FUNCTIONS OF THE POLLUTER PAYS PRINCIPLE

The PPP is merely a means of allocating costs, and on its own does not necessarily result in reduced pollution - although this may occur. Although the PPP was originally formulated to combat trade distortions, it also became a means of distributing some of the profits made from products which caused pollution back to the government authorities and regulatory agencies whose job it was to control and prevent pollution.

PPP in the strict sense

At first the polluter pays principle was only applied to the costs of pol­lution prevention and control, as required by government regulation. This was PPP 'in a strict sense' or 'standard' PPP. The polluter pays prin­ciple 'in a strict sense' includes costs of pollution control equipment, the cost of government provision of pollution removal infrastructure and services and, in some cases, the administrative costs of government in overseeing pollution control ('measurement, surveillance, supervision, inspection etc.'). PPP 'in a strict sense' sometimes covers the cost of clean-up as well, including cleaning up after an accidental spill or long­term routine pollution (JWPTE 2002: 12).

Such payments could be seen by some polluters as legitimising the pollution, in other words, that they were paying to be allowed to pollute. Government charges were not much of a disincentive when they were viewed as just another tax on the production process and simply incor­porated into the cost of the final goods. So PPP charges had to be accom­panied by standards and regulations that limited allowable discharges.

Nations can have differing environmental standards and thus the amount that a firm has to pay to keep pollution within those standards will vary. Within the OECD, for example, it is accepted that national stan­dards will differ according to different social objectives, differing assumptions about local assimilative capacity, differing population den­sities, and how industrialised a region is (Juhasz 1993: 38).

Under these conditions, lower environmental standards became essen­tially a form of subsidy, provided at the expense of the local environment, to local firms in a competitive international market, since those firms didn't have to pay to keep their pollution within the higher standards expected in other countries. In general, polluters paid only part of the costs of pollution, as regulations never required all pollution to be prevented, just that a specified environmental standard be met. Environmental damage continued to occur despite the standards and charges.

PPP in the broad sense

During the 1990s, the idea of putting limits on discharges fell out of favour. Under pressure from industry, many governments began to adopt an approach whereby pollution would be controlled, not by gov­ernment-imposed limits, but by charges and fees that would provide an incentive for companies to voluntarily reduce their emissions. It was believed that it would be more efficient if environmental goals were met by internalising the full costs of pollution, thereby providing incentives for polluters to reduce their pollution in the most efficient way and for consumers to use the products more efficiently because they cost more: 'Prices which fail to incorporate costs resulting from environmental damage may lead to inefficient use, often in the form of excessive con­sumption of natural resources' (JWPTE 2002: 9).

The 1991 OECD Recommendation on the Use of Economic Instruments in Environmental Policy called for the costs of environ­mental damage caused by polluters, as well as the costs of preventing and controlling pollution, to be covered by the PPP (cited in de Sadeleer 2002: 37). Subsequent EC documents have made polluters liable for damage done (see next section). In this way the PPP can be used to ensure that the costs of repairing damage caused by pollution, or com­pensation payments, are paid by the polluters.

This broadening of the PPP is aimed at pollution prevention.

Principle 16 of the Rio Declaration on Environment and Development promotes the idea of PPP in the broad sense:

National authorities should endeavour to promote the internalisa­tion of environmental costs and the use of economic instruments, taking into account the approach that the polluter should, in prin­ciple, bear the cost of pollution, with due regard to the public interest and without distorting international trade and investment.

Despite its reference to internalisation of environmental costs, this partic­ular version of the principle is fairly weak since it refers only to national regulation, not international; does not require the application of PPP, only an effort towards it; and maintains international trade and invest­ment as a more important goal (de Sadeleer 2002: 25). The internalisation of all environmental costs is more of an ideal than a prescription, as is the case with the PPP in the strict sense. Once it has been expanded to include all costs, it is too difficult to make the PPP mandatory.

In its latest Environmental Action Programme, Environment 2010: Our Future, Our Choice, the EC (quoted in Coffey & Newcombe 2001: 4) also seeks: 'To promote the polluter pays principle... to internalise the nega­tive as well as the positive impacts on the environment' (Article 3(3)).

The PPP therefore seeks to achieve various functions, some of which can at times be contradictory:

• to ensure fairness in international trade

• to achieve economic integration - internalising costs

• to provide more equitable redistribution of costs

• to prevent pollution

• to provide compensation and reparation (de Sadeleer 2002: 33-4).

The ideal of polluters paying the full cost of their pollution and environ­mental impact so that external costs of economic activities are inter­nalised into company decision making is not only politically difficult, because companies argue that they cannot afford such costs, but also practically difficult, because the value of environmental damage is very hard to quantify, particularly in the case of irreversible or irreparable damage. Some say that such damage is beyond costing (see chapter 8). One way of dealing with this problem is to ensure that polluters are truly liable for the cost of repairing or cleaning up the environmental damage they cause.