Part of the Levers and Leverage Points blog series.
A widespread belief holds that the path towards positive environmental change is through a large scaling-up of positive incentives (i.e., increasing financial rewards for taking more ‘sustainable’ action). This way of thinking, however, encourages more environmental harm than good, as many incentive programs are established in ways that undermine sustainable development.
Because many existing subsidies provide a landscape of perverse incentives (e.g., to develop, transport and use fossil fuels; to use agricultural chemicals; to buy more fishing boats), sustainable resource use must first restructure existing subsidies. Otherwise, there isn’t enough ‘good money’ to throw after the bad. Thus, all existing subsidies must directly address their negative impacts (e.g., requiring responsible use of agricultural chemicals and preventing their leaching into groundwater). On top of this, positive incentives can foster adaptive environmental stewardship, across all sectors.
Despite many calls and existing international commitments promising to reform harmful subsidies, little progress has been made across many nations. Nations worry that changing existing subsidies will undermine competitiveness in a global market, and those industries that have received subsidies historically often enhance that perception by lobbying against changes. Often, this lobbying comes from only a portion of firms—those who have been most polluting, and who stand to lose revenues under well-targeted subsidies. Other times, lobbying reflects a fear of change that looms large in anticipation but which appears smaller in retrospect.
A critical first step towards sustainable pathways is that governments must gain a collective understanding of what is a harmful or perverse effect and recognize how that is directly linked to subsidies. Typically, a subsidy is harmful or perverse when its intention or outcome is to increase resource use resulting in negative environmental impacts (e.g., most fisheries subsidies aim to maximize catch and number of fishing vessels). This understanding is necessary to ensure incentives are carefully designed to promote environmental stewardship and responsibility (e.g., land-use changes to improve biodiversity) while eliminating perverse incentives.
In addition, governments must ensure that incentive programs (1) are intended to promote relational values instead of ‘buying’ behaviour change, (2) target harmful ‘unchanging’ behaviour by implementing suitable taxation and regulation, including progressive carbon taxation mechanisms, and (3) redirect public funds towards sustainable development.
Further, there is a crucial necessity for diplomacy— using critical instruments, such as intergovernmental organizations, to push for international consistency. This would minimize the threat of nations losing their competitive edge in global markets when reforming subsidies, as all nations will be required to do so.
While it is often assumed that reforming perverse subsidies will broadly harm workers, it need not be of concern as many workers can actually benefit from this change. If subsidies are reoriented away from large-scale producers and distributors and towards small-scale ecologically restorative practices, this can in turn support many workers whose existence relies solely on current innovations and practices.