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"Subsidies come in many shapes and sizes. They range from financial transfers to opportunity costs, and they can be both direct and indirect. In addition to subsidies of conventional and formal type, there is a host of implicit subsidies, especially in the form of environmental externalities. Car drivers pollute everyone's atmosphere without compensating everyone, so they effectively gain a benefit at everyone's expense. Much the same applies when farmers spray pesticides which then extend their toxic effects into everyone's ecosystems; when industrialists fail to clean up and recycle water taken from everyone's water supplies, which are becoming increasingly scarce in many lands; and when loggers over-exploit forests and deplete the habitats of everyone's wildlife and biodiversity. However little it is acknowledged, these activities amount to uncompensated services from society to individuals. They should count as implicit subsidies in both spirit and substance, even though they are not dispensed by a government department through actual financial transfer. They are just as economically distorting and socially unfair, as will as environmentally damaging, as are many financial subsidies. Environmental externalities are widespread and significant, and growing fast. The current level of environmental injury is ample evidence that they should be included in a comprehensive assessment of subsidies. While it may be unusual to include them, it is realistic. In Costa Rica, for instance, the depletion of soils, forests and fisheries results in a 25-30 percent reduction in potential economic growth. Soil erosion worldwide levies unintended costs on society of around $150 billion per year, while pesticides harm society's interests to the extent of $100 billion per year - and these two items alone mean that such hidden subsidies are almost as large as the formal subsidies in agriculture. The report's sectoral chapters document a host of similar externalities. The are environmentally adverse by definition, and their societal costs make them economically adverse too. They are subsidies in and of themselves, i.e., they are not dependent on the "up front" subsidies in the form of financial and other transfers from governments. We need not ask what proportion of the annual $150 billion "subsidy" from soil erosion is due to conventional subsidy payments to farmers. Such a subsidy is 100 percent perverse." |
Myers, Norman/Kent, Jennifer:
'Perverse Subsidies. Tax Undercutting Our Economies and Environments Alike'
IISD, 1998.
ISBN 1-895536-09-x