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12.1 The Use of Economic Instruments as a Tool for Sustainable Environmental Management: Problems IdentifiedBackgroundThe major policy instruments/tools used to ensure the sustainability in environment management included tools such as Environmental Legislation, Standards, Environment audits and Impact Assessment and Economic Instruments (EIs). Governments worldwide, including Mauritius, make use of EIs to influence good behaviour towards the environment by discouraging undesirable practices or by encouraging the good ones through instruments, such as taxes, duties, levies, environment protection fees, user charges as well as incentives in the form of subsidies and rebates. EIs are not substitutes for other policy tools; rather they complement them. Over the years, many EIs were introduced by Government in various sectors: energy, transport, water and sanitation to address environmental hazards such as emission of greenhouse gases, poor air quality, urban road congestion and improper waste disposal. EIs developed included environment protection fees, MID Levy on petroleum and coal, excise taxes on petroleum and plastic products and other vehicle emission and ownership charges, as well as waste water user charges. Yearly, Government revenue associated to environmental protection taxes, levies, charges, fees, subsidies and rebates were roughly estimated at some Rs 8 billion met by entities generating the pollution and the general public.Purpose of the ReviewThis review was not aimed at a performance appraisal of the effectiveness of EI but rather aimed at raising concerns for an integrated use of EI as a tool for national development planning process including environmental strategies as well as future budget processes. EIs have been applied in many sectors at different points in time but it is the institutionalised systematic approach to their introduction, implementation, monitoring and evaluation that needs to be improved. The major problems identified are listed below.Major Problems Identified12.1.1 Regulatory Framework for EIs EIs were formulated in a staggered and fragmented manner at different points in time with economic instruments split among different stakeholders (Ministry of Finance, Environment, Registrar General, Wastewater Management Authority, etc.) and under various policy decisions embodied in different legislations, such as the Finance Act, Mauritius Revenue Authority (MRA) Act, Excise Act, Environment Protection Act, Registration Duty Act, and Wastewater Management Authority Act. 12.1.2 Independent Mechanism to Oversee the Implementation and Review of EIsGovernment has implemented a wide range of EIs for environmental management in some sectors. However, it did not adopt an integrated approach to ensure harmonisation in the implementation, monitoring and evaluation of EIs. No dedicated, centralised and independent mechanism existed to oversee the effectiveness of EIs in terms of meeting primarily the environmental, equity and revenue objectives. The Ministry did not also seek the support of international bodies such as UNEP/UNDP to assist in the evaluation of the effectiveness of the EIs in meeting revenue and environmental objectives as was the case with some other countries. The impact of taxes and incentives was mixed, with achievements couched in revenue generation, but none to date gauging the state of the environment.12.1.3 Role and Responsibilities of Ministry of Environment in EI Issues All stakeholders involved in the policy framing, implementation, monitoring, evaluation and review of the EIs were not always fully aware of their responsibilities. They were managing their EI in isolation. The MOFED has taken centre stage in the introduction of most of the EIs but did not cater for a more inclusive and comprehensive approach towards an environmental fiscal reform programme with properly allocated responsibilities to this Ministry (Environment) and other implementing entities. The role and mandate assigned to the Ministry as sole environment expert was not adequately fulfilled in respect of the use of EI as Mauritius had internationally committed itself to the use of EI in environmental management at the Rio Conference of the United Nations held in 1992 and furthered through successive National Environment Strategies (NES 1 and NES 2) of the Ministry. In 1999, the Ministry had its own EI namely the Environment Protection Fee on listed activities and products. However, little breakthrough was made at the level of the Ministry to set up a formal mechanism to institutionalise the design and use of its EI as well as other EIs:Setup- There was no dedicated Unit/Cell/ mechanism/platform at the Ministry to follow the implementation of all EIs and to discuss EI environmental management issues. Development Framework/Methodology- The methodology/framework to develop EI was fragmented and unstructured. The Ministry’s involvement in the design/ review of EIs was minimal as implementing agencies, including the Ministry were not required to integrate their EI with other broader environment management objectives.12.1.4 Management information for EI No thorough EI information/centralised database was readily available or compiled by the Ministry despite the basis of introduction of EIs related primarily to a serious environment concern. Without consistent and reliable information, it is difficult to set rational EI policies, to choose appropriate policy instruments, to address perceived problems, or to measure progress once such policies are in place. Implementing agencies did not continually collect and organised environment data into time series to document changing conditions of the environmental parameters under their respective purview. Compendium of all EIs A compendium of all operational EIs was not available at the Ministry in order to have a snapshot of all EIs so as to oversee their implementation and assess their effectiveness in curbing environmental degradation. My Office had compiled a non-exhaustive compendium with available information and had worked out the yearly financial envelope relating to revenue collected on environment taxes, levies, charges, as well as Government revenue foregone in terms of subsidies and rebates. The estimated figure was some Rs 8 billion as per Table 12-1. Table 12-1 Revenue Collection Taxes/ Levies/ Charges/FeesAmount(Rs million )Vehicle ownership charges – Excise duties on motor vehicles/ motor cycles excluding Registration Duties and Road Tax2,403Taxes/ Excise duty on petroleum products including MID Levy on petroleum products and coal3,219(MID levy- 320)Environment Protection Fee on Hotels/Guest houses/ Tourist residences, Stone Crushing Plants, Tyres, Batteries and Mobiles169CO2 levy or rebate from Excise duty payable depending on the CO2 emission of cars109 (taxes)300 (rebates)Excise Taxes on Plastic Products- Bags, PET bottles, Cans242Waste water Charges389Passenger Fee and Solidarity Levy1,266Total 8,09712.1.5 Monitoring, Evaluation and Review of EIsThere is no mechanism in place at the Ministry to continuously monitor the extent to which environment concerns were being addressed by the EI. Measurement was needed to evaluate progress, to determine when policy modifications were needed and to learn from the existing applications as both the environmental problem and the baseline conditions change over time. As sole technical expert of Government in environmental matters, the involvement of the Ministry in continuous monitoring was minimal since no scientific data compilation and evaluation of the EI was seen. Also, there was no public reporting of the monitoring process outcome to change mind-sets towards environment protection. In the absence of serious, regular and scientific monitoring as well as rigorous evaluation of programs, policy makers were deprived of vital information needed to continuously improve environmental management. Some EIs needed more support while others may need to be terminated as they no more serve their purposes. It was difficult to ascertain whether policy modifications to the EI were always being carried in a structured manner. 12.1.6 Environment Protection FeeIn 1999, the Environment Protection Act (EPA) was amended to cater for an Environment Protection Fee (EPF) which ‘was set up to provide for the imposition of an environment protection fee in order to raise funds for the promotion of local environment initiative aimed at preventing and reducing pollution.’Initially hotels/ boarding-houses were targeted for the levy of the fees. Amendments were later made to add stone crushing plants and polluting products such as tyres, batteries and mobiles. EPF collected in 2014 amounted to Rs 169 million. Since its inception in 2000, the collection and management of the EPF was assumed by the Ministry until 2007 when the MRA took over the EPF in terms of the collection and revenue management. However, the Ministry did not ensure that the EPF was effective in meeting environmental objectives. The following issues were noted:EPF Management Set-up No protocol/coordination mechanism was set up by the Ministry for the management of the EPF in a holistic manner despite being an environmental management tool under its purview. No EPF information/data were available at the Ministry for the details of EPF collected under the EPA for 2014. In fact, no Memorandum of Understanding existed between the MRA and the Ministry to allow for the exchange of information for environmental policy monitoring evaluation and review. Review and Modifying the Portfolio of EPF Polluting Activities and Basket of Polluting ProductsThe two designated polluting activities, hotels and stone crushing plants, remained the same since their introduction more than 10 years ago, without any fundamental change/broadening of the spectrum of the polluting activities. EI rates were not indexed on periodic inflation rates to cater for erosion of taxes over time. The list of unsustainable products was also worked out in an ad-hoc manner to adapt to new circumstances involving the market forces, new technology and market dynamism. In November 2010, the Ministry recommended to the MOFED a list of new items (computers, refrigerators, air conditioners and washing machines) for inclusion in the EPF scheduled list, but were not supported by information, such as their pollution load and import trends. None of the proposed products were retained by the policy makers till to date. EPF Management Information System and Enforcement StrategyReliable tax collection data represented a vital MIS for gathering information for better decision making in environmental management. Tax collection database was not used strategically by the Ministry in order to gather intelligence to identify industries, firms and communities that represented the main polluting agents and to develop risk based enforcement strategies. In the absence of information on polluting agents engaged in hotel and stone crushing activities, it was not known if polluters were paying their share of environment taxes/penalties in a commensurate manner with their pollution load and their nuisance value environment-wise.Reconciliation of EPF Data with Independent Data SourcesThe Ministry did not ensure that the Polluters Pay Principle (PPP) was adequately implemented as mandated by its law. The?PPP is an environmental policy?principle?which requires that the costs of pollution be borne by those who cause it.No data analysis was performed by the Ministry as it was not aware of the database of the EPF from the MRA. The NAO attempted to reconcile EPF data with data from independent sources such as the Statistics Mauritius (for stone crushing plants in operation) and from Tourism Authorities (for list of registered hotels/ tourist residences and guesthouses). Discrepancies were noted. Out of a total of some 560 licensed entities required to comply with the Polluters Pay Principle, some 105 entities only were complying as 95 were yet to settle their dues. Some 360 officially licensed entities were not captured in the MRA database of payees and debtors. Non complying entities were not identified by the Ministry for a risk based enforcement action prompting them to settle EPF or fine them under the environment law.Consultants’ Report Extracts - Implementation of the Polluter Pay Principle (PPP) In 2007 the Ministry awarded a contract to an Australian Consultancy Firm to update the National Environment Strategy (NES) 2 and review the NEAP2. It commented adversely on the Implementation of the PPP and the EPF as follows:At present, PPP was not used as a guide for environmental protection. The EPF that is imposed on certain sectors comes closest to this; however, the implementation mechanism of the EPF does not address the externalities which should be the objective of the application of the principle. In fact, such ad-hoc environmental protection measures may distort not only the trade and investments (which needs to be based on economic efficiency) but also does not help realise the environmental objectives for which such measures are supposed to be introduced in the first place.’ Little changes were brought to the EPF since 2008 to date. RecommendationsThere is no policy in place for the use of EIs as a means to ensure sustainability in environmental management. No monitoring has been carried out over the effectiveness of the different types of EIs introduced in Mauritius. Government must adopt a structured approach to manage EI in a holistic and harmonised manner for achieving sustainable environmental management. EIs need to be independently reassessed to ascertain their need and effectiveness in meeting revenue, social and environmental objectives. It should also consider building institutional capacity at Government and the Ministry of Environment level to monitor the implementation of the EIs. Other urgent corrective actions deemed important include: The roles and responsibilities of all stakeholders need to be clearly defined and assigned. The appointment of an EI champion at each implementation agency to monitor implementation and progress achievement might be considered. Establish a consolidated repository of information that generates sound environment data from implementing agencies for EI policy formulation and review. A Memorandum of Understanding with the MRA and other agencies might be considered to build a platform for intelligence gathering and a more focused enforcement strategy Introduce new EIs, modify existing EIs within an established framework/methodology as per recommended practices prescribed by UNEP and UNDP in order to take advantage of emerging/existing opportunities and challenges.Challenge and support the business sector to finance complementary environmental management initiatives and programmes. Hotels may be called to make more efforts in coastal conservation initiatives in view of the stress the hotel activities create on the coastal resources. Polluters should pay according to their level of pollution created and the depletion of natural resources.Ministry’s ReplyIt is understood that EIs are used mainly as a source for revenue raising and that most of the EIs were introduced by the Ministry of Finance and Economic Development (MOFED) and are implemented by different agencies and institutions. The Ministry advised the NOA that the views of the MOFED be sought on issues regarding EIs and also added that that the need to set up a dedicated unit and compile a compendium was therefore not felt.The Ministry also considered that it had the required framework to raise awareness, monitor and use regulatory instruments to ensure sustainable environmental management. Nevertheless, it also proposed to use EIs as a tool, amongst others, to attain the objective of a few forthcoming environmental projects. The effectiveness of the EPF in meeting environmental objectives was partly observed through the monitoring of ambient air quality around a few stone crushing plants. The setting up of a coordinating mechanism for the EPF activities could not be established as same were cross-sectoral and under the purview of the different Ministries. Given that the MRA took the responsibility to manage the collection of the EPF, the onus to monitor same rests with the line Ministries concerned. The absence of an EPF Information System was mainly due to a lack of expertise in the field of EIs and Environment Economics.In respect of the PPP, it was noted that the EPA provisions such as fines (up to Rs 500,000 and 10 years imprisonment) and fixed penalty (ranging from Rs 2,000 to Rs 10,000) for polluters were acting as deterrent to polluters. ................
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