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Greening the Budget

Budgetary Policies for Environmental Improvement

Edited by J. Peter Clinch, Kai Schlegelmilch, Rolf-Ulrich Sprenger and Ursula Triebswetter

Greening the Budget regards the fundamental cause of environmental degradation as government and market failure and proposes the use of budgets as an instrument of environmental policy to rectify this problem. The book focuses on the elements of the public budget which currently affect the environment and explores the scope for greening both revenue and expenditure through specific measures.
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Chapter 1: Can we tell a perverse subsidy if we see one?

Budgetary Policies for Environmental Improvement

Jan H.M. Pieters and Helen Mountford


Jan H.M. Pieters and Helen Mountford1 1. INTRODUCTION Much of the large sum of money spent to support certain economic activities dissipates to other sectors in the economy, rendering most support measures inefficient mechanisms for achieving their economic or social objectives (growth, employment, income for the recipient sector). Paradoxically, in spite of low effectiveness in achieving their intended objectives, certain support measures may result in considerably higher levels of environmental damage, or higher costs of environmental policy if the increase in potential damage is countered by relevant policies. This chapter looks into those characteristics of ‘perverse’ support that are both ineffective in economic terms and have strong adverse effects on environmental policy. The more support measures induce the use of particular physical inputs (energy, materials, water) or higher levels of physical output, the more likely it is that they are ineffective in economic terms while still having strong adverse effects on the environment. Such support measures tend to lock in prevailing technologies and products, while much environmental progress is dependent on increasing resource productivity through technical and behavioural change. As such, their removal does not imply a strong trade-off between economic and environmental objectives, as is often posited, but instead can benefit the environment, freeing support funds for more effective targeting of the original economic and social objectives, and enhancing the overall efficiency of the economy. Identifying these ‘perverse’ measures immediately suggests reforming support schemes towards more direct income support, not conditional on input use or production levels.2 Support measures...

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