Accelerated Depreciation of Environmental Investments in the Netherlands

The Policy in Brief

Economic Instrument: Accelerated depreciation on a select group of investments.

Problem: Environmentally unfriendly technologies, along with prohibitive replacement costs.

Goal: The replacement of environmentally unfriendly technologies with more benign ones.

Description: The Accelerated Depreciation of Environmental Investments Measure (VAMIL) offers the opportunity to apply accelerated depreciation on certain innovative environmentally-friendly operating assets. Apart from having favourable effects on the environment, the measure is an incentive for the development and supply of environmental technologies in The Netherlands.

Administering Institutions: Bureau Vervroegde Afschrijving en Milieu, Ministry of Finance and Department of Environmental Investments (VROM).

Key Stakeholders: Bureau Vervroegde Afschrijvind en Milieu, VROM and companies (mainly small and medium sized).

An Overview

The VAMIL measure has been in effect since September 1, 1991. It is a tax facility offering companies the opportunity to apply accelerated depreciation on environmentally-friendly operating assets. If the asset is operational and fully paid for, it even allows depreciation of the full purchase price in the year an asset is acquired. This provides an attractive liquidity and interest gain for these companies. Eligible operating assets appear on a special 'VAMIL list'. The measure is not aimed at a specific environmental problem or region, but has a very wide operating ambit. The 1993 list, for example, contained elements aimed at reducing water, soil and air pollution, noise emissions, waste production and energy use.

To be eligible for the VAMIL list, operating assets should:

• Be clearly defined for fiscal purposes;
• Have relatively good environmental impacts;
• Not yet be widely accepted in The Netherlands;
• Have no negative side effects, such as excessive energy use; and
• Have a substantial potential market.

Periodically - in principle, once every year - the VAMIL list is replaced by a new one. Adaptations include the removal of operating assets that have become widely accepted and the addition of new environmentally-friendly technologies. As compared to the 1992 list the 1993 list grew from some 180 to approximately 280 operating assets. The list is prepared by VROM's Department of Environmental Investments. It is hoped that eventually the VAMIL list will correspond to approximately 30% of all investments in environmentally-friendly operating assets.

All companies and persons liable to pay income or corporate taxes in the Netherlands can make use of the measure. However, the measure aims mainly at small- and medium-sized companies. The government determines a budget for the VAMIL measure once every year, setting an upper limit for tax allowances. The budget does not reflect government expenditures, as the reduced tax revenue in a given year is followed by increased tax revenue in later years. Therefore the cost to the government consists only of lost interest. In 1992 the budget for the measure amounted to 80 million guilders and this amount increased to 120 million guilders in 1993. Additional costs necessary to make the asset operative are also eligible for accelerated depreciation. If an asset is developed and produced within a company, own-production costs can be depreciated in an accelerated manner.

Some Further Reading

Ministery VROM/DGM (1993), VAMIL List 1993 VROM 93061/h/2-93-9978/142

Ministery VROM/DGM (1993), List of low-noise operating assets, Afdeling Milieu-investeringen

Ministery VROM/DGM (June, 1993), Accelerated Depreciation on Environmental Investment in the Netherlands

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