Your parents may have told you: “If you make a mess, you have to clean it up.” In a nutshell, that is the basis of the “polluter pays” principle. There is a lot wrapped up inside the simple principle of polluter pays. The roots of the principle come from economics rather than from environmentalism.
The idea is that an organization that damages the environment should pay to fix the damage it causes. In some cases the polluting organization might also be required to pay money to people that it has harmed. Since all costs that a commercial organization pays eventually get passed on to its consumers, cleanup costs will raise the prices of the goods they are selling. If the laws of economics hold true, those higher prices will cause rational consumers to seek substitute goods and then the demand for the polluting goods will fall. In theory, the rational profit maximizing organizations that had been causing the harm will respond by finding ways to produce their goods that don’t pollute. Their costs will come down, the price of their goods will fall and the organization will become more competitive. If they don’t react in this way, they might find themselves out of business.
The “polluter pays” principle helps us recognize the true costs of things.This idea of ‘cost internalization’ is part of international environmental law. It was recognized in Principle 16 of the 1992 United Nations Rio Declaration which said “National authorities should endeavour to promote the internalization 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.” Member states need to pass ‘enabling legislation’ at home before the Declaration has any effect within their borders.
Canada has done that. Many Canadian laws that protect our air, water and land incorporate the polluter pays principle. As just one of many possible examples, section 2 of the Alberta Environmental Protection and Enhancement Act says that one of the purposes of the Act is to recognize “the responsibility of polluters to pay for the costs of their actions”. It puts that purpose into action in sections 108 and 109 by stating that that no one is allowed to release substances into the environment at a rate greater than what they have permission to do or at a rate that causes “significant adverse effect”. If they do, then section 112 says they have a duty to repair, remedy and confine the effects of the substance, remediate, manage, remove or otherwise dispose of the substance to prevent an adverse effect, and then to restore the environment.
Markets work best when people can base their purchasing decisions on the true costs of things.The polluter pays principle helps us recognize the true costs of things. “Externalities” are costs of producing goods that are paid by someone other than the producer and consumers of the goods. Environmental externalities might be paid by identifiable groups; for example a pulp mill that is allowed to pollute a river shifts the cleanup costs to the municipalities downstream that are forced to increase spending on water treatment and to cover that spending by increasing taxes paid by residents. The price of the pulp and paper being produced does not reflect its true costs. Environmental externalities might also be spread more broadly to society as a whole. For example, if production of a certain kind of product increases disease or leads to climate change, costs go up for society as a whole. Again, the price of the goods being produced does not recognize their true costs. The cost of externalities may also be spread to future generations when environmental cleanup work is not done while the companies producing the harm are still in business. Externalities provide a subsidy, often hidden, to the producers and consumers of some goods at the expense of someone else.
Markets work best when people can base their purchasing decisions on the true costs of things. Sometimes, there may be valid political reasons to openly subsidize the production of goods. We may want to protect jobs in an important industry or we may want to encourage certain types of behaviour. But where pressing social justifications for subsidies do not exist, externalities let some people benefit at the expense of others. The people paying some of the hidden costs of the goods may not even be aware of what is happening.
It is interesting to think about the polluter pays principle in the context of the never-ending debate about “How much regulation is too much?” The principle on its own is not something that can be directly applied by the courts. It has to be brought to life through statutes and regulations. Acceptable levels of release of substances into the air, water or onto land must be set and then tracked. That requires reporting, scientific monitoring, record keeping and enforcement, all of which must be based on regulation. This sort of protective regulation protects people and allows economic decisions to be made by producers and consumers on the basis of true costs. It should not always be thought of simply as “red tape”. There is a balance to be struck and different politicians would draw the line in different places.
Principle 16 of the Rio Declaration also mentions promoting the use of economic instruments. That is what I am going to cover next time.