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Determining the environmental effects of indirect subsidies: integrated method and application to the Netherlands

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The term 'environmentally damaging subsidies' covers all sorts of direct and indirect subsidies with negative consequences for the environment. This article presents a method to determine the environmental impact of these subsidies. It combines a microeconomic framework with an environmental impact module. The method is particularly useful for analysing indirect subsidies. These are often hidden, and therefore, not recognized as subsidies. Use of the method will provide a basis for formulating corrective policy. The method is applied to several important subsidies in the Netherlands, in agriculture, energy and transport sectors. The results reveal large environmental effects, which deserve serious attention from policy makers. To illustrate the specific features of the method, its application to a particular subsidy, namely the exemption of excise taxes on aviation fuels, is presented in full detail.

Document Type: Research Article


Affiliations: 1: Department of Economics, Delft University of Technology, Delft, The Netherlands 2: Faculty of Economics and Business Administration & Institute for Environmental Studies, Free University, Amsterdam, The Netherlands 3: National Institute for Public Health and the Environment, Bilthoven, The Netherlands 4: Institute for Environmental Studies, Free University, Amsterdam, The Netherlands

Publication date: October 1, 2007

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