ecologic.de environmentally harmful subidies and ways to eliminate them, budapest, 2-3 september...
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ecologic.de
Environmentally Harmful Subidies and Ways to Eliminate Them, Budapest, 2-3 September 2004
Environmentally Harmful Subsidies in the Water Sector
R. Andreas Kraemer
Ecologic
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Environmentally Harmful Subidies and Ways to Eliminate Them, Budapest, 2-3 September 2004 2
Preview• Taxonomy of subsidies in the water sector
• Environmental effects of subsidy removal
• Pieters’ Checklist Approach for detecting Environmentally Harmful Subsidies• Background & scope• Lessons learned
• New OECD project (2004) on subsidisation in the water sector
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Taxonomy of Water Subsidies (Extract)Water Catchment
Surface & Groundwater
Water Abstraction
Water Distribution/ Storage/ Supply
Network
Industry HouseholdsAgriculture
Waste Water Collection Network
Waste Water Treatment
Water discharge to the environment
-Low interest loans;-Underpricing;-Substandard rate of return; -Debt relief for infrastructural investment projects;-Tax exemptions (e.g.: water supply services are exempt from VAT);-Subsidies for building new or upgrading existing water plants;-Subsidies to operation & maintenance costs;
-Charges below cost recovery;-Environmental externalities not included;-Substandard rate of return;-Financial assistance for irrigation water abstraction;-Indirect subsidy via tax exemption (e.g. groundwater abstraction tax);-Compensation payments for environmentally friendly farming practices;
-Financial assistance / low interest loans for infrastructure;-Financing investments / operating costs of water works;-Retrofitting of water-using installations;-Financed water supply to ensure a lower price for citizens;
Water Use-Cross-subsidisation; - Interest-free loans for infrastructural investments;- Underpricing;- Investment subsidies;
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Environmentally Harmful Subidies and Ways to Eliminate Them, Budapest, 2-3 September 2004 4
Possible Environmental EffectsNegative Effects
• Overabstraction• Drawdown• Degradation of water
based eco-systems• Inefficient resource use• Cultivation of
water inefficient crops• Declining fertility• Technological lock-in
Positive Effects
• Reduced wastage (upgraded distribution infrastructure)
• Reduced water use (water saving appliances)
• Water quality improvements (e.g. increased treatment)
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Environmentally Harmful Subidies and Ways to Eliminate Them, Budapest, 2-3 September 2004 5
Pieters’ Checklist Approach I• Most OECD countries operate substantive
subsidisation schemes in the water sector with significant budgetary allocations
• Aims of Pieters’ checklist (2002):• Identify preferable options for subsidy reform• Provide a decision-making tool for
policy-makers
Quick-Scan procedure that allows to concentrate further reform efforts
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Environmentally Harmful Subidies and Ways to Eliminate Them, Budapest, 2-3 September 2004 6
Pieters’ Checklist ApproachStep 1: Description of the subsidy
Step 5: High concentration of market power
Step 2: Policy filter effectively limits env. damageSubsidy removal is NOT likely to have
significant environmental benefits
Step 3: Benign alternatives available (now or future)
Step 4: Size & conditionality lead to higher volumes
Effects indeterminate - could be large -
Step 6: Subsidy removal is likely to have significant environmental effects
Y
N
Y
Y Y
N
N
N
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Environmentally Harmful Subidies and Ways to Eliminate Them, Budapest, 2-3 September 2004 7
Lessons learned I
Strengths of Pieters’ checklist• Practical decision making tool for
systematically approaching subsidy reform• Necessitates categorisation and prioritisation
of alternative options - increases transparency• Enhances consistency and comparability
of decisions• Application to real-life cases (AU, NZ):
Checklist captured most important outcomes
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Environmentally Harmful Subidies and Ways to Eliminate Them, Budapest, 2-3 September 2004 8
Lessons learned II
Limitations and possible remedies• Quick scan procedure favours focus on
short run environmental effects
Scale of effects is important: nature and severity of environmental damage should influence the ranking of reform options
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Lessons learned III• Important to account for specificity of the water
sector when applying the checklist:
• Long life-span of capital assets and investment goods
• Water services: contribution to public health
• Redistributive effects
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Environmentally Harmful Subidies and Ways to Eliminate Them, Budapest, 2-3 September 2004 10
OECD Study (June 04) - IMechanisms for Managing Public Environmental Expenditures in Selected OECD countries
• Analysis of public environmental expenditure programmes in the water supply & sanitation sector
• Four countries / systems
GermanyAustria FranceFlanders
Public-privatepartnershipwaste water
Public-private partnership
WSS
Agencesde l‘Eau
Loan programmes
after Unification
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OECD Study (June 04) - II• Task: Analysis of programmes using the
OECD/EAP checklist for good practices in PEEM
• 3 Dimensions• Environmental effectiveness• Fiscal prudence• Management efficiency
• Goal: Provide reference for • National and regional policy makers in
economies in transition• Representatives of lender organisations
ecologic.de
Environmentally Harmful Subidies and Ways to Eliminate Them, Budapest, 2-3 September 2004
Environmentally Harmful Subsidies in the Water Sector
R. Andreas KraemerEcologic, Pfalzburger Str. 43-44, D-10717 Berlin
+49-30-86880-0, +49-30-86880-100
[email protected], www.ecologic.de