A cautious approach to subsidies for environmental sustainability

Tackling climate change and biodiversity loss will require government policies to reverse environmental destruction and align economic activity with sustainability goals. Subsidy-based policies feature prominently in current national and international policy discussions about ways to address these challenges. Given this, now is a critical moment to reassess the role of subsidies to ensure that not only their benefits but also their potential drawbacks are at the forefront of discussions about their use and design. We suggest that subsidies can play an important role in protecting people and the planet. However, because subsidies can have considerable drawbacks, we also suggest that subsidies should be used cautiously to ensure that they are, on net, beneficial to society and the planet in the short and long run. Avoiding “lock-in” is paramount and can be achieved through initial design features such as time limits to sunset subsidies.