Global governments spend $1.8tn per year on harmful subsidies

A damning report by Business for Nature (BfN) and The B Team suggests that global governments may spend as much as $1.8 trillion (€1.61 trillion), roughly 2% of the global GDP, on subsidies that cause harm to the environment.

Expenses on fossil fuel giants, unsustainable agriculture ventures and the pollution, waste and improper use of freshwater are just some of the things these government subsidies are backing, the report states.

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Originally released two weeks ahead of the UN's COP15 Summit in January, the report calls for the $500 billion per year target on subsidy reform in the Global Biodiversity Framework (GBF) to be strengthened.

These funds typically come in cash payments, but the BfN suggests credit, liability caps, tax breaks or regulatory exemptions all play a role in actively "contributing to our extinction", destroying habitats and leading to the death of species.

During the 2010 UN CDB Summit, 190 nations pledged to end environmentally harmful subsidies by 2020 - a target a large number missed. However, a pledge to phase out "inefficient" subsidies was made at COP26 in November 2021. 

"Businesses rely on nature at every stage of the value chain, therefore receiving and lobbying for subsidies that harm nature is not sustainable", the authors claim.

The report calls for greater transparency, including the disclosure of subsidies from both governments and businesses, in a bid to tackle the growing threat of the climate crisis. It also suggests eliminating them entirely by 2030.

Other areas covered by the report include the funding of deforestation efforts to make way for farmland, the continuation of unsustainable construction (including houses), fossil-fuel-powered transport and a lack of greener mobility, hard rock mining and unsustainable fishing.

The benefits of eliminating these subsidies include freeing up substantial government resources to tackle challenges with livelihood or social needs, ecological restoration, to funding R&D or subsides towards greener ventures, the report states.

"Radical and systematic reform of all subsidy systems is a complex challenge, but one that presents a wealth of opportunities for governments, businesses and investors. But it needs to be handled carefully and intelligently to account for the full potential impacts", the authors state.

This includes understanding and accounting for potential economic or social impacts of such reforms and the "political economy of reform", including potential state aid to poorer households who could struggle with things such as rising energy costs while older infrastructure is phased out for the new.

Establishing international standards and criteria on when a subsidy is or is not environmentally harmful is a cornerstone of increasing transparency, the report claims, which would start with disclosure for all subsidies as a whole as well as a universal monitoring system.

Other opportunities for businesses in the green transition include a supposed reduction in market distortion, making competition fairer, increased interest from more environmentally-conscious investors as well as reduced risks across supply chains, likely owing to the fact that more sustainable chains are less at risk from disruption.

Collaboration across all sectors of society is also essential to establish frameworks and cooperation, the authors said.

"Nature is declining at an alarming rate, and we have never lived on a planet with so little biodiversity", said Christiana Figueres, former Executive Secretary of the UNFCCC and member of The B Team.

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"[Governments are] funding the destruction of nature and changing our climate, while creating huge risks for the very businesses who are receiving the subsidies.

"In the meantime, we still have not met the Paris Agreement climate finance target of $100 billion per year. Harmful subsidies must be redirected towards protecting the climate and nature, rather than financing our own extinction".

"Ambitious efforts must be taken to eliminate and redirect Environmentally Harmful Subsidies, in order to transform our economic and financial systems and ensure the creation of a level playing field for businesses globally", Shinta Kamdani, the CEO of Sintesa Group and Chair of the B20 Indonesia said in a statement.

- The full report, including a summary, can be found here.

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