1. Directorate for Food, Agriculture, and Fisheries 1 ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT ÉCONOMIQUES OECDOCDE THE WORK OF THE OECD ON ENVIRONMENTALLY HARMFUL SUBSIDIES Anthony Cox OECD Environmentally Harmful Subsidies and Ways to Eliminate Them Budapest, 2-3 September 2004

2. Directorate for Food, Agriculture, and Fisheries 2 OECD WORK ON EHS Long history of subsidy analysis Ministerial mandate 2001 Horizontal work program Final report later in 2004

3. Directorate for Food, Agriculture, and Fisheries 3 SUBSIDIES ARE PERVASIVE OECD transfers at least USD 400 billion a year to different sectors –Equal to around 1.9% of GDP Distort prices and resource allocation decisions Negative effects on the environment Not all subsidies are environmentally harmful –But they are generally inefficient policy tools

4. Directorate for Food, Agriculture, and Fisheries 4 HOW MUCH? Agriculture: USD 318 billion in 2002 –1.2% of GDP in OECD countries Fisheries: USD 6 billion a year –20% of the value of landings European road and rail transport: USD 40 billion a year Energy sector: USD 20-30 billion a year Limited comparability, patchy coverage Certainly an underestimate

5. Directorate for Food, Agriculture, and Fisheries 5 WHAT IS AN ENVIRONMENTALLY HARMFUL SUBSIDY? Starting point: all subsidies are potentially environmentally harmful Defining a subsidy is itself difficult WTO ASCM is the only legally recognised definition Border protection Government infrastructure Uninternalised externalities Common reporting framework desirable

6. Directorate for Food, Agriculture, and Fisheries 6 CHECKLIST APPROACH Identify those subsidies whose removal would lead to an environmental improvement, other things being equal

7. Directorate for Food, Agriculture, and Fisheries 7 CHECKLIST APPROACH Two stage process –Identify effects of subsidies on consumer and producer decisions –Identify the link between these decisions and the environment Policy filter Technology lock-in Conditionality of subsidy Provides a “quick scan” ….. and not a substitute for detailed analysis

8. Directorate for Food, Agriculture, and Fisheries 8 Sectoral analysis (including linked sectors) reveals the economic activity or its linkages being subsidised, other policy measures being in place, such as policy filters Subsidy removal might benefit the environment No Description of all relevant subsidies No Policy filter effectively limits environmental damage More benign alternatives are available now or emerging No Yes Does conditionality lead to higher production Yes Subsidy removal is not likely to have significant environmental benefits No Economic activity suspected to be linked to certain deteriorating environmental values Yes Do not consider removing subsidies on environmental grounds No Sectoral analysis reveals strong forward or backward linkages No Yes Flow chart of the checklist CHECKLIST Yes No

9. Directorate for Food, Agriculture, and Fisheries 9 CASE STUDIES Checklist applied to a number of sectors Agriculture Fisheries Transport Energy Water

10. Directorate for Food, Agriculture, and Fisheries 1010 LESSONS LEARNED FROM CASE STUDIES Significant scope for reducing environmentally harmful subsidies. Checklist is a useful policy tool Improved transparency Identifies data problems Sectoral characteristics –Resource endowments and environmental profiles

11. Directorate for Food, Agriculture, and Fisheries 1 IDENTIFYING POLICY OBSTACLES Special interests and rent-seeking behaviour False perceptions and fear of change Concerns over competitiveness and distribution Lack of transparency Legal, technical and administrative constraints Perception of “entitlement” to subsidies

12. Directorate for Food, Agriculture, and Fisheries 1212 OPPORTUNITIES FOR REFORM Challenge the mantras Identify policy options for meeting goals Improve targeting and design of subsidy programs Exploit windows of policy opportunity Increased transparency Remove structural impediments Transitional measures Competition policy reform

13. Directorate for Food, Agriculture, and Fisheries 1313 ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ORGANISATION DE COOPÉRATION ET DE DEVELOPMENT ÉCONOMIQUES OECDOCDE THE WORK OF THE OECD ON ENVIRONMENTALLY HARMFUL SUBSIDIES Anthony Cox OECD Environmentally Harmful Subsidies and Ways to Eliminate Them Budapest, 2-3 September 2004