Subsidy is an assistance paid to a business or economic sector. Most subsidies are made by the government to producers or distributed as subventions in an industry to prevent the decline of that industry (e.g., as a result of continuous unprofitable operations) or an increase in the prices of its products or simply to encourage it to hire more labor (as in the case of a wage subsidy). Examples are subsidies to encourage the sale of exports; subsidies on some foods to keep down the cost of living, especially in urban areas; and subsidies to encourage the expansion of farm production and achieve self-reliance in food production.
Subsidies can be regarded as a form of protectionism or trade barrier by making domestic goods and services artificially competitive against imports. Subsidies may distort markets, and can impose large economic costs. Financial assistance in the form of a subsidy may come from one's government, but the term subsidy may also refer to assistance granted by others, such as individuals or non-governmental institutions.
OverviewA subsidy is money given by a government to help support a business or person the market does not support. In the United States, Congress can tax to provide for the general welfare. It also has the power to coin money and regulate its value. An example of subsidy is from the Middle Ages. The British Parliament took away their king’s authority to tax and gave him a tax-based subsidy to live on.
In standard supply and demand curve diagrams, a subsidy will shift either the demand curve up or the supply curve down. A subsidy that increases the production will tend to result in a lower price, while a subsidy that increases demand will tend to result in an increase in price. Both cases result in a new economic equilibrium. Therefore it is essential to consider elasticity when estimating the total costs of a planned subsidy: it equals the subsidy per unit (difference between market price and subsidized price) times the new equilibrium quantity. One category of goods suffers less from this effect: Public goods are—once created—in ample supply and the total costs of subsidies remain constant regardless of the number of consumers; depending on the form of the subsidy, however, the number of producers on demanding their share of benefits may still rise and drive costs up.
The recipient of the subsidy may need to be distinguished from the beneficiary of the subsidy, and this analysis will depend on elasticity of supply and demand as well as other factors. For example, a subsidy for consumption of milk by consumers may appear to benefit consumers (or some may benefit and the consumer may derive no gain, as the higher prices for milk offset the subsidy). The net effect and identification of winners and losers is rarely straightforward, but subsidies generally result in a transfer of wealth from one group to another (or transfer between sub-groups).
Subsidy may also be used to refer to government actions which limit competition or raise the prices at which producers could sell their products, for example, by means of tariff protection. Although economics generally holds that subsidies may distort the market and produce inefficiencies, there are a number of recognized cases where subsidies may be the most efficient solution.
In many instances, economics may (somewhat counter-intuitively) suggest that direct subsidies are preferable to other forms of support, such as hidden subsidies or trade barriers; although subsidies may be inefficient, they are often less inefficient than other policy tools used to benefit certain groups. Direct subsidies may also be more transparent, which may allow the political process more opportunity to eliminate wasteful hidden subsidies. This problem—that hidden subsidies are more inefficient, but often favored precisely because they are non-transparent—is central to the political-economy of subsidies.
Examples of industries or sectors where subsidies are often found include utilities, gasoline in the United States, welfare, farm subsidies, and (in some countries) certain aspects of student loans. Also the fuel subsidy that was removed in Nigeria on January 1st 2012 cause a spike in the price of fuel which all Nigerians were not in support of most especially due to the fact that the minimum wage of an average Nigerian is N18000 (111.697 USD). As a result of the removal of the fuel subsidy, the price of fuel went from N65 (0.403351 USD) per liter to N140 (0.869835 USD) per liter.
HistoryIn the 16th century "subsidy" referred to taxation, for example the tax introduced in England by Thomas Wolsey in 1513 based on the ability to pay.
Types of subsidiesThere are many different ways to classify subsidies, such as the reason behind them, the recipients of the subsidy, the source of the funds (government, consumer, general tax revenues, etc.). In economics, one of the primary ways to classify subsidies is the means of distributing the subsidy.
In economics, the term subsidy may or may not have a negative connotation: that is, the use of the term may be prescriptive but descriptive. In economics, a subsidy may nonetheless be characterized as inefficient relative to no subsidies; inefficient relative to other means of producing the same results; "second-best", implying an inefficient but feasible solution (contrasted with an efficient but not feasible ideal), among other possible terminology. In other cases, a subsidy may be an efficient means of correcting a market failure.
For example, economic analysis may suggest that direct subsidies (cash benefits) would be more efficient than indirect subsidies (such as trade barriers); this does not necessarily imply that direct subsidies are bad, but that they may be more efficient or effective than other mechanisms to achieve the same (or better) results.
Insofar as they are inefficient, however, subsidies would generally be considered by economists to be bad, as economics is the study of efficient use of limited resources. Ultimately, however, the choice to enact a subsidy is a political choice. Note that subsidies are linked to the concept of economic transfers from one group to another.
Economics has also explicitly identified a number of areas where subsidies are entirely justified by economics, particularly in the area of provision of public goods.
Indirect subsidiesIndirect subsidy is a term sufficiently broad that it may cover most other forms of subsidy. The term would cover any form of subsidy that does not involve a direct transfer.
Labor subsidiesA labor subsidy is any form of subsidy where the recipients receive subsidies to pay for labor costs. Examples may include labor subsidies for workers in certain industries, such as the film and/or television industries. (see: Runaway production).
Infrastructure subsidiesIn some cases, subsidy may refer to favoring one type of production or consumption over another, effectively reducing the competitiveness or retarding the development of potential substitutes. For example, it has been argued that the use of petroleum, and particularly gasoline, has been subsidized or favored by U.S. defense policy, reducing the use of alternative energy sources and delaying their commercial development. However, alternative energy sources have also been subsidized by the federal and state governments, though only by a comparatively tiny amount.
In other cases, the government may need to improve the public transport to ensure Pareto improvement is attanied and sustained. This can therefore be done by subsidising those transit agencies that provide the public services so that the services can be affordable for everyone. This is the best way of helping different groups of disabled and low income families in the society.
Trade protection (import restrictions)Measures used to limit a given good than they would pay without the trade barrier; the protected industry has effectively received a subsidy. Such measures include import quotas, import tariffs, import bans, and others.
Export subsidies (trade promotion)Various tax or other measures may be used to promote exports that constitute subsidies to the industries favored. In other cases, tax measures may be used to ensure that exports are treated "fairly" under the tax system. The determination of what constitutes a subsidy (or the size of that subsidy) may be complex. In many cases, export subsidies are justified as a means of compensating for the subsidies or protections provided by a foreign state to its own producers.
Procurement subsidiesGovernments everywhere are relatively small consumers of various goods and services. Subsidies may occur in this process by choice of the products produced, the producer, the nature of the product itself, and by other means, including payment of higher-than-market prices for goods purchased.
Consumption subsidiesGovernments everywhere provide consumption subsidies in a number of ways: by actually giving away a good or service, providing use of government assets, property, or services at lower than the cost of provision, or by providing economic incentives (cash subsidies) to purchase or use such goods. In most countries, consumption of education, health care, and infrastructure (such as roads) are heavily subsidized, and in many cases provided free of charge. However, these are investments rather than subsidies; both increase the economic value of the state and affect all as opposed to single groups. In other cases, governments
literally purchase or produce a good (such as bread, wheat, gasoline, or electricity) at a higher cost than the sales price to the public (which may require rationing to control the cost).
The provision of true public goods through consumption subsidies is an example of a type of subsidy that economics may recognize as efficient. In other cases, such subsidies may be reasonable second-best solutions; for example, while it may be theoretically efficient to charge for all use of public roads, in practice, the cost of implementing a system to charge for such use may be unworkable or unjustified.
In other cases, consumption subsidies may be targeted at a specific group of users, such as large utilities, residential home-owners, and others.
Subsidies due to the effect of debt guaranteesAnother form of subsidy is due to the practice of a government guaranteeing a lender payment if a particular borrower defaults. This occurs in the United States, for example, in certain airline industry loans, in most student loans, in small business administration loans, in Ginnie Mae mortgage-backed bonds, and is alleged to occur in the mortgage-backed bonds issued through Fannie Mae and Freddie Mac. A government guarantee of payment lowers the risk of the loan for a lender, and since interest rates are primarily based on risk, the interest rate for the borrower lowers as well.
Climate change is a significant and lasting change in the statistical distribution of weather patterns over periods ranging from decades to millions of years. It may be a change in average weather conditions or the distribution of events around that average (e.g., more or fewer extreme weather events). Climate change may be limited to a specific region or may occur across the whole Earth.
TerminologyThe most general definition of climate change is a change in the statistical properties of the climate system when considered over long periods of time, regardless of cause.Accordingly, fluctuations over periods shorter than a few decades, such as El Niño, do not represent climate change.
The term sometimes is used to refer specifically to climate change caused by human activity, as opposed to changes in climate that may have resulted as part of Earth's natural processes. In this sense, especially in the context of environmental policy, the term climate change has become synonymous with anthropogenic global warming. Within scientific journals, global warming refers to surface temperature increases while climate change includes global warming and everything else that increasing greenhouse gas levels will affect.
CausesOn the broadest scale, the rate at which energy is received from the sun and the rate at which it is lost to space determine the equilibrium temperature and climate of Earth. This energy is distributed around the globe by winds, ocean currents, and other mechanisms to affect the climates of different regions.
Factors that can shape climate are called climate forcings or "forcing mechanisms". These include processes such as variations in solar radiation, deviations in the Earth's orbit, mountain-building and continental drift, and changes in greenhouse gas concentrations. There are a variety of climate change feedbacks that can either amplify or diminish the initial forcing. Some parts of the climate system, such as the oceans and ice caps, respond slowly in reaction to climate forcings, while others respond more quickly.
Forcing mechanisms can be either "internal" or "external". Internal forcing mechanisms are natural processes within the climate system itself (e.g., the meridional overturning circulation). External forcing mechanisms can be either natural (e.g., changes in solar output) or anthropogenic (e.g., increased emissions of greenhouse gases).
Whether the initial forcing mechanism is internal or external, the response of the climate system might be fast (e.g., a sudden cooling due to airborne volcanic ash reflecting sunlight), slow (e.g. thermal expansion of warming ocean water), or a combination (e.g., sudden loss of albedo in the arctic ocean as sea ice melts, followed by more gradual thermal expansion of the water). Therefore, the climate system can respond abruptly, but the full response to forcing mechanisms might not be fully developed for centuries or even longer.
Internal forcing mechanismsNatural changes in the components of earth's climate system and their interactions are the cause of internal climate variability, or "internal forcings." Scientists generally define the five components of earth's climate system to include Atmosphere, hydrosphere, cryosphere, lithosphere (restricted to the surface soils, rocks, and sediments), and biosphere.
Ocean variabilityThe ocean is a fundamental part of the climate system, some changes in it occurring at longer timescales than in the atmosphere, massing hundreds of times more and having very high thermal inertia (such as the ocean depths still lagging today in temperature adjustment from the Little Ice Age).
Short-term fluctuations (years to a few decades) such as the El Niño-Southern Oscillation, the Pacific decadal oscillation, the North Atlantic oscillation, and the Arctic oscillation, represent climate variability rather than climate change. On longer time scales, alterations to ocean processes such as thermohaline circulation play a key role in redistributing heat by carrying out a very slow and extremely deep movement of water, and the long-term redistribution of heat in the world's oceans.
External forcing mechanisms
Orbital variationsSlight variations in Earth's orbit lead to changes in the seasonal distribution of sunlight reaching the Earth's surface and how it is distributed across the globe. There is very little change to the area-averaged annually averaged sunshine; but there can be strong changes in the geographical and seasonal distribution. The three types of orbital variations are variations in Earth's eccentricity, changes in the tilt angle of Earth's axis of rotation, and precession of Earth's axis. Combined together, these produce Milankovitch cycles which have a large impact on climate and are notable for their correlation to glacial and interglacial periods, their correlation with the advance and retreat of the Sahara, and for their appearance in the stratigraphic record.
The IPCC notes that Milankovitch cycles drove the ice age cycles; CO2 followed temperature change "with a lag of some hundreds of years"; and that as a feedback amplified temperature change. The depths of the ocean have a lag time in changing temperature (thermal inertia on such scale). Upon seawater temperature change, the solubility of CO2 in the oceans changed, as well as other factors impacting air-sea CO2 exchange.
Solar outputThe sun is the predominant source for energy input to the Earth. Both long- and short-term variations in solar intensity are known to affect global climate.
Three to four billion years ago the sun emitted only 70% as much power as it does today. If the atmospheric composition had been the same as today, liquid water should not have existed on Earth. However, there is evidence for the presence of water on the early Earth, in the Hadean and Archean eons, leading to what is known as the faint young Sun paradox. Hypothesized solutions to this paradox include a vastly different atmosphere, with much higher concentrations of greenhouse gases than currently exist. Over the following approximately 4 billion years, the energy output of the sun increased and atmospheric composition changed. The Great Oxygenation Event -oxygenation of the atmosphere- around 2.4 billion years ago was the most notable alteration. Over the next five billion years the sun's ultimate death as it becomes a red giant and then a white dwarf will have large effects on climate, with the red giant phase possibly ending any life on Earth that survives until that time.
Solar output also varies on shorter time scales, including the 11-year solar cycle and longer-term modulations. Solar intensity variations are considered to have been influential in triggering the Little Ice Age, and some of the warming observed from 1900 to 1950. The cyclical nature of the sun's energy output is not yet fully understood; it differs from the very slow change that is happening within the sun as it ages and evolves. Research indicates that solar variability has had effects including the Maunder Minimum from 1645 to 1715 A.D., part of the Little Ice Age from 1550 to 1850 A.D. which was marked by relative cooling and greater glacier extent than the centuries before and afterward. Some studies point toward solar radiation increases from cyclical sunspot activity affecting global warming, and climate may be influenced by the sum of all effects (solar variation, anthropogenic radiative forcings, etc.).
Interestingly, a 2010 study suggests, “that the effects of solar variability on temperature throughout the atmosphere may be contrary to current expectations.”
In an Aug 2011 Press Release, CERN announced the publication in the Nature journal the initial results from its CLOUD experiment. The results indicate that ionisation from cosmic rays significantly enhances aerosol formation in the presence of sulphuric acid and water, but in the lower atmosphere where ammonia is also required, this is insufficient to account for aerosol formation and additional trace vapours must be involved. The next step is to find more about these trace vapours, including whether they are of natural or human origin.
VolcanismVolcanic eruptions release gases and particulates into the atmosphere. Eruptions large enough to affect climate occur on average several times per century, and cause cooling (by partially blocking the transmission of solar radiation to the Earth's surface) for a period of a few years. The eruption of Mount Pinatubo in 1991, the second largest terrestrial eruption of the 20th century (after the 1912 eruption of Novarupta) affected the climate substantially. Global temperatures decreased by about 0.5 °C (0.9 °F). The eruption of Mount Tambora in 1815 caused the Year Without a Summer. Much larger eruptions, known as large igneous provinces, occur only a few times every hundred million years, but may cause global warming and mass extinctions.
Volcanoes are also part of the extended carbon cycle. Over very long (geological) time periods, they release carbon dioxide from the Earth's crust and mantle, counteracting the uptake by sedimentary rocks and other geological carbon dioxide sinks. The US Geological Survey estimates are that volcanic emissions are at a much lower level than the effects of current human activities, which generate 100-300 times the amount of carbon dioxide emitted by volcanoes. A review of published studies indicates that annual volcanic emissions of carbon dioxide, including amounts released from mid-ocean ridges, volcanic arcs, and hot spot volcanoes, are only the equivalent of 3 to 5 days of human caused output. The annual amount put out by human activities may be greater than the amount released by supererruptions, the most recent of which was the Toba eruption in Indonesia 74,000 years ago.
Although volcanoes are technically part of the lithosphere, which itself is part of the climate system, the IPCC explicitly defines volcanism as an external forcing agent.
Plate tectonicsOver the course of millions of years, the motion of tectonic plates reconfigures global land and ocean areas and generates topography. This can affect both global and local patterns of climate and atmosphere-ocean circulation.
The position of the continents determines the geometry of the oceans and therefore influences patterns of ocean circulation. The locations of the seas are important in controlling the transfer of heat and moisture across the globe, and therefore, in determining global climate. A recent example of tectonic control on ocean circulation is the formation of the Isthmus of Panama about 5 million years ago, which shut off direct mixing between the Atlantic and Pacific Oceans. This strongly affected the ocean dynamics of what is now the Gulf Stream and may have led to Northern Hemisphere ice cover. During the Carboniferous period, about 300 to 360 million years ago, plate tectonics may have triggered large-scale storage of carbon and increased glaciation. Geologic evidence points to a "megamonsoonal" circulation pattern during the time of the supercontinent Pangaea, and climate modeling suggests that the existence of the supercontinent was conducive to the establishment of monsoons.
The size of continents is also important. Because of the stabilizing effect of the oceans on temperature, yearly temperature variations are generally lower in coastal areas than they are inland. A larger supercontinent will therefore have more area in which climate is strongly seasonal than will several smaller continents or islands.
Human influencesIn the context of climate variation, anthropogenic factors are human activities which affect the climate. The scientific consensus on climate change is "that climate is changing and that these changes are in large part caused by human activities," and it "is largely irreversible."
Of most concern in these anthropogenic factors is the increase in CO2 levels due to emissions from fossil fuel combustion, followed by aerosols (particulate matter in the atmosphere) and cement manufacture. Other factors, including land use, ozone depletion, animal agricultureand deforestation, are also of concern in the roles they play - both separately and in conjunction with other factors - in affecting climate, microclimate, and measures of climate variables.
Physical evidence for and examples of climatic changeEvidence for climatic change is taken from a variety of sources that can be used to reconstruct past climates. Reasonably complete global records of surface temperature are available beginning from the mid-late 19th century. For earlier periods, most of the evidence is indirect—climatic changes are inferred from changes in proxies, indicators that reflect climate, such as vegetation, ice cores, dendrochronology, sea level change, and glacial geology.
Temperature measurements and proxiesThe instrumental temperature record from surface stations was supplemented by radiosonde balloons, extensive atmospheric monitoring by the mid-20th century, and, from the 1970s on, with global satellite data as well. The 18O/16O ratio in calcite and ice core samples used to deduce ocean temperature in the distant past is an example of a temperature proxy method, as are other climate metrics noted in subsequent categories.
Historical and archaeological evidenceClimate change in the recent past may be detected by corresponding changes in settlement and agricultural patterns. Archaeological evidence, oral history and historical documents can offer insights into past changes in the climate. Climate change effects have been linked to the collapse of various civilizations.
GlaciersGlaciers are considered among the most sensitive indicators of climate change. Their size is determined by a mass balance between snow input and melt output. As temperatures warm, glaciers retreat unless snow precipitation increases to make up for the additional melt; the converse is also true.
Glaciers grow and shrink due both to natural variability and external forcings. Variability in temperature, precipitation, and englacial and subglacial hydrology can strongly determine the evolution of a glacier in a particular season. Therefore, one must average over a decadal or longer time-scale and/or over a many individual glaciers to smooth out the local short-term variability and obtain a glacier history that is related to climate.
A world glacier inventory has been compiled since the 1970s, initially based mainly on aerial photographs and maps but now relying more on satellites. This compilation tracks more than 100,000 glaciers covering a total area of approximately 240,000 km2, and preliminary estimates indicate that the remaining ice cover is around 445,000 km2. The World Glacier Monitoring Service collects data annually on glacier retreat and glacier mass balance From this data, glaciers worldwide have been found to be shrinking significantly, with strong glacier retreats in the 1940s, stable or growing conditions during the 1920s and 1970s, and again retreating from the mid 1980s to present.
The most significant climate processes since the middle to late Pliocene (approximately 3 million years ago) are the glacial and interglacial cycles. The present interglacial period (the Holocene) has lasted about 11,700 years. Shaped by orbital variations, responses such as the rise and fall of continental ice sheets and significant sea-level changes helped create the climate. Other changes, including Heinrich events, Dansgaard–Oeschger events and the Younger Dryas, however, illustrate how glacial variations may also influence climate without the orbital forcing.
Glaciers leave behind moraines that contain a wealth of material—including organic matter, quartz, and potassium that may be dated—recording the periods in which a glacier advanced and retreated. Similarly, by tephrochronological techniques, the lack of glacier cover can be
identified by the presence of soil or volcanic tephra horizons whose date of deposit may also be ascertained
Arctic sea ice lossThe decline in Arctic sea ice, both in extent and thickness, over the last several decades is further evidence for rapid climate change. Sea ice is frozen seawater that floats on the ocean surface. It covers millions of square miles in the polar regions, varying with the seasons. In the Arctic, some sea ice remains year after year, whereas almost all Southern Ocean or Antarctic sea ice melts away and reforms annually. Satellite observations show that Arctic sea ice is now declining at a rate of 11.5 percent per decade, relative to the 1979 to 2000 average.
VegetationA change in the type, distribution and coverage of vegetation may occur given a change in the climate. Some changes in climate may result in increased precipitation and warmth, resulting in improved plant growth and the subsequent sequestration of airborne CO2. A gradual increase in warmth in a region will lead to earlier flowering and fruiting times, driving a change in the timing of life cycles of dependent organisms. Conversely, cold will cause plant bio-cycles to lag. Larger, faster or more radical changes, however, may result in vegetation stress, rapid plant loss and desertification in certain circumstances. An example of this occurred during the Carboniferous Rainforest Collapse (CRC), an extinction event 300 million years ago. At this time vast rainforests covered the equatorial region of Europe and America. Climate change devastated these tropical rainforests, abruptly fragmenting the habitat into isolated 'islands' and causing the extinction of many plant and animal species.
Satellite data available in recent decades indicates that global terrestrial net primary production increased by 6% from 1982 to 1999, with the largest portion of that increase in tropical ecosystems, then decreased by 1% from 2000 to 2009.
Pollen analysisPalynology is the study of contemporary and fossil palynomorphs, including pollen. Palynology is used to infer the geographical distribution of plant species, which vary under different climate conditions. Different groups of plants have pollen with distinctive shapes and surface textures, and since the outer surface of pollen is composed of a very resilient material, they resist decay. Changes in the type of pollen found in different layers of sediment in lakes, bogs, or river deltas indicate changes in plant communities. These changes are often a sign of a changing climate. As an example, palynological studies have been used to track changing vegetation patterns throughout the Quaternary glaciations and especially since the last glacial maximum.[
PrecipitationPast precipitation can be estimated in the modern era with the global network of precipitation gauges. Surface coverage over oceans and remote areas is relatively sparse, but, reducing reliance on interpolation, satellite data has been available since the 1970s. Quantification of climatological variation of precipitation in prior centuries and epochs is less complete but
approximated using proxies such as marine sediments, ice cores, cave stalagmites, and tree rings.
Climatological temperatures substantially affect precipitation. For instance, during the Last Glacial Maximum of 18,000 years ago, thermal-driven evaporation from the oceans onto continental landmasses was low, causing large areas of extreme desert, including polar deserts (cold but with low rates of precipitation). In contrast, the world's climate was wetter than today near the start of the warm Atlantic Period of 8000 years ago.
Estimated global land precipitation increased by approximately 2% over the course of the 20th century, though the calculated trend varies if different time endpoints are chosen, complicated by ENSO and other oscillations, including greater global land precipitation in the 1950s and 1970s than the later 1980s and 1990s despite the positive trend over the century overall. Similar slight overall increase in global river runoff and in average soil moisture has been perceived
DendroclimatologyDendroclimatology is the analysis of tree ring growth patterns to determine past climate variations. Wide and thick rings indicate a fertile, well-watered growing period, whilst thin, narrow rings indicate a time of lower rainfall and less-than-ideal growing conditions.
Ice coresAnalysis of ice in a core drilled from a ice sheet such as the Antarctic ice sheet, can be used to show a link between temperature and global sea level variations. The air trapped in bubbles in the ice can also reveal the CO2 variations of the atmosphere from the distant past, well before modern environmental influences. The study of these ice cores has been a significant indicator of the changes in CO2 over many millennia, and continues to provide valuable information about the differences between ancient and modern atmospheric conditions.
AnimalsRemains of beetles are common in freshwater and land sediments. Different species of beetles tend to be found under different climatic conditions. Given the extensive lineage of beetles whose genetic makeup has not altered significantly over the millennia, knowledge of the present climatic range of the different species, and the age of the sediments in which remains are found, past climatic conditions may be inferred.
Similarly, the historical abundance of various fish species has been found to have a substantial relationships with observed climatic conditions . Changes in the primary productivity of autotrophs in the oceans can affect marine food webs.