Size
corresponds to climate change vulnerability (determined by the
University of Notre-Dame’s ND-Gain Index), with larger countries being
more vulnerable. Color corresponds to total GHG emissions including
land-use change (2011), with a darker shade indicating higher emissions.
Climate change ethics is a field of study that explores the
moral aspects of climate change. Climate change is often studied and
addressed by scientists, economists, and policymakers in value neutral
ways. However, philosophers such as Stephen M. Gardiner and the scientific authors of the Intergovernmental Panel on Climate Change (IPCC), argue that decisions related to climate change are moral issues and involve value judgment. Climate change involves difficult moral questions relating to global inequality and human development, who bears responsibility for past emissions, as well as the role of future generations, personal responsibility and many more.
The two main ethical implications of climate change are related
to its effects. The causes and effects of climate change are unrelated
in time and space. Anthropogenic climate change is caused mainly by
humans burning fossil fuels.
The primary beneficiaries of fossil fuel burning are developed
countries whereas the majority of climate impacts will be felt by the
developing world.
Further, climate change occurs on timescales much greater than a single
generation of the human population, causing conflict between economic
and political interests which are products of society and the interests
of future people—an ethical and moral concept.
Beginnings
Climate change has become a concern for a number of disciplines due to its potentially catastrophic impacts on environmental systems, wildlife, nature, and humans. Climate change poses a serious threat to the global economy as economic development, especially in the West, has been largely dependent on the extraction and burning of fossil fuels since the Industrial Revolution. Burning fossil fuels increases the concentration of greenhouse gases in the atmosphere which is the primary driver of current global anthropogenic climate change. This notion has led to the study of the economics of climate change. Climate change is also a deeply political issue as there are disagreements among actors on whether and to what extent society should act on climate change.
Economics is insufficient to guide policymaking alone, however, as it
is only capable making predictions regarding how different policy
decisions will affect the economy and how to proceed along those
different pathways; it cannot tell us which pathway to choose, that is
determined by which values we act on as a society. Because of this, some philosophers have argued that climate change is “fundamentally an ethical issue”
which raises questions about "how we ought to live, what kinds of
societies we want, and how we should relate to nature and other forms of
life.”
Global justice
Climate change can be considered a global justice issue because the actors with the largest contribution to climate change are not the ones suffering from the most severe impacts. Historically, wealthy, developed nations have been emitting, and currently emit, disproportionally large amounts of greenhouse gases compared to poorer developing nations. For example, Bangladesh is highly vulnerable to the effects of climate change.
The country's per capita emissions are 1/20th of the global average and
1/100th of the per capita emissions in the United States, but its
low-lying topography makes it extremely vulnerable to sea level rise and cyclones—which
are predicted to increase in frequency and intensity with climate
change. Thus climate change can be seen as a global justice issue
because the perpetrators of climate change impacts (developed nations)
and the victims of those impacts (developing nations) are distinct
actors.
In addition to climate change being a global justice issue due to
the disparities between the roles of developed and developing nations,
the global justice issue can also be framed in terms of wealth. "Half
the world’s carbon is emitted by the world’s richest 500 million people"
meaning that regardless of where one lives, the higher their income,
the higher their emissions. Although the United States has one of the
highest per capita greenhouse gas emissions in the world, there are lower-income people in the U.S. with relatively lower emissions.
Further, poorer people, regardless of where they live, are more likely
to experience the effects of climate change because they have a reduced
means to adapt compared to rich people.
Intergenerational ethics
Global
warming—the progression from cooler historical temperatures (blue) to
recent warmer temperatures (red)—is being experienced disproportionately
by younger generations. With continued fossil fuel emissions, that trend that will continue.
The intergenerational
ethics of climate change addresses the responsibility of current
generations to be environmentally conscious to and ensure the
sustainable use of environmental resources can continue for future
generations. Moral responsibility
is a crucial consideration in intergenerational climate change ethics.
This responsibility extends to various interests, including humans,
animals, future people, and nature. The interests of the current
generation must be weighed against those of future generations,
balancing current needs against future aspirations.
The effects of climate change are dispersed temporally and
spatially. Ethical implications due to spatial dispersion are those
discussed in the previous section on global justice: those causing the
problem are not in the same physical space as those experiencing the
worst of its effects. Temporal ethical implications mainly relate to the
fact that current greenhouse gas emissions will affect future
generations more than they will affect current people. This notion of pushing climate change impacts on future people poses epistemic difficulties, making it hard to grasp cause and effect, which could undermine motivation to respond.
Institutional inadequacy further complicates the issue. Democratic
political institutions have relatively short time horizons which are at
odds with the timescale of global climate change. Politicians are
concerned about voter support for the next election, on a scale of a few
years, whereas climate change operates on much longer timescales of
hundreds to thousands of years. Therefore, climate change gets put on
the back burner of political agendas because it won’t help politicians
win the next election cycle.
Economics
Economists
propose prioritizing adaptation over mitigation due to high costs
associated with mitigation; however, conventional economic analyses have
philosophical limitations. Such analyses discount future generations
and prioritize human interests, failing to consider all relevant costs
and benefits of climate change mitigation. Henry Shrue argues that the "No Harm Principle" gives us reason for acting on climate change, despite the uncertainty of future impacts.
Temporal discounting
The concept of temporal discounting in economics
is relevant to climate change ethics due to the temporal dispersion of
its effects. Economists use discount rates to determine the value of
future goods because it is assumed that the global economy will continue
to grow and future people will have more goods than current people. The
more goods you have, the less valuable any one good is, hence, it is
discounted.
Using different discount rates, economists can arrive at very different
conclusions regarding how much of the global budget should be dedicated
to climate change mitigation, adaptation, or other things. Prioritarianism
offers one ethical justification for imploring a high discount rate is
that because future people will be better off than we are today,
benefiting people today is more valuable than benefiting future people. Utilitarianism
on the other hand, favors a lower discount rate (or none) under the
idea that benefits to future people are equally valuable as benefits to
current people.
Climate change is a pressing issue that threatens the basic human
rights of individuals and communities around the world. Climate change
violates several human rights, including the right to life, health,
food, water, and shelter.
Climate change exacerbates existing inequalities and disproportionately
affects vulnerable populations, such as low-income communities,
indigenous peoples, and small island developing states. Adopting a
rights-based approach to climate change that recognizes the link between
climate change and human rights would provide significant improvements.
A moral threshold approach to climate change that identifies the
minimum standards to protect human rights. This approach involves
identifying a set of moral principles that establish the minimum
standards of protection required to ensure that human rights are not
violated by climate change.
The moral threshold approach also involves identifying the duties and
responsibilities of different actors in addressing climate change,
including states, corporations, and individuals.
States can take action to address climate change, as they are the
primary sources of greenhouse gas emissions. States can take measures
to reduce their emissions and contribute to the global effort to limit
the increase in global temperatures. Additionally, corporations have a
responsibility to reduce their emissions and contribute to sustainable
development.
Individuals can play a role by adopting sustainable lifestyles and
advocating for policies that address climate change. It is also an open
moral question whether or not acts of civil disobedience by individuals or groups aimed at raising awareness of the climate crisis can be justified.
Climate change is a human rights issue that requires action.
There is a high need for a rights-based approach to climate change and
proposes a moral threshold framework for addressing this issue. By
recognizing the link between climate change and human rights, people can
work towards a more just and equitable future for all. It is the
responsibility of all actors, including states, corporations, and
individuals, to take action to address climate change and protect human
rights.
A wage subsidy is a payment to workers by the state, made
either directly, or through their employers. Its purposes are to
redistribute income, and to obviate the welfare trap attributed to other forms of relief, thereby reducing unemployment. It is most naturally implemented as a modification to the income tax system.
The wage subsidy was proposed by A. C. Pigou in his 1933 book The Theory of Unemployment. It was subsequently advocated by American economists Edmund Phelps and Scott Sumner, by American policy advisor Oren Cass, and by British economist Tony Atkinson under the name of participation income.
The wage subsidy differs from universal basic income (UBI) in being limited in its scope to workers in paid employment, and does not generally seek to take the place of other benefits.
Properties
Schematic representation of the wage subsidy
A wage subsidy is a payment in the opposite direction of income tax. It can be presented as a modification to the operation of income tax below its threshold. In a conventional system the tax payable on an income y
may be shown by the solid red line in the diagram, where θ is the
threshold. Under a wage subsidy the employee's contribution to the state
might be shown by the broken line below θ, being negative for workers
on low income. s is the amount of the subsidy.
Obviously the same system may be viewed as having a
wage-independent subsidy and a tax payment increasing in a certain way,
or as a subsidy which varies with income combined with a tax which
varies in a different way.
It is not essential for a wage subsidy that it should be
sufficient for a person to live on since no one is expected to live on
it alone. If the pre-tax income of the lowest paid worker is y0 in the diagram, then the amount he or she has to live on is equal to the sum of y0
and the net amount the worker receives from the state through the
tax/subsidy system; non-workers, on the other hand, are assumed to
receive benefits determined separately. This is in distinction from UBI
in which the subsidy element is identified with the benefit paid to
non-workers, and in which therefore the lowest paid worker receives
enough to live on from the state and a further sum determined by his or
her economic value to his or her employer. The increase in income from
taking paid work may be more than is needed for incentive purposes.
In order that people should be motivated to take work and not
feel demeaned by the compensation received, it is desirable that the
post-tax income of the lowest paid worker under a wage subsidy system
should be appreciably greater than the benefit he or she would receive
when out of work. However it would probably be less than the income the
worker would receive under UBI; accordingly a wage subsidy system would
impose a lower tax burden than UBI, which is the main reason for the
preference shown for it by some authors.
A wage subsidy is well suited for implementation through the
income tax system since its intended recipients are workers who are
expected to be registered with the taxation authorities.
It has been suggested that UBI should be implemented by the same means,
which requires non-workers to also register and accounts for Friedman's choice of the name 'negative income tax' for his UBI proposal.
Relationship to universal basic income systems
If a society decides to pay a fixed stipend per capita, it has the choice of making the payment unconditional or conditional (usually meaning that it is limited it to people in work, varyingly understood), and of making a full income payment (i.e. enough to live on) or just a partial
subsidy (which needs to be supplemented by income from another source).
Most governments do none of these things, but instead pay benefits in
cases of need. The options can be illustrated in a diagram.
full
partial
unconditional
full basic income
partial basic income
conditional
?
wage subsidy
tax and benefit
The cell with a question mark has no agreed name but has certainly been discussed.
Different arguments can be put forward for the various moves from cell
to cell which can be made in the diagram; generally movement on the
left-right axis is more significant than movement up/down.
Outline of the operation of the wage subsidy and related systems
The wage subsidy and other systems
The graph shows the take-home salary y' for a worker as a function of the wage y' an employer would be willing to pay him or her for his services; y' is y
adjusted for all taxes, benefits, and subsidies and for any
state-funded basic income. This simplified model ignores such
complexities as child benefits and collective bargaining. The wage a worker commands can be identified with his or her marginal productivity.
We let u be the cost of living at what society considers to be the minimum reasonable standard and assume that both unemployment benefit and UBI would be set at this level. Guaranteed minimum income
may be considered equivalent to unemployment benefit for the purposes
of this discussion. As before, we let θ be the income tax threshold in a
conventional system and let y0 be the marginal productivity of the least employable person in the workforce (excluding extreme cases). If y0 > u the market can be left to itself since no one will suffer undue hardship.
More reasonably we shall assume that y0 < u. We can ignore the part of the graph to the left of y0 since it is essentially unpopulated (except for people electing to take y = 0). The important property of any function specifying in terms of y
is its gradient: a steep function gives the worker an incentive to
work, and a flat function takes the incentive away. Ideally, we would
like the function to be as steep as possible everywhere,
but since redistribution is the only tool at our disposal, an operation
that steepens the function at one point is likely to make it less steep
somewhere else.
So consider first the working of a conventional tax-and-benefit
system shown by the orange line ('gmi'). A worker whose value to his or
her employer lies between u and θ will take home exactly what he
earns, receiving no benefits and paying no taxes. When the pre-tax
salary increases beyond θ the take-home salary will increase less than
pro-rata because of the deduction for tax.
The difficulty comes for a worker whose economic value is less than u. Such a worker would have the choice of taking employment giving an income less than u
on the 45° line in the diagram, or of going out of work so as to take a
larger income. The system makes it advantageous to choose the latter
option, so the part of the workforce between y0 and u is likely to be unemployed. This is reflected by the flatness of the orange line in the diagram.
Now consider a UBI system illustrated by the purple line. It is
never flat, so people always have an incentive to put in more work. But
it is also very gently inclined so that workers may feel that additional
effort is insufficiently rewarded. This is a consequence of the fact
that the function is much higher at y0 than the
alternative systems and that the money to fund it here has to be taken
through the marginal taxation rate. Critics of UBI have attributed
significant disincentive effects to it on this account.
Finally, consider the green line showing the working of a wage
subsidy. This is flat at the left, but its flatness here is harmless
since this part of the graph is unpopulated. Over the rest of the range
it makes a compromise between the conventional system and UBI.
The involuntarily unemployed receive an income of u in all cases.
Not shown in the graph is the treatment of people who are voluntarily out of work ('surfers', and also people performing unpaid domestic roles). Under UBI they would receive the y'basic income u;
under a conventional tax-and-benefits system and under most forms of
wage subsidy they would receive nothing. Under Atkinson's 'Participation
Income' some unpaid activities (such as voluntary work and housekeeping
involving the supervision of children) would receive s. This is the sole difference between Atkinson's system and other forms of wage subsidy.
The behaviour of y' as a function of y in the vicinity of y = y0 may be taken as the defining feature of a wage subsidy system.
Partial basic income
A wage subsidy is equivalent to a system in which the payment u to unemployed workers is broken down into the sum of a partial basic income (PBI) s and an additional benefit u – s ; the take-home pay of employed workers will then be the sum of s
and a proportion of their pre-tax wage. A partial basic income is paid
to surfers and others choosing to stay out of employment, but its effect
on people working or seeking employment is exactly the same as that of a
wage subsidy.
Advantages claimed
As a cure for unemployment
This is the original motivation. According to the classical theory of unemployment,
unemployment is the consequence of distortions of the labour market at
the low end of the salary range. A worker will be taken on by an
employer so long as his or her economic value is greater than the cost
of employment (which lies largely in salary costs but has other
components). Distortions often operate to prevent the payment of wages
lower than some fixed value with the result that potential workers whose
value to their employer would be less than this are left unemployed.
Removal of the distortions would eliminate the problem, but would not be
socially acceptable because the lowest wage a worker could command
might not be enough to avoid starvation, or at least might fall below the minimum considered an acceptable standard of living.
Advocates of the wage subsidy claim that it would allow the
lowest paid workers to receive an adequate net salary even if their
economic value to their employers was less than the socially acceptable
minimum, and that their post-tax salary could exceed unemployment
benefit by a sufficient margin for them to have an incentive to take
work. The subsidy would thus obviate the welfare trap, but might have
less effect against a wage minimum imposed through collective bargaining
since trades unions might respond to the measure by increasing their
demands. (Pigou evidently hoped that this wouldn't happen since he
hypothesised that "the wage stipulated for by wage-earners" would be
"reduced from w to (w – s )".
The effect on unemployment was Pigou's sole reason for
considering the wage subsidy. He discussed the case in which it was
limited to particular industries, but nothing he said precluded its more
general application. He concluded that "It is obvious that... the
quantity of labour demanded must be increased in consequence of this
type of subsidy".
The subsidy s is a form of negative taxation.
The distribution of income produced by the free market has no claims to
optimality, so it is generally accepted that social wellbeing is
maximised by providing negative taxation at some level.
The wage subsidy provides a systematic way of doing this within the
workforce. Since it can be implemented through the taxation system, it
avoids the stigma attached to benefits which is often considered to
limit their effectiveness. Atkinson seems to have favoured the wage subsidy purely for its redistributional properties.
UBI provides a more general solution since it goes beyond the
workforce, but is less flexible because of the constraint that the
subsidy component has to be enough to live on.
As capable of graduated introduction
There
is no reason why a wage subsidy should not be introduced at a low level
and gradually expanded. The same might be said of UBI; but some of the
claimed benefits of UBI arise from the possibility of eliminating other
benefits, and would not be realised by partial implementation.
The consequences of automation
The effect of automation on unemployment
We have seen that under a standard tax-and-benefits system, if a sum u
is paid to everyone who is unable to obtain work, then those people
whose marginal productivity (which determines their wage in a
competitive market) is less than u will prefer to be unemployed.
The number of people affected will tend to increase through the
introduction of automation. A recent study concluded that "automation
increases inequality in every scenario because it tends to displace the
lowest-paid workers".
This is illustrated in the graph. The grey curve shows the
distribution of the marginal productivity of labour through the
workforce before the introduction of automation; the blue curve shows
the same distribution after. The average marginal productivity is
assumed to increase (the means are shown by the dashed lines), but the
variance also increases, and the proportion of the workforce whose
marginal productivity is less than u does the same (this is the area under each curve to the left of u ).
It follows that a tax-and-benefit system may function as intended
when first implemented, but that the introduction of automation may
lead to an increasing part of the workforce getting caught in the
welfare trap.
Relationship to the minimum wage
The wage subsidy has the same redistributional properties as the minimum wage,
but American advocates draw particular attention to the fact that it
doesn't reinforce obstacles to full employment. Pigou (who wrote prior
to the popularity of the minimum wage) shared their view of the harmful
effects of artificially high wages. Atkinson simultaneously advocated
introduction of a wage subsidy and increases in the minimum wage.
It is not necessary to remove minimum wage legislation to
implement a wage subsidy. So long as the minimum wage is interpreted as
applying to the sum of the employer's payment and the government
subsidy, its beneficial effects will be taken over by the subsidy and
its harmful effects removed.
The minimum wage has the advantage that its funding line is invisible whereas revenue through taxation is conspicuous and often unpopular.
Implementations of the wage subsidy
EITC (USA)
EITC
is an American system which concentrates on dependent children, but
which also has elements of a wage subsidy. It has the drawback that
payments are made long in arrears.
In 2001, in France, the government of Lionel Jospin implemented a form of wage subsidy known as the Prime pour l'emploi (PPE – 'employment bonus') which is deducted from income tax ("impôt sur le revenu" [fr]")
and can result, if this discount is greater than the tax, in a payment
being made to the worker. The implementation of this negative tax has
been welcomed both by economists on the left such as Thomas Piketty and by liberals such as Alain Madelin. The PPE was significantly increased by the Raffarin government in 2003 then by the Dominique de Villepin government between 2005 and 2007.
Eligibility criteria
One of the questions which arise connection with a wage subsidy is who would be eligible to receive it.
The extreme case of unlimited eligibility makes no sense if
unemployment benefit is retained; and if unemployment benefit is
removed, it leads to UBI.
The criterion of being 'in work' is unsatisfactory on account of
its flexibility. A married couple may comprise a breadwinner and a
person who keeps house and is not conventionally paid. But if the
breadwinner started to pay a nominal sum for the housekeeper's services,
and if being in paid work was the eligibility criterion for the wage
subsidy, then the couple would be enriched by the quantity s. This subsidy does not further the aims of the scheme.
Atkinson, as we have seen, takes an inclusive view of eligibility
whereas Phelps is exclusive, limiting the subsidy to the employees of
'qualifying firms' (and thereby excluding the self-employed).
Any decision taken here runs the risk of arbitrariness, of
enabling abuse or inducing perverse incentives, or of requiring an
intrusive bureaucracy. Friedman's aversion to the last of these is one
of his arguments in support of UBI.
A subsidy or government incentive is a type of government expenditure
for individuals and households, as well as businesses with the aim of
stabilizing the economy. It ensures that individuals and households are
viable by having access to essential goods and services while giving
businesses the opportunity to stay afloat and/or competitive. Subsidies
not only promote long term economic stability but also help governments
to respond to economic shocks during a recession or in response to unforeseen shocks, such as the COVID-19 pandemic.
Subsidies take various forms— such as direct government expenditures, tax incentives, soft loans, price support, and government provision of goods and services.
For instance, the government may distribute direct payment subsidies to
individuals and households during an economic downturn in order to help
its citizens pay their bills and to stimulate economic activity. Here,
subsidies act as an effective financial aid issued when the economy
experiences economic hardship.
They can also be a good policy tool to revise market imperfections when
rational and competitive firms fail to produce an optimal market
outcome. For example, in an imperfect market
condition, governments can inject subsidies to encourage firms to
invest in R&D (research and development). This will not only benefit
the firms but also produce some positive externalities such that it
benefits the industry in which the firms belong, and most importantly,
the society at large.
Although commonly extended from the government, the term subsidy can relate to any type of support – for example from NGOs or as implicit. Subsidies come in various forms including: direct (cash grants, interest-free loans) and indirect (tax breaks, insurance, low-interest loans, accelerated depreciation, rent rebates).
Furthermore, they can be broad or narrow, legal or illegal, ethical or
unethical. The most common forms of subsidies are those to the producer
or the consumer. Producer/production subsidies ensure producers are
better off by either supplying market price support, direct support, or payments to factors of production. Consumer/consumption subsidies commonly reduce the price of goods and
services to the consumer. For example, in the US at one time it was
cheaper to buy gasoline than bottled water.
All countries use subsidies via national and sub-national
entities through different forms such as tax incentives and direct
grants. Likewise, subsidies have an economic influence on both a
domestic and international level. On a domestic level, subsidies affect
the allocation decision of domestic resources, income distribution,
and expenditure productivity. On an international level, subsidies may
increase or decrease international interaction and integration through
trade.
For this reason, having a thorough subsidy policy is essential as its
inadequacy can potentially lead to financial hardship and problems for
not only the poor or low income individuals but the aggregate economy as
a whole.
At large, subsidies take up a substantial portion of the government and economy. Amongst OECD
countries in 2020, the median of subsidies and other transfers such as
social benefits and non-repayable transfers to private and public
enterprises was 56.3 percent of total government expenses which was 34.9
percent (weighted average) of GDP in the same year. Yet, the number of subsidy measures in force have been rapidly increasing since 2008.
Types
Production subsidy
A
production subsidy encourages suppliers to increase the output of a
particular product by partially offsetting the production costs or
losses.
The objective of production subsidies is to expand production of a
particular product more so that the market would promote but without
raising the final price to consumers. This type of subsidy is
predominantly found in developed markets. Other examples of production subsidies include the assistance in the creation of a new firm (Enterprise Investment Scheme), industry (industrial policy) and even the development of certain areas (regional policy).
Production subsidies are critically discussed in the literature as they
can cause many problems including the additional cost of storing the
extra produced products, depressing world market prices, and
incentivizing producers to over-produce, for example, a farmer overproducing in terms of his land's carrying capacity.
Consumer/consumption subsidy
A consumption subsidy is one that subsidizes the behavior of consumers. This type of subsidies are most common in developing countries
where governments subsidise such things as food, water, electricity and
education on the basis that no matter how impoverished, all should be
allowed those most basic requirements.
For example, some governments offer 'lifeline' rates for electricity,
that is, the first increment of electricity each month is subsidized.
Evidence from recent studies suggests that government expenditures on
subsidies remain high in many countries, often amounting to several
percentage points of GDP. Subsidization on such a scale implies
substantial opportunity costs.
There are at least three compelling reasons for studying government
subsidy behavior. First, subsidies are a major instrument of government
expenditure policy. Second, on a domestic level, subsidies affect
domestic resource allocation decisions, income distribution, and
expenditure productivity. A consumer subsidy is a shift in demand as the
subsidy is given directly to consumers.
Export subsidy
An
export subsidy is a support from the government for products that are
exported, as a means of assisting the country's balance of payments. Usha Haley and George Haley identified the subsidies to manufacturing industry provided by the Chinese government and how they have altered trade patterns.
Traditionally, economists have argued that subsidies benefit consumers
but hurt the subsidizing countries. Haley and Haley provided data to
show that over the decade after China joined the World Trade Organization
industrial subsidies have helped give China an advantage in industries
in which they previously enjoyed no comparative advantage such as the
steel, glass, paper, auto parts, and solar industries.
China's shores have also collapsed from overfishing and
industrialization, which is why the Chinese government heavily
subsidizes its fishermen, who sail the world in search of new grounds.
Export subsidy is known for being abused. For example, some
exporters substantially over declare the value of their goods so as to
benefit more from the export subsidy. Another method is to export a
batch of goods to a foreign country but the same goods will be
re-imported by the same trader via a circuitous route and changing the
product description so as to obscure their origin. Thus the trader
benefits from the export subsidy without creating real trade value to
the economy. Export subsidy as such can become a self-defeating and
disruptive policy.
Adam Smith observed that special government subsidies enabled
exporters to sell abroad at substantial ongoing losses. He did not
regard that as a sound and sustainable policy. That was because "… under
normal industrial-commercial conditions their own interests soon oblige
loss-making businesses to deploy their capital in other ways – or to
move into markets where the sales prices do cover the supply costs and
yield ordinary profits. Like other mercantilist schemes and devices,
export bounties are a means of trying to force business capital into
channels it would not naturally enter. The schemes are invariably costly
and damaging in various ways."
Import subsidy
An
import subsidy is support from the government for products that are
imported. Rarer than an export subsidy, an import subsidy further
reduces the price to consumers for imported goods. Import subsidies have
various effects depending on the subject. For example, consumers in the
importing country are better off and experience an increase in consumer
welfare due to the decrease in price of the imported goods, as well as
the decrease in price of the domestic substitute goods. Conversely, the
consumers in the exporting country experience a decrease in consumer
welfare due to an increase in the price of their domestic goods.
Furthermore, producers of the importing country experience a loss of
welfare due to a decrease in the price for the goods in their market,
while on the other side, the exporters of the producing country
experience an increase in well-being due to the increase in demand.
Ultimately, the import subsidy is rarely used due to an overall loss of
welfare for the country due to a decrease in domestic production and a
reduction in production throughout the world. However, that can result
in a redistribution of income.
Employment subsidy
Employment
or wage subsidies keep the employment relationship ongoing even during
financial crisis. It is particularly beneficial for enterprises to
recover quickly after a temporary suspension following a crisis. Workers
are prevented from losing their jobs and other associated employment
benefits such as annual leave entitlements and retirement pensions.
Employment subsidies allow individual beneficiaries a minimum
standard of living at the very least. However, less than half of active
jobseekers in around 50% of OECD countries receive unemployment support.
The effect of employment subsidies may not be evident immediately. When
employers received grants to subside a substantial part of the wages
for retaining their employees or to create new jobs during severe
recessions such as the 2008 GFC (Global Financial Crisis), there were
minor impacts on employment during the first year. However, the subsidy
began to yield positive effects on employment, particularly a decrease
in the unemployment rate, in the second year as employers began to
properly utilise the subsidy.
Tax subsidy
Tax subsidies, also known as tax breaks or tax expenditures,
are a way for governments to achieve certain outcomes without directly
providing cash payments. By offering tax breaks, the government can
incentivize behavior that is beneficial to the economy or society as a
whole. However, tax subsidies can also have negative consequences.
One type of tax subsidy is a health tax deduction, which allows
individuals or businesses to deduct their health expenses from their
taxable income. This can be seen as a way to incentivize people to
prioritize their health and well-being. However, it can also create
distortions in the economy by encouraging people to spend more on health
care than they otherwise would.
While tax subsidies can be effective in achieving certain
outcomes, they are also less transparent than direct cash payments and
can be difficult to undo. Additionally, some argue that tax breaks
disproportionately benefit the wealthy and large corporations, further
exacerbating income inequality. Therefore, it is important for
governments to carefully consider the potential consequences of offering
tax subsidies and ensure that they are targeted towards achieving the
greatest public good.
Furthermore, tax subsidies can have unintended consequences, such
as creating market distortions that favor certain industries or
companies over others. For example, if a government offers tax breaks to
incentivize investment in renewable energy, it may lead to a glut of
renewable energy projects and an oversupply of energy in the market.
This, in turn, can lead to lower prices for energy and financial losses
for investors.
In addition, tax subsidies can be difficult to monitor and
enforce, which can lead to abuse and fraud. Companies may claim tax
breaks for activities that do not qualify, or may use complex legal
structures to shift profits to lower tax jurisdictions. This can result
in lost revenue for governments and a lack of fairness in the tax
system.
Despite these concerns, tax subsidies remain a popular tool for
governments to promote various policy objectives, such as economic
growth, job creation, and environmental sustainability.
The use of tax subsidies is often debated in political circles, with
some arguing that they are necessary to support certain industries or to
incentivize certain behaviors, while others argue that they create
inefficiencies and distortions in the economy.
In conclusion, tax subsidies are a powerful tool for governments
to achieve policy goals, but they come with their own set of challenges
and limitations. It is important for policymakers to carefully consider
the potential unintended consequences of tax subsidies and to design
them in a way that maximizes their benefits while minimizing their
costs. Additionally, strong monitoring and enforcement mechanisms are
needed to ensure that tax subsidies are used appropriately and do not
result in abuse or fraud.
Transport subsidies
Some
governments subsidise transport, especially rail and bus transport,
which decrease congestion and pollution compared to cars. In the EU, rail subsidies are around €73 billion, and Chinese subsidies reach $130 billion.
Publicly owned airports can be an indirect subsidy if they lose
money. The European Union, for instance, criticizes Germany for its high
number of money-losing airports that are used primarily by low cost carriers, characterizing the arrangement as an illegal subsidy.
In many countries, roads and highways are paid for through
general revenue, rather than tolls or other dedicated sources that are
paid only by road users, creating an indirect subsidy for road
transportation. The fact that long-distance buses in Germany do not pay
tolls has been called an indirect subsidy by critics, who point to track
access charges for railways.
Energy subsidies
Energy subsidies
are measures that keep prices for customers below market levels, or for
suppliers above market levels, or reduce costs for customers and
suppliers.
Energy subsidies may be direct cash transfers to suppliers, customers,
or related bodies, as well as indirect support mechanisms, such as tax exemptions and rebates, price controls, trade restrictions, and limits on market access.
During FY 2016–22, most US federal subsidies were for renewable
energy producers (primarily biofuels, wind, and solar), low-income
households, and energy-efficiency improvements. During FY 2016–22,
nearly half (46%) of federal energy subsidies were associated with
renewable energy, and 35% were associated with energy end uses. Federal
support for renewable energy of all types more than doubled, from $7.4
billion in FY 2016 to $15.6 billion in FY 2022.
Fossil-fuel subsidies per capita, 2019. Fossil-fuel pre-tax subsidies per capita are measured in constant US dollars.Fossil-fuel
subsidies as a share of GDP, 2019. Fossil-fuel pre-tax subsidies are
given as a share of total gross domestic product.
Eliminating fossil fuel subsidies would reduce the health risks of air pollution, and would greatly reduce global carbon emissions thus helping to limit climate change. As of 2021, policy researchers estimate that substantially more money is spent on fossil fuel subsidies than on environmentally harmful agricultural subsidies or environmentally harmful water subsidies. The International Energy Agency
says: "High fossil fuel prices hit the poor hardest, but subsidies are
rarely well-targeted to protect vulnerable groups and tend to benefit
better-off segments of the population."
Despite the G20 countries having pledged to phase-out inefficient fossil fuel subsidies, as of 2023 they continue because of voter demand, or for energy security. Global fossil fuel consumption subsidies in 2022 have been estimated at one trillion dollars; although they vary each year depending on oil prices, they are consistently hundreds of billions of dollars.
Housing subsidies
Housing
subsidies are designed to promote the construction industry and
homeownership. As of 2018, U.S housing subsidies total around $15
billion per year. Housing subsidies can come in two types; assistance
with down payment and interest rate subsidies. The deduction of mortgage
interest from the federal income tax accounts for the largest interest
rate subsidy. Additionally, the federal government will help low-income
families with the down payment, coming to $10.9 million in 2008.
As a housing policy tool, housing subsidies also help low income
individuals gain and maintain liveable residency by easing the cost
burdens of housing for low income individuals and households. However,
some policy makers and experts believe they are costly to implement and
may even reduce incentives for beneficiaries to participate in the
labour market. In the contrary, certain literatures have found that
subsidy cuts do not encourage employment or participation among
beneficiaries. For example, research by Daniel Borbely found that
reducing housing subsidies did not increase employment and labour force
participation. Though, he also added that claimants relocated to other
areas of the rental market to maintain their benefits.
Nonetheless, the most common method for providing housing
subsidies is via direct payments to renters by covering a part of their
rent on the private rent market. This method of direct transfer of
housing subsidies is often referred to as 'housing vouchers'. In the
United States, the so-called Section 8 is a direct payment program
subsidising the largest amount of money to renters for rental
assistance.
While conventional subsidies require financial support, many economists have described implicit subsidies in the form of untaxed environmental externalities. These externalities include things such as pollution from vehicle emissions, pesticides, or other sources.
A 2015 report studied the implicit subsidies accruing to 20
fossil fuel companies. It estimated that the societal costs from
downstream emissions and pollution attributable to these companies were
substantial.
The report spans the period 2008–2012 and notes that: "for all
companies and all years, the economic cost to society of their CO2 emissions was greater than their after‐tax profit, with the single exception of ExxonMobil in 2008."
Pure coal companies fare even worse: "the economic cost to society
exceeds total revenue (employment, taxes, supply purchases, and indirect
employment) in all years, with this cost varying between nearly $2 and
nearly $9 per $1 of revenue."
Categorising subsidies
Direct and Indirect
The
first important classification of subsidies are direct and indirect
subsidies. Subsidies are categorised as direct when it involves actual
cash outlays targeted towards a specified individual or household.
Popular examples includes cash grants and interest-free loans. Subsidies
can also be classified as indirect when they do not involve actual
payments. An example would be an increase in disposable income arising
from a decrease in price of an essential good or service that the
government has enforced in a form of monetary support. In contrast, a
decrease in the price of a good or service may lead to an increase in
revenue for producers earned from the heightened demand by consumers.
The use of indirect subsidies such as price controls is
widespread among developing economies and emerging markets as a
necessary tool for social policy. It has proven to be effective in many
cases but price controls have a potential to dampen investment activity
and growth, cause heavy fiscal burdens for the government, and may even
complicate the optimal performance of monetary policy. To prevent the
undesirable negative effects, price control regimes may be replaced by
creating social safety nets and proposing sound reforms to encourage
competition and growth.
Production and Consumption
Another
important classification of subsidies are producer/production subsidies
and consumer/consumption subsidies. Production subsidies are designed
to ensure producers are advantaged by creating fluid market activity
through other market control mechanisms or by providing cash payments
for factors of production. Consumption subsidies benefit consumers
typically through a reduction in the market price of goods and services.
They are commonly used by governments of many developing countries in
an attempt to secure the most basic needs for its population.
Broad and Narrow
These
various subsidies can be divided into broad and narrow. Narrow
subsidies are those monetary transfers that are easily identifiable and
have a clear intent. They are commonly characterised by a monetary
transfer between governments and institutions or businesses and
individuals. A classic example is a government payment to a farmer.
Monetary and Non-monetary
Conversely broad subsidies include both monetary and non-monetary subsidies and is often difficult to identify.
A broad subsidy is less attributable and less transparent.
Environmental externalities are the most common type of broad subsidy.
Economic effects
Competitive equilibrium is a state of balance between buyers and
suppliers, in which the quantity demanded of a good is the quantity
supplied at a specified price. When the price falls the quantity demand
exceeds the equilibrium quantity, conversely, a reduction in the supply
of a good beyond equilibrium quantity implies an increase in the price.
The effect of a subsidy is to shift the supply or demand curve to the
right (i.e. increases the supply or demand) by the amount of the
subsidy. If a consumer is receiving the subsidy, a lower price of a good
resulting from the marginal subsidy on consumption increases demand,
shifting the demand curve to the right. If a supplier is receiving the
subsidy, an increase in the price (revenue) resulting from the marginal
subsidy on production results increases supply, shifting the supply
curve to the right.
Assuming the market is in a perfectly competitive equilibrium, a
subsidy increases the supply of the good beyond the equilibrium
competitive quantity. The imbalance creates deadweight loss. Deadweight
loss from a subsidy is the amount by which the cost of the subsidy
exceeds the gains of the subsidy. The magnitude of the deadweight loss is dependent on the size of the subsidy. This is considered a market failure, or inefficiency.
Subsidies targeted at goods in one country, by lowering the price
of those goods, make them more competitive against foreign goods,
thereby reducing foreign competition.
As a result, many developing countries cannot engage in foreign trade,
and receive lower prices for their products in the global market. This
is considered protectionism: a government policy to erect trade barriers
in order to protect domestic industries. The problem with protectionism
arises when industries are selected for nationalistic reasons
(infant-industry), rather than to gain a comparative advantage. The
market distortion, and reduction in social welfare, is the logic behind
the World Bank policy for the removal of subsidies in developing
countries.
Subsidies create spillover effects in other economic sectors and
industries. A subsidized product sold in the world market lowers the
price of the good in other countries. Since subsidies result in lower
revenues for producers of foreign countries, they are a source of
tension between the United States, Europe and poorer developing
countries.
While subsidies may provide immediate benefits to an industry, in the
long-run they may prove to have unethical, negative effects. Subsidies
are intended to support public interest, however, they can violate
ethical or legal principles if they lead to higher consumer prices or
discriminate against some producers to benefit others.
For example, domestic subsidies granted by individual US states may be
unconstitutional if they discriminate against out-of-state producers,
violating the Privileges and Immunities Clause or the Dormant Commerce
Clause of the United States Constitution.
Depending on their nature, subsidies are discouraged by international
trade agreements such as the World Trade Organization (WTO). This trend,
however, may change in the future, as needs of sustainable development
and environmental protection could suggest different interpretations
regarding energy and renewable energy subsidies. In its July 2019 report, "Going for Growth 2019: The time for reform is now", the OECD
suggests that countries make better use of environmental taxation,
phase out agricultural subsidies and environmentally harmful tax breaks.
Preventing fraud
In the Netherlands, audits
are performed to verify whether the funds that have been received has
indeed been spent legally (and all requirements of the subsidy provider
have been attained), for the purpose intended. It hence prevents fraud.
Perverse subsidies
Definitions
Although subsidies can be important, many are "perverse", in the sense of having adverse unintended consequences.
To be "perverse", subsidies must exert effects that are demonstrably
and significantly adverse both economically and environmentally.
A subsidy rarely, if ever, starts perverse, but over time a legitimate
efficacious subsidy can become perverse or illegitimate if it is not
withdrawn after meeting its goal or as political goals change. Perverse
subsidies are now so widespread that as of 2007 they amounted $2
trillion per year in the six most subsidised sectors alone (agriculture,
fossil fuels, road transportation, water, fisheries and forestry).
Effects
The
detrimental effects of perverse subsidies are diverse in nature and
reach. Case-studies from differing sectors are highlighted below but can
be summarised as follows.
Directly, they are expensive to governments by directing
resources away from other legitimate should priorities (such as
environmental conservation, education, health, or infrastructure), ultimately reducing the fiscal health of the government.
Indirectly, they cause environmental degradation (exploitation of resources,
pollution, loss of landscape, misuse and overuse of supplies) which, as
well as its fundamental damage, acts as a further brake on economies;
tend to benefit the few at the expense of the many, and the rich at the
expense of the poor; lead to further polarization of development between
the Northern and Southern hemispheres; lower global market prices; and
undermine investment decisions reducing the pressure on businesses to
become more efficient.
Over time the latter effect means support becomes enshrined in human
behaviour and business decisions to the point where people become
reliant on, even addicted to, subsidies, 'locking' them into society.
Consumer attitudes do not change and become out-of-date, off-target and inefficient; furthermore, over time people feel a sense of historical right to them.
Implementation
Perverse
subsidies are not tackled as robustly as they should be. Principally,
this is because they become 'locked' into society, causing bureaucratic
roadblocks and institutional inertia. When cuts are suggested many argue (most fervently by those 'entitled', special interest groups and political lobbyists) that it will disrupt and harm the lives of people who receive them, distort domestic competitiveness curbing trade opportunities, and increase unemployment.Individual governments recognise this as a 'prisoner's dilemma'
– insofar as that even if they wanted to adopt subsidy reform, by
acting unilaterally they fear only negative effects will ensue if others
do not follow. Furthermore, cutting subsidies, however perverse they may be, is considered a vote-losing policy.
Reform of perverse subsidies is at a propitious time. The current
economic conditions mean governments are forced into fiscal constraints
and are looking for ways to reduce activist roles in their economies.
There are two main reform paths: unilateral and multilateral.
Unilateral agreements (one country) are less likely to be undertaken for
the reasons outlined above, although New Zealand, Russia, Bangladesh and others represent successful examples.
Multilateral actions by several countries are more likely to succeed as
this reduces competitiveness concerns, but are more complex to
implement requiring greater international collaboration through a body
such as the WTO.
Irrespective of the path, the aim of policymakers should be to: create
alternative policies that target the same issue as the original
subsidies but better; develop subsidy removal strategies allowing
market-discipline to return; introduce 'sunset' provisions that require
remaining subsidies to be re-justified periodically; and make perverse
subsidies more transparent to taxpayers to alleviate the 'vote-loser'
concern.
Examples
Agricultural subsidies
Support
for agriculture dates back to the 19th century. It was developed
extensively in the EU and US across the two World Wars and the Great
Depression to protect domestic food production, but remains important
across the world today.In 2005, US farmers received $14 billion and EU farmers $47 billion in agricultural subsidies.
Today, agricultural subsidies are defended on the grounds of helping
farmers to maintain their livelihoods. The majority of payments are
based on outputs and inputs and thus favour the larger producing
agribusinesses over the small-scale farmers. In the US nearly 30% of payments go to the top 2% of farmers.
By subsidising inputs and outputs through such schemes as 'yield
based subsidisation', farmers are encouraged to over-produce using
intensive methods, including using more fertilizers and pesticides; grow
high-yielding monocultures; reduce crop rotation; shorten fallow periods; and promote exploitative land use change from forests, rainforests and wetlands to agricultural land. These all lead to severe environmental degradation, including adverse effects on soil quality and productivity including erosion, nutrient supply and salinity which in turn affects carbon storage and cycling, water retention and drought resistance; water quality including pollution, nutrient deposition and eutrophication
of waterways, and lowering of water tables; diversity of flora and
fauna including indigenous species both directly and indirectly through
the destruction of habitats, resulting in a genetic wipe-out.
Cotton growers in the US reportedly receive half their income from the government under the Farm Bill of 2002. The subsidy payments stimulated overproduction and resulted in a record cotton harvest in 2002, much of which had to be sold at very reduced prices in the global market.
For foreign producers, the depressed cotton price lowered their prices
far below the break-even price. In fact, African farmers received 35 to
40 cents per pound for cotton, while US cotton growers, backed by
government agricultural payments, received 75 cents per pound.
Developing countries and trade organizations argue that poorer countries
should be able to export their principal commodities to survive, but
protectionist laws and payments in the United States and Europe prevent
these countries from engaging in international trade opportunities.
Fisheries
Today, much of the world's major fisheries are overexploited; in 2002, the WWF
estimate this at approximately 75%. Fishing subsidies include "direct
assistant to fishers; loan support programs; tax preferences and
insurance support; capital and infrastructure programs; marketing and
price support programs; and fisheries management, research, and
conservation programs." They promote the expansion of fishing fleets,
the supply of larger and longer nets, larger yields and indiscriminate
catch, as well as mitigating risks which encourages further investment
into large-scale operations to the disfavour of the already struggling
small-scale industry. Collectively, these result in the continued overcapitalization and overfishing of marine fisheries.
There are four categories of fisheries subsidies.
First are direct financial transfers, second are indirect financial
transfers and services. Third, certain forms of intervention and fourth,
not intervening. The first category regards direct payments from the
government received by the fisheries industry. These typically affect
profits of the industry in the short term and can be negative or
positive. Category two pertains to government intervention, not
involving those under the first category. These subsidies also affect
the profits in the short term but typically are not negative. Category
three includes intervention that results in a negative short-term
economic impact, but economic benefits in the long term. These benefits
are usually more general societal benefits such as the environment. The
final category pertains to inaction by the government, allowing
producers to impose certain production costs on others. These subsidies
tend to lead to positive benefits in the short term but negative in the
long term.
Manufacturing subsidies
A
survey of manufacturing in Britain found government subsidies had had
various unintended dysfunctional consequences. The subsidies had usually
been selective or discriminatory – benefiting some companies at the
expense of others. Government money in the form of grants and awards of
production and R&D contracts had gone to advanced and viable firms
as well as old uneconomic enterprises. However, the main recipients had
been larger, established companies – while most of the firms pioneering
radical technical-product developments with long-term economic growth
potential had been new small enterprises.
The study concluded that instead of providing subsidies, governments
wanting to benefit industrial-technological development and performance
should lower standard rates of business taxation, raise tax allowances
for investments in new plant, equipment and products, and remove
obstacles to market competition and customer choice.
Others
The US National Football League's (NFL)
profits have topped records at $11 billion, the highest of all sports.
The NFL had tax-exempt status until voluntarily relinquishing it in
2015, and new stadiums have been built with public subsidies.
The Commitment to Development Index (CDI), published by the Center for Global Development,
measures the effect that subsidies and trade barriers actually have on
the undeveloped world. It uses trade, along with six other components
such as aid or investment, to rank and evaluate developed countries on
policies that affect the undeveloped world. It finds that the richest
countries spend $106 billion per year subsidizing their own farmers –
almost exactly as much as they spend on foreign aid.
Energy subsidies are measures that keep prices for customers
below market levels, or for suppliers above market levels, or reduce
costs for customers and suppliers.
Energy subsidies may be direct cash transfers to suppliers, customers,
or related bodies, as well as indirect support mechanisms, such as tax exemptions and rebates, price controls, trade restrictions, and limits on market access.
During FY 2016–22, most US federal subsidies were for renewable
energy producers (primarily biofuels, wind, and solar), low-income
households, and energy-efficiency improvements. During FY 2016–22,
nearly half (46%) of federal energy subsidies were associated with
renewable energy, and 35% were associated with energy end uses. Federal
support for renewable energy of all types more than doubled, from $7.4
billion in FY 2016 to $15.6 billion in FY 2022.
If governments choose to subsidize one particular source of energy more than another, that choice can impact the environment. That distinguishing factor informs the below discussion on all energy subsidies of all sources of energy in general.
Main arguments for energy subsidies are:
Security of supply – subsidies are used to ensure adequate
domestic supply by supporting indigenous fuel production in order to
reduce import dependency, or supporting overseas activities of national
energy companies, or to secure the electricity grid.
Environmental and health improvement – subsidies are used to improve health by reducing air pollution, and to fulfill international climate pledges. For example the IEA says the purchase price of heat pumps should be subsidized.
Economic benefits – subsidies in the form of reduced prices are used
to stimulate particular economic sectors or segments of the population,
e.g. alleviating poverty and increasing access to energy in developing
countries.
With regards to fossil fuel prices in particular, Ian Parry, the lead
author of a 2021 IMF report said, "Some countries are reluctant to raise
energy prices because they think it will harm the poor. But holding
down fossil fuel prices is a highly inefficient way to help the poor,
because most of the benefits accrue to wealthier households. It would be
better to target resources towards helping poor and vulnerable people
directly."
Employment and social benefits – subsidies are used to maintain employment, especially in periods of economic transition.
In 2021, with regards to fossil fuel prices in particular, Ipek Gençsü,
at the Overseas Development Institute, said: "[Subsidy reform] requires
support for vulnerable consumers who will be impacted by rising costs,
as well for workers in industries which simply have to shut down. It
also requires information campaigns, showing how the savings will be
redistributed to society in the form of healthcare, education and other
social services. Many people oppose subsidy reform because they see it
solely as governments taking something away, and not giving back."
Main arguments against energy subsidies are:
Some energy subsidies, such as the fossil fuel subsidies
(oil, coal, and gas subsidies), counter the goal of sustainable
development, as they may lead to higher consumption and waste,
exacerbating the harmful effects of energy use on the environment,
create a heavy burden on government finances and weaken the potential
for economies to grow, undermine private and public investment in the
energy sector. Also, most benefits from fossil fuel subsidies in developing countries go to the richest 20% of households.
Impede the expansion of distribution networks and the development of
more environmentally benign energy technologies, and do not always help
the people that need them most.
The study conducted by the World Bank
finds that subsidies to the large commercial businesses that dominate
the energy sector are not justified. However, under some circumstances
it is reasonable to use subsidies to promote access to energy for the
poorest households in developing countries. Energy subsidies should
encourage access to the modern energy sources, not to cover operating
costs of companies. The study conducted by the World Resources Institute finds that energy subsidies often go to capital intensive projects at the expense of smaller or distributed alternatives.
Types of energy subsidies are below. ("Fossil-fuel subsidies
generally take two forms. Production subsidies...[and]...consumption
subsidies."):
Direct financial transfers – grants to suppliers; grants to customers; low-interest or preferential loans to suppliers.
Preferential tax treatments – rebates or exemption on royalties,
duties, supplier levies and tariffs; tax credit; accelerated
depreciation allowances on energy supply equipment.
Trade restrictions – quota, technical restrictions and trade embargoes.
Energy-related services provided by government at less than full
cost – direct investment in energy infrastructure; public research and
development.
Regulation of the energy sector – demand guarantees and mandated
deployment rates; price controls; market-access restrictions;
preferential planning consent and controls over access to resources.
Failure to impose external costs – environmental externality costs; energy security risks and price volatility costs.
Depletion Allowance – allows a deduction from gross income of up to ~27% for the depletion of exhaustible resources (oil, gas, minerals).
Overall, energy subsidies require coordination and integrated
implementation, especially in light of globalization and increased
interconnectedness of energy policies, thus their regulation at the
World Trade Organization is often seen as necessary.
Early support of solar power by the United States and Germany greatly helped renewable energy commercialization to reduce greenhouse gas emissions worldwide, but may not have helped local manufacturing. Support for nuclear fusion continues, although it is not expected to be commercially viable in time to contribute to countries net zero targets. Energy storage research is also supported.
Fossil fuel subsidies
Fossil-fuel subsidies per capita, 2019. Fossil-fuel pre-tax subsidies per capita are measured in constant US dollars.Fossil-fuel
subsidies as a share of GDP, 2019. Fossil-fuel pre-tax subsidies are
given as a share of total gross domestic product.
Eliminating fossil fuel subsidies would reduce the health risks of air pollution, and would greatly reduce global carbon emissions thus helping to limit climate change. As of 2021, policy researchers estimate that substantially more money is spent on fossil fuel subsidies than on environmentally harmful agricultural subsidies or environmentally harmful water subsidies. The International Energy Agency
says: "High fossil fuel prices hit the poor hardest, but subsidies are
rarely well-targeted to protect vulnerable groups and tend to benefit
better-off segments of the population."
Despite the G20 countries having pledged to phase-out inefficient fossil fuel subsidies, as of 2023 they continue because of voter demand, or for energy security. Global fossil fuel consumption subsidies in 2022 have been estimated at one trillion dollars; although they vary each year depending on oil prices, they are consistently hundreds of billions of dollars.
