Reforming environmentally harmful subsidies

How to counteract distributional impacts

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Reforming environmentally harmful subsidies: How to counteract distributional impacts The report discusses the theoretical principles for an efficient environmental and distribution policy and offers a comprehensive survey of experiences from policy reforms in different countries. The reform survey forms a background to recommendations for implementation of sustainable policy reforms, taking care of environmental, economic and distributional concerns. It particularly brings in the Nordic experiences, both to enlighten the problems with environmentally harmful subsidies in these countries, and to discuss what can be learned from the experiences in a broader international context. The analysis has been carried out during the period October 2010 – May 2011. The study was carried out by Vista Analyse AS and commissioned by the Nordic Council of Ministers for the Environment.




Removing environmentally harmful subsidies often takes time, and in many cases significant social support is taken away from needy groups in the population. Without compensation, social costs could be very high, and political protests and opposition would stop reform. In many countries competitiveness concerns and regional interests reforms may also halt reforms and require compensation for subsidy removal. There are no general rules for if and how to compensate subsidy removals. Countries must evaluate the social needs, the political situation, and the need for adjustment periods in each case.


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