July 21, 2024

Trillions Wasted on Subsidies Could Help Address Climate Change, World Bank Says in New Report

Ajay Banga
Ajay Banga

A groundbreaking report released by the World Bank on Thursday reveals that trillions of dollars are squandered on subsidies for agriculture, fishing, and fossil fuels, severely hindering efforts to combat climate change. The report, titled “Detox Development: Repurposing Environmentally Harmful Subsidies,” highlights the urgent need to redirect these funds toward sustainable initiatives that benefit humanity and the planet.

According to the report, global direct government expenditures in these three sectors alone amount to a staggering $1.25 trillion annually, equivalent to the economic size of a country such as Mexico. Shockingly, countries spend around six times more on subsidizing fossil fuel consumption than what they committed to mobilizing each year under the Paris Agreement for renewable energies and low-carbon development.
Axel van Trotsenburg, Senior Managing Director of the World Bank, emphasized the misallocation of resources, stating, “People say that there isn’t money for climate, but there is – it’s just in the wrong places. If we could repurpose the trillions of dollars being spent on wasteful subsidies and put these to better, greener uses, we could together address many of the planet’s most pressing challenges.”

The report specifically highlights the detrimental effects of government subsidies, which amounted to a staggering $577 billion in 2021, artificially suppressing the price of polluting fuels such as oil, gas, and coal. This practice exacerbates climate change, contributes to toxic air pollution, perpetuates inequality, hampers efficiency, and imposes heavy debt burdens. By redirecting these subsidies, at least half a trillion dollars could be unlocked and channeled toward more productive and sustainable initiatives.

However, the issue extends beyond direct government expenditures. The report also emphasizes the harmful impact of implicit subsidies, which inflict costs totaling an astounding $6 trillion annually. These hidden costs arise from pollution, greenhouse gas emissions, road congestion, and the destruction of nature caused by the subsidies, imposing grave consequences on society and the environment.

In the agricultural sector, direct subsidies exceeding $635 billion per year incentivize the excessive use of fertilizers, leading to soil and water degradation and posing risks to human health. Subsidies for commodities like soybeans, palm oil, and beef drive farmers to encroach upon forest areas, resulting in a staggering 14 percent annual loss of forests.
Similarly, fisheries subsidies, surpassing $35 billion annually, have become a primary driver behind depleting fish stocks, bloated fishing fleets, and declining profitability. As more than one billion impoverished individuals rely heavily on fish for animal protein, restoring the world’s fish stocks to sustainable levels becomes crucial.

The combustion of oil, gas, and coal is responsible for approximately 7 million premature deaths worldwide each year, primarily affecting disadvantaged communities that bear the brunt of poor air quality.

Richard Damania, Chief Economist of the Sustainable Development Practice Group at the World Bank, underscored the importance of repurposing subsidies, stating, “With foresight and planning, repurposing subsidies can provide more resources to give people a better quality of life and to ensure a better future for our planet. Although best practices for subsidy reform are well-known, implementing these practices is no easy feat due to entrenched interests, challenging political dynamics, and other barriers.”

The World Bank’s report serves as a wake-up call, urging governments and policymakers to reassess the allocation of funds, diverting them away from harmful subsidies and towards sustainable development initiatives. By doing so, a substantial financial boost can be obtained to tackle climate change, improve living standards, and secure a brighter future for our planet. The time for action is now, as the consequences of inaction are too severe to ignore.

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