(Credit: World Bank)A new study from World Bank examines how subsidy reform can help protect clean air, land, and oceans, and currently, trillions of dollars of subsidies for fossil fuels, agriculture, and fisheries are contributing to their degradation, causing harm to natural areas while also impacting global economies. The analysis highlights the potential of subsidy reform in safeguarding these crucial environmental assets.
The staggering amount of money invested in these subsidies, numbering in the trillions, could instead be redirected toward financing essential climate action worldwide. The study indicates that understanding the implications of subsidy reform can serve to protect natural resources.
Global subsidies for fossil fuels, agriculture, and fisheries amount to over $7 trillion annually, constituting around 8% of the global GDP. While explicit subsidies, involving direct government expenditures, reach approximately $1.25 trillion, implicit subsidies – the impact on people and the planet – surpass $6 trillion. Governments worldwide are allocating trillions to inefficient subsidies that worsen climate change, funds that could be redirected to address the problem. Such subsidies contribute to deforestation, air pollution-related deaths, and declining fish stocks, which is why repurposing wasteful subsidies is being investigated by World Bank.
World Bank aims to redirect subsidies and presents an opportunity to mobilize significant funds for sustainable endeavors. Annually, countries spend six times more on subsidizing fossil fuel consumption than their commitments under the Paris Agreement. Repurposing these subsidies can unlock at least half a trillion dollars per year for more productive and sustainable uses. By reallocating these resources, governments can simultaneously address climate change, toxic air pollution, inequality, inefficiency, and mounting debt burdens.
Beyond financial considerations, there are a number of other benefits to ending harmful subsidies. According to the report, the burning of oil, gas, and coal leads to seven million premature deaths annually due to toxic air pollution, predominantly affecting the poor.
In agriculture, subsidies of more than $635 billion annually drive excessive fertilizer use, degrading soil, water, and human health. Subsidies for soybeans, palm oil, and beef contribute to 14% of global deforestation each year. Fisheries subsidies exceeding $35 billion annually exacerbate dwindling fish stocks, oversized fishing fleets, and falling profitability, affecting over a billion people who rely on fish for animal protein.
The preservation of these natural resources is a topic of concern addressed by a recent World Economic Forum report.
Governments aiming for successful subsidy reform must prioritize the welfare of the poor. Phased reform and gradual removal of subsidies prevent price shocks, allowing households and firms to adjust gradually. It is crucial to transparently communicate how the freed-up revenue is reinvested in development priorities such as health and education.
Building public acceptance is vital, particularly when powerful interest groups may oppose reforms. Repurposing subsidies offers a significant opportunity to mobilize funds to address environmental degradation, inequality, and mounting debt burdens.
