Successful conference on environmentally harmful subsidies

On 2nd and 3rd September 2004, an international conference titled „Environmentally harmful subsidies and ways to eliminate them” was organized in Budapest by the Clean Air Action Group (CAAG), the European Environmental Bureau (EEB), the Hungarian Academy of Sciences and the Environmental Economics Section of the Hungarian Society of Economics. The event was sponsored by the European Commission (PHARE Access) and the Hungarian Ministry of Environment and Water.

The conference, held in the Hall of the Academy of Sciences, fulfilled a pioneering role in Hungary. The Clean Air Action Group has been working for more than a decade in order to make the green budget reform’s benefits – already advocated by the European Commission, the OECD and the European Environmental Agency – recognized in Hungary as well. This is a time-consuming and arduous task; what we have managed to achieve is that the majority of Hungarian decision-makers already have some sort of idea about this instrument of environmental protection.

However, the conference went much beyond that: it did not only deal with environmental tax reform (eco-taxes), but also discussed a topic which is virtually unknown in Hungary: the review of state subsidies from the aspect of environmental protection. This area – the second pillar of green budget reforms – has been gaining ever greater recognition in the environmental policies of advanced Western European countries. What is the essence of this approach? Currently, the state is granting subsidies to numerous activities by using public funds; however, these activities often have considerable damaging impact on the environment. This clearly entails the need to revise the justification of certain state subsidies. In all specific cases where the subsidized activity contributes to increasing the environmental load, the relevant state subsidies should be withdrawn immediately. Theoretically, it is fairly easy to follow this train of thought; however, the practical aspects of the concept are somewhat more complicated, because the subsidies under consideration are often indirect ones. It means that the companies and sectors concerned do not receive actual funds from the state; they „only” enjoy various preferences (lower tax rates are applicable to them, they obtain the necessary infrastructure free of charge, they do not have to pay for the environmental and other damage that they cause, etc.).

The related research report, commissioned by the Hungarian Ministry of Environment and Water, was completed by the time of the conference. This research work was aimed at charting the harmful subsidies which are currently being granted in Hungary. As Károly Kiss, head of the research programme, said in his lecture delivered at the conference, this was a unique effort: up until now, no one in the world has ever attempted to survey an entire national economy from this aspect. A number research projects have already been performed – primarily in Western countries – but none of these has set the goal to provide an overall picture on the subject, embracing all branches of the economy. This Hungarian research programme, now expounded as the central theme of the conference, has made the initial steps towards that aim.

We may confidently say that despite the unknown and complicated subject matter, a fair number participants showed interest and attended the conference. Some 150 persons took part in the two-day event, among them representatives of the Hungarian public administration, trade unions, research institutes, non-governmental organizations, as well as specialists of several renowned international organizations. The only sorrowful element of the conference was that the Hungarian Ministry of Finance, the most competent authority regarding the topic of the event, did not delegate an official representative (although a staff member of the Ministry took part in the conference as a private person); in spite of the enormous potential for public savings attainable through the removal of harmful subsidies. This would be particularly important under current Hungarian circumstances, when the Hungarian Government keeps emphasizing the necessity of taking restrictive measures in order to handle the problem of the large state finance deficit.

On the other hand, Miklós Persányi, Hungarian Minister of Environment and Water, did accept our invitation to the conference. He spoke highly of the research programme’s results, and confirmed the Ministry’s commitment to the green budget reform. On behalf of the European Commission’s Directorate-General on Environment, Manfred Rosenstock summarized the latest EU developments, while Anthony Cox outlined the OECD’s relevant activities. Participants of the conference could listen to in-depth accounts rendered about the German, Danish, Polish and Czech efforts made in this field, as well as about the role of the European Environmental Bureau. Gusztáv Báger, Director General of the Hungarian State Audit Office, told about the possibilities of the State Audit Office, whereas Sándor Orosz, Deputy Chairman of the Hungarian Parliament’s Environmental Protection Committee analyzed the subject’s political aspects. The themes dealt with in the individual chapters of the research study – distributed among those attending the event – were expounded by the research project’s collaborating experts.

With this successful conference, the indispensable first step has been made in the intricate and strenuous process of removing environmentally harmful subsidies from the Hungarian economy.

Zoltán Szabó