Friendly subsidies?

Overcoming Obstacles to Policy Reform: Work on Environmentally Harmful Subsidies
OECD Observer

While bemoaning the global impact of rich countries’ subsidies on poorer economies, environmentalists are taking a closer look at how the elimination of some subsidies may be detrimental to the environment.

The economic sectors with the largest share of global subsidies – agriculture/fisheries, transport and energy, accounting for 81% of world subsidies – are also those most implicated in greenhouse gas emissions, air pollution and water pollution. Yet one of the authors in this compilation of reports argues that it is not sufficient to simply cite the numbers and list resultant environmental damages. In the interest of sustainable development, social and economic effects must also be gauged and figured into any negotiations on agricultural subsidies.

According to Work on Environmentally Harmful Subsidies, there is a prima facie case for supposing that subsidies which encourage more production will be environmentally harmful. Price guarantees encourage overproduction and hence environmental damage.

Also, many subsidies directly or indirectly contribute to the depletion of natural capital, one of the “pillars” of sustainable development. Water logging and salinisation from subsidised irrigation water; excessive air pollution and greenhouse gas emissions due to transport fuel and stationary energy subsidisation; and over-fishing due to support of fishing fleets, are some well-known examples. Yet short-term subsidies for farm equipment like trailers or earth-movers, for instance, can facilitate the purchase and use of newer, “cleaner” technologies.

However, only recently has the link been made between subsidies, environmental damage and loss of human capital, versus natural capital. For instance, the global burden of disease and accidents, which government support can help to combat, has recently been calculated for environmentally induced health problems arising from inadequate water supply and sanitation, indoor and outdoor air pollution, and agro-industrial wastes and pollutants. One estimate states a global loss of value in human capital of US$1.75 trillion for 2000. While this loss cannot be blamed solely on subsidies, it argues for further research so as to complete the picture of the impact of agricultural support.

©OECD Observer No 238, July 2003

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