Why harmful subsidies are difficult to redesign and how behavioural science can help

During a recent UNDP Biodiversity Finance Initiative (BIOFIN) webinar, experts from UNDP BIOFIN, Sciences Po and participating countries explored one of the most complex challenges in biodiversity finance: why environmentally harmful subsidies remain so difficult to redesign, and how behavioural science can help governments overcome political and social barriers to change.

Governments around the world spend trillions of dollars every year on subsidies that harm nature, more than twelve times the amount invested annually in protecting and restoring biodiversity. While the economic case for reform is compelling, changing these incentives remains one of the most politically and socially challenging aspects of biodiversity finance.

The webinar brought together researchers from Sciences Po alongside BIOFIN experts and country practitioners from Thailand, Ecuador and Liberia, who shared practical experiences of screening and reforming environmentally harmful subsidies. Their experiences demonstrated that successful reform depends not only on sound economic analysis, but also on understanding how people perceive change.

Looking Beyond Economics

Discussions about environmentally harmful subsidies often focus on budgets, fiscal impacts and environmental outcomes. Yet technical evidence alone rarely changes policy.

Governments often know which subsidies damage biodiversity, but reform can stall because decision-makers must also consider political risks, public opinion, institutional culture, competing interests and concerns about livelihoods. Even when a subsidy is shown to create economic inefficiencies and environmental harm, uncertainty about public reaction or unintended social consequences can make governments reluctant to alter long-standing policies.

New research by UNDP BIOFIN and Sciences Po suggests that many of the greatest barriers to reform are behavioural rather than purely economic.

By combining biodiversity finance expertise with behavioural science, the collaboration explores how governments can better understand the perceptions, motivations and concerns that shape policy decisions, making subsidy redesign more effective, equitable and politically feasible.

The research highlights several behavioural barriers that frequently influence decision-making:

• Status quo bias, where existing policies are preferred simply because they already exist.
• Loss aversion, where stakeholders place greater importance on avoiding perceived losses than on future benefits.
• Institutional inertia, making it difficult for ministries and agencies to coordinate reforms.
• Public trust and perceptions, which often determine whether reforms gain support or face resistance.

Recognizing these behavioural factors allows governments to move beyond technical analysis and design reforms that stakeholders are more likely to understand, support, and implement.

New Tools to Support Better Policy Decisions

To help governments navigate these challenges, UNDP BIOFIN and Sciences Po have developed practical tools that complement economic analysis with behavioural insights.

The collaboration has produced stakeholder perception surveys that help identify how different groups view subsidy reforms, what concerns they have, and which messages resonate most effectively. It has also developed a communication toolkit designed to strengthen advocacy, stakeholder engagement and public communication around environmentally harmful subsidies.

These resources complement BIOFIN's existing knowledge products, including the BIOFIN Workbook 2024 and The Nature of Subsidies guidance, which help governments identify, assess and integrate subsidy reform into their Biodiversity Finance Plans.

Together, these tools recognize that successful reform depends not only on sound technical evidence, but also on understanding how people respond to change.

What Countries Are Learning

While behavioural science offers new insights, BIOFIN countries are already demonstrating how these principles can be applied in practice by combining robust evidence with inclusive stakeholder engagement.

Thailand: Evidence Can Change Policy

Thailand identified a striking contradiction within its public finances. While facing an estimated US$1 billion biodiversity finance gap, the country was simultaneously spending approximately US$6 billion on environmentally harmful subsidies.

One successful reform focused on coastal protection. Scientific assessments showed that rigid sea walls constructed to prevent erosion were instead damaging natural sand dunes and worsening coastal degradation. The government used this evidence to replace expensive grey infrastructure with nature-based solutions.

The reform succeeded because scientific evidence was combined with dialogue across government agencies and stakeholders, helping build confidence in a different approach.

The results were significant. Approximately US$9 million previously invested in sea walls was replaced with a US$250,000 restoration approach, ultimately contributing to the cancellation of around US$200 million in planned sea wall construction across the country.

Ecuador: Reforming Subsidies Step by Step

Ecuador faces potentially harmful subsidies worth around US$1 billion annually, much of them linked to agriculture and fossil fuels.

Recognizing the political sensitivity of subsidy reform, the government adopted a gradual approach rather than attempting sweeping changes all at once.

Instead of immediately removing subsidies affecting broad segments of society, reforms first targeted large commercial users such as industrial shrimp farms and mining companies. This sequencing helped build political acceptance while reducing the risk of widespread social opposition.

The experience demonstrates that successful reform often depends as much on managing the pace of change as on the reform itself.

Liberia: Putting Equity at the Centre

As one of BIOFIN's newer participating countries, Liberia has focused on reviewing agricultural subsidies through a biodiversity lens.

Early assessments identified six subsidies with potentially harmful environmental impacts. Rather than advocating their complete removal, stakeholders largely supported redesigning these incentives, so they encourage sustainable agricultural practices while continuing to support farmers.

The discussions highlighted another important lesson: subsidy reform is not simply about reducing public spending. Well-designed reforms can improve environmental outcomes while also making government support more equitable, particularly for smallholder farmers.

Three Lessons for Governments

Experiences across UNDP BIOFIN countries point to several common principles that can help governments navigate subsidy reform.

• Build trust before introducing change. Providing alternative support or compensation before reforms take effect can reduce resistance and strengthen public confidence.
• Frame reforms around broader public benefits. Messages emphasizing fairness, economic efficiency, and better use of public resources often resonate more strongly than environmental arguments alone.
• Base decisions on transparent evidence. Clear economic and environmental analysis helps build consensus across ministries and supports long-term policy continuity.

Together, these experiences reinforce an important lesson: successful subsidy reform is ultimately about people as much as policy.

Supporting Global Biodiversity Goals

The importance of environmentally harmful subsidy reform is recognized globally through the Kunming–Montreal Global Biodiversity Framework (KMGBF).

Target 18 calls on countries to identify, phase out, repurpose or reform incentives harmful to biodiversity while scaling up positive incentives for nature, to reduce harmful subsidies by at least US$500 billion per year.

UNDP BIOFIN is supporting more than 130 governments to identify subsidies that negatively impact biodiversity, assess opportunities for reform, and integrate evidence-based financing solutions into national Biodiversity Finance Plans.

As countries prepare the next generation of Biodiversity Finance Plans, understanding human behaviour may prove just as important as economic analysis. By combining financial evidence with behavioural insights, governments can design reforms that protect livelihoods, build public trust and redirect billions of dollars towards nature, helping accelerate progress towards the global biodiversity goals.