Could wasted trillions help climate change?

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

The report, “Detox Development: Repurposing Environmentally Harmful Subsidies”, says that global direct government expenditure in the three sectors comes to US$1.25 trillion a year – roughly equal to a big economy like Mexico. To subsidise fossil fuel consumption, countries spend about six times what they pledged under the Paris agreement annually for renewable energies and low-carbon development. “People say that there isn’t money for climate, but there is – it’s just in the wrong places,” says Axel van Trotsenburg, World Bank senior MD. “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 highlights that US$577 billion in government subsidies in 2021 was used to artificially lower the price of polluting fuels, exacerbate climate change, and cause air pollution, inequality, inefficiency, and mounting debt burdens. These subsidies could be put towards productive, sustainable uses. 

Closer to home, the Climate Scorecard* says government set aside R112.65 billion in 2020/21 for bailouts and subsidies for fossil fuels, noting that about 77% of SA’s electricity generation is coal-based. “About 49.6% was put as a bailout to Eskom, and 10.6% and 4% in 2020-21 were made toward the free basic electricity access programme and national electrification, respectively. Any of these subsidies or bailouts towards electricity promotes the use of coal,” it emphasises, adding that 64.2% (R72.32 billion) went to coal and 35.8% (R40.33 billion) to oil and gas.

In agriculture, direct subsidies of more than US$635 billion a year drive excessive fertiliser use. This harms soil, water, and human health, as highlighted by the World Bank report. Subsidies for products such as soybeans, palm oil, and beef are responsible for 14% of annual forest loss.

South Africa reduced its support to agriculture during mid-1990s reforms and support to farms has remained below 5% of gross farm receipts since 2010, the Organisation for Economic Co-operation and Development** points out. 

Fisheries subsidies, which according to the World Bank exceed US$35 billion each year, are a key driver of dwindling fish stocks, oversized fishing fleets, and falling profitability. With over one billion poor people relying on fish for protein, it is critical that the world’s fish stocks are restored to healthy status. In South Africa, individuals who rely on fishing as a food source and/or livelihood receive no subsidies. These are only directed at big vessels. 

“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,” stresses Richard Damania, chief economist of the World Bank’s Sustainable Development Practice Group. “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.” 

A counterargument could be that some economies (like our own) won’t survive if fossil fuels don’t receive subsidies. But this doesn’t have to be the case if bailouts are stopped, privatisation is allowed, and the millions of people and organisations already producing their own green power are allowed to do so and are compensated for power that they push back into the grid. Billions of rands could then be used to build the necessary infrastructure to move our country towards greener mobility and power, which won’t fall victim to loadshedding. 

* The Climate Scorecard was formed in 2015 and advocates for climate change.

** An international organisation that publishes recommendations, analysis, and data to help policy makers, researchers, and analysts.