Environmentally harmful subsidies

20-12-2011 | Publication

Environmentally harmful subsidies are subsidies or tax exemptions that have an unintended negative effect on nature and the environment. If the Netherlands were to focus on abolishing these environmentally harmful subsidies it could achieve substantial savings while aiding a cleaner environment. Large environmentally harmful subsidies are especially found in the energy, transport and agricultural sectors, in 2010, in the Netherlands, representing between 5 and 10 billion euros.

The Netherlands could save billions of euros as well as aid the environment

Environmentally harmful subsidies give off the wrong price signal; pollution is being rewarded rather than punished. Under this realisation, various organisations, including the Organisation for Economic Co-operation and Development (OECD), call for abolition of these types of subsidies. 

The Dutch Government could abolish certain environmentally harmful subsidies on a national level. Examples are subsidies related to delivery vans, red diesel and the low VAT tariffs on meat, dairy and fish. For a large number of environmentally harmful subsidies, however, it would seem most logical that abolition takes place within European context. In this way, border issues would be avoided, and it would also prevent a weakening of the position of Dutch companies in their competition with other European companies. Furthermore, if these subsidies relate to companies that fall under the European Emissions Trading System (EU ETS), abolishing these subsidies would lead to a lowering of the CO2 price, giving foreign companies the opportunity to purchase additional emission credits. Under the EU ETS regime, abolition will only lead to a reduction in CO2 emissions if combined with a proportional and simultaneous adjustment of the emissions ceiling.

The PBL Netherlands Environmental Assessment Agency in their publication on environmentally harmful subsidies ('in Dutch: Notitie over Milieuschadelijke Subsidies') provides an overview of these types of subsidies and indicates that, although abolition represents savings and reduces environmental pressure, it also involves certain disadvantages. After all, these subsidies were meant to serve a certain purpose and their abolition would be a loss to the subsidy receivers. In order to make a fair assessment, the government would need an overview of all the consequences related to abolition of the environmentally harmful subsidies. Creating such an overview, however, was outside the scope of this publication.