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Patrick ten Brink of IEEP OECD tools and reform flowchart at IDDRI event Paris 1 June 2012
1. Identification of Environmentally Harmful Subsidies:
OECD methods and subsidy reform flowchart
Patrick ten Brink
Senior Fellow and Head of Brussels Office, IEEP
ptenbrink@ieep.eu
Politiques contre nature ?
Vers une réforme des subventions néfastes pour la biodiversité
Paris,
Théâtre de la Cité internationale
universitaire, salle Galerie
17, bd Jourdan 75014 Paris
Vendredi 1er juin 2012, de 9h30 à 18h00
2. Presentation Structure
Environmentally Harmful Subsidies (EHS):
Identification and Assessment
Study contract 07.0307/2008/514349/ETU/G1
EXECUTIVE SUMMARY
Introduction: state of play on EHS
Policy demands for EHS reform Institute for European Environmental Policy (IEEP)
C Valsecchi, P ten Brink, S Bassi, S Withana, M Lewis
Together with
Ecologic
Assessing the OECD tools A Best, H Rogers-Ganter, T Kaphengst
IVM
F Oosterhuis
& supporting expert
C Dias Soares
Flowchart for EHS reform road map 16 November 2009
Lessons and moving forward
4. Subsidies general introduction
The last decade has witnessed increasing efforts for phasing out or reforming
subsidies in various countries & commitments mount. Yet, the overall level of
subsidies remains remarkable
Agricultural & fisheries subsidies of particular concern – for biodiversity
Water (full cost recovery) –for resource availability/efficiency, water stress
Globally, energy & transport subsidies of concern – climate & energy security,
technological lock in & other impacts
Not all subsidies are bad for the environment.
Not all subsidies with social objectives, reach those objectives – design is critical
Even ‘green’ subsidies can distort markets, may not be well-targeted or cost-effective
Critical to identify subsidies that merit reform, create evidence base & road map
5. Subsidies size - a snapshot
Over $ 1 trillion per year in Subsidies
Sector Region
Agriculture OECD: US$261 billion/year (2006-8) (OECD 2009)
Biofuels US, EU and Canada: US$11 billion in 2006 (GSI 2007; OECD 2008b)
Energy World: US$557 billion/year in 2008 (IEA 2010)
Fisheries World: US$15-35 billion/year (UNEP 2008a)
Transport World: US$238-306 bn/yr, of which EHS ~ US$173–233 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.org
Most sensible use of funds? Reform win-wins ? eg budget, climate, energy security, water,
biodiversity & social? Need identification of subsidies, assessment of potential benefits of reform
6. Subsidies come in different shapes and forms
• Direct transfers of funds (e.g. fossil fuels, roads, ship capacity) or potential direct transfers
(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. demand quotas;
feed in tariffs)
• Implicit income transfers by not pricing goods or services at full provisioning cost (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 are considered
subsidies may also depend on context (eg state aid, WTO etc)
7. Potential benefits of EHS reform
• Reduce the use of resource intensive inputs /activities (extraction, production,
distribution, transformation, use), saving resources (eg water, energy), causing less pollution
(hence saving on policy measures), lesser impacts on the environment
• Increase competitiveness by exposing subsidised sectors to competition and supporting
future competitiveness by resource availability
• Level the playing fields / fix market distortions by making resource prices reflect
resource value, and making polluters pay for their pollution.
• Overcome technological ‘lock-in’ whereby more environmentally-friendly
technologies/practices are unable to compete on an equal basis with the subsidised sector
• Improve (cost)-effectiveness of meeting objectives, including social objectives
• Release public funding, enabling governments to divert budget to other areas -
e.g. education, energy saving and/ or reducing debt
8. We need an inventory and assessment of
EHS to identify
the “good”
Source: building on Sumaila and Pauly 2007
still relevant, targeted, effective, positive impacts, few negative effects
the “bad”
no longer relevant, waste of money, important negative effects
the “ugly”
badly designed – eg inefficient, badly targeted, potential for negative effects
Need to understand which subsidies are which.
Where benefits of reform might lie.
Develop a road map for EHS Reform.
10. International Commitments to Subsidy Reform
Global - CBD Aichi Accord. CBD Strategic Plan 2011-2020
Dec. X/44 on Incentive Measures / CBD Strategic Plan 2011-2020: Target 3
‘By 2020, at the latest, incentives, including subsidies, harmful to biodiversity are eliminated, phased out
or reformed in order to minimize or avoid negative impacts, and positive incentives for the conservation
and sustainable use of biodiversity are developed and applied, consistent and in harmony with the
convention and other relevant international obligations, taking into account national socio-economic
conditions.
G20 commitment (Pittsburgh 2009 & Toronto 2010) phase out inefficient fossil fuel subsidies
EU - ‘Roadmap for a resource efficient Europe’.
• ‘by 2020 EHS will be phased out, with due regard to the impact on people in need’ +
Member States should:
• Identify the most significant EHS pursuant to established methodologies (by 2012);
• Prepare plans and timetables to phase out EHS and report on these as part of their National
Reform Programmes (by 2012/2013).
EC (2011) Roadmap to a Resource Efficient Europe (COM(2011)571), http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0571:FIN:EN:PDF
11. But
On subsidy reform…..
People who love soft methods and hate inequity, forget this – that
reform consists in taking a bone from a dog. Philosophy will not do it.
John Jay Chapman, 1862–1933,
See OECD, 2007
Need transparency, evidence, analysis, communication to have a chance of success
13. Relevant questions for policy makers
What do policy makers need to know to address the EHS issue?
RELEVANT QUESTIONS IN POLICY MAKING OECD TOOLS
• Is the subsidy likely to have a significant impact QUICK SCAN
on the environment?
• Will the EHS reform bring environmental
benefits?
CHECKLIST
• Which EHS would bring the most benefit from
reform and so should be prioritised?
• What EHS reform will make people better off? Integrated
assessment
framework
14. …the Quick scan
“Is the support likely to have a negative impact on the
environment?”
Impact on economy Policy filter Assimilative capacity of env
Source: OECD, 2005, 2008
Proportionality: Quick quick scan first, then more in-depth if additional effort merited.
Use of Elasticities, econometrics, modelling can be valuable
15. ...example: Spanish water pricing
Water pricing : ~0.01€/m3 Pisuerga Valley (2003), ave. ~0.05 €/m3 Spain (2007)
Size: Pisuerga Valley: between 2.1 and 3.5 M €/yr. & Spain ~ 165 M€/yr
Env impacts of irrigation:
water overuse (between 20-70%),
pollution (fertilizer use 20-50%),
soil salination,
biodiversity loss
Demand elasticity:
generally low but depends on local conditions (eg climate, soil) & water price
change in crops requires time
different effects on farmers’ income and water consumption
16. … Selected findings from Checklist
Economic activity linked
to deteriorating no
Sectoral Analysis
reveals strong
Policy filter limits damage? NO/little
environmental values. forward or
backward linkages. License/water trading >> some efficiency but limited # of
yes yes transactions; issues of transparency and enforcement
Sectoral Analysis reveals:
• The economic activity or its linkages are
Some subsidies to drip irrigation/modernisation >>
subsidised.
• Other policy measures in place (policy filters) increased consumption (eg due to crop changes) –
yes technology alone not enough!
Subsidy removal might benefit the environment CAP cross-compliance: some signals of reduced water use
Checklist
Description of all relevant subsidies
Policy filter limits environmental damage
More benign alternatives exist? YES
no
improved technology & monitoring
More benign alternatives are available or
emerging price signals/ volumetric rates
yes
programmes for crop changes
Conditionally lead to higher production
compulsory water use (good) practices
yes
Subsidy removal might benefit the environment Does the subsidy leads to higher
resource use? YES
(Pieters, 2003)
17. …Selected findings from Integrated Assessment
1. Features Scan Effectiveness
• Objectives of the subsidy Justification: support farmers’ income; not targeted
(economic/social/environme
Effect on budget: reduced public revenues (~165 M€ Es)
ntal)?
• Effectiveness analysis:
Are objectives achieved?
• Cost-effectiveness: More Incidental impacts
cost-effective alternatives to Environmental impacts (as earlier)
meet objectives?
2. Incidental Impacts Long term effectiveness
3. Long-Term Effectiveness Social aspects: Subsidy benefits all farmers (short
term), no distinction on wealth/needs
4. Policy Reform: impacts of Affordability: Water demand can be inelastic –
various reform scenarios? impact on farmers income
EHS merits reform
attention; care needed to Example of successful reform:
identify better options to Guadalquivir area – higher fixed + variable charge >>
support farmers. 30% water reduction; longer term resource availability
Transition management key
18. OECD tools: conclusions & recommendations
Conclusions re OECD tools
• Effective initial screening tools
• Avoid resource intensiveness / rigidities of general equilibrium models or CBA
• The tools can be applied at different level of detail – proportionality / phasing
• Help highlight areas where further detailed empirical analysis is required
• Prioritise EHS reform on the basis of benefits of removal
• Applicable to all sectors and to all subsidy types
Recommendations
• Integration of the OECD tools into 1 overall process
• Develop into step-by-step guidelines
19. Building on OECD Tools
Flowcharts for development of EHS
reform road map
20. Subsidy reform flowchart – linked to CBD Str. Plan 2011-20 Target 3
Being applied/piloted in the UK
Phase 0: Screening of Phase 1: Screening of Phase 2: Potential for Phase 3: Reform Phase 4: Opportunities
sectors / impacts incentives reform scenarios for action
5) Does the incentive 9) Are there suitable
2) Are there 13) Is there a window
fulfil its objectives reform option(s)?
incentives related to of opportunity for
and are these still
these sectors / reform or can one be
valid? +
activities? created?
Yes + 10) What are the
expected costs and Yes
3) Does the incentive 6) Does the incentive benefits (economic,
1) What are the 14) Is there a
lead to potential lead to socio- environmental, social)?
threats to (potential) policy
direct / indirect economic issues?
biodiversity, and + champion to drive
how do these relate biodiversity impacts? + reform?
to key economic (if positive inform Q10) 11) Are there
7) Are there more
obstacles to reform? Yes
activities / sectors? benign alternatives?
Yes: negative impacts
+ 15) Is there public/
4) Are these + 12) Is the reform political support to
potential impacts 8) Are there understandable, reform or can it be
limited by existing pressures to reform? practical and developed?
‘policy filters’? enforceable?
No
Can sectors / activities Can options for reform Is the removal or reform
Has an incentive been Is the removal or
by identified which are or removal be of the incentive timely
identified which may be reform of the incentive
harmful to identified, and are they & should it be
harmful to biodiversity? needed?
biodiversity? advisable? prioritised?
No Yes No Yes No Yes No Yes No Yes
Develop conditions for success Prioritise reform / removal of the
No need to currently take further action – regular review is however advised
and plan for future reform incentive harmful to biodiversity
22. Lessons & recommendations
In the short run, OECD tools and similar tools can help countries:
• Establish transparent and comprehensive subsidy inventories,
• Assess their effectiveness against stated objectives, their cost-efficiency, and their environmental
impacts - using proportionality principle for effort
• Assess benefits / costs of reform for EHS – environmental, money saved/freed up, social impacts,
innovation and facilitation for the transition to a green economy
and, based on these assessments:
• Create & seize windows of opportunity (eg financial crisis, need to curb public spending)
• Develop prioritized plans of action for subsidy removal/reform at medium term (to 2020)
• Design the reform process carefully: clear targets, transparent costs and benefits, engagement
with stakeholders, coordination among gov’t bodies, etc
• Implement transition management: stage the reform, take into account “affordability”
• Subsidy reform does not happen in isolation. Make reform part of a broader package of
instruments (EFR+), including policies to mitigate adverse impacts of subsidy removal.
>> Make a good use of tools (proportionality, fit for purpose) and of funds liberated!
23. Thank you
ptenbrink@ieep.eu
www.ieep.eu
IEEP is an independent not for profit institute dedicated to advancing an
environmentally sustainable Europe through policy analysis, development and
dissemination.
The new Manual of European Environmental Policy
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