Ecological and legal principles of improving economic incentives for Environmental management and protection in the Republic of Kazakhstan

The Environmental Code of the Republic of Kazakhstan as of January 9, 2007 [1] covers all aspects of interaction between society and nature including issues of economic regulation of environmental protection and management. Article 95 of the primary codified environmental act of the Republic of Kazakhstan stipulates the following economic mechanisms of environmental protection and management regulation: planning and funding for environmental protection measures; charges for environmental emissions; charges for natural resources use; economic incentives for environmental protection; market mechanisms and environmental emissions trading; environmental insurance; economic evaluation of environmental damage.

However, statutory institutions of economic mechanism for environmental protection and management regulation need to be worked out in greater detail as they are set out in a rather general form and contain a large number of reference rules. The least developed aspect of such a mechanism is economic incentives for environmental protection. Nowadays at the scientific and theoretical level there is an understanding of the need for incentive-based environmental charges, however, at the legislative level and in practice such payments, having a tax character, are dissolved in the state budget that does not give them the proper destination.

Unfortunately, the primary environmental act of the Republic of Kazakhstan neither stipulates the special-purpose character and expenditure of environmental charges nor mentions well-known international experience of incentive mechanisms of payment for environmental management. The latter include the following: a flexible mechanism for environmental payments, tax breaks, easy-term loans, mortgage rates and mortgage interest, environmental funds, etc. According to Article 103 of the Environmental Code the Government the Republic of Kazakhstan may only establish maximum rates for environmental emissions in order to enhance economic incentives for environmental protection.

However, the establishment of marginal rates can hardly create the necessary incentives as natural resource users will raise the price of their products, goods, or services instead of implementing environmental protection measures.

In our opinion, this problem can be solved, first and foremost, through the adoption of a special act covering environmental payments in the Republic of Kazakhstan. As D. Baideldinov stated, “in order to improve the system of environmental payments in Kazakhstan it is necessary to develop and adopt a special act “On Environmental Payments” [2, p. 44].

We support the stated above position of Kazakhstani scholars (D. Baideldinov and K. Rakhimberdin) and think the main objective of the act is the creation of effective mechanisms of economic interest of natural resource users to reduce the negative impact on the environment. Moreover, the current system of environmental charges, gradually turning into a form of environmental taxes and regarded as one of the sources of budget replenishment, should change its direction towards the development of compensation for environmental loss and stimulate natural resource users to reduce their harmful impact. Besides, the future act should be sent to the exemption from the payment of those business entities, which use best available technologies and do not go beyond the standards of permissible impact on the environment. This situation, of course, changes the content of the principle of “polluter pays” that will change the nature of the environmental tax payments operating today in the Republic of Kazakhstan.

Much attention is to be paid to the components of environmental payments. As the payments include charges for environmental management and emissions it is necessary to provide for a clear procedure of determining the pay for each object. Further, it would allow any person to calculate the charge to be paid.

Taking into account the domestic Kazakhstani experience of ecological funds, it would be advisable to send environmental payments to such newly created institutional financial associations. The future normative act should also stipulate that the incoming funds are to be strictly spent in accordance with the purpose.

Under the conditions of economic crisis and reducing the state budget financing for environmental measures, the role and importance of ecological funds must increase. Moreover, future ecological funds are to adequately reflect the nature and circumstances of the economic situation in the country. For example, they must ensure the allocation of easy-term environmental loans to those natural resource users whose activities have an adverse impact on the environment. When creating such funds, it must be taken into account both positive and negative experiences of transitional circumstances of Kazakhstan and other countries where ecological funds previously operated or are currently operating. Moreover, the state and public organizations should strengthen the control mechanisms over the receipt and expenditure of funds, as one of the reasons of abolishing the ecological funds in Kazakhstan were examples of the funds use for purposes not directly related to the environmental protection. At the same time, ecological funds must be independent in decision-making. The state should provide support and establish such a level of environmental charges, which would ensure the stability of the revenue base of ecological funds and correspond with the cost required for the restoration of disturbed ecosystems.

It also should be emphasized, that in order to avoid past mistakes it is necessary to ensure publicity and transparency of ecological funds. The latter condition is especially important when considering projects to be funded. The project cycle is expected to include a sequence of specific steps after the application of the project’s author to the ecological fund, evaluation of the project, its approval (deviation), its realization, and its results evaluation. The legislator is to bend every effort to saving time of the applicant as well as to the transparency of ecological funds, especially when making decisions regarding the approval or rejection of the project.

Ecological funds are possibly to be created directly at the enterprises and enterprises-natural resource users must form ecological funds in the amount sufficient to perform their assigned limits of the environmental impact and withdrawal (use) of natural resources.

Ecological funds may include the following sources: payments for environmental emissions and use of natural resources; charges for any claims in damages; penalties for violation of environmental laws, environmental regulations, rules, and standards; depreciation for the restoration of environmental installations and facilities; loans of regional ecological funds for reducing the harmful environmental impact and irrevocable payments (subventions) for such a reduction from the said funds; part of the enterprise payments for consumption of natural resources in cases when the enterprise recovers spent resources from its own funds or bank loans; income (deposit interest) from keeping ecological funds at banks.

In case of insufficiency of these sources the ecological funds can be replenished by the part of the balance sheet profit of the enterprise.

Ecological funds of enterprises should be formed and expended under the supervision of banking institutions and environmental protection bodies. Part of the funds should be spent on improving primary production in order to mitigate the harmful environmental impact and to conserve natural resources.

The sources of regional ecological funds should be ... “revenues from the issue of environmental loans, budgetary subsidies, target local taxes, voluntary contributions, and interests for environmental loans...” [3, p. 6]. One of the sources of ecological funds replenishing can be environmental insurance premiums. As Kazakhstani researcher G. Mukasheva correctly noted, “Insurance is one of the most important economic institutions that existed in different economic formations but it is most fully realized in the market” [4, p. 16].

In our opinion, in order to promote environmental management it is necessary to review the conceptual principles of ecological insurance in the Republic of Kazakhstan. The main purpose of this institution should be the formation of insurance ecological funds for prevention of environmental accidents and disasters. Their funds will be spent directly for the restoration of environmental damage caused by accidental pollution.

In addition to the direct interdependence of the environmental payments institute on environmental insurance, the considered tool of economic mechanism of environmental protection is indirectly associated with another tool of environmental management – the environmental audit. According to the Environmental Code the environmental audit is an independent audit of economic and other activities of the audited entities aimed at the identification and assessment of environmental risks and the development of recommendations for improving the environmental safety of their activities. Clause 4 of Article 82 of the act contains the structure of environmental information including data of ecological and economic aspects of the subject. But the said act does not define the content of the ecological and economic activity. In our opinion, the value of the environmental audit is the following: its results serve as the basis for making a conclusion on the state of economic and financial reporting, accounting, timeliness and value of the current environmental charges; purposeful use of capital funds allocated for environmental protection. These components must become not only the structure of ecological and economic activities but also the objects of the environmental audit (it should be noted that the Environmental Code of the Republic of Kazakhstan stipulates no clear objects of environmental audit). Thus, the problem of improving the legislation of the Republic of Kazakhstan in the field of environmental charges reveals a number of gaps to be replenished due to both legal science and practice.

In our study it is also important to emphasize the fact that ecological funds have significant advantages compared with the existing system of environmental payments to the budget. All incoming payments “are spent on anything: most often on patching holes in the budget, on solving accidental problems, but not on solving environmental issues in the place of the enterprise activity and the place of harmful environmental impact”, says Andrei Karchevsky, a freelance Advisor to the Minister for the Environment.

We can mention the following as an example: in 2006 the budget of Karaganda Region received 2.2 billion tenge of environmental payments from industrial enterprises of the region and most part of them was spent on road maintenance in Karaganda. This happens all the time. Officials neither spend the environmental money purposefully nor care about funding top priority problems from the national budget. For example, the Register of Environmental Issues compiled by the Ministry of Environment Protection for 2008-2010 contains no programs for Temirtau, which means the latter will get no money to improve its environmental situation” [5, p. 4].

Atyrau Region may serve as another similar example: for 12 months of 2005 the actual amount of environmental revenues to the regional budget accounted for 4 546 220 000 tenge or 141% of the plan. But for environmental measures in 2005 it was allocated only 357 870 000 tenge or 1/10 of these funds.

Statistical data on environmental payments in the North Kazakhstan Region are also of particular interest. Every year the local budget receives funds from payments for environmental pollution. The analysis shows that each year environmental payments increase (in 2005 the amount of environmental charges exceeded that of 2002 in almost 3 times). However, in practice the allocated funds are insufficient to implement the necessary measures [6].

The former Minister of Environmental Protection N. Iskakov speaking at the board meeting reported that in the western region of Kazakhstan the environmental funding is a small percentage. Thus, “in 2006 Aktobe Region planned to finance environmental protection to the sum of 100 million tenge, which is 3% of the planned volume of the payments. West Kazakhstan Region allocated for these purposes only 0.2 billion tenge or 4% of the amount of actually received environmental funds [7].

Thus, on the basis of the foregoing, it should be emphasized that there is an urgent need to stipulate in the environmental legislation the obligation of spending environmental funds strictly on environmental conservation, restoration, and other environmental purposes. Ecological funds are not the only means of economic incentives of natural resource users to reduce their harmful impact.

Together with the introduction and development of ecological funds it is important to work out the procedure of giving the enterprises a regime of accelerated depreciation of environmental facilities and structures, cleaning equipment, and other eco-technology. The introduction of accelerated depreciation in foreign countries contributed to the accumulation of capital for upgrading the outdated technology and transition to less harmful equipment. Thus, the amortization period for pollution control equipment in Canada is two years, in France – a year for 50% of equipment. Besides, the system of economic incentives for “nature-friendly production” providing various benefits and bonuses is to function simultaneously with the above mentioned tools.

Thus, the system of environmental charges should be organized in such a way that it would be more profitable for natural resource users to apply new technologies and develop nature-friendly processes than to pay taxes and penalties. But for this purpose the amount of payment should not be symbolic. At the same time, penalties are a form of negative motivation for environmental management and protection as their main function is a punitive one.

It is known that one of the reasons for the unfavorable environment in Kazakhstan is the underestimation of the real economic value of nature and the cost of natural resources or services. The experience has shown that neither the centrally planned economy nor the modern market economy could and can adequately take into account the economic value of nature. In our opinion, the adequate consideration of environmental factors in economic performance, as well as full economic assessment of natural resources through environmental inventories can help to improve the system of environmental payments in Kazakhstan.

The improvement of environmental charges may also be contributed by other mechanisms such as the loan rate which is an additional charge to compensate the constant environmental damage caused due to lack of non-waste technology. Loan rates are not included in the price of the final product, but depend on the environmental damage and the cost of its restoration. It can be represented in the form of a loan to be paid by the nature user to the state stimulating non-waste production. Moreover, the environmental authority, when passing the use of natural resources, takes the security deposit from the user; it is fully refundable to the latter, if the resource is returned in adequate state. The loan rate must consist of various factors affecting the environmental pollution including both the quantity and quality of environmental emissions, and characteristics of the object polluted (whether it is a specially protected natural area or a city or an area with adverse environmental conditions, etc.).

In general, loan rates should stimulate natural resource users to environmental compliance. Such a system can be a powerful economic lever of careful use of natural resources. Loan rates are required to reimburse the basic costs of the state for environment protection measures.

Together with the introduction of loan rates it is important to provide in the future normative act the possibility of credit granting to the natural resource users for the payment of loan rates. The price paid for the use of credit should be the loan percentage. When changing it at a constant amount of the loan rate, the environmental authority may stimulate the implementation of various nature protection measures; when refusing to provide credits to pay the loan rates, it may force the closure of the enterprise most damaging the nature.

Such economic and environmental tools, of course, require a comprehensive approach to the development of a legal framework to ensure their functioning. In particular, the provision of credit facilities to enterprises engaged in environmental protection is complicated by the fact that the banking legislation does not contain all necessary prerequisites. It is obvious that banks engaged in lending, should, in turn, somehow compensate for the costs associated with the issuance of preferential loans thus being economically interested. But for a start it is necessary to mention a new type of environmental services of banks - a flexible use of a wide range of banking products for financing environmental business. It requires the bank-specialists’ expertise in the field of environmental auditing, management, and marketing. The latter circumstance would be aimed at increasing the volume of banking services.

An example of the expansion of such services can serve the ecological balance compilation and the publication of annual environmental reports of the Credit Suisse Bank. “The information of getting Series 14001 # 150 Environmental Certificate was brought to the public via the Internet through publications in the press. The Bank primarily expresses interest in the companies having the specified certificate. For example, if two companies are in need of credit and one of them is certified Series 14001 #150, then, of course, preference will be given to that having the specified environmental certificate ...” [8].

Today it is very important for the Republic of Kazakhstan to have the environmental component reflected in banks activities. The state should support the banks implementing new environmental products, programs, and activities. It should also provide assistance to the banks sponsoring environmental activities, conducting environmental lottery, etc.

In general, the legal system of the Republic of Kazakhstan in the field of economic incentives for environmental management is still being formed and developed. There is much to do for improving the current legislation and developing new norms to regulate relations in the direction indicated.

REFERENCE

1. Environmental Code of the Republic of Kazakhstan (2008). Almaty.

2. Rakhimberdin K. (2001). Legal protection of air should be based on market rules. Legal reform in Kazakhstan. №3(11).

3. Andarova R. (2001). Economic mechanism of environmental management in the market. The Bulletin of the Ministry of Education and Science of the Republic of Kazakhstan. №1.

4. Mukasheva G. (2005). Environmental insurance as an economic tool of legal mechanism. Femida. №12 (120).

5. Bondar A. (2008). Evening Newspaper. № 32(537) as of August 6, 2008.

6. http://dpr.sko.kz /rus/ program/ AnalizPostPlat.htm.

7. http://ru.government.kz/ site/ news/ 2006/ 12/35.

8. http://www.meta.kz.