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Water Subsidies


Water Subsidies

Final Report

Ecologic was asked to compile a survey on the environmental implications of water subsidies. Therefore, subsidies for environmentally harmful activities were analysed, as were cross-subsidisation due to tariffs for water supply and sewage treatment.

Subsidies are an important governmental instrument for non-regulatory intervention. By altering the incentive structure for individual economic behaviour they aim to provide for goods or services that otherwise would not be produced or offered at all, or only at higher prices. Frequently subsidies encourage behaviour that might be detrimental to the environment. Recently, the OECD started to study the linkage between subsidies and the environment. One of the central aims is to identify 'win-win' situations in which the reduction of subsidies and government budgets leads to environmental improvements.

The OECED asked Ecologic to compile a survey on water subsidies and their environmental implications. This study combines earlier work of the OECD in the area of pricing of water services, and on the relationship between economic subsidies and environmental degradation. Ecologic's contribution is to describe the nature and type of water subsidies for the agricultural as well as municipal and industrial sectors in as many OECD countries as possible. Backed by case studies, Ecologic's report discusses the relationship between subsidies and water pricing practices, considers the qualtitative and quantitative environmental effects of subsidies, and discusses the budgetary and environmental implications of their reform or removal. The final report was compiled in English and French.


Kraemer, R. Andreas and Matthias Buck 1997: Water Subsidies. Ecologic, Berlin.

41 pp.
Project ID
Table of Contents

1.1 Context of the paper
1.2 The meaning of ìsubsidyî
1.3 Structure of the analysis
1.4 Sources and Quality of Data
2.1 Agriculture
2.1.2 Conversion to farmlands or maintenance of farmland use
2.1.3 Land drainage
2.1.4 Intensive farming
2.1.5 Payments for environmentally-friendly farming
2.1.7 Main points and policy options regarding water relevant subsidies to agriculture
2.2 Industry
2.2.1 Industrial water withdrawal
2.2.2 Industrial water discharge and sewerage systems
2.2.3 Main points and policy options regarding water relevant subsidies to industry
2.3 Human Settlement
2.3.1 Water supply systems
2.3.2 Water discharge and sewerage systems
2.3.3 Main points and policy options regarding water relevant subsidies and human settlement
2.4 Electricity generation
2.4.1 Thermal power plants
2.4.2 Dams
3.1 Subsidies and environmental effects
3.2 Addressing the removal of "perverse" subsidies: some considerations
3.3 Suggestions for policy strategies
3.4 Suggestions for future research
3.5 Concluding remarks