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Sirini Withana, Patrick ten Brink, Leonardo Mazza and Daniela Russi

A broad definition of environmentally harmful subsidies (EHS) encompasses 'hidden' or implicit subsidies that result from a lack of full cost pricing for the provision of goods and services, lack of resource pricing and non-internalization of externalities. These subsidies can arise due to explicit decisions such as choosing a policy of only partial cost recovery. They can also be due to a lack of actions such as the regulation or taxation of pollution to internalize externalities or putting in place charges that would reflect resource values. Although such a broad definition can lead to difficulties in measuring the scale of subsidies involved, it is important to recognize that such perverse incentives exist and can be quite significant in several sectors. Some may opt to recognize these as subsidies, while others prefer to use the term de facto or implicit subsidies or even refer to them as incentives. This chapter will examine cases of implicit subsidies due to the lack of full cost pricing, including for water, sub-soil assets and fisheries resources, as well as implicit subsidies arising from the non-internalization of externalities. It will provide an overview of these issues and provide examples of their consequences in terms of pollution and overuse of scarce resources in different countries. In addition, it will examine experiences in identifying and addressing such implicit environmentally harmful subsidies that can serve as examples to others considering reform.
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Patrick ten Brink, Markus Lehmann, Bettina Kretschmer, Stehanie Newman and Leonardo Mazza

By adopting the Strategic Plan for Biodiversity 2011-2020, Parties to the Convention on Biological Diversity (CBD) in 2010 committed to eliminate, phase out or reform incentives (including subsidies) that have harmful effects on biodiversity by 2020 at the latest. This task is a Herculean one, and not just because of their prevalence. As subsidies and other market distortions that result in harmful incentives are an integral part of the policy landscape, they are frequently difficult to identify, isolate, and remove. It is also a Sisyphean task: in an ever-changing policy landscape, new subsidies are frequently introduced, and new evidence about their impacts is continually cropping up. Sometimes it is only when combinations of policies and programmes are taken together do they generate harmful environmental effects, such as the incentives for urban sprawl or for biofuels. In some instances, even the combinations of programmes may not be the only cause of the problem. Such features add to the complexity in identifying and addressing harmful incentives. This chapter explores what types of subsidies have negative impacts on biodiversity. It looks at positive incentive measures for biodiversity and explores the relationship between harmful and positive incentives. Finally, it explores what needs to be done to realise the commitment of the Strategic Plan for Biodiversity, building on positive case examples of successful reforms.
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Patrick ten Brink, Leonardo Mazza, Tomáš Badura, Marianne Kettunen and Sirini Withana