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Slovakia – EHS Country Case Study

Reform of environmentally harmful subsidies in Slovakia

Most environmentally harmful subsidies in Slovakia fall under the energy and transport policy areas. Subsidies relating to the use of brown coal for domestic energy production have been considered the most environmentally harmful. The decision to phase out coal subsidies was announced in December 2018 by the Slovak government with the aim to terminate subsidies by 2023. It is planned to phase out all EHS in Slovakia by 2030.

The objectives of the Environmental Strategy of the Slovak Republic are to ensure environmental effectiveness, introduce a set of policy instruments that are stringent and predictable over time and remove EHS. The strategy considers a future green fiscal reform that would focus on higher taxation of transportation that has adverse environmental impacts. Few measures that should ease access to environmentally friendly alternatives have already been introduced, such as registration tax relief for electric and hybrid vehicles. A reform should consider the underlying environmental policy objectives whilst avoiding social inequalities.

© Adam Gavlák / Unsplash

Fossil fuel subsidies in Slovakia amounted to EUR 41.62 per capita in 2017. In 2019, the total cost of subsidies associated with burning coal for domestic energy production in Slovakia was around EUR 176 million. The tax exemptions for natural gas used for heating households, processing minerals and in combined heat and power plants exceeded EUR 61.6 million. Direct revenue losses related to the favourable tax treatment for company cars amounted to EUR 111 million in 2012.

Concerns about energy poverty influence Slovak energy policy. Electricity prices in Slovakia are among the highest in Central and Eastern Europe. The poorest 40% of the Slovak population pay between 20-25% of their annual household income for energy costs. Energy-saving measures could be part of the solution, but the poorest households are usually not able to pay the up-front investment costs.

Slovakia’s Recovery and Resilience Plan will support replacing coal or oil-based heating systems and obsolete gas boilers with low-carbon solutions in family houses as an integral part of complex building renovation. An investment package of EUR 528 million has been allocated to finance a large-scale renovation wave to improve the energy and green performance of at least 30,000 residential units. The package also includes a EUR 50 million allocation for fossil gas boilers – an attempt to address energy poverty. The plan also includes measures to reduce the cost of green investment and transition for low-income groups, contribute to alleviating energy poverty, and support the transition to zero-emission and low-emission cars.

The ongoing global energy crisis caused by Russia’s invasion of Ukraine and other factors may delay some of the planned reforms as governments explore how to better protect low-medium income households from the increase in the cost of living while maintaining their commitments to green reforms. This is particularly challenging in Slovakia, where 85% of the natural gas is imported from Russia.

To learn more about the reform process in Slovakia and other Member States read the country case studies and factsheets compilation.