfill, at landfill sites.115 The 2002 Treasury paper places some emphasis on the fact that, despite116 landfill tax’s origins as a creation of the previous administration, the government continues to review, gather evidence and consult117 on the operation of the tax.118 The paper also stresses that, not only is revenue from the tax recycled, via the landfill tax credit scheme (that is, the LTCS),119 but that the rates of the tax are reviewed annually as part of the Budget process and, specifically, as part of the Prime Minister’s Strategy Unit120 report on waste policy.121 In relation to the former, it draws attention to the consultation launched in April 2002 on changes to the LTCS, especially on its funding priorities and on the way in which it is itself funded.122 The consultation resulted in the changes to the LTCS made in April 2003, although these were of course subsequent to the publication of the Treasury paper itself.123 The Chancellor’s announcement in the 1999 Budget Report of the escalator in the rates of tax with effect from April 2000124 is taken in the Treasury paper as an example of an early signal of the choice of an economic instrument, in this case to deal with the obligations imposed by the Landfill Directive.125 A similar point might also be made of the second stage of the escalator, that is, the announcement in the 2002 Pre-Budget Report of the increase (‘revenue neutral to business as a whole’) in the rate of landfill tax to £35, by instalments of at least £3 per annum, starting in 2005.126 Davies and Doble have the following comment: From a starting point of seeking to internalise externalities and incentivize sustainable waste management, policy considerations have changed the focus … [the increases in the rate of 113 See para. 5.3 above. 114 See Davies and Doble, op. cit., p. 78. 115 See para. 1.4.2.1(1) above and para. 15.2 below. 116 Or perhaps ‘because of’. 117 The first consultation on the tax instituted by the government began as early as January 1998 (see 2002 paper, Table 7.1, p. 42). 118 See 2002 paper, Table 7.1, p. 42. 119 See para. 4.2.1.2(2)n above. 120 See para. 4.2.1.2(1) above. 121 See 2002 paper, Table 7.1, p. 43. 122 See HM Treasury News Release 35/02, Consultation on Landfill Tax Credit Scheme Published, 17 April 2002. 123 See the Landfill Tax (Amendment) Regulations 2003, S.I. 2003 No. 605. See also para. 21.3.2 below. 124 The 2002 paper misattributes this to the 1999 Pre-Budget Report (see Table 7.1, p. 42), whereas it was actually announced eight months earlier in the 1999 Budget itself (see Pre- Budget Report 1999, para. 6.86). See also para. 15.1 below. 125 See para. 6.3.2.4 above and para. 12.2.5.1(2)(b) below. 126 See Pre-Budget Report 2002, para. 7.51 (see [2002] SWTI 1562, 1577). 250 Environmental Taxation Law tax] … have been driven by an acceptance that landfill tax must be increased to achieve behavioural change, through closing the cost gap on methods of diversion from landfill and ultimately to contribute to the incentive to achieve diversion to meet EU Landfill Directive targets on municipal waste.127 It is difficult to avoid the conclusion that landfill tax rates are such as to suggest that the tax is, or will be, more in the nature of an environmental penalty than an environmental tax. Such is the extent of the policy change that has resulted from the ongoing review referred to above. 11.5 Concluding comments It will be appreciated from the discussion in this chapter that, whilst certainly taxes as traditionally understood,128 the UK’s three main environmental taxes have features which set them apart from most other taxes. The key unusual feature which is common to all of them is their potential for steering behaviour129 but there is also the hypothecation or, in the case of landfill tax, quasi-hypothecation, of the revenue raised by them. What is striking about the application of the RIA approach to designing and implementing aggregates levy and climate change levy is that has introduced an element of bargaining into the decision as to whether to introduce new environmental taxes. The relative bargaining strengths of the governmental and industrial actors may, however, mean that taxes are more likely to be imposed on some sectors of industry than on others. The quarrymen’s trade association was, after all, conspicuously less successful in negotiating the imposition of aggregates levy than were the energyintensive sectors of industry in negotiating the introduction of climate change levy. Finally, the soon-to-be penal levels of landfill tax raise the question of whether the tax stands to be transformed from a tax to a penalty. It is certainly no longer a Pigouvian tax,130 properly so-called. This may conceivably be important, since taxes are usually deductible in the calculation of profits for the purposes of income tax and corporation tax, whereas fines are not.131 In any event, there has certainly been a considerable shift in the policy which landfill tax is being used to advance since its introduction in 1996. 127 Davies and Doble, op. cit., p. 77. 128 See Chapter 7 above. 129 Which, since they are consciously designed so to do, means that they do not, apparently, infringe the neutrality principle (see John Tiley, Revenue Law, 4th edn (Oxford: Hart Publishing, 2000), p. 11. See para. 1.2.1.5(2) above. 130 See para. 5.4n above. 131 See McKnight v. Sheppard, [1999] STC 669. Chapter 12 Community Law Aspects 12.1 Introduction This chapter seeks to examine how the design of the UK’s environmental levies and subsidies is shaped by its status as a Member State of the EU. In practice, this may be the single most significant constraint on the design and implementation of the UK’s environmental taxes and other economic instruments. Throughout the study, and whatever the particular context in which we have sought to locate the UK’s environmental taxes and other economic instruments, the rules and institutions of Community law have never been far away. In Chapter 4, we indicated how the ECJ has a role to play in determining the compatibility of UK tax law with the European Treaty.1 In Chapter 4 also, as part of our analysis of the institutional framework of the UK’s environmental taxes and other economic instruments, we described those Community institutions with some responsibility or other for environmental law and policy and for tax law and policy.2 The UK’s obligations as an EU Member State underlay the technical justifications for the green levies and subsidies discussed in Chapter 5. The overview of UK environmental and market regulation offered in Chapter 6 stressed the Community origins of much of the material, whilst reserving discussion of its detail until now.3 In Chapter 7, we reviewed the insights provided by the jurisprudence of the ECJ into the concept of a tax, as distinct from related concepts.4 Finally, in Chapter 8, we considered the impact of international environmental law and international trade law on the environmental taxation law of the UK as an EU Member State. The arrangement of the material in the present chapter reflects the principal concerns of these earlier chapters. The current chapter is divided into two main parts. Of these, the more extensive is paragraph 12.2, which begins by examining those aspects of Community environmental law that have shaped the domestic environmental regulation discussed in Chapter 6 above. These are the Integrated Pollution Prevention and Control (‘IPPC’) regime; the Community’s Environmental Action Programmes; and Community procedures for evaluating the likely environmental impacts of certain construction projects. The first of these provides a convenient basis for much UK domestic legislation (including climate change levy), while the second, in setting out the main environmental priorities of the Community, supplies the technical justification for both Community and domestic legislation in specific areas.5 Subsequent parts of 12.2 are devoted, respectively, to Community waste management regulation and to 1 See para. 4.3.7 above. 2 See para. 4.3 above. 3 See Chapter 6 above, generally, esp. paras 6.2.1, 6.3.1 and 6.4.1. 4 See para. 7.2.2.3 above. 5 See paras 12.2.1–12.2.3 below. 252 Environmental Taxation Law Community regulation of air and atmospheric pollution.6 An important element of the former is the definition of ‘waste’, as used in the Waste Framework Directive (‘the WFD’).7 That definition had formerly been seen as being entirely separate from the one applicable for landfill tax; a discussion of the WFD definition has, however, been included, following a recent decision of the Court of Appeal which seems to recognise the possibility of a link between the definition of ‘waste’ for landfill tax purposes and the objectives of the WFD.8 The discussion of air and atmospheric pollution control includes an overview both of Community energy law and of Community transport law.9 Each of these overviews is necessary, not only for the environmental aspects of energy and transport law, but also for the implications of the structures thereby created for both the design of UK environmental taxes and environmental instruments and the prospects for their ultimate success or failure.10 Since both environmental and energy policy usually involve the outlay of state resources, paragraph 12.2 ends with a brief discussion of the significance of state aids, both in combating air and atmospheric pollution and in the energy and transport sectors more generally.11 The latter part of the present chapter12 mainly concerns the impact of Community tax law rules on the development of the UK’s environmental taxes and economic instruments. The discussion unfolds, of course, against the background of the fiscal veto13 and the essentially ‘national’ character of the instruments covered in the present study. After an overview of the relevant issues, the discussion examines the division of taxing powers between the Community and the Member States;14 the ban on fiscal barriers to trade, including the prohibition on discriminatory internal taxation15 and the prohibition on customs duties and, more importantly here, charges having equivalent effect.16 Woven into the discussion in paragraph 12.3 are discussions of the cases in which various national attempts at creating green levies have received judicial attention. Most often, the relevant tribunal has been the ECJ but, as has already been mentioned,17 the validity of the UK’s aggregates levy in terms of Community law has been tested and upheld before a UK national court18 and the relevant aspects of this decision are incorporated into the discussion as appropriate. Paragraph 12.3 ends 6 See P.G.G. Davies, European Union Environmental Law (Aldershot: Ashgate, 2004), chs 7 and 8. 7 Council Directive 75/442/EEC, (1975) OJ L194 39. 8 See Parkwood Landfill Ltd v. Customs and Excise Commissioners, [2002] STC 1536. See also paras. 6.3.2.1 above and 15.3 below. 9 See paras. 12.2.6.3 and 12.2.6.4 below. This mirrors the discussion of UK energy and transport law and policy in paras. 6.4 and 6.5 above. 10 See Chapter 21 below. 11 See para. 12.2.7 below. 12 See para. 12.3 below. 13 See para. 4.3.1 (point 1) above. 14 See para. 12.3.2 below. 15 See para. 12.3.3.1 below. 16 See para. 12.3.3.2 below. 17 See para. 8.4.5.1 above. 18 In R (on the application of British Aggregates Associates and Others) v. C & E Commrs, [2002] EWHC 926 (Admin), [2002] 2 CMLR 51. See para. 12.3.3.1 below. Community Law Aspects 253 with a discussion of recent measures to harmonise excise duties on fuel products19 and a review of the application of the law on state aids, as introduced earlier in the chapter, to the specific context of environmental levies and subsidies.20 The final part of the chapter briefly discusses a hypothetical issue for environmental levies, in the context of the Community rules on free movement of goods in Arts 28– 31, European Treaty (ex 30, 34, 36 and 37).21 Partly in view of the relative familiarity of those rules, partly also because of the hypothetical nature of the issue there discussed and partly because of the overall length of the chapter, the explanation of the relevant Treaty Arts and case law in that part has been kept to the bare minimum necessary to elucidate the issue concerned. Evidently, the inclusion of such a wide range of material has not made for a concise chapter. The writers are firmly of the view, however, that, it is not possible to assess the true significance of the levies and subsidies that form the subject matter of the present study without an appreciation of their European regulatory and taxation context. 12.2 Regulatory aspects 12.2.1 General Community environmental law constitutes a regional regime of international environmental law which, since 1 May 2004, has applied directly to 25 European countries.22 By Art. 2 of the European Treaty, the Community is tasked, among other things, with promoting ‘… a harmonious, balanced and sustainable development of economic activities … [as well as] … a high level of protection and improvement of the quality of the environment’, Art. 3(1)(l) stipulating that the activities of the Community are to include ‘a policy in the sphere of the environment’.23 The listing of a high level of protection and improvement of the quality of the environment as an independent goal in Art. 2, rather than as an incidental requirement of economic growth, was an achievement of the Treaty of Amsterdam which, although it was signed in 1997, only came into effect on 1 May 1999.24 Provisions on environmental protection had first appeared in the European Treaty as a result of the amendments made to it by the 1986 Single European Act (‘the SEA 1986’) but this had not deterred the Community from adopting environmental legislation under the Treaty powers conferred on the Council for the harmonisation of laws affecting the establishment or functioning of the common market,25 and under the powers, also 19 See para. 12.3.4 below. 20 See para. 12.3.5 below. 21 See para. 12.4 below. 22 See Philippe Sands, Principles of International Environmental Law, 2nd edn (Cambridge: Cambridge University Press, 2003), p. 733; Joanne Scott, EC Environmental Law (London: Longman, 1998); and European Environmental Law, ed. by Ludwig Kramer (Aldershot: Ashgate/Dartmouth, 2003). 23 The expression ‘the environment’ is not, however, defined. See para. 1.2.1.5(1) above. 24 See Paul Craig and Gráinne de Búrca, EU Law: Text, Cases and Materials, 3rd edn (Oxford: Oxford University Press, 2003), pp. 29–42, esp. pp. 30 and 32. 25 That is, Art. 94, European Treaty (ex 100). 254 Environmental Taxation Law conferred by the Treaty on the Council, for adopting measures necessary for attaining one of the Treaty objectives but for which the Treaty had not provided the necessary powers.26 Amsterdam also saw the inclusion of a new article, now Art. 6, European Treaty (ex 3c), of a requirement that ‘[e]nvironmental protection requirements … be integrated into the definition and implementation of … Community policies and activities …, in particular with a view to promoting sustainable development’. Thus, as we shall see, Community policy on both energy and transport has a strongly ‘environmental’ dimension. In its current form, Art. 174(1), European Treaty (ex 130r) states that the Community policy on the environment must contribute to the pursuit of four objectives: – preserving, protecting and improving the quality of the environment; – protecting human health; – prudent and rational utilisation of natural resources; [and] – promoting measures at international level to deal with regional or worldwide environmental problems.27 Article 174(2) elaborates these four objectives by stating that Community policy on the environment is to ‘… aim at a high level of protection taking into account the diversity of situations in the various regions of the Community’. Accordingly, continues Art. 174(2), Community environmental policy is to be based on the precautionary principle, the preventive principle, the proximity principle and the polluter pays principle.28 The application of the precautionary principle to Community policy on the environment was yet another achievement of the Amsterdam Treaty,29 although the inclusion of the other three principles dated back to the SEA 1986.30 Article 174(3) provides that Community action on the environment must take account of available scientific and technical data, environmental conditions in the various regions of the Community, the potential benefits and costs of action or lack of action and the economic and social development of the Community as a whole and the balanced development of its regions. By Art. 175, European Treaty (ex 130s), decisions on any action to be taken by the Council to achieve the four objectives in Art. 174(1) are usually to be taken by qualified majority voting.31 One of the exceptions to this, of course, is where the decision relates to a provision primarily of a fiscal nature, in which case the decision must be unanimous.32 Art. 176, European Treaty (ex 130t) specifically allows Member States to maintain or introduce more stringent protective measures, provided they are compatible with the Treaty and notified to the Commission. 26 That is, ibid., Art. 308 (ex 235). 27 See the commentary on the four objectives in Maurice Sunkin, David Ong and Robert Wight, Sourcebook on Environmental Law, 2nd edn (London: Cavendish, 2002), pp. 18–27. 28 See para. 8.2.6 above. The proximity principle is also known as ‘the rectification-at-source principle’. 29 See Sands, op. cit., p. 271. 30 Ibid., p.743. 31 Ibid., Art. 175(1). 32 Ibid., Art. 175(2). See para. 4.3.1 (point 1) above. Community Law Aspects 255 Unlike the common commercial policy,33 the common agricultural and fisheries policy34 and the common transport policy,35 environmental policy as provided for by Arts 174–176 is not the exclusive policy of the Community. Thus, the Community and the Member States enjoy a shared competence in relation to environmental regulation. However, it should be noted that, under Art. 95, European Treaty (ex 100a), the Council may, by qualified majority,36 adopt measures for the approximation of provisions relating to the establishment and functioning of the internal market. Such proposals may, of course, concern environmental protection.37 12.2.2 Integrated Pollution Prevention and Control (‘IPPC’) The Integrated Pollution Prevention and Control Directive (‘the IPPC Directive’)38 was adopted in 1996, on the basis of what is now Art. 175, European Treaty (ex 130s). Member States were given a period of three years in which to implement its provisions, its transcription into the law of England and Wales being effected by the Pollution Prevention and Control Act 1999 and the Pollution Prevention and Control (England and Wales) Regulations 2000.39 Both of these measures have been discussed in detail in Chapter 6 and our concern here is only with the IPPC Directive itself,40 although it is perhaps worth remembering the point made there that, inter alia, the IPPC regime has been taken to form the regulatory basis both of climate change levy and the EU ETS. Article 1 of the IPPC Directive states the Directive’s purpose as being to reduce emissions from industrial activities into the air, water and land, including waste, in order to achieve a high level of protection of the environment taken as a whole. By Art. 3 of the IPPC Directive, Member States are required to take the necessary measures to make sure that the competent authorities ensure that installations41 are operated in such a way that: 1 all appropriate preventive measures against pollution are taken, especially through the application of best available techniques (‘BATs’); 2 no significant pollution is caused; 3 waste production is avoided or, where waste is produced, it is recovered or disposed of in such a way as to avoid or reduce environmental impact where recovery is not possible; 33 Ibid., Art. 3(1)(b). 34 Ibid., Art. 3(1)(e). 35 Ibid., Art. 3(1)(f). See para. 12.2.6.4 below. 36 That is, under Art. 251, European Treaty (ex 189b). 37 Art. 95(3), European Treaty (ex 100a). 38 Council Directive 96/61/EC, (1996) OJ L257 26. 39 S.I. 2000 No. 1973. 40 See para. 6.2.3 above. 41 Defined as ‘a stationary technical unit where one or more activities [covered by the IPPC Directive] … are carried out, and any other directly associated activities which have a technical connection with the activities carried out on that site and which could have an effect on emissions and pollution’ (see the IPPC Directive, Art. 2(3)). 256 Environmental Taxation Law 4 energy is used efficiently; 5 necessary measures are taken to avoid accidents and limit their consequences; and 6 on definitive cessation of activities, necessary measures are taken to avoid any pollution risk and to return the site of operation to a satisfactory state. The installations that fall within the IPPC regime are listed in Annex I to the Directive. They include installations in the energy industries,42 industries involved in the production and processing of metals, the mineral industry,43 the chemical industry and the waste management industry.44 The purpose of the Directive is to be achieved by the competent authorities in Member States issuing permits to the operators of installations carrying out the targeted activities.45 Permits must contain conditions guaranteeing that the installation complies with the requirements of the Directive and must otherwise be refused.46 The BAT concept is specifically defined in Art. 2(11) of the IPPC Directive. ‘Best’ means ‘most effective in achieving a high general level of protection of the environment as a whole’; ‘available’ refers to techniques: … developed on a scale which allows implementation in the relevant industrial sector, under economically and technically viable conditions, taking into consideration the costs and advantages, whether or not the techniques are used or produced inside the Member State in question, as long as they are reasonably accessible to the operator …47 Finally, ‘techniques’ includes ‘both the technology used and the way in which the installation is designed, built, maintained, operated and decommissioned’.48 As originally conceived by the EC Commission, the IPPC Directive had been intended to ensure ‘integrated permitting’ for industrial processes but, following objections from certain Member States, the emphasis shifted to the preventative nature of the control mechanism and away from integrating the permitting system.49 It is to be amended following the passage of the EU Emissions Trading Directive (‘the EU ETS Directive’).50 42 That is, certain combustion installations; mineral oil and gas refineries; coke ovens; and coal gasification and liquefaction plants. 43 That is, installations for producing cement clinker. 44 That is, installations for the disposal or recovery of hazardous waste; for the incineration of municipal waste; and for the disposal of non-hazardous waste. 45 See Arts 4 and 5, IPPC Directive. 46 See Art. 8, IPPC Directive. 47 Ibid., Art. 2(11). 48 Ibid. 49 See Stuart Bell and Donald McGillivray, Environmental Law, 5th edn (London: Blackstone, 2000), p. 380. 50 See Sands, op. cit., p. 754n and Chapter 28 below. Community Law Aspects 257 12.2.3 Environmental Action Programmes A phenomenon of no less importance to the EU aspects of environmental regulation than the primary and secondary European legislation discussed in this chapter are the six EU Environmental Action Programmes launched to date.51 Proposed by the Commission52 and approved by the Council,53 they chart the development of Community policy on the environment over a 30-year period since 1973. The policy initiatives contained in the Programmes, together with the tools for their realisation (such as the increased use of economic instruments) have not only shaped Community environmental policy but have proved influential on the wider international stage.54 The current Sixth Environmental Action Programme, with its central themes of sustainable development and the integration of environmental policies, had a long gestation period, finally being adopted by the European Parliament55 and Council in July 2002.56 The Programme pays special attention to four priority areas for action: 1 tackling climate change by stabilising ‘the atmospheric concentrations of greenhouse gases at a level that will not cause unnatural variations of the earth’s climate’. The key priority for the sixth Programme is thus the ratification and implementation of the Kyoto Protocol to reduce greenhouse gas emissions by 8 per cent from 1990 levels by 2008–2012;57 2 protecting nature and biodiversity, with a view to protecting and restoring the functioning of natural systems and halting the loss of biodiversity by 2010; 3 achieving a quality of environment where the levels of man-made contaminants do not give rise to significant impacts on or risks to human health; and 4 ensuring sustainable use of natural resources and management of wastes by ensuring that ‘the consumption of renewable and non-renewable resources does not exceed the carrying capacity of the environment’. The Programme considers the EU’s 8 per cent commitment to the reduction of greenhouse gases as being a first step to a 70 per cent cut (see 1 above). Objective 3 includes a commitment to ensuring by 2020 that chemicals are produced only in ways that do not have a significant negative impact on health and the environment. The objective of ensuring sustainable use of natural resources, etc. (see 4 above) includes the objective of producing 22 per cent of electricity from renewable sources by 2010. 51 The first Programme was for the period 1973–1976; the second was for the period 1977– 1981; the third was for the period 1982–1986; the fourth was for the period 1987–1993; and the fifth was for the period 1993–1997, subsequently extended (see Sunkin, Ong and Wight, op. cit., p. 28). Details of the Sixth Programme are given in the text. 52 See para. 4.3.2 above. 53 See para. 4.3.1 above. 54 See Sands, op. cit., pp. 753–4. 55 See para. 4.3.3 above. 56 Decision 1600/02/EC, (2002) OJ L242 1. 57 See paras 8.2.2n and 8.3.1.4 above. 258 Environmental Taxation Law The Programme also identifies a number of international priorities (for example, achieving mutual supportiveness between trade and environmental needs, including the sustainability impact assessment of multilateral trade agreements)58 and the implementation of Community environmental law and policy in the ten new Member States. 12.2.4 Environmental Impact Assessment and Strategic Environmental Assessment Areas in which EU law and policies continue to prove influential on the wider international stage are those of Environmental Impact Assessment (‘EIA’) and Strategic Environmental Assessment (‘SEA’).59 These concern the necessity of evaluating the likely environmental impacts of projects for the construction of, for example, thermal and nuclear power stations, waste disposal installations and, crucially, projects for the construction of renewables generators.60 For the purposes of the present study, it is only necessary to sketch the broad outlines of each one. The Directive on the Assessment of the Effects of Certain Public and Private Projects on the Environment (‘the EIA Directive’)61 ‘was [says Sands] the first international instrument to provide details on the nature and scope of environmental assessment, its use, and participation rights in the process’.62 The Directive on the Assessment of Certain Plans and Programmes on the Environment (‘the SEA Directive’)63 is, also, again according to Sands, ‘the first international instrument to impose binding obligations, requiring member states to ensure that “an environmental assessment is carried out of certain plans and programmes which are likely to have significant effects on the environment”’.64 The EIA Directive was to be transcribed into the laws of Member States by 3 July 198865 and the SEA Directive was so transcribed into UK by the deadline of 21 July 2004.66 Under the EIA Directive, where public and private projects are likely to have significant environmental effects, an Environmental Impact Assessment (‘EIA’) is required,67 as part of the process of which the developer must supply specified information, consult with the relevant authorities, provide information to, and 58 The environmental aspects of world trade regulation are, of course, among the most pressing of contemporary issues (see para. 8.2.1 above). 59 See Sands, op. cit., pp. 807–813 and Sunkin, Ong and Wight, op. cit., pp. 777–82. Dealt with in the UK context in para. 6.2.4 above. 60 See para. 21.5 below. 61 Council Directive 85/337/EEC, (1985) OJ L175 40, subsequently heavily amended. 62 See Sands, op. cit., p. 807. Sands also says, however, that EIAs emerged internationally after the 1972 Stockholm Declaration of the United Nations Conference on the Human Environment (see para. 8.2.3n above) and that they were first established in the domestic law of the US under the National Environmental Protection Act of 1972 (see Sands, op. cit., p. 800). 63 Council Directive 01/42/EC, (2001) OJ L197 30. 64 See Sands, op. cit., p. 812. 65 Council Directive 85/337/EEC, Art. 13. 66 Council Directive 01/42/EC, Art. 1. 67 Council Directive 85/337/EEC, Arts 1(1) and 2(1). Community Law Aspects 259 consult with, the public, and provide information to other Member States likely to be affected.68 The projects covered are divided into 12 categories, which include ones in the extractive industry, the energy industry and the mineral industry.69 There are certain exceptions for, for example, projects serving national defence purposes.70 The SEA Directive is aimed at the plans and programmes producing the projects covered by the EIA Directive. It applies to plans and programmes prepared for 10 specific sectors, including energy, transport, waste management and town and country planning or land use.71 In essence, Member States must assess any plans or programmes72 that contain a framework for future development consents and which are likely to have significant environmental effects.73 The idea of the SEA Directive is that, as required by Art. 6, European Treaty (ex 3c)74 and, as envisaged by the Sixth Environmental Action Programme,75 environmental considerations will be integrated ever more firmly into the policy-making of the Member States. The EIA Directive was implemented in England and Wales by the Town and Country Planning (Environmental Impact Assessment) (England and Wales) Regulations 1999,76 as well as by the other measures already discussed in Chapter 6 above.77 The implementation of the SEA Directive was effected by secondary legislation on which the ODPM78 consulted in spring 2004.79 As discussed in Chapter 6 above, the absence of an SEA has already been controversial in relation to the deployment of arrays of wave power devices off the coast of South West England.80 12.2.5 Waste management 12.2.5.1 General Community law and policy on waste management is contained in a 1990 Community Strategy for Waste Management81 and in legislation of four kinds: (1) a framework 68 Ibid., Arts 5–10. 69 Council Directive 85/337/EEC, Annex II. 70 Ibid., Art. 1(4). 71 Council Directive 01/42/EC, Art. 3. 72 Defined to mean all plans and programmes subject to preparation and/or adoption by an authority at national, regional or local level or which are prepared by an authority for adoption, through a legislative procedure by Parliament or government and which are required by legislative, regulatory or administrative provisions (see Art. 2(a), Directive 01/42/EC). 73 See Sunkin, Ong and Wight, op. cit., p. 781. 74 See para. 12.2.1 above. 75 See para. 12.2.3 above. 76 S.I. 1999 No. 293. 77 See para. 6.2.4 above. 78 See para. 4.2.1.2(1) above. 79 See the Environmental Assessment of Plans and Programmes Regulations 2004, S.I. 2004 No. 1633 (see ‘Strategic assessment guidance to planners at odds with EC views’, 346 ENDS Report (2003)). 80 See para. 6.2.4 above. 81 Council Resolution of 7 May 1990 on Waste Policy, (1990) OJ C122 2. 260 Environmental Taxation Law directive on waste management regulation within the Community; (2) various directives on the disposal of specific wastes; (3) a specific directive on the management of hazardous waste; and (4) a regulation on the shipment of waste.82 There are also Community measures prohibiting the disposal of certain wastes into the marine environment83 and measures limiting the emission into the atmosphere of particular waste gases.84 The Community Strategy for Waste Management was reviewed by the Commission in 1996, who, in a Communication of July that year,85 formulated a hierarchy of preferred ways of dealing with waste, first preference being given to waste prevention, increased recovery being next favoured and safe disposal being the least-favoured option. In addition to promoting reuse and recycling of waste, the Communication promotes the increased use of economic instruments, along with rules for restricting the use of dangerous substances in products, lifecycle analyses and eco-audits and means of increasing consumer awareness, such as eco-labelling. Although the Council greeted the Communication favourably, the Parliament expressed its dissatisfaction with the progress of Community waste policy and called (unsuccessfully) on the then Environment Commissioner to produce a new Action Programme on waste management.86 Before discussing the four kinds of legislation referred to above, it is necessary to refer briefly to the fact that waste management is specifically within the scope of the IPPC Directive, already discussed.87 Without prejudice to specific provisions of other directives on waste management,88 the installations in respect of which Member States are enjoined to introduce an IPPC permit system include the waste management installations listed in para. 5 of Annex 1 to the IPPC Directive. These are installations for the disposal or recovery of hazardous waste89 with a capacity exceeding 10 tonnes per day;90 installations for the incineration of municipal waste, provided their capacity exceeds three tonnes per hour;91 installations for the disposal of non-hazardous waste, with a capacity exceeding 50 tonnes per day;92 and landfills receiving more than 10 tonnes per day or with a total capacity exceeding 25,000 82 See Sands, op. cit., pp. 786–92, from which the fourfold classification is taken; see also Sunkin, Ong and Wight, op. cit., pp. 380–418. 83 As to which the reader is referred, for example, to Sands, op. cit., pp. 768–83. 84 See para. 12.2.6 below. 85 COM (1996) 399 final. 86 See the account in Sunkin, Ong and Wight, op. cit., p. 389. 87 See para. 12.2.2 above. 88 That is, Council Directive 75/442/EEC (the Waste Framework Directive), Art. 11, and Council Directive 91/689/EEC (the Directive on Hazardous Waste), Art. 3. See below in this para. for further details of these Directives, including OJ references thereto. 89 As defined, not only in Council Directive 75/442/EEC, but also in Council Directive 91/689/EEC (see above) and in Council Directive 75/439/EEC, (1975) OJ L194 23. 90 See Council Directive 96/61/EC, (1996) OJ L257 26, Annex I, para. 5.1. 91 Ibid., Annex I, para. 5.2. 92 That is, as defined in Council Directive 75/442/EEC (that is, the Waste Framework Directive). See Council Directive 96/61/EC, (1996) OJ L257 26, Annex I, para. 5.3. Community Law Aspects 261 tonnes, excluding landfills of inert waste.93 The transcription of these requirements into UK law has already been discussed in Chapter 6 above.94 The Directive has been transcribed into UK law by Part I of the Waste and Emissions Trading Act 2003 and by the Landfill (England and Wales) Regulations 2002, each of which have been discussed in Chapter 6 above.95 (1) Framework of waste management regulation The Waste Framework Directive (‘the WFD’)96 directs Member States to take appropriate measures to encourage ‘the prevention or reduction of waste production and its harmfulness’;97 to encourage ‘the recovery of waste by recycling, re-use, reclamation, etc.;98 and to encourage the use of waste as energy.99 The definition of the concept of waste which is used in the WFD, that is, that of specified substances that the owner discards, or intends to discard or is required to discard, is potentially of some importance in the context of the present study and is considered further below.100 The objectives of preventing and reducing waste production and its harmfulness are to be attained by three means in particular, namely: the development of clean technologies, which are ‘more sparing in their use of natural resources’ than older ones; the development of products whose manufacture, use and disposal are such as to minimise waste; and ‘the development of appropriate techniques for the final disposal of dangerous substances contained in waste’.101 Article 4 of the WFD enjoins Member States to take measures necessary to ensure that waste is disposed of or recovered without endangering human health and without harming the environment and to prohibit the abandonment, dumping or uncontrolled disposal of waste. Subsequently, in Art. 5(1), they are required to take appropriate measures (taking account of BATNEEC) to create ‘an integrated and adequate network of disposal installations’, to enable the Community to become self-sufficient in waste disposal. Article 5(2) provides that such waste disposal networks must enable waste to be disposed of in one of the nearest appropriate installations and by means of the most appropriate methods, so as to ensure ‘a high level of protection for the environment and public health’.102 By Art. 7, the competent authorities in the Member States are required to draw up waste management plans and are permitted 93 See Council Directive 96/61/EC, (1996) OJ L257 26, Annex I, para. 5.4. 94 See paras 6.2.3 and 6.3.2.3 above. 95 See para. 6.3.2(4) above. See also para. 20.7 below (the LATS). 96 Council Directive 75/442/EEC, (1975) OJ L194 39. See Sands, op. cit., pp. 787–9; also Sunkin, Ong and Wight, op. cit., pp. 383–4. 97 Council Directive 75/442/EEC, Art. 3(1)(a). 98 Ibid., Art. 3(1)(b). 99 Ibid. 100 See para. 12.2.5.2 below. 101 Council Directive 75/442/EEC, Art. 3(1)(a). 102 But see Chemische Afvalstoffen Dusseldorp BV and Others v. Minister van Volkshuisvesting, Ruimtelijke Ordening en Milieubeheer, C–203/96, [1998] 3 CMLR 873, 912 (para 30), where the ECJ held that the principles of self sufficiency and proximity did not apply to waste for recovery. 262 Environmental Taxation Law to take such measures as are necessary to prevent the movement of waste except in accordance with those plans. The current national waste strategy for England and Wales appears in Waste Strategy 2000: England and Wales.103 The WFD also contains provisions requiring undertakings carrying out disposal or recovery operations104 to obtain a permit from the competent authority;105 requiring collectors, transporters and those arranging for the disposal of waste to be registered;106 and providing that the polluter pays principle107 means that the holder of the waste (that is, its producer or the person in possession of it)108 must bear the cost of disposing of it.109 (2) Disposal of specific wastes As mentioned above, special disposal rules apply to specific categories of waste.110 Thus, legislation has been adopted relating, for example, to the disposal of waste oils;111 to the disposal of polychlorinated biphenyls (‘PCBs’) and polychlorinated terphenyls (‘PCTs’);112 to waste from the titanium dioxide industry;113 to sewage sludge;114 and to the recovery and controlled disposal of spent batteries and accumulators, which contain quantities of mercury, cadmium or lead.115 The UK measures implementing the directives on these matters have already been referred to in Chapter 6 above.116 Two directives in specific areas are of particular importance in the context of the present study, however, that is, the Packaging and Packaging Waste Directive;117 and the Landfill Directive.118 (a) Packaging and packaging waste The Packaging and Packaging Waste Directive, which was adopted in response to the ECJ’s decision in the Danish Bottles case,119 has two main objectives: (a) to provide 103 See para. 6.3.2 above. 104 See para. 12.2.5.2 below, the disposal and recovery operations in question being specified in Annexes IIA and IIB to the Directive. 105 Council Directive 75/442/EEC, Arts 9 and 10. 106 Ibid., Art. 12. 107 See para. 8.2.3 above. 108 Council Directive 75/442/EEC, Art. 1(c). 109 Ibid., Art. 15. 110 See Sands, op. cit., pp. 791–2; also Sunkin, Ong and Wight, pp. 384–8. 111 Directive on the Disposal of Waste Oils, Council Directive 75/439/EEC, (1975) OJ L194 23. 112 Directive on the Disposal of Polychlorinated Biphenyls and Polychlorinated Terphenyls, Council Directive 96/59/EC, (1996) OJ L243 31. 113 Directive on Waste from the Titanium Dioxide Industry, Council Directive 92/112/EEC, (1992) OJ L409 11. 114 Directive on Sewage Sludge, Council Directive 86/278/EEC, (1986) OJ L181 6. 115 Directive on Batteries and Accumulators, Council Directive 91/157/EEC, (1991) OJ L78 38. 116 See paras 6.3.2.5–6.3.2.6 above. 117 European Parliament and Council Directive 94/62/EC, (1994) OJ L365 10. 118 Council Directive 99/31/EC (1999) OJ L182 1. 119 Commission v. Denmark, C–302/86, [1989] 1 CMLR 619 (see para. 12.4 below). Community Law Aspects 263 a high level of environmental protection by harmonising national measures on the management of packaging and packaging waste; and (b) to ensure the functioning of the internal market by avoiding obstacles to trade.120 Since June 1996, Member States have been obliged to take measures to ensure that systems are set up to provide for: a. the return and/or collection of used packaging and/or packaging waste from the consumer, other final user, or from the ,waste stream in order to channel it to the most appropriate waste management alternatives; b. the reuse or recovery including re-cycling of the packaging and/or packaging waste collected …121 In addition, there are obligations on Member States to take preventative measures,122 including the imposition of a requirement that packaging may be marketed only if it complies with requirements set out in the Directive,123 as well as set specific recovery and recycling targets which must be reached within time periods laid down in the Directive.124 By Art. 4(1) of the Directive, preventative measures may include the creation of national programmes to prevent the formation of packaging waste.125 The Directive covers primary, secondary and tertiary packaging, applying (as it does) to packaging usually acquired by the purchaser (primary); packaging removed by the retailer near the point of sale (secondary); and packaging designed to enable transportation and handling (tertiary).126 The Directive was transcribed into UK law by the Producer Responsibility Obligations (Packaging Waste) Regulations 1997,127 introduced in Chapter 6 above128 and examined in detail in Chapter 19 below. (b) Waste sent to landfill Article 1 of the Landfill Directive states that its aim is to provide for, ‘by way of stringent operational and technical requirements’, the prevention or, so far as possible, for the reduction of the negative environmental effects of the ‘landfilling of waste, during the whole lifecycle of the landfill’. A landfill is defined in Art. 2(g) as a ‘waste disposal site for the deposit of waste onto land or underground’ but the definition excludes certain unloading and storage facilities. Landfill sites already in operation at the time of transposition of the Directive must comply with its terms by 2009.129 120 European Parliament and Council Directive 94/62/EC, Art. 1(1). For the implementation of the Directive in UK law, see Chapter 19 below, passim. 121 European Parliament and Council Directive 94/62/EC, Art. 7(1)(a). 122 Ibid., Art. 4. 123 Ibid., Art. 9(1). 124 Ibid., Art. 5. 125 In the UK, the programme appears in Waste Strategy 2000: England and Wales (see para. 6.3.2 above). 126 European Parliament and Council Directive 94/62/EC, Art. 3(1). 127 S.I. 1997 No. 648. 128 See para. 6.3.3.2 above. 129 See Council Directive 1999/31/EC (1999) OJ L182 1, Art. 14, from which this date is derived. 264 Environmental Taxation Law Member States must apply the Directive to landfill as defined in Art. 2(g).130 Article 4 requires each landfill to be classified as to whether it is for hazardous waste, for non-hazardous waste or for inert waste. By Art. 5(1), Member States must set up national strategies for the reduction of biodegradable waste going to landfills. Article 5(2) fixes the targets, based on 1995 arisings, as: a reduction of 25 per cent by 2006; of 50 per cent by 2009; and of 65 per cent by 2016. Biodegradable waste is defined in Art. 2(m) as ‘any waste that is capable of undergoing anaerobic or aerobic decomposition, such as food and garden waste, and paper and paperboard’. Such national strategies should include recycling, composting, biogas production and materials or energy recovery131 and, by Arts 7–9, competent authorities are to issue permits for operating landfill sites, the conditions of issue of which are to ensure compliance with the Directive. The costs involved in setting up, operating, closing and caring for landfill sites thereafter must, as far as possible, be covered by the price charged by the site operator for the disposal of waste in the site132 and Member States must not only control and monitor site operations133 but also provide for site closure and after-care procedures.134 As to the last of these, by Art. 13(c), ‘after a landfill has been definitely closed, the operator shall be responsible for its maintenance, monitoring and control in the after-care phase for as long as may be required by the competent authority, taking into account the time during which the landfill could present hazards’. The Directive has been transcribed into UK law by Part I of the Waste and Emissions Trading Act 2003, which has been discussed in Chapter 6 above.135 (3) Disposal of hazardous waste The Directive on Hazardous Waste,136 which repealed Council Directive 78/319/ EEC on toxic and dangerous wastes,137 applies to the wastes featuring on a list to be drawn up by the Commission and which is subject to periodic review as well as to any other waste considered by a Member State to possess certain properties.138 The definition of hazardous waste is thus a complex one and recognises that some waste only becomes hazardous in certain circumstances.139 The objective of the Directive is ‘to approximate the laws of the Member States on the controlled management of hazardous waste’140 but it does not apply to domestic waste.141 The competent authorities in each of the Member States are enjoined to draw up, ‘either 130 Council Directive 1999/31/EC. 131 Ibid., Art. 5(1). 132 Ibid., Art. 10. 133 Ibid., Art. 12. 134 Ibid., Art. 13. 135 See para. 6.3.2 above and para. 20.7 below (the LATS). 136 Council Directive 91/689/EEC, (1991) OJ L377 20. 137 (1978) OJ L84 43. Certain of the provisions of the 1978 directive are incorporated into the 1991 Directive by reference (see Sands, op. cit., pp. 789–91). 138 As to which, see Council Directive 91/689/EEC, Annex III. 139 See Sunkin, Ong and Wight, p. 385. 140 Council Directive 91/689/EEC, Art. 1(1). 141 Ibid., Art. 1(5). Community Law Aspects 265 separately or in the framework of their general waste management plans, plans for the management of hazardous waste and shall make these plans public …’.142 By incorporating references to Council Directive 78/319/EEC, Art. 4 of the Directive143 requires those who produce and transport hazardous waste to maintain detailed records, to be retained for at least three years, as to the nature of the waste. Furthermore, under Art. 2, Member States are required to take ‘the necessary measures to require that on every site where tipping (discharge) of hazardous waste takes place the waste is recorded and identified’;144 to take the necessary measures to ensure that, except in prescribed circumstances,145 different categories of hazardous waste are not mixed with each other nor with non-hazardous waste;146 and Member States must supply to the Commission details of establishments and undertakings carrying out the disposal or recovery of hazardous waste on behalf of third parties.147 By Art. 5, Member States are required to take ‘the necessary measures to ensure that, in the course of collection, transport and temporary storage, waste is properly packaged and labelled in accordance with the international and Community standards in force’. The implementation of the Directive into UK law has been effected by the Special Waste Regulations 1996,148 discussed in Chapter 6 above.149 (4) Shipment of waste Council Regulation on the Shipment of Waste (‘the Waste Shipment Regulation’)150 covers shipments of waste between Member States, shipments of waste within Member States and waste exports to, and waste imports from, third countries.151 Generally speaking, waste may be shipped between Member States for disposal or recovery, subject to prior notification, authorisation and possible conditions, although the rules and procedures differ according to whether disposal or recovery is involved.152 So far as shipments within Member States are concerned, Member States are simply required to establish an appropriate system for the supervision and control of waste shipments which takes account of the need for coherence with the Community system.153 142 Ibid., Art. 6(1). See Commission v. United Kingdom, C–35/00, [2002] ECR I–953, and Commission v. Italy, C–466/99, [2002] ECR I–851. The UK’s plan is contained in Waste Strategy 2000: England and Wales (see para. 6.3.2 above). 143 That is, Council Directive 91/689/EEC. 144 Ibid., Art. 2(1). 145 Ibid., Art. 2(3). 146 Ibid., Art. 2(2). 147 Ibid., Art. 8(3). 148 S.I. 1996 No. 972 (as amended). 149 See para. 6.3.2(6) above. 150 Council Regulation 259/93/EEC, (1993) OJ L30 1. 151 See Sands, op. cit., pp. 699–703 and Sunkin, Ong and Wight, op. cit., pp. 386–7. See also the Transfrontier Shipment of Waste Regulations 1994, S.I. 1994 No. 1137. As to the legal effects of Regulations, see Craig and de Búrca, op. cit., pp. 189–93. 152 Council Regulation EEC/259/93, Arts 3–8. 153 Ibid., Art. 13. 266 Environmental Taxation Law With regard to exports to third countries,154 exports to ACP countries are simply banned.155 As regards non-ACP third countries, exports of waste for disposal are prohibited, except where the country of destination is an EFTA country which is also party to the 1989 Basel Convention.156 In this case, although both the EFTA country and the Member State of origin has the option of imposing a ban,157 exports are generally permitted, subject to notification and authorisation.158 As to exports for recovery, these are prohibited, except where the country of destination falls into one of three categories: (a) it is a country to which the OECD Council Decision on the control of the transfrontier movements of wastes for recovery operations applies;159 (b) it is a party to the 1989 Basel Convention or an agreement thereunder; or (c) it is another country, which is a party to a compatible pre-existing bilateral agreement with the Member State in question.160 Finally, waste imports from third countries are again divided between those for disposal and those for recovery. Imports of waste for disposal are banned except when they are: (a) from EFTA countries which are also parties to the 1989 Basel Convention (b) from other countries which are parties to the Convention; or (c) from countries with which certain bilateral agreements have been concluded between the EC/its Member States.161 In each of these three situations, there is a system of notification and authorisation.162 As regards imports of waste for recovery, these are again prohibited, except where they are from countries to which the OECD Council Decision applies163 or from other countries which fall into one or other of two other categories: (a) countries which are also parties to the 1989 Basel Convention or agreements thereunder;164 or (b) countries with which certain bilateral agreements have been concluded between the EU/its Member States.165 Somewhat differing control procedures are applicable to each of these non-prohibited categories.166 12.2.5.2 The concept of waste Characteristic of Community law on waste are the problems that have arisen from the way in which waste is defined in the WFD. For obvious reasons, these problems, 154 See para. 8.3.2 above. 155 Council Regulation EEC/259/93, Art. 18(1). But note that a Member State may return to an ACP country processed waste which that country has chosen to have processed in the EC (see Council Regulation EEC/259/93, Art. 18(2)). 156 Council Regulation EEC/259/93, Art. 14(1). 157 Ibid., Art. 14(2). 158 Ibid., Art. 15. 159 See para. 8.3.2 above. 160 See (as to all three possibilities) Council Regulation EEC/259/93, Art. 16. 161 Ibid., Art. 19(1). 162 Ibid., Art. 20. 163 Ibid., Art. 21(1)(a). 164 Council Regulation EEC/259/93, Art. 21(1)(b). 165 Ibid. 166 Ibid., Art. 22. Community Law Aspects 267 which have generated a considerable academic literature,167 also underlie the very similar questions arising both from the transcription of the WFD into domestic law, as discussed in Chapter 6 above,168 and from the interpretative problems arising in relation to landfill tax, especially as to the situations in which material is disposed of as waste, to be discussed in Chapter 15 below.169 Having been slow to accept it, the Court of Appeal has now acknowledged the existence of a possible link between the objectives of the WFD and the definition of waste for landfill tax purposes.170 The Directives referred to above adopt the same definition of waste as that used in the WFD itself.171 The definition of ‘waste’ in Art. 1 of the WFD consists of two elements.172 The first is ‘any substance or object … which the holder discards or intends or is required to discard’.173 The second is that the substance or object in question must fall into the categories contained in Annex I to the WFD.174 Annex I lists 16 categories of substances and objects (including residues,175 off-specification products,176 date-expired products,177 unusable parts,178 adulterated materials,179 etc.) and concludes, rather unhelpfully, with a sweeping-up clause which refers to ‘[a]ny materials, substances or products which are not contained in the [preceding] … categories’.180 The definition in Art. 1 is then supplemented by a provision requiring the Commission to draw up a list, to be reviewed periodically, of wastes belonging to the categories listed in Annex I to the WFD.181 The list is known as the European Waste Catalogue (‘the EWC’)182 and, whilst it is useful for fleshing-out the definition, the ECJ has stressed in Criminal proceedings against Euro Tombesi and Others,183 that ‘the fact that a substance is mentioned in … [the EWC] does not mean that it is waste in all circumstances. An entry is only relevant when the definition of waste has been satisfied’.184 167 See, for example, Stephen Tromans, ‘EC Waste Law – A Complete Mess?’ (2001) 13 JEL 133–56 and Ilona Cheyne, ‘The Definition of Waste in EC law’ (2002) 14 JEL 61–73. The latter contains a survey of the relevant literature at n2 thereto. 168 See para. 6.3.2.1 above. 169 See para. 15.2 below. 170 See David Pocklington, ‘Industry Soundings’, (2003) 15(3) ELM 207–9, 208. See also para. 6.3.2(1) above. 171 See, for example, Council Directive 91/689/EEC, Art. 1(3) (Directive on Hazardous Waste); Council Regulation EEC/259/93, Art. 2(a) (the Waste Shipment Regulation); and Council Directive 99/31/EC, Art. 2(a) (the Landfill Directive). 172 See the analysis by Cheyne, op. cit., p. 64. 173 See Council Directive 75/442/EEC, Art. 1(a). 174 Ibid., Art. 1(a). 175 Ibid., Annex I, paras Q1, Q8, Q9, Q10 and Q11. 176 Ibid., Annex I, para. Q2. 177 Ibid., Annex I, para. Q3. 178 Ibid., Annex I, para. Q6. 179 Ibid., Annex I, para. Q12. 180 See Council Directive 75/442/EEC, Annex I, para. Q16. 181 Ibid., Art. 1(a). 182 See Commission Decision 00/532/EC, (2000) OJ L226 3. 183 See Joined Cases C–304/94, C–330/94, C–342/94 and C–224/95, [1997] ECR I–3561. 184 [1997] ECR I–3561, I–3589. 268 Environmental Taxation Law What is not clear from the WFD is whether the disposal operations listed in Annex IIA thereto or the ‘operations which may lead to recovery’ listed in Annex IIB to the WFD are also situations in which substances and objects are ‘discarded’. The disposal operations listed in Annex IIA include tipping above or under ground (for example, landfill),185 release of solid waste into a water body other than the sea186 and incineration, whether on land or at sea.187 The operations which may lead to recovery listed in Annex IIB include solvent reclamation or regeneration,188 recycling or reclamation,189 oil re-refining or other re-uses of oil190 and use principally as a fuel or other means to generate energy.191 Cheyne argues that the essential characteristic of all of the 16 categories in Annex I to the WFD is that the objects and substances within them are not identified according to the amount of environmental damage that they might inflict, but with regard to the likelihood of their holders wishing to get rid of them.192 The common implication in all of the 16 categories in Annex I is the idea of discarding of the substance or object in question, which makes it all the more surprising that there is no specific definition of the word ‘discard’, even though it is expressly used in Art. 1(a) of the WFD. The ECJ has now considered these questions in a series of important decisions.193 1 In the co-joined cases Criminal proceedings against Euro Tombesi and Others,194 the ECJ held that the concept of waste ‘is not to be understood as excluding substances and objects that are capable of economic reutilisation, even if the relevant materials may be the subject of a transaction or quoted on public or private commercial lists’.195 The joined cases involved six defendants who had been charged with various offences under Italian law, concerning the unauthorised transportation of waste scrap metal, the unauthorised discharge of marble rubble, the unauthorised burning of toxic waste, etc. In each case, the national courts essentially sought to ascertain, under Art. 234, European Treaty (ex 177), whether the concept of waste referred to in the WFD, and thus the Waste Shipment Regulation196 and 185 See Council Directive 75/442/EEC, Annex IIA, para. D1. 186 Ibid., Annex IIA, para. D6. 187 Ibid., Annex IIA, paras D10 and D11. 188 Ibid., Annex IIB, para. R1. 189 Ibid., Annex IIB, paras R2–R4. 190 Ibid., Annex IIB, para. R8. 191 Ibid., Annex IIB, para. R9. 192 See Cheyne, op. cit., p. 64. 193 Other important cases, not discussed below, are as follows: Criminal proceedings against Vessoso and Zanetti, C–206–207/88, [1990] ECR I–1461; Zanetti and Others, C–359/88, [1990] ECR I–1509; Commission v. Germany, C–422/92, [1995] ECR I–1097; Lirussi and Bizzaro, C–175,177/98, [2001] ECR I–6881. See also the UK cases discussed at para. 6.3.2.1 above. 194 Joined Cases C–304/94, C–330/94, C–342/94 and C–224/95, [1997] ECR I–3561. Judgment was actually given in the cases on 25 June 1997. 195 See Sands, op. cit., p. 788n; [1997] ECR I–3561, 3602 (paras 54 and 55). 196 That is, Council Regulation 259/93/EEC. See para. 12.2.5.1(4) above. Community Law Aspects 269 the Directive on Hazardous Waste,197 must be taken to exclude substances or objects capable of economic re-use.198 In answering the question in the negative, the ECJ further particularised matters as follows: In particular, a deactivation process intended merely to render waste harmless, landfill tipping in hollows or embankments and waste incineration constitute disposal or recovery operations falling within the scope of the … Community rules. The fact that a substance is classified as a re-usable residue without its characteristics or purpose being defined is irrelevant in that regard. The same applies to the grinding of a waste substance.199 2 In Inter-Environnement Wallonie ASBL v. Region Wallonne,200 the ECJ underlined the approach that it had taken in Euro Tombesi.201 The ECJ held that the scope of the term ‘waste’ turned on the meaning of the term ‘discard’;202 that ‘discard’ included both disposal and recovery of a substance or object;203 that the concept of waste did not in principle exclude ‘any kind of residue, industrial by-product or other substance’ arising from a production process;204 that, besides applying to the disposal and recovery of waste by specialist undertakings, the WFD also applied ‘to disposal and recovery of waste by the undertaking which produced them, at the place of production’;205 and that, even though substances directly or indirectly forming part of an industrial process might constitute waste, there was nonetheless a distinction between waste recovery and the normal industrial treatment of non-waste products, however difficult to draw that distinction might be.206 The foregoing issues had arisen in the context of a reference to the ECJ by the Belgian Conseil d’Etat under Art. 234, European Treaty (ex 177), in which Inter- Environnement Wallonie had asked the Belgian court to annul a decree of the Walloon Regional Council purporting to exempt from a permit system for waste installations those installations which formed an integral part of an industrial production process, on the basis that the decree conflicted with the Community law on waste. 3 In the joined cases ARCO and EPON,207 the ECJ confirmed that the definition of waste turned on the meaning of ‘discard’,208 a term which was not to be 197 That is, Council Directive 91/689/EEC. See para. 12.2.5.1(3) above. 198 See [1997] ECR I–3561, 3599 (para 41). 199 See [1997] ECR I–3561, 3602–3603 (paras 54 and 55). 200 Case C–129/96, [1998] 1 CMLR 1057. 201 See para. 12.2.5.2 (point 1) above. 202 [1998] 1 CMLR 1057, 1082 (para 26). 203 Ibid. (para 27). 204 Ibid. (para 28). 205 Ibid. (para 29). 206 [1998] 1 CMLR 1057, 1083 (paras 32–34). 207 ARCO Chemie Nederland Ltd and Others v. Minister van Volkshuisvesting, Ruimtelijke Ordening en Milieubeheer, Vereniging Dorpsbelang Hees and Others v. Directeur van de Dienst Milieu en Water Van de Provincie Gelderland, C–418–419/97, [2002] QB 646. Judgment was actually given on 15 June 2000 (see [2002] QB 646, 671). 208 [2002] QB 646, 677 (paras 36 and 46). 270 Environmental Taxation Law interpreted restrictively;209 that ‘discard’ included in particular the disposal and recovery of a substance or object;210 and that the question of whether a particular substance or object was waste had to be decided in the light of all the circumstances, regard being had to the aim of the WFD and the need not to undermine its effectiveness.211 In ARCO, a Dutch company planned to ship ‘LUWA-bottoms’, a by-product of one of its manufacturing processes, to Belgium, for use in cement manufacture. The relevant authority had granted permission on the basis that the substance was ‘waste’ within the terms of the Waste Shipment Regulation.212 In EPON, the competent Dutch authority had granted an application by EPON, a Dutch electricity generating company, for authorisation to use pulverised wood chips from the construction industry as fuel in one of its power stations. The national court doubted whether each of the LUWA-bottoms and the wood chips were raw materials or waste and referred two questions for a preliminary ruling to the ECJ. In reaching the decision summarised above, the ECJ set out the circumstances that have to be considered in deciding whether an object or substance which undergoes the operations set out in Annexes IIA and IIB is waste: a. it may, but does not necessarily, follow from the fact that disposal or recovery methods are described in Annexes IIA and IIB that any substance treated by one of those methods is to be regarded as waste;213 and b. other factors that may constitute evidence that a substance has been discarded but which are not conclusive on the point are the facts that: i. the substance in question is ‘commonly regarded as waste;’214 ii. use as fuel is ‘a common method of recovering waste’;215 iii. the substance is a production residue, that is, ‘a product not in itself sought for use as fuel’;216 iv. the substance is a residue ‘for which no use other than disposal can be envisaged’;217 and v. the substance is a residue ‘whose composition is not suitable for the use made of it or where special precautions must be taken when it is used owing to the environmentally hazardous nature of its composition’.218 c. However, the fact that a substance is the result of a complete recovery operation for the purpose of Annex IIB to the WFD does not necessarily exclude that substance from classification as waste.219 209 Ibid., 676 (para 40). 210 Ibid., 677 (para 47). 211 Ibid., 680 (para 73). 212 That is, Council Regulation 259/93/EEC. See para. 12.2.5.1(4) above. 213 That is, because it has been discarded. See [2002] QB 646, 677 (para 49). 214 [2002] QB 646, 680 (para 73). 215 Ibid. 216 Ibid., 681 (para 84). 217 Ibid. (para 86). 218 Ibid. (para 87). 219 Ibid., 682 (paras 94–95). Community Law Aspects 271 d. Finally, the concept of waste ‘is not to be understood as excluding substances and objects which are capable of being recovered as fuel in an environmentally responsible manner and without substantial treatment’.220 4 The recent decision of the ECJ in Criminal proceedings against Paul van de Walle and others221 has again reiterated the point that the term ‘discard’ should not be interpreted restrictively. In emphasising the point, the Court drew attention to the fact that category Q4 in Annex I to the WFD refers to ‘materials spilled, lost or having undergone other mishap, including any materials, equipment, etc., contaminated as result of the mishap’.222 What had happened was that, because of defects in a petrol station’s storage tanks, hydrocarbon oil had leaked into the ground. Despite the accidental nature of the spillage, the ECJ held that the defendant had ‘discarded’ the oil, since, although the leakage was involuntary: It is clear that accidentally spilled hydrocarbons which cause soil and groundwater contamination are not a product which can be re-used without processing. Their marketing is very uncertain and, even if it were possible, implies preliminary operations would be uneconomical for their holder. Those hydrocarbons are therefore substances which the holder did not intend to produce and which he discards, albeit involuntarily, at the time of the production or distribution operations which relate to them.223 On the basis that the oil had been discarded, it was next a question of whether the contaminated earth was ‘waste’ within the provisions of the WFD. Disregarding distinctions based, for example, on whether the earth had been excavated, the ECJ held that, since the oil could not be separated from the soil, the soil itself had become waste: That is the only interpretation which ensures compliance with the aims of protecting the natural environment and prohibiting the abandonment of waste pursued by the Directive. It is fully in accord with the aim of the Directive and heading Q4 of Annex I thereto, which, as pointed out, mentions any materials, equipment, etc., contaminated as a result of [materials spilled, lost or having undergone other mishap] among the substances or objects which may be regarded as waste.224 Under the WFD, and in the circumstances of the case, the independent manager of the station was the ‘holder’ of the waste, since he had stocked the oil when it had become waste and had therefore to be treated as having produced it.225 However, if the leakage been attributable to some contractual breach by Texaco, the lessee of the station, then Texaco might instead be regarded as the holder.226 220 Ibid., 679 (para 65). 221 Case C–1/03 (7 September 2004). 222 Ibid. (para 43). 223 Ibid. (para 47). 224 Ibid. (para 52). 225 Ibid. (para 59). 226 Ibid. (para 60). 272 Environmental Taxation Law It has been pointed out by Macrory that a consequence of the decision in Van de Walle might be to render the UK’s contaminated land rules otiose.227 12.2.6 Control of air and atmospheric pollution 12.2.6.1 General The discussion in paragraph 12.2.5 completes our survey of Community waste management regulation. Despite the intractable problems surrounding the definition of ‘waste’, a feature of Community law and policy on waste management is that it forms an identifiable body of law, gathered mainly around the WFD. With Community law and policies relating to air and atmospheric pollution, the position is somewhat different. Easy appreciation of the corpus of Community regulation relating to air and atmospheric pollution is hampered partly by the piecemeal nature of regulatory development in the area and partly by its relationship with Community regulation of the energy and transport sectors. The following discussion begins with an overview of Community regulation on air and atmospheric pollution.228 Thereafter, it focuses on those aspects of Community energy law and policy that have implications for the control of atmospheric pollution. 12.2.6.2 Pollution of air and atmosphere Introduced in 1996, the Air Quality Framework Directive (‘the AQFD’)229 lays down the basis for common objectives on ambient air quality in order to prevent harmful effects on the environment and on human health. In due course, the AQFD will be supplemented by a dozen ‘daughter’ directives, at least three of which have already been adopted.230 On 8 March 1999, the Commission published its European Climate Change Programme (‘the ECCP’),231 which was intended to initiate a new community approach to the implementation of the Kyoto Protocol. In addition, Directive 2001/81/ EC, on National Emissions Ceilings for Certain Atmospheric Pollutants, which aims to lay down a strategy for combating acidification, eutrophication and photochemical air pollutants, has been adopted.232 227 See 356 ENDS Report (2004) 44 (see also para. 6.7 above). 228 See Sands, op. cit., pp. 336–9, 755–8; Sunkin, Ong and Wight, op. cit., pp. 142–71; and Susan Wolf and Neil Stanley, Wolf and Stanley on Environmental Law, 4th edn (London: Cavendish, 2003), pp. 344–6. 229 Council Directive 92/62/EC, (1996) OJ L296 55. See para. 21.5 below. This is singled out by HM Treasury in Tax and the Environment: Using Economic Instruments (London: HMSO, 2002), p. 33, as an example of good regulation. 230 That is, Directive 1999/30/EC, (1999) OJ L163 41 (limitation of values for sulphur dioxide, nitrogen dioxide, oxides of nitrogen and particulates and lead in the ambient air) (see para. 22.4 below); Directive 00/69/EC, (2000) OJ L313 12 (limitation of values for benzene and carbon monoxide in the ambient air); and Directive 02/3/EC (2002) OJ L67 14 (limitation of values for ozone in the ambient air). 231 COM(00) 88 final, available from www.europa.eu.int. See also 322 ENDS Report (2001). 232 Council Directive 92/62/EC, (2001) OJ L309 22. See para. 22.4 below. Community Law Aspects 273 Aside from attempts to create a unified approach to controlling air and atmospheric pollution, there a number of other initiatives, in origin somewhat older, which are directed either at controlling emissions from specific pollution sources or setting air quality standards generally (that is, irrespective of the pollution source). Examples of the former are the 2001 Large Combustion Plant Directive,233 which replaces the Large Combustion Plant Directive of 1988,234 and the vehicle emissions standards discussed below;235 an example of the latter is the current Regulation banning the sale and use of most ozone depleting substances, including CFCs and HCFCs.236 The latter is designed to enable the Community to meet its obligations under the 1985 Vienna Convention for the Protection of the Ozone Layer and its 1987 Montreal Protocol.237 The Large Combustion Plant Directive should now, of course, be read in conjunction with the IPPC Directive.238 The measures implementing the provisions just discussed in UK law are discussed in Chapter 6 above.239 12.2.6.3 Energy law and policy (1) Introduction There is only brief mention of energy in the European Treaty itself.240 However, two directives, each adopted under the co-decision procedure,241 contain common rules for the electricity and gas industries:242 a. European Parliament and Council Directive 2003/54/EC Concerning Common Rules for the Internal Market in Electricity (‘the Electricity Acceleration Directive’ or ‘EAD’);243 and b. European Parliament and Council Directive 2003/55/EC Concerning Common Rules for the Internal Market in Natural Gas (‘the Gas Acceleration Directive’ or ‘GAD’).244 In addition, a new regulation, again adopted under the co-decision procedure, is concerned with increasing cross-border trade in electricity. This is Regulation EC/1228/2003 on Conditions for Access to the Network for Cross-Border Exchanges 233 Directive 01/80/EC, (2001) OJ L309 1. See Sands, op. cit., pp. 336–9. 234 Council Directive 88/609/EEC, (1988) OJ L336 1. See para. 22.4 below. 235 See para. 12.2.6.4(2) below. 236 Council Regulation 2037/2000/EC, (2000) OJ L244 1. 237 See para. 8.3.1.5 above. 238 See para. 12.2.2 above. 239 See para. 6.4 above. 240 That is, Arts 3(1)(u) and 154 (ex 129b), European Treaty. 241 See para. 4.3.3 above. 242 See Peter Cameron, Competition in Energy Markets (Oxford: Oxford University Press, 2002); Carlos Ocana et al., Competition in Energy Markets (OECD/IEA, 2001); and Completing the Internal Energy Market, COM (01) 125 final. 243 03/54/EC, (2003) OJ L176 37. 244 (2003) OJ L176 57. 274 Environmental Taxation Law in Electricity.245 Finally, the production of electricity from renewable energy sources is promoted by European Parliament and Council Directive 2001/77/EC (‘the Renewables Directive’),246 with electricity production from combined heat and power being covered by European Parliament and Council Directive 2004/8/EC (‘the Cogeneration Directive’).247 The EAD and GAD have comparable market-opening objectives. The overall objective of the EAD is to provide for common rules for the generation, transmission and distribution of electricity, whilst that of the GAD is to provide for common rules for the transmission, distribution, supply and storage of natural gas. The Directives repeal248 the 1996 Electricity Directive249 and the 1998 Gas Directive250 respectively, although they retain the most important features of their predecessors. The background to the policy development process culminating in the adoption of the Acceleration Directives is the opening up of energy markets to competition, a process which has already been discussed above.251 Specifically, the Acceleration Directives were designed to improve on the provisions of the 1996 and 1998 Directives with regard to the pace and level of market-opening and guarantees as to fair and non-discriminatory network access. Although most Member States had in fact opened their markets further than required by the 1996 and 1998 Directives, market distortions remained because of those that had not done so; moreover, there continue to be wide variations between Member States as to standards for third party access (‘TPA’).252 Whilst market opening is one of the main objectives of each of the EAD and the GAD, both Directives also imposes public service obligations (‘PSOs’) and measures for consumer protection.253 These include the obligation to impose adequate safeguards to protect vulnerable customers;254 the obligation to ensure that electricity supplies disclose details of energy sources in bills and promotional materials;255 and the implementation of appropriate measures, including economic incentives, to achieve environmental protection.256 Prior to considering the four instruments in more detail, it is useful to refer briefly to Community law and policy on the most controversial of means of electricitygeneration: nuclear power.257 Whilst nuclear generation is not in itself a central 245 (2003) OJ L176 1. 246 (2001) OJ L283 33. 247 (2004) OJ L52 50. 248 In relation to the EAD, with effect from 1 July 2004 (see Directive 03/54/EC, Art. 29). In relation to the GAD, also with effect from 1 July 2004 (see Directive 03/55/EC, Art. 32(2)). 249 European Parliament and Council Directive 96/92/EC, (1996) OJ L27 20. 250 European Parliament and Council Directive 98/30/EC, (1998) OJ L204 2. 251 See para. 2.4 above. 252 See Cameron, op. cit., para. 8.11. 253 See Directive 03/54/EC, Art. 3 and Directive 03/55/EC, Art. 3. 254 See Directive 03/54/EC, Art. 3(5) and Directive 03/55/EC, Art. 3(3). 255 Ibid., Art. 3(6). This provides for cross-border transfers at ‘cost’. See also www. electricitylabels.com. 256 Ibid., Art. 3(7) and 03/55/EC, Art. 3(4). 257 See Cameron, op. cit., paras 2.13–2.16. Community Law Aspects 275 concern of the present study, and although it does not count as a renewable energy source,258 factors such as the operating costs of nuclear reactors, as well as the costs of their decommissioning, explain many of the policy choices which governments have made in relation to nuclear power and the environment.259 The creation of a common market in nuclear ores and fuels was a prime aim of the 1957 Euratom Treaty260 and, to this end, Art. 2 thereof committed the Community, among other things, to the promotion of research and the dissemination of technical information; to the establishment of uniform safety standards; to the facilitation of investment; to ensuring a regular and equitable supply of ores and nuclear fuels; and, internationally, to fostering progress in the peaceful uses of nuclear energy.261 Additionally, by Art. 30, Euratom Treaty, basic standards were to be laid down for the protection of workers’ health and that of the general public against dangers arising from ionising radiations. With nuclear power accounting for about a third of the EU’s electricity-generating capacity, there is currently much concern about ensuring security of supply and the EC Commission has recently launched a package of measures on the protection of the environment from radioactive waste.262 Apart from electricity and gas, some consideration is given in what follows to coal and hydrocarbons and hydrocarbon-based fuels. The emphasis throughout is on explaining market structures. Except as regards state aids, which receive relatively detailed discussion,263 Community competition law is not separately discussed. The reader should note, however, that, generally speaking,264 Community energy markets are subject to general Community competition law rules.265 In relation to both gas and electricity, the thrust of the Commission’s competition policy has been ‘to prevent private arrangements or practices that restrict the emergence of competition or that foreclose national markets against new entrants’.266 258 See Directive 01/77/EC, Art. 2(a). 259 See paras 21.4.4, 21.5 and 21.6 below. 260 See para. 4.3 above. 261 The Euratom Treaty was designed to reduce the dependence of European Countries on energy imports from the regions affected by the 1956 Suez crisis, at the same time countering the dominance at that time of the USSR and the US in nuclear power (see Cameron, op. cit., para. 2.14). 262 See Christiane Trüe, ‘Legislative Competences of Euratom and the European Community in the Energy Sector: the Nuclear Package of the Commission’, (2003) 28 EL Rev 664– 85. 263 See para. 12.2.7 below. 264 There is, however, Council Directive 90/377/EEC, (1990) OJ L185 16 concerning a community procedure to improve the transparency of gas and electricity prices charged to industrial end-users. This has survived the EAD and GAD (unlike the Transit Directive (Council Directive 90/547/EEC, (1990) OJ L313 30), which has been repealed with effect from 1 July 2004 (see Directive 03/54/EC, Art. 29)). 265 As to which, see, for example, Stephen Weatherill and Paul Beaumont, EU Law, 3rd edn (London: Penguin), chs 22–25; and Craig and de Búrca, op. cit., chs 21–25. 266 Cameron, op. cit., para. 7.67. 276 Environmental Taxation Law (2) Electricity The EAD envisages a fully open internal electricity market, with customers free to choose their suppliers and all suppliers free to deliver to their customers.267 It lays down common rules in three areas of the electricity industry: generation, transmission and distribution. The generation, or production,268 of electricity is covered by Art. 6, EAD, which provides that an authorisation, as opposed to a tendering, procedure is to be the norm for the construction of new generating capacity. The authorisation procedure, which must be ‘conducted in accordance with objective, transparent and non discriminatory criteria’, may, among other things, lay down criteria relating to the protection of the environment.269 Transmission, which is defined as ‘the transport of electricity on the extra highvoltage and high-voltage interconnected system with a view to its delivery to final customers or to distributors, but not including supply’,270 is dealt with in Arts 8–12, EAD. Article 8 provides for the designation and supervision of Transmission System Operators (‘TSOs’), who are responsible for operating, ensuring the maintenance of and, if necessary, for developing a Member State’s transmission system and its interconnections with other systems. By Art. 11(3), EAD, a Member State may require the TSO, ‘… when dispatching generating installations, to give priority to generating installations using renewable energy sources271 or waste or producing combined heat and power’. Dispatching is not relevant to the UK, as has been discussed in Chapters 2 and 6272 above. The operation of the distribution system is dealt with in Arts 13–17, EAD. ‘Distribution’ is defined as ‘… the transport of electricity on high-voltage, medium voltage and low voltage distribution systems with a view to its delivery to customers, but not including supply’.273 Member States generally have a single TSO and several distribution system operators (‘DSOs’).274 The designation and supervision of DSOs is required by Art. 13. Each of the activities referred to above is regulated in the UK by the Electricity Act 1989, as amended.275 Although further liberalisation measures are currently proposed,276 the UK electricity market was already the most liberalised in Europe, even before the EAD’s adoption.277 267 Directive 03/54/EC, recital 4. 268 Ibid., Art. 2(1). 269 Ibid., Art. 6(2)(c). 270 Ibid., Art. 2(3). 271 Defined as ‘renewable non-fossil energy sources (wind, solar, geothermal, wave, tidal, hydropower, biomass, landfill gas, sewage treatment plant gas and biogases) …’ (see Directive 03/54/EC, Art. 2(30)). 272 See para. 6.4 above. 273 See Directive 03/54/EC, Art. 2(5). 274 See Cameron, op. cit., para. 4.17. 275 See para. 6.4 above. 276 That is, through the introduction of BETTA in Part 3 of the Energy Act 2004 (see para. 6.4 above). 277 See, for example, Cameron, op. cit., paras 1.19, 4.116 and 5.86; IEA, op. cit., pp. 37–43. Community Law Aspects 277 The crucial central provision of the EAD is the removal of two of the three types of TPA to the transmission and distribution networks as contained in the now repealed 1996 Directive. Access to the transmission and distribution networks is now to be based simply on published tariffs, applicable to all eligible customers objectively and without discrimination between users of the systems.278 This is regulated TPA,279 which allows producers, on the one hand, and eligible customers, on the other, to contract with each other direct for electricity supply on the basis of the published tariffs. This should encourage access to the market by new entrants on the basis that non-discriminatory access is possible.280 Eligible customers are:281 a. before 1 July 2004, customers falling within specified market-opening percentages and permitted by Member States as being eligible to participate in the opening of the market;282 b. from 1 July 2004, at the latest, all non-household customers;283 and c. from 1 July 2007, all customers.284 Customers are defined to mean both wholesale and final customers of electricity,285 the former referring to those who purchase electricity for resale,286 the latter referring to those who purchase it for their own use.287 The basis on which the UK has interpreted the concept of eligible customers has already been discussed in an earlier chapter.288 Regulated TPA is already the basis for network access in the UK. The expressed purpose of the Renewables Directive289 is the promotion of an increase in the contribution of renewable energy sources to the production of electricity in the internal market.290 By Art. 3 of the Renewables Directive, each Member State is to set national indicative targets for consumption of electricity produced from renewable energy sources, taking into account the reference values set out in the Directive and ensuring compatibility with obligations under the Kyoto Protocol.291 ‘Renewable energy sources’ are defined as ‘renewable non-fossil energy sources (wind, solar, geothermal, wave, tidal, hydropower, biomass, landfill gas, sewage treatment plant gas and biogases)’.292 The definition thereby excludes nuclear 278 Directive 03/54/EC, Art. 20(1). 279 See Cameron, op. cit., paras 4.24 and 8.12. 280 Ibid., para. 8.11. 281 See Directive 03/54/EC, Arts 2(12) and 21(1). 282 Ibid., Art. 21(1)(a). 283 Ibid., Art. 21(1)(b), that is, purchasers of electricity other than for their own household use, including producers and wholesale customers (see Directive 03/55/EC, Art. 2(11)). 284 Directive 03/54/EC, Art. 21(1)(c). 285 Ibid., Art. 2(7). 286 Ibid., Art. 2(8). 287 Ibid., Art. 2(9). 288 See para. 12.2.6.3(1) above. 289 Ibid. 290 Directive 01/77/EC, Art. 1. 291 Directive 01/77/EC, Art. 3(2). 292 Ibid., Art. 2(a). 278 Environmental Taxation Law power from the definition of renewables. Since Member States are obliged only to take ‘appropriate steps’ to meet the indicative targets, failure to meet those targets is not by itself a breach of the terms of the Directive. However, Art. 3(4) of the Directive reserves to the Commission the right to set mandatory targets. Article 5 of the Directive requires Member States to ensure that the origin of electricity produced from renewable energy sources can be guaranteed as such by creating systems for granting guarantees of origin. Article 6(1) of the Directive then requires Member States to review their existing rules on the construction and operation of renewable power plants with a view to reducing the regulatory and non-regulatory barriers to renewables production. The remaining provisions of the Renewables Directive concern transmission and distribution issues (that is, ‘grid’ issues). For instance, Art. 7(1) of the Directive requires Member States to take the necessary measures to ensure that TSOs and DSOs in their territory ‘guarantee’ the transmission and distribution of electricity produced from renewable energy sources. This same provision also allows Member States to afford renewables generators priority access to the transmission and distribution systems. In the UK, the government has decided that 10 per cent of electricity supplies should come from renewable sources by 2010.293 However, there has been until recently no system for guaranteeing the ‘renewable’ origin of electricity supplies and the UK transmission and distribution system is not structured in such a way as to enable renewables generators to be accorded priority.294 If the purpose of the Renewables Directive is the promotion of renewable source electricity in the internal market, the professed objective of the Cogeneration Directive is ‘to increase energy efficiency and improve security of supply by creating a framework for promotion and development of high efficiency cogeneration of heat and power based on useful heat demand and primary energy savings in the internal energy market’.295 ‘Cogeneration’ is defined in Art. 3(a) of the Cogeneration Directive as ‘the simultaneous generation in one process of thermal energy and electrical and/or mechanical energy’, a definition which covers the following cogeneration technologies: (a) combined cycle gas turbine with heat recovery; (b) steam backpressure turbine; (c) steam condensing extraction turbine; (d) gas turbine with heat recovery; (e) internal combustion engine; (f) microturbines; (g) stirling engines; (h) fuel cells; (i) steam engines; (j) organic Rankine cycles; 293 See para. 6.4 above. 294 See paras 2.4 and 6.4.3.1(2)(b) above and paras 21.5.4–21.5.6 below. 295 Directive 04/8/EC, Art. 1. Community Law Aspects 279 (k) any other type of technology or combination thereof falling under the definition laid down in Article 3(a).296 Article 6 of the Cogeneration Directive requires Member States both to analyse national potential for high-efficiency cogeneration and to monitor periodically their progress towards increasing the proportion of their electricity produced from this source,297 while Art. 5 requires Member States to institute, as for renewable source electricity, a system of guarantees of origin, for the purpose of ensuring that electricity generated from high-efficiency cogeneration can be guaranteed as such.298 Such a system of guarantees mu,st be instituted within six months following the Commission’s establishment of ‘harmonised efficiency reference values for separate production of electricity and heat’.299 Additionally, obligations on both the Commission and on Member States to report on the progress of the matters covered by the Directive are imposed by Arts 10 and 11, while Art. 8 requires Member States both to ensure that TSOs and DSOs in their territory ‘guarantee’ the transmission and distribution of electricity produced from high-efficiency cogeneration,300 and, until the cogeneration producer becomes an eligible customer under Art. 21(1) of the EAD,301 to ensure the due publication of tariffs for the purchase of electricity ‘to back-up or top-up electricity generation’.302 Regulation EC/1228/2003 on Conditions for Access to the Network for Cross-Border Exchanges in Electricity is directed towards the further development of cross-border trade in electricity, whose level is currently rather modest. To this end, the Regulation establishes a compensation mechanism for cross-border flows of electricity; for the setting of harmonised principles on cross-border transmission charges; and for the allocation of available capacities of interconnections between national transmission systems.303 Article 7 of the Regulation permits new electricity interconnectors to be exempt from TPA and from the regulatory control of tariffs. In general terms, the UK presently complies with the three measures discussed above. Such legislative changes as are necessary, in relation to a regulatory and exemption regime for new interconnectors, have been made through the Energy Act 2004.304 (3) Gas The Gas Acceleration Directive is rather similar to the EAD. Like the EAD, the GAD looks forward to a fully open internal market.305 Reflecting the differences 296 Ibid., Annex I. 297 Ibid., Art. 6(1). 298 Ibid., Art. 5(1). 299 Ibid., Art. 4(1). 300 Ibid., Art. 8(1). 301 See above. 302 Ibid., Art. 8(2). 303 Regulation EC/1228/2003, Art. 1. See Cameron, op. cit., paras 8.17–8.21; IEA, op. cit., p. 43. 304 See para. 6.4.3.1(4) above. 305 Directive 03/55/EC, recital 4. 280 Environmental Taxation Law between the structures of the gas and electricity industries,306 however, it establishes common rules in four areas: transmission, distribution, supply and storage.307 Within the scope of natural gas, for the purposes of the GAD, is liquefied natural gas (‘LNG’), biogas308 and gas from biomass,309 plus any other type of gas that can technically and safely be injected into, and transported through, the natural gas system.310 Gas transmission, storage and LNG is dealt with in Arts 7–10, GAD. Transmission is itself defined as ‘the transport of natural gas through a high pressure pipeline network … with a view to its delivery to customers, but not including supply’.311 As with electricity, there is provision for the designation of TSOs,312 who are tasked with various duties including the operation, maintenance and development, under economic conditions, of secure, reliable and efficient transmission, storage and/or LNG facilities,313 due regard being paid to the environment.314 The distribution and supply of gas forms the subject matter of Arts 11–15, GAD. ‘Distribution’ is itself defined as ‘the transport of natural gas through local or regional pipeline networks with a view to its delivery to customers, but not including supply’.315 The provisions on distribution and supply are in substance very similar to those covering transmission, storage and LNG. As with the EAD, the designation and supervision of DSOs is required.316 As in the case of the EAD, the central provisions of the GAD are those that relate to market access. Access to transmission, distribution and LNG facilities is again to be based simply on published tariffs, applicable to all eligible customers objectively and without discrimination between users of the systems.317 Again, the model is 306 See para. 2.4 above. 307 Directive 03/55/EC, Art. 1(1). Unlike the EAD, the GAD does not provide for common rules for operations relating to gas production although, like the EAD, it does contain rules for the granting of licences for the construction of natural gas facilities, including facilities for production, transmission, distribution and storage (see Directive 03/55/EC, Art. 4). Production itself is dealt with separately in the Hydrocarbons Licensing Directive (see para. 12.2.6.3(5) below). 308 That is, ‘gas formed by anaerobic digestion of organic materials, for example, whey or sewage sludge’ (Porteous). 309 That is, ‘the mass of living organisms forming a prescribed population in a given area of the earth’s surface’ (Porteous). 310 Directive 03/55/EC, Art. 1(2). 311 Ibid., Art. 2(3). ‘Supply’ is defined as the sale, including resale, of natural gas, including LNG, to customers (see Directive 03/55/EC, Art. 2(7)). 312 Directive 03/55/EC, Art. 7. 313 LNG facilities are defined in Directive 03/55/EC, Art. 2(11), as terminals used for the liquefaction of natural gas, or the importation, offloading and re-gasification of LNG, including ancillary services and temporary storage necessary for the re-gasification process and subsequent delivery to the transmission system but not including those parts of LNG terminals used for storage. 314 Directive 03/55/EC, Art. 8(1). 315 Ibid., Art. 2(5). 316 That is, by Directive 03/55/EC, Art. 11. 317 Ibid., Art. 18(1). Community Law Aspects 281 regulated TPA,318 which allows producers, on the one hand, and eligible customers, on the other, to contract with each other direct for electricity supply on the basis of the published tariffs. Eligible customers are defined in exactly the same way as for purposes of the EAD, that is:319 a. before 1 July 2004, customers falling within specified market-opening percentages and permitted by Member States as being eligible to participate in the opening of the market;320 b. from 1 July 2004, at the latest, all non-household customers;321 and c. from 1 July 2007, all customers.322 Parallel with the EAD, in the GAD, customers are defined to mean both wholesale and final customers of natural gas and natural gas undertakings that purchase natural gas,323 the former referring to those who purchase natural gas for resale (other than TSOs and DSOs),324 final customers being those who purchase it for their own use.325 The basis on which the UK has interpreted the concept of eligible customers for the purpose of the gas markets has already been discussed in an earlier chapter.326 Regulated TPA is already the basis for network access in the UK and the DTI considers that, whilst the UK is in broad compliance with the provisions of the GAD, certain further measures needed to be taken.327 (4) Coal The European coal industry was formerly subject to the system of regulated competition provided for by the 1951 European Coal and Steel Community Treaty (‘the ECSC Treaty’).328 Since July 2002, however, the industry has been brought within the provisions of the European Treaty, although it has the benefit of a special set of rules on state aid.329 At the time of the expiration of the ECSC Treaty, on 23 July 2002, the Commission reported that, within the countries which formed the then 15 Member States, coal output was down to 83 million tons, as against 485 million tons in 1953.330 However, as the Commission also reported, the ten accession countries also have big, and not yet fully restructured, coal industries. 318 See Cameron, op. cit., paras 4.88 and 8.13. 319 See Directive 03/55/EC, Arts 2(28) and 23(1). 320 Ibid., Art. 23(1)(a). 321 Ibid., Art. 23(1)(b), that is, purchasers of natural gas other than for their own household use (see Directive 03/55/EC, Art. 2(26)). 322 Ibid., Art. 23(1)(c). 323 Ibid., Art. 2(24). 324 Ibid., Art. 2(29). 325 Ibid., Art. 2(27). 326 See para. 6.4 above. 327 See para. 6.4.3.2 above. 328 See Cameron, op. cit., paras 2.11–2.12. 329 See para. 12.2.7.3 below. 330 Press Release IP/02/898, Fifty Years at the Service of Peace and Prosperity: The European Coal and Steel Community (ECSC) Treaty Expires, Brussels, 19 June 2002. 282 Environmental Taxation Law (5) Oil The sourcing, composition, storage and distribution of both hydrocarbon oils and hydrocarbon-based motor fuels is highly regulated within the Community.331 European Parliament and Council Directive 94/22/EC (‘the Hydrocarbons Licensing Directive’)332 contains the rules relating to authorisations for exploring for and extracting both oil and natural gas.333 The three main objectives of the Hydrocarbons Licensing Directive are to ensure that all entities possessing the necessary capabilities can gain access to authorisations; to ensure that ‘authorisations are granted according to objective published criteria’; and to ensure that all entities taking part in the authorisation procedure know in advance the conditions under which authorisations are to be granted.334 Standards for the composition, storage and distribution of motor fuel are contained in various directives. Both the lead content and the sulphur content of fuels is regulated. Lead content is subject to the Fuel Quality Directive335 and sulphur content to the Sulphur Content Directive.336 Subject to derogations, the Fuel Quality Directive banned leaded petrol from the market from 1 January 2000337 and made provision for progressive improvements in the environmental quality of unleaded petrol and diesel fuel. The Sulphur Content Directive, which amended Council Directive 93/12/EEC on the Sulphur Content of Certain Liquid Fuels,338 provides for a gradual reduction in the sulphur content of liquid fuels ‘to reduce the harmful effects of [sulphur dioxide] … emissions on man and the environment’.339 Directive 94/63/EC340 contains standards for the storage of petrol and its distribution from terminals to service stations. Such standards are concerned with controlling volatile organic compound emissions. The transposition of the Directives referred to above into UK law has been referred to in Chapter 6 above.341 12.2.6.4 Transport law and policy (1) Introduction The legislative basis of the Community’s common transport policy (‘the CTP’) is contained in Arts 70–80, European Treaty (ex 74–84).342 Article 70 states only that 331 Only the briefest indication of the scope of this regulation is given here. See, further, Patricia D. Park, Energy Law and the Environment (London: Taylor and Francis, 2002), ch. 5. 332 (1994) OJ L164 3. 333 See para. 12.2.6.3(3)n above. 334 See Cameron, op. cit., para. 3.38. 335 European Parliament and Council Directive 98/70/EC, as amended, (1998) OJ L350 58. 336 Council Directive 1999/32/EC, as amended, (1999) OJ L121 13. 337 Directive 98/70/EC, Art. 3(1). 338 (1993) OJ L74 81. 339 Council Directive 1999/32/EC, Art. 1(1). 340 (1994) OJ L365 24. 341 See para. 6.4 above. 342 Although ‘a common policy in the sphere of transport’ is referred to in Art. 3(1)(f), European Treaty. Community Law Aspects 283 the objectives of the Treaty are to be pursued by the Member States ‘within the framework of a common transport policy’, however.343 Without stating the goals of the CTP, Art. 71 nonetheless provides that measures taken for the purpose of implementing Art. 70 are to be enacted under the co-decision procedure.344 Article 72 then prevents the introduction of, or any increase in, discriminatory measures without the unanimous approval of the Council. Article 73, to be discussed below,345 deals with state aids in relation to transport, while Art. 74, which relates to the method and extent to which Member States may intervene in the commercial activities of carriers, requires account to be taken of carriers’ economic circumstances where measures are taken in relation to transport rates and conditions. Article 78 specifically allows state aid in the transport sphere in respect of parts of Germany to reflect the economic disadvantages caused by the division of Germany after the Second World War. Article 75, which reflects the principles of Arts 23–31, European Treaty (ex 9, 10, 12, 28, 29, 30, 34, 36 and 37),346 provides for the abolition of discrimination in rates and conditions for the transportation of goods. Article 76 continues this theme by reflecting the anti-discrimination provision of Art. 12, European Treaty (ex 6) and banning Member States from imposing transport rates and conditions that favour particular undertakings or industries, except in accordance with authorisation from the Commission. In an echo of Art. 25, European Treaty (ex 12),347 Art. 77 is designed to ensure that charges or dues in addition to the transport rates in respect of the crossing of frontiers do not exceed a reasonable level after taking into account the costs thereby actually incurred. Finally, while Art. 79 provides for the setting-up of an advisory Committee on transport to be attached to the Commission, Art. 80(1) expressly states that the provisions of Arts 70–80 are to apply to transport by rail, road and inland waterway. Article 80(2) provides that it is for the Council, acting by qualified majority, to decide whether, to what extent and by what procedure, appropriate provisions may be laid down for sea and air transport. It should be noted, however, that Art. 80(2) does not prevent the application of the general rules of the European Treaty to transport by sea and by air.348 In subsequent chapters of the present study, road and air transport are of the greatest relevance and it is to those areas that we now turn. In each area, there is a wealth of secondary legislation, in the form of regulations and directives. Moreover, the reader should be aware that, in 2001, the Commission published a White Paper making some 60 specific proposals of measures to be taken at Community level under the CTP.349 343 Notably, in a relatively under-explored area, see Rosa Greaves, EC Transport Law (Harlow: Pearson Education, 2000). 344 See para. 4.3.3 above. 345 See para. 12.2.7.4 below. 346 See para. 12.4 below. 347 See para. 12.3.3.2 below. 348 See Greaves, op. cit., p. 22. 349 Commission of the European Communities, European Transport Policy for 2010: Time to Decide (Luxembourg: Office for Official Publications of the European Communities, 2001). 284 Environmental Taxation Law Policy preoccupations of the Commission revealed by the White Paper include the promotion of clean urban transport;350 intermodal transport (that is, integrated transport chains);351 and transport infrastructure charging policy.352 We shall return to the last of these in paragraph (2) below. It is important to stress the same point here, in relation to competition, as was made in relation to energy above. The Community’s competition rules apply to transport, just as to other economic sectors; the only aspect of those rules that there will be an opportunity to refer to in what follows is that of state aid.353 (2) Road freight transport Secondary legislation on road transport may be grouped into six areas:354 a. market access and pricing relating to goods; b. market access and pricing in relation to passengers; c. fiscal harmonisation; d. social legislation; e. technology, safety and environment; and f. transport of dangerous goods. Whilst noting the broad contours of legislation in each of categories a., b., d. and f., we are concerned most closely here, of course, with categories c. and e. As to market access and pricing, (see a. and b. above), Community law and policy has chiefly been concerned with three areas: with removing restrictions (that is, quotas) on the provision of transport services between Member States; with the right of a nonresident undertaking to provide transport services within a Member State; and with access to the occupation of a transport service operator.355 The main items of social legislation on road transport (see d. above) are Council Regulation 3820/85/EEC on the Harmonisation of Certain Social Legislation relating to Road Transport356 and European Parliament and Council Directive 2002/15/EC on the Organisation of the Working Time of Persons Performing Mobile Road Transport Activities.357 As to f. (that is, the transport of dangerous goods), the main provision is Council Directive 94/55/EC,358 which transposes international law on the transport of dangerous goods into Community law. 350 See www.europa.eu.int/comm/energy. Also, White Paper, pp. 81–4. 351 See www.europa.eu.int/comm/transport. Also, White Paper, pp. 41–7 and Greaves, op. cit., p. 125. 352 See www.europa.eu.int/comm/transport. Also, White Paper, pp. 88ff., and Greaves, op. cit., pp. 125–30. 353 The reader is referred to the materials cited in para. 12.2.6.4(1)n above; also, in this context, to Greaves, op. cit., ch 7. 354 These are the six divisions used in the ABC of the Road Transport Acquis, available from www.europa.eu.int/comm/transport. 355 See Greaves, op. cit., ch 3. 356 (1985) OJ L370 1. 357 (2002) OJ L80 35. 358 (1994) OJ L319 7. Community Law Aspects 285 Secondary legislation on technology and safety in relation to road transport (see e. above) covers matters such as information on road accident statistics;359 driver training,360 driving licences;361 vehicle speed limitation devices;362 and vehicle recording equipment (that is, tachographs).363 Meanwhile, certain environmental aspects of road transport have been covered in a series of measures relating to sound and air pollution from vehicles.364 Prominent among these measures is a 1970 directive, which continues to be amended regularly,365 and which establishes mandatory technical standards for emissions of carbon monoxide, unburnt hydrocarbons, nitrogen oxides and particulates from both petrol- and diesel-engined cars.366 The Council, which is committed to implementing a research and development programme for the marketing of clean vehicles and fuels,367 has been authorised to adopt legislation for the stabilisation and reduction of emissions of carbon dioxide and other GHGs from motor cars and to introduce tax incentives for certain types of vehicle.368 Additionally, the Commission’s Auto/ Oil II Programme is aiming for considerable improvements by 2010 in urban air quality,369 the Commission also having entered into environmental agreements with associations such as the Korean Automobile Manufacturers Association (‘KAMA’), the Japanese Automobile Manufacturers Association (‘JAMA’) and the European Automobile Manufacturers Association (‘ACEA’)370 for the reduction of carbon dioxide emissions from cars.371 Emissions from diesel engines propelling road vehicles are dealt with in Council Directives 72/306/EEC372 and 88/77/EEC,373 while polluting emissions from engines powered by NG and LPG are covered by Directive 99/96/EC.374 Directive 99/96/EC introduces the concept of Enhanced Environmentally Friendly Vehicles, while Directive 96/1/EC375 permits Member States to introduce tax incentives for vehicles that satisfy certain conditions. Finally, Council Directive 70/157/EEC,376 as amended, approximates the legislation of 359 Council Decision 93/704/EC, (1993) OJ L329 63. 360 Council Directive 76/914/EEC, (1976) OJ L357 36. 361 Council Directive 91/439/EEC, (1991) OJ L237 1. 362 Council Directive 92/6/EEC, (1992) OJ L57 27. 363 Council Regulation EEC/3821/85, (1985) OJ L370 8, amended by Council Regulation EC/2135/98, (1998) OJ L274 1. 364 See Sands, op. cit., pp. 758–9. 365 See the list of amending measures in Sands, op. cit., p. 758n. It includes Council Directive 91/441/EC, (1991) OJ L242 1; Council Directive 93/59/EC, (1993) OJ L186 21; Council Directive 94/12/EC, (1994) OJ L100 42; and Directive 01/1/EC, (2001) OJ L35 34. 366 Council Directive 70/220/EEC, (1970) OJ L76 1. 367 Council Directive 91/441/EEC, amending Council Directive 70/220/EEC. 368 Council Directive 89/458/EEC, (1989) OJ L226 3, amending Council Directive 70/220/ EEC. 369 COM (00) 626 final (see Prelex link in Documents section of www.europa.eu.int). 370 See COM (1996) 561 and COM (1998) 495. 371 See Sands, op. cit., p. 759. 372 (1972) OJ L190 20. 373 (1988) OJ L36 33. 374 (2000) OJ L44 1. 375 (1996) OJ L40 1. 376 (1970) OJ L42 16. 286 Environmental Taxation Law Member States covering noise levels from motor vehicles. The implementation of these measures in UK law has already been discussed in Chapter 6 above.377 In addition to certain measures discussed below, which relate to the harmonisation of excise duties on fuel,378 at least one significant measure has been enacted in relation to the fiscal harmonisation of road transport (see c. above). This is European Parliament and Council Directive 1999/62/EC on the Charging of Heavy Goods Vehicles for Use of Certain Infrastructure.379 The Directive seeks to reduce the differences between systems of road taxes and charges applicable within Member States; to take better account of the principles of fair and efficient road pricing; and to move further towards the principle of territoriality in charging for road use. It therefore covers, not only vehicle excise duties, but also tolls and user charges.380 By Art. 2(d), the scope of the Directive is restricted to goods vehicles having a maximum permissible gross laden weight of at least 12 tonnes. Although Art. 4 of the Directive allows each Member State to fix its own procedures for levying and collecting the vehicle excise duties381 to which it applies, Art. 5 provides that, as regards vehicles registered in the Member States, such duties are to be charged only by the Member State of registration. Annex I to the Directive fixes, subject to the derogations, reduced rates and exemptions in Art. 6, the minimum rates of vehicle excise duty to be applied by Member States. Tolls and user charges may be imposed only on users of motorways and similar multi-lane roads, on users of bridges, on users of tunnels and on users of mountain passes.382 Art. 7(4) prohibits tolls and user charges from discriminating, whether directly or indirectly, on the basis of the haulier’s nationality or the origin or the destination of the vehicle. By Art. 7(5), Member States are enjoined to ensure that tolls and user charges are collected in such a way as to cause as little hindrance as possible to ‘the free flow of traffic’ and to avoid any mandatory checks at the internal borders of the Community. Under Art. 7(7) of the Directive, Member States are to fix user charges at a level not exceeding the maximum rates laid down in Annex II thereto, while user-charge rates are to be in proportion to the duration of the use made of the infrastructure.383 Articles 7(9) and 7(10) of the Directive set out the rules for determining user charges and for relating weighted average tolls to the costs of constructing, operating and developing the relevant infrastructure, etc.384 Finally, Art. 9(2) permits the earmarking of tolls and user charges, allowing Member States to attribute to environmental protection and the balanced development of transport networks a percentage of the amount of the user charge or toll, provide that the amount in either case is calculated in accordance with Arts 7(7) and 7(9) of the Directive. 377 See para. 6.4 above. 378 See para. 12.3.4 below. 379 (1999) OJ L187 42. 380 See para. 7.2.3 above. 381 The duties falling within the scope of the RCD are listed for each Member State in Art. 3, Directive 99/62/EC. 382 Directive 99/62/EC, Art. 7(2). ‘Tolls’ are defined, ibid., Art. 20. 383 Ibid., Art. 7(8). 384 See para. 7.2.3 above. Community Law Aspects 287 The UK’s vehicle excise duty regime is discussed in Chapter 22 below; the UK Government currently intends to introduce road-user charging for lorries by 2006;385 and the Commission has signalled its intention to amend Directive 1999/62/EC so as to align national systems of tolls and user charges for infrastructure use.386 (3) Air passenger transport The secondary Community legislation on air transport may be divided into 10 categories,387 six of which are not relevant in the present context, that is, the procurement of air traffic-management equipment and systems; air safety; air security; the protection of passengers; working conditions of employees; and a ‘sweep-up’ category of (mainly administrative) measures.388 The remaining four are as follows: a. market access and pricing; b. state aids; c. competition rules; and d. the environment. For present purposes, the most relevant categories are a. and d. above, although at least a brief indication of the relevant aspects of Community state aid and competition law is necessary to enable the significance of a. and d. fully to be appreciated. State aid issues, which are part of Community competition law, are discussed below;389 the competition rules referred to at c. above seek to apply the general rules of Community competition law to the specifics of the air transport sector. Thus, although since 1 May 2004, infringement proceedings under Arts 81 and 82, European Treaty (ex Arts 85 and 86) have been subject to new procedures of general application,390 there is an exemption from the scope of Art. 81(1) in relation to certain agreements, decisions and concerted practices in the transport sphere, in so far as their sole object and effect is to achieve technical improvements or cooperation. 391 Furthermore, by Council Regulation EEC/3976/87,392 among the types of agreements, decisions and concerted practices to which the Commission has the power to apply Art. 81(3), European Treaty (block exemptions), are those having as their object the planning and co-ordinating of airline schedules and joint operations on new less busy scheduled air services.393 385 See para. 27.3 below. 386 See COM(03) 488 (see Prelex link in Documents section of www.europa.eu.int). 387 These are the ten divisions used in the ‘Legislation’ section of the ‘Air Transport’ part of the Energy and Transport Directorate-General’s website (see www.europa.eu.int/comm/ transport). 388 See Greaves, op. cit., passim. 389 See para. 12.2.7.4 below. 390 See Council Regulation EC/1/2003, (2003) OJ L1 1, Arts 39 and 41, repealing Council Regulation EEC/3975/87, Arts 3–19 and Council Regulation EEC/3976/87, Art. 6. 391 See Council Regulation EEC/3975/87, (1987) OJ L374 1, Art. 2(1). 392 (1987) OJ L374 9. 393 See Council Regulation EEC/3976/87, as amended by Council Regulation EEC/2411/92, Art. 1(2) (1992) OJ L240 19. 288 Environmental Taxation Law In relation to a. above, air transport raises problems which, although different from those raised by road transport, are no less intractable. As noted in an earlier chapter,394 the international regulatory background to Community policy in the area is a complex of national law, the 1944 Chicago Convention and a network of bilateral conventions on routes, tariffs, etc. At least since 1987, Community policy has been to work towards the establishment of a genuine internal market in civil aviation, one in which such bilateral agreements are abolished and which is subject to general EU competition law rules.395 Thus, Council Regulation EEC/2408/92 on Access for Community Air Carriers to Intra-Community Air Routes,396 has afforded full market access to intra-Community air services by Community air carriers. This market-opening process has been facilitated by Council Regulation EC/95/93, on Common Rules for the Allocation of Slots at Community Airports,397 and by Council Regulation EEC/2409/92 on Fares and Rates for Air Services.398 Regulation EEC/2408/92 allows Community undertakings to operate as air carriers anywhere in the Community, regardless of nationality; Regulation EC/95/93 requires Member States to decide on the need for allocating slots399 according to capacity analyses (but not, significantly, by auction);400 and Regulation EEC/2409/92, in conjunction with Community competition law generally, regulates fares and rates for air transport services. The environmental effects of air transport have been a pressing concern of the Commission in recent years (see d. above). In its 1999 Communication, Air Transport and the Environment: Towards Meeting the Challenges of Sustainable Development,401 the Commission set out the four main ‘pillars’ for integrating environmental concerns into air transport policy, that is: improving technical environmental standards on noise and gaseous emissions; strengthening economic and market incentives; assisting airports in their environmental endeavours and advancing long-term technology improvements. Although the contribution of aircraft both to air and atmospheric pollution and to climate change is considerable, to date Community measures have concentrated on aircraft noise. Thus, Council Directive 80/51/EEC placed restrictions on noise emissions from subsonic aircraft;402 Council Directive 89/629/EEC403 banned the registration of so-called ‘Chapter 2 aircraft’;404 and Council Directive 92/14/EEC405 provided for the gradual withdrawal of such 394 See para. 8.5 above. 395 Greaves, op. cit., p. 67. 396 (1992) OJ L240 8. 397 (1993) OJ L14 1. 398 (1992) OJ L240 15. 399 A ‘slot’ is defined as ‘the scheduled time of arrival or departure available or allocated to an aircraft movement on a specific date at an airport coordinated under the terms of Regulation EEC/2408/92’ (see Art. 2(a) thereof). 400 See para. 27.5 below. 401 COM (99) 640. 402 (1980) OJ L18 26. 403 (1989) OJ L363 27. 404 That is, Chapter 2 of Annex 16 to the 1944 Chicago Convention (see para. 8.5 above). 405 (1992) OJ L76 21. Community Law Aspects 289 aircraft from operation in the EU by April 2002. Furthermore, European Parliament and Council Directive 2002/30/EC406 has embodied in Community law the International Civil Aviation Organisation (‘ICAO’)’s407 Resolution A33–7 on the use of a ‘balanced approach’ to the management of noise around airports.408 Finally, this last Directive takes effect against the background of a more general framework for limiting noise contained in European Parliament and Council Directive 2002/49/ EC,409 which has the aim of defining a common approach that is intended to avoid, prevent or reduce, on a prioritised basis, the harmful effects of exposure to environmental noise. For the UK provisions, see para. 6.5 above. 12.2.7 State aids 12.2.7.1 General State subsidy, whether or not on professedly environmental grounds, has long been used to manage economies.410 Subsidy, that is, a cost or loss of revenue to the public authority and a benefit to recipients, is the essence of state aids.411 Although state aids are not forbidden under Community law, they are subject to its discipline, which means that they must not be applied so as to discriminate on grounds of nationality or so as to lead to unlawful barriers to trade. Community state aid rules form part of the competition law of the Community. Writing in 2000, Ehlermann and Atanasiu summed up the significance of Community state aid law thus: The control of state aids is a unique feature of EU competition policy. No similar control system exists in any of the Member States or in any federal state outside the EU. This model has, nonetheless, an increasing influence beyond the borders of the Community: its rules have been ‘exported’ to the European Economic Area, and, more recently, to the Central and Eastern European countries (CEECs) which are candidates for EU membership.412 EU state aid rules and oversight practice have also influenced the evolution of the subsidy discipline imposed at the level of the GATT and the WTO.413 Articles 88 and 89, European Treaty (ex 93 and 94) create a procedure whereby Member States must keep the Commission informed of state aids, so that the 406 (2002) OJ L85 40. 407 See para. 8.5 above. 408 Directive 02/30/EC also repeals the so-called ‘Hushkit’ Regulation (that is, Regulation EC/925/99, (1999) OJ L 115 1), as to which, see Greaves, op. cit., p. 117. 409 (2002) OJ L189 12. 410 See Weatherill and Beaumont, op. cit., pp. 1018–29; A. Leigh Hancher, Tom Ottervanger and Piet Jan Slot, EC State Aids, 2nd edn (London: Sweet and Maxwell, 1999); and Andrew Evans, European Community Law of State Aid (Oxford: Clarendon Press, 1997). 411 See Evans, op. cit., p. 27. 412 The passage was obviously written prior to the accessions of May 2004. 413 See the Introduction to the European Competition Law Annual 1999: Selected Issues in the Field of State Aid, ed. by Claus-Dieter Ehlermann and Michelle Everson (Oxford: Hart Publishing, 2001), p. xxi. 290 Environmental Taxation Law Commission can assess whether they are consistent with Community law.414 Art. 88(3) imposes a positive duty on Member States to notify the Commission of any plans to grant or alter state aid and Art. 88(1) obliges the Commission to keep all state aid existing in member States under constant review. The Commission is charged with proposing to Member States any appropriate measures required by the development or functioning of the common market. In appropriate circumstances and, having followed the procedure in Art. 88(2), the Commission can require the Member State in question to alter or abolish the aid within a specified time, as well as to recover the aid in question (for example, where aid has been implemented without notification).415 Article 87(1), European Treaty (ex 92(1)) contains the basic substantive rule of state aid law and provides that: Save as otherwise provided in this Treaty, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, insofar as it affects trade between Member States, be incompatible with the common market. Article 87(2) then lists three categories of state aid that are compatible with the common market, while Art. 87(3) lists five categories of aid that may be compatible with it. The former (obligatory) categories, subject to certain conditions, are; aid with a social character; aid to combat natural disasters; and aid to compensate certain areas of Germany for the economic disadvantages caused by the division of the country. The latter (permissive) categories include the following: a. aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment; b. aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State; c. aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest; d. aid to promote culture and heritage conservation where such aid does not affect trading conditions and competition in the Community to an extent that is contrary to the common interest; and e. such other categories of aid as may be specified by decision of the Council acting by a qualified majority on a proposal from the Commission. State aid is conventionally divided into sectoral and horizontal aid; the former relates to particular industries, the latter cuts across individual sectors. Of the permissive categories listed above, the most relevant in the present context are b. and c., since 414 The detailed rules for the application of Art. 88, European Treaty (ex 93) are contained in Council Regulation EC/659/99, (1999) OJ L83 1 (see Hancher, Ottervanger and Slot, op. cit., ch 19). 415 Only unlawful state aid may be recovered, as to which, see Hancher, Ottervanger and Slot, op. cit., paras 20–003–20–008. Community Law Aspects 291 these will usually be the Treaty Articles under which the Commission will consider a state aid clearance application on the grounds discussed in one or other of the next three paras. 12.2.7.2 State aid for environmental protection In a case where the proffered justification for granting state aid is an environmental one, the Commission will follow its published Guidelines in exercising its discretion.416 The basis of the discretion is generally Art. 87(3)(c) but the discretion may instead be exercised under Art. 87(3)(b) in an appropriate case.417 The Guidelines demonstrate the Commission’s adherence to the injunction in Art. 6, European Treaty (ex 3c), to integrate environmental protection requirements into the implementation of Community policies.418 The Commission’s approach in the Guidelines consists in determining whether, and under what conditions, state aid might be regarded as necessary to ensure environmental protection and sustainable development, without having disproportionate effects on competition and economic growth.419 The UK’s environmental taxes, including the exemptions and reliefs which they embody, together with its economic instruments for environmental protection, are the subject of a number of Commission decisions on state aid. Most of these have concerned climate change levy420 and its associated economic instruments, the UK ETS421 and the RO,422 but the special Northern Ireland aggregates levy provisions have also been the subject of Commission scrutiny.423 12.2.7.3 State aid in the energy industries Following the initial liberalisation of the electricity market by the 1996 Electricity 416 Community Guidelines on State Aid for Environmental Protection, (2001) OJ C37 1. See Hancher, Ottervanger and Slot, op. cit., paras 17–011–17–020 and Evans, op. cit., pp. 357–74. 417 Guidelines, paras 72 and 73. 418 See para. 12.2.1 above. 419 Guidelines, para. 5. 420 See Decision N 123/2000, Climate Change Levy (28 March 2001); Decision N 660/ A/2000, Exemption from Climate Change Levy for Natural Gas in Northern Ireland (18 July 2001); Decision C 18 and C19/2001, Climate Change Levy (EC and ECSC) (3 April 2002); Decision N 539/2002, Climate Change Levy Exemption for Electricity Exports of Good Quality CHP (5 March 2003); and Decision C 12/2003 (ex N 778/2002), Climate Change Levy Exemption for Coal Mine Methane (17 September 2003). Aspects of the levy were also the subject of state aid decisions under the ECSC (not listed). 421 See Decision N 416/2001, Emission Trading Scheme (November 28, 2001); and Decision N 104/B/2002, Emission Trading Scheme – Modification to Commission Decision State Aid N 416/2001 of 28 November 2001 (12 March 2002). 422 See Decision N 504/2000, Renewables Obligation and Capital Grants for Renewable Technologies (28 November 2001). 423 See Decision N 863/2001, Aggregates Levy (24 April 2002); and Decision N 2/2004, Aggregates Levy – Northern Ireland Exemption (7 May 2004). See para. 13.3 below. 292 Environmental Taxation Law Directive,424 the main area in which state aid issues arise is that of stranded costs.425 Schemes for the recovery of such costs through compensatory levies are capable of qualifying as state aid426 and the Commission deals with such schemes under Art. 87(3)(c), European Treaty, in accordance with a 2001 Communication.427 However, this methodology is not applicable to state aid granted to support renewables generation; there remains considerable scope for tension between the development of a new competitive framework for the granting of state aids to renewables generators and the environmental provisions of the European Treaty.428 The question of state aid to the coal industry is dealt with under its own regime,429 which is designed to ensure security of supply.430 State aids to support the environmental objective of energy conservation are dealt with in the environmental Guidelines discussed in para. 12.2.7.2 above. The Commission specifically acknowledges that the use of green taxes may offset the adverse economic effects of state aid in the form of tax reliefs and exemptions.431 12.2.7.4 State aid in the air passenger and road freight transport sectors432 Pursuant to a Council Decision of 1965,433 Regulation 1191/69/EEC434 provided that Member States could require road transport operators, to continue to operate 424 See para. 12.2.6.3(1) above. 425 That is, costs incurred by electricity utilities prior to market liberalisation, in order to meet customer or governmental needs, and which liberalisation has made uncommercial. Synonymous with the term ‘stranded assets’ (see Cameron, op. cit., p. lvii). 426 See Cameron, op. cit., paras 7.99–7.115. The Commission approved the fossil fuel levy and non-fossil fuel levy under what is now Art. 87(3)(b) (see Hancher, Ottervanger and Slot, op. cit., paras 3–020 and paras 21.4.4 and 21.5 below). 427 See Commission Communication Relating to the Methodology for Analysing State Aid Linked to Stranded Costs (not referenced), July 2001, available from www.europa.eu.int. See also Commission Decision 99/791/EC, (1999) OJ L319 1 (Northern Ireland Electricity plc and Premier Power, discussed at Cameron, op. cit., para. 7.103). 428 See Cameron, op. cit., para. 7.116, which includes a discussion of an ECJ decision revealing something of the tension referred to in the text, that is, PreussenElektra AG v. Schleswag AG (Windpark Reussenköge III GmbH and Another, Intervening), C–379/98, [2001] 2 CMLR 36. See van Calster, op. cit., para. 8.4n above. 429 See Council Regulation EC/1407/02, (2002) OJ L205 1. 430 See Decision N 4/2002, State aid to coal production for the period 1 January 2002 to 23 July 2002 (21 January 2003). 431 See Community Guidelines on State Aid for Environmental Protection, (2001) OJ C37 1. See also para. 12.3.5 below. 432 See Greaves, op. cit., pp. 144–5; Hancher, Ottervanger and Slot, op. cit., ch 14; and Evans, op. cit., para. 5.7. 433 This was Council Decision 65/271, (1965) 88 JO 1500 (no longer in force), which provided for a legislative programme to harmonise national rules affecting competition in the inland transport sector. 434 (1969) OJ L156 1. Community Law Aspects 293 unprofitable services, by way of a PSO,435 provided that they compensated the undertakings in question for the financial burden thus incurred. Such aids are expressly declared by Art. 73, European Treaty (ex 77), to be compatible with the Treaty.436 In considering state aid applications in relation to the air transport sector, under Art. 87(3), European Treaty, the Commission follows its 1994 Guidelines,437 introduced in the wake of four major grants in favour of national airlines, that is, Aer Lingus, TAP, Air France and Olympic.438 The two main concerns of the Guidelines are stated to be the completion of the internal market for air transport and the increase of transparency in the notification and decision-making processes.439 12.3 Taxation aspects 12.3.1 General The Commission has long advocated the use of economic instruments (including environmental levies) in environmental protection. This is shown not only, for example, by the advocacy of such instruments in the Community Strategy for Waste Management, already discussed,440 but in the Commission’s 1997 Communication on the use of environmental taxes and charges (‘the 1997 Commission Communication’).441 Whether the ECJ shares this enthusiasm is perhaps to be doubted.442 For instance, in 2001, the ECJ struck down a Belgian flat rate municipal 435 Regulation 1191/69, Art. 2(1). 436 Council Regulation EEC/1107/70, (1970) L130 1, much amended, contains the procedures applicable to such aid. 437 Application of Articles 92 and 93 [now 87 and 88] of the European Treaty and Article 61 of the EEA Agreement to State Aids in the Aviation Sector, (1994) OJ 350 7. 438 See Hancher, Ottervanger and Slot, op. cit., paras 14–044–14–068. 439 See 1994 Guidelines, paras 7 and 8. See also Rosa Greaves, ‘Judicial Review of Commission State Aid Decisions in Air Transport’, in Judicial Review in European Union Law (The Hague: Kluwer, 2000), ch. 39. 440 See paras 12.2.5.1 above. 441 See Commission Communication, Environmental Taxes and Charges in the Single Market, COM (97) 9 final, (1997) OJ C224 6 (see para. 1.2.1.5(2) above) and, generally, Paul Farmer and Richard Lyal, EC Tax Law (Oxford: Clarendon Press, 1994); David Williams, EC Tax Law (London: Longman, 1998); Alexander Easson, Taxation in the European Community (London: Athlone Press, 1993); B. Terra and P. Wattel, European Tax Law (Amsterdam: Kluwer, 1993); and D. Berlin, Droit Fiscal Communautaire (Paris: Presse Universitaire Francaise, 1988). 442 A point cogently argued by Amparo Grau Ruiz and Pedro Herrera in an as yet unpublished paper, entitled ‘The Polluting Side of Economic Freedoms: is the ECJ against Environmental Taxes?’, given at the International Seminar on Energy Taxation and Sustainable Development held in Madrid on 2 and 3 October 2003. The authors are most grateful to Drs Grau Ruiz and Herrera for making available to them the slides from that paper. 294 Environmental Taxation Law tax on all satellite dishes in a particular municipality, on the ground that it infringed Art. 49, European Treaty (ex Art. 59) by restricting the freedom to receive satellite television broadcasts and by conferring an unfair advantage on the internal Belgian broadcasting market.443 12.3.2 Attribution of taxation powers Like environmental policy, taxation policy is not within the exclusive competence of the Community.444 This means that, again as with environmental law, Member States remain competent in the taxation field.445 By Art. 93, European Treaty (ex 99), the Council,446 acting unanimously on a proposal from the Commission447 and after consulting the European Parliament448 and ECOSOC,449 is mandated to ‘adopt provisions for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation to the extent that such harmonisation is necessary to ensure the establishment and the functioning of the internal market’. Whilst this might at first seem to give the green light, among other things, to the creation of Community-wide environmental taxes, the fact that the Council’s duty is specifically related to the establishment of the internal market by 31 December 1992,450 means that it is at least arguable that it is now spent.451 More importantly, however, Art. 93 embodies the general principle of the fiscal veto,452 which is reflected in Art. 175(2)(a), European Treaty (ex 130s), relating to environmental provisions primarily of a fiscal nature.453 Article 93 relates specifically to the harmonisation of indirect taxation and environmental taxes, generally speaking, are indirect taxes.454 To the extent that there is a basis for the harmonisation of direct taxation,455 however, this is to be discerned in Art. 94, European Treaty (ex 100) which again tasks the Council, acting unanimously on a proposal from the Commission and after consulting the European Parliament and ECOSOC, with issuing directives for the ‘approximation of such laws, regulations or administrative provisions of the Member States as directly 443 See De Coster v. College des Bourgmestre et Echevins de Watermael-Boitsfort , C–17/00, [2002] 1 CMLR 12. 444 See para. 12.2.1 above. 445 See Kirsten Borgsmidt, ‘Ecotaxes in the Framework of Community Law’ [1999] EELR 270–281. The writers would like to acknowledge a particular debt of gratitude to this work in the preparation of para. 12.3. 446 See para. 4.3.1 above. 447 See para. 4.3.2 above. 448 See para. 4.3.3 above. 449 See para. 4.3.4 above. 450 See Art. 14, European Treaty (ex 7a). 451 See Williams, op. cit., p. 34n. 452 See Art. 95(2), European Treaty (ex 100a). 453 See para. 4.3.1 (point 1) above. 454 See para. 1.2.1.2 above. An exception to this is, of course, the differential against environmentally-unfriendly cars in the income tax provisions for the taxation of the provision of company cars (see para. 23.2 below). 455 See para. 1.2.1.2 above. Community Law Aspects 295 affect the establishment or functioning of the common market’.456 The requirement ,of unanimity which is present here, as in Art. 93, means that Art. 94 is again of somewhat limited significance and, in the absence of unanimity, in no way detracts from the competence of Member States to legislate in the taxation field. The overall effect of Arts 93 and 94, are, of course, twofold, that is: (1) that any Community-wide environmental tax would require the unanimous support of Member States; and (2) that Member States are free to create their own environmental taxes, provided that they do not conflict with other provisions of the Treaty.457 It is now necessary to turn to these other Treaty provisions. 12.3.3 Fiscal barriers to trade 12.3.3.1 Discriminatory internal taxation (1) Generally Barriers to trade of a fiscal, as distinct from a general, nature are covered by Art. 90, European Treaty (ex 95).458 Art. 90 reads as follows: No Member State shall impose, directly or indirectly, on the products of other Member States any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products. Furthermore, no Member State shall impose on the products of other Member States any internal taxation of such a nature as to afford indirect protection to other products. The Article is, of course, a national treatment obligation, and, as such, it is the close equivalent, in relation to intra-EU trade, of Art. III(2), GATT 1994,459 which is applicable to trade between EU Member States and third countries. Like Art. III(2), Art. 90 applies to internal taxation, rather than to customs duties.460 It will be noted also that, unlike in relation to non-fiscal barriers to trade,461 the national treatment obligation in Art. 90 admits of no exceptions, not even (or, perhaps, not surprisingly!) environmental ones. 456 See Asscher v. Staatsecretaris van Financien, C–107/64, [1996] STC 1025, 1033 (para. 53), ‘[Article 93] of the Treaty explicitly gives the Council powers of harmonisation in the field of indirect taxation alone. Laws relating to direct taxation may be harmonised … under [Art 94] … of the Treaty by the Member States acting unanimously, where they directly affect the establishment or functioning of the Common Market … ’ (Advocate General Leger). 457 For example, the regionally-imposed levy of one euro per day between 2002 and 2003 on holiday makers in the Balearic Islands (see B. Arino, ‘Sustainable Tourism and Taxes: an Insight into the Balearic Eco-Tax’ (2002) 11 EELR 114–19). 458 For a detailed consideration, see Farmer and Lyal, op. cit., pp. 46–77. 459 See para. 8.4.3 above. 460 In R (on the application of British Aggregates Association and others) v. C & E Commrs, [2002] EWHC 926 (Admin), [2002] 2 CMLR 51, aggregates levy was held to be part of a system of internal taxation and, as such, fell to be considered under Art. 90, European Treaty, rather than as a charge equivalent to a customs duty under Art. 25 thereof (see para. 12.3.3.2 below). 461 See para. 12.4 below. 296 Environmental Taxation Law (2) The two rules of Article 90, European Treaty (ex 95) Article 90 contains two rules: a ban on tax discrimination against ‘similar [nondomestic] products’ (first paragraph) and, in the second paragraph, a ban on tax discrimination that results in indirect protection.462 In the context of the first rule,463 the ECJ has held that the mere fact that two products contain the same raw materials (in the particular case, alcohol) is not enough to make them ‘similar products’ for the purposes of the first rule. Similar products are those that ‘… at the same stage of production or marketing, have similar characteristics and meet the same needs from the point of view of consumers’.464 As Borgsmidt points out, this is a very broad reading of the first rule, since it means that ‘similar products’ are not those which are identical but those which have a similar and comparable use, due regard being had to consumer habits in the Community as a whole and not merely in the Member State under consideration.465 As to the second rule,466 this may apply where, even though the ‘other products’ are not similar in the sense of the first rule, they have sufficient characteristics in common that they are an alternative choice for consumers in some circumstances.467 (3) Graduated schemes of taxation Particular problems may arise in relation to Art. 90 where a Member State uses a graduated scheme of taxation, either for goods in general or for a specific product.468 The ECJ has mapped out the circumstances in which differentiation between products is permitted in a line of cases,469 two of which are as follows: a. In Chemial Farmaceutici v. DAF SpA,470 Italy had imposed a higher tax on synthetic ethyl alcohol than on ethyl alcohol of agricultural origin, even though the two products could be used interchangeably. The purpose of the differential was to favour the agricultural manufacture of ethyl alcohol and to restrain its synthetic production (that is, the processing of ethylene471 into alcohol), since ethylene could be used for economically more important purposes. The result 462 See Borgsmidt, op. cit., p. 278. 463 See Farmer and Lyal, op. cit., pp. 57–65. 464 See Rewe v. Hauptzollamt Landau/Pfalz, C–45/75, [1976] ECR 181, 194 (para 12). 465 See Cogis v. Amministrazione delle Finanze dello Stato, C–216/81, [1982] ECR 2701; Commission v. Denmark, C–206/84, [1986] ECR 833; and Commission v. Italy, C–184/85, [1987] ECR 2013. There is a rough parallel between this test and the test used for product substitutability in the competition rules of Arts 81 and 82, European Treaty (ex 85 and 86) (see Farmer and Lyal, op. cit., p. 59). 466 See Farmer and Lyal, op. cit., pp. 65–76. 467 See Commission v. UK, C–170/78, [1980] ECR 417 (wine and beer). 468 See Farmer and Lyal, op. cit., pp. 69–76. 469 See Amministrazione delle Finanze dello Stato v. Essevi and Salengo, C–142–143/80, [1981] ECR 1413; Commission v. Italy, C–200/85, [1986] ECR 3953; Commission v. France, C–196/85, [1987] ECR 1597; and Bergandi v. Directeur Général des Impôts, C–252/86, [1988] ECR 1343. 470 C–140/79, [1981] ECR 1; see also Vinal SpA v. Orbat SpA, C–46/80, [1981] ECR 77. 471 That is, a petroleum derivative. Community Law Aspects 297 was that only imported synthetic alcohol was subject to the tax, since domestic production of synthetic alcohol was uneconomic. The ECJ held that the tax was not discriminatory since, although imports were hampered by it, so too was domestic production. In the course of its judgment, the Court said: … As the Court has stated on many occasions … in its present stage of development Community law does not restrict the freedom of each Member State to lay down tax arrangements which differentiate between certain products on the basis of objective criteria, such as the nature of the raw materials used or the production process employed. Such differentiation is compatible with Community law if it pursues economic policy objectives which are themselves compatible with the requirements of the Treaty and its secondary law and if the detailed rules are such as to avoid any form of discrimination, direct or indirect, in regard to imports from other Member States or any form of protection of competing domestic products.472 On this basis, it seems that, given that environmental protection is a legitimate objective,473 a differential in tax rates for environmental reasons should be lawful for the purposes of Art. 90. b. In Outokumpu Oy,474 the Finnish government had imposed an excise duty on electricity, the rate of which depended on the method of production. Other features of the duty were as follows: i. the duty applied only to electricity of domestic origin, not to imported electricity; ii. the rate of duty was less on electricity produced by water power than on electricity produced by nuclear power; iii. no duty was charged on electricity produced by certain other methods; iv. although the duty charged on imported electricity was lower than the highest duty on electricity produced in Finland, it was higher than the lowest rate of duty charged on electricity produced in Finland; and v. duty was charged on imported electricity without regard to the method of its production. The ECJ held that the duty was incompatible with Community law, although it stressed that, provided that a duty differential was based on objective criteria, it was lawful for Member States to tax the same or similar products differentially. Art. 90 did not prevent differential tax rates based on environmental considerations, provided that the tax in question did not discriminate against imports. However, in the instant case: … [t]he first paragraph of Article [90] of the EC Treaty precludes an excise duty which forms part of a national system of taxation on sources of energy from being levied on electricity of domestic origin at rates which vary according to its method of production 472 See [1981] 3 CMLR 350, 361 (para 14). 473 See Borgsmidt, op. cit., p. 278. 474 Case C–213/96, [1998] ECR I–1777. 298 Environmental Taxation Law while being levied on imported electricity, whatever its method of production, at a flat rate which, although lower than the highest rate applicable to electricity of domestic origin, leads, if only in certain cases, to higher taxation being imposed on imported electricity.475 In the light of the wording of Arts 93 and 94, the effect of Art. 90 is therefore that any national environmental tax must not discriminate against goods from other Member States whether on environmental or any other grounds.476 Equally, however, provided that such a tax is non-discriminatory, it is not prohibited by Art. 90. (4) Parafiscal charges477 A second set of problems may arise in relation to Art. 90 when the application of revenues raised by levies has a discriminatory effect.478 These problems, which arise in relation to certain types of earmarking, are obviously important to environmental levies because of the strong arguments, already discussed, for the hypothecation or earmarking of the proceeds of such levies.479 Where all or part of the revenue of a Member State from a particular levy is used to resource one of that state’s own industries, then, depending on the circumstances, there may be a breach either of Art. 90 or of Art. 25, European Treaty (ex 12).480 In Compagnie Commerciale de l’Ouest and Others v. Receveur Principal des Douanes de la Pallice Port,481 a reference under Article 234, European Treaty (ex 177), the ECJ held that Art. 90 applies to the situation where the revenue raised from a particular tax is used for the benefit of domestic products only, in circumstances such that the advantages accruing to the domestic product offset the charge borne by domestic products in part only. Where such advantages fully offset the charge borne by the domestic product, then Art. 25 applies.482 In the cases under consideration, importers and distributors of petroleum products had challenged the legality of a parafiscal charge levied in France on the putting into circulation of certain petroleum products, irrespective of whether those products were domestic or imported. The charge had been introduced to fund an Energy Savings Agency, which had then applied the money to finance measures purportedly to encourage and achieve energysavings as well as the use of under-utilised energy resources. (5) Article 90, European Treaty (ex 95) and environmental taxes From the point of view of new green taxes, the danger with the first rule in Art. 90 is, of course, that the current interpretation of the term ‘similar products’ will mean that products are considered to be similar, even where they raise quite different environmental issues. This issue is specifically addressed in the 1997 Commission Communication, where it is stated that those involved in the design of green levies 475 [1998] ECR I–1777 (para 41). See van Calster, op. cit., para. 8.4n above. 476 See Borgsmidt, op. cit., p. 274. 477 Broadly, species of ‘hypothecated’ levies. See para. 11.2.2 above. 478 See Weatherill and Beaumont, op. cit., pp. 475–6, and Borgsmidt, op. cit., p. 280. 479 See para. 11.2.2 above. 480 Ibid. 481 C–78–83/90, [1994] 2 CMLR 425. 482 See para. 12.4 below. Community Law Aspects 299 should consider: … whether goods with the same function but with different environmental properties due to the content or differences in production methods could be regarded as being different goods.483 Although the cases in which national taxes’ compatibility with Art. 90 has been considered leave open the possibility of a differentiated tax for environmental reasons, it is clear that imported products must not be subject to higher rates of tax than domestic ones.484 In this connection, as Borgsmidt points out, ‘[n]ew production methods and control thereof may not be available in the country of origin.485 In R (on the application of British Aggregates Association and others) v. C & E Commrs,486 the applicants, the quarry operators’ trade association,487 applied for permission to move for judicial review of the aggregates levy legislation.488 Moses, J. held that there was no breach of Art. 90 merely because the levy had some protective effect, in the sense that, had it not been imposed on imports, it might have encouraged them;489 its purpose was environmental rather than protectionist. Moreover, the fact that the revenue raised by the levy benefited people living in the UK and provided no benefit to importers conferred no specific benefit at all on domestic products or producers; the mere existence of the Aggregates Levy Sustainability Fund (‘ALSF’)490 and the NIC reduction491 did not partially offset the levy borne by the domestic production of aggregate.492 The possibility that the earmarking of the proceeds from a tax might fall foul of Art. 90 in situations where the liability to tax of those benefited is reduced, although not eliminated, has obvious resonances for environmental taxes.493 The avowed environmental purpose of such levies is clearly not sufficient, however, to prevent Art. 90 from applying in an appropriate case.494 (6) Article 92, European Treaty (ex 98) Finally, a little-noted provision appears in Art. 92, European Treaty (ex 98).495 This allows the Council to take limited action where export or import distortions arise from levies that are not indirect taxes. In R (on the application of British Aggregates 483 COM (97) 9 final, para. 21. 484 See, for example, Schöttle & Söhne OHG v. Finanzamt Freudenstadt, C–20/76, [1977] 2 CMLR 98. 485 See Borgsmidt, op. cit., p. 279. 486 [2002] EWHC 926 (Admin), [2002] 2 CMLR 51. 487 See para. 2.5 above. 488 See paras 4.2.1.5 above and 13.1 below. 489 [2002] 2 CMLR 51, para. 56. See also para. 8.4.5.1 above. 490 See para. 4.2.1.2(1)n above and 21.3.1(b) below. 491 See para. 21.2 below. 492 [2002] 2 CMLR 51, paras 57 and 58. 493 See para. 11.2.2 above. 494 See Borgsmidt, op. cit., pp. 280–81. 495 See Farmer and Lyall, op. cit., pp. 81–2; Williams, op. cit., p. 33. 300 Environmental Taxation Law Association and others) v. Customs and Excise Commissioners,496 the applicants argued that the aggregates levy breached Art. 92, on the basis that it was a direct, rather than an indirect tax. Moses, J. rejected this submission: ‘… the mechanism for achieving the purpose of the levy, namely by passing the levy on to a consumer of the aggregate, does, as it seems to me, provide a powerful indication that the levy is an indirect tax. The fact that in some cases the levy will not be passed on does not turn it into a direct tax any more than in the case of an excise duty on wine’.497 12.3.3.2 Prohibition on customs duties and on charges having equivalent effect (‘CEEs’) If the national treatment obligation of Art. III(2), GATT 1994 is mirrored in Art. 90, European Treaty (ex 95) so also, subject to one vital qualification, is Art. II(2), GATT 1994 mirrored in Art. 25, European Treaty (ex 12).498 The vital qualification, of course, is that customs duties are prohibited between Member States, the Community being based on a customs union.499 Article 25 provides that: Customs duties on imports and exports and charges having equivalent effect shall be prohibited between Member States. This prohibition shall also apply to customs duties of a fiscal nature. The definition of a charge having equivalent effect (a ‘CEE’) has already been considered in Chapter 7 above.500 The key point, from the point of view of environmental taxes, is that, in order for a CEE to escape the scope of Art. 25 on the basis that it is consideration for services supplied by the importing state,501 it is necessary for it to be shown that the service in question is of benefit to the importer and not to the general public.502 As Lyons points out, the ECJ ‘has consistently denied that something which is done by a public authority for the benefit of the general public as well as the trader concerned, is a service to the trader for which a charge may be made’.503 This means that, in the case of an environmental levy on imports which was not part of a general system of taxation,504 it would be necessary to rely on the only other exception to the concept of CEEs and to show that it was an administrative charge,505 that is, that it was imposed to cover the costs of services required by Community law or by international agreement.506 496 [2002] EWHC 926 (Admin), [2002] 2 CMLR 51. 497 [2002] 2 CMLR 51, para. 75. 498 Generally, see Timothy Lyons, EC Customs Law (Oxford: Oxford University Press, 2001), pp. 60–72 and ch 13. 499 See Art. 23, European Treaty (ex 9). 500 See para. 7.2.2.3 above. 501 Ibid. 502 See, for example, Cadsky v. Instituto Nazionale per il Commercio Estero, C–63/74, [1975] ECR 281, although more recent cases are reviewed at Lyons, op.cit., pp. 70–71. 503 See Lyons, op. cit., p. 70. 504 See para. 7.2.2.3 above. 505 Ibid. 506 See Borgsmidt, op. cit., p. 278. Community Law Aspects 301 In Compagnie Commerciale de l’Ouest and Others v. Receveur Principal des Douanes de la Pallice Port, discussed above,507 the ECJ considered the particular problem of the circumstances in which a parafiscal charge508 would fall foul of Art. 25: A parafiscal charge applied under the same conditions as regards its collection to both domestic and imported products, the revenue from which is used for the benefit of domestic products only, so that the advantages accruing from it fully offsets [sic] the charge borne by those products, constitutes a charge having an effect equivalent to customs duties prohibited by Article [25] … In so defining the scope of Art. 25 in relation to such charges, the Court was distinguishing the scope of the Art. from that of Art. 90, the latter applying where the offset is only a partial one.509 12.3.4 Harmonisation of excise duties on fuels Differentiated rates of excise duty were introduced for leaded and unleaded petrol by Council Directive 92/81/EEC510 on the Harmonisation of the Structures of Excise Duties on Mineral Oils and Council Directive 92/82/EEC511 on the Approximation of Excise Duty Rates on Mineral Oils. The former was designed to harmonise the structures, exemptions and rate reductions applicable to excise duties on mineral oils; the latter was designed to specify minimum rates or rate bands for each category of oil. Controversially, Directive 92/81/EC exempted from duty oils that are used as fuels for the purpose of air navigation, as well as navigation within Community waters, other than for private pleasure-flying and sailing. Both Directives have now been repealed by the 2003 Energy Products Directive. The Energy Products Directive (‘the EPD’)512 repeals the two 1992 Directives as from 31 December 2003.513 Unlike that of its predecessors, its scope is not limited to mineral oils but covers most energy products, including electricity, natural gas and coal. The recitals of the EPD specifically refer to the taxation of energy products including, where appropriate, electricity, as an instrument for achieving the Kyoto Protocol objectives.514 They also acknowledge the possibility that CHP generation and renewables might qualify for preferential taxation treatment.515 The main substantive provision is Art. 4(1), which provides that Member States must not apply levels of taxation below the prescribed minimum levels to the products covered by the EPD. Article 14 provides that Member States must exempt: (1) ‘energy products and electricity used to produce electricity and electricity used to maintain the ability to 507 See para. 12.3.3.1(4) above. 508 Ibid., n above. 509 See para. 12.3.3.1 above. 510 (1992) OJ L316 12 (repealed). 511 Ibid. 512 Council Directive 03/96/EC, (2003) OJ L283 51. 513 Ibid., Art. 30. 514 Ibid., recitals 7, 12 and 13. 515 Ibid., recital 25. 302 Environmental Taxation Law produce electricity’;516 (2) ‘energy products supplied for use as fuel for the purpose of air navigation other than in private pleasure-flying’;517 and (3) ‘energy products supplied for use as fuel for the purposes of navigation within Community Waters’, other than private pleasure craft and electricity produced on board.518 Of these three mandatory exemptions, (1) does not, however, prevent Member States from subjecting products to taxation for reasons of environmental policy without having to respect the specified minimum levels.519 The other two preserve the exemptions in the 1992 Directives. By Article 15, EPD, Member States may exempt, either wholly or partially, inter alia, electricity from renewables; electricity produced from ‘environmentally-friendly’ CHP generation;520 and energy products and electricity used for CHP generation.521 The implementation of the EPD in UK law has been discussed in Chapter 6,522 together with the derogations therefrom which the UK has succeeded in negotiating. The Biofuels Directive,523 a second major development in 2003, aims to promote the use of biofuels and other renewable fuels524 to replace diesel or petrol for transport purposes in each Member State. Climate change, environmentally-friendly security of supply and the promotion of renewables are given as express justifications for the measure.525 ‘Biofuels’ are defined as liquid or gaseous fuel for transport produced from biomass.526 The heart of the Directive is Art. 3(1)(a), which provides that Member States should ensure that a minimum proportion of biofuels and other renewable fuels is placed on their markets and, to that end, must set national targets therefore. This is backed up by the specific monitoring and reporting requirements in Arts 3(3) and 4(1) of the Directive respectively. Again, implementation of the Biofuels Directive in the UK was discussed in Chapter 6 above.527 12.3.5 State aids and taxation Where revenue is paid into Member States’ national treasuries and producers are then supported out of general funds, the support may constitute state aid under Art. 87, European Treaty.528 However, reliefs and exemptions within particular tax codes may also, in certain circumstances, count as state aid.529 State aid in the form of 516 Ibid., Art. 14(1)(a). 517 Ibid., Art. 14(1)(b). 518 Ibid., Art. 14(1)(c). 519 Ibid., Art. 14(1)(a). 520 Council Directive 03/96/EC, Art. 15(1)(d). 521 Ibid., Art. 15(1)(c). 522 See para. 6.4 above. 523 Directive 03/30/EC, (2003) OJ L123 42. 524 Defined, ibid., Art. 2(1)(c). 525 Directive 03/30/EC, Art. 1. 526 Ibid., Art. 2(1)(a). Biomass is defined, ibid., Art. 2(1)(b). 527 See para. 6.4 above. 528 See para. 12.2.7.1 above. Where the arrangement is also discriminatory, then it may be caught by Art. 90, European Treaty (ex 95) as well as by Art. 87. 529 See the (unsuccessful) attempt to argue that certain exemptions within the aggregates levy code constituted unlawful state aid (in R (on the application of British Aggregates Associates and Others) v. C & E Commrs, [2002] EWHC 926 (Admin), [2002] 2 CMLR 51, paras 79–115). Community Law Aspects 303 such exemptions and reliefs is referred to as ‘fiscal aid’ or ‘fiscal state aid’.530 In considering an application for state aid clearance under Art. 87(3), the Commission follows its 2001 Guidelines,531 as well as, where appropriate, its 1998 guidelines on the application of the state aid rules to measures relating to direct business taxation.532 In 2001, the Commission decided not raise any objections to the introduction of enhanced capital allowances for energy efficient investments, on the basis that the measure did not constitute aid.533 In 2003, the Commission decided to close down the Art. 88(2) procedure, with a conditional decision, in relation to the Finance Act 2001, ss.92A and 92B exemption from stamp duty for non-residential properties in disadvantaged areas.534 For details of the Commission consents granted in relation to the UK’s environmental taxes and other economic instruments, the reader is referred to para. 12.2.7.2 above. In 2004, the Commission decided not to raise any objections to the introduction of a reduced rate of excise duty on bioethanol used for road transport, on the basis that the aid was compatible with the European Treaty.535 12.4 Rules on free movement of goods Part Three, Title I, Ch. 2, European Treaty, as is well-known, prohibits quantitative restrictions between Member States. Article 28, European Treaty (ex 30) deals with imports, while Art. 29, European Treaty (ex 34), deals with exports. By Art. 28, quantitative restrictions on imports and all measures having equivalent effect, are prohibited between Member States. Art. 29 lays down the same rule, mutatis mutandis, for exports. To each rule, there are the exceptions in Art. 30, European Treaty (ex Art. 36), including prohibitions or restrictions justified on grounds of the protection of health and life of humans, animals or plants. Any such prohibition or restriction must not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States. The question of what constitutes a measure having equivalent effect has for long been governed by the first rule articulated in Procureur du Roi v. Dassonville,536 which reads as follows: 530 See Raymond Luja, ‘WTO Agreements versus the EC Fiscal Aid Regime: Impact on Direct Taxation’ (1999) 27 Intertax 207–25, esp. pp. 216–23. 531 See para. 12.2.7.2 above. 532 See Commission Notice on the Application of the State Aid Rules to Measures Relating to Direct Business Taxation, (1998) OJ C384 3. 533 See Decision N 797/2000, Enhanced Capital Allowances for energy efficient investments (13 March 2001). See para. 21.3.1 below. 534 See para. 24.5.3 below. 535 See Decision N 407/2003, Reduced Rate of Excise Duty on Bioethanol used for Road Transport (3 February 2004). See para. 22.2.2 below. 536 C–8/74, [1974] ECR 837. 304 Environmental Taxation Law 537 Rewe-Zentrale AG v. Bundesmonopolverwaltung für Branntwein, C–120/78, [1979] ECR 649. 538 The case therefore embodies a mutual recognition principle. 539 [1979] ECR 649, para. 8. 540 See the discussion i | | |