The Cornerstone of Environmental Investments: Offsetting Costs Against Negative Environmental Impact Fees

Environmental legislation has long relied on the "stick" model, including administrative fines, criminal prosecution, multi-million and even billion-ruble claims for damages (as seen in the Norilsk and Anapa spill cases), as well as the suspension or complete ban of activities that violate environmental regulations. But where is the "carrot"? Can businesses count on support, given the significant costs of environmental initiatives, such as modernizing production facilities, installing filters, or reducing waste? Is it worth investing in environmental projects? Can existing legislation effectively motivate nature users to adopt eco-friendly practices?

Environmental legislation includes provisions for state support of initiatives aimed at minimizing negative impacts on the environment. In particular, Clause 3 of Article 17 of Federal Law No. 7 dated January 10, 2002, "On Environmental Protection," establishes the possibility of state assistance in implementing the best available techniques and other measures aimed at reducing negative impacts. Such support may include, among other things, granting benefits when paying environmental fees for such impacts.

Fee for Negative Environmental Impact

The fee for negative environmental impact (NEI) is a mandatory environmental payment made by organizations and individual entrepreneurs for causing harm to the natural environment during their economic activities. This includes emissions of pollutants into the atmosphere, discharges into water bodies, and waste disposal. This payment is not a tax, but rather a fiscal levy with a compensatory function: the allocated funds are directed toward implementing environmental protection and restoration measures. According to Clause 4, Article 17 of Federal Law No. 7, such support is possible when implementing the following measures:

1. Implementation of the best available techniques

2. Design, construction, and reconstruction of:

• closed-loop and zero-discharge water supply systems;
• centralized wastewater disposal systems, sewer networks, local facilities and devices for wastewater treatment, and the processing of liquid domestic waste and sewage sludge;
• facilities and installations for capturing and utilizing emitted pollutants, as well as the thermal treatment and purification of gases before their emission into the ambient air.

3. Installation of:

• equipment to improve fuel combustion modes;
• equipment for the use, transportation, and neutralization of production and consumption waste;
• automatic control systems and laboratories for monitoring the composition, volume, or mass of wastewater, as well as the composition of pollutants and the volume or mass of their emissions into the ambient air;
• automated systems and laboratories for monitoring the state of the environment, including components of the natural environment.

4. Ensuring the beneficial use of associated petroleum gas (a mixture of gaseous hydrocarbons released from oil during its extraction and processing).

The mechanism for accounting for expenses on measures to reduce environmental impact when calculating and paying environmental fees is regulated by Clause 1, Article 16.3 of Federal Law No. 7. This provision allows for the deduction of actually incurred expenses for the implementation of such measures from the environmental fee amount, provided they do not exceed the calculated size of the environmental fee. Expenses are considered allowable if they are documented in the reporting period and directed toward executing measures included in the Environmental Protection Plan (EPP) or the Environmental Efficiency Enhancement Program (EEEP). A similar provision is established in Clause 45 of the Rules for Calculating and Collecting NEI Fees, approved by Government Decree No. 881 dated May 31, 2023.

Environmental Efficiency Enhancement Program

The Environmental Efficiency Enhancement Program is a document comprising a set of measures aimed at minimizing a facility's negative impact on the environment. It is mandatory for Category I NEI facilities, as well as for Category II facilities that obtain an Integrated Environmental Permit (IEP) but cannot immediately comply with the established emission and discharge standards. The program outlines measures related to the reconstruction and technical re-equipment of facilities that have impacted the environment. The document also specifies the deadlines for completing these measures, the volumes and sources of funding, and designates responsible officials. A similar approach is implemented in the Environmental Protection Plan (EPP), which is intended for Category II and III NEI facilities, in accordance with Article 67.1 of Federal Law No. 7.

Under certain conditions, plans to reduce emissions or discharges are recognized as an EPP or EEEP (Clause 8.2, Article 11 of Federal Law No. 219 dated July 21, 2014, "On Amendments to the Federal Law 'On Environmental Protection' and Certain Legislative Acts," and Clause 2, Article 6 of Federal Law No. 225 dated July 29, 2017, "On Amendments to the Federal Law 'On Water Supply and Wastewater Disposal' and Certain Legislative Acts").

Nature users who cannot comply with environmental standards and, consequently, have an approved EPP or EEEP, face a significant risk: if the environmental effect from implementing the EPP or EEEP is not achieved, the NEI fee for previous reporting periods is subject to recalculation using a multiplying factor of 100 (Clause 41 of Rules No. 881).

A perfectly logical question arises here: can a nature user who implements the environmental protection measures specified in Clause 4, Article 17 of Federal Law No. 7 (for example, constructing facilities and installations for capturing and utilizing pollutant emissions, or for the thermal treatment and purification of gases before their emission into the atmosphere), and who also complies with the standards for permissible emissions, discharges, and technological standards (and therefore has no need or legal basis to develop an EPP or EEEP), count on state support in the form of being able to offset the costs of implementing these measures when calculating and paying the fee for negative environmental impact?

The answer, most likely, will be disappointing. Existing legislation does not allow for the adjustment of NEI fees to account for expenses aimed at reducing negative environmental impacts unless an EPP or EEEP is developed.

Thus, at present, the state only extends its support to those enterprises that are under its close supervision.