REMOVING ENVIRONMENTALLY HARMFUL SUBSIDIES: POSSIBILITIES AND BENEFITS

INFORMATION
1. Removing Environmentally Harmful Subsidies: Possibilities and Benefits.

There are many subsidies which are harmful to the environment. These include direct subsidies, like aid from the state budget for the construction of airports and cement factories or subsidies for fossil energy use in households. However, indirect subsidies constitute a much larger share, e.g. tax reductions for company cars and excise duty exemption for aviation fuel. The resulting unpaid environmental and health costs are also indirect subsidies. These costs should be paid for by the polluter, not by society. These subsidies are financially hugely significant worldwide. Their removal will benefit the environment and the economy and, if properly designed, can improve social equity as well. It can also help reduce the colossal deficit which states have accumulated as a result of the financial crisis. Subsidy removal would make economies more efficient and reduce market distortions that favour environmentally harmful behaviour.

This topic is very timely in relation to the following:

• The EU Sustainable Development Strategy (2006) called on the European Commission to draft a roadmap for the removal of EHS in all relevant sectors. DG ENV has commissioned a study to provide practical guidelines for subsidy removal and indicators to enable policy makers to get a sense of the level and character of subsidies. The draft version of the study was presented at a workshop in Brussels in September 2009.
• The European Union is now preparing its budget for the period 2014-2020. It is very important to ensure that no EU funding is given for activities which worsen the state of the environment.
• The EU is now in the process of revising the Energy Tax Directive and the Eurovignette Directive.
• The leaders of the G20 at their meeting in September 2009 committed themselves to phase out all subsidies for fossil fuels.