Trillions wasted on subsidies?

By S R Ranjan, A Journalist  — Is it sustainable? Subsidies for fossil fuels, agriculture and fisheries exceed US$7 trillion per year in explicit and implicit subsidies, approximately 8 per cent of global gross domestic product (GDP). A new World Bank report examines how trillions of dollar wasted on subsidies  — harming people, the planet and economies — can be redirected and repurposed for productive and sustainable uses. “If we could repurpose the trillions of dollars being spent on wasteful subsidies and put these to better, greener uses, we could together address many of the planet's most pressing challenges,” said Axel van Trotsenburg, Senior Managing Director of the World Bank.

‘Detox Development: Repurposing Environmentally Harmful Subsidies’ report published by the World Bank notes that the government explicit and implicit subsidies — explicit subsidies which are direct public expenditures totaling about

US$1.25 trillion and implicit subsidies which measure the societal impacts of externalities and amount to more than US$6 trillion — exacerbate climate change, and cause toxic air pollution, greenhouse gas emissions, inequality, inefficiency, mounting debt burdens and are degrading natural assets, destroying environment and the destruction of nature, road congestion and obstructing sustainability goals. Redirecting these subsidies could unlock at least half a trillion dollars towards more productive and sustainable uses.

The World Bank report examines how subsidy reform can help safeguard the world’s foundational natural assets — clean air, land, and oceans. These assets are critical for human health and nutrition and underpin much of the global economy. But fossil fuels, agriculture, and fisheries subsidies are driving the degradation of these assets.

As per the report, in 2021, countries around the world actively paid about US$577 billion to artificially lower the price of polluting fuels such as oil, gas, and coal. In industrializing middle-income countries, health burden of air pollution is particularly high and as matter of fact, fossil fuel usage, incentivized by vast subsidies, is a key driver of the 7 million premature deaths each year due to air pollution. Subsidy reforms, accompanied by complementary policies, could reduce air pollution and save up to 360,000 lives, in high-pollution, high-subsidy countries by 2035.

Every year 2.2 million hectares of forest, equivalent to 14 per cent of global deforestation is lost due to agricultural subsidies. Richer countries spend more on agricultural subsidies than poorer countries. Agricultural subsidies tend to benefit wealthier farmers, because wealthier farmers use more inputs and produce more outputs and usually fail to improve productivity or efficiency. According to the report, subsidies incentivize excessive fertilizer usage to the extent that it suppresses agricultural productivity, degrades soils and waterways, and damages people’s health.

The report focuses on the effects of harmful subsidies on marine ecosystems. It explores the impacts of subsidies on fisheries, which provide much of the animal protein that feeds the world. The report states that some of the stressors include over fishing due to ineffective management and effects of government policies, such harmful subsidies, climate change, marine pollution due to plastics and oil spills, acidification, and hypoxic zones generated by fertilizer and wastewater runoff.

The report examines the environmental, distributional and efficiency effects of these subsidies. However, the report states that subsidy reforms are more than just subsidy removal and should consist of measures that mitigate the downside risks of reform while making best use of their contribution to sustainable development.  Subsidy reforms and strategies for reinvesting reform revenues can help to deliver on development priorities, such as infrastructure, health, and education. This report documents the hidden consequences of subsidies and shows that subsidy reform can remove distorted incentives that obstruct sustainability goals. But it also can unlock significant domestic financing to facilitate and accelerate sustainable development efforts that would have greater and more equitable benefits.

Singh Rakesh Ranjan

Freelance Journalist

(Representational Images: Sources)

(Input Source: Detox Development: Repurposing Environmentally Harmful Subsidies, World Bank)