patrick ten brink of ieep ehs identification assessment 9 nov 2010 vienna

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Patrick ten brink of IEEP on Environmental Harmful Subsidies (EHS) Identification and Assessment 9 Nov 2010 Vienna

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  • 1.GBE ANNUAL CONFERENCE Budapest, 8-9 July 2010Environmentally Harmful Subsidies:Identification and AssessmentPatrick ten BrinkSenior Fellow & Head of Brussels Office, IEEP and thanks also to Samuela Bassi, IEEP Ecological tax reform and Phasing out environmental harmful subsidiesHow a budget reform can contribute to climate protectionwww.ieep.eu Vienna 9 November 2010

2. Subsidies general introduction The last decade has witnessed increasing, and in some casesconsiderable, efforts for the phasing out or reform of subsidies invarious countries Yet, the overall level of subsidies remains remarkable Globally, agricultural & fisheries subsidies of particular concern - BD Energy & transport climate & energy security & other impacts Water (full cost recovery) re resource availability/efficiency Not all subsidies are bad for the environment. even green subsidies can still distort economies and markets, andmay not be well-targeted or cost-effective. Phasing out ineffective subsidies frees up funds which can be re-directed to areas with more pressing funding needs 2 3. Content of the presentation Studies supporting this presentation Subsidies what they are, where they are used, scale Tools for identifying & assessing subsidies: OECD tools Assessing the tools case example Integrating the tools EHS reform tool The benefits of subsidy reform Lessons learned & recommendations3 4. EHS Identification and AssessmentEnvironmentally Harmful Subsidies: Identification and Assessment (Nov 2009) for DG Env, CECAuthors: IEEP, Ecologic, IVM + Claudia Dias SoaresAim: Test OECD methodologies for EHS identification and assessment Identify shortcoming and improvements Provide indicators for measurements & benchmarkingOutputs: 6 case studies testing the tools An integrated methodology + methodological recommendations for policy makers on the use of the tools + practical guidelines for EHS reform A recipe book for the calculation of the size of subsidy A communication tool for widespread communication subsidy identity card. Full report + case studies available athttp://www.ieep.eu/publications/pdfs/2010/EHS-Full-Report-12-01-10.pdf 4 5. Presentation overviewThe Economics of Ecosystems andBiodiversity in Policy Making The Global Biodiversity Crisis Coral reef emergency Deforestation Loss of public goods Measuring what we manage BD & ecosystem service indicators Beyond GDP indicators et al Natural capital accounts Assessment and Valuation Solutions: Policy Instruments Rewarding benefits: PES, IPES: REDD+, ABS, tax relief & fiscal transfers, Markets, GPP Subsidy reform Addressing losses : Regulation legislation, liability, taxes & charges, offsets, banking Protected Areas (PAs, MPAs) Investment in natural capitalhttp://www.teebweb.org/Responding to the value of nature 6. The context 7. In the policy jungle subsidies comein different shapes and forms: Direct transfers of funds (e.g. fossil fuels, roads, ship capacity) or potential directtransfers (e.g. nuclear energy and liability) Income or price support (e.g. agricultural goods and water) Tax credits (e.g. land donation/use restrictions) Exemptions and rebates (e.g. fuels) Low interest loans and guarantees (e.g. fish fleet expansion/modernisation) Preferential treatment and use of regulatory support mechanisms (e.g. demandquotas; feed in tariffs) Implicit income transfers by not pricing goods or services at full provisioningcost (e.g. water, energy) or value (e.g. access to fisheries) Arguably also, implicit income transfer by not paying for pollution damage(e.g. oil spills) and other impacts (e.g. IAS, damage to ecosystems)People may mean different things when talking of subsidies; what areconsidered subsidies may also depend on context (eg state aid, WTO etc) 8. Examples of EHS Coal mining Fishing direct transfers, Grants, guarantees, tax Water use little liability for damage exemptions + no liability for damageNon resource pricing to sea bed et alSource: www.treehugger.comSource: GuardianSource: www.wisebread.comSource: http://srforums.prosoundweb.com/Agriculture DeforestationEnergy: oil spillsDirect payments + no liability no resource costs, noOnly partial liability /for eutrophication damage et al compensation for damagecompensation for damageSource: www.oilism.com 9. Subsidies Some are on-budget (visible in government budgets) others off-budget (notaccounted in national budgets) transparency varies (Negative) Impacts on the environment can be direct (e.g. subsidies to convert forest tobiofuels, road building in biodiversity rich areas) or indirect (e.g. tax breaks; climate changeeffects) Impacts can be immediate (convert land, road build, oil spill) , later / spread over manyyears (eg fisher capacity support, fossil fuel subsidies) Impacts can occur locally (subsidy for road build), nationally (eg subsidy for hydro),internationally (eg resource extraction impacts ), globally (eg climate change) Other impacts less clearly negative (e.g. hydro power; or subsidies with policy filters itdepends); some generate environmental benefits (e.g. payments to farmers for ecosystem services) some redress market failures (e.g. rail) or level the economic playing field (e.g. renewableenergy subsidies) Even subsidies apparently benign but may have negative effects, depending (e.g.subsidies for modernisation of fleet + decommissioning) 10. Subsidies, intention and design Subsidies generally launched with good intentions eg for food provision (CAP and CFP), for energy security (coal subsidies), to support industries/technologies (eg nuclear, renewables), for competitiveness (eg exemptions to taxes for energy intense industries), for poverty alleviation and social concerns (eg food, water, fuel, electricity subsidies), to address climate change (eg biofuels; renewables, energy conservation) and for the environment (PES HVN) Objectives can become outdated (eg food provision, energy security and coal). There can be a major difference between stated objectives and actualeffects (eg biofuels). Some subsidies are blunt instruments for the objective either wronginstrument or badly designed They can have many (unforeseen at the time) impacts on the environment 11. A simple classification! the good still relevant, targeted, effective, positive impacts, few negative effects the bad no longer relevant, waste of money, important negative effects the uglybadly designed eg inefficient, badly targeted, potential for negative effectsSource: building on Sumaiia and Pauly 2007 12. Subsidies size - a snapshotAggregate subsidy estimates for selected economic sectors Over $ 1 trillion per year in SubsidiesSectorRegionAgriculture OECD: US$261 billion/year (2006-8) (OECD 2009)BiofuelsUS, EU and Canada: US$11 billion in 2006 (GSI 2007; OECD 2008b)Fisheries World: US$15-35 billion/year (UNEP 2008a)EnergyWorld: US$557 billion/year in 2008 (IEA 2010)Transport World: US$238-306 bn/yr, of which EHS ~ US$173233 bn/yr (Kjellingbro and Skotte 2005)Water World: US$67 bn/year, of which EHS estimated at US$50 bn/year (Myers & Kent 2002)Source TEEB for policy Makers - Chapter 6 www.teebweb.orgMost sensible use of funds? Reform win-wins ? eg budget, climate, biodiversity?Need identification of subsidies, assessment of potential benefits of reform 13. Imaginary public goods of avoidedpublic bads - Biofuels Early stated ambitions: helping avoid climate change avoiding a public bad. Subsidies in many forms launched US$ 11bn/yr (06: US+EU+Canada) (GSI 2007, OECD 2008) Cost of reducing CO2 ~ US$ 960 to 1700/tCO2 equiv. (OECD 2008) Not cost effective Where biofuels fom converted forrest lands there may be net increase of emissions Effect opposite to stated objective.Could a careful assessment earlier have avoided this....? 14. The OECD toolsThe quick scan model (OECD, 1998)The checklist (Pieters, 2003) 1. Features Scan 2. Incidental ImpactsIntegrated Assessment 3. Long-Term Effectiveness 4. Policy Reform:14 impacts of various reform scenarios? 15. the QuickscanIs the support likely to have a negative impact on theenvironment? Impact on economy Policy filter Assimilative capacity of envOECD, 1998 Source: OECD, 2005 16. the Checklist Economic activity linkedSectoral Analysisno no to deterioratingreveals strong forward Do notenvironmental values.or backward linkages.considerIs the subsidy yesyesremovingsubsidies onSectoral Analysis reveals: removal likely to The economic activity or its linkages are subsidised.noenvironmental grounds. Other policy measures in place (policy filters) have significantyes environmental Subsidy removal might benefit the environment benefits?ChecklistDescription of all relevant subsidiesyes Policy filter limits environmental damageSubsidyremoval is no not likely tono More benign alternatives are available or emerging have asignificant yesenvironmentno Conditionally lead to higher productional benefit. yes Subsidy removal might benefit the environment(Pieters, 2003) 17. and the Integrated Assessment 1. Features ScanAnalysis of the Objectives of the subsidy(economic/social/environmental)?economic, social and Effectiveness analysis: Are objectivesenvironmental achieved?impacts of the Cost-effectiveness: More cost-effectivealternatives to meet objectives?subsidy(incl. design and2. Incidental Impactssocial impacts)3. Long-Term Effectiveness 4. Policy Reform: impacts of various reformscenarios? 18. Assessing the tools: case studiesEnergy VAT reduction for domestic energy consumption (UK) Fuel tax exemptions for biofuels (DE) Nuclear energy: decommissioning subsidies (DE)Transport Fuel taxes: diesel vs petrol (AT, NL, UK) Company car taxation (NL)Water use Irrigation water subsidies (ES) 18 19. e.g. Irrigation EHS in Spain What is the subsidy about? Low water prices for farmers in EU >> contributed to increased water use inagriculture in past 2 decades (EEA, 2009) In Spain - low irrigation water pricing in many

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