Directions for improving the efficiency of internalization of negative external effects of industrial production

Olexander S. Serdiuk


It was established that the key factors that reduce the efficiency of internalization of negative external effects of industrial production in Ukraine are: shortcomings of the mechanism of taxation of emissions of polluting substances; an imperfect system of environmental tax redistribution; high transaction costs of the internalization process; conflict of interests of the parties. In addition, the problem of internalization is complicated by the factor of inefficient use of industrial equipment.

The purpose of the article is to identify factors that reduce the effectiveness of the internalization of negative external effects of industrial production in Ukraine and to develop proposals for their leveling in the conditions of the spread of modern digital technologies.

The environmental tax existing in Ukraine should be calculated taking into account the degree of harmfulness of pollutants, but at the same time, it does not contain references to the methodology of such calculation. Only the actual tax rates for individual types of pollutants can be seen in public access. The study provides arguments that question the objectivity of these tax rates from the point of view of internalization goals. In addition, the very fact of the possibility of adjusting the tax rate by the Ministry of Economy of Ukraine and the Ministry of Finance of Ukraine, prescribed in the law, to some extent reduces the importance of internalization itself.

Another factor that reduces the efficiency of internalization is the system of environmental tax redistribution. In Ukraine, the system of distribution of funds collected from producers of pollution is depersonalized, and therefore the direct recipients of the negative impact of pollution, at best, receive certain social services implemented by the state at the expense of the environmental tax. Such a situation calls into question the equivalence of the recipient's damages.

No less important for the efficiency of internalization processes is the factor of transaction costs. It is known that both centralized and individual resolution of controversial issues requires the costs of the negotiation process, information search, damage assessment, legal guarantees, etc. Therefore, by themselves, these costs do not create value, but are only transferred to the parties in the form of an additional negative external effect that cannot be internalized.

The conflict of interests is the root cause of the problems of internalizing negative external effects, because each of the parties has natural incentives to preserve and increase property. It follows that the producers of external effects will a priori try to deny their negative impact on the environment, while the recipients will try to maximize their own losses in the eyes of society.

The above-mentioned factors determine the direction of increasing the efficiency of internalization of negative external effects of industrial production in Ukraine due to: approximation of the amount of the tax to the amount of real damage caused by the producer of pollution; reformatting of the tax redistribution mechanism in order to bring budget allocations closer to the real losses of recipients of negative external effects; reduction of transaction costs of the internalization process; elimination of conflict of interest.


internalization, negative external effects, externalities, industry, environmental tax, air pollution

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