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 and reforming environmentally harmful subsidies has been an important focus for discussion, and some action, for a number of years. In the present situation, with strong pressures for fiscal consolidation at the same time as climate and other environmental challenges remain high on the international agenda, the urgency for acting on this issue has increased greatly. Social considerations, concern over distributional effects of subsidy removal, are often raised as arguments against such action, and have been and remain a major obstacle to such reform in many countries, both developed and developing. Both the G20 commitment to reform of fossil-fuel subsidies, long-standing work on environmentally harmful subsidies by the Organisation for Economic Co-operation and Development (OECD), and work on such subsidies in the European Union (EU) demonstrate the high policy relevance of this issue.


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