The Breakthrough Challenge: 10 Ways to Connect Today's Profits With Tomorrow's Bottom Line by John Elkington & Jochen Zeitz

Author:John Elkington & Jochen Zeitz
Language: eng
Format: mobi
ISBN: 9781118923931
Publisher: Wiley
Published: 2014-07-21T16:00:00+00:00

Removing Perverse Subsidies

Incentives are endemic in all markets, whatever champions of free markets may claim or want, and often date back to earlier eras and reflect previous priorities. Over time, entire industries can become dependent on various external forms of support, such as tax incentives and subsidies. Governments also often seek to protect national champions, strategic industries, or high-profile (or politically influential) companies that either are threatened by innovations developed elsewhere or are struggling to develop their own innovations in the teeth of foreign competition. This can be seen in any number of industries, including the coal, fisheries, aerospace, and defense sectors.

A central problem is that many of the incentives in the current system conspire to maintain the old order, regardless of the effects in terms of negative externalities. Governments often make things worse, without intending to do so, offering what are called “perverse subsidies” to industries driven by illusions of continuing (even infinite) growth. Examples include those that hoover their way through overexploited fisheries or those still pursuing new coal, tar sand, or deep ocean oil, despite the fact that—in a sane and sustainable future—they may never be able to burn the resulting fuels.

No single government is the lone culprit when it comes to perverse incentives. The logic of international competition means that such subsidies abound across countries and sectors. As professor Norman Myers noted some years back in The Encyclopedia of Earth, “In Germany, for instance, subsidies for coal mining are so large that it would be economically efficient for the government to close down all the mines and send the workers home on full pay for the rest of their lives. The environment would benefit too: less coal pollution such as acid rain and global warming.”1

Evidence of market distortions is everywhere. In the United States, for example, a gallon of bottled water costs as much as three times more than a gallon of gas, thanks in large part to subsidies to the gas industry.2 In the United Kingdom, where farming subsidies total more than £3 billion, a recent study found that the public is being shortchanged “by billions of pounds a year in lost environmental and social benefits.”3

The B Team leaders conclude that perverse subsidies distort economies and wreak havoc on people and the planet, putting our common future at risk. Perverse incentives can spur the exploitation of climate-destabilizing fossil fuels; keep at sea (and even promote the further expansion of) fishing fleets that threaten to collapse an increasing number of fisheries; and accelerate the effective “quarrying” of potentially renewable resources like timber and water. At the same time, perverse subsidies also can discourage the development and scaling of more sustainable technologies and business models.

Happily, perverse subsidies are coming under intensifying pressure, although often for rather different reasons. According to Fatih Birol, who heads the International Energy Agency (IEA), it is the growing cost of subsidies, rather than worries about climate change, that is making them increasingly vulnerable. In the fossil fuels area, governments found their budgets under pressure as global oil prices doubled between 2009 and 2012.

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