Reforming environmentally-harmful subsidies is a focus of the OECD Horizontal Programme on Sustainable Development. The OECD’s combination of economic, environment, social, development and trade expertise, as well as its work in sectors such as energy, agriculture, fisheries, industry, transport and services, give it a special role in addressing the challenge of reforming harmful subsidies. Subsidies often introduce economic, environmental and social distortions with unintended consequences. They are expensive for governments and may not achieve their objectives while also inducing harmful environmental and social outcomes.
This workshop – which benefited from a number of very interesting and thoughtful papers on the policy process associated with reforming subsidies – was the second OECD workshop on the "political economy of subsidy reform" and the fourth OECD workshop relating to environmentally harmful subsidies. Understanding the political economy of reform has become a priority given the lack of progress in actual implementation of subsidy reform, notwithstanding a broad understanding of the need for it.
The objective of this workshop is to understand better the political economy of subsidy reform. Put another way, we are trying to understand how to get reform rather than to understand what reform should be undertaken. For the pessimists among us, the objective might instead be thought of as trying to understand why reform does not take place.
A Sustainable Development Framework forAssessing the Benefits of Subsidy Reform
A central tenet of sustainable development is that activities in any one of the economic, social, or environmental spheres of human endeavour will frequently generate impacts in one or both of the other two spheres. Subsidies are economic in their initial impact, but can also generate important social or environmental consequences. Analysing subsidies from the perspective of sustainable development requires that these consequences be considered in an integrated fashion.
Easing Subsidy Reform for Producers, Consumers and Communities
The subject of subsidy reform has received considerable attention in recent years. However, much of this attention is focused on the end points or goals of reform and less attention has been paid to the actual process of reform. It is generally recognised that appropriately targeted subsidy reform will result in improved overall economic efficiency and will increase social welfare. But not everyone will gain in the short run and some individuals and communities may be adversely affected by the policy change, prompting governments to seek ways to cushion the impacts of reform on individuals and communities.
This paper addresses the political economy of transitional support in the context of subsidy reform in the agricultural sector in the European Union (EU). Agriculture is acknowledged as one of the most protected sectors in many developed country economies. As a consequence, it has proven a sensitive sector within which to seek multilateral agreement on reforms, within the context of the World Trade Organisation (WTO). Nevertheless, acceptance of the desirability of further trade liberalisation in agriculture, as part of a wider package, has gained credence within the European Union (EU) in recent years and this, combined with domestic and budgetary pressures, has given impetus to domestic policy reform within the sector.
Too often government interventions in markets are driven or co-opted by parochial political interests. The results can be damaging on many levels. In addition to their very large fiscal cost, politically driven subsidies can impede the attainment of social or environmental goals, and hinder the ability of new and emerging industries to compete fairly in the marketplace. Using the example of federal subsidies to the United States energy sector (in mid-2006), this paper discusses the scale and origin of the subsidy problem, and presents a number of strategies that can help address structural deficits in the current system of governance.
The fisheries of the European Union (EU) provide an example of how fisheries subsidies applied within a weak management system can be environmentally harmful. Furthermore, given the long history of EU fisheries subsidies, they present a pertinent case study of subsidy reform.
Prompted by the Rio Summit in 1992, Finland revised its forestry legislation to emphasise sustainability aspects. In earlier legislation, sustainable forestry meant mainly sustainability in terms of timber production and generally ignored environmental and social impacts. The most recent Forest Act considers ecological and social sustainability to be as important as economic sustainability.
Add to Marked List