The world spends 6,000 times more on environmentally harmful subsidies than on carbon offsets

Log it or keep it?
Log it or keep it?
Image: Reuters/Nacho Doce
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Carbon offsets—the money polluting business spend on projects that benefit the environment—have been growing in recent years, but it’s a long way from catching up to the money governments spend supporting businesses that are harmful to the environment.

A report (pdf) published on Feb. 16 by Earth Track, a Cambridge, MA-based organization that tracks government subsidies, estimated the global value of government support for the most polluting industries—fossil fuels, agriculture, forestry, water, construction, transport, and marine capture fisheries—and found that they totaled at least $1.8 trillion a year.

As a point of comparison, the Taskforce on Scaling Carbon Markets, a private-sector coalition, estimated the carbon offset market to be worth $300 million in 2018, the most recent year for which an estimate was available. That amount is 6,000 times less than the $1.8 trillion the world’s governments spend on environmentally harmful subsidies. The Taskforce estimates that the offset market could grow to $100 billion by 2030, still 18 times less than current government subsidies.

Earth Track’s report is the first in over a decade to estimate environmentally harmful government subsidies globally, rather than by sector or country, though sectoral comparisons are likewise illustrative of how governments assign value by way of incentives. For example, in 2020 the US committed $72 billion in covid relief that supported the fossil fuel industry or intensive users of fossil fuels, 2.6 times more than the $27.7 billion spent subsidizing clean energy, according to Energy Policy Tracker, which provides real-time data on energy subsidies since the start of the pandemic in Feb. 2020.

What are environmentally harmful subsidies?

Governments have long subsidized select industries, propping them up and making the businesses more profitable to run and more likely to endure. Many of the most subsidized industries are ones that are harmful to the environment. The fossil fuel industry, the major contributor to carbon emissions, receives $640 billion a year in subsidies, which includes things like tax credits and underpricing for the use of fuel transport infrastructure on the production end, or tax exemptions for some types of users on the consumption end.

Industrial agriculture, which causes environmental damage through soil erosion, water pollution, and deforestation, while generating substantial emissions, receives $520 billion a year in subsidies such as price floors, and below market pricing for the costs of irrigation or fertilizer, for example.

$350 billion a year goes into unsustainable freshwater management and wastewater infrastructure that pollute waterways and endanger ocean and river ecosystems.

Lack of transparency from governments and the businesses receiving the money mean subsidies are notoriously hard to track. Earth Track’s tally is from subsidy data from non-governmental organizations, governments, and intergovernmental organizations that collect the information at the sector and country level. The tally does not include the cost of externalities—like the cost of air pollution and traffic congestion that stem from the fossil fuel industry.

Offsets may not be the best way to help the environment

The report argues that environmentally harmful subsidies could be eliminated or redirected towards climate and environment projects, so that public funds could go to businesses that improve climate outcomes rather than worsen them. Stopping biodiversity loss and achieving net-zero emissions is estimated to require about $700 billion globally a year, according to the report. This money needs to go toward the cost of switching to cleaner fuels, and overhauling energy-intensive industries, among other things—efforts that reduce emissions in the first place.

Money spent on carbon offsets work more like penance, absolving businesses of their climate sins while allowing them to continue polluting. With limited regulation, the label is easy to exploit without delivering benefits for the environment. In other words, greenwashing. Without strong oversight, some of that $300 million spent on offsets is likely propping up environmental harm too.