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Perverse Subsidies and Extractive Industries

(Image Source: National Geographic)

Internalizing Environmental Costs and Promoting Sustainable Development in Suriname and Guyana

Clinic: uOttawa-Queen's Joint Clinic, Spring 2017

Beneficiary: Conservation International

Executive Summary

Read and download the full report here.

Suriname and Guyana host some of the most pristine rainforests in the world and are rich in biodiversity. Both countries are covered to over 75 percent in rainforest, which is home to thousands of different species of flora and fauna. They are also rich in natural resources. Conservation International (“CI”) has formed partnerships with the governments in both Suriname and Guyana to provide guidance on the sustainable development of the extractive industries. The primary sectors concerned are logging, mining, and oil and gas.

Recognizing that the development of these sectors will potentially offer significant economic benefits to Suriname and Guyana, TradeLab’s memorandum makes recommendations with respect to legal frameworks and mechanisms that the governments of Suriname and Guyana can use to ensure the sustainable development of these sectors, and in particular, to protect the environment and biodiversity.

Our research first approaches the problem by conceptualizing the uninternalized costs that the extractive industries impose on their host countries as perverse, hidden subsidies. Perverse subsidies are costs borne by the government to remedy environmental damage associated with the development of the extractive industry. Because these costs are not internalized by the industry, the industry has no incentive to avoid environmentally destructive behaviour, which lends these subsidies their perverse character. The subsidies are hidden because they do not take the form of direct transfers of funds from the government to the industry. This memorandum thus seeks to identify where these costs arise and how the drafting of environmental regulation and concession agreements can internalize these costs so that they are not borne solely by the government.

Following a review of academic literature and industry guidelines, our research then identified five types of environmental impact: land costs, air and water quality costs, biodiversity costs, human costs, and climate change:

  1. Costs to the land includes damage and changes to natural landscapes both in the short and long term brought on by infrastructure developments associated with extractive industries.

  2. Costs to water and air quality includes chemical and pollutant damage to air and water quality that will impact local and regional biodiversity.

  3. Costs to biodiversity are closely related to changes in the land, as well as air and water quality concerns. As a result of these elements, the biodiversity of plants and animals in the area may shrink.

  4. Costs to human experience and living conditions includes changes to qualify of life that the individuals in the region will fact.

  5. Climate change includes the global