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6.1.2 HOW BIG ARE EXISTING
SUBSIDIES?
The overall level of global subsidies is, quite
simply, enormous. Despite a slightly declining trend
in some instances, they add up to hundreds of
billions of dollars every year. Subsidies to agriculture
are amongst the largest, estimated at over US$ 250
billion/year in OECD countries alone. Subsidies to other
sectors are also significant and probably under-estimated
due to limited data and the specific measurement
methodologies used (see Table 1.1).
REFORMING SUBSIDIES
Box 6.1: Subsidies: different definitions for different contexts
A subsidy: ‘… government action that confers an advantage on consumers or producers in order to
supplement their income or lower their cost.’ (OECD 2005)
The subsidy definition provided by the United Nations Statistics Division (UNSD) is used for constructing
national accounts and covers only budgetary payments to producers. The more comprehensive World Trade
Organization (WTO) definition is used for regulating the use of subsidies that affect trade and provides that
“a subsidy is a financial contribution by a government, or agent of a government, that confers a
benefit on its recipients”. This definition excludes general infrastructure provided by government.
Different definitions are used in different contexts, depending on the specific nature of discussions. Terms
like ‘transfers’, ‘payments’ and the more generic terminology of ‘support measures’, ‘assistance’ or
‘protection’ are all common. In practice, these are sometimes used interchangeably even though they refer
to instruments that partially overlap and are associated with different methods of measurement and, as
a result, different indicators.
Not all contexts cover all issues. For example, the WTO definition does not include transfers from consumers
to producers through border protection. This is one reason why the broader term ‘support’ is used in some
contexts (e.g. OECD support estimates for agriculture).
One issue under debate is whether the formal definition of a subsidy should be expanded to include the
non-internalisation of external costs. Those who object do so for analytical clarity (i.e. the notion of a subsidy
traditionally implies an explicit government intervention rather than implicit lack of intervention) and also point
to the practical challenges of computing externalities.
From the perspective of TEEB, what can be clearly stated is that the non-internalisation of externalities
– or government inaction more generally – will frequently act like a subsidy. For example,
not internalising pollution damages lowers costs to polluters in the market and thereby confers an
advantage to them.
TEEB FOR NATIONAL AND INTERNATIONAL POLICY MAKERS - CHAPTER 6: PAGE 6