Harmful Subsidies Explained: Eight key takeaways from experts

1. Subsidies are powerful market-shaping tools.  

Subsidies don’t just tweak economies; they shape them. They decide what gets produced and consumed, by whom, and at what scale. Early cross-sector reviews showed just how much money was at stake—running into the trillions globally and growing. Subsidies are legitimate public policy tools, and how they are designed defines whether they advance or undermine climate, nature, and equity. Untargeted subsidies to fuel consumption, for example, provide most of their benefits to wealthy households, because they use the most fuel.

2. They are incredibly hard to reform.

If subsidies are so costly, why do they persist? Because they are deeply political, subsidies are woven into national budgets, often benefitting powerful groups that lobby to keep them—one expert called them “the currency of politics.” Once created, they are rarely removed, no matter how inefficient, making reform one of the toughest policy challenges governments face. Finance ministries are key actors, as they dislike inefficient spending and can drive reform to transcend sector-specific interests.  

3. Transparency is the first step to reform.

You can’t manage what you can’t measure. From the start, GSI focused on exposing the scale and nature of subsidies—and asking uncomfortable questions about trade-offs. Would you rather maintain an untargeted fuel subsidy or use the same money to fund health care? Shining a light on these issues forces governments and citizens to confront the real costs and benefits of fiscal decisions, enabling them to make informed choices.  

4. Reform is both science and art.

The science lies in getting the numbers right: if data isn’t watertight, opponents will shred it. But once the evidence is in place, the art begins—navigating politics, managing winners and losers, and finding ways to support people through the transition. Reforming a subsidy may look neat on paper, but in practice, it means disrupting entrenched interests and household budgets. Understanding and navigating the domestic political economy, while focusing on helping those who will “lose” when subsidies are reformed, is crucial to successful and durable subsidy reforms.  

5. Supporting people directly works better than distorting markets.

Focusing on people is a way to shape reform. Most subsidies are blunt instruments. The Organisation for Economic Co-operation and Development (OECD) notes that only 1.6% of global agricultural support actually improves food security for people. Experts argue that it makes more sense to help people directly—whether through income support for fishers during closed seasons or cash transfers for low-income families—than to keep pouring money into blunt price controls that distort markets and production.  

6. Green subsidies risk creating new distortions and inequities.

For wealthy economies, subsidies are often strategic: the goal is to support green industries, secure energy supplies, or stay competitive. For developing countries, the picture is starkly different, as they contend with limited fiscal space, pressing poverty concerns, and fewer tools to manage transitions. When rich countries spend lavishly on “good” subsidies to help their companies through the green transition, while poor countries can’t afford to do the same, the playing field tilts further. Green subsidies and incentives are rising, but they risk creating new distortions and inequities if poorly designed.

7. Reform is easier when countries move together.

There is often a first-mover disadvantage in subsidy reform, which can be overcome through coordinated action among countries. Collective action lowers the political cost of reform and makes bold moves more credible. That’s why international cooperation—whether through the WTO, the OECD, or coalitions on fossil fuel subsidy reform such as the Coalition on Phasing Out Fossil Fuel Incentives Including Subsidies alliance—is key. Change is always hard alone, but it gets easier when you do it together.

8. International rules are starting to catch up.

The WTO’s new Agreement on Fisheries Subsidies is one sign of progress. For the first time, global trade rules are explicitly tackling the environmental harm caused by subsidies. Meanwhile, climate and biodiversity commitments are pushing governments to phase out subsidies for fossil fuels and other environmentally harmful products. Such commitments are a positive first step, showing how international frameworks can nudge countries toward change.  

The 20th anniversary of GSI underscored the importance of subsidy design for sustainable development, the importance of international cooperation in driving and shaping subsidy reforms, and the crucial role of civil society and research organizations in helping governments move in the right direction.  

Experts who participated in the Global Subsidies Initiative panel:  

Mark Halle, Senior Advisor, NatureFinance; H.E. Guilherme de Aguiar Patriota, Ambassador of Brazil to the WTO; Nathalie Bernasconi-Osterwalder, Vice-President, Global Strategies and Managing Director, Europe, IISD; Myrto Zambarta, Director, Multilateral Affairs, Strategy, Analysis & Evaluation, Directorate General for Trade, European Commission; and Julia Nielson, Deputy Director, Trade and Agriculture Directorate, OECD.