Posted in: news
16th February 2022
The WTO defines “subsidy” as a financial contribution by a government, which provides a benefit. Subsidies incentivize private companies and other public entities to undertake economic activities deemed to be in the public interest.
But a startling volume of subsidies comes with harmful environmental costs, reveals a new study commissioned by The B Team in collaboration with Business for Nature.
Researchers Doug Koplow and Ronald Steenblik reviewed a wide range of government subsidies and now estimate that the world spends at least US$1.8 trillion a year—equal to 2% of global GDP—on subsidies that are accelerating the destruction of our natural world.
Protecting Nature by Reforming Environmentally Harmful Subsidies: The Role of Business is the first study in over a decade to provide an estimate of the total global value of environmentally harmful subsidies across sectors. A summary of the study is available to view here. It found that the fossil fuel, agriculture and water industries receive more than 80% of the US$1.8 trillion each year.
For decades, governments have spent trillions of dollars on subsidies. Some are created with good intent: to promote economic access, improve food security or expand access to clean drinking water. But the intended social or economic goal is too often pursued without consideration of environmental impacts.
Environmentally harmful subsidies are government programs that encourage unsustainable production or carbon-intensive consumption, harming nature through the depletion of natural resources and degradation of global ecosystems. Moreover, they distort market prices, resource allocation and investment decisions; contribute to unfair competition; and create reputational risk for business.
The new study provides a breakdown across the global economy, with a focus on sectors responsible for the majority of global greenhouse gas emissions. It links subsidies provided by public money to impacts on nature, the climate and inequality.
- US$640 billion in annual support is received by the fossil fuel industry, contributing to climate change, air and water pollution and land subsidence
- US$520 billion go to the agriculture industry each year, subsidizing unsustainable agricultural activities that lead to soil erosion, water pollution, commodity-driven deforestation and more.
- US$350 billion a year props up the unsustainable use of freshwater and management of water and wastewater infrastructure, increasing water pollution and risks to aquatic ecosystems.
- US$155 billion a year for the forestry industry contributes to illegal logging and unsustainable forest land management.
- Environmentally harmful subsidies flow to other industries as well: construction, including housing (more than US$90 billion/year), transport (more than US$85 billion/year) and marine capture fisheries (US$50 billion/year).
These figures, the study notes, are likely an underestimation since data in many countries is poor or lacking. Also, many environmentally harmful subsidies are today deeply woven into industries like food manufacturing, fossil fuels and forest products—so much so that attempts to define, measure and track them are a struggle. This is due not only to the power of vested interests, but because governments and beneficiaries are unaware of the full scale of subsidies and their impacts.
Why should subsidy reform matter to business leaders? It’s quite simple. A healthy planet preserves the balance that makes prosperity possible. It permits business to thrive. "The research is clear, $1.8 trillions are spent every year into supporting the old system. We are in the most important decade when it comes to climate change and reversing nature loss and together, business and government, have an opportunity to reform and redirect these funds to accelerate a just transition for people and the planet,” says Jesper Brodin, B Team Chair. And as vice-chair Sharan Burrow often says, “There are no jobs on a dead planet.”
Businesses rely on nature at every stage of the value chain, yet more than half of the world’s total GDP—$44 trillion of economic value generation—is at moderate or severe risk due to nature loss. The stakes are exceptionally high.
The tide is changing, with industry-specific improvements and public commitments such as governments’ pledge to phase out “inefficient” fossil fuel subsidies at COP26 in Glasgow. Forward-looking business leaders recognize the need to prepare for subsidy reform, urging governments to adopt policies to reverse nature loss by 2030. Global investors, too, are awakening to the financial risks of environmentally harmful subsidies: a statement signed in October by 773 institutional investors with more than US$52 trillion in assets under management called on world leaders to “end fossil fuel subsidies, phase out thermal coal-based electricity, and mandate climate risk disclosure.”
The UN Convention on Biodiversity (CBD COP15), taking place later this year in Kunming, China, is our single best chance to catalyze action on subsidy reform. The B Team calls on world leaders to adopt a clear and ambitious target within the Post-2020 Global Biodiversity Framework, the UN-led initiative to tackle the root causes of biodiversity loss, committing governments to redirect, repurpose or eliminate all environmentally harmful subsidies by 2030.
More than political determination is needed. Cross-sector collaboration is key to reform, and business has a leadership role to play in accelerating a just transition towards an inclusive, net-zero and nature-positive economy.
The B Team calls on business leaders and investors to:
- Advocate for governments to reform subsidies by redirecting, repurposing or eliminating environmentally harmful subsidies;
- Collaborate across all sectors to raise awareness of the competitive, reputational and investor advantages of subsidies disclosure; and
- Support the development of international standards, frameworks and guidance for mandatory ESG disclosure, to include subsidies.
Bold leaders can promote transparency by working towards understanding and disclosing information on subsidies their business receives, and sharing feedback on their effects.
“It’s time to stop the self-serving, short-sighted lobbying that perpetuates damaging subsidies, instead directing public money towards supporting responsible companies’ transition to nature-positive business models,” says Paul Polman, former CEO of Unilever and a member of The B Team. “This is one of our best opportunities to drive stronger, greener and more inclusive economic growth. It would be irresponsible and foolish to miss it.”