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The multiple policy objectives often associated with<br />
subsidy programmes need to be analysed carefully.<br />
Disentangling explicit and implicit objectives can help<br />
identify opportunities to introduce separate, better<br />
designed and more transparent instruments. During<br />
a recent reform of forestry subsidies in Finland, for<br />
example, a specific Forest Biodiversity Programme<br />
was created which provides regular payments for<br />
landowners in return for maintaining or improving<br />
specified biodiversity values of the forest. By separately<br />
targeting the biodiversity objective, the programme is<br />
more transparent, and its cost-effectiveness easier to<br />
assess, than general forestry subsidies with several<br />
objectives (OECD 2007a).<br />
Information from analytical frameworks (e.g. the<br />
OECD’s integrated assessment) can only build the<br />
case for reform if it is understandable by the general<br />
public and widely disseminated. Increased transparency<br />
is a major factor in the push to reform environmentally<br />
harmful subsidies (see Box 6.15 on EU<br />
transparency policy and Box 6.16 on German coal<br />
subsidy reform). Transparency is a key precondition<br />
for well-informed public debate on current subsidy<br />
programmes and can also make subsidy reform more<br />
appealing. Identifying who benefits from subsidies and<br />
highlighting their relative bargaining power can provide<br />
a powerful motivating force for change (OECD 2003a).<br />
Governments need to build alliances for change and<br />
discourage behaviour that would reduce or distort<br />
change. Reform practitioners regularly underline<br />
Box 6.16: Public support to coal mining<br />
in Germany<br />
Direct subsidies to coal have been a major issue<br />
in Germany. A 1994 decision of the German<br />
Constitutional Court ruled that previous industry<br />
subsidy – a surcharge on the price of electricity –<br />
was unconstitutional. This led to the subsidy being<br />
paid directly from the state budget which made its<br />
cost to the economy clearer and contributed to<br />
pressure for reform. Subsidies were reduced from<br />
€ 4.7 billion in 1998 to € 2.7 billion in 2005 and<br />
will be phased out completely by 2018.<br />
Source: IEEP et al. 2007<br />
REFORMING SUBSIDIES<br />
stakeholder engagement as another key precondition<br />
for durable reform. Multi-stakeholder processes<br />
based on a deliberate outreach and communications<br />
strategy can help to reach consensus – or at least<br />
common understanding – on new approaches or<br />
options for reform. The overarching goal is less about<br />
convincing stakeholders who gain most from the status<br />
quo and more about using the planning and implementation<br />
process to minimise opposition to change and<br />
maximise forces in favour of it (OECD 2003a).<br />
There is also a critical need to establish a process to<br />
build cooperation and horizontal analysis between<br />
government departments and agencies whose<br />
mandates, policies and programmes may overlap<br />
within the subsidised sectors. Subsidy reform often<br />
requires a ‘whole-government approach’ linking<br />
relevant institutional actors to ensure policy coherence<br />
(OECD 2003a).<br />
Changes in the policy landscape can open windows<br />
of opportunity (see also Chapter 2), even if sweeping<br />
electoral victories of parties with a strong reform<br />
agenda are rare. Even in such cases, practitioners<br />
caution against jumping straight to the ‘best’ solution,<br />
for several reasons, including the limited capacity of<br />
governments to undertake major reforms on many<br />
fronts at the same time; and the limited capacity for<br />
short-term adaptation by affected communities. In<br />
practice, demonstrating actual benefits delivered<br />
through more gradual reforms can be more compelling<br />
than up-front projections of expected benefits (even if<br />
these are larger). For the same reasons, dramatic<br />
reforms may also increase the likelihood of policy<br />
reversal (OECD 2005).<br />
Having said this, cases of fast and successful reform<br />
do exist (see Boxes 6.12, 6.13 and 6.17). Despite the<br />
earlier words of caution, a key advantage of eliminating<br />
or changing subsidies immediately, without prior<br />
warning, is that recipients cannot take advantage of<br />
the phase-out period to increase their entitlements,<br />
thus leading to associated environmental damage.<br />
<strong>TEEB</strong> FOR NATIONAL AND INTERNATIONAL POLICY MAKERS - CHAPTER 6: PAGE 30