Environmentally Destructive Subsidies Cost World's Taxpayers and Consumers More Than $500 Billion a Year

HOLD FOR RELEASE
6:00 PM EST
Saturday, December 7, 1996

ENVIRONMENTALLY DESTRUCTIVE SUBSIDIES COST WORLD'S TAXPAYERS AND CONSUMERS MORE THAN $500 BILLION A YEAR

More than $500 billion a year of consumers' and taxpayers' money is spent by governments to subsidize deforestation, overfishing, and other environmentally destructive activities, notes a new Worldwatch Institute report, Paying the Piper: Subsidies, Politics, and the Environment, by David Malin Roodman.

Eliminating these subsidies would make it possible to effectively cut the global tax burden of $7.5 trillion a year by some 7 percent, encourage job creation and investment, and also reduce the economic damage caused by these subsidies -- ranging from hospital bills for lung disease, to the contamination of valuable water supplies.

"Governments don't intend to waste money or destroy the environment with subsidies," says Roodman, "but the fact is, most are obsolete or ineffective, and are hard to defend even before the taxpayer, consumer, and environmental costs are added in."

Many of these subsidies are kept in place through political pressure, campaign donations, or even bribery. The report documents subsidies worldwide, among them:

• Subsidies for the global fishing fleet have helped produce enough boats, hooks, and nets to catch twice the available fish, contributing to overfishing and destruction of fisheries.

• American taxpayers pay $111 billion a year in road and driving-related costs above and beyond what drivers pay in gas, car, and road taxes -- a subsidy worth 70 cents for every gallon of gas or diesel fuel sold.

• Trade restrictions and subsidies keep the price of sugar for U.S. consumers at twice the global level, costing the public $1.4 billion each year, as well as creating the impetus to put more land in the Florida Everglades into sugar production.

• cost of protecting a hard coal mining job in Germany through subsidies is now $72,800 a year -- making it cheaper to shut down the mines and pay miners not to work.

"The indictment against subsidies can seem counterintuitive," Roodman says, "because subsidies are supposed to help communities and economies. Yet close examination of many shows the opposite."

A recent Harvard University study, for example, found that on average, the more a developing country's economy depended on natural resource exports, the slower it grew in the 1970s and 1980s. Many developing countries have been cashing in their natural resources, usually for much less than they are worth, to jump-start economic growth. But the results usually have been slower growth and more poverty. In the Indonesian province of East Kalimantan, for instance, subsidized logging has destroyed more jobs than it has created, by cutting local people off from land on which they normally grow their crops. The province's standard of living actually fell in the late 1980s.

The paper also shows that today many resource extraction subsidies are vestiges of another era, kept in place only by special interests:

• Small-time miners and loggers, the original targets of extraction subsidies, have been replaced by multinationals that should be expected to stand or fall on their own.

• In the resource-rich states of Idaho, Oregon, and Washington, and the province of British Columbia, only 4 of every 100 workers make a living quarrying minerals, felling trees, or milling lumber.

Service and manufacturing companies are moving in, attracted by the quality of life. Environmental protection, not exploitation, is now the key to economic development.

The amount of public money given away through subsidies for old industries is astounding:

• In 1990, the government of Indonesia sold rainforest logging rights for some $2 billion less than they were worth -- a loss equal to nearly half what other countries gave it in development aid and loans.

• In 1994, a mining company paid $5,190 for a small tract of federal land in Nevada that contained gold worth $10 billion once mined. Since 1873 the U.S. government has given away some $242 billion in gold, silver, and other minerals.

• Road building for loggers in the Australian state of Victoria cost the government $170 million a year more than it earns on the wood hauled out of the forest. In effect, taxpayers are paying timber companies to raze public forests.

Most other subsidies are, if not archaic, then grossly inefficient or ineffective. Even with multibillion-dollar tax breaks, domestic U.S. oil producers failed to keep their market share from slipping below 50 percent in the 1990s as reserves gradually dwindled. In Germany, despite massive subsidies, hard coal employment has fallen 50 percent since 1982. In western industrial countries, food production subsidies and market controls cost taxpayers and consumers $302 billion in 1995 - - costing a family of four an average of $1,500 a year. Meanwhile, the number of small farms the subsidies are supposed to help is dwindling steadily.

Many countries use energy and water subsidies to aid the poor. But these "shotgun subsidies" are usually mistargeted. In Indonesia, across-the-board kerosene subsidies have cut the cost of living for the poorest fifth of the population, but 90 percent of the subsidies benefit better-off people. If the subsidy were targeted only at the neediest recipients, it could give them 10 times the benefit for the same cost, or the same benefit for one-tenth the public cost.

Reform of subsidies with environmental side effects would make them work better, eliminate most of the $500 billion or more a year in direct costs to taxpayers and consumers, and help the environment. "But," Roodman argues, "some of the subsidies should be phased out gradually. Losing a job is almost always hard on a family, and losing an employer in a small community is even worse. The sooner societies make these course corrections, though, the more gently they can do it."

Some halting steps toward reform have occurred, usually in response to budget pressures. Fiscal crises in the former Eastern bloc and in many debt-hobbled developing countries have led to major cuts in energy and fertilizer subsidies in the 1990s. A dozen or more developing countries now offer "lifeline rates" -- discounts on the first, modest increment of electricity bought each month -- to target the poor rather than all recipients. Belgium, France, and Japan have phased out subsidies for domestic coal production.

Still, the report notes that the political influence of those who benefit from subsidies is a major barrier to change. In Indonesia, Malaysia, and the Philippines, close financial links between top political, military, and logging company figures have driven the rapid cutting of tropical rainforests. In the U.S., oil and gas companies gave at least $10 million to members of Congress to protect special tax breaks worth roughly $4 billion between 1993 and mid-1996. Carl Mayer, a township committee member in Princeton, New Jersey, may not have stretched the truth much when he told a reporter that "giving money to politicians is the best return on an investment... in the entire free world."

Yet environmentally harmful subsidies have so many strikes against them that proponents of reform ought to have at least a fighting chance of success. The subsidies do little good on their own terms. They hike the cost of government. The resulting higher taxes and prices burden economies. And the subsidies degrade the environment, further undermining long-term economic prospects.

The author concludes: "Conservative and liberal politicians alike should be able to agree that it's time to get government out of the business of paying the polluter."

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