Transforming environmentally harmful subsidies for business and nature

Environmentally harmful subsidies (EHS) encourage destructive business models and make it harder for sustainable businesses, small-scale producers and least developed countries to adopt more sustainable practices.

Often poorly targeted, these subsidies can harm the environment while undermining national goals of economic improvement and poverty reduction. Despite various international commitments to reform them, including Target 18 of the Kunming-Montreal Global Biodiversity Framework, progress has been slow.

However, reforming EHS offers an opportunity to repurpose government spending towards activities that benefit people, nature and economy. With many governments facing tight budgets, this could free up much-needed investment in climate and nature action.

EHS currently create unfair market conditions for enterprises with sustainability goals and increase the risks climate change and nature loss pose to business operations.

Subsidies often exist for a reason, so reform and repurposing requires careful consideration to why they were introduced, who benefits from them and the impact of any changes. Repurposing EHS for government programmes such as social protection, increases in minimum wage or tax incentives for businesses that support renewable energy or nature-positive companies, can benefit both the environment and the economy.

What is IIED doing?

With The B Team and Bankers without Boundaries, IIED is working to explore how governments have redirected EHS, identifying what has worked and the challenges that arise.

We have developed six case studies from Colombia, Mexico, Indonesia, Egypt, Nigeria and the UK that examine how governments and businesses can advance EHS reform amid geopolitical crisis, increasing trade barriers and the climate crisis.