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Directorate for Food, Agriculture, and Fisheries 1 ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT ÉCONOMIQUES OECD OCDE AN OVERVIEW OF THE OECD WORK ON ENVIRONMENTALLY HARMFUL SUBSIDIES Anthony Cox OECD 3 rd OECD Workshop on Environmentally Harmful Subsidies Paris, 5 October 2005

ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT … · OECD OCDE AN OVERVIEW OF THE OECD WORK ON ENVIRONMENTALLY HARMFUL SUBSIDIES Anthony Cox OECD 3rd OECD Workshop on Environmentally

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Page 1: ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT … · OECD OCDE AN OVERVIEW OF THE OECD WORK ON ENVIRONMENTALLY HARMFUL SUBSIDIES Anthony Cox OECD 3rd OECD Workshop on Environmentally

Directorate for Food, Agriculture, and Fisheries 1

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT ÉCONOMIQUES

OECD OCDE

AN OVERVIEW OF THE OECD WORK ON ENVIRONMENTALLY HARMFUL

SUBSIDIES

Anthony CoxOECD

3rd OECD Workshop on Environmentally Harmful SubsidiesParis, 5 October 2005

Page 2: ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT … · OECD OCDE AN OVERVIEW OF THE OECD WORK ON ENVIRONMENTALLY HARMFUL SUBSIDIES Anthony Cox OECD 3rd OECD Workshop on Environmentally

OECD OCDEDirectorate for Food, Agriculture, and Fisheries 2

SUBSIDIES ARE PERVASIVE

• OECD transfers at least USD 400 billion a year to different sectors

– Equal to around 1.9% of GDP– Likely to be an underestimate

• Distort prices and resource allocation decisions• Negative effects on the environment• Not all subsidies are environmentally harmful

– But how to target those that are?

Page 3: ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT … · OECD OCDE AN OVERVIEW OF THE OECD WORK ON ENVIRONMENTALLY HARMFUL SUBSIDIES Anthony Cox OECD 3rd OECD Workshop on Environmentally

OECD OCDEDirectorate for Food, Agriculture, and Fisheries 3

CHECKLIST APPROACH

• Identify those subsidies whose removal would lead to an environmental improvement, other things being equal

• Two stage process– Identify effects of subsidies on consumer and

producer decisions– Identify the link between these decisions and the

environment

• Policy filter• Technology lock-in• “Quick scan”

Page 4: ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT … · OECD OCDE AN OVERVIEW OF THE OECD WORK ON ENVIRONMENTALLY HARMFUL SUBSIDIES Anthony Cox OECD 3rd OECD Workshop on Environmentally

OECD OCDEDirectorate for Food, Agriculture, and Fisheries 4

Sectoral analysis (including linked sectors) reveals the economic activity or its linkages being subsidised, other policy measures being in place, such as policy filters

Subsidy removal might benefit the environment

No

Description of all relevant subsidies

No

No

Policy filter effectively limits environmental damage

More benign alternatives are available now or emergingNo

No

Yes

Does conditionality lead to higher production

Yes

Yes

Subsidy removal is not likely to have significant environmental benefits

No

Economic activity suspected to be linked to certain

deteriorating environmental

values

Yes

Do not consider removing subsidies on environmental grounds

NoSectoral analysis reveals strong forward or backward linkages

No

Yes

CHECKLIST

YesNo

Page 5: ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT … · OECD OCDE AN OVERVIEW OF THE OECD WORK ON ENVIRONMENTALLY HARMFUL SUBSIDIES Anthony Cox OECD 3rd OECD Workshop on Environmentally

OECD OCDEDirectorate for Food, Agriculture, and Fisheries 5

CASE STUDIES

• Agriculture– Market price support, output payments, input subsidies

potentially more harmful

• Fisheries– Effectiveness of management regime critical

• Transport– Mixed impacts from subsidy removal

• Energy– Focus on support to fossil fuels, but social considerations

need to be considered

• Water– Subsidy removal generally positive, but public health and

social impacts important

Page 6: ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT … · OECD OCDE AN OVERVIEW OF THE OECD WORK ON ENVIRONMENTALLY HARMFUL SUBSIDIES Anthony Cox OECD 3rd OECD Workshop on Environmentally

OECD OCDEDirectorate for Food, Agriculture, and Fisheries 6

LESSONS LEARNED FROM CASE STUDIES

• Significant scope for reducing environmentally harmful subsidies across all sectors

– Generate economic as well as environmental benefits

• Checklist is a useful common organising framework

• Improved transparency• Identifies data problems• Helps set priorities for action• Sectoral characteristics

– Resource endowments and environmental profiles

Page 7: ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT … · OECD OCDE AN OVERVIEW OF THE OECD WORK ON ENVIRONMENTALLY HARMFUL SUBSIDIES Anthony Cox OECD 3rd OECD Workshop on Environmentally

OECD OCDEDirectorate for Food, Agriculture, and Fisheries 7

BENEFITS OF SUBSIDY REFORM

• Economic benefits– Lowers budget expenditures– Spurs structural adjustment– Leads to efficiency and productivity gains

• Environmental benefits– Reduces harmful activity levels (e.g. some transport modes)– Lowers use of scarce resources/harmful inputs– Reduces emissions and waste generation

• Social benefits– Increases community resilience– Rebalances income distribution across producers/consumers– Improves terms of trade for developing countries

• Policy coherence benefits– Reduces contradictions across policies

Page 8: ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT … · OECD OCDE AN OVERVIEW OF THE OECD WORK ON ENVIRONMENTALLY HARMFUL SUBSIDIES Anthony Cox OECD 3rd OECD Workshop on Environmentally

OECD OCDEDirectorate for Food, Agriculture, and Fisheries 8

IDENTIFYING OBSTACLESTO REFORM

• Special interests and rent-seeking behaviour• False perceptions and fear of change• Concerns over competitiveness and distribution• Lack of transparency• Legal, technical and administrative constraints• Perception of “entitlement” to subsidies

Page 9: ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT … · OECD OCDE AN OVERVIEW OF THE OECD WORK ON ENVIRONMENTALLY HARMFUL SUBSIDIES Anthony Cox OECD 3rd OECD Workshop on Environmentally

OECD OCDEDirectorate for Food, Agriculture, and Fisheries 9

OPPORTUNITIES FOR REFORM

• Challenge the mantras• Identify policy options for meeting goals• Improve targeting and design of subsidy

programs• Exploit windows of policy opportunity• Increased transparency• Remove structural impediments• Transitional measures• Competition policy reform

Page 10: ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT … · OECD OCDE AN OVERVIEW OF THE OECD WORK ON ENVIRONMENTALLY HARMFUL SUBSIDIES Anthony Cox OECD 3rd OECD Workshop on Environmentally

Directorate for Food, Agriculture, and Fisheries10

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT ÉCONOMIQUES

OECD OCDE

FURTHER INFORMATION

OECD (2003), Environmentally Harmful Subsidies: Policy Issues and Challenges, Paris

OECD (2005), Environmentally Harmful Subsidies: Challenges for Reform, Paris.

www.oecd/agr/env