Reducing or Eliminating Damaging Subsidies

Some government subsidies lower the cost of activities that harm the environment. These are known as damaging subsidies.

Examples include some subsidies for agriculture, fisheries, and fossil fuels.

Consider subsidies on chemical fertilizers.

Subsidies lower the price of chemical fertilizers, making them more affordable for farmers. This can increase crop production in the short run, but it can also cause environmental problems.

When fertilizer prices are kept low, more farmers may be able to afford it, and overall fertilizer use can increase. This greater use may lead to a decline in soil health over time.

Some fertilizers release nitrous oxide, a potent greenhouse gas that harms the environment.

When fertilizers are priced closer to their actual cost, farmers use them more carefully. They may adopt practices such as composting crop leftovers and using animal manure.

Reducing or removing the subsidy raises the price farmers pay for fertilizer, which can discourage overuse, leading to reduced environmental damage. However, reducing the subsidy may also lower crop production. So governments need to balance environmental benefits with the needs of farmers and food production.