Sustainable economics & policy
Harmful Subsidy
Definition
A harmful subsidy is government support — direct payments, tax breaks, below-cost pricing, or other incentives — that distorts prices and resource allocation in ways that damage the environment, for example by stimulating fossil-fuel use, overfishing, excessive fertiliser and pesticide application, or water over-abstraction. OECD estimates put environmentally harmful and market-distorting support at more than USD 800 billion a year, and CBD Target 18 of the Kunming-Montreal Framework calls for identifying and redirecting such incentives.
References
definition and magnitude
flagship reform instrument
Overview
What it means
Governments spend far more subsidising environmental damage than protecting nature: harmful support dwarfs conservation finance by an order of magnitude. The effects work through prices — cheap diesel, free irrigation water, and capacity payments to fishing fleets all expand exactly the activities policy elsewhere tries to restrain.
The 2022 WTO Fisheries Subsidies Agreement, the first multilateral deal to prohibit subsidies contributing to illegal fishing, overfished stocks, and unregulated high-seas fishing, is the model for reform.
How it is used
The concept structures subsidy-inventory exercises, CBD and SDG 14. 6 reporting, fossil-fuel subsidy reform, and trade disciplines.
Why it matters
Reforming harmful subsidies is the single largest unfunded source of finance for nature and climate — money already being spent, in the wrong direction.