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Subsidies and Bounties
Subsidies are payments from the government to the producer
which effectively reduce the price of goods or services, and
therefore encourage their sale. A similar device is a bounty
that is paid to the producer for the goods produced (rather
than one that is paid when goods and services are bought).
An example of a bounty that can impact on the environment
is the steel industry bounty, which was designed to protect
employment and maintain production of steel. However, because
steel production has adverse environmental impacts, the bounty
also maintains these impacts.
An example of a subsidy that can harm the environment is
that provided for agricultural fertilisers. In the years 1983&endash;84,
the government was subsidising fertilisers to the amount of
$51 million to encourage farmers to use more of them to increase
production. The subsidy was also supposed to reduce farm costs
(Department of Arts, Heritage and Environment 1985, p. 10).
Chemical fertilisers, however, contribute to poor soil structure
and pollution of the water used for agriculture and by humans,
aquatic plants and animal communities. Also, the fertilisers
enabled farmers to increase their cropping and stock rates,
and thereby placed more pressure on the land. This short-term
increase in production was probably attained at the expense
of long-term sustainable production. Moreover, while the use
of these fertilisers was being encouraged, research into substitutes
was discouraged, and the incentive to use the fertilisers
sparingly or more efficiently was reduced.
Subsidies can also mean that goods and services are underpriced.
For example, subsidies for irrigation to farmers can encourage
excessive water use, change groundwater flows, and cause environmental
damage downstream such as increased salinity. Similarly, past
practices of charging low royalties on forestry operations
have created a whole industry which is dependant on low-priced
raw materials. This provides a heavy disincentive to the establishment
of an alternative industry based on commercial plantations,
because so much specialised equipment and human skills has
been invested in the old industry (James 1991, p. 9).
It is argued that subsidies can also be used as economic
instruments to benefit the environment by providing an incentive
for polluters to change their polluting practices or by helping
them to meet environmental standards. Subsidies include tax
deductions and rebates. For example, some tax-deductible activities&emdash;for
money spent on soil conservation, recycling schemes or for
donations to environmental groups&emdash;are aimed at encouraging
environmentally beneficial behaviour.
The government can also provide grants for particular programs
and projects, including environmental projects such as the
National Soil Conservation Program or the National Tree Program.
Another example is grants for environmental technology. These
amounted to $3.4 million in 1991, and were aimed at projects
such as the recycling of wastes (ESD Working Groups 1991a,
p. 46).
Subsidies, bounties and tax concessions do not in general
conform to the polluter-pays principle, because the polluter
is not bearing the full cost of pollution control measures.
The OECD (1989) has found that environmental subsidies tend
to serve economic rather than environmental goals&emdash;such
as the provision of financial support to firms that find it
expensive to meet environmental standards.
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Charges
A charge can be considered as a 'price' that is paid for
polluting the environment. Charges are supposed to provide
an incentive for reducing pollution; but this will depend
on how high the charge is. The ESD working group on manufacturing
argues that where pollution charges have been used they have
usually not been high enough to provide an incentive to minimise
pollution. The OECD has also found that, in most cases, charges
are too low to provide an incentive; instead, they merely
act to redistribute money from the polluter to the government.
Governments can use the money raised in this way for environmental
protection, such as collective treatment and research into
pollution control technologies; but often they do not.
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Deposit-refund systems
The most well-known deposit-refund system is that used for
soft-drink bottles. This traditional mechanism for encouraging
people to return bottles for recycling has largely disappeared,
although it is still used in South Australia, and environmental
groups such as Friends of the Earth are lobbying for it to
be reintroduced into other Australian states. Basically, with
such a system, a potentially polluting product is given a
price that includes an amount which is refundable if it is
returned.
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Financial enforcement
incentives
These include non-compliance fees or fines for those who
do not comply with regulations. In theory, the fee should
be more than the profits made by not complying; but in practice
the amounts charged are often very low and do not provide
enough incentive to comply. An alternative to these fees would
be to charge the polluter the full social costs of his or
her non-complying activities. The problem with non-compliance
fees is the high administrative costs that are associated
with having to go to court to get them.
Performance bonds are an enforcement incentive that seek
to avoid court costs; payments are made to the authorities,
but are refunded if compliance is achieved. If compliance
is not achieved, the bond is forfeited and it is the polluting
company which has to go to court if it disputes the decision.
Performance bonds have rarely been used outside Australia.
Liability insurance schemes are also sometimes used to cover
compensation for possible environmental damage. The incentive
for potential polluters to clean up their production processes
is that lower insurance premiums will be charged if there
is only a low probability of those processes causing damage.
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