ENVIRONMENT: Remove 700 Billion Dollars in Subsidies, Report Says

By Farhan Haq Reprint | | Print |

RIO DE JANEIRO, Mar 19 1997 (IPS) - Government subsidies in everything from food and water to transport and energy contribute to environmental problems and should be removed, a new study conducted by the Dutch Institute for Research and Public Expenditure argues.

As hundreds of environmental experts wrap up a week of talks here on how to end environmentally harmful practises, the report, ‘Subsidising Unsustainable Development,’ argues that subsidies for water, agriculture, energy, and transport — which total some 700 billion dollars worldwide — are themselves damaging and must be cut.

“These subsidies are extremely bad, even worse than the arms race,” which costs roughly the same amount, says Institute researcher Andre de Moor, co-author of the report. “They basically work as a privilege to richer groups, and the poor have to pay the price.”

Many subsidies no longer serve their original purposes, the report argues, and instead, encourage either wasteful consumption patterns or the continuation of industries and practises — from the use of pesticides in agriculture to the entire coal industry — that are environmentally harmful.

Others no longer go to assist the poorest sectors, argues James McNeill of the Canada-based Unsustainable Subsidies Committee. Only 20 percent of agricultural subsidies goes to farmers, with much of the amount propping up pesticide and fertiliser use, says the report.

“The governments of the North and South are using hard-earned tax revenue to subsidise unsustainable development,” says McNeill. “The human and natural environment has more to fear from the visible hand of government than from the invisible hand of the market.”

That sentiment has been shared by many U.N. officials and business representatives present at the ‘Rio Plus Five’ forum which ended here Wednesday. The U.N. Development Programme (UNDP), in its own study of energy usage launched this week, argues that 76 percent of world energy usage is in fossil-fuel consumption — which leads to carbon dioxide emissions linked to global warming.

Subsidies to encourage fossil-fuel use should be cut and replaced with encouragement of renewable energy sources like windpower and solar power, the UNDP says.

But other subsidies are considerably thornier issues, with water subsidies, for example, helping to keep water prices low or free in most countries. The report, however, contends that the rich benefit the most from cheaper water. “Between 80 and 90 percent of the richest fifth of the population have access to the public water supply, compared with at most 30 to 50 percent of the poorest fifth,” it claims.

“The poor have to pay, as everyone does, for water, but they have to buy it from water vendors at a higher price,” de Moor argues.

The report suggests that, to deal with the needs of the poorest, better-targeted subsidies, including subsidised “water stamps” for the poor or a graduated rate of water pricing over a cheap baseline price, should be adopted.

Representatives of poorer nations are naturally less than thrilled about any environmental suggestions that could include greater cutbacks in public benefits for poorer groups. “How can people in the South be expected to pay more for basic services when they are so hard-pressed to afford necessities already?” asks one African delegate here, speaking on condition of anonymity.

“The poor and the powerless don’t have political strength,” so they are hurt disproportionately by any cutbacks, McNeill concedes. But he remains adamant that the subsidies are wrongheaded and serve only to prop up industries and practises that hurt the environment: “The current structure of subsidies is perverse on almost all fronts.”

He predicted that, as awareness of the harmful consumption patterns fueled by subsidies grows, free-market liberals, fiscal conservatives and environmentalists alike would push for ending, in particular, the “hidden” subsidies to rich corporations that contribute to fossil-fuel use, pesticide production, or other environmental ills.

Maurice Strong, chairman of the Earth Council sponsoring the current forum, argues that “There is an immense potential for redeployment of existing resources to provide positive incentives and support for sustainable development, while improving economic efficiency and competitiveness.”