1. Analysis of Public Subsidies in the Czech Republic with Adverse Environmental Impacts that are not in Accord with the Principles of Sustainable Development Jiri Becvar Monika Ruzickova Ministry of the Environment of the Czech Republic

2. * This project was realised in the framework of „Research and Science Projects“of the Ministry of the Environment * We support the idea of OECD to develop a checklist with public subsidies and with their environmental impacts * We consider this project as contribution to sustainable development

3. Basic goals of the project * Identifying public subsidies with negative impact on the environment * Evaluation or quantification of the impacts of public subsidies * Suggesting a methodology for evaluating public subsidies * Suggestions for changes or modifications to subsidies that have been identified as harmful to the environment

4. Examined public subsidies were evaluated as * Environmentally favourable (improve the environment) * Environmentally neutral (without any linkage to the environment) * Environmentally unfavourable (do not improve the environment, damage the environment)

5. A detail analysis of individual subsidies is given in the following groups Industrial sectors Agriculture, water management, forest management Tax relief, assistance to business, support for investments Other form of asssistance

6. Non investment subsidies for entrepreneurial subjects from the State Budget (in mill. EUR) 20012002 Subsidies to railway transport of persons15.670.9 Damping of mining124.2114 Programmes for thermal insulation of buildings and energy saving 0.970.94 Subsidies and loans for research and development MIT24.724.6 Support of agro-complex283.8191.2 Direct subsidies to forestry5.73.1 Direct subsidies to water management8.111.3 State Fund for Assistance to Agriculture40.991.6 Subsidies for nature and landscape protection2.22.7 Subsidies for active employment policy58.682.9 Subsidies for export7.229.1 Subsidies for remediation of environmental damages4.83.4

7. Expenditures from the State Environmental Fund in year 2002 according to components of environment (mill. EUR)

8. Agricultural * Subsidies to support breeding of cows without market production of milk, breeding of sheep and goats – newly is introduced limitation of burden on 1 hectare in regard to negative effects * Subsidies for removing silt in ponds – is recommended that the control of provided subsidies for dredgind should be stricter to protect the environment

9. * „Support for agricultural primary production through returning part of the excise tax - green diesel fuel“ - it is one of the unfavourable supports, because most of these tax is refunded on purchased heavy gas oil and used in agricultural primary production, this support was explained as assistance to Czech agriculture to compensate for the unsystematic increase in the prices of inputs into agriculture

10. Transport Support for developing municipal traffic – is beneficial for the environment, the objective is a gradual decrease of individual automobile transport, decrease of emissions State finances aimed at the field of road and rail transportation – support of this kind of transport is enviromentally favourable, this support was financed from the State Fund of Transport Infrastructue

11. Water management The programme „Construction and technical renewal of water conduits and water treatment plants“ „Construction and technical renewal of sewers and wastewater treatment plants“ „Ani-flood measures“ – that should minimize adverse-environmental impacts, very actual theme mainly in the areas of Prague and Moravia

12. Forest management It is recommended to work on introducing systems of minimizing the impacts of pollutants on forests Forms of assistance that entail a potential risk of adverse environmental impact are following: - stream dikes and forest-engineering meliorations - renewing forest stands damaged by pollution - liming from airplanes - large-scale interventions for forest protection

13. The tax system The Czech Republic has two valid VAT – 5% for environmentally favourable goods and services, 22% for the others, next year the taxes will be all the same that may affects negative to environmentally favourable products It is recommended that exemption of air transport from excise taxes on fuels be abolished

14. It is recommended that exemption from taxes in the framework of the Act on Highway taxes be reconsidered, although this is a form of tax relief that is in the public interest these are often vehicles that significantly pollute the air and damages roadways, the re-evalution of tax relief should be applied to buses for regular public passenger transport lines according to the fuel of used

15. It is recommended re-evaluate the method of calculating highway taxes, a tax calculated on the basis of engine capacity, or on the basis of the highest admissible weight and number of axles does not take into account the frequency of usage of the vehicles It is recommended that reconstruction and tax rates on real estate be re-evaluated, because it frequently occurs that the taxed entity purchases a property as arable land for the purposes of commercial construction, subsequently this land is reclassified as pastureland, for which a construction permit can be obtained

16. Conclusion It has been been found that many forms of assistance exhibit elements of ineffectivness In a great many cases, it is possible to include environmental criteria, or criteria focused on essuring the support is in harmony with sustainable development In many cases of public support, it is possible to simplify the means of providing the assistance so that is transparent and minimizes the creation of transaction costs The final step-assigning the end-recipient of the support and carrying out the object of the assistance- remains unclear for most forms of assistance

17. Jiří Bečvář Ministry of the Environment of the Czech Republic unit of economic instruments phone: (+420) 267 126 238 e-mail: Jiri_Becvar@env.cz