Governments around the world spend more than USD 500 billion a year of consumer and taxpayer money to subsidize deforestation, over-fishing, heavy exploitation of natural resources, and other destructive activities. Policy-makers have subsidized these activities to help communi-ties and economies, but, according to recent analysis in-cluding this in-depth study from the Worldwatch Insti-tute, many subsidies have become so obsolete or ineffec-tive that they are hard to defend. Examples from the report are plentiful. Subsidies for fishing have contributed to the doubling of the global fish catch, directly contributing to over-fishing and destruction of fisheries around the world. Similar pressure for over-exploitation is present in the forest, water, and energy sectors. Indonesia, for example, sold rainforest logging rights for some USD 2 billion less than they were worth in 1990. This loss is equal to about 40 percent of its for-eign aid that year. Concession prices have been similarly low among other tropical timber exporters, including C™te dŐIvoire, Ghana, Malaysia, and the Philippines. In CaliforniaŐs Central Valley, some farmers can buy a thou-sand cubic meters of water for USD 2.84 even though it costs the government USD 24.84 to deliver it. Home energy prices in Central and Eastern Europe have been heavily subsidized while residential buildings generally have weak insulation which leads to enormous loses of heat.
These examples represent a small part of ineffective and economically inefficient subsidies. Few governmental polices are as unpopular in theory and as popular in prac-tice as subsidies. Worldwide, scattered subsidy reform has occurred over the last decade, but fiscal rather than environmental concern has motivated most of it.
Recognizing the complexity of the issue, the World-watch Institute published "Paying the Piper: Subsidies, Politics and the Environment" by D. M. Roodman. The paper takes a critical look at how some subsidies may be able to help the poor, the environment and the economy. The paper focuses on environmental impact, effectiveness, and efficiency of subsidy systems all over the world. It shows why political forces keep ineffective subsidies in place and offers recommendations for policy makers to change the situation.
According to the author, a subsidy is defined as a government policy that alters market risks and costs in way that favor certain activities or groups. It offers six principles of good subsidy policy according to which sub-sidy can be warranted if:
The paper concludes that in order to attain sustainabil-ity, societies will ultimately need to take more fundamen-tal steps. While they still use subsidies to reward desired activities, firms and consumers are often subject to pay-ment of environmental taxes and restrictive regulations at the same time. It makes little sense for societies to begin making the polluter pay until they first stop paying the polluter.
David Malin Roodman, Paying the Piper: Subsidies, Politics and the Environment. Worldwatch paper No: 133, December 1996, pp 70. Worldwatch Institute, 1776 Massachusetts Avenue, N.W., Washington, D.C. 20036-1904 USA. Internet: http://www.worldwatch.org.