Background

Reforming environmentally harmful subsidies (EHS) is a fundamental element of green growth strategies and confers a range of benefits to countries that undertale such reforms. These include, among others, reducing the use of resource intensive inputs (e.g. energy) and subsequent decrease in pollution levels, fixing market distrortions by making resource prices reflect resource value, and polluters pay for their pollution; releasing and/or relallocating public funding to other areas, such as education, energy saving or reducing debt.

Determining the environmental impact of different subsidies is often complicated because specific policy measures do not take place in isolation, but within a broad and evolving socio-economic and technological context. Due to very patchy data and information but also because of the lack of a harmonised methodology for recording and reporting subsidies, identifying and calculating the size of EHS schemes is not easy and will require the concerted efforts of many different parties in a given government.

Objectives and activities

1. Develop policy guidance tools to prepare EHS reform action plans. The guidance will be based on tools and methods for identifying, measuring and evaluating subsidies that are environmentally-harmful and economically wasteful. The experience with applying these analytical tools in preparing EHS reform plans, including from the EU countries, will be presented in several regional meetings with the participation of key stakeholders from the EaP countries.
2. Implement country projects. The OECD will work in three countries to develop action plans to reform EHS in selected sectors (such as energy, agriculture or water). Each project will aim at facilitating a national-level policy dialogue to generate political support for the adoption and implementation of the actions plan proposed for the country.
3. Build capacity and political support in other EaP countries to develop action plans to reform EHS. Organisation of stakeholder meetings in the EaP countries other than those hosting the pilot projects to disseminate policy recommendations and lessons learned from other countries in the region.

DID YOU KNOW? ....that there is some evidence that fossil fuel consumer subsidies in the EaP countries might be large. The International Energy Agency estimated that, in 2011, fossil fuel subsidies for consumers (oil, coal, gas, electricity) totalled about USD 2 billion in Azerbaijan (about 3% of GDP), about USD 6 billion (3.3% of GDP) in Kazakhstan and about USD 9 billion in Ukraine (about 6% of its GDP).