Subsidies

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Contextual Citation

‘There is something unbelievable about the world spending hundreds of billions of dollars annually to subsidise its own destruction’

— Subsidising Unsustainable Development, The Earth Council [1]

Description

The Encyclopedia of Earth on 'perverse subsidies':

""Many subsidies are "perverse" in that they are harmful to both the economy and the environment. In Germany, for instance, subsidies for coal mining are so large that it would be economically efficient for the government to close down all the mines and send the workers home on full pay for the rest of their lives. The environment would benefit too: less coal pollution such as acid rain and global warming.

Subsidies for agriculture foster over-loading of croplands, leading to erosion of topsoil, pollution from synthetic fertilizers and pesticides, and release of greenhouse gases. Subsidies for fossil fuels aggravate pollution such as acid rain, urban smog and global warming. Subsidies for road transportation promote some of the worst and most widespread forms of pollution. Subsidies for water encourage mis-use and over-use of supplies that are increasingly scarce in many lands. Subsidies for ocean fisheries foster over-harvesting of fish stocks. Forestry subsidies encourage over-logging and other forms of deforestation.

Not only do these environmental ills entrain economic costs, but the subsidies serve as direct drags on economies overall.

Of course certain subsidies are worthwhile. They overcome deficiencies of the marketplace, and they support disadvantaged segments of society. Despite their distortionary effects in many instances, we sometimes need a bit of positive distortion if we are to get as much as we want of e.g. non-polluting and renewable sources of energy (all the more when fossil fuels with their many problems are often subsidized several times more than alternative sources of energy). The same applies to support for materials recycling and agricultural set-asides.

Perverse subsidies in just the six sectors listed total at least $2 trillion per year. Plainly, perverse subsidies can exert a highly distortive impact on the global economy, and promote grandscale injury to environments and natural resources. Consider, for instance, road transportation.

In United States, gasoline is cheaper than bottled water, thanks to myriad subsidies. " (https://editors.eol.org/eoearth/wiki/Perverse_subsidies)


Discussion

Subsidies often incentivise degenerative activity

Daniel Christian Wahl:

"Large-scale industrial systems benefit from truly enormous subsidies of various kinds. It has been estimated that every year, the world’s tax-payers provide an estimated $700 billion of subsidies for environmentally destructive activities, such as fossil fuel burning, overpumping aquifers, clear-cutting forests and over-fishing (Brown 2008).

These include direct payments to industries that governments seek to protect. One sector in which such subsidies are common practice is agriculture, with governments in the industrialised world providing huge subsidies to their farmers. Other sectors that are supported by huge — and often hidden — subsidies are the fossil fuel and the nuclear industry,


Farm subsidies in the economically rich countries of the North have been estimated at $300b per annum, with the great majority going to the largest-scale farmers: some 78% of US agric subsidies (around $17 billion per annum), for example, go to the largest ten per cent of farmers. Subsidies to 250,000 US cotton farmers alone are greater than all US official aid to Africa, with a population 800 million (Norberg-Hodge 2003).

The removal of agricultural subsidies is consistently at the top of the agenda of the countries of the global South in international trade negotiations under the aegis of the World Trade Organisation (WTO), since their farmers simply cannot compete with the heavily subsidised products generated by Europe and the US. For example, EU subsidies encourage an annual surplus of six million tonnes of sugar, much of which is dumped in the markets of poor countries at below production prices (more information).


Large corporations also receive various other forms of indirect subsidies offered by national governments.

These include:

  • government research grants to universities and think-tanks whose research agendas are increasingly driven by corporate interests
  • tax breaks and other incentives by national and local authorities to encourage large business to locate in their territory
  • expenditure on transport infrastructure (roads, airports, ports) that is paid for by tax-payers but used disproportionately by the distributors of industrial products
  • governments underwriting the loans of large industries
  • investment in education systems that are geared to supply trained workers for large industries
  • manipulating currency exchange rates in the global market to favour conditions for export
  • the absence of a tax on aviation fuel.


Part of the problem here is the progressively greater intertwining we have seen in recent years between government and business. In many countries, corporations fund the political process, in some cases providing finance to all political parties that are likely winners of elections. Individuals move easily between government and senior positions in business and many policy committees in parliaments all over the world are dominated by corporate interests. This makes it difficult either to remove perverse subsidies or to orient policies in a more ecologically- and community-friendly direction.

Even the International Monetary Fund has woken up to the disastrous environmental and social impacts of the vast subsidies that are currently supporting the fossil fuel industry. A 2015 IMF report estimates post-tax global energy subsidies to amount to 5.3 trillion $US in 2015, and concludes “environmental damage from energy subsidies are large and energy subsidy reform through efficient energy pricing is urgently needed” (IMF, 2015).

The Guardian (2015) has highlighted that these vast subsidies correspond to $US 10 million per minute supporting the fossil fuel industry. The newspaper supports the international campaign calling for ‘fossil fuel divestment’ which has been joined by large institutions like the Rockefeller Brothers Fund and has already reached a cumulative commitment of $US 2.3 trillion to divest away from fossil fuels (Gofossilfree, 2015).

The Guardian also helped to promote 350.org and Bill McKibben’s ‘Do the Math’ campaign arguing that we cannot burn most of the current fossil fuel reserves if we want to avoid run-away climate change and stay well below and average global warming of below 1.5ºC.

The Union of Concerned Scientists in the USA published a report in 2011 demonstrating that nuclear energy had never been and is still not viable without vast government subsidies. (UCSUSA, 2011). While governments around the world spend vast amounts of money to subsidize the fossil and the nuclear fuel industries, the subsidies that flow into the support of renewable energy are by comparison very small and are often the first subsidies to be cut in an economic downturn. The graph below shows this mismatch.

Other examples of ‘perverse subsidies’ include vast payments to keep fishermen in jobs and catches high while most of the world’s fisheries are close to collapse (Cowe, 2012a). Subsidies to large international water companies are keeping water prices artificially low and exacerbate the already excessive over-pumping of the world’s aquifers and use of fresh water (Cowe, 2012b).


The existing systemic structures around subsidies to industries with a severely degenerative impact on people and planet, along with the existing economic practice of externalising the devastating social, ecological, and economic impacts of these industries and their globalized system are critical stumbling blocks on the way towards regenerative economies. Without addressing these issues and the fact that many of the largest corporations in the world are too big not to fail, it will be very difficult to create the vibrant bioregional economies that would drive widespread regeneration while serving diverse regenerative cultures and their thriving communities." (https://medium.com/insurge-intelligence/externalities-and-subsidies-stumbling-blocks-on-the-road-to-regenerative-economies-d1e9bc93bbfd)


More information

"For more detailed information on different types of subsidies and their effects you can take a look at the Subsidy Primer by Ronald Steenblik of the International Institute for Sustainable Development, who is a contributor to the Global Subsidies Initiative aiming encourage individual governments to act on unilateral reform of subsidies to deliver clear social, environmental and economic benefits."