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Chapter 11. Plan B: Rising to the Challenge: Shifting Subsidies
Each year the world's taxpayers underwrite $700 billion of subsidies for environmentally destructive activities, such as fossil fuel burning, overpumping aquifers, clearcutting forests, and overfishing. A 1997 Earth Council study, Subsidizing Unsustainable Development, observes that "there is something unbelievable about the world spending hundreds of billions of dollars annually to subsidize its own destruction."43
Iran provides a classic example of extreme subsidies when it prices oil for internal use at one tenth the world price, strongly encouraging the consumption of gasoline. The World Bank reports that if this $3.6 billion annual subsidy were phased out, it would reduce Iran's carbon emissions by a staggering 49 percent. It would also strengthen the economy by freeing up public revenues for investment in the country's economic and social development. Iran is not alone. The Bank reports that removing energy subsidies would reduce carbon emissions in Venezuela by 26 percent, in Russia by 17 percent, in India by 14 percent, and in Indonesia by 11 percent.44
Some countries are eliminating or reducing these climate-disrupting subsidies. Belgium, France, and Japan have phased out all subsidies for coal. Germany reduced its coal subsidy from $5.4 billion in 1989 to $2.8 billion in 2002, meanwhile lowering its coal use by 46 percent. It plans to phase them out entirely by 2010. China cut its coal subsidy from $750 million in 1993 to $240 million in 1995. More recently, it has imposed a tax on high sulfur coals. Together these two measures helped to reduce coal use in China by 5 percent between 1997 and 2001 while the economy was expanding by one third.45
The environmental tax shifting described earlier reduces taxes on wages and encourages investment in such activities as wind electric generation and recycling, thus simultaneously boosting employment and lessening environmental destruction. Eliminating environmentally destructive subsidies reduces both the burden on taxpayers and the destructive activities themselves.
Subsidies are not inherently bad. Many technologies and industries were born of government subsidies. Jet aircraft were developed with military R&D expenditures, leading to modern commercial airliners. The Internet was a result of publicly funded efforts to establish links between computers in government laboratories and research institutes. And the combination of the federal tax incentive and a robust state tax incentive in California gave birth to the modern wind power industry.46
But just as there is a need for tax shifting, there is also a need for subsidy shifting. A world facing the prospect of economically disruptive climate change, for example, can no longer justify subsidies to expand the burning of coal and oil. Shifting these subsidies to the development of climate-benign energy sources such as wind power, solar power, and geothermal power is the key to stabilizing the earth's climate. Shifting subsidies from road construction to rail construction could increase mobility in many situations while reducing carbon emissions.
In a troubled world economy facing fiscal deficits at all levels of government, exploiting these tax and subsidy shifts with their double and triple dividends can help balance the books and save the environment. Tax and subsidy shifting promise both gains in economic efficiency and reductions in environmental destruction, a win-win situation.
43. André de Moor and Peter Calamai, Subsidizing Unsustainable Development (San José, Costa Rica: Earth Council, 1997); study quoted in Barbara Crossette, "Subsidies Hurt Environment, Critics Say Before Talks," New York Times, 23 June 1997.
44. World Bank, World Development Report 2003 (New York: Oxford University Press, 2003), pp. 30, 142.
45. Belgium, France, and Japan from Seth Dunn, "King Coal's Weakening Grip on Power," World Watch, September/October 1999, pp. 10-19; coal subsidy reduction in Germany from Robin Pomeroy, "EU Ministers Clear German Coal Subsidies," Reuters, 10 June 2002; subsidy cut figures in China from Roodman, op. cit. note 42, p. 109; sulfur coals tax from U.S. Department of Energy (DOE), Energy Information Administration (EIA), China: Environmental Issues (Washington, DC: April 2001); coal use reduction from DOE, EIA, International Energy Database, Washington, DC, updated February 2003.
46. Internet's start from Barry M. Leiner et al., "A Brief History of the Internet," at www.isoc.org/internet/history/brief.shtml, 4 August 2000; wind power in California from Peter H. Asmus, Wind Energy, Green Marketing, and Global Climate Change (Sacramento, CA: California Regulatory Research Project, June 1999), and from California Energy Commission, "Wind Energy in California," at www.energy.ca.gov/wind/overview.html, 15 January 2003.
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