Patrick ten Brink of IEEP OECD tools and reform flowchart at IDDRI event Paris 1 June 2012
Identification of Environmentally Harmful Subsidies: OECD methods and subsidy reform flowchart Patrick ten Brink Senior Fellow and Head of Brussels Office, IEEP email@example.com 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
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
Subsidies general introductionThe last decade has witnessed increasing efforts for phasing out or reformingsubsidies in various countries & commitments mount. Yet, the overall level ofsubsidies 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
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
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)
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
We need an inventory and assessment ofEHS 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.
International Commitments to Subsidy ReformGlobal - CBD Aichi Accord. CBD Strategic Plan 2011-2020Dec. 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 outor reformed in order to minimize or avoid negative impacts, and positive incentives for the conservationand sustainable use of biodiversity are developed and applied, consistent and in harmony with theconvention and other relevant international obligations, taking into account national socio-economicconditions.G20 commitment (Pittsburgh 2009 & Toronto 2010) phase out inefficient fossil fuel subsidiesEU - ‘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
ButOn subsidy reform….. People who love soft methods and hate inequity, forget this – thatreform consists in taking a bone from a dog. Philosophy will not do it. John Jay Chapman, 1862–1933, See OECD, 2007Need transparency, evidence, analysis, communication to have a chance of success
Relevant questions for policy makersWhat 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
…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, 2008Proportionality: Quick quick scan first, then more in-depth if additional effort merited. Use of Elasticities, econometrics, modelling can be valuable
...example: Spanish water pricingWater 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
… 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 useChecklist 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)
…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
OECD tools: conclusions & recommendationsConclusions 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
Building on OECD ToolsFlowcharts for development of EHS reform road map
Subsidy reform flowchart – linked to CBD Str. Plan 2011-20 Target 3Being applied/piloted in the UKPhase 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? NoCan sectors / activities Can options for reform Is the removal or reform Has an incentive been Is the removal orby 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 theNo need to currently take further action – regular review is however advised and plan for future reform incentive harmful to biodiversity
Lessons & recommendationsIn 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 economyand, 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!
Thank you firstname.lastname@example.org www.ieep.eu IEEP is an independent not for profit institute dedicated to advancing anenvironmentally sustainable Europe through policy analysis, development and dissemination. The new Manual of European Environmental Policy http://www.europeanenvironmentalpolicy.eu/
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