Implementing the Environmental Fiscal Reform – Greening the State Budget in Lithuania Jurate Varneckiene Center for Environmental Policy, Vilnius, Lithuania November 20, 2003 Prague

Main categories of economic instruments in Lithuania Taxes/ charges (emission charges, product charges, taxes on natural resources) Deposit – refund systems (reusable items) Enforcement incentives (non – compliance fees) Subsidies (grants, soft loans, interest subsidies)

Taxes/ charges (emission charges, product charges, taxes on natural resources) Emission charges were introduced in 1991 New law on emission charges adopted in 2002 The objective is  to prevent or reduce possible damage to the environment,  to accumulate funds Water, air and soil pollution

Taxes/ charges (emission charges, product charges, taxes on natural resources) Emission charges are paid by stationary sources which obtain environmental permits Emission charge rates stable in period 2004 – 2009 Polluters may be exempted from the emission charges Emission charges on air pollution from mobile sources

Taxes/ charges (emission charges, product charges, taxes on natural resources) Waste disposal charge is foreseen in strategic documents Product charges were introduced in 2003 Product charges on:  Packaging,  Tires,  Batteries,  Mercury luminescent bulbs,  Filters (oil, fuel),  Hydraulic shock absorbers. The purpose is to stimulate financially the collection and recycling of some waste streams, to reduce the consumption of these products Charge exemptions exist

Taxes/ charges (emission charges, product charges, taxes on natural resources) Taxation of natural resources  The purpose is to promote the responsible use of natural resources  Tax is paid by persons and legal entities that must obtain permit for the extraction of resources  Tax is levied on the extracted amount of almost all types of natural resources  Fiscal mean to generate income rather than incentive to change the behavior

Taxes/ charges (emission charges, product charges, taxes on natural resources) Oil and gas extraction taxation  The Law on Oil and Gas Resource Tax was amended in 2003  Basic rate is as a percentage of the extracted oil/gas sales price  Tax allowance mechanism exists  Tax revenues amounted 23 – 26 million € in resent years

Deposit – refund system Voluntary and market driven for refillable beverage containers Mandatory deposit for certain reusable packaging established since 2003, however it is not yet operational

Enforcement incentives (non – compliance fees, fines) Non – compliance fees for exceeding pollution allowable limits Fines for emissions without permits or concealed emissions Fines for concealed amount of natural resources extracted

Use of revenue from environmental taxes/charges A majority of environmental charges are earmarked Major part of revenue generated from emission charges and tax on oil and gas Revenue (million €) Emission charges Natural resource taxes Tax on oil and gas Total

Use of revenue from environmental taxes/charges Allocation of revenue from environmental taxes/charges in Lithuania CHARGE ON ENVIRONMENTAL POLLUTION Emission charges Charges on packaging and other products harmful to environment TAX ON STATE NATURAL RESOURCES&TAX ON OIL AND GAS Fines for concealed pollution, non- compliance fees for exceeded limits/concentration Tax on mineral resources, water extraction, fishing permits Charge on hunting resources NESP National Environmental Support Program STATE BUDGET Packaging/ product waste management program LEIF Lithuanian Environmental Investment Fund MESPs Municipal Environmental Support Programs 100 % 30 %70 % 100 % 70 % 30 %

Subsidies Major sources for environmental subsidies/grant financing State and municipal budgets; Environmental funds/ programs; International support (pre – accession funds, bilateral aid, IFI’s)

Subsidies State budget A major part of subsidies used for co- financing ISPA projects in water and waste sectors State grants incorporated in the Public Investment Program (PIP) Investments via PIP:  7.1 million € in 2001  8.7 million € in 2002

Subsidies Lithuanian Environmental Investment Fund Provides grants, soft loans, interest subsidies Priority areas:  Waste management,  Water protection,  Atmosphere protection Budget (expenditures) – 5.7 million € Number of projects supported – 42

Subsidies National and Municipal Environmental Support Programs Grants for small investment projects, technical assistance Supported areas are atmosphere and water protection, remediation of past pollution, public awareness raising, etc. National Environmental Support Program accounted 1.27 million € in 2002 Municipal Environmental Support Programs spent ~7 million € in 2001

Subsidies Subsidy schemes (energy efficiency/housing project, public sector energy efficiency, etc.) Administered by Central Project Management Agency (CPMA, established by the Ministry of Finance) The purpose is to ensure efficient management of sovereign loans and other assistance funds Schemes provide subsidies for energy saving measures