The existence of grants and subsidies which directly favour activities that have an excessive impact on the environment. Perverse incentives are most obviously found in the transport, agriculture and energy sectors.
Perverse subsidies operate in daily life when producers and consumers do not compensate for the economic losses which result from the impact of their activities on the environment. By enjoying lower prices (prices which do not include environmental impact costs), producers and consumers have no incentive to reduce this impact, or to take it into account in their investment decisions and lifestyle choices.
The continuing low level of petrol prices in the United States of America and Canada compared with western Europe, which has certainly contributed to the higher north American reliance on car transport and kilometric consumption, both detrimental to the environment and especially to air quality represents a massive scale perverse subsidy system.
In Mexico City the real cost of water may be as high as a dollar per cubic meter, but the government charges only a tenth of that -- simultaneously creating an annual deficit for water services of about $1 billion and hiding the catastrophic state of the city's water supplies. Three separate analyses have estimated that such subsidies cost the global economy some $500-$600 billion annually -- as much as the Rio Earth Summit's proposed budget for sustainable development. In other words, if subsidies were eliminated, saving the earth would not need to cost the earth.
Under conditions imposed by the International Monetary Fund (IMF), Haiti is not allowed to subsidize its rice farmers, while the rice imported from the USA is heavily subsidized and hence cheap, driving local farmers out of business and into poverty. The per capita income of Haitians has dropped from $600 a year in 1980 to $369 in 1999. Similar patterns can be found in many other countries.