Doug Koplow.

With what environmental organization are you affiliated?

I’m the founder of Earth Track in Cambridge, Mass., which focuses on increasing visibility of environmentally harmful subsidies. This visibility comes through direct analysis, consolidation of research from around the world, and descriptive materials understandable by general audiences.

Subsidies transfer value from the public sector to private interests, sometimes in cash, but more often via complex and hard-to-track methods. A good general observation is the quicker your eyes glaze over reading eligibility requirements, the bigger the subsidy is likely to be. At an estimated trillion dollars per year globally, these subsidies degrade and destroy our natural environment. They contribute to many of the most challenging environmental problems we face today, including climate change, fisheries loss, deforestation, water depletion, and declines in biodiversity.

What are you working on at the moment?

We recently completed a major analysis of U.S. subsidies to ethanol and biodiesel for the Global Subsidies Initiative. Trendy though biofuels may be, there are quite severe environmental downsides that need much more attention. We will soon produce a top 10 list of the most distorted energy subsidies from around the world — a useful starting point for subsidy reformers.

I’m just beginning a major upgrade to the Earth Track website to enhance its look and capabilities, including some new web-based subsidy-tracking tools. If you are a skilled programmer with a fierce commitment to environmental protection, we may be able to use your help in this effort.

Slated for later in 2007 (not all funding is yet in place) is a comprehensive update of U.S. fossil-fuel subsidies. In the midst of serious issues on carbon emissions and an upsurge of new coal plants, updating 10- to 15-year-old data on fossil-fuel subsidies is a prerequisite for supporting good policy decisions.

How do you get to work?

I drive. Since I haul my kids to school en route, perhaps it would count as carpooling. But I’m burning gasoline nonetheless.

What long and winding road led you to your current position?

I discovered environmental economics in college, and was most interested in political economy. No matter how important the environmental impacts, political and financial issues seemed to drive the pace and direction of policy. It was clear that I had to understand the business angle to be successful in influencing policy outcomes. First, I needed credibility in confronting business arguments against taking action. Second, this worldview would help me to structure more effective solutions as well. Being among a handful of environmentalists at Harvard Business School, I was in the perfect venue to gain these important skills.

Subsidies entered the picture in the late 1980s when I happened to work on a project for the U.S. EPA on disincentives to recycling. Subsidies to energy used in primary-materials manufacture turned out to be quite important, which led me to the tremendous work done by Rick Heede (then with the Rocky Mountain Institute) on U.S. energy subsidies. For some crazy reason, I decided I wanted to do an update. I thought it would take a few months; it took almost three years. But it was fascinating to do, and I was hooked.

Unfortunately, one-off studies are not enough if people are to make better decisions about resource use from the outset. A range of reforms is needed to detail how government proposals and expenditures are reported and tracked.

Environmentalists are objective-oriented: carbon controls, energy efficiency, reduced pollution. Too often, though, we don’t see the fiscal subsidies coming through the back door. New legislation, special tax breaks, regulatory exemptions, and the like can undermine years of regulatory and policy work to protect the environment.

A revolution in the quality and transparency of data on government subsidies would yield tremendous environmental dividends. We would see more coherent policies, reduced pressure on critical ecosystems and resources, and much greater leverage to challenge environmentally harmful policies. Since subsidies normally favor the large and well connected, improved transparency would also benefit smaller firms and newer and cleaner technologies.

Where were you born? Where do you live now?

I was born in Boston, and live here today — with a few years away in Connecticut and Washington, D.C.

What has been the worst moment in your professional life to date?

A big project evaluating how energy subsidies affected environmental quality in the Canadian aluminum industry was canceled in the middle of an update meeting. The cancellation was political: a coalition of aluminum and government interests didn’t like our findings. This is not an uncommon outcome for many government-based subsidy-reporting initiatives that I’ve seen, underscoring the importance of non-governmental organizations in the subsidy-reform arena.

What’s been the best?

Discovering arcane wording worth hundreds of millions of dollars to particular industries in pending legislation, calling attention to the problem, and then seeing the subsidy disappear in the next version. I can’t be sure I caused the shift, but I like to think my work at least contributed.

What environmental offense has infuriated you the most?

Big picture, it’s seeing how much better UPS can track a package than the government can track hazardous waste, or how much more a fast-food restaurant knows about its buyer demographics than the government knows about industrial emissions. Little picture, it’s going into “earth-friendly” food stores and seeing organic produce like apples or broccoli mummified in plastic wrap.

Who is your environmental hero?

I’ve got a few. The Nature Conservancy, for its focused strategy to save core ecosystems, often using private capital and innovative financial instruments. The Rocky Mountain Institute, with founder Amory Lovins, for their tireless work to refocus discussion from energy supply to energy services, paving the way for many of the demand-side options we see today. The Publish What You Pay consortium, for their efforts to apply basic principles of transparency to resource-extraction industries around the world.

What’s your environmental vice?

I drive a car and I fly.

How do you spend your free time (if you have any)? Read any good books lately?

Mostly I spend my free time with my three children, all under the age of nine, and my spouse. The majority of the books I read are with the kids, though I am enjoying Brice Smith’s Insurmountable Risks, on the myriad problems with nuclear power as a solution to climate change.

What’s your favorite meal?

Does dark chocolate count as a meal?

Which stereotype about environmentalists most fits you?

I like to garden and eat organic food.

What’s your favorite place or ecosystem?

Bryce Canyon National Park.

If you could institute by fiat one environmental reform, what would it be?

Mandatory cost-benefit assessments for any fiscal subsidy that harms environmental quality. If these steps are needed to ensure environmental regulations are efficient and well thought out, aren’t they at least as important to screen environmentally damaging subsidies?

If you could have every InterActivist reader do one thing, what would it be?

Fight the glaze and learn to decode enough subsidy language so you can expose and oppose these things when they come up in your area.

Notes from the Funderground

Can you give examples of some of the most ludicrous subsidies you’ve encountered?    – Andrew B., Seattle, Wash.

Doug Koplow, Earth Track.

Two of the craziest subsidies I’ve seen happen to be out of Canada. The first involves subsidies to the hunting of baby harp seals, though the Canadian government argues these ended by 2001. The second is continuing support for asbestos mining and export out of Quebec. Canada continues to ship asbestos products throughout the developing world.

With pressure on Congress to curtail earmarking, do you foresee the problem of harmful subsidies getting better or worse?    – Name not provided

In combination with reinstatement of pay-as-you-go requirements in the House, which require spending cuts to offset new programs, earmark reform should help. But these reforms don’t cover every type of value transfer — tax expenditures, for example. As particular subsidy venues are constrained, expect a migration to less visible methods. Structural reform in budgeting, along with more direct incentives for Congress as a whole to act with fiscal prudence, are likely needed for long-term success in beating back harmful subsidies. You can read more about these issues here [PDF].

How does the U.S. subsidy system compare with other countries around the world?    – Lorcan Lyons, Paris, France

There are two issues here: subsidy programs, and the transparency of those programs. In terms of the actual programs, the Organization for Economic Cooperation and Development systematically tracks agricultural subsidies quite well (with some gaps in irrigation). OECD, the International Energy Agency, and the World Bank periodically track other areas of social policy, though not systematically. Comprehensive data on subsidies to energy, water, fisheries, and timber is rare almost anywhere.

The WTO’s Agreement on Subsidies and Countervailing Measures was supposed to help change this. However, its rules don’t incorporate all subsidies of concern, and reporting has not been systematic enough [PDF] to make it a powerful resource. Multi-country evaluations usually rely on overview metrics, such as comparing the world price of an energy resource to domestic price levels (the “price gap” approach). These miss many subsidies. Single-country evaluations (e.g., IEA country studies) have lots of policy detail, but the subsidies are not usually quantified in an integrated way.

In terms of subsidy transparency, countries with more open governance tend to have better information on subsidies. In the U.S., for example, budgeting rules that require government agencies to issue annual reports with outside auditors, tax expenditure reporting at least at the federal level, and estimates of credit subsidies have greatly improved data availability. Similar information exists for many European countries. However, important gaps remain. In the U.S., estimation models and assumptions for tax breaks and credit subsidies are not publicly available, and it is hard to tell how accurate they are. Given the complexity of the measurements the government analysts must make, and the short time frame they have to do so, my guess is that model accuracy is not great. Other areas, such as contingent liabilities (insurance caps on private responsibility for damages from a nuclear accident, for example) remain extremely murky.

Still, we know much more about subsidies to nuclear power in the U.S., for example, than we do about such subsidies in France or China. If you have data on either of these two areas, please send it my way.

The Iowa caucus prods prominent politicians to swear fealty to corn and ethanol subsidies. How could we get around this problem?    – Grist editors

The ballooning costs and impacts of ethanol subsidies may have opened the door to their demise. Farm interests are increasingly split over the benefits of ethanol supports, and a variety of farm interests (pig farmers, feed producers, grain elevator operators, corn exporters) are being hurt. Smaller, cooperative producers are giving way to much larger plants owned by agribusiness majors, and the farmers themselves are being squeezed out of the profit chain [PDF]. The environmental costs in terms of long-term land fertility and water quality are also being threatened around the country, and many farmers do still care about these things. At the same time, the fiscal costs of ethanol subsidies continue to rise unabated, making the political costs of supporting them higher.

This example aside, overcoming the entrenched political constituency of any subsidy is a challenge. Making the political process a zero-sum game, so politicians fight with each other for their slice of subsidy pie, is one important element of a solution. However, nongovernmental organizations also need to stop trying to take on the entire subsidy issue on their own. What is needed is a complex, comprehensive reporting system that can challenge and embarrass politicians in real time. While no single organization can afford to build or maintain such a system, a consortium of groups certainly can. Unfortunately, data systems like this don’t have nearly the level of donor appeal as activist campaigns on particular policy issues do, despite being much more important in the long term in protecting the environment. This would seem a perfect project for large environmental funders to take on, and I would be happy to speak to any of them about how such a system might work.

Any chance of positive outcomes on subsidy reductions through international negotiations?    – Justin Fried, Berkeley, Calif.

Such changes are possible, though I personally don’t hold high hopes. There’s simply too much subsidy money flowing to producers, and too many opportunities to delay and divert action on international subsidies. We already see more and more agricultural subsidies being reclassified as “green box” environmental payments, and therefore not subject to the same controls as “regular” trade-distorting subsidies.

Which companies in the U.S. benefit the most from subsidies?    – Grist editors

Good question, but I don’t have an empirical answer. Archer Daniels Midland operates in so many subsidized sectors that it would likely be high on a list in terms of subsidies as a percent of total revenues. Tax returns are sealed, however, and corporate financial reports provide only hints of total public support, so a large tally of corporate subsidies doesn’t really exist. The closest I’ve seen to this is from Citizens for Tax Justice. Though they evaluate subsidies at both the state [PDF] and federal [PDF] levels, their assessment includes only tax breaks and they don’t update their information every year.

How does one know when a subsidy is being considered in one’s area? Would subsidies appear in county commission meetings? Should one be checking a government site regularly?    – Michelle Smith, Asheville, N.C.

There’s no single answer to this. Local papers often pick up on emerging subsidies, though the terms they use may be different. Look for phrases like “economic development,” “incentives for business,” or “tax package” as placeholders for government giveaways. One should be skeptical of the claims commonly made to support these packages — usually that there will be lots and lots of new, high-paying jobs.

Subsidy coverage on government sites is spotty at best, with many states providing no data at all on programs like tax breaks or loan guarantees. Where subsidies are tracked (Minnesota is a good example), you don’t see data on the state system until well after the subsidy has already been granted. It’s better than nothing, but not exactly a great point of leverage for challenging new subsidies.

Increasingly, government statutes are online and you can search by keywords and find surprising little gifts to particular industries buried in there. State taxpayer groups and D.C.-based Good Jobs First are also useful resources.

Of the 10 most distortionary energy subsidies that you identify, which do you believe is most politically susceptible to being killed in 2007? Where should “free-market” environmental advocates focus first for success?    – Derek Supple, Somerville, Mass.

While I remain concerned about the ability to precisely monitor carbon sequestration and emissions levels, I think that the basic structure of the U.S. Climate Action Partnership makes the institution of carbon caps in the U.S. feasible for the first time. Seeing price signals on emissions of greenhouse gases would be a tremendous step forward, though the initial allocations must be monitored carefully to avoid massive windfalls to the fossil-fuel or nuclear industries.

I think that tax exemptions to fuel used in international transport could be removed fairly quickly if the goal was not to provide revenues to particular governments, but rather to allocate funds back to the industry in proportion to their energy efficiency or low emission. The tax reform would restructure the incentives of shippers to focus on energy efficiency and environmental impacts in ways they don’t at all today.

I am concerned that massive new federal subsidies to nuclear power will result in many new plants without anybody really understanding the costs associated with liability caps, waste management, and proliferation. At the very least, I’d like to see comprehensive costing of these subsidies done by a non-industry party. This information is a critical counterbalance to the irrational exuberance of nuclear boosters around the world.

In terms of actions outside of government, I’d like to see some of the nation’s top university engineering or operations management programs take on the problem of electrical-grid pricing and control. Their objective should be eliminating as many cross-subsidies as possible, and making new entry by alternative suppliers much easier than is now the case. Our electrical grid five years from now should be like the phone network was five to 10 years after the breakup of AT&T — with plentiful opportunities to enter the generating market and tremendous innovation in services delivered.

When and why did subsidies become a regular part of doing business in America?    – Name not provided

I believe that subsidies are likely as old as human governance. Like matter and anti-matter, the search for exceptions begins as soon as a tax is levied. A friend of mine works for the State Archives of Massachusetts and was going through tax records from the early days of the Commonwealth. The state levied a property tax on horse-drawn buggies, and the tax level was differentiated based on the age and quality of the carriage. My friend noted that the very same year the tax was instituted, the state began receiving letters seeking tax reductions. She described one petitioner who argued that because his higher-grade carriage had been in an accident, he should pay a lower tax. Though the taxes and the arguments for abatement may have changed, the basic dynamic remains the same.

In comparing subsidies between different primary energy sources, why is it useful to report subsidies per unit of useful end-use energy produced? Are there examples where subsidies reported on an aggregate industry basis may lead to misinterpretations?    – Derek Supple, Somerville, Mass.

One of the most important concerns about government subsidies is that they distort the relative prices of goods and services in the economy. If subsidies make coal cheaper, we use more coal, build more coal plants, and slow research and development into alternatives. For natural resources or products associated with polluting industries, the subsidies can actually make it harder for environmentally preferable products to enter the marketplace. Subsidies per unit of energy produced provide a better indicator of the likely distortions than you get looking only at aggregate subsidies. Aggregate subsidies are a better indicator of total cost to the taxpayer.

One important caveat is that subsidies per unit may be higher because an energy resource is new with a very small installed base. There is certainly an argument for government support of basic research into new energy technologies. However, this argument gets progressively weaker as the technology enters production, and as that production is scaled up. Basic research into enzymatic breakdown of cellulosic material into ethanol is a far more justifiable target for public support than are the excise tax credits to ethanol blenders that spiral upward without limit for each gallon produced.

How do you keep people at cocktail parties interested in your work?    – Grist editors

Analyzing subsidies is no different from so many of the other noble professions that grace our planet, from accounting to zoology. For fear of grinding that cocktail discussion to a sputtering halt by raising a question on whether the outlay equivalent metric is applicable to an emerging new tax break, the gritty details of our daily job are best saved for technical reports and professional meetings. Better to focus on who is getting the subsidy, how much they are getting, why they don’t deserve it, and how they can be stopped.