POLLUTER PAYS PRINCIPLE

(Special Project Report)

Submitted To:

Mr. Rana Navneet Roy

Faculty Member in Environmental Law

Submitted By:

Ashutosh Biswas

B.A. LL.B (HONOURS) Student

Semester IV, Section – A, Roll No: 33

HIDAYATULLAH NATIONAL LAW UNIVERSITY

Uparwara Post, Abhanpur, New Raipur – 492002 (C.G.)

Date of submission: 10-05-19

1
 Declaration
I, Ashutosh Biswas, hereby declare that, this project report entitled, ‘Polluter Pays Principle’
submitted to Hidayatullah National Law University, Raipur is record of an original work done by
me under the guidance of Mr. Rana Navneet Roy, Faculty Member, H.N.L.U., Raipur and that no
part of this work has been plagiarized without citations.

Ashutosh Biswas

Semester IV

Section - A

Roll no. 33

2
 Contents
Declaration .................................................................................................................................................... 2
1. Introduction .......................................................................................................................................... 4
Statement of Problem................................................................................................................................... 5
Hypothesis..................................................................................................................................................... 5
Scope of Study .............................................................................................................................................. 5
Methodology................................................................................................................................................. 5
Chapterisation ............................................................................................................................................... 6
2. PPP, in treaties ...................................................................................................................................... 7
3. PPP, an Economic Principle ................................................................................................................... 9
2.A. Which costs are covered ? ................................................................................................................. 9
2.B. Fees and Taxes ................................................................................................................................... 9
2.C. Polluter pays principle and property rights ..................................................................................... 10
4. PPP, Adapted by Different Countries .................................................................................................. 11
3.A. USA .................................................................................................................................................. 11
3.B. Canada ............................................................................................................................................. 11
3.C. India ................................................................................................................................................. 12
3.D. PPP in the European Union ............................................................................................................. 15
3.D.1. The EC Treaty ........................................................................................................................ 15
5. Difficulties of implementing PPP......................................................................................................... 16
6. Conclusions ......................................................................................................................................... 17
7. Bibliography ........................................................................................................................................ 18

3
 1. Introduction
"The ‘polluter pays principle’ states that whoever is responsible for damage to the environment
should bear the costs associated with it." (Taking Action, The United Nations Environmental
Programme.)

The polluter pays principle (PPP) was first mentioned in the recommendation of the OECD of 26th
May 1972 and reaffirmed in the recommendation of 14th November 1974. It said that “of costs of
pollution prevention and control measures to encourage rational use of scarce environmental
resources and to avoid distortions in international trade and investment. The polluter should bear
the expense of carrying out the measures decided by public authorities to ensure that the
environment is in an acceptable state”
The normative scope of the PPP has evolved over time to include also accidental pollution
prevention, control and clean-up costs, in what is referred to as extended Polluter Pays Principle.
Today the Principle is a generally recognized principle of International Environmental Law, and
it is a fundamental principle of environmental policy of both the Organisation for Economic Co-
operation and Development (OECD) and the European Community.

In the environmental law, the polluter pays principle refers to the principle that if pollution occurs,
the person or organization that causes pollution should pay for the consequences of the pollution
and for avoiding it in future. Polluter pays is also known as extended polluter responsibility (EPR).
The objective of this principle is to make the polluter responsible for the external costs arising
from pollution caused. The polluter pays principle performs dual functions:

1. Prevention of pollution

2. Remediation, if pollution were to occur

4
Statement of Problem
Polluter Pays Principle was first introduced in 1970s, after that it has been adopted by many
countries. But whether the it is really compensating the harm done to the environment?

Hypothesis
The writer assumes the following:-

 The very notion of the Polluter Pays Principle is to make polluter responsible for his part
of destruction of environment. It is a very logical principle which in someway reduces the
burden on the state/authority.

Scope of Study
The scope of my study is limited to the application and adaptation of Polluter Pays Principle.

Objectives of the Study

The primary objective of this project report is to present the idea and framework of National
Green Tribunal. The other specific objectives of this project include:

 To study what is Polluter Pays Principle and its adaptation as economic as well as
environment principal.
 To study its acceptance in different countries.

Methodology
This study has been carried out in a descriptive manner. Secondary and published documented
data has been collected through various sources and analyzed accordingly. Many of the available
literature and studies have also been consulted and reviewed to make the study more objective.
No field work has been carried out in the development of this work.

5
 Chapterisation

1. Chapter 1: Introduction – Deals with basic information about Polluter Pays

Principle(PPP).
2. Chapter 2: Defination of PPP in treaties.
3. Chapter 3: PPP as an Economic principle and its benefits.
4. Chapter 4: Adaptation of PPP by different countries.
5. Chapter 5: Difficulties of implementing PPP.
6. Chapter 5: Conclusion – Sums up the paper and whether it stands by the hypothesis.

6
 2. PPP, in treaties

 Principle 22 of Stockholm Declaration defines Polluter Pays Principle as:

“States shall cooperate to develop further the international law regarding liability and
compensation for the victims of pollution and other environmental damage caused by activities
within the jurisdiction or control of such States to areas beyond their jurisdiction.”1

 Polluter Pays Principle is defined in the Principle 16 of Rio Declaration which states:

“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.”2

If environmental costs are not internalized (or if state subsidies are given to polluting industries or
if preventive measures are paid by the state) this could lead to distortion of international trade and
investment. Thus, due application of the principle also protects economic interests. (but: no
excessive application of principle, which may again lead to distortions.)

 Further in Treaty on the Functioning of European Union

PPP is defined in clause 2 of Article 191 under the head of ‘Environment’ in Title XX which
states:

Article 191

2. Union policy on the environment shall aim at a high level of protection taking into account
the diversity of situations in the various regions of the Union. It 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.

1
Stockholm Declaration, Principle 12, 16th June, 1972
2
Rio Declaration On Environment and Development, Principle 16, 12 August 1992, A/CONF.151/26 (Vol. I)

7
In this context, harmonisation measures answering environmental protection requirements
shall include, where appropriate, a safeguard clause allowing Member States to take
provisional measures, for non-economic environmental reasons, subject to a procedure of
inspection by the Union.3

3
The Treaty on the Functioning of the European Union, Article 191(2), 25 March 1952

8
 3. PPP, an Economic Principle
The polluter pays principle (PPP) is a basic economic idea that firms or consumers should pay for
the cost of the negative externality they create. The polluter pays principle usually refers to
environmental costs, but it could be extended to any external cost.

In a purely free market, a consumer only faces his private costs. However, for goods with negative
externalities, there are additional external costs, e.g. damage to the enviornment. This means the
social cost of some goods are greater than the private cost.

The polluter pays principle is simply the idea that we should pay the total social cost including the
environmental costs. This requires some authority or government agency to calculate our external
costs and make sure that we pay the full social cost. A simple example, is a tax on petrol. When
consuming petrol, we create pollution. The tax means the price we pay more closely reflects the
social cost.

The polluter pays principle is a way of ‘internalising the externality’. It makes the firm / consumer
pay the total social cost, rather than just the private cost. (Social cost = private cost+ external cost).4

2.A. Which costs are covered ?

The polluter has to bear the cost of steps that he is legally bound to take to protect the environment,
such as measures to reduce the pollutant emissions at source and measures to avoid pollution by
collective treatment of effluent from a polluting installation and other sources of pollution.
Generally speaking, a polluter has to bear all the costs of preventing and controlling any pollution
that he originates. A polluter should not receive assistance of any kind to control pollution (grants,
subsidies or tax allowances for pollution control equipment, below-cost charges for public
services, etc.).5

2.B. Fees and Taxes

Polluters in some nations are forced to assume responsibility for their wastes though fees or taxes,
either national or local. Fees may be assessed to ensure that the regulated polluter pays at least

4
Tejvan Pettinger, Polluter Pays Principle, (27th February 2013)
http1://www.economicshelp.org/blog/6955/economics/polluter-pays-principle-ppp/
5
THE POLLUTER-PAYS PRINCIPLE, OECD Analyses and Recommendations, OCDE/GD(92)81,
http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=OCDE/GD(92)81&docLanguage=En

9
some of the costs of regulation. For example, under the Clean Air Act in the US, major sources of
air pollution must operate under a permit; permit violations result in civil or criminal penalties.
The Clean Air Act, which instituted the permit program, “followed the PPP’s prescriptions with
remarkable fidelity.”6

2.C. Polluter pays principle and property rights

The polluter pays principle requires either government intervention or the presence of clearly
defined property rights.

If someone has access to a river, they can sue a chemical firm if they create a cost of pollution. For
other goods, it is harder to define property rights. For example, the pollution from a car affects
everyone in society and also other countries. In this case it is impractical to extend property rights
to try and deal with the problem. The pollution faced by individuals is relatively low. In this case
government regulation is the only effective method.

To ensure that the polluter pays, government intervention will involve:

 Estimation of the external cost of the pollution.

 Place a tax on good to make people pay the true social cost or they may require the firm
to pay to clean up the costs they create.
 To make sure a firm pays, money may need to be deposited as insurance against the worst
case environmental scenario. Some environmental tragedies could cause the firm to go
bankrupt meaning it can’t cover the full environmental cost.7

6
Margaret Rosso Grossman, Agriculture and the Polluter Pays Principle, Netherlands Comparative Law
Association, Pg no. 44
7
Supra 2.

10
 4. PPP, Adapted by Different Countries
3.A. USA
Superfund or Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(CERCLA) is a United States federal law designed to clean up sites contaminated with hazardous
substances and pollutants. It authorizes federal natural resource agencies, primarily
the Environmental Protection Agency (EPA), states and Native American tribes to recover natural
resource damages caused by hazardous substances. EPA may identify parties responsible for
hazardous substances releases to the environment (polluters) and either compel them to clean up
the sites, or it may clean up itself using the Superfund (a trust fund) and cost recovered from
polluters by referring to the U.S. Department of Justice.8

This law created a tax on the chemical and petroleum industries and provided broad Federal
authority to respond directly to releases or threatened releases of hazardous substances that may
endanger public health or the environment. Over five years, $1.6 billion was collected and the tax
went to a trust fund for cleaning up abandoned or uncontrolled hazardous waste sites. CERCLA:

 established prohibitions and requirements concerning closed and abandoned hazardous

waste sites;
 provided for liability of persons responsible for releases of hazardous waste at these sites;
and
 established a trust fund to provide for cleanup when no responsible party could be
identified.9

3.B. Canada
The Supreme Court of Canada explained the polluter pays principle in a 2003 case called Imperial
Oil Ltd. v. Québec (Minister of the Environment). Noting that the polluter pays principle has been
internationally recognized, the Court said, “To encourage sustainable development, that principle
assigns polluters the responsibility for remedying contamination for which they are responsible
and imposes on them the direct and immediate costs of pollution.” In endorsing the polluter pays

8
Environmental Protection Agency, Summary of the Comprehensive Environmental Response, Compensation, and
Liability Act (Superfund), http://www.epa.gov/laws-regulations/summary-comprehensive-environmental-response-
compensation-and-liability-act (Last seen on 10 February 2016)
9
http://www.epa.gov/superfund/superfund-cercla-overview, Superfund: CERCLA Overview

11
 principle, the Court also noted that the principle has become firmly entrenched in Canadian
environmental law. In fact, several federal, provincial and territorial environmental laws
specifically refer to the principle:
 The preamble to the Canadian Environment Protection Act, , says that “the Government of
Canada. . .has adopted the ‘polluter pays’ principle”;
 Sec. 2(i) of the Alberta Environmental Protection and Enhancement Act says the Act recognizes
“the responsibility of polluters to pay for the costs of their actions”;10

3.C. India

Despite the potential that the polluter pays principle holds to protect the environment, it was not a
part of the law in India till it was invoked in the Enviro-Legal Action11 case as late as 1996. In this
case the court affirmed the principle of absolute liability as stated in the Oleum Gas Leak12 case
and extended it. The court laid down, "The polluter pays principle demands that the financial costs
of preventing or remedying the damage caused by pollution should lie in the undertakings which
cause the pollution or produce the goods that cause the pollution." The judgement of the above
case on the polluter pays principle and the justification for invoking it was reaffirmed by another
Bench in 1996, in the case of Vellore Citizens Welfare Forum v. Union of India13 In these cases
the use of the polluter pays principle has been justified via the constitutional mandate, statutory
provisions and international customary law.14

In the case of Vellore Citizens Welfare Forum v. Union of India15 Hon’ble Supreme Court said
that the precautionary principle and the polluter pays principle have been accepted as part of the
law of the land and held that

10
Environmental Incidents, Environment Compliance Insider
http://environmentalcomplianceinsider.com/topstories/environmental-incidents-part-1-%E2%80%98polluter-
pays%E2%80%99-liability-for-costs-of-emergency-environmental-measures
11
Indian Council for Enviro-Legal Action v. Union of India. (1996) 3 see 212 at 215
12
M.C. Mehta v. Union of India, (1987) 1 see 395.
13
(1996) 5 SCC 647. In this cases some industries in the state of Tamil Nadu were discharging untreated effluents in
the agricultural sites, roadways waterways and open lands. The effluents were finally discharged into the River
Palar, which was the main source of water supply to the resident of that area.
14
Shyel Trehan and Shuva Mandal, The Polluter Pays Principle, The Student Advocate, NLSIU, Banglore
15
1996) 5 SCC 647

12
"Once the activity carried on is hazardous or inherently dangerous, the person carrying on such
activity is liable to make good the loss caused to any other person by his activity irrespective of
the fact whether he took reasonable care while carrying on his activity. The rule is premised upon
the very nature of the activity carried on". Consequently the polluting industries are "absolutely
liable to compensate for the harm caused by them to villagers in the affected area, to the soil and
to the underground water and hence, they are bound to take all necessary measures to remove
sludge and other pollutants lying in the affected areas". The "Polluter Pays" principle as
interpreted by this Court means that the absolute liability for harm to the environment extends not
only to compensate the victims of pollution but also the cost of restoring the environmental
degradation. Remediation of the damaged environment is part of the process of "Sustainable
Development" and as suchpolluter is liable to pay the cost to the individual sufferers as well as the
cost of reversing the damaged ecology.

Application of these principles as part of the law:

The court held that these principles as part of the principle of sustainable development were
implicit in the law of the land and noted that they were within the ambit of the Constitution of
India, under the following:

1. Article 21, which guarantees the right to life and liberty,

2. Article 47, which says that the state has a duty to raise the standard of living and to
improve public health,
3. Article 48(A) which guarantees the protection and improvement of the environment, and
4. Article 51A(g) which imposes a duty upon every citizen to protect and improve the
environment

It also noted that these principles were implicit under various statutory provisions such as the
Water (Prevention and Control of Pollution) Act, 1974 (the Water Act), The Air (Prevention and
Control of Pollution) Act, 1981 (the Air Act) and the Environment Protection Act 1986 (the
Environment Act). 16

16
Dviji Joshi, Vellore Citizens Welfare Forum v. Union of India, http://legalsutra.com/tag/polluter-pays-principle/

13
Further, the court said that as these principles were accepted under Customary International Law,
there would be no difficulty accepting them under the domestic law as well.

14
3.D. PPP in the European Union
The Treaty of Rome of 25 March 1957, which established the European Economic Community,
did not provide for Community competence in environmental matters. Even without special
environmental authority, however, a series of Environmental Action Programmes established the
PPP in Community policy. Environmental measures, mostly Directives, had been adopted under
other sources of legislative authority, and these measures applied the principle, explicitly or
implicitly. Council Recommendations and Guidelines also applied the principle. Finally, in 1987,
the European Community received clear authority to enact measures to protect the environment,
and polluter pays was formally adopted as an environmental principle in the European Union.
The following discussion reviews the development of the PPP in EC law.
3.D.1. The EC Treaty
The polluter pays principle became part of primary law in the European Union on 1 July 1987,
when the Single European Act (SEA), amending the Treaty of Rome, came into force. The SEA
enacted a new title on the environment, which articulated objectives and guiding principles,
authorized environmental legislation, and made environmental protection a component of other
European policies. The Maastricht Treaty amended the environment title slightly, and Treaty
provisions were later renumbered.17

17
Margaret Rosso Grossman, Agriculture and the Polluter Pays Principle, Netherlands Comparative Law
Association, Pg no. 9

15
 5. Difficulties of implementing PPP

 It can be difficult to measure how much pollution is produced, e.g. firms may try to hide the
extent of their pollution.
 It can be difficult to impose regulations or tax on firms from other countries. For example, when
we contribute to global warming, the problem effects everyone around the world, but it can be
difficult to create international agreements to impose penalties on those polluting.
 Pollution havens. These are countries which have weaker environmental legislation and firms
can escape taxes and regulations on pollution by shifting production to those countries.
 Some costs are unexpected and occur after the event. e.g. in building nuclear power plant.

The difficulties of implementing the polluter pays principle doesn’t undermine its validity. It just
means in the real world it will be hard, if not impossible to get a perfect approximation of the
external cost. As long as we get closer to the social cost, there will be an increase in economic
welfare.18

18
Supra 1.

16
 6. Conclusions

The Polluter-Pays Principle started out as an economic principle and has recently become a legal
one. It has not yet been codified, for its content has changed and will continue to do so. The
predominant trend is to place further liability on the polluter and to alleviate the economic burden
which pollution places on the authorities.

The Polluter-Pays Principle is not a principle of equity; it is designed not to punish polluters but
to set appropriate signals in place in the economic system so that environmental costs are
incorporated in the decision-making process and hence arrive at sustainable development that is
environment-friendly. The aim is to avoid wasting natural resources and to put an end to the cost-
free use of the environment as a receptacle for pollution. A degree of environmental pollution will
certainly persist, and the consumer will bear the cost initially charged to the polluter. But use of
the Polluter-Pays Principle will secure economic efficiency and will reduce distortions in
international trade and investment to a minimum.

17
 7. Bibliography
Journal articles/Research Paper

 Shyel Trehan and Shuva Mandal, The Polluter Pays Principle, The Student Advocate,
NLSIU, Banglore
 The Polluter-Pays Principle: OECD Analyses and Recommendations, Environment
Directorate, Organisation for Economic Co-operation and Development, Paris 1992
OCDE/GD(92)81
 Margaret Rosso Grossman, Agriculture and the Polluter Pays Principle, Netherlands
Comparative Law Association

International Agreements

 Stockholm Declaration, 16th June, 1972

 Rio Declaration On Environment and Development, 12th August 1992
 The Treaty on the Functioning of the European Union, 25th March 1952
Websites
 www.economicshelp.org
 www.oecd.org
 www.epa.gov
 www.environmentalcomplianceinsider.com

18