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Subsidies and the Environment. An Overview of the State of Knowledge Gareth Porter OECD Workshop on Environmentally Harmful Subsidies November 7-8, 2002. Purposes of the Study. Identify different ways in which subsidies are defined and measured in each sector

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subsidies and the environment

Subsidies and the Environment

An Overview of the State of Knowledge

Gareth Porter

OECD Workshop on Environmentally Harmful Subsidies

November 7-8, 2002

purposes of the study
Purposes of the Study
  • Identify different ways in which subsidies are defined and measured in each sector
  • Document the availability of data on subsidies at the country level
  • Identify significant gaps in the data on subsidies and needed research
  • Identify methodologies for measuring the environmental impacts of subsidies
sectoral scope of the study
Sectoral Scope of the Study
  • Agriculture
  • Irrigation Water
  • Fisheries
  • Forests
  • Energy
  • Transport
types of subsidies included
Types of Subsidies Included
  • Budgetary transfers
  • Market price support
  • Subsidised and concessional credit
  • Underpriced materials, water and energy
  • Forgone tax revenues
  • Foregone resource rents
  • Uninternalised externalities
definition and measurement agriculture
Definition and Measurement: Agriculture
  • Producer Support Estimate (PSE):

All budgetary transfers + Market Price Support (based on price gap)

  • Aggregate Measure of Support (AMS): only programs under WTO disciplines included
definition and measurement irrigation water
Definition and Measurement: Irrigation Water
  • “Cost Recovery”: Public expenditures that benefit irrigators net of revenues from water charges.
  • “Resource rent”: Difference between subsidised water’s net economic benefit to the irrigator and charged price for water per unit.
definition and measurement fisheries
Definition and Measurement:Fisheries
  • Aggregate of all financial transfers benefiting fishing industries, including estimated MPS
  • PSEs can be calculated for sector as a whole but not for specific species, as it is for specific crops.
definition and measurement forests
Definition and Measurement: Forests
  • “Cost recovery”: Budgetary outlays for services benefiting forest companies net of revenues from those companies.
  • “Resource rent”: Commercial value of timber minus costs of bringing it to market, including forest charges and cost of attracting investment
  • “Price wedge”: Gap between domestic prices and world prices for raw logs used by domestic processors
definition and measurement energy
Definition and Measurement:Energy
  • Aggregate of all budgetary transfers, price support and tax subsidies: totals provide a rough idea of government support for both producers and consumers.
  • “Price wedge”: Differences between actual prices and reference prices that would obtain in an undistorted market can be aggregated across energy products.
definition and measurement transport
Definition and Measurement:Transport
  • Unit of analysis is a mode of transport (car, train, bus).
  • “Cost recovery”: The government expenditures (construction or maintenance or both) on a transportation system net of revenues from that system.
  • “Marginal social cost internalisation”: Failure by a government-supported transport system to internalise marginal social costs (congestion, accidents, environmental impacts).
data availability and gaps agriculture
Data Availability and Gaps: Agriculture
  • Data on budgetary support by type of payment and MPS available for OECD countries
  • Data on domestic support in non-OECD countries not disaggregated by type of support.
  • WTO Trade Policy Reviews provide scattered additional data for disaggregation of domestic support.
data availability and gaps irrigation water
Data Availability and Gaps:Irrigation Water
  • Cost Recovery Data:
    • No systematic data collection;
    • very rough OECD estimates for recovery of operations and maintenance and capital costs for 15 OECD countries;
    • World Bank estimates for 3 non-OECD countries.
  • Resource Rent Data: Calculated for only a few non-OECD countries, using different methods.
data availability and gaps fisheries
Data Availability and Gaps:Fisheries
  • OECD: annual estimates of seven types of financial transfers to OECD countries, 1996-1999, but no price support and some holes.
  • APEC: country-by-country estimates for all APEC member economies, with detailed inventory of all identifiable programs, but many without cost data. Includes aquaculture.
  • WTO notifications: small proportion of subsidies reported, many without cost or benefit data.
data availability and gaps forests
Data Availability and Gaps:Forests
  • “Cost recovery”: No systematic data collection, very few estimates.
  • “Resource rent”: Relatively large number of estimates, mainly for tropical countries, using different methods of calculation.
  • “Price wedge” : Estimates for seven countries
data availability and gaps energy
Data Availability and Gaps:Energy
  • Budgetary, price and tax subsidies: No systematic collection of data for OECD or non-OECD countries—except for coal.
  • “Price Wedge”: IEA, OECD and World Bank have estimated subsidies for specific energy products for all OECD countries and 9 non-OECD countries.
data availability and gaps transport
Data Availability and Gaps:Transport
  • “Cost recovery”
    • No systematic data collection
    • EEA has published figures for all 12 members of European Community as of 1991.
  • “Marginal social cost internalisation”:
    • EU is adopting unified national transport accounts based on common methodologies
    • UK, Germany and Switzerland accounts completed
measuring environmental impacts agriculture
Measuring Environmental Impacts: Agriculture
  • Statistical correlation between PSEs and environmental indicators across countries and over time
  • Simulations of trade liberalization’s impacts on environmental indictors using mathematical models
  • Use of demand curves for fertilizer use to predict demand reduction from different subsidy levels
measuring environmental impacts irrigation water
Measuring Environmental Impacts: Irrigation Water
  • Mathematical Programming Models can simulate the results of different pricing scenarios aimed at achieving water use reduction targets.
  • Calculation of net benefit (marginal value product) as basis for setting prices that are highly elastic.
measuring environmental impacts fisheries
Measuring Environmental Impacts: Fisheries
  • No methodology to predict impact in change of levels or types of subsidies on fish stocks or capacity levels.
  • Dynamic mathematical modeling or econometric estimation methods could be used.
  • In overcapitalised fisheries, subsidy reduction may not result in actual effort reduction.
measuring environmental impacts forests
Measuring Environmental Impacts: Forests
  • No cross-country research on budgetary transfers or resource rent impact on harvesting.
  • One empirical study on linkage between royalty levels and cutting suggests harvesting rates of high-value species are royalty-sensitive.
  • Case studies suggest underpricing of logs leads to inefficient processing and overcapacity, but no cross-country quantitative studies.
measuring environmental impacts energy
Measuring Environmental Impacts: Energy
  • When price wedge subsidises consumers, impact can be estimated from price elasticity of energy
  • Modeling international agreements can estimate impacts of subsidy removal if they take into account
    • Redistribution of production
    • World price effects
    • Long term effects of fuel substitution
measuring environmental impacts transport
Measuring Environmental Impacts: Transport
  • Price elasticities of transport demand can be used to model short- and long-term responses to price changes.
  • European studies use “impact pathway” approach to construct simplified air pollution functions.
  • U.S. studies simulate impacts of efficient pricing on mode choice, total passenger travel and pollutant emissions for a given regional transport system.