Subsidizing pollution - Environmental Watch

Humanist, May-June, 1997 by David Malin Roodman

The "polluter pays principle" is an idea with which it is hard to quibble. Simply put, when we act in ways that hurt the environment--when we harm other people, property, or nature through pollution or resource depletion--we ought to be held accountable for the damage we do. This is a matter not just of fairness but of sound economics. For when we do not pay, we are insulated from the environmental costs pollution imposes on others and tend to behave as if those costs did not exist. This encourages people to contaminate the air, soil, and water with little concern for neighbors and to consume resources with little thought for the future. And when the natural environment suffers, the human economy that depends on it suffers too.

Yet as much sense as it makes, "polluter pays" is less the order of the day in most societies than "paying the polluter." Around the world, governments offer myriad subsidies for activities that end up harming the environment and wasting money, thus weakening economies. In fact, at least $500 billion a year has been shunted toward such activities as overfishing and driving cars and trucks--and the full amount may be far greater. Few countries have even tried to assess the magnitude of the subsidies they create, and of those that have, none have fully succeeded. Moreover, the most valuable subsidies--such as free insurance against nuclear accidents and the transfer of grazing rights from traditional owners to commercial interests--are often the most difficult to measure.

With the global tax burden standing at roughly $7.5 trillion a year, subsidies effectively elevate taxes--on wages, profits, and consumer spending--by at least 7 percent and perhaps much more. In creased taxes on work, investment, and consumption in turn discourage these activities, placing drag on the global economy. And this is an era of supposed worldwide fiscal austerity.

An enumeration of the side effects of all these subsidies virtually catalogs today's environmental problems. Subsidies for logging and mining accelerate forest degradation and water pollution. Those for coal production directly add to local problems, such as land disturbance and water pollution, while contributing on a global scale to atmospheric concentrations of heat trapping carbon dioxide. Agricultural subsidies in industrial countries have been found to correlate with higher rates of pesticide and fertilizer use, thus increasing water pollution and soil degradation. The list of adverse effects of subsidies continues on, from smog to nuclear waste generation.

Governments, of course, rarely set out to degrade the environment when they create these subsidies. Rather, they offer most of them in the name of such causes as stimulating economic development, protecting communities dependent on resource-intensive industries, enhancing national security by reducing dependence on imports of commodities such as oil, and helping the poor. Thus, it is conceivable that many of these subsidies could be justifiable, despite their environmental and financial costs. Unfortunately, however, it is hard to find a subsidy for environmentally destructive activities that does much good at reasonable cost.

Some strive for obsolete or questionable goals. Mining and grazing subsidies that some governments long ago instituted to encourage European settlement of territories taken from indigenous peoples are one example. Other subsidies are largely ineffective--for instance, nuclear power technology is foundering despite the tens of billions of dollars that taxpayers have poured into it. Still others have been undone by the very environmental destruction they encouraged. Subsidies designed to support the fishing industry, for example, have only accelerated overfishing and fishery collapse. Most others, like those for heating fuel in Russia, reach their intended beneficiaries to some extent, but only inefficiently. Much of the money leaks into the hands of people who need it less.

In sum, these subsidies as currently implemented invite a four-pronged indictment: they increase the cost of government; the higher taxes they engender discourage work and investment; they fail on their own terms; and they hurt the environment.

The case for reform is thus compelling. What shape reform should take, however, is a much more complex issue. The subsidies with goals no longer deemed worthwhile or achievable ought to be phased out. But there is a stronger case for retaining, in some form and for some time, a number of those meant to enhance national security, to stabilize communities dependent on resource-based industries, or to aid the poor. Even here though, because the subsidies are now so crudely targeted, there is ample room for cutbacks and restructuring that can help the environment, save money, and improve subsidy effectiveness. Finally, carefully designed support for environmentally constructive activities, such as the commercialization of energy efficient technologies, also deserves emphasis in reformed subsidy policies--though other policies, such as regulations and pollution taxes, must ultimately play the larger role here.