Defining environmentally harmful subsidies is challenging because subsidies come in different forms. In IEEP et al. 2007, these subsidies are regarded as "the result of government action that provides consumers or producers with a benefit to increase their income or reduce their costs, but in doing so discriminates against good environmental practices". These financial incentives or subsidies provided by governments or other entities are often intended to promote social or economic growth, but unintentionally come at the expense of sustainable development.

While these subsidies initially appear to stimulate economic progress and job creation, they often exacerbate environmental problems. It is common knowledge that many subsidies directly or indirectly contribute to the depletion of natural capital, one of the pillars of sustainable development. The examples are well known: waterlogging and salinisation through subsidised irrigation, deforestation through subsidised logging, overfishing through subsidised fishing fleets.

Harmful subsidies are not always easy to identify, as it is necessary to determine in detail the criteria under which their effects may be harmful to the objective of sustainable development. To remedy this situation, it is crucial to start identifying subsidies that are harmful to nature and the environment by the end of 2025, and to develop a plan to phase them out. This plan should take into account stakeholder participation, a just transition and robust accountability and governance processes. These harmful subsidies should also be redirected to activities that benefit biodiversity.

Although the EU has long been committed to eliminating and phasing out environmentally harmful subsidies, progress has been slow. More measures and efforts need to be taken at national and European level to address this problem.