In the past, companies which have polluted have not paid the cost of that pollution.
They have been allowed to discharge pollutants into the air and water while others bear the consequences. 'When companies are allowed to pollute, or to use natural resources without paying their full price, they are in effect appropriating natural capital - land, air, and water - without compensation to society at large' (Templet 2001: 2).
The resulting pollution or resource depletion is called an 'externality' by economists because it is a cost that is external to the company's accounts and external to the market transactions the company is involved in.The polluter pays principle (PPP) seeks to change this, so that a company has to either pay to prevent the pollution or pay for the damage (or for remediating the damage) that it causes. This does not mean that the polluter necessarily has to pay money to the government or to others, merely that they should pay for the appropriate pollution control measures to prevent pollution or for the clean-up if they fail to do so (JWPTE 2002: 9). Governments can ensure that the polluter pays by:
• regulating what polluters are able to discharge into the environment, so that they have to install their own pollution control equipment;
• charging polluters taxes and levies to cover government costs of protecting the environment, including the cost of sewage treatment facilities;
• making polluters liable for the damage they cause.