Polluter Pays Principle Case Study

I. Introduction

The Polluter pays principle (PPP) basically means that the producer of goods should be responsible for the cost of preventing any pollution caused as well as remedy any damage so caused. It will include full environmental costs i.e. cost of pollution or any other harm caused to the ecology and not just those which are immediately tangible costs.[1]

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The polluter pays principle is preventive and compensatory in nature. It may entail fixing criminal responsibility on polluter, to make him make good the harm or pay eco-tax or carbon tax or at least participate in preserving environment in some way. The principle of polluters pay has been interpreted differently in different countries and there seems to be no common definition. For instance, some countries impose retrospective liability on the polluter and different countries have different definitions for who is a polluter and what constitutes pollution[2]; range of costs to be borne by the polluter differs. It should also be noted that the above principle is more of a regional custom than part of international environmental law. The name of this rule is unnecessarily restrictive if taken literally. Pollution (harm associated with emission of wastes into environment) is only one of many forms of environmental degradation to which the rule has been applied.

Initially, PPP was interpreted only as government not doing the clean up job for the polluters or the industries, but today the scenario has changed. The most popular interpretation of PPP is that apart from the government even the specific polluters should incur the responsibility for abating their contribution to a particular pollution problem. This is called equitable internalization. As polluters bear all the cost the distortions in international trade and investment arising from differential pollution abatement financing methods could be eliminated through the adoption of the PPP.[3]

The polluter pays principle has been used as the beneficiary-pays principle which favours the costs of providing conservation goods (i.e. prevention or repair of environmental degradation) being allocated to those who benefit from those goods. The strict version requires costs be fully distributed among beneficiaries pro-rata to their shares of total benefits (User pays principle) while the weaker version requires that all beneficiaries cover full costs. (Beneficiary compensates principle)[4]

This research paper aims as briefly discussing the development of the PPP, its implementation while referring to its ever expanding definitions as well as its advantages and limitation in the Indian and the International scenario.

II. The economic aspect

The PPP was initially conceived as an economic theory to maximize resource allocation. Pollution in economic terms simply means improper cost allocation.[5] That is, the cost of one resource, i.e., water or air, is not properly reflected in the product price. Initially, people had the common belief that neither air nor water was a scarce resource and so its use was free to all and producers could discharge waste into the air or water without accounting for the use of that resource as part of production costs. They simply passed the cost of using the air or water for waste disposal on to the future users of those resources. This failure to properly allocate costs stimulates over-production leading ultimately to a market failure. Such failure, if not corrected, will result in pollution which needs to be adequately paid for. This is commonly known as the theory of internalization of external costs.

Thus, “polluter pays” strives to internalize environmental externalities, thereby mandating that environmental harms be factored into market price. This informs consumers of the true costs of industrial activity and discourages environmentally harmful behavior. It could also be used to oblige nations to reflect in market terms the environmental externalities of their industrial development. This would diminish the incentive to pursue comparative advantage through a willingness to impose greater externalities on the environment.[6]

PPP favours corrective justice and is concerned very less with idea of fault. When reduced to its most basic logic and applied to the interstate level, the polluter pays principle serves a reparative function: one who causes harm must remedy it. This logic is particularly compelling given that these harms impinge upon common concerns of humanity. Furthermore, under this principle it is not the responsibility of government to meet the costs involved in either prevention of environmental damage, or in carrying out remedial action, because the effect of this would be to shift the financial burden of the pollution incident to the taxpayer.[7]

III. International Background

The recognition of the vice of pollution and its impact on future resources was realised during the early part of 1970. The United Nations Economic Commission for Europe, during a panel discussion in 1971, concluded that the total environmental expenditure required for improvement of the environment was overestimated but could be reduced by increased environmental awareness and control. In 1972, the Organisation for Economic Cooperation and Development adopted the polluter pays principle as a method for pollution cost allocation, including for accidental pollution. This principle was also discussed during the 1972 Paris Summit.[8]

It was the EU which took the lead in promoting the PPP when in 1974, it made it mandatory that this principle be uniformly applied to all its member states. The current Fourth Action Programme makes it clear that ‘the cost of preventing and eliminating nuisance must in principle be borne by the polluter’, and the PPP has now been incorporated into the European Community Treaty as part of the new Articles on the environment which were introduced by the Single European Act of 1986. Article 130(2) of the Treaty states that environmental considerations are to play a part in all the policies of the Community, and that action is to be based on three principles: the need for preventative action; the need for environmental damage to be rectified at source; and that the polluter should pay.[9]

PPP is included in Article 174 of the EU Treaty (1997) and since 1990, when the International Convention on Oil Pollution Preparedness, Response and Co-operation was agreed upon by the International Maritime Organization (IMO), the PPP has been acknowledged as a ” …general principle of international environmental law.” In US, the principle was adopted by the enactment of Comprehensive Environment response Compensation and liability Act, 1980.

World Commission on Environment and Development (1986) also legally supported PPP through sustainable development principle 10.[10] Later international documents like the 1992 Rio declaration: principle 16[11], Agenda 21 and the World Summit on Sustainable Development (WSSD) i.e. Johannesburg Plan of Implementation reiterated the same principle. Some of the salient principles of “Sustainable Development”, as culled-out from Brundtland Report include PPP.

IV. India and the polluter pays principle

• Policy:

National conservation strategy and policy statement on environment and development, 1992 recommends  “operationalisation of ‘polluter pays principle’ by introducing effluent tax, resource cess for industry and implementation of standards based on resource consumption and production capacity so that environmental considerations could be integrated while encouraging industrial growth.”

National environment policy, 2006 is more specific in recognizing the polluter pays principle in order to achieve economic efficiency in environmental conservation. This Principle requires that the services of environmental resources be given economic value, and such value to count equally with the economic values of other goods and services, in analysis of alternative courses of action.

• Judiciary:

The judiciary in India first recognised the polluter pays principle as a sound principle in Indian Council for Enviro-Legal Action v. Union of India & Ors[12](Bichhri Village case) which interpreted PPP to mean that “absolute liability of harm to the environment extends not only to compensate the victims of pollution, but also to the cost of restoring environmental degradation. This principle forms an important part of sustainable development”[13].

Explaining the principle, the Court held that it is not the role of the government to meet the cost either in the prevention of such damage or in carrying out remedial action, because the effect of this would be shifting the financial burden of the pollution incident to the tax payers and why should the tax payers share this burden? It should be the polluter who should be made responsible for their wrong doings.[14] Thus, according to this principle, the responsibility for repairing the damage is that of the offending industry. Sections 3 and 5 of the Environment (Protection) Act 1986 empower the Central Government to give directions and take measures for giving effect to this principle.

The social action litigation initiated in August, 1989 relating to production of ‘H’ acid in chemical industries near Bichhri village. Since the toxic untreated waste waters were allowed to flow out freely and because the untreated toxic sludge was thrown in the open in and around the complex, the toxic substances percolated deep into the earth polluting the underground water. The water in the wells and the streams has become dirty and unfit, and is no longer potable. Even the land has become barren and can no longer be cultivated.

Further it was also observed that even trees like eucalyptus planted in contaminated fields show leaf burning and stunted growth. Many old trees which were badly affected due to contamination are still growing under stress conditions as a result of soil contamination. The resulting misery to the villagers needs no emphasis. It spread disease, death and disaster in the village and the surrounding areas. Most of these industries were never even granted a no objection certificate. Keeping this in mind, NEERI report suggestedthat the principle of ‘Polluter Pays’ should be applied in this case.

The cost of damage to be disbursed to the affected villagers is estimated at Rs. 342.8 lakhs. This cost needs to be borne by the management of the industry in keeping with the PPP and the doctrine of Strict/Absolute liability, as applied to Sriram Food and Fertilizers Industry in the case of Oleum leak in 1985.

It was finally directed that the Central Government shall determine the amount required for carrying out the remedial measures over the damage caused to ecology of the region. It was kept open for the villagers to institute suits for suitable relief. The court said that no distinction is to be made in this behalf as between a large-scale industry and a small-scale industry or for that matter between a large-scale industry and a medium-scale industry. All chemical industries, whether big or small, should be allowed to be established only after taking into considerations all the environmental aspects, appropriate directions in that behalf may be issued under Section 3 and 5 of the Environment Act, the Central Government shall ensure that the directions given by it are implemented forthwith. The Central Government and the R.P.C.B. shall file quarterly Reports before this Court with respect to the progress in the implementation of Directions.

In S. Janannath v Union of India[15], applying the said principle, the Court held the aquaculture (shrimp culture) industry that had been functioning within the Coastal Regulatory Zone (CRZ) Notification as liable to pay the affected persons on the basis of the polluter pays’ principle. In Vellore Citizens Welfare Forum v Union of India[16], a three judge bench went a step further and regarded both the precautionary principle and the ‘polluter pays’ principle as part of environmental law.[17] Kuldip Singh, J. after referring to the principles evolved in various international Conferences and to the concept of ‘Sustainable Development’, stated that the PPP now governs the law in our country too, as is clear from Articles 47, 48-A and 51-A(g) of our Constitution and that, in fact, in the various environmental statutes, such as the Water Act, 1974 and other statutes, including the Environment (Protection) Act, 1986, these concepts are already implied. The learned Judge declared that these principles have now become part of our law. In fact on the facts of the case before this Court, it was directed that the authority to be appointed under Section 3(3) of the Environment (Protection) Act, 1986 shall implement the PPP.[18]

Next, reference may also be made to the decision in the case of A.P. Pollution Control Board v. Prof. M.V. Nayudu (Retd.) and Ors[19]and Karnataka[20] where, after referring to the principles noticed in Vellore Citizens’ Welfare Forum’s Case, the same have been explained in more detail with a view to enable the Courts and the Tribunals or environmental authorities to properly apply the said principles in the matters which come before them. It was in this case that the onus of proof was fixed to be on the polluter.

In MC Mehta v. Union of India[21] it was held that even if PPP is not interpreted as a principle of environment law in India as stated in Vellore case, it still remains a principle of international law which has acquired the status of customary international law. It is a well-settled law under the Indian Constitution that rules of customary international law not contrary to municipal law be deemed to be incorporated into the domestic law. And, therefore, once declared as customary international law, precautionary principle naturally became part of Indian municipal law.

Relying on the above judgment, in M.C.Mehta v. UOI[22], the SC ordered the Calcutta Tanneries to relocate and pay compensation for the loss of ecology/environment of the affected areas and the suffering of the residents. Similarly, in the Kamalnath’s case[23], the court by considering the PPP as the law of the land, ordered that one who pollutes the environment must pay to reverse the damage caused by his acts. Thus, Span Motels who were illegally and callously interfering with the natural flow of Beas were directed to pay compensation by way of costs for restitution of environment and ecology of the area.

In the matter of enforcement of Fundamental Rights under Article 21, under Public Law domain, the Court, in exercise of its powers under Article 32 of the Constitution, has awarded damages against those who have been responsible for disturbing the ecological balance either by running the industries or any other activity which has the effect of causing pollution in the environment. The Court while awarding damages also enforces the PPP which is widely accepted as a means of paying for the cost of pollution and control. To put in other words, the wrongdoer, the polluter, is under an obligation to make good the damage caused to the environment.[24]Again in MC Mehta v. UOI[25] a question arose as to the fate of mining activities in the Aravalli range in Gurgaon and if any, payments have to be made by the mine operators and/or by State Government towards environmental fund applying PPP.

Also, in Research foundation case[26], PPP was applied to the case where a high power committee on hazardous wastes noticed 133 containers being illegally imported under the garb of lubricating oil. Recommendation of Monitoring Committee that only appropriate course to protect environment was to direct destruction of consignments by incineration was followed and the Importers held liable to pay amounts to be spent for destroying hazardous waste on basis of precautionary principle and PPP.

The decision in Deepak Nitrite Ltd. v. State of Gujarat and others[27] laid down a proposition that in absence of actual degradation of environment by the offending activities, the payment for repair on application of the PPP cannot be ordered. In this case a Public Interest litigation was filed  before High Court alleging large scale pollution caused by industries located in Gujarat Industrial Development industrial corporation estate at Nandesari.

In Tirupur Dyeing[28] case, public interest litigation was filed against the discharge of effluents into river. A large number of farmers have suffered because of the pollution caused by them. They could not cultivate any crop in the said land. The Pollution Control Board is directed to ensure that no pollution is caused, giving strict adherence, to the statutory provisions. “polluter-pays” are the integral part and parcel of national environmental law. The appellant is bound to compensate the persons who have suffered the loss because of the activity of its members, as water of the river is neither worth for irrigation purpose nor potable. It was also reiterated that principles of “polluters-pay” and “precautionary principle” have to be read with the doctrine of “sustainable development”.

V. Conclusions

Even with all its success in Indian scenario, the polluter pays principle is not a cure for all of the world’s environmental problems. It has a potential only for problems that stem from identifiable polluters who have sufficient economic resources to pay their way and even under the broadest definitions of pollution, the PPP cannot assist with serious environmental issues such as declining biological diversity or destruction of ecologically critical habitats. Other problems, though pollution related, are the aggregated consequence of the disparate actions of millions of individuals who are just trying to maintain a subsistence livelihood in overcrowded cities or desertified rural areas. The PPP would be inappropriate in such situations; these impoverished polluters are in no position to pay for their contribution to the world’s environmental burden.

Most developing countries are yet to completely subscribe to the polluter pays principle as a major environmental policy guideline due to difficulty in implementing the same and due to its vague nature. The poor households, informal sector firms, and subsistence farmers cannot bear any additional charges for waste disposal while the small and medium-size firms from the formal sector, which mainly serve the home market, find it difficult to pass on higher costs to the domestic end-users of their products. Also, the exporters in developing countries usually cannot shift the burden of cost internalisation to foreign customers due to elastic demand. Lastly, many environmental problems in developing countries are caused by an overexploitation of common pool resources.

Yet the Indian Judiciary and the recent national environment policy have enthusiastically applied the policy successfully on case to case basis. Its development into a well rounded principle can  only be judged with time but its present usefulness is very apparent.

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[1] Research Foundation for Science and Technology and Natural Resources Policy v. UOI and Another (2005)13SCC186

[2] According to Pearce, a polluter is a party emitting damaging wastes to the environment. This has often being broadened to any party who degrades the natural environment. Bromley argues, however, that emissions only constitute pollution when a victim is within the realm of emission. In some circumstances the victim may be seen as causing pollution by oming to nuisance and should therefore, by Bromley’s reasoning be regarded as the polluter.

[3] (Bell and Mcgillivray, 344)

[4] (Havenga, 19)

[5] (Kettlewell, 429)

[6] ( Nash, 455)

[7] (Dam and Tewary, 383)

[8] ( Cardwell, 94)

[9] M.C.Mehta v. Kamalnath (2000)6SCC213

[10] States shall prevent or abate any trans-boundary environmental interference which could cause or causes significant harm.

[11] Principle 16 of the Rio Declaration provides that 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 rade and investment.

[12] (1996) 3 SCC 212

[13] N.D Jayal v. Union of India 2004(9)SCC362

[14] M.C.Mehta v. Union of India (Taj Trapezium Case) 1996(8)SCC 462

[15] (1997) 2 SCC 87

[16] (1996) 5 SCC 647

[17] The same was reiterated in Narmada Bachao Andolan v. Union of India 2000(10)SCC664

[18] This obiter was later applied in the case of A.P. Pollution Control Board v. Prof. M.V. Nayadu (Retd.) & Others AIR1999SC812

[19] [(1996) 5 SCC 718]

[20] (2006)6SCC371

[21] 1997(3)SCC715

[22] 1997(2)SCC411

[23]M.C.Mehta v. Kamal Nath and Ors (1997) 1 SCC 388

[24] M.C Mehta v. Kamalnath (2000)6SCC213

[25] (2004)12SCC118

[26] Supra to 1

[27] (2004)6SCC402

[28] (2009)9SCC737