OECD Ministers, at their meeting of 16-17 May 2001, recognised sustainable development as an overarching goal for the Organisation and its Member countries, and asked the OECD to continue to assist them in formulating and implementing policies to achieve sustainable development. They asked the Organisation, among other things, to identify how obstacles to policy reforms, in particular to the reduction of environmentally harmful subsidies, can be overcome.

Work on overcoming obstacles to the phasing out of environmentally harmful subsidies has now been initiated and is anticipated to continue until 2004. This work will comprise a series of activities:

(I) 2002-2003

• undertaking methodological work on the nature and measurement of environmentally harmful subsidies;

(II) 2003-2004

• exploring country experiences with phasing-out environmentally damaging subsidies;
• drawing lessons and developing policy recommendations for overcoming the obstacles to phasing-out such subsidies, including ways of negative social or employment effects and fear of a loss of competitiveness; and
• working together with Member countries to identify the situations where co-ordinated steps between countries to reduce such subsidies could be mutually beneficial, and the strategies that could enable such reductions, taking into account adjustment and equity impacts.

Funding from central resources has so far only been committed for activity (i) listed above. The undertaking of the other activities will depend on funding becoming available.

The work involves the co-operation of several Directorates across the OECD, in particular the Environment Directorate, the Food, Agriculture and Fisheries Directorate, the Directorate for Financial, Fiscal and Enterprise Affairs, the Development Co-operation Directorate, the Trade Directorate, the Economics Department, the Directorate for Science, Technology and Industry, the European Conference of Transport Ministers (ECMT), the Directorate for Education, Employment, Labour and Social Affairs (DEELSA) and the International Energy Agency (IEA).

In 2002, work concentrates on “stocktaking and measurement”, with a view to submit a first report to the Spring 2003 meeting of the Ad Hoc Group on Sustainable Development and to report on progress made to the 2003 Council at Ministerial Level. The tasks to be undertaken in 2002 are briefly described below.

Stocktaking on environmentally harmful subsidies and subsidy measurement

The OECD is internationally recognised as a leading organisation in the measurement and analysis of subsidies (particularly for agriculture, fisheries and coal). Co-ordination in this area remains ad hoc, however, and in-house work is largely mandated through specific OECD Committees. Externally a number of other organisations are moving into work on subsidy measurement and analysis. There is a range of definitions (of “subsidies”, “support” and “transfers”), methodological approaches, patchy and incomplete data, and non-comparable subsidy estimates across the various sectors (as shown in the recent OECD report, Sustainable Development: Critical Issues, 2001). Because the effects of many subsidies depend on how they are designed and implemented, and on their interaction with other policies, it is also important to identify a range of circumstances that give rise to environmentally harmful effects.

OECD workshop on subsidy measurement

As a first step to address these data and comparability problems, a stocktaking is needed of the ongoing work on subsidies (methods, results, modelling, and information gaps). To undertake this stocktaking, and develop a shared understanding of the current state of play, a workshop will be held the 7-8 November 2002. The workshop will bring together experts from the OECD with those from other IGOs (including those representing developing country interests), NGOs and academics dealing with subsidy issues. The workshop will contribute significantly to the Ministerial request through providing:

• a review of relevant work concerning the definition of the term “subsidy” and “environmentally harmful subsidies”;
• a survey of what is being done to classify and measure environmentally harmful subsidies;
• an identification of some of the information and analytic gaps for ongoing work on subsidies in the OECD; and
• a contribution to strengthening the dialogue between the OECD and other IGOs and NGOs.

As background to the workshop, an updated overview of subsidy measurement and analysis will be undertaken. It will include a review of the relevant subsidy definitions and methodologies for measurement and classification across sectors, and identifying inconsistencies and data gaps. The study will also include within its scope recent work by NGOs and other IGOs (besides the OECD).

Stocktaking of subsidy levels across sectors

To complement the workshop, an updated overview of the data and analyses on subsidy levels in various sectors is proposed. This overview will include:

Collection of data on subsidies (as far as possible using a consistent classification framework) in different sectors, such as agriculture, fisheries, forestry, energy supply, transport and manufacturing industry. An analysis of these data with a view to assessing and possibly quantifying the subsidies according to their degree of environmental harm.

An in-depth analysis of the numerous exemptions and other special provisions in existing environmentally related taxes that erode their environmental effectiveness and economic efficiency. This will largely be based on the data contained in the OECD data base on environmentally related taxes ( www.oecd.org/env/tax-database ) and will consist of a deepening of the work to be carried out in 2002-2003 under the aegis of the Joint Meetings of Tax and Environment Experts.