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REFORMING SUBSIDIES<br />
Key Messages of Chapter 6<br />
The last decade has seen increasing and sometimes strenuous efforts to phase out or reform<br />
subsidies in various countries. These experiences indicate that subsidy reform or removal can alleviate<br />
environmental pressures, increase economic efficiency, and reduce the fiscal burden.<br />
Although declining slightly in some sectors, the overall level of subsidies remains remarkably high.<br />
Leaving aside conceptual and data deficiencies of global estimates for most sectors, conservative estimates<br />
point to hundreds of billions of dollars in annual subsidies. Agricultural subsidies in OECD countries averaged<br />
US$ 261 billion/year in 2006–8, global fisheries subsidies are estimated at US$ 15-35 billion and energy<br />
subsidies amounted to around US$ 500 billion per year worldwide, and to US$ 310 billion in the 20 largest<br />
non-OECD countries in 2007.<br />
Many production subsidies serve to reduce costs or enhance revenues, e.g. the majority of agricultural support<br />
measures provided by OECD countries. Together with below-cost pricing for the use of natural resources<br />
under consumer subsidies, they effectively provide incentives to increase use of subsidised resources,<br />
production and consumption. This not only increases environmental damage but can also restrict the<br />
development and use of more sustainble technologies and processes. At the global level, agricultural<br />
and fisheries subsidies are particularly worrying in this respect, and analyses of other sectoral subsidies<br />
also highlight the substantial potential for environmental gains through their reform.<br />
Not all subsidies are bad for the environment. Some subsidy programmes are already used to reward<br />
ecosystem benefits, like the range of transfer programmes in agriculture or forestry that reward less harmful<br />
production methods by compensating lost revenue or making payments against desired outcomes. However,<br />
even ‘green’ subsidies can still distort economies and markets, and may not be well-targeted<br />
or cost-effective. They too need to be examined carefully.<br />
It is important not to restrict subsidy reform to the identification and reform of environmentally<br />
harmful subsidies. The reform process also needs to focus on those subsidies which have clearly outlived<br />
their purpose, are not targeted towards their stated objectives, or do not reach their objectives in a costeffective<br />
manner. This is because of opportunity cost considerations: phasing out ineffective subsidies<br />
frees up funds which can be re-directed to areas with more pressing funding needs. From the<br />
perspective of <strong>TEEB</strong>, this includes rewarding the unrewarded benefits of ecosystem services and biodiversity.<br />
Policy-makers already have a range of analytical tools to help them identify subsidies which offer<br />
potential benefits from reform, and assess the likely benefits, including for the environment. The growing number<br />
of successful subsidy reforms around the world also provide useful lessons learnt. Specifically,<br />
they show that the design of the reform process is a critical success factor.<br />
Improving the quality and comprehensiveness of available subsidy data and analytical information<br />
is important for successful reform. Transparency is a key precondition for a well-informed public debate on<br />
current subsidy programmes, and can provide a powerful motivating force for change. Dialogue and<br />
communication with stakeholders including the wider public is needed in order to develop a clear set of<br />
agreed objectives and a timetable for reform.<br />
<strong>TEEB</strong> FOR NATIONAL AND INTERNATIONAL POLICY MAKERS - CHAPTER 6: PAGE 2