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AZERBAIJAN: Baku Mulls “Green Tax” on Corporate Polluters

BAKU, Oct 18 2012 - Azerbaijani officials appear to buy into the idea that taxation policy can be an effective way of managing the environment.

While environmentalists are generally supportive of a government idea to introduce a “green tax” on companies, some experts voice concern that such a provision would be prone to manipulation.

Despite various clean-up efforts over the past decade, Azerbaijan wins few international accolades for the state of its environment. Problems range from pollution of the Caspian-Sea’s coastline to large-scale deforestation and inadequate wastewater treatment facilities.

Azerbaijani environmental specialists name the oil-and-gas sector, petrochemical factories, large-scale corporate farms, and cement and concrete plants as among the worst polluters.

The government, with international assistance, has addressed some of the damage. And now officials plan to do more via a “green tax” on companies that pollute.

“Taxes related to the environment are one of the most effective tools for economic and environmental policies,” wrote Akif Musayev, head of the Ministry of Taxes’ Department of Tax Policy and Strategic Research, in an August 2012 article in the ministry’s Vergiler (Taxes) newspaper.

The tax would be paid directly into the state budget rather than into the Ministry of the Environment and Natural Resources’ State Environmental Protection Fund. As yet, other details about the tax are not known. Musayev could not be reached for additional comment.

Azerbaijani environmental activists welcome the idea. With Azerbaijan’s industrial output regaining some muscle and gas production on the rise, they argue that it is time to do more to encourage Azerbaijani companies to use cleaner technologies and to develop a “green economy.”

Under current Azerbaijani regulations, each year companies pay fees of between 100 and 400 manats (about 127.39 to 509.55 dollars) per tonne of “allowable” atmospheric or water pollution into the Ministry of Environment’s off-budget State Environmental Protection Fund.

Fines for exceeding pollution quotas, based on annual inspections, can range from 75,000 to 100,000 manats (about 9,554 to 12,739 dollars).

In 2011, the Fund collected 1.16 million manats (1.478 million dollars) through such means, according to the Ministry of Environment and Natural Resources. The monies are intended for various environmental-protection measures, ranging from water-purification stations along the Caspian Sea to woodland conservation.

No public monitoring exists for the fund, and its management structure has a reputation for being opaque. Data on particular fines paid by companies, for example, is not publicly known.

The State Oil Company of the Azerbaijani Republic (SOCAR), one likely candidate, claims that in late 2011 its oil & gas production department was fined 21,420 manats (about 25,000 dollars) and its Absheron-peninsula drilling department paid 12,490 manats (about 15,000 dollars) for alleged excessive pollution.

Foreign energy companies have not been ignored, although they are fined at far lower rates. In 2011, the environmental ministry fined the foreign oil consortium Garasu about 9,550 dollars and the Lukoil-Azerbaijan joint stock company 1,116 dollars over their allegedly polluting practices.

One economist warns that, as with environmental regulations in Russia and in Kazakhstan, a “green tax” could be manipulated to defend government interests against foreign energy companies, or against other companies seen as threatening the interests of government-friendly corporations.

On Oct. 11, for the first time in public, President Ilham Aliyev criticised BP for missing badly on projected oil production targets; a miscalculation that cost state budgets eight billion dollars, according to the president. Aliyev indicated that “serious measures” would be taken in response to the shortfall. Whether or not such measures would include “green pressure” is impossible to tell.

A Ministry of Taxes official, who asked not to be named, told that, for now, the “green taxes” are just an idea, and that changes to legislation are not expected soon.

Environmental expert Samir Isayev said the challenge for Azerbaijan’s environment goes beyond tougher taxes on pollution. The country requires a “complex fiscal policy” that would mean that companies that use environmental-friendly technologies “should be freed from customs duties and some taxes for the import of new, cleaner equipment,” he said. “This would really lead to both a better environment and more competitive industries; in other words, to economic growth.”

Farida Huseynova, chairperson of the Greens Movement, a Baku-based non-governmental group, agreed. “Those companies which comply with environmental standards and introduce more ‘green’ technologies should get tax benefits from the government,” Huseynova said.

For now, local observers can only wait and see how far Azerbaijan’s “green tax” will go, or whether it will ever materialise at all.

“(It) is too early to make assumptions,” said Baku-based economist Natik Jafarly.

*Editor’s note: Shahin Abbasov is a freelance reporter based in Baku.

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