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Sustainable Tourism and Economic Instruments: International Experience and the
Case of Hvar, Croatia
1
Tim Taylor
2
Centre for Public Economics
Department of Economics and International Development
University of Bath
Maja Fredotovic
Faculty of Economics
University of Split
Daria Povh
PAP-RAC, Split
and
Anil Markandya
University of Bath and World Bank
INTRODUCTION
Tourism activities often have a significant environmental impact on a tourist destination,
including congestion and pollution. These environmental concerns have led to moves
towards the development of sustainable tourism in recent years, particularly as the
numbers of tourists and the distances they are travelling has increased. Such
developments have included the use of ecolabelling, for example the use of ‘ecotourism’,
and the taxing of tourists in order to raise the revenues to correct the environmental
damage caused. This chapter examines the latter of these two measures, first from an
international perspective and then from the local case of Hvar, Croatia.
DEFINING SUSTAINABLE TOURISM
There are a number of definitions of sustainable tourism. The distinctions arise due to
differences in the definition of sustainability, and this obviously impacts on how certain
sectors can be seen to be making progress towards sustainability. Sustainable tourism
may be defined as ‘the optimal use of natural and cultural resources for national
development on an equitable and self sustaining basis to provide a unique visitor
experience and an improved quality of life through partnership among government, the
private sector and communities.’ (OECS, undated). Others have considered sustaining
tourist numbers to be the objective. Whatever the case, it is clear that tourism has
important economic, social and environmental implications that should not be overlooked
in evaluating the impacts of the tourist industry on a region. The main aim of this chapter
is to examine the potential implications for the use of tourist eco-taxes, taking the quality
of life of the community as the objective, through examining the economic impact of
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such measures, as well as their impact on the quality of the environment and tourist
enjoyment. This three-pronged view examines the current and future implications of
tourism on the environment.
DEFINITION OF ECO-TAXES
Tourists face a number of taxes, including departure taxes, value added taxes and room
taxes, among others. The question as to what distinguishes an eco-tax from these other
techniques is important. Here we will define an eco-tax in its broadest sense as one that is
placed on a good or service to internalize some, or all, of the external costs of the activity
undertaken or one which is hypothecated to the use of environmental protection. For a
recent review of the application of environmental or eco-taxes in developing countries
see Markandya et al. (2002).
Tourist eco-taxes, therefore, are defined as being those that are raised on tourists for
environmental purposes. They may or may not have a direct impact on the incentives
provided to the tourist to pollute, but must, in any event, be used for environmental
purposes. An example is the tourist eco-charge in Hvar, Croatia that is discussed later in
this chapter. In that case, the charge is levied not on the volume of pollution but on the
number of days spent in Hvar. This charge is then hypothecated, i.e. it is earmarked for
use in environmental protection.
ANALYTICAL FRAMEWORK
We can define the demand for a tourist site as follows:
Qt = f(pt, et, d, c, x)
Where:
Qt is the quantity of tourist days spent in a region in time t;
pt is the price of staying in the tourist region in time t (including taxes);
et is the level of environmental quality in time t in the region;
d is the distance travelled;
c represents the climate of a region; and
x represents all other factors.
The first derivative of Qt with respect to pt provides us with the key information to
calculate the price elasticity of demand for a tourist area. This will be determined by a
number of factors, including the availability of substitute sites and behavioural aspects of
the consumer. As the price of visiting a given region increases, so there is a demand
response to that price change. This shows us one impact of the imposition of an eco-tax
on the tourist economy.
Another impact, is shown by the change in environmental quality that may be attributed
to the eco-tax, or actions taken using the revenues of such a tax. It has been shown in the
literature that there is a positive relationship between demand for a site and the level of
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environmental quality (see, for example, Milhalic, 2000). This has led to the rise of so-
called ecotourism in some regions. In the case of a tourist eco-charge, these two aspects
may to a certain extent work in opposite directions, and the aggregate impact on tourist
revenues will depend on the relative strengths of each impact. This is shown in a stylised
form in Figure 8.1 below.
In the initial position, the equilibrium is given by PQ, where supply and demand
intersect. With the application of a uniform tourist eco-tax of t, the equilibrium moves to
P1Q1 as the price per day of trip increases. However, the improvement in the level of
environmental quality leads to an increase in the level of demand to D1. The equilibrium
position is P2Q2 – which in this case represents a slight reduction in tourist numbers from
the initial equilibrium. The relative strength of the price effect and the environmental
quality effect is what this chapter will attempt to determine.
In terms of the impact of a change in price on the level of demand for tourism, a number
of studies have shown that demand for tourism is inelastic. This means that as the price of
a trip rises one would expect to see a less than proportionate reduction in the quantity of
tourist days. In a meta-analysis of 44 studies, Crouch and Shaw (1992) found that the
average price elasticity of demand was –0.39, suggesting that a 1 per cent increase in
price would lead to a 0.39 per cent reduction in the numbers of tourists. This is similar to
the findings of Vanegas and Croes (2000) for US tourists in Aruba, where the price
elasticity was found to be –0.56 in the short run
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, indicating that a 1 per cent increase in
price will lead to a 0.56 percent reduction in tourist demand. In other studies by Hiemstra
and Ismail (1992, 1993) the elasticity was found to be –0.44. This is important, as it
suggests that the demand for tourism will not be greatly affected by tourist eco-taxes,
which make up a relatively small part of the total cost of a trip – and hence the economy
will not suffer greatly, if at all, from such a measure. Whilst this is the case for marginal
taxes, it should be noted that it is important not to levy such a large tax that it has
significant competitiveness aspects.
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S
S
1
D
D
1
Number of visitor days
Price
Q
Q
1
Q
2
P
P
1
P
2
t
Figure 8.1: Theoretical impact of tourist eco-tax
Another important aspect is the price elasticity of supply, which indicates the degree to
which the tax will be passed on to consumers. Hiemstra and Ismail (1993) found that the
supply elasticity for hotel rooms was 2.86, indicating that approximately $6 of every $7
of a hotel tax is passed on to the tourist (Dixon et al., 2001). Thus there is a very small
impact on the tourist industry.
In terms of the increase in demand due to an improvement in the environment, the growth
of ecotourism suggests that environmental quality may form an important part of the
consumer’s consumption decision. The issue of information arises in this context,
whereby it is difficult to re-establish a reputation for good environmental quality once it
is lost (Dixon et al, 2001). Certification schemes and proactive environmental
management may play a role in improving environmental quality (as the tourism industry
changes behaviour to meet certification standards) and access to information on the
quality of the environment. Certification schemes include the EU’s blue flag scheme,
which has been extended to a number of countries.
The time aspect may also be important. In the short term, the stock of pollutants may
mean that the reduction of environmental damage or improvement in environmental
quality is less than would otherwise be the case, thus reducing the positive environmental
quality impact in the near term. However, in the longer term improvements in
environmental quality should lead to increased tourist numbers (unless actions are taken,
e.g. through increased eco-taxes to mitigate the impacts of congestion).
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We now review some of the main environmental damages associated with tourism,
before presenting an overview of some of the policy measures that have been taken to
mitigate such impacts.
ENVIRONMENTAL DAMAGE AND TOURISM
The linkages between tourism and environmental damage have been reviewed in a
number of publications (see Davies and Cahill, 2000 for the US case). This section will
examine a number of key impacts of tourism on the environment.
Congestion
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Congestion costs have not, to date, been assessed in any serious empirical way. The
demand functions for tourism have been estimated (e.g. Crouch and Shaw, 1992), but
such demand functions do not look at how the willingness to pay (WTP) for a visit is a
function of the number of visitors. In terms of Figure 8.2, the WTP for a group of
identical visitors OP, assuming that some critical number is not exceeded, is given, as
OB. The marginal cost per visit is OC. Each visitor will compare that marginal cost with
the WTP as given by the line ZZ*. This results in a number of visitors equal to OV.
However, the marginal visitor creates congestion effects on all other visitors, resulting in
an additional or marginal value as depicted by the line ZZ**, which is below ZZ*. The
socially optimal number of visitors is OW, but the free access equilibrium will result in a
number equal to OV. The potential pool of visitors is OP.
The literature does show that tourists perceive crowding as being a negative externality.
Hillary et al. (2001) in a study based in Australia found that in assessing visitor
perception of environmental quality this was the most common factor highlighted as an
issue, with tourist tracks and consequent soil quality being the next most important
aspect.
The literature on tourism does not contain serious estimates of the value of this
congestion effect. To be sure, there are estimates of the price demand elasticity of visits
to sites using the travel cost method, but these estimates do not separate out the decline in
the WTP due to the fact that people with a lower WTP are visiting the site (a factor we
have eliminated in Figure 8.1), and the fact that the WTP of any one visitor declines with
the number of visitors. If we are to develop tools for sustainable tourism it is precisely
these kinds of data and analysis that are needed.
The impacts of tourist-generated traffic congestion on local communities were studied by
Lindbergh and Johnson (1997) for the case of Oregon. They found that households were
willing to pay $110 to $186 annually on average to get rid of such congestion. This
indicates that there may be significant side-benefits to local communities of reducing
congestion by tourists.
Congestion not only has an impact on tourist benefits, it also may have a significant
environmental impact in terms of increased pollution. In the case of Hvar, as discussed in
the case study below, high densities of tourists lead to extreme pressures on wastewater
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treatment, on the deposition of litter and on land based pollution such as emissions from
vehicles. Such costs need to be considered when levying a tourist eco-charge.
The potential for the levying of charges for congestion at tourist attractions has been
raised in the past in Wanhill (1980). Wanhill identifies difficulties of administration,
implementation and equity in levying charges based on congestion, yet draws the
following positive advantages for such charges:
The amenity appropriates the surplus caused by excess demand for the attractions;
It should encourage efficient use of the attraction and the correct allocation of
resources;
The revenue provided could be used to diversify or rationalise the operation of the
amenity; and
A booking or quota system may include those who are not prepared to pay the price
of congestion and exclude those who are.
B
C
O
M
W
V
P
Visitors
Marginal
costs
Z
Z*
Z**
Figure 8.2: Congestion costs of tourism
Increased pollution loads in water and air
Pollution loads in water and air are clearly an issue of some concern to local authorities
and national governments. There may be impacts on health – through incidence of asthma
or water-borne diseases. Water pollutants may raise costs for extraction of drinking water
from freshwater sources. In the empirical literature, some work has been carried out to
estimate the impacts of such pollution arising from tourism. These impacts include:
Increased air pollution:
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33 to 44 percent increase in traffic in peak season in Sochi, Russia (Lukashina et
al., 1996);
Increased emissions from airplanes: increased emission of pollutants such as NOx,
carbon monoxide and particulate matter, among others. However, these have been
shown to be very small in relation to total emissions in the US case, with less than
0.2 per cent of total CO2 emissions being due to tourist-related air travel, though
they are increasing in importance (Davies and Cahill, 2000);
Air emissions from energy use;
Increased water pollution;
Impact of cruise ships and recreational vessels on the marine environment may be
significant due to dumping of waste at sea. This includes solid waste and the
dumping of bilge tanks at sea (Patullo, 2000; Davies and Cahill, 2000);
Tourism may place a significant burden on wastewater management facilities;
Kamp, 1998);
Water use
Water is an important resource in a number of areas in the world. This is true for the
Mediterranean region among others, and the issue of water resource management is
growing increasingly important with increased risk of drought due to changes in climate
and the pollution of groundwater and surface water sources. It has been estimated that the
average tourist in Spain uses 440 litres of water per day (up to 880 litres when one
includes swimming pools, golf courses) compared to the average Spanish resident
consumption of 250 litres (WWF, undated).
Waste
Tourists have been shown to generate a more than proportionate quantity of waste, both
solid and liquid. A recent World Bank study by Dixon et al. (2001) found that in St Lucia
tourists generate approximately twice the amount of solid waste that residents generate.
The total level of waste generated by tourists may be less than that of local residents, due
to the time scale of the tourist season. However, the waste generated may have important
impacts as waste is generated in areas where it is likely to affect environmental quality
and the concentration of tourist-generated waste around the peak season means that it is
likely to cause more damage to the tourist industry (Dixon et al., 2001).
Degradation of cultural heritage
The impact of tourism on the cultural heritage of a nation or region has been the subject
of some debate in the literature. It is possible that, if properly managed, tourism may
provide positive effects on local communities, with increased community pride, sense of
identity, support for the economy of the community and increased employment
opportunities. However, where inadequate care is taken, tourism may result in problems
of cultural commodification, higher living costs, displacement, increased crime,
undermining of traditional ways of life and pollution (Jamieson, 2000). Cultural
considerations must be taken into account in the promotion of sustainable tourism. Fears
about the negative impact of tourism on culture have been the driving force behind the
tourism policy of Bhutan, as highlighted below.
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Ecological impacts
Tourism may have diverse impacts on the ecological system within a country. Such
impacts are difficult to measure, as presented by Hughes (2002) in evaluating
environmental indicators for the case of the impact of tourism on coral reefs. Dixon et al
(2001) note that ‘the simple presence of tourists can have adverse environmental impacts
in some particularly sensitive ecological systems’.
Tourist development may, if left unregulated, have significant impacts on wetlands and
forest habitat. Davies and Cahill (2000) give examples of the impact of infrastructure
development, with Jamaica having lost 700 acres of wetlands due to tourist development
since the 1960s (Bacon, 1987).
For the Mediterranean, WWF (undated) suggest that over 500 plants are threatened with
extinction and face pressure from tourism development in some overbuilt destinations.
The impact is not limited to flora, with monkseal populations being threatened and sea
turtles having their nesting grounds disturbed.
Positive impacts of tourism
It is important to note that tourism does not only have negative impacts on an area or
region; it may also have significant benefits in terms of development and preservation of
heritage sites. The positive economic impact of tourism may provide needed funds for
preserving the environment or cultural heritage. This is clearly above and beyond the
economic impacts of tourism, which may be important for development.
INTERNATIONAL EXPERIENCE WITH TOURIST ECO-TAXES
A number of countries have experimented with tourist charges, and the contribution that
tourists make to the tax revenues of visited countries is increasing. This section focuses
specifically on those taxes instigated for environmental purposes.
The impact of an eco-tax on the competitiveness of a region as a tourist destination may
be important to the government in deciding on the implementation of such charges. This
section will look at the charge schemes that exist to date.
Balearic Islands, Spain
The Balearic Islands are an important tourist destination located off the coast of Spain. In
2001 just over 10 million tourists visited the islands, with 1.5 million from Spain and the
rest largely made up of British and German tourists (Government of the Balearics, 2002).
This level of tourism has created great pressure on the infrastructure and environment of
the Balearics. In terms of the environment, the following have been the major impacts:
pressure on water resources led to the level of underground water falling by 90 metres
from 1975 to 1999;
production of domestic waste is double the national average of Spain; and
increased use of energy: in Majorca electricity consumption rose by 37 per cent
between 1993 and 1998.
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The Balearic Islands introduced an eco-tax on tourism to raise revenues for a ‘Tourist
Areas Restoration Fund’. This eco-tax consisted of a system of charges based on length
of stay in tourist accommodation. The tax excluded those under 12 and those coming
under a social programme. Rates of the tax are shown in Table 8.1 below. The rates of the
tourist eco-tax in the Balearics ranged from €0.5 per day for low-rating hotels and
apartments up to €2 per day for high rating hotels and apartments. The tax was paid by
the visitor to the hotel.
The ‘Tourist Areas Restoration Fund’ was established in 1999. The aims of this fund are
described in Box 8.1, with the general aim being to promote the sustainable development
of the tourism industry and to enhance the competitiveness of the Balearics.
The eco-tax was abandoned in early 2003 as a result of a change in government and
pressure from the tourism industry. The tax was successful in raising revenues, and
anecdotal evidence of a shift in tourists to other resorts was reported – though tourist
arrivals from the UK, a major market, increased (Templeton, 2003).
BOX 8.1: AIMS OF TOURIST AREAS RESTORATION FUND
Redesign and restore tourist areas
Recuperate resources and open and rural spaces
Revalue heritage features with social, cultural and tourist relevance
Revitalize agriculture as a financially competitive activity
Source: Ecotaxa web site
Table 8.1: Tourist Eco-tax in the Balearics
Accommodation Rate (Euros/day)
5 star hotels and aparthotels 2
4 star hotels and aparthotels 1
3 star hotels and aparthotels 1
2 star hotels and aparthotels 0.5
1 star hotels and aparthotels 0.5
4 key tourist apartments 2
3 key tourist apartments 1
2 key tourist apartments 1
1 key tourist apartments 0.5
Holiday tourist homes 1
Property rental with complementary services 1
Camping sites or tourist camps 0.75
Rural hotels 1
Interior hotels 1
Agritourism 0.25
Source: Ecotaxa website
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Bhutan
Bhutan has strict rules on tourism and charges a large minimum tariff for staying in the
country of €179 (low season) to €217 (high season) per night for a member of a tour
party of more than three persons, through one of 33 official tour operators
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. There is an
additional supplement of €43 per night for a single person and €33 per night per person
for couples. This charge was levied and other restrictions placed on tourism in the light of
the Government’s view that ‘tourism must be environmentally and ecologically friendly,
socially and culturally acceptable and economically viable’ (Government of Bhutan,
undated). Since 1974 strict controls have been placed on tourism, with Bhutan aiming for
low-volume, high-value tourism. The impacts of these controls, combined with other
measures to protect the environment (including bans on the export of raw timber), have
been to reduce the social and environmental impact of tourism in Bhutan. There have
been some potential costs associated with this programme, however, in terms of
economic development – with some Bhutanese suggesting the programme has gone too
far (US DOE, 2001). The Bhutanese case is not a tax as such, but it has had impacts on
visitor numbers – which are also limited by the seasonal nature of tourism in Bhutan –
and it has had a positive impact on the profits of tour operators (Dorji, 2001).
Dominica
Tourism is an important part of the Dominican economy, with total visitors numbering
309,086 in 1998, contributing €46.3 million (Government of Dominica, 1999). Over
three-quarters of tourists to Dominica arrive by cruise ships and significant
environmental problems have arisen as a result on the discharge of wastes. As a
consequence, Dominica has an environmental levy of €1.62 per head on departure, to pay
for a waste management scheme funded by the World Bank. Difficulties were
experienced in establishing this charge, with cruise ships threatening to boycott the
island. However, it has been instigated (Patullo, 2000) without the proposed boycott
materializing.
Conclusions
From the above it can be seen that examples of ‘environmental taxes’ range from those
that are taxes in the sense that they are payments not based on the costs of supplying a
particular service, to those that are really charges for services provided. For example, in
the case of waste collection charges (as in Dominica), the payment is a charge for a
service and provides for environmental protection. Of course tourists should not be
subsidized in the provision of such services, but all too often this is the case. Pure
charges, such as those in the Balearics case, provide for environmental protection based
on visitor usage. We can thus distinguish between these charges, and Figure 8.3 provides
a mechanism for this.
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Degree to which payment is related to
specific services provided to payer
Degree to which payment is for use of a
public good
100
Agreed payment schemes based
on actual or expected use – eco-
tax based on hotel stay, visitor
charges for congested sites
Payment for waste
collection
Pure Fiscal tax, e.g.
income tax
Sewerage charge
Pure environmental
tax, e.g. carbon tax
0
100
Figure 8.3: Tourist eco-tax experience
CASE STUDY OF HVAR
We now turn to examine the potential for the application of a tourist eco-tax in Hvar,
Croatia.
The town of Hvar is located in the west part of the island of Hvar, one of the islands of
Middle Dalmatia. It is situated to the South of Split and is the largest island in Croatia.
Hvar has 4,224 residents (2001). In the summer months it is a popular tourist destination
for Croatian nationals and increasingly for European holidaymakers. The increase in
tourist numbers has led to a range of environmental problems, ranging from pressures on
waste water services to increased littering and congestion in the town of Hvar.
The coastline and the landscape of Hvar are, along with cultural monuments, the most
valuable natural resources and form part of the tourist attraction to the area. Under the
Law on Nature Protection, the islands of Pakleni otoci and the small island of Galešnik
(at the entrance of the port of Hvar) are treated as protected landscape areas. Under the
Law on the Protection of Cultural Heritage, the urban areas of the town of Hvar and rural
areas of Velo Grablje, Malo Grablje and Zarače have the status of protected areas.
Furthermore, there are a number of archaeological sites in the area: the
hydroarchaeological site Palmižana, the villa rustica in Soline, a site at Vira, and a fort at
Lompić in the Gračišće Bay. In addition, there are 73 protected cultural monuments
within the historical centre of the town of Hvar (including the Arsenal and Theatre, City
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Fortress and Wally, Cathedral and cemetery, numerous palaces etc.) and 23 more of them
outside the town core.
As stated above, tourism is becoming increasingly important in the Hvar economy. It
currently contributes to one third of the employment in the town directly. The
development of tourism in Hvar dates back prior to the development of mass tourism in
other parts of Europe. During the 1960s and 1970s, a number of large tourist facilities
were constructed. These developments were functional but not aesthetically pleasing.
Tourism development has been accompanied by an expansion in residential property, and
developments have not been properly planned. As a consequence there are a range of
infrastructure problems, including a lack of parking facilities, narrow roads and waste and
wastewater management problems.
Tourism declined in the 1990s as a consequence of the civil war in Croatia and
neighbouring Bosnia and Herzegovina. War was not the sole cause of the lack of growth,
however, as the supply of tourist accommodation and infrastructure also restricted
development.
Recently, the construction of accommodation and catering facilities has taken place in
previously non-inhabited bays (e.g. Milna and Velo Zarače) and also on the Pakleni otoci.
These are illegal, without building permits, and are harmful to the environment and
landscape. Similar construction has been recorded in the bays on the northern part of
Hvar. Valuable resources of the land and sea have been damaged in the process.
The current official accommodation capacity in the town of Hvar is 8,795 beds as shown
in Table 8.2. In addition to the below data it is estimated that 2,000 additional,
unregistered beds are made available in the peak season.
Table 8.2: Accommodation in the town of Hvar
Type of accommodation
Category
Number of beds
Hotels
***
**
932
1,363
Private accommodation
***
**
3,770
2,730
Total number of beds
8,795
Source: Hvar Tourist Office
Tourism and Environment in Hvar
Tourism has a significant impact on the state of the environment in Hvar. It places a large
burden on wastewater services, on waste collection and on other services provided by the
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municipality. In the peak season, the ratio of tourists to locals is three to one, which is
indicative of the significant burden of peak loads on wastewater and other facilities.
Tourist-related litter is an issue on the island. In addition, other discharges from boats
pollute the water and coastline.
It would be wrong to categorize Hvar as heavily polluted, but in the peak season some
negative impacts of tourism can reduce the enjoyment of the town and the surrounding
area. The likely growth of tourist volume indicates that resources are needed to create an
environment in which tourism can develop sustainably. One mechanism that has been
identified that could contribute significantly to mitigating the environmental effect of
tourism is a tourist eco-charge. The following sections outline the proposed charge.
Proposed Tourist Eco-charge
Tourists produce serious pressure on the natural resources and the infrastructure in the
town of Hvar and the surrounding area. Thus, according to the polluter-pays principle,
tourists should contribute towards the remediation of environmental damage caused by
their activities. It should be noted that tourism is also considered to be the main potential
source of economic development of the area in the future, and hence it is important that
actions bear in mind responses of tourists and also contribute towards the sustainable
development of the island as a tourist destination.
The proposed instrument is earmarked, its main purpose being to reduce/prevent
pollution of the coast and coastal sea originating from the land-based sources (and
pollution in general).
This economic instrument was defined as a ‘tourist eco-charge’ for a number of reasons.
First, it is ear-marked for environmental improvement. Second, it could not be described
as a ‘tax’ in Croatia because it is collected and controlled at the local level whereas, in the
Croatian case, ‘taxes’ go to the state budget, and it would be quite unlikely that it would
be transferred back to the local budget for environmental purposes. It has to be the
revenue of the local authority budget to ensure that revenues are spent on environmental
remediation and also to deal with the specific issues facing Hvar. The problem of Hvar is
local in nature, and therefore should be solved at the local level.
The charge is aimed at tourists. The term ‘tourist’ refers to anyone outside his/her place
of residence. However, it was rather difficult to decide how to design the charge so as to
address all the tourists in the area, due to several problems.
Tourists come to the island of Hvar by sea. They usually take the ferry and come through
the ports of Sućuraj or Stari Grad (located outside of the area under study). Some come
directly to Hvar town by ferry, though there is no car ferry connecting Hvar town with
the mainland. A large number of the tourists come through organized tours, though many
others are not on package deals, especially during the peak season.
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Nautical tourism is also important in Hvar. Some of these tourists visit Hvar town, others
do not – remaining on their boats in the Adriatic.
These were just some of the issues that had to be taken into account when elaborating the
tourist eco charge. The point is that ‘the tourist’ had to be defined so as to ensure
relatively easy enforcement as well as the possibility to charge the majority of tourists.
It is impossible to impose a charge upon arrival or departure, since the people move
freely and the area under study encompasses just a part of the island of Hvar. Also it is
not feasible to include the charge in the price of the ferry ticket (or similar) owing to
strong opposition from the ferry operators Moreover, the procedure of transferring the
revenues to the local authorities would be extremely difficult if not impossible under
existing Croatian law.
Another set of issues regarded the possibility of charging the tourists while they are
within the territorial limits of the area under study. Future enforcement procedure and
measures also limit the way a tourist eco-charge can be collected. For example, to include
the charge in the bills for drink and food, or in the price of the transfers from the town to
the Pakleni islands would face significant implementation problems, particularly as the
competitiveness of some of the economic agents in the area would be affected, and not all
of the tourists would be charged. The ‘grey economy’ in Croatia is also an issue, as many
sales are not recorded on official documentation and so taxation of goods is difficult to
enforce.
Following the polluter pays principle, since there is a link between length of stay and
consequential impact on the environment, it seems right to relate the charge to the length
of the stay within the area under study. Payment of the charge in any of the ways
described above does not provide this opportunity, though a tourist eco-charge on
accommodation would mean that there would be a link between the payment and the
length of stay.
The level of the tourist eco-charge
There were several key factors that had to be taken into account during the design of the
proposals of the level of the tourist eco-charge for the town of Hvar.
First, the main problems occur in the peak season (20 July – 20 August), when the
number of tourists is three times the number of local population (16,000 altogether).
Interviews with hotel management, the Tourist Office director and local government
officials revealed that it was their mutual intent to reduce the number of tourists in the
peak season. This was driven by the fact that visitors in this season are not tourists of
‘high quality’, according to their expenditures as well as the accommodation
requirements. It was also a stated aim to prolong the season. Currently the season lasts
from June until the end of September. Therefore it seemed reasonable to differentiate the
tourist eco-charge for various times of the year.
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Furthermore, the interviewed people pointed out that the number of the tourists during the
period October to May is very low, and the majority of the accommodation facilities are
closed. Therefore there is no, or rather low, pressure on natural resources and
infrastructure caused by the tourists during that time of the year. It was therefore decided
that the tourist eco-charge should not be imposed during that time of the year. This can
also be considered as another incentive for the prolongation of the season. Of course, this
policy can be changed over time if necessary.
The next point to consider is the already existing sojourn fee, which is also differentiated;
based on the attractiveness of the area and the time of the year, it goes from 2 to 7 kuna.
Due to the fact that the area under study belongs to the most attractive areas in Croatia,
this fee is set at 7 kuna
6
in the peak season, 5.50 kuna during the season (except the peak
season), down to 4.50 kuna at other times of the year. The fee is calculated on the basis of
person-nights.
In discussing the level of the tourist eco-charge, the hotel management was especially
concerned about the competitiveness of the destination. This was underlined by the fact
that the majority of the hotel guests come through tour operators, and the charge had to
be included in the price of the destination. Bearing in mind the prices of the ‘tourist
packages’ in the world market, as well as the costs of the hotel company in Hvar, and in
Croatia in general, the profit rate of hotels is already rather low. So any additional burden
(such as a tourist eco-charge) would have a significant impact on the hotel profit rate.
From that point of view, the charge has to be rather low.
The hotel’s ability to pay is important to the successful implementation of the charge. If
the charge is included in the room price, it has to be transferred from the hotel company
to the local authority. The hotel company can make the payment only after getting paid
by the tour operator in the case of package holidays. The experience with the sojourn fee
shows that the payments are delayed, sometimes by a whole year or so. Thus, if the total
amount to pay due to the tourist eco-charge is very high and there are low penalties for
failure to pay, payments will be delayed. Taking into account that approximately 70 per
cent of registered tourists are accommodated in hotels, it would mean that the great
majority of the revenues from the tourist eco-charge would not be paid in time, and the
tourists would not be able to experience the results of the charge, which would affect the
effectiveness of implementation.
Despite all these problems, the hotel company strongly supported the idea of the tourist
eco-charge. The reason for this is rather simple. The low prices that the company
achieves on the world tourist market are partly due to the fact that the tourist attraction of
the town is quite poor, despite the natural and historic resources available. Thus, bearing
in mind a long-term development perspective, the hotel company is willing to give up a
part of its already small profit, provided it has a strong guarantee that the money would
be spent on the improvement of the environmental conditions in the town and
surrounding area. This will eventually result in the better reputation of the area as a
tourist destination. Furthermore, it will also enhance its chance of attracting guests of
‘higher quality’, who spend relatively more per day.
16
Taking into account all the above, as well as opinions of the hotel management and
Tourist Office, it was concluded that the tourist eco-charge should not exceed the level of
the sojourn fee.
There was a request for immediate actions that would result in the improved
environmental quality in the area under study, particularly in respect of the land-based
sources of pollution. The request is to be understood from the standpoint of tourists, since
the tourist eco-charge seems justified only if the tourists can see the results of their
payments. Considering the present pollution problems (caused by the land-based
activities and seagoing vessels), it was agreed to concentrate on the cleaning of the shores
and shallow sea both in the town and surrounding beaches as well as along the Pakleni
islands. Calculations showed (taking into account overall costs of the process and the
enforcement of the charge on the one hand, and assuming the same number of tourists)
that the charge should not be lower than 1.5 - 2.0 kuna. However, this level of charge
would be sufficient only for cleaning purposes, while the other land-based sources, and
pollution in general, would not be addressed at all. Therefore, three alternative levels of
the tourist eco-charge were proposed, as shown in Table 8.3.
Obviously, the proposed levels of the tourist eco-charge are quite low, even in the peak
season, when compared to those that have been implemented internationally. However,
they can be raised in the future, according to the improved environmental quality of the
destination and the changing nature of the tourist market.
Table 8.3: Proposed levels of the tourist eco-charge (Kuna)
Scenarios
Time of the year
June 10 - July
20
July 20 -
August 20
August 20 -
September 30
Other
Scenario I
1.5
2.0
1.5
-
Scenario II
2.0
3.0
2.0
-
Scenario III
3.0
4.0
3.0
-
Willingness to Pay for the Environment and Survey of Visitors
To estimate the willingness to pay for environmental improvement, a limited survey
1
was
conducted in the town of Hvar. This survey, aimed at tourists, was translated into a
number of languages and was conducted over the period May-July 2002. A total of 290
responses were received, of which 26 completed surveys were rejected on the basis that
those interviewed were locals. The survey included some basic biographical detail on the
respondents, a view as to their environmental preferences and an assessment of their
1
It should be noted that the survey was not a full CVM survey as is usually applied in the literature on
valuation of the environment. Due to budgetary and logistical reasons only a few questions could be asked
to survey participants. As such, results from this survey should be treated with care.
17
willingness to pay – the question asked is presented below. The respondent profile is
shown in Table 8.4. Both the age and length of stay varied widely across the sample.
Residents of the island of Hvar were excluded, along with Croatian nationals reporting a
length of stay over 30 days. It should be noted that the respondents from Poland are not
typical, in that they were both young and staying for long durations. The total number of
respondents was 261, with an average age of 32.6 years and a length of stay of 11.9 days.
Table 8.4: Descriptive Statistics of Respondents
Visitor perceptions of the environment are described in Table 8.5. The most important
aspects in attracting visitors to the island and town of Hvar were the sea (88%), the
historic nature of the town (82%), the islands (62%) and the landscape (54%). In terms of
environmental priorities identified, the most significant were litter, waste collection,
cleaner beaches, cleaner coastal sea and marine traffic. This shows that the general
perception of the tourists of the environmental stresses on Hvar are similar to those
identified above. This shows that the tourists are environmentally aware.
Table 8.5: Perceptions of the Environment
Most appealing (%)
Priorities (average, 4=most
important, 1=least)
Sea
88.12
Waste Collection
2.70
Historical town
82.38
Clean Beach
2.67
Pakleni otoci islands
62.45
Coastal Water
2.67
Landscape
53.64
Litter
2.55
Beaches
37.93
Marine Traffic
2.11
Hospitality
36.78
Traffic and Parking
2.00
Adventures
29.89
Flowers
1.92
Food
28.35
Woods
1.91
Cultural events
24.14
Parks
1.89
Parks
17.24
Water supply
1.75
Sports
9.58
Average Age Length of stay
Years Count as % total Student Employee Freelance Manager Other Days
Austria 42.7 3 1.15 0.00 66.67 33.33 0.00 0.00 6.3
B and H 19.0 1 0.38 100.00 0.00 0.00 0.00 0.00 13.0
Croatia 31.8 118 45.21 28.81 36.44 14.41 12.71 7.63 11.9
Czech Rep 36.0 3 1.15 0.00 33.33 33.33 33.33 0.00 22.0
France 33.9 14 5.36 21.43 21.43 28.57 28.57 0.00 9.1
Germany 43.5 11 4.21 9.09 54.55 9.09 9.09 18.18 8.9
Ireland 24.3 7 2.68 42.86 0.00 14.29 42.86 0.00 5.9
Italy 33.0 66 25.29 33.33 25.76 21.21 7.58 12.12 12.2
Poland 25.5 2 0.77 50.00 50.00 0.00 0.00 0.00 120.0
Slovakia 43.0 1 0.38 0.00 0.00 0.00 100.00 0.00 14.0
Slovenia 30.3 22 8.43 50.00 45.45 0.00 4.55 0.00 8.5
Sweden 44.0 1 0.38 0.00 0.00 100.00 0.00 0.00 6.0
Switzerland 27.0 2 0.77 50.00 0.00 50.00 0.00 0.00 10.0
UK 32.8 6 2.30 0.00 50.00 33.33 0.00 16.67 3.7
USA 35.8 4 1.53 0.00 50.00 25.00 25.00 0.00 8.8
Total 32.6 261 100.00 29.50 33.72 16.86 12.26 7.66 11.9
Occupation (% respondents)
Country
Respondents
18
The willingness to pay for environmental improvement in Hvar was assessed using a
combination of an open-ended (OE) question and a dichotomous choice (DC) around a
payment of 7 kuna (1 Euro). The open-ended question used to elicit the willingness to
pay for environmental improvement was “What sum of money (in HKR) would you
agree to set aside a day for improvement of the environment in the town and coastal area
of Hvar, including the Islands of Pakleni otoci?”. A full version of the questionnaire is
included as an Appendix. Of the completed accepted responses, 171 were open-ended
questionnaires.
In terms of the dichotomous choice (DC) question posed, the question was “Would you
be willing to pay 7HKr (1 Euro) a day for improvement of the environment in the town
and coastal area of Hvar, including the Islands of Pakleni otoci?”. 7 kuna was chosen on
the basis of the tax at that time in place in the Balearics. For the purposes of the pooled
analysis of the use of these results alongside the OE, if a respondent responded they were
willing to pay at least 7 kuna, then the value taken was 7 kuna, correspondingly in the
one case where the respondent replied to the dichotomous choice question that they were
unwilling to pay 7 kuna, a willingness to pay of zero was set. This is clearly an
underestimate of the true willingness to pay, but it provides a useful approximation of the
willingness to pay for the purposes of calculating a tourist eco-charge. Of the total
completed responses, 93 were dichotomous choice.
For the pooled dataset, the mean willingness to pay estimated was 4.56 kuna, or
approximately 65 Euro cents per day. The mean willingness to pay for a non-Croatian
visitor was 4.77 kuna, or 68 Euro cents per day, whilst the same figure for a Croatian
visitor was 4.31 kuna or 61 Euro cents per day. Separate regressions were carried out on
the OE and pooled data sets to determine the factors that influenced willingness to pay.
Variables included as explanatory factors were age, average per capita income of the
country from which the visitor came, length of stay, whether they were specially attracted
to the beaches and whether they were specially drawn to Hvar because of the quality f the
sea. The results are given below for the OE and pooled data.
Open-ended: regression results
The results from the OLS regression of the results of the OE question are shown as Table
8.6 below. All the signs on the coefficients are as one would expect, apart from income,
which is insignificant (probably due to the use of country-wide average data for this
variable). Willingness to pay rises when respondents are in Hvar to enjoy the beach and
sea (though the latter is not highly significant) – and as these are the major areas that the
eco-tax would improve this is to be expected. WTP is strongly negatively correlated with
length of stay and weakly negatively correlated to the age of respondent.
19
Table 8.6: OE regression results
Ordinary Least Squares Estimation
******************************************************************************
Dependent variable is WTP
172 observations used for estimation from 1 to 172
******************************************************************************
Regressor Coefficient Standard Error T-Ratio[Prob]
CONSTANT 3.4758 .73674 4.7179[.000]
AGE -.015339 .014679 -1.0449[.298]
GNI -.3984E-5 .1927E-4 -.20672[.836]
LENGTH -.015728 .0085528 -1.8390[.068]
BEACHES .56202 .35317 1.5914[.113]
SEA .47433 .50581 .93775[.350]
******************************************************************************
R-Squared .052290 R-Bar-Squared .023745
S.E. of Regression 2.2128 F-stat. F( 5, 166) 1.8318[.109]
Mean of Dependent Variable 3.3605 S.D. of Dependent Variable 2.2395
Residual Sum of Squares 812.8045 Equation Log-likelihood -377.6151
Akaike Info. Criterion -383.6151 Schwarz Bayesian Criterion -393.0576
DW-statistic 1.8528
******************************************************************************
Pooled Data: regression results
A simple regression was carried out to assess the determinants of the willingness to pay
expressed. Table 8.7 reports the results of this analysis. Income was approximated using
per capita GNI taken from the World Development Indicators. The other variables which
could be used to approximate income, including type of job, were considered but turned
out insignificant. The overall explanatory power of the regression is not high, with an R-
sq of 0.035, but the results show some interesting linkages.
As can be seen from the table, age was insignificant in determining willingness to pay,
but income, length of stay and whether the islands (location of the main beaches) were
the main attraction were all significant to varying degrees. The signs are as one would
expect, with “GNI” and “Islands” showing a positive sign. “GNI” can be expected to
have a positive sign, given that environmental quality is given a higher value by those
with higher incomes, i.e. previous studies have shown a positive income elasticity of
demand for environmental quality. “Islands” reflects the nature of the visit, with beach
and marine tourism forming the most important part of the stay. The islands are sensitive
to pollution, both by litter and by marine pollution. “Length” shows a negative sign,
reflecting a lower willingness to pay among those who would have to pay more. A
variable to analyse the influence of whether the respondent national or not was
constructed, but turned out to be insignificant.
20
Table 8.7: Pooled Regression Results: WTP in Kuna
From the above analysis, we can conclude that tourists would be willing to contribute
towards improving the environment, and that significant revenues could be obtained from
tourists for this purpose. The proposed eco-charge for tourists in Hvar would seem to be
viable from an economic point of view, though political and legal barriers have risen to
restrict the application of tourist eco-charges in Hvar at present.
CONCLUSIONS
Tourism has been shown to have significant impacts on the environment, through a
number of impact pathways. Economic instruments, such as tourist eco-charges, present
one possible means of addressing the negative aspects of tourism, both through changing
behaviour and by providing funds for environmental improvement. Such charges have
been applied in a number of countries, including the Balearic Islands, Bhutan and
Dominica.
This chapter presents the case for economic instruments in the Croatian town of Hvar,
which faces ever increasing environmental pressures from tourists in the peak season in
particular. Stakeholder analysis has shown that there is general support for a tourist eco-
charge in Hvar and a preliminary willingness to pay study shows a willingness to pay for
environmental improvement of approximately €0.65 per day, higher than the proposed
charge. This charge would be earmarked for use on improving the environment.
Barriers to the implementation of this charge still exist, notably from the political and
legal standpoint. However, actions are being taken at present to remove these barriers and
it is anticipated that a charge may be in place in the near future.
Ordinary Least Squares Estimation
******************************************************************************
Dependent variable is WTP
264 observations used for estimation from 1 to 264
******************************************************************************
Regressor Coefficient Standard Error T-Ratio[Prob]
CONST 4.3994 .56275 7.8176[.000]
AGE -.013694 .013134 -1.0427[.298]
GNI .2896E-4 .1773E-4 1.6336[.104]
LENGTH -.014995 .0090599 -1.6551[.099]
ISLANDS .64986 .32602 1.9933[.047]
******************************************************************************
R-Squared .035496 R-Bar-Squared .020600
S.E. of Regression 2.5141 F-stat. F( 4, 259) 2.3830[.052]
Mean of Dependent Variable 4.5492 S.D. of Dependent Variable 2.5404
Residual Sum of Squares 1637.1 Equation Log-likelihood -615.4653
Akaike Info. Criterion -620.4653 Schwarz Bayesian Criterion -629.4052
DW-statistic 1.9267
******************************************************************************
21
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Appendix A: Questionnaire in English
25
ENDNOTES
1
This study forms part of the UNEP PAP-RAC project Sustainability of SAP: Development of Economic
Instruments for the Sustainable implementation of the Strategic Action Programme to address marine
pollution from land-based activities in the Mediterranean (SAP MED). The authors would like thank UNEP
for their funding, the PAP-RAC in Split and participants in the wider project for comments. Thanks also to
participants at the 2003 International Conference on Tourism and Sustainable Economic Development:
Micro and Macro Economic Issues, Sardinia, for useful comments.
2
Corresponding Author: Department of Economics and International Development, University of Bath,
Bath, BA2 7AY, UK. Email ecstjt@bath.ac.uk.
3
Vanegas and Croes (2000) also report a long-run price elasticity of –4.38, indicating a very high long run
response to a change in price. It must be noted that this is the most elastic response they reported, with the
range going from –1.07 to –4.38 depending on the equation system. The average elasticity found was –0.29
not including long-run and short-run effects. Thus overall, the analysis of Aruba suggests an inelastic
response to a price change.
4
This section is based on Markandya (2000)
5
Additional charges are raised depending on services provided.
6
7 kuna are equal to approximately €1at the current rate of exchange.
