“POLLUTER PAYS PRINCIPLE”

Principle 16 of the Rio Declaration provides:

“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.”

Principle 16 on internalisation of costs includes what has become known as the “Polluter Pays Principle” or “PPP”. According to the PPP, the environmental costs of economic activities, including the cost of preventing potential harm, should be internalized rather than imposed upon society at large. An early version of the PPP was developed by the Organization for Economic Cooperation and Development (“OECD”) in the 1970s in an effort to ensure that companies would pay the full costs of complying with pollution control laws and were not subsidised by the state.

The PPP was adopted by the OECD as an economic principle and as the most efficient way of allocating costs of pollution-prevention-and control measures introduced by public authorities in the member countries. It was intended to encourage rational use of scarce resources and to avoid distortions in international trade and investment. It was meant to apply within a state, not between states. As a goal of domestic policy, it has been realized only partially in practice.

Since 1972, the PPP has gained increasing acceptance, has expanded in its scope to include (at least in theory) all costs associated with pollution, and has moved beyond the developed country context. Some recent international instruments that include it are: the 2003 Protocol on Civil Liability and Compensation for Damage caused by the Trans-boundary Effects of Industrial Accidents on Trans-boundary Waters to the 1992 Convention on the Protection and Use of Trans-boundary Watercourses and International Lakes and to the 1992 Convention on the Trans-boundary Effects of Industrial Accidents, Preamble, paragraphs two and three; and the 1996 Protocol to the London Convention, article 3.2. of which states that the polluter should, in principle, bear the cost of pollution.

Prior to UNCED, the polluter pays requirement was included in different European Community (“EC”) documents such as the 1986 Single European Act, the 1992 Maastricht Treaty and in the successive Programs of Action on the Environment. An important application of the principle is found in article 9 of EC Directive 2000/60 on water, which requires member states to take account of the principle of recovery of the costs of water services, including environmental and resource costs. Water pricing policies by 2010 are to provide adequate incentives for the efficient use of water resources.

The Treaty Establishing the European Community, Title XIX, sets out the principles meant to guide policy on the environment, principles that shape legislation in the EC. Article 174(2) provides that EC environmental policy “...shall be based on the precautionary principle and on the principles that preventive action should be taken, that environmental damage should as a priority be rectified at source and that the polluter should pay.” In sum, the polluter pays principle has to betaken into account by all the EC institutions, and the European Court of Justice should ensure respect for the principle in the cases it decides. The 1990 International Convention on Oil Pollution Preparedness, Response and Cooperation states in its preamble that the PPP is "a general principle of international environmental law” (para. 7). 

The 1992 Convention on the Protection of the Marine Environment of the Baltic Sea Area states in article 3(4) that the PPP is an obligatory norm, while the 1992 Helsinki Convention on the Protection and Use of Trans-boundary Watercourses and International Lakes includes it as a guiding principle in article 2(5)(b). More recent examples of reference to it are found in the 1996 Amendments to the 1980 Protocol for the Protection of the Mediterranean Sea against Pollution from Land-Based Sources (Preamble para. 5), and the 2001 Stockholm Convention on Persistent Organic Pollutants (Preamble, para. 17).

Issues relating to the content of the polluter pays principle are evident in the 1992 Convention for the Protection of the Marine Environment of the North-East Atlantic. According to article 2(2)(b), “The Contracting Parties shall apply: …the polluter pays principle, by virtue of which the costs of pollution prevention, control and reduction measures are to be borne by the polluter.” This can be interpreted in different ways depending upon the extent of prevention and control and whether compensation for damage is included in the definition of “reduction”. Further, the very concept of the “polluter” can vary, from the producer of merchandise to the consumer who uses it and who pays the higher price resulting from anti-pollution production measures.

In fact, pollution costs can be borne either by the community, by those who pollute, or by consumers. Community assumption of the costs can be demonstrated using the example of an unregulated industry that discharges pollutants into a river.

There are at least three possibilities:

(1) The river can remain polluted and rendered unsuitable for certain downstream activities, causing the downstream community to suffer an economic loss;

(2) The downstream community can build an adequate water treatment plant at its own cost;

(3) The polluter may receive public subsidies for controlling the pollution. 

In all these possibilities, the affected community bears the cost of the pollution and of the measures designed to eliminate it or to mitigate its effects. The PPP avoids this result by obliging the polluter to bear the full costs of pollution, to “internalise” them. In most cases, presumably, the enterprise will in fact incorporate the costs into the price of its product(s) and thus pass the cost on to the consumer; but it need not do this for the PPP to have its intended effect.

Without elaboration, it should be noted that the PPP has also been increasingly accepted and applied at national level including in statutes in many countries in the developing world, and in their national supreme courts such as in South Asia,Africa and elsewhere in the world.