| 19 include market price support, support per unit output, and unconstrained support per unit input. These agricultural subsidies are the most trade distorting and potentially harmful for the environment and they are the most common financial instruments used (OECD, 2020[68]). These measures encourage producers to keep their production practices and produce beyond market demand. Input support also encourage the excessive use or misuse of potentially polluting pesticides and fertilisers (OECD, 2020[70]; OECD, 2019[71]). The use of agricultural subsidies across the world is declining because they can be disruptive and create perverse incentives to overproduce or move towards monocultures (OECD, 2020[68]). Sud (2020[72]) argues that “countries need to review support that directly or indirectly incentivises excessive input use in order to provide the right signals to producers and free up finances that can then be redirected towards other uses”. Non-output related support (decoupled from production) like payments for conservation areas, wildlife or biodiversity, has proven effective at improving biodiversity and is increasingly being used in European countries (Sud, 2020[72]). Reform should consider its possible unintended outcomes. For instance, removal of agriculture subsidies may deprive small-scale farmers of key financial capital and they may shift to slash-and-burn agriculture, generating additional deforestation (OECD, 2017[73]).
Subsidies, taxes, fees and trading schemes Economic instruments implemented by governments, such as environmentally-motivated subsidies, payments for ecosystem services schemes, taxes, fees and tradable permits, provide price signals to both producers and consumers to behave in a more environmentally-sustainable way (OECD, 2020[74]). As DeBoe (2020[65]) defines them, economic instruments create or alter the relative incentives faced by farmer, so that at least some farmers voluntarily choose to improve their environmental performance. Taxes and other instruments that impose a price for performing a negative behaviour and some subsidies also provide continuous incentives to innovate in order to achieve objectives in a more cost-effective manner, and most are also able to generate revenue (OECD, 2020[74]).Economic instruments are the so-called “positive incentives” embedded in the 2011-2020 Aichi Biodiversity Targets, notably Target 3.
Subsidies for sustainable land use and Payments for ecosystem services A number of subsidies are used to promote sustainable land use. Examples include subsidies for sustainable practices on-farm (organic or environmentally friendly agriculture, for pesticide-free cultivation), land and native vegetation conservation, forest management and reforestation, and for structural adjustment towards “greener” agricultural systems (DeBoe, 2020[65]). For instance, farmers are sometimes subsidised for purchasing “green” technologies such as fuel-efficient farm machinery or waterefficient irrigation systems. The net environmental impact of such subsidies depends on the programme design (DeBoe, 2020[65]). Often multiple subsidies are in place at the same time (see Box 3.5.). There are currently 183 environmentally motivated subsidies directed at land management in force across 25 countries 13 (OECD, 2020[74]; DeBoe, 2020[65]).
13
The existence of an instrument does not guarantee its enforcement. Moreover, the level of stringency might not be adequate for the desired environmental outcome (OECD, 2020[75]).
