Environmental costs of subsidies oversimplified


Norman Myers, in his recent Commentary article, makes some cogent but somewhat simplistic observations about the economic and environmental costs that subsidies can inflict on society (Nature 392, 327–328; 1998). I should like to add some comments.

First, a sharp distinction should be drawn between an explicit, market-distorting public subsidy (for example, to Indian electricity users or Californian irrigators) and the many ‘externalities’ that characterize economic activity (agricultural pesticide runoff or urban congestion). In the former case, the marketplace provides clear-cut signals of the corrective action needed, however unpopular such action may be politically. In the latter case, although there has been significant progress in ‘internalizing’ externalities (for example through allowance trading under US limits on sulphur dioxide emissions), putting a monetary value on many externalities remains inexact and controversial.

Second, the dominant dilemma in fisheries is open access — a ‘global commons’ problem requiring cooperative approaches not amenable to being viewed in a subsidy framework.

Third, environmental improvement associated with removal of subsidies in one place may be diminished by developments elsewhere; German cutbacks in its highly protected coal industry may induce increased coal production in other countries and imports from abroad.

Finally, the beneficial subsidies of which Myers approves, such as those for renewable energy, may, on closer examination, be not so beneficial. The United States provides a handsome subsidy to corn processors producing ethanol, a costly policy whose consequences for an improved environment remain quite unclear.

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Darmstadter, J. Environmental costs of subsidies oversimplified. Nature 393, 618 (1998). https://doi.org/10.1038/31327

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