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