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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.