Experiences with Fertilizer Taxes in Europe

Abstract

A levy on nitrogen fertilizer is evaluated, using real life experiences in Austria, Finland and Sweden until 1995. In these countries such a levy system was introduced in 1986, 1976 and 1985, respectively. Rates varied from between 10% and 72% of the price of fertilizer. Price elasticity in these situations was estimated to vary between ‐ 0.1 and ‐ 0.5. In Austria the fertilizer industry at first did not pass the costs of the levy on to the farmers, but fertilizer use decreased by 15%, indicating that not only economic stimuli but also other aspects, such as a growing environmental awareness, influence fertilizer use as well. The decrease in fertilizer use in the three countries has probably led to a reduction of nitrogen load to the environment. Levy revenues were mainly used to support grain exports. Administration costs were low, about 0.75% of the tax revenues. It is concluded that a fertilizer tax as a policy instrument is not a perfect method, but that such economic instruments can be part of an effective policy mix to solve nitrogen problems.