AN ATTEMPT TO IDENTIFY ENVIRONMETALLY HARMFUL SUBSIDIES
IN THE POLISH ECONOMY
Ewa Świerkula,
Institute for Sustainable Development 1
The paper describes problems related to identification of environmentally harmful
subsidies. The starting- point is definition of subsidies, than environmental harmful subsidies
(EHS) formulated by OECD. The government using specific measures plays the active role on
the market. The government intervention is connected to state aid. The Report of state aid
granted for enterprises in 2003 prepared by Office of Competition and Costumers Protection
is the base document, which has been used to identify environmentally harmful activities. The
- horizontal, sectoral, regional and for agriculture state aid has been analysed. The
identification of environmental harmful subsidies is focused on transportation, energy sectors
– particularly coalmining- and agriculture, but also another examples of potential damaging
support are given. The EHS are wide issue. The subsidies system- direct and hidden support
addressed to producers and consumers- need deep analysis. It should include also negative
externalities (external costs).
Nevertheless the obligations (result from European and domestic documents) to
identify areas of existence, forms and scale of subsidies harmful for environment, the low
level of awareness of problem puts in question Poland’s ability to meet the requirements. The
experiences of other countries, for example Germany, could help and should be used with
respect to reform of subsidy policy. The phasing out and redesigning give benefits in
environment and in economy.
1. DEFINTION AND CLASSIFICATION OF SUBSIDIES
The OECD defines the subsidies as any measures that keep prices for consumers below
market levels, or for producers above market levels2.
Due to the considerable variety of such subsidies the need for classification arises3:
1. Budgetary subsidies:
• Direct expenditures- direct grants or payments to selected sectors, producers and
consumers. Example – direct cash payments for agriculture producers within the
Common Agriculture Policy of the EU.
• Budgetary effect of tax policies- tax exemptions (tax allowance, reduction of tax base,
tax arrears forgiveness), preferential rates. Examples – preferential Value Added Tax
on agricultural chemicals, low energy taxes on energy intensive companies, no tax on
kerosene for commercial air transport.
1
First attempt to identify EHS in Poland have been made by Institute for Sustainable Development. First study
have been written by Michał Dybiec titled Environmentally Harmful Subsidies- Identification Questions. Author
of current paper is continuing this research.
2
NGO Guidelines for promoting National Reforms of Environmentally Harmful Subsidies (EHS), EEB,
December 2004
3
Environmentally Harmful Subsidies, Policy Issues and Challenges, OECD, 2001.
2. Public provision of goods and services below cost.
3. Capital cost subsidies- preferential loans, favourable interest rates, debt forgiveness,
state guarantees for credits. Example – state guarantees for Polish railways company
(PKP).
4. Policies creating transfers through the market mechanism:
• Domestic-oriented policies- price regulation, quantity controls, and legislation.
Example - price regulations in energy sector.
• Trade-oriented policies- tariff and non-tariff trade barriers. Examples – coal quotas;
export subsidies for agriculture products.
The definition and the above classification indicate an active role of government, which
using direct, indirect and/or hidden support, favouring certain economic activity and products
distorts price and economic incentive structures.
Key motives behind the subsidy policy are as follows:
• Stimulating or enhancing economic development or growth (improvement of
profitableness and international competitiveness by maintenance of low energy price
for industry).
• Protecting employment and investments (counteraction massive regional
unemployment problems by grants for traditional sectors - mining, steel works).
• Protecting domestic supply and reducing external dependency (guaranteed prices on
agriculture products market).
• Supporting the poor and providing basic living conditions (low energy and heat costs
for households).
The aim of subsidy policy is overall social welfare increase. Nevertheless, many subsidies
tend to reach original objectives and purposes at highly inadequate costs with (often
unintended) destruction of balance between social, economic and environmental spheres.
All measures (financial support, regulations) giving an advantage on the market to
production or consumption of environmentally harmful goods could be defined as
environmentally harmful subsidies (EHS)4. Subsidy can classified into environmentally
harmful, if its removal is likely to benefit the environment (e.g. increasing efficiency of
natural resources utilization).
The OECD produced so-called checklist, which offers a method for answering the
question – whether the removal of a specific subsidy lead to improvement of the
environment5, because definition does not meet the real difficulties in distinguishing that are
potentially harmful from those that have no (or even positive) impact on the environment. The
checklist shows a lack of simply dependences between subsidy removal and improvement to
the environment. The environment effect of a subsidy removal depends not only on
endogenous features of support but it also connect with external impacts:
• Markets for intermediate and finished products,
• Available replacement technologies, products or services causing less environmental
pressure,
4
A specific definition of EHS is given by the OECD: “… all kinds of financial supports and regulations that are
put in place to enhance the competitiveness of certain products, processes or regions, and that, together with the
prevailing taxation regime, (unintentionally) discriminate against sound environmental practices.” - OECD
(1998), Improving the environment through reducing subsidies (3 vol), Part 1, p.7
5
NGO Guidelines…, page 13, op.cit.
•
•
•
Tax system,
Regulatory and institutional framework,
Local biophysical features of the receiving environment6.
The publications concerning EHS indicate agriculture, energy (especially fossil fuels), and
transport as area of activity with pressure or damage to the environment. Water management,
forestry, fishing, building are also the objects of such analyses. It should be mentioned that
external costs are not included in definition of EHS. However, methodology of research on
harmful subsidies in specific countries sometimes contains non-internalised effects of human
activity (e.g. transport subsidies in Hungary7).
2. ENVIRONMENTALLY HARMFUL SUBSIDIES IN ECOLOGICAL POLICY
The need for reform of environmentally harmful subsidies is gaining continuously a wider
interest in countries of EU and OECD and becomes one of the main goals of environmental
policy.
European Union Strategy for Sustainable Development recognises wrong price structure
of goods and services, deformed inter alia by subsidies, as a major roadblock for SD concept.
Moreover, among the long-term goals of climate change policy the removal of subsidies to
production and consumption of fossil fuels can be found.
The sixth Environment Programme of the European Community puts particular attention
on environmentally harmful subsidies and state aid as an important element of strategic
approach to meeting environmental objectives. Among actions with respect of tackling
climate change an undertaking an inventory and review of energy subsidies in the Member
States is stressed. Additionally, policy approach of strategic use of natural resources includes
removal of subsidies that encourage the over use of resources.
In 2001 OECD Ministers recognised sustainable development as an overarching goal for
the OECD and its Member Countries and asked the Organisation inter alia to identify, how
obstacles to policy reform, in particular to the better use of market-based instruments and to
the reduction of environmentally harmful subsidies can be overcome. Trade-distorting and
environmentally harmful subsidies were also highlighted at the World Summit on Sustainable
Development in Johannesburg in September 2002.
Obligations for reform of adverse subsidies in Poland result not only from European
documents. Domestic National Environmental Policy for 2003-2006 underlines inter alia
goal: reducing environmentally harmful subsidies8. Indicated action covers identification
areas of existence, forms and scale of different mechanisms of state support harmful for
environment. In particular, the analysis should be carried out in energy sector, agriculture
(also in the context of support within the CAP) and transport. Removal of environmentally
harmful subsidies should be completed in the period 2007-20109.
3. STATE AID IN POLAND
6
Environmentally Harmful Subsidies. Policy Issues and Challenges, OECD, 2001.
Necessity and Possibilities of an Eco-social Budget Reform. Proposals for the 2004 State Budget of Hungary,
Clean Air Action Group, Budapest, 2003.
8
Uchwała Sejmu Rzeczypospolitej Polskiej z dnia 8 maja 2003 r. w sprawie przyjęcia "Polityki Ekologicznej
Państwa na lata 2003-2006 z uwzględnieniem perspektywy na lata 2007-2010" (Mon. Pol. Nr 33, poz. 433)
9
Polityka Ekologiczna Państwa na lata 2003-2006 z uwzględnieniem perspektywy na lata 2007-2010,
http://www.mos.gov.pl/1materialy_informacyjne/raporty_opracowania/polityka_ekologiczna_2003_2006.pdf
7
The public aid it is an aid granted by a Member State or from state resources, in any form,
that disturbs or threatens to disturb competition by privileging some companies or selected
commodities produced, in a way, that impacts negatively on the Member Countries
commercial exchange10.
The foundations for the transparency of Polish state aid system have been set in the
European Treaty signed in 1991 (entered into force in 1994) between Poland and European
Community and its Member States. The State aid is controlled by the Office for Competition
and Consumer Protection (UOKiK). The UOKiK is independent from all aid granting bodies.
Treaty regulations on respecting fair competition oblige Poland to annual reporting on scale
and form of public support for enterprises. The UOKiK prepares The report on state aid
granted to entrepreneurs in Poland. According to the Act of 30 April 2004 on State aid, coordination of the work prior to submitting an aid scheme to the European Commission lies
with the President of UOKiK.
Information covered by the document comes from annual reports prepared by the
institutions granting state aid, in particular:
• Governmental ministries (finance, economy and labour, infrastructure, environment,
treasury, agriculture, science),
• National/state agencies and funds (e.g. Agency for Industry Development, Agency for
Restructuring and Modernisation of Agriculture, State Fund for Environmental
Protection and Water Management),
• State offices (e.g. Social Insurance Office (ZUS), Revenues (inland, tax revenues)),
• Regional/ local governments,
• State – owned enterprises.
Due to the fact that some institutions do not respect their reporting commitments
(especially local government units) the report does not present the total volume of state aid in
Poland.
Data gathered in the report represent four types of support (classified in accordance with
European Community state aid rules) with marking “1” or “2” relating respectively to
expenses from the state budget and reducing budgetary revenues:
• A – grants and tax exemption:
• A1 – grants, reimbursements, etc.
• A2 – tax allowances, payment reductions, tax forgiveness, interest rate forgiveness,
fine forgiveness, public provision of goods on conditions more favourably than on the
market, etc.
• B – capital – investment subsidies:
• B1 – raising capital to the company.
• B2 – conversion of liabilities into stocks or shares.
• C – soft loans:
• C1 – preferential loans, grants to the interest rates, loans forgiveness.
• C2 – fine, tax or payment deferrals.
• D - guarantees
• D1 – credit guarantees.
• E - others
10
definition given in Raport o pomocy publicznej w Polsce udzielonej przedsiębiorcom w 2003 roku, UOKiK,
Warszawa, November, 2004
Table 1. Method of state aid financing in Poland
Rok
Direct expenditures
(A1+B1+C1+D1)
Reducing budgetary
revenues (A2+B2+C2)
2000
47,3 %
52,7 %
2001
25,8 %
74,2 %
2002
38,0%
62,0%
2003
9,6%
90,4%
Source: Raport o pomocy publicznej w Polsce udzielonej przedsiębiorcom w 2003 roku, UOKiK, Warszawa,
November, 2004
The unfavourable relation of direct expenses to reducing budgetary revenues was
observed in 2003. Share of grants in total state aid was 9,6% when in EU Member States was
about 60%.
As results from the UOKiK report total amount of aid granted to the enterprises in 2003
equaled 28 627,5 million PLN (6 509,5 million EURO, 1 Euro=4,3978 PLN). Public aid
granted in 2003 equaled about 3,5 % of GDP (1,3% in 2002).
The utility of data collected in the report for the purposes of identification of perverse
subsidies is limited. State aid is classified according to direction (horizontal, sector and
regional support, agriculture, others), granting institutions and beneficiaries. There is a lack of
any environmental criteria, which could help to indicate EHS.
Below analyse of state support is made according to the purpose.
3.1. HORIZONTAL STATE AID
Table 2. Horizontal state aid in Poland granted in 2002-2003.
2002
Objectives of aid
TOTAL
HORIZONTAL AID
R&D
Environment
Small and medium sized enterprises
Energy – saving
Employment support
Specific training
General training
Restructuring
Temporary aid
Technical infrastructure development
Other
Value
(mio PLN)
2003
Share
(%)
Value
(mio PLN)
Share
(%)
10 277,6
100,0
28 627,5
100,0
3 450,7
33,6
2 840,8
9,9
136,7
142,2
136,6
7,8
228,2
368,5
2 091,3
300,6
10,4
28,4
4,0
4,1
4,0
0,2
6,6
10,7
60,6
8,7
0,3
0,8
105,6
346,0
146,6
296,1
11,1
54,9
1 750,3
144,9
-
3,7
12,2
4,7
10,4
0,4
1,9
61,6
5,1
-
Source: Raport o pomocy publicznej w Polsce udzielonej przedsiębiorcom w 2003 roku, UOKiK, Warszawa,
November 2004
The information about horizontal aid collected in the table 1 are very brief, it is
difficult to indicate potentially harmful subsidies for environment. At the same time, the
environmentally measures are minimal.
It calls attention that restructuring has a big share of horizontal aid. The main
beneficiary of that aid objective is Polish Railways (PKP) (1,13 billion PLN was granted to
PKP S.A. Group and its subsidiaries as State Treasury guarantees). The support of railway
transport is considered as pro- environmental measure, but there is a room for doubt related to
the restructuring programme of Polish Railways. There are few modernization investments
observed and restructuring programme- mainly consists in employment reduction and in shift
the payments to a later date.
3.2. SECTORAL AID
Table 3. Sectoral state aid in Poland granted in 2002-2003.
2002
Objectives of aid
Value
(mio PLN)
TOTAL
2003
Share
(%)
Value
(mio PLN)
Share
(%)
10 277,6
100,0
28 627,5
100,0
1 835,4
17,9
20 214,9
70,6
5,3
0,3
2 254,6
11,2
0,0
0,0
3,5
0,3
1,4
0,3
67,0
6,0
26,7
0,0
0,4
2 249,1
5,1
0,0
0,1
99,8
0,8
-
101,8
5,5
456,7
2,3
0,0
96,9
5,0
0,0
95,1
4,9
365,2
91,5
0,0
80,0
20,0
-
1 712,9
93,3
17 488,5
86,5
1 712,0
0,9
99,9
0,1
17 488,5
0,0
100,0
-
0,1
0,0
0,3
0,0
0,0
0,0
0,1
1,2
98,8
0,3
0,0
0,0
100,0
-
15,2
0,8
8,5
0,0
0,5
0,6
1,0
0,7
7,3
0,2
5,0
3,6
4,1
6,6
4,3
47,8
1,0
32,6
0,2
0,0
0,1
0,0
0,0
0,0
8,2
2,4
1,2
96,5
0,1
0,0
6,3
0,03
0,1
0,0
100,0
-
5,8
0,5
92,1
7,9
SECTORAL AID
Steel sector,
Of which
R&D
finished business activity
Restructuring
maintaining employment level or job creation
Other
Shipbuilding
Of which:
Restructuring
Temporary aid
Other
Coalmining,
Of which:
Restructuring
Other
Synthetic fibres,
Of which:
Maintaining employment level
Restructuring
Aid to cover of current activity costs
Automotive,
Of which:
Restructuring
Innovations
New investment
Environment protection or energy-saving investment
Training
Maintaining employment level or job creation
Aid to cover of current activity costs
Maritime transport,
Of which:
Restructuring
Maintaining employment level
Source: Raport o pomocy publicznej w Polsce udzielonej przedsiębiorcom w 2003 roku, UOKiK, Warszawa,
November 2004
Table 4. Categories of state aid in Poland by sectors in 2003 (in million PLN)
SEKTOR
Steel sector Shipbuilding Coalmining Synthetic fibres Automotive Maritime transport
Group A
Grants and tax exemptions
A1
A2
Group B
Capital- investment subsidies
158,7
16028,5
0,3
885,1
6,2
5,9
5,9
156,5
5,8
15143,4
0,3
0,3
5,9
1252,9
0
0
0
0
0
B1
B2
5,8
2,2
1252,9
Group C
„soft loans”
664,8
60,9
C1
1489,9
0
0,2
0,5
60,9
C2
664,8
Group D
D1 guarantees
TOTAL
TOTAL from UOKiK
178,1
178,1
2254,5
2254,6
1489,9
388,6
388,6
455,3
456,7
0,2
0,5
0
0
0
0
17518,4
17488,5
0,3
0,3
6,4
8,5
6,4
6,3
Source: Raport o pomocy publicznej w Polsce udzielonej przedsiębiorcom w 2003 roku, UOKiK, Warszawa,
November 2004
The sectoral state aid is transferred to so-called sensitive sectors (steel, shipbuilding,
coal mining, synthetic fibre, automotive industry and maritime transport), where rules of
granted state aid are given by separate acts. Almost entire support has been used for
restructuring, which had tax subsidies form in most of the sectors (Group A2, Table4).
Examples of support for research and development in steel industry, support for innovations
and environmental protection in the automotive industry are observed in 2002 but in 2003 it is
no longer exist. Of course it does not mean an absence of expenditures on this targets, but in
this case they are not supported by state budget. The structure of state aid suggests strong
distortion between economic, social and environmental requirements of governmental
interventions. It creates wide field for environmentally harmful subsidies identification.
Below author presented results of identification in hard- coal mining.
• HARD COAL
The coal mining belongs to the biggest beneficiaries of state aid in Poland. Around 20% of
total aid was aimed at coal sector in period before 2003 but in 2003 coal sector received over
60% (about 2% of GDP!).
Table 5. State aid granted to coal mining sector in 2002- 2003.
2002
%
(million PLN)
2003
%
(million PLN)
Coal mining sector
1 712,9 16,7*
17 488,5
Restructuring
1 712,0
99,9
17 488,5 100,0
0,9
0,1
Others
0,0
61,1*
-
*% of total state aid
Source: Raport o pomocy publicznej w Polsce udzielonej przedsiębiorcom w 2003 roku, UOKiK, Warszawa,
November 2004
Since environmental pressure of coal sector, all subsidies resulting in increase of coal
production should be perceived as environmental harmful. The restructuring programs of hard
coal sector have the aim of reducing mines capacity (decrease of production) - for example by
liquidation of mines, they attend to counteractive social problems as a result of large-scale
dismissals (in the coal mines restructuring program in 2004-2006 almost all state grants
should be transferred to social secure for laid off workers) and also to repair of damage
caused coal extraction. These objectives have not a direct anti-ecological character. But the
restructuring programs ware and are concentrated on reduction of liabilities, so on financial
restructuring not on structural. Table 6 included list of potential environmentally harmful
subsidies granted to hard coal sector – reduced liabilities in amount 14 billion PLN almost.
Table 6. Reduced liabilities in 2003 based on Act of 28 November 2003 on the
restructuring of coal mining (in thousands PLN)
Fees for public (State Treasury) land use (concerning part
of state budget revenue).
Exploitation fees - Payment for National Found for
Environment Protection and Water Management–
75.182,4
1.1015.733,4
Fees for environment utilisation
2.797.616,1
Fines for environment utilisation
89.892,1
Total
13.978.424,0
Source: Informacja o przebiegu restrukturyzacji górnictwa węgla kamiennego w 2003 r., MGiP, Warszawa,
2004.
The perversity of a subsidy could result not only from the type of the beneficiary
activity or aid appropriation but from the effectiveness of the subsidy as well. According to
the Supreme Chamber of Control (NIK), during the entire restructuring period coal mines
have been making chaotic and sometimes-unreasonable investment decisions: extraction
expansion despite over-production on the market, investments have been undertaken in mines
meant for liquidation. Due to the realisation of irrational investments, coal mining has lost at
least 1,178 million PLN, i.e. 12% of total investments in 1990-200111.
Example of EHS in hard coal industry.
Germany:
High level of subsidies for hard coal sector is locked in German economy. State aid is granted
to hard coal industry, even than production costs in coalmines is about 3-times higher than the
world market price.12
3.2.
REGIONAL STATE AID
Table 7. State aid granted to Special Economic Zones in 2002-2003 (millions PLN)
REGIONAL AID
2002
%
2003
469,6
4,6* 863,7
%
2002
3,0* REGIONAL AID
469,6 863,7
Support of new investment 409,9 87,3 729,6 84,5 Exemption of income tax
Job creation
2003
264,3 587,9
59,8 12,7 134,1 15,5 Exemption of real estate tax 205,3 275,8
*% of total state aid
Source: Raport o pomocy publicznej w Polsce udzielonej przedsiębiorcom w 2003 roku, UOKiK, Warszawa,
November 2004
The regional state aid as tax exemptions is granted to companies located in the special
economic zones. More of these companies represent automotive sector, which is not proenvironmental. But classification of state aid granted to these enterprises as EHS is
questionable. It is not obvious that their removal causes positive environmental effect. Such
company could easy move to another country, but in this case, it should not be forgotten
social issue. The special economic zones have been established in areas of Poland effected by
structural changes (especially by unemployment).
• SPECIAL ECONOMIC ZONES
Under the Special Economic Zones Act of 1994, in order to speed up the economic
development in some parts of Poland’s territory, uninhabited areas have been designated and
11
Najwyższa Izba Kontroli (NIK), Informacja o wynikach kontroli restrukturyzacji finansowej i organizacyjnej
górnictwa węgla kamiennego w latach 1990-2001, Katowice 2002r.
12
NGO Guidelines…, op.cit.
incentives for investors to start business activity there have been specified. The state aid is
granted to undertakings for:
• new investment support
• job creation.
The enterprises can obtain public support granted in the form of income tax exemption
arising in accordance with incurred investment expenses and with employment creation. The
maximum amount of aid is 50% of the eligible investment costs or 50% of two-year labour
costs of the newly employed (on the condition that the new jobs are maintained for at least
five years). For automotive sector these numbers are limited to 30%. In case of small and
medium enterprises limit of aid is 65%.
The most popular forms of state aid to undertakings are exemption from income tax and
real estate tax - local tax on buildings and land-use. The exemption of land-use tax can be
potentially harmful for environment, nevertheless is take small part in all amount of aid. The
land-use tax rate is very low, what also could be considered as environmentally harmful, but
enterprises mostly use the existing infrastructure (the area of SEZ is limited), which could go
to ruin.
• The main aims of the establishment of the zones are:
• reduction of unemployment and creation of new jobs
• preference for certain branches of activity,
• new techniques and technologies,
• development of export,
• growth of competitiveness,
• efficient use/development of the present estate and technical infrastructure,
• environment friendly management of natural resources.
Not all economic activity is accepted in SEZ. There are excluded:
• production of explosives
• production of fuel
• production of tobacco goods
• air polluting activity, which could exceeds limits of emission for zone
3.4.
STATE AID GRANTED TO AGRICULTURE
Table 8. State aid granted to agriculture in 2002 – 2003 (UOKiK results).
Objectives of aid
TOTAL,
In which:
AGRICULTURE
2002
Value
Share
(mio PLN)
(%)
2003
Value
Share
(mio PLN)
(%)
10 277,6
100,0
28 627,5
100,0
1 766,9
17,2
1 283,1
4,5
Source: Raport o pomocy publicznej w Polsce udzielonej przedsiębiorcom w 2003 roku, UOKiK, Warszawa,
November 2004
Table 9. State aid categories granted to agriculture13 in 2003 (millions PLN)
Group A
Grants and tax exemptions
692,5
A1
654,1
A2
Group B
Capital- investment subsidies
B1
13
38,4
0
0
State aid granted to agriculture, hunting, forestry, fisheries
B2
0
Group C
„soft loans”
551,4
C1
494,7
C2
Group D
Guaranties
D1 loans guarantees
TOTAL
TOTAL from UOKiK
Group E – others
TOTAL
56,7
1,4
1,4
1245,3
1283,1
823,1
2106,2
Source: Raport o pomocy publicznej w Polsce udzielonej przedsiębiorcom w 2003 roku, UOKiK, Warszawa,
November 2004
Table 8 shows how general information is available in the UOKiK report. It was
necessary to disaggregate data, to analyse aid by categories and by granting authorities. The
result is included in table 9. The state aid granted to agriculture is higher then given by
UOKiK. One of the granting entities is Agriculture Market Agency (ARR Agencja Rozwoju
Rolnictwa), which from 1 May 2004 is responsible for management of Common Agriculture
Policy mechanisms in Poland. The expenditures of ARR equalled 823,1 millions PLN in
2003, which was classified to Group E of state aid categories. This amount covers payments
based on output (production), market price support and preservation of agricultural products.
The agricultural policy measures have environmental impacts through influences on farming
practices (production techniques). This is wide area of existence of EHS.
• AGRICUTURE
From 1 May 2004 (date of accession) the EU Common Agriculture Policy (CAP) rules came
into force in Poland. The identification of EHS issue in Polish economy is related to
agriculture policy measures in EU. All support mechanism effecting the exaggerated
environmental pressure is potential EHS, especially support causes production intensification,
increasing the use of inputs (such as chemicals), land, incentive for monoculture, damaging
biodiversity. The removal such subsidies (or phasing out) is likely to benefit the environment.
The CAP absorbed 48.053,15 billions euro, i.e. 48,28% of EU budget in 2004. The
First Pillar of CAP (market-price policy measures) absorbed 39.958,41 billions euro, 70% of
this amount has been appropriated for direct payments (in recompense for intervention price
decrease).
Support measures:
Direct payments based on area planted / animal numbers
Market - price support
Payments based on output
Payments based on input use
Payments based on historical entitlements (according past programs supporting agriculture)
The farmers in Poland can use tax (Volume Added Tax) allowances according to
purchase of electricity, fertilisers, built-materials, fuel oil, equipment for plant production.
They can use loans under more favourable condition (lower interest rate) for purchases of
inputs and for investments.
The purposes of CAP reforms are reduction of the production costs and purchase costs
of food for EU costumers, liberalization of agriculture support, limitation of protection,
increase market competitiveness and reduction of intensive agriculture. It has been
implemented rule of cross-compliance – direct payments are dependent on execution of terms
concerning environment protection by farmer. The changes in CAP seem to go to good
direction- reduction of environment loading and increased the pressure on environment
protection. The farmers’ revenue is the priority to Polish government, but, based on OESD’s
research, the effectiveness of support measures (payments) is not too high14.
4. EXAMPLES OF EHS IN TRANSPORT AND ENERGY SECTOR
Following chapter includes few cases of environmentally harmful subsidies or
potentially harmful in transport and energy sector in Poland.
TRANSPORT
• The bad condition of transport infrastructure is the object of concern in draft of National
Development Plan (NDP) for 2007-2013. As main reasons of this situation are mentioned
the increase of the vehicular traffic intensity and quality of Polish roads not adopted for
trucks. The negative effect of bad condition of Polish railway infrastructure is the
reduction of transport rail competitiveness compare to road transport (due to the long time
of transport). The action plan, which has been described in draft of NDP instead of to
exterminate reasons of mentioned occurrences can make them deeper. It provides for 4.5
times more funds for road transport than for rail transport (i.e. 27091,5 millions euro
versus 6171,1 millions euro). The construction of new highways and expressways
encourages to using the road transport than to reduce vehicular traffic intensity. The split
of funds suggest preferential position of road transport. It is difficult to say about
competitiveness improvement of rail transport. The negative influence of road transport
for environment suggests to classified NDP (Operating Program Road Infrastructure) as
EHS.
According to data of Infrastructure Ministry
The total cost of highway construction (higway“A4” process construction in 2003-2004,
roadway length: 17,45 km and roadway length: 22,5 m) amounted to 356.563 thousands PLN,
in which 140.813 thousands PLN has been covered by State Budget.
In 2004 the total costs of construction and preservation Polish roads amounted to 5.116
millions PLN (including 2.211 millions PLN transferred from budget).
Expected costs in 2005 of highways construction are 2.178,5 millions PLN and of express
roads - 650,3 millions PLN.
•
Polish regional airlines could be supported by state aid in value 50% of whole costs for set
up new local line and its promotion during 5 years period
• 819.97315 used cars have been imported from EU to Poland in 2004. It does not exist
barriers for import of old cars. It is very often happened, that for smaller charge (register
fee) the car evaluation is lowered. The tax rate bases on age of car, instead of air pollution
emission. In Hungary value of register fees depends on norms for emission (if lower norm
- higher charge).
• Currently kerosene is free on taxies (excise) on whole world. However European
Commission approves implementation of tax for this fuel but regard for competitiveness it
can to be done on European level, in EU airlines.
14
15
The incidence and transfer efficiency of farm support measures, OECD, 2001
by company Eurotax Polska
Examples of Environmentally Harmful Subsidies in transport16
Germany
• The tax reduction for diesel fuel although higher part of fumes is from diesel engines and
CO2 emissions per litre of diesel are 13 percent higher than per litre of petrol.
• Domestic flights are subject to VAT but international flights not. Air traffic threatens the
climate (contributes to climate changes). Moreover, this is an example of unfair
competition – the railways pay the full VAT rate on long-distance domestic and
international journeys.
Hungary17
•
•
•
•
•
A hidden subsidy given to road freight transport: the safety and other rules and checks for
road are much more lenient than for rail transport. Even that, truck drivers often ignore
these rules.
The state’s annual revenue from fuel taxes and vehicle taxes from heavy trucks does not
cover the damage to roads, buildings and other vehicles caused by heavy trucks.
Excise on fuel oil, which is used mostly by trucks, is smaller than on petrol. This is EHS
because trucks are mostly responsible for road damage and the fumes from diesel engines
are more harmful for environment and health.
The reduced tax rate for company cars since 5th year of using, what is in opposite to
polluter pays principle – because older cars usual have higher emission (air polluting) than
new one.
The construction of motorways is exempted from the payment of VAT
ENERGIA
• CO2 Emission allowances for Poland. Since 13th December 2002 Poland is a Party of
Kyoto Protocol to United Nations Framework Convention of Climate Change. Poland
agreed to attain 6 % decrease emission of greenhouse gases in proportion to base year –
1988. In 2001 national emission CO2 was lower than emission in base year by
approximately 33 %. This reduction Poland could attain thanks to economical transition.
Now Poland administrates pretty big emission reserves (about 130 mln tones) in
proportion to accepted level of reduction included in Kyoto Protocol anticipated for 20082012 period. Nearly all allowances that Poland was given have been distributed to
companies. It might be a little bit wondering if Poland did not distribute too many
allowances in our National Allocation Plan. (European Commission can handle this
distribution as a forbidden state aid). Too big amount of allowances doesn’t motivate to
take an emission reduction, so they can be considered as potential environmentally
harmful subsidies
• Long-term contracts (KDT). In the nineties Polish Power Grid Company (PSE – a
monopolist on the energy distribution market, joint stock company wholly owned by the
State Treasury) and energy companies underwrote a long-term agreement on energy sales
at high, fixed (non-market) price. Price regulation, which guarantee the producers
achieving extra revenues, is a clear subsidy, additionally environmentally harmful if these
are producers of energy based on fossil fuels. Nonetheless, energy companies have used
their revenues mainly for modernisation and restructuring programmes, including
environmentally friendly investment projects (pollution abatement, combustion efficiency,
16
NGO Guidelines…, op.cit
see also Lukasc, Andras and Zoltan Szabo (ed.) Necessity and Possibilities of an Eco-social Budget Reform.
Proposals for the 2004 State Budget of Hungary, Clean Air Action Group, Budapest 2003
Kiss, Karoly Environmentally Harmful Subsidies in the Hungarian Economy, Clean Air Action Group, Budapest
2004
17
waste management). The question which part of subsidisation within KDT could be
classified into environmentally harmful needs a comprehensive study of individual
projects of energy companies.
BUILDING SECTOR
Examples of EHS18
Germany:
Private households, which buy a house or flat their own use, receive a premium- higher for a
new one. It creates the incentive to build new houses in suburban areas rather than renovate
existing ones. The urban expansion is a big problem in Germany – 97 hectares of land is
developed each day.
Hungary:
A substantial amount of countryside and agriculture land is covered into building land and
public money is used for new infrastructure like roads, public transport, sewers, etc.
5. OTHER FORMS OF SUBSIDISATION IN POLAND
According to OECD’s definition of subsidy, the support of consumers also should be
analysed. Because “public aid” concerns to support of enterprises, the subsidising methods are
not included in report about state aid.
The Act on Value Added Tax19 includes following potentially harmful products and
services on which preferential rate of 7% (basic rate in Poland is 22%) is imposed:
• Liquid fertilizer ammonia,
• Nitrogen fertilizers,
• Phosphorus fertilizers,
• Potassium fertilizers,
• Pesticides,
• Wood extraction services,
• Taxi services,
• Passenger road transport services,
• Air travels.
The legislation concerning excise also indicates tax subsidies. There has not been
introduced excise tax on natural gas, heavy heating oil, coal and coke which in the presence of
excise for other energy carriers constitutes a subsidy. The excise on fuel oil (diesel) is lower
than on petrol.
Tax policy with respect to energy sources and products is strictly connected with EUdirectives. Excise tax rates in Poland are usually concordant with minimum EU-tax rates,
however some areas do need adjustment20. Poland has obtained derogation period up to 2013
for increase of excise tax rates on different energy products in order to avoid sudden price
increases. According to the results of the negotiations, Poland has to impose excise tax on
coal and coke of 0,15euro/GJ for industry and 0,3euro/GJ for other users. Poland has time up
to 01.01.2007 to introduce excise tax of 50% of these rates and up to 01.01.2010 to introduce
the full rate. Natural gas could be out of excise tax during next 10 years, unless its share in
18
19
20
NGO Guidelines…, op.cit
Ustawa z dnia 11 marca 2004 r. o podatku od towarów i usług (Dz. U. z dnia 5 kwietnia 2004 r. Nr 54, poz. 535).
Proposal for a Council Directive restructuring the Community framework for the taxation of energy products
/* COM/97/0030 FINAL - CNS 97/0111 */ Official Journal C 139, 06/05/1997 P. 0014
total energy consumption is lower than 25%. The excise tax rate for diesel fuel (302 euro) has
to be achieved until 01.01.2011, with new EU-rate 330 euro (valid from 2010) to be achieved
until the end of 2013.
Identification of hidden environmentally harmful subsidisation needs deep research
on regulations (e.g. on electricity market), public contracts procedures, privatisation
processes, using the resources from Structural Funds.
Under question remain implicit subsidies relating to insufficient provision for future
environmental liabilities caused by sectors that are not subjected to pay for negative
externalities. The case is usually raised for transportation sector. OECD’s study21 indicate
that external costs of transport in Poland amounted to 47 billions PLN (12,6 billions euro) in
1995, of which 93% are caused by road transport.
Specific studies undertaken in other countries (e.g. Hungary) draw possible directions
for imposing certain economic instruments that would incorporate externalities into different
transport activities:
!
Valorisation of excise duties on petrol,
!
Increased excise duties on diesel fuel,
!
Imposing infrastructure charges on heavy trucks,
!
Increased taxes on company cars,
!
Increase of registration fee on motorcars,
!
Increased taxes and duties on air transport.
Review of regulatory framework on transport along with adjusting foreign proposals
to Polish economic realities could serve as practical guidelines for a subsidy reform.
6. CONCLUSIONS
European Union has defined subsidies as institutional barrier to sustainable
development. Strategic documents call Members State to reform their subsidy policy. The
phase-out environmentally harmful subsidies is the objective of the National Environmental
Policy. Nevertheless the obligations to identify areas of existence, forms and scale of
subsidies harmful for environment, the low level of awareness of problem put in question
Poland’s ability to meet the requirements. Deep analysis of direct and hidden subsidies is
needed. The first important step is to achieve transparency in the subsidy system and state
expenses policy. The international cooperation is recommended. Poland could use German
experiences and implement solutions. Identification subsidy forms and reform focused on
phase out/ removal economy ineffective and environmentally harmful subsidies could cause
higher competitiveness and benefits for environment.
21
see greens-efa.org/pdf/documents/SFTEN/Kassenberg.pdf