How the Government impedes environmental modernization of enterprises

25/ 05/ 2020

Andrii Glushchenko. Analyst of GMK Center, PhD in Economics It is time for the Government and business to start cooperating, so as to achieve economic growth and have a clean environment Operation of industrial enterprises inevitably poses a burden on the environment. The Ukrainian Government sees the raise of the environmental tax rate as the only way to control this burden. On the one hand, it seems logical. Indeed, an increase in costs for paying environmental tax makes enterprises think about carrying out environmental modernization to minimize the payment of environmental tax in the future. Yet on the other hand, to implement environmental protection measures, companies need financial resources, access to which is very limited in Ukraine. By increasing the environmental tax rate, the Government reduces available funds of enterprises that could be used for environmental projects. It appears to be a paradox: the Government wanted to give enterprises an impetus for environmental modernization, but in fact impedes it. ₴4.9 billion came to the consolidated budget in environmental tax revenue in 2018. Over that period, capital investment of the general government and defense sectors in environmental measures amounted to just ₴625 million. It turns out that environmental tax revenue exceeds the Government’s spending for environment protection measures. There is every reason to believe that private companies could have used the funds paid to the budget more efficiently through implementing more projects. If, of course, those funds could have remained at their disposal. In Ukraine, enterprises already invest more in environmental protection than the Government: ₴9.4 billion against ₴625 million in 2018, according to the State Statistics Service. The Government certainly has many other functions and tasks. It is therefore logical to create conditions that would allow enterprises to increase investment in environmental projects on their own. Let’s find out how the European Union solves the problem of raising environmental investments. The sensational European Green Deal expects to raise at least €1 trillion in investment in 2021–2030, of which 64% will be Government’s support measures of various kinds. Among other things, these will include funds from the EU budget, national structural funds, the European Emissions Trading System. Unlike the European Union, Ukraine has no such system of institutions to finance environmental projects. Besides, Ukraine’s financial possibilities are rather limited. What can be done in these circumstances? Attention should be paid to environmental tax, already being accumulated in the state and local budgets. The efficiency of the use of environmental tax revenue, to put it mildly, is currently being questioned by both enterprises and experts. There is a proposal of the European Business Association to allow enterprises to use up to 70% of the amount of charged environmental tax payments for funding environmental projects. How would this look like in practice? For instance, a large steelmaking company has to pay $5.7 million in environmental tax at year-end. It can reduce this amount by 70% by transferring $1.7 million to the consolidated budget. The remaining $4 million may be a partial compensation for a $20 million environmental project (such projects are implemented in the steel industry, e.g. to minimize CO2 emissions). Such compensation will enable the company to carry out more environmental projects, thus reducing the burden on the environment. This is the real way to encourage environmental modernization and achieve sustainable development goals. Industrial enterprises and the Government have common tasks in the area of environmental protection. The Government is interested in reducing the technology-related pressure on the environment. Responsible businesses also seek to cut pollutants. Given this coincidence of interests, it is expedient for the Government and enterprises to cooperate in order to achieve the desired results, i.e. economic growth and a clean environment, faster together. Source: ЛІГА.Блоги

Andrii Glushchenko

Analyst of GMK Center, PhD in Economics

It is time for the Government and business to start cooperating, so as to achieve economic growth and have a clean environment

Operation of industrial enterprises inevitably poses a burden on the environment. The Ukrainian Government sees the raise of the environmental tax rate as the only way to control this burden. On the one hand, it seems logical. Indeed, an increase in costs for paying environmental tax makes enterprises think about carrying out environmental modernization to minimize the payment of environmental tax in the future.

Yet on the other hand, to implement environmental protection measures, companies need financial resources, access to which is very limited in Ukraine. By increasing the environmental tax rate, the Government reduces available funds of enterprises that could be used for environmental projects. It appears to be a paradox: the Government wanted to give enterprises an impetus for environmental modernization, but in fact impedes it.

₴4.9 billion came to the consolidated budget in environmental tax revenue in 2018. Over that period, capital investment of the general government and defense sectors in environmental measures amounted to just ₴625 million. It turns out that environmental tax revenue exceeds the Government’s spending for environment protection measures.

There is every reason to believe that private companies could have used the funds paid to the budget more efficiently through implementing more projects. If, of course, those funds could have remained at their disposal.

In Ukraine, enterprises already invest more in environmental protection than the Government: ₴9.4 billion against ₴625 million in 2018, according to the State Statistics Service. The Government certainly has many other functions and tasks. It is therefore logical to create conditions that would allow enterprises to increase investment in environmental projects on their own.

Let’s find out how the European Union solves the problem of raising environmental investments. The sensational European Green Deal expects to raise at least €1 trillion in investment in 2021–2030, of which 64% will be Government’s support measures of various kinds. Among other things, these will include funds from the EU budget, national structural funds, the European Emissions Trading System.

Unlike the European Union, Ukraine has no such system of institutions to finance environmental projects. Besides, Ukraine’s financial possibilities are rather limited. What can be done in these circumstances? Attention should be paid to environmental tax, already being accumulated in the state and local budgets. The efficiency of the use of environmental tax revenue, to put it mildly, is currently being questioned by both enterprises and experts.

There is a proposal of the European Business Association to allow enterprises to use up to 70% of the amount of charged environmental tax payments for funding environmental projects. How would this look like in practice?

For instance, a large steelmaking company has to pay $5.7 million in environmental tax at year-end. It can reduce this amount by 70% by transferring $1.7 million to the consolidated budget. The remaining $4 million may be a partial compensation for a $20 million environmental project (such projects are implemented in the steel industry, e.g. to minimize CO₂ emissions). Such compensation will enable the company to carry out more environmental projects, thus reducing the burden on the environment. This is the real way to encourage environmental modernization and achieve sustainable development goals.

Industrial enterprises and the Government have common tasks in the area of environmental protection. The Government is interested in reducing the technology-related pressure on the environment. Responsible businesses also seek to cut pollutants. Given this coincidence of interests, it is expedient for the Government and enterprises to cooperate in order to achieve the desired results, i.e. economic growth and a clean environment, faster together.

Source: ЛІГА.Блоги