World Bank Claims Trillions Wasted on Subsidies Could Help Address Climate Change

Trillions of dollars are wasted on subsidies for agriculture, fishing and fossil fuels that could be used to help address climate change instead of harming people and the planet, a new World Bank report says.

The report, titled “Detox Development: Repurposing Environmentally Harmful Subsidies”, says global direct government expenditures in the three sectors are US$1.25 trillion a year—around the size of a big economy such as Mexico.

To subsidise fossil fuel consumption, countries spend about six times what they pledged to mobilize annually under the Paris Agreement for renewable energies and low-carbon development, the report claims.

The report notes that government subsidies of US$577 billion in 2021 to artificially lower the price of polluting fuels, such as oil, gas, and coal, exacerbated climate change, and caused toxic air pollution, inequality, inefficiency, and mounting debt burdens.

Redirecting these subsidies the World Bank said, could unlock at least half a trillion dollars towards more productive and sustainable uses.

The problem is bigger than direct government expenditures. The report assesses the harmful impact of implicit subsidies, which amount to US$6 trillion each year. These represent the costs on people and the planet from pollution, greenhouse gas emissions, road congestion, and the destruction of nature ultimately resulting from the subsidies.

Money in the Wrong Places

In agriculture, direct subsidies of more than US$635 billion a year are driving the excessive use of fertilizers that degrade soil and water and harm human health. Subsidies for products such as soybeans, palm oil, and beef cause farmers to push into the forest frontier and are responsible for 14 percent of forest loss every year.

Fisheries subsidies, which exceed US$35 billion each year, are a key driver of dwindling fish stocks, oversized fishing fleets, and falling profitability. With more than 1 billion poor people obtaining most of their animal protein from fish, it is critical that the world’s fish stocks are restored to healthy status.

“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,” said Richard Damania, Chief Economist of the Sustainable Development Practice Group at the World Bank. “Much is already known about best practices for subsidy reform, but implementing these practices is no easy feat due to entrenched interests, challenging political dynamics, and other barriers.”

For successful subsidy reform, the World Bank says governments must compensate the most vulnerable groups through social assistance programs, like cash transfers, and should:

  • Build public acceptance through transparent communication.
  • Give people and businesses time to adjust.
  • Show how freed-up revenue is being reinvested to support longer-term development.

“People say that there isn’t money for climate but there is – it’s just in the wrong places,” said Axel van Trotsenburg, Senior Managing Director of the World Bank. “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.”