Reducing subsidies that undermine sustainable development

Removing subsidies of government money to companies and projects that ultimately harm rather than help the progress of sustainable development.

Approximately 5% of the world's GNP, is spent by developed and developing countries on environmentally damaging subsidies on inter alia, fossil fuels, electricity, agriculture, water and pesticides. Global reductions in these subsidies would result in economically and environmentally beneficial changes in favour of cleaner and more efficient industries and faster and greener growth. It would liberate financial resources in developed countries, which could enhance the possibility of transfers to the developing countries. It would also liberate resources in developing countries, which could be used to meet their sustainable development needs. By improving efficiency and raising productivity, it might expand a country's overall economic output and thereby provide a second source of increased revenue by enlarging the tax base. It would improve the environment not only for providing more resources for environmental protection, but also by reinforcing incentives for environmentally sound practices. Nevertheless, care should be taken to ensure that the changes in subsidies do not adversely affect the access of poor communities to basic amenities.

This strategy features in the framework of Agenda 21 as formulated at UNCED (Rio de Janeiro, 1992), now coordinated by the United Nations Commission on Sustainable Development and implemented through national and local authorities. Agenda 21 recommends removal or reduction of those subsidies which do not conform with sustainable development objectives.

Recognition of the environmental cost of certain subsidies will provide a powerful additional reason for removing them. Frequently, the same goals can be met in cheaper ways. It was estimated that in Poland removing energy subsidies would by itself reduce emissions of particulates and sulphur oxides by more than 30% between 1989 and 1995. In Indonesia, pesticide subsidies were more than 80% of the retail price in 1985 but had been eliminated entirely by late 1988. This step reduced excessive pesticide use (in favour of a successful integrated pest management programme) and generated budgetary savings of more than US$ 120 million annually. In Brazil, discontinuing the fiscal and credit incentives extended to ranching has saved about US$ 300 million annually while easing (although not eliminating) pressures for deforestation. In the 1990s, China cut subsidies for fossil fuel consumption from $26 billion to $11 billion a year. The U.K. cut subsidies for coal production coal by 91 % in the first half of the 1990s. An example of using green taxes effectively, Germany used taxes to cut the production of toxic wastes by 15 percent in three years. Australia, Denmark and the USA used taxes on CFCs to help phase out these chemical.