Environmentally Harmful Subsidies and their Reform
Edited by Frans H. Oosterhuis and Patrick ten Brink
Chapter 5: Quantifying the impacts of environmentally harmful subsidies
This chapter provides a framework and overview of methods for modelling and quantification of the economic and environmental impacts of environmentally harmful subsidies (EHS). A distinction is made between direct and indirect subsidies. The challenge is to identify and quantify indirect subsidies and their impacts. The sizes of agricultural and energy subsidies can be estimated by means of the producer subsidy equivalent (PSE) and the consumer subsidy equivalent (CSE) as developed by the OECD. Assessing the economic impacts of EHS requires knowledge on the incidence point of the subsidy in the value chain. The environmental impact of a subsidy is determined by its size, the reactions of producers and consumers to the subsidy-induced price changes, and the pollution or resource use intensity of the relevant sector. As an illustration of how one can estimate the economic and environmental effects of a subsidy, the case of a reduced value-added tax rate on meat in the Netherlands is elaborated.
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