3.2 From theory to practice: developing an operational framework to measure and analyze environmentally

harmful subsidies

Akira HIBIKI

National Institute for Environmental Studies &

Tokyo Institute of Technology

1. What should be added to the checklist ?

(a) Subsidy to the reduction of the production and the environmental harmful inputs

(1) Affect ZERO profit condition of the firm to determine the size of the industry

(2) Give the firm an incentive to reduce the production and the inputs

Two conflicting impacts

1. What should be added to the checklist ?

(b) The government expenditure for the resource management in fishery

(1) Crack down on the illegal harvest of the freely accessed resource

(2) Shift harvesting to cultivating.

Removal of such expenditure(subsidy) will encourage the harvest of the freely accessible resource

Better management of freely accessible resource

1. What should be added to the checklist ?

(c) We should be careful about the production which accompanies the external benefit as well as the external cost.

For example,

Some specific agricultural activity(or technology) for irrigation contributes to lessening the impact of the disaster like flood

1. What should be added to the checklist ?

(d) We should be careful about the production or inputs which generates multiple pollutants

For example, in the transportation sector,

If we encourage the choice of the diesel engine vehicle rather than the gasoline engine,

CO2 will be reduced, while NO2 & SPM might be increased.

2. What should we watch to judge whether the removal of the subsidy is beneficial or not ?

As Prof. Nash, et al pointed out,

there is a possibility that the removal of some subsidy is not necessarily beneficial

Why?

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(1) Change of the relative price of the goods (or input) to the alternative goods(or input) after the removal of the subsidy

(2) Difference in the emission per unit production (or input) between them

(3) Own and cross price elasticity of demand, elasticity of substitution between goods(or inputs)

Key parameters to determine the impact

3. If the removal is not beneficial, how should the policy be revised?

(1) Equalization of the reduced subsidy per unit emission across the goods

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(2) Reduction in the subsidy to remain the relative price unchanged

4. Why shouldn’t the same classification of each subsidies be applied to all the countries

The removal of some subsidy will be beneficial on the environment in some countries, while it is not beneficial in the other countries

5. For the future analysis

(1) the change in the relative price and the relative relation of emission per unit production(or input) between some goods(or input) and the alternative goods(or input)

(2) )the own and cross price elasticity of demand, the elasticity of substitution between inputs