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