Governments are spending trillions on inefficient subsidies for fossil fuels, agriculture, and fisheries that makes climate change worse, according to a latest World Bank Report. In the report Detox Development: Repurposing Environmentally Harmful Subsidies, the World Bank says repurposing these wasteful subsidies could help in tackling tackle climate change.
ENORMOUS SHARE
Government subsidies today make up an enormous share of public budgets worldwide. The report said the magnitude of explicit subsidies in many countries exceeds that of investments in public goods such as health and education. Agriculture subsidies are responsible for the loss of 2.2 million hectares of forest per year – or 14% of global deforestation. Fossil fuel usage—incentivized by subsidies—is a key driver of the 7 million premature deaths each year due to air pollution. Fisheries subsidies, which exceed $35 billion each year, are a key driver of dwindling fish stocks, oversized fishing fleets, and falling profitability.
REPURPOSING WASTEFUL SUBSIDIES
Annually, countries spend six times more on subsidizing fossil fuel consumption than their commitments made under the Paris Agreement to tackle climate change. The report states that redirecting these subsidies can unlock significant funds for sustainable purposes.
CONSEQUENCES OF INACTION COSTLY
In times of strained budgets, growing public debts, increasing inequalities, and worsening environmental degradation, governments should prioritize comprehensive subsidy reforms that build public acceptance, protect the vulnerable, and show how to spend money.
PRO-POOR
The belief that subsidy reforms disproportionately affect the poor is not always supported by data. In some cases, such as energy subsidies, the wealthy benefit more due to their higher consumption. To protect vulnerable groups during subsidy reforms, the report recommends compensating those who may suffer the most, using measures like direct cash transfers. Examples from the Middle East and North Africa show that cash transfers and in-kind assistance were successful in mitigating the impacts on the poor during energy subsidy reforms.
INEFFICIENCY
In the report, the authors say subsidies promote inefficiency. Subsidies to polluting fuels and sectors that are responsible for climate change and premature mortality are five times greater than public spending on cleaner alternatives. In the agriculture sector, most subsidies induce technical inefficiency, even if they improve yields or overall production. In addition, subsidized fertilizer use in some regions actually harms yields.
