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114 US$/capita, while the Dutch invested 71 US$/capita in public sewage plants.7 To put it simply, Denmark invested almost twice as much as the Netherlands, and constructed less than half the capacity.

(Figure 11 here)

It would require a very detailed study of technologies and costs to explain the difference between Denmark and the Netherlands appropriately. Although the Danish capacity is nearly 50 per cent higher per capita than the Dutch (see Figure 9), the difference in capacity cannot account for the whole difference in construction costs. The sewage plant market was overheated in Denmark in the 1970s, and profits were high. Furthermore, the Dutch Waterboards may have been more professional in tendering out the construction of sewage plants, than the smaller and often technically-insufficient Danish munici- palities.

To sum up, it is clear that Denmark’s approach to water pollution control was less successful than those countries which used effluent charges, both in terms of environmental achievements and social costs. As a result, Denmark now has substantial overcapacity in public sewage plants. But Denmark too is shifting toward economic instruments. A revision of the Environmental Protection Act that took effect in 1993 introduced user fees reflecting full costs of treatment, as well as a programme for Cleaner Technology to reduce pollution at the source. As a result, Danish industries are now reducing discharges, causing increasing problems of surplus capacity. If Danish companies are able to control pollution at the source to the same extent as Dutch industry, the resulting surplus capacity may become as high as 30-35 per cent (Andersen, 1991).

Embarrassed about the development, local authorities have in several cases offered more-or-less legal discounts to keep industrial pollution at the previous level. Thus, an "eco-industrial complex", inter- ested in maintaining pollution rather than preventing it, has evolved and has become quite influential. This eco-industrial complex consists of local authorities, operators of sewage plants, and suppliers, who have incidentally merged into one company, Krüger, with a former EPA director as head of the board.

V.

INSTITUTIONS AND POLICY DESIGN IN ECONOMIC INSTRUMENTS

The three countries that introduced effluent charges have not been equally successful. There seem to be three major reasons why the Dutch policy has been more successful than German and French policies, and these relate to the context in which the economic mechanism was introduced.

Prior to 1969, the Dutch had no specific legislation on water pollution control, while both the French and Germans respected earlier legislation as they introduced effluent charge systems. Consequently, while the Dutch effluent charge system was not built on top of existing user fees for sewage plants, in Germany and France, such user fees were still charged, and were charged on a hydraulic basis, i.e. based on the quantity of water discharged, reflecting only in part the actual amount of pollutants. In the Netherlands, all discharges were covered by the Surface Waters' Pollution Act, and

7.

As sewer networks are excluded, the Dutch population density does not explain the difference as a matter of fact, plants primarily above 10,000 inhabitant equivalents, the level of large-scale benefits, were constructed during this period in both countries. Also, methods and levels of treatment were similar, biological treatment being the preferred technology.

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