Discuss and provide examples of how subsidies can be economically harmful.

Question

What will be an ideal response?

Answer 1

Subsidies that lead to environmental damage are called perverse subsidies-a term coined by environmental scientist Norman Myers. For example, some fishing fleets have received government subsidies to help them boost their catches, thereby bolstering seafood supplies. However, some fisheries, including Newfoundland's Atlantic cod fishery, were then overfished and they collapsed because the subsidies enabled too many fishing fleets to take too many fish. Myers, who has done an extensive study on perverse subsidies, points to six sectors of the economy-agriculture, fossil fuels, highway transportation, water supplies, forestry, and fisheries-as the areas where perverse subsidies and tax breaks have been extensively awarded and have caused severe environmental damage. Other examples include depletion subsidies and tax breaks for extracting minerals and fossil fuels, cutting timber on public lands, and irrigating with low-cost water. These subsidies and tax breaks distort the economic playing field and create a huge economic incentive for unsustainable resource waste, depletion, and environmental degradation. Myers estimates that these subsidies to these sectors total at least $2 trillion per year, globally, which amounts to $3.8 million a minute. This amount is larger than all but a few of the national economies in the world and twice as large as all military spending. It dwarfs the estimated $20 billion per year that is spent by governments worldwide on protecting natural areas. Myers also estimates that perverse subsidies cost the average American taxpayer $2,000 per year. Many scientists call for phasing out perverse subsidies and tax breaks. However, the economically and politically powerful interests receiving them spend a lot of time and money lobbying, or trying to influence governments to continue and even to increase their subsidies. For example, the fossil fuel and nuclear power industries in the United States are mature and highly profitable industries that get billions of dollars in government subsidies and tax breaks every year. Such industries also lobby against subsidies and tax breaks for their more environmentally beneficial competitors such as solar and wind energy.