Subsidies have often been set up with the best intentions of national governments, after which vested interests have kept them alive. Sometimes for decades. But from an environmental point of view there is very little ground to support coal subsidies (Germany), energy-intensive industries (Germany), aviation (Netherlands), commuters (Netherlands and Germany) or company cars (UK). The report by the Institute for European Environmental Policy (IEEP) comes up with many more examples of national subsidies that make an environmentalist frown.

Not only is the spending odd, the amounts involved are often huge. The energy sector in OECD countries for example receives at least 15 – 22 billion Euros a year worth of support, estimates the IEA. Other researchers estimate the amount is closer even to 60 billion Euros per year.

Road transport is supported by 170 – 230 billion Euros world wide per year, says the IEEP report on Environmentally Harmful Subsidies. Half of this amount is considered to be harmful to both the economy and the environment. In the EU alone, according to a 2007 EEA report, 165 billion was spent in 2005 on transport subsidies, including infrastructure, VAT exemptions and fuel tax exemptions.

Coal in Germany is even subsidised twice. In 2005, 2.7 billion Euros were spent on mines (equivalent to 50,000 Euros per mining job) and coal fired plants were supported with 4 cents / kWh. “Which is more than the costs of generating electricity from wind turbines,” writes the report.

The IEEP report puts these examples in the broader context of a general ecological fiscal reform. Such a reform means that the tax burden is shifted from ‘good’ things like income and employment on to ‘bad’ things like pollution and resource use, while other environmentally adverse incentives, such as fossil fuel subsidies, are removed.

If any progress is to be made with the reform of environmentally harmful subsidies, the report says more countries need to commit to the systematic tracking of subsidies and report transparently on the basis of these analyses.

Removal of environmentally harmful subsidies can be very beneficial, according to the authors. It liberates money for environmentally beneficial investments and may generate more jobs, it challenges industry to innovate and it will improve efficiency of energy and resource use, thus reducing the ecological footprint.

More information:

‘Reforming Environmental Harmful Subsidies’ by the Institute for European Environmental Policy (IEEP) and others (2007) is the final report to the European’s Commission’s DG Environment, March 2007. It is co-authored by EcoLogic, FEEM and IVM from the Free University of Amsterdam.