Introducing pollution-based tax system

Sustainable economic policies include the establishment of a pollution-based tax system based on the "polluter pays principle" and its variant, the "user pays principle". Both principles imply the removal of subsidies and other economic distortions that encourage unsustainable activities. Charges, resource taxes, tradable permits, subsidies and performance bonds can be incentives to industry to meet environmental standards in the most cost-effective way.

Presumptive charges are indirect taxes levied on polluting inputs and outputs, designed to reduce the scale of polluting activities. Since they tax activities associated with emissions rather than emissions themselves, they can typically be combined with other instruments that make the activity cleaner per unit of output, such emission standards. The principle is that one can tax a bad - such as pollution - by taxing a good or product - such as fuel - when the monitoring of emissions is prohibitively expensive.

China's pollution levy is one of the few economic instruments with a long, documented history of application in a developing country. Article 18 of China's Environmental Protection Law specifies that "in cases where the discharge of pollutants exceeds the limit set by the state, a compensation fee shall be charged according to the quantities and concentration of the pollutants released". At present, approximately 300,000 factories are monitored and potentially subject to levy collections by national, provincial and local regulators.

In Central and East European (CEE) countries, emission charge rates are typically low, but attempts are being made to raise them as part of the harmonization process with the EEC/EU. There is also significant variability between CEE countries; for example in Poland the charges for sulphur dioxide (SO2) and nitrogen oxides (NOx) are several times that of the other countries in the region.