HISTORY AND EVOLUTION OF THE POLLUTER PAYS PRINCIPLE: HOW

AN ECONOMIC IDEA BECAME A LEGAL PRINCIPLE?

Muhammad Munir*

Abstract

This work traces the history of the polluter pays principle (the PPP) in the early
economic literature from 1920s. The OECD recommended the PPP as the „Guiding
Principle Concerning the International Economic Aspects of Environmental Policies‟ in
1972. In 1973 the Council of the European Communities (now European Union)
approved the First Program of Action on the Environment and the PPP was made one of
the principles of Community‟s environmental policy. The PPP has been mentioned as one
of the principles in many regional and international conventions as a principle of
environmental policy. The polluter pays principle is one of the most efficient principles of
environmental policies.

Key Words: The Polluter pays principle, the OECD‟s guiding principles, OECD‟s
Environmental policies, The European Union (Communities), Programme of Action,
Efficient environmental principle, internalization of external costs, externality, spillover
costs, pollution.

1.1 INTRODUCTION
The “Polluter Pays Principle” is one of the fundamental principles of modern
environmental policies, both nationally and internationally. In simple terms it means that

*
muhammadmunir@iiu.edu.pk Dr. Muhammad Munir, PhD, is Associate Professor and Chairman of the
Department of Law, Faculty of Shari„a & Law, International Islamic University, Islamabad, and Visiting
Professor of Jurisprudence and Islamic Law at the University College, Islamabad. He wishes to thank Syed
Waheed and Jamal Baktiar for sending me material from the United States and Denmark respectively. I’m
also thankful to Dr Said Mahmudi, Dr Sven Bostyn, Vadim Chaban, and Georgio Sarnè for translating
articles from French into English; to Catherine Gaines, Jennifer Getz, and Sven Ruin for proof reading.
This work is an adaptation of a chapter of my LLM thesis titled: The Polluter Pays Principle in
International Environmental Law and Policy: Economic and Legal Analysis, submitted to the Faculty of
Law at University of Stockholm in 1994. The same was subsequently published as Muhammad Munir, The
Polluter Pays Principle in International Environmental Law and Policy: Economic and Legal Analysis,
Institute of Legal Studies, Islamabad, 2004.

Electronic copy available at: http://ssrn.com/abstract=2322485

the cost of pollution abatement should be paid by the polluters and not by their
governments.1 This cost is added by the polluter to the production cost of the goods and
is passed on to the consumer. The PPP is considered to be the most efficient economic
instrument in modern environmental policies and is used as such in the OECD member
states.

The PPP is included in a number of regional and international agreements on

pollution. Its idea however, remained in economic circles since 1920s.

In this chapter the history of the PPP will first be traced in the early economic
literature; then its formal adoption by the OECD and the EC and its gradual development
within the two will be discussed. Finally, the conclusion of the whole chapter is given.

1.2 EARLY HISTORY

Pollution is as old as our planet itself if one considers even the commonly accepted
definition of pollution:

“…the introduction by man, directly or indirectly, of substances or energy

into the environment resulting in deleterious effects of such a nature as to
endanger human health, harm living resources and ecosystems, and impair or
interfere with amenities and other legitimate uses of the environment.”2

However, in the early days pollution was not a concern. The discharge of gases or
wastes into the air and water was considered totally legitimate. Water and air were used
as „sinks‟ 3 and it was believed that neither air nor water was a scarce resource and
therefore, their use was free to all. 4 At the time of the industrial revolution in Europe
there were no safety regulations. Workers lived and died in squalid and dangerous
conditions. Cities disappeared for months on end in impenetrable fog created by the coal-
fired furnaces. However, when the side effects of pollution were felt the concern for
damage to the environment, human health, and property started. Pollution became a
common concern and economists were in the forefront of those who were looking for
solutions.

1
Westone, Gregory & Rosencranz, A, “Transboundary Air Pollution: The Search For An International
Response”, The Harvard Environmental Law Review, 8, 1984, p. 97.
2
OECD Council Rec. C (74) 224 of 14 November, 1974.
3
Unfortunately it is still the same in the developing countries.
4
Woodroof, M. G, “Pollution Control: Why not Cost Allocation? 21 Drake Law Review, 1971, pp. 133,
146.

Electronic copy available at: http://ssrn.com/abstract=2322485

 In economic terms the emission of gases from a factory that causes damage to the
environment is a „social damage‟ and the cost of such damage is a „social cost‟. This cost
is not paid by the polluter but by the society as a whole 5 which pays a price in terms of
damage to aquatic environment, human health, property, loss of species, etc.6 Such a cost
is external to the private cost of the polluter and is therefore, an „external cost.‟ The effect
of this external cost is known as „externalities‟ in economic literature. 7 The resultant
inequality of social costs and private costs indicates that economic resources are being
improperly allocated in society. 8 The misallocation of such resources is because of their
improper cost allocation. Pollution in economic terms means the improper cost
allocation. 9 Thus the cost of these resources is not reflected in the product price. The
producer instead of processing the waste discharges it into the air because processing will
cost him extra money. This tends to induce overproduction and overconsumption of the
items produced cheaply.

For decades economists have been struggling to identify and measure externalities.
Different economists proposed different solutions to the problems of externality. They
have generally adopted the position that complete efficiency could be attained only if all
external costs were somehow internalized to the firms that produced them. 10 Economists
suggested different economic incentives to force the polluter to internalize the external
costs so that the complete production costs of the goods are reflected in the prices. In
economic literature it is known as the „internalization of external costs‟. 11 Thus, the
potential solution to the problems of externality is the basis of the PPP. 12

5
Thompson, Donald N, The Economics of Environmental Protection, Cambridge, Massachusetts, 1973, p.
8. (Hereinafter Thompson, 1973).
6
Ibid. p. 8.
7
It is also called as “spill over effects”, “spill over costs”, “third party effects”, “side effects”, or “external
diseconomies.” See, Kneese, A. V, The Economics of Regional Water Quality Management, The John
Hopkin Press, Baltimore, 1964, p. 40, Davis & Whinston, “Externalities, Welfare and the Theory of
Games”, Journal of Political Economy, No.70, June, 1962, pp. 241-262, and Thompson, 1973, p. 8.
8
Thompson, 1973, p. 8.
9
Keetlewell, Ursula, “The Answer to Global Pollution? A Critical Examination of the Problems and
Potential of the Polluter Pays Principle”, 3Colorado Journal of Environmental Law and Policy, No. 2,
Summer 1992, p. 431. (Hereinafter Kettlewell, 1992).
10
Thompson, 1973, p. 151.
11
Birde, Jean-Philippe, Studies in International Environmental Economics, Ingo Walter ed. 1976, p.138,
12
Kettlewell, 1992, P. 431.
 A. C. Pigou, in The Economics of Welfare (originally published in 1920), has given
one of the classic examples of an externality. In the early 1900s, many towns in Great
Britain were heavily polluted by smoke coming from factory chimneys. Laundered
clothes hung outside to dry were dirtied by the smoke. A study carried out in the heavily
polluted city of Manchester in 1918 compared the cost of household washing in that city
with that of the relatively cleaner city of Harrogate. According to the Manchester Air
Pollution Advisory Board:

“The total loss for the whole city, taking the extra cost of fuel and washing
materials alone, disregarding the extra labour involved, and assuming no
greater loss for middle-class than for working-class households (a
considerable understatement), works out at over £290,000 a year for a
population of three quarters of a million.”13
Thus, smoke – the by-product of one economic activity; that is; production had a
negative effect on another economic activity – laundry.

To eliminate the effect of such external cost inflicted on the society the divergence
between the social and private costs14 should be eliminated. Polluters should be forced to
internalize external costs of pollution that they generate. But how should be done has
become the attractive topic for environmental economists from Pigou on wards. 15
Solutions vary from taxing the polluter to internalize the cost of the external effects
(Pigouvian model) to assigning property rights (Coase theorem). The most important
presumption of the Pigouvian model is that environmental damage has a cost, and that
this should be reflected in economic decisions by facing the participants with a price. 16
Moreover, to the extent that taxes rather than subsidies are utilized, there is a presumption
in favour of the PPP.17

13
Pigou, A. C, The Economics of Welfare, Mc Millan, London, 1952, p. 185, footnote 18.
14
In this example the private cost of the smoke emissions to the firm (zero) are lower than the social cost
(£290,000 a year). The result is more pollution as environmentally harmful products are overproduced and
the environment is overused.
15
For details of externalities and cost internalization see Muhammad Munir, The Polluter Pays Principle,
chapter 2.
16
Pearce, David & Helm, Dieter, “Assessment: Economic Policy towards the Environment”, 6 Oxford
Review of Economic Policy, No.1, spring 1990, p. 6. (Hereinafter Pearce & Helm, 1990). However, today
such negotiation does take place between the victim and the polluter and the victim pays the polluter not to
pollute, especially in transfrontier pollution. Such a phenomenon is called the VPP. See chapter 2 of this
author‟s, The Polluter Pays Principle, Section 2.8.
17
Ibid.
 Pigou‟s theory came under criticism by Ronald Coase in 1960 who argued that the
root cause of the problem was that the ownership of air and water is not specified. 18 He
proposed bilateral negotiations between the victim and the polluter once the ownership is
known.

Thompson argues that the assumption here is that the bargaining is costless and there
are no mediators, arbitrators, etc. in the bargaining process but since the actual cost of
bargaining is not zero and can be very high therefore actual bargaining to arrange
pollution rights will be undertaken only when the increased value of production upon the
rearrangement is greater than the costs of bringing it about.19 Probably Coase did not
think about long distance pollution, diffuse pollution and how to establish the causal link
in individual cases. Moreover, it will require negotiations between a large number of
victims and polluters. Furthermore, the effect of some pollution is felt after a long time
and it is not possible to arrange negotiations between the present day polluters and the
victims who are not yet born and who may incur damage in the future as a result of
today‟s pollution. 20

Kneese and J. H. Dales were the early environmental economists to articulate the PPP.
They discussed and explained the means and economic instruments of pollution reduction
in 1960s.21 In 1968 Dales proposed tradable discharge permits – considered to be the best
economics instruments for reducing pollution. 22 The same year, Brown-Mar, while
discussing water pollution, proposed that it is “dynamically more efficient” to adopt a
standard or (a charge) which is only expected to be the optimum at some time in the

18
Coase, R. H, “The Problem of Social Costs”, The Journal of Law and Economics, vol. 3, 1960, pp.1-44.
Coase was criticised by a number of authors. See for example, Arrow, K. J, “The Property Rights Doctrine
and Demand Revelation under Incomplete Information”, Collected Papers of K. J. Arrow, Vol. 4, Harvard
University Press, 1984, & Farrell, J., “Information and the Coase Theorem”, The Journal of Economic
Perspectives, Vol. 1, No. 2, Fall 1987, pp. 113-129. Also see Pearce & Helm 1990, p. 6, & Young & Lutz, “
Integration of Environmental Concerns into Agricultural Policies of Industrial and Developing Countries”,
20 World Development, No. 2, 1992, p. 243. (Hereinafter Young & Lutz, 1992).
19
Thompson, 1973, p. 159, n. 3, p.189.
20
Kågeson, Per, Economic Instruments in European Environmental Policy, Stockholm, May, 1993, p.13.
(Hereinafter Kågeson, 1993 ).
21
Kneese, A. V, 1964, pp. 35-119. And with Herfinhal, Q. C, „Quality of the Environment: An Economic
Approach to Some Problems in Using Land, Water and Air, 1965.
22
. See Dales, J. H, Pollution, Property and Prices, University of Toronto Press, 1968, pp. 93-97.
future instead of trying to achieve the optimum situation at every moment because of the
time lag and the cost of making too frequent changes. 23

In 1968 the Committee of Ministers of the Council of Europe issued a Draft

Declaration of Principles on Air Pollution Control. The Declaration contained among
other things application of the PPP. Article 6 of the Declaration states that:

“The cost incurred in preventing or abating pollution should be borne by

whoever causes the pollution…”.24

In 1971, Baumol-Oates proposed a substitute to the Pigouvian tax. They termed this
alternative “The Environmental Pricing and Standard Procedure” and thought it to be as
“close an approximation as one can generally achieve in practice to the spirit of
Pigouvian tradition”. They suggested that a given environmental standard can be reached
at minimum total cost by levying a uniform charge per unit of pollution. 25

The OECD held a seminar from June to August, 1971, in Paris on environmental
economics where the PPP was the subject of several discussions. This was the first time
that PPP was discussed in a big forum and in front of the representatives of industrialized
states or the major polluting states. Thus after the decades of individual discussions and
analysis Pigou‟s theory got international attention.

In this seminar, the allocation of environmental costs was a key issue and was
discussed at length by Professor Muraro, Dr Coddington and Professor BaumoI. 26
Speaking about “Anti-Pollution and Cost Allocation”, Prof. Muraro said that economic
literature, from Kneese onwards, advocates on efficiency grounds the principle that “the

23
Brown, G., Jr - Mar, Brian, “Dynamic Economic Efficiency of Water Quality Standards or Charges”,
Water Resources Research, Dec, 1968. (He used the words “pollution trading”).
24
. Council of Europe, Council of Ministers, Declaration of Principles on Air Pollution Control, Res. (68)4,
adopted 8 March 1968. Text reprinted in Kiss, & Shelton, Manual of European Environmental Law, 1993,
pp. 361, 62.
25
Baumol, W. J - Oates, W. E, “The Use of Standards and Prices for Protection of the Environment”, The
Swedish Journal of Economics, 1. March 1971, p. 51.
26
Problems of Environmental Economics, Record of the Seminar, held at Paris by the OECD June-August
1971. (Hereinafter OECD, 1971).
polluter must pay.” 27 Giving an epilogue of economic literature on environment and
pollution, he reminded that for implementing the PPP economic literature prefers the
simulation of market conditions by imposing a unit charge equal to the marginal social
cost of the pollution caused.28

The PPP was also discussed in the 1972 UN‟s Stockholm Conference on the Human
Environment29 held only nine days after it was adopted by the OECD on 26 May 1972
but was not included in the principles.30

1.3 NAMING THE PRINCIPLE

The various economic instruments for cost allocation of pollution abatement discussed
by the economists for decades were leading to the conclusion that the polluter should pay
for pollution abatement and should add this cost to the production cost of the goods. In
this way it should be passed on to the consumer. Incentives were required to motivate the
polluter to internalize the external cost so that the complete production cost should be
reflected in the price of the goods. The different economic incentives which are the
potential solutions to the problems of externality were given a single name the “Polluter
Pays Principle” by the economists. Thus the means and economic instruments of
pollution reduction advocated by environmental economists got the status of a principle.
Because there existed almost a consensus among the economists that polluter should pay
to abate pollution and should internalize the external costs of pollution. This was the birth
of a new economic principle which got wide acceptance very quickly. Thus, there was
almost a general agreement among the environmental economists about this phenomenon
and they therefore, accepted it as „the basis or fundamental ground for other doctrines to
be deduced from it‟. In other words, the doctrine was qualified to be called a “Principle”

27
Muraro. G, “Anti - Pollution Policy and Cost Allocation”, Ibid but since he was asked to speak about this
topic and the “Polluter Pays” was the subject for discussion therefore, the phrase was coined by the
organisers before it was discussed.
28
Ibid.
29
Susane, S; Graham, C; Philip, L, “Nitrates in Water: The Politics of the Polluter Pays Principle”, XXXII
Sociologia Ruralis, 1992, p. 85. Also see, Baldock, David, “The Polluter Pays Principle and its Relevance
to Agricultural Policy in European Countries”, XXXII Sociologia Ruralis, 1992, p. 49 (Hereinafter
Baldock, 1992).
30
. The reason for that could be because the Stockholm Conference was a big international forum in which
114 countries participated and not only an OECD forum. Therefore, the principles of Stockholm
Conference were for all nations and not only for the industrialized nations. Moreover, the inclusion of the
PPP could have brought opposition from the developing countries. (Stockholm Conference was held from 5
to 16 June, 1972, while the PPP was adopted on May 26, 1972).
and this is the reason why it is referred to as an “economic principle”.31 This was the birth
of a new “economic principle” but to lawyers it gave the perception of civil liability for
getting compensation for the victims of pollution. To the economists the PPP is still the
internalization of external costs of continuous pollution and to the lawyers it is the
internalization of damage costs. We will explain in the coming chapters that the PPP
applies to both.

In the 1990 International Convention on Oil Pollution Preparedness, Response and

Cooperation the PPP was called the “general principle of international environmental
law”, 32 but since it is not sufficiently grounded in State practice, 33 therefore, it is better
to call it a principle of environmental policy and not environmental law.

1.4 ADOPTION OF THE PPP BY THE OECD

The OECD seminar held in summer 1971 about the “Problems of Environmental
Economics” paved the way for the formal adoption of the PPP by this organization. The
Council of the Organization for Economic Cooperation and Development formally
recommended on 26 May 1972 the PPP to be the „Guiding Principle Concerning the
International Economic Aspects of Environmental Policies‟. 34 Thus after almost 50
years later Pigou‟s ideas were put into practice by applying them to environmental
policies. The most important paragraph of the OECD‟s recommendation goes thus:

“The principle to be used for allocating costs of pollution prevention and

control measures to encourage rationale use of scarce environmental
resources and to avoid distortions in international trade and investment is the
so-called “Polluter Pays Principle”. This principle means that the polluter
should bear the expenses of the above-mentioned measures (that is; pollution
prevention and control measures) decided by the public authorities to ensure
that the environment is in an acceptable state. In other words, the cost of
these measures should be reflected in the cost of goods and services which

31
See “Forward” to the OECD Monograph, The Polluter Pays Principle, OCDE / GD ( 92) 81, p. 5, and
Smets, Henry, “ Le principe pollueur payer, un principe economique erige en principe de droit de l'
environment?”, R.G.D.I.P., Avril-June 3, no. 2, p. 340. (Hereinafter Smets, 1993). Today the PPP is
regarded as a “legal principle.”
32
See Preamble of the Convention.
33
See Boyle, A. E, “Making the Polluter Pay? Alternatives to State Responsibility in the Allocation of
Transboundary Environmental Costs”, in International Responsibility for Environmental Harm, Graham &
Trotman, 1991, p. 376. For details see Munir, The Polluter Pays Principle, chapter 5.
34
. OECD, Guiding Principles Concerning International Economic Aspects of Environmental Policies, C
(72) 128. (Hereinafter OECD, 1972, C (72) 128).
 causes pollution in production and/or consumption. Such measures should
not be accompanied by subsidies that would create significant distortions in
international trade and investment.”35

1.5 OECD’S RECOMMENDATION REVISITED

The OECD‟s interpretation of the PPP seems to have influenced reference to it in other
international contexts, therefore, the OECD‟s concept of the PPP needs more elaboration.
The OECD‟s guiding principles seem to be based on trade and economic efficiency
considerations rather than the improvement of the protection of the environment. 36
Despite the shortcomings the recommendation does recognize the justifiability of
member states taking far-reaching actions to protect their environments. Unfortunately, it
was only a recommendation without having any binding effect. Moreover, its meanings
were not clarified.

1.5.1 INTERNALIZATION OF EXTERNAL COST

As discussed earlier the potential solutions to the problems of externality became the
basis of the PPP. This requires the polluter to internalize the external cost, that is, to add
the cost of pollution abatement to the production cost and thus pass it on to the user. In
this way the full production cost will be reflected in the prices of the goods. The OECD‟s
document mentions explicitly that „the costs of pollution prevention and control measures
should be reflected in the costs of goods and services which causes pollution in
production and /or consumption‟.37 In other words, the document is asking the member
states to internalize the external costs because as long as the costs of pollution are social
costs, the polluter will have no reason to reduce these costs external to his realm.

The OECD‟s document tries to achieve this by applying the PPP, the object of which
is not to penalize the polluter but to ensure that the product prices express all the
production costs and thus the actual economic scarcity conditions. It is assumed that the
producer will, in order to keep production costs low, attempt to cut back on pollution. 38
Unfortunately, even today all external costs are not fully internalized in the OECD

35
Ibid.
36
Kågeson, “The Polluter Pays Principle”, On the General Principles of Environment Protection,
Stockholm, SOU 1994:69, p. 73. (Hereinafter Kågeson, 1994).
37
OECD, 1972, C (72) 128.
38
Brunnee, 1988, p. 56.
member states. For example, in the US the external costs of energy are largely not
internalized.39

The main reasons why the OECD formulated the PPP were “to encourage the rationale
use of environmental resources” and “to avoid distortions in international trade and
investment”.40 From the context it is clear that the emphasis is on the latter.41 Moreover,
the member states were asked not to subsidize the environmental cost incurred by their
industries while abiding by the pollution prevention and control measures of the state
concerned because such subsidies would create distortions in international trade and
investment. Since significant distortions were to be avoided it meant that less significant
distortions were allowed and indirect subsidies which are given by many states especially
for agriculture and transportation were not discussed (probably, because these were not
thought to be causing distortions). This provided an excuse for eroding the PPP
indirectly. 42 The document puts much emphasis on the side-effects of subsidy given by
the member states for pollution prevention, particularly distortions in international trade
rather than pollution reduction.43 According to the OECD, the PPP is no more than an
efficiency principle for allocating costs and does not involve bringing pollution down to
an optimum level of any type, although it does not exclude the possibility of doing so. 44
Thus it was intended to be a principle of partial internalization in 1972 but the trend in
many member states is to make it a general principle of internalization, as will be seen in
the subsequent chapters. The PPP was made an objective of the member states;
“however”, as the document points out, “there may be exceptions or special
arrangements, particularly for the transitional periods, provided they do not lead to
significant distortions in international trade and investment”. 45 Thus the OECD‟s
principles46 excludes particular problems which may arise during the transitional periods

39
See Hubbard, Harold M, “The Real Cost of Energy”, Scientific American, Vol. 264, No. 4, April 1991,
pp.18-23.
40
OECD, 1972, C (72) 128.
41
Kågeson, 1994, p. 74.
42
. Ibid, p. 85.
43
For details, see Munir, The Polluter Pays Principle, chapter 4, sec. 4.3.
44
OECD Note on the Implementation of the PPP by the Environment Committee, OCDE/GD (92)81, p. 25.
45
OECD, 1972, C (72) 128.
46
Ibid.
following the implementation of these principles, 47 instruments for the implementation of
the PPP,48 transfrontier pollution49 or problems related to developing countries. 50

The ambitions stated in the recommendation are limited to the costs that arise as a
result of decisions by authorities concerning protection of the external environment 51 and
the polluter have to pay for such costs to ensure that the environment is in an acceptable
state but what is an acceptable state is left to the authorities to decide in each case. Thus
it is not necessarily sustainability that directs public authorities when defining standards,
but political and economic feasibility as well. 52 Moreover, transferable discharge permits
which are considered to be the ideal mechanism in which the PPP can be met 53 is not
even mentioned in the document.

The subsequent OECD‟s explanation of the Original document also suffers from
shortcomings. Economists argue that direct regulations are inconsistent with the PPP
because polluters do not face the marginal opportunity costs associated with their
decisions. 54 However, the OECD Note on the Implementation of the PPP considers
regulations to be of exceptional value in achieving immediate results or speeding
pollution reduction needed to safeguard public health or abate unacceptable nuisance 55
and prescribes it as one of the main instruments for implementing the PPP. 56 It means
that parts of the OECD document and Note on the implementation of the PPP are
inconsistent with the PPP itself.

The document states that for several reasons the environmental policies of different
member states will be different. One such reason is that the capacity of the natural

47
For details, see Munir, The Polluter Pays Principle, 4.2.
48
For details, See ibid., chapter 2.
49
See ibid, chapter 5 for details.
50
OECD, 1972, C(72) 128. Problems related to developing countries are discussed in chapter 3 of this
work.
51
Kågeson, 1994, p. 74.
52
Bonus, Holger, “Implications of the Polluter Pays and the User Pays Principles for Developing
Countries”, Fair Principles for Sustainable Development, ed. by Edward Dommen, Cambridge, 1993, p.67.
(Hereinafter Bonus, 1993).
53
Ibid, p. 69.
54
See Bonus, 1993, p. 38. For details, see Munir, The Polluter Pays Principle, chapter 2 sec. 2.4 (c).
55
OECD, Note on the Implementation of the PPP, 1975, reprinted in OCDE/GD, (92) 81, p. 26, §, 5.
56
Ibid. § 4.
environment to withstand pollution varies from one country to another (and even from
one place to another in one country). Other reasons, according to the document, are the
different social objectives and priorities attached to environmental protection and
different degrees of industrialization and population density. The document also
recommends with reference to the provisions of the GATT, that national environmental
policies must apply the principle of non-discrimination and national treatment.
Moreover, the document states that differences in environmental policies should not
cause countries with more stringent requirements to protect their own industries through
import levies and export rebates or measures having equivalent effect designed to offset
the consequences of these differences on prices. It is hoped that effective implementation
of the above-mentioned principles will make it unnecessary to resort to such measures. 57

Harmonization of environmental policies requires that either all the member states
have to give subsidies to their polluting industries or all of them have to stop subsides to
them. In today‟s circumstances subsidies are very rarely given and the new industries
have to use the best available technology and have to abide by the existing laws. Thus
only the old industries could take subsidies to replace their old technology with the new
one. Moreover, to avoid distortions in international trade all the member states have to
use the same types of economic instruments for pollution control. Thus either regulations
(also known as Control and Command System or CAC) or charges or other instruments
should be used to have a uniform pollution control system. Such a uniform system
throughout the OECD cannot be achieved through such non-binding commitment;
however, distortions in international trade on the basis of environmental policies are
negligible.58

1.6 ADOPTION OF THE PPP BY THE EUROPEAN COMMUNITY

International environmental concern began with, and has frequently been referred to,
the 1972 Stockholm Conference on the Human Environment. This Conference was a
milestone in the development of rules of international environmental law and the
awareness of and concern for a deteriorating environment. Only nine days before the
Stockholm Conference in May 1972 the PPP was adopted by the OECD59 and only five
months later the Heads of States or of Governments of the European Community met in
Paris on 19 and 20 October 1972 to discuss a Community strategy for the environment.
Although, all the Community member states were also members of the OECD and as
such were supposed to follow the OECD‟s “Guiding Principles” in their environmental

57
OECD, 1972, C (72) 128.
58
For details see Munir, The Polluter Pays Principle, chapter 4.
59
Ibid.
policies, but their commitment as members of that Organization was not binding and
moreover, the OECD‟s “Guiding Principles” were not a complete strategy for the
protection of the environment. This is why the Community wanted to have a
comprehensive strategy of its own. In point 8 of the final Declaration of the Paris Summit
Conference the Heads of states or of Governments invited the Community institutions to
establish before 31 July 1973, a Program of Action accompanied by a precise timetable. 60
In response to this declaration a Conference of the Ministers responsible for the
environment was held in Bonn on 31 October 1972 and on 22 November 1973, the
Council of the European Communities approved the First Program of Action on the
Environment and the PPP was made one of the principles of Community environmental
policy. 61 This was the adoption of the PPP by the Community‟s secondary legislation as
was stated in the 1975 Council‟s Recommendation on the allocation of costs and
intervention by public authorities in the case of environmental measures. 62 Point 5 of the
principles of the Community environmental policy as mentioned in the First Action
Program defines the PPP as follows:

“The cost of preventing and eliminating nuisances 63 must in principle be

borne by the polluter. However, there may be certain exceptions and special
arrangements, in particular for transitional periods, provided that they cause
no significant distortion to international trade and investment.”64
The European Commission had earlier given the following description of the PPP in
its proposal for the First Environment Program:

“This principle (the PPP) states that person causing nuisances to the
environment should be called upon to pay for the above-mentioned measures

60
Stanely. P. Johnson, The Pollution Control Policy of the European Communities, Graham & Trotman,
London, 1983. p. 1.
61
EC First Programme of Action on the Environment, OJ C 112, 20 Dec. 1973; Pt. 5. For a comprehensive
study of the PPP in the EC Law, see Krämer, Ludwig, “The Polluter Pays Principle in Community Law.
The Interpretation of Article 130r of the EEC Treaty”, Focus on European Environmental Law, Sweet &
Maxwell London, 1992, pp. 244-264; Also see Boulding, Scott, “Article 130 (2) and the Permissibility of
State Aids for Environmental Compliance in the EC”, 30 Columbia Journal of Transnational Law, No. 2,
1992, pp. 431- 469; Johnson, S. P, “Economic Aspects of Pollution Control”, The Pollution Control Policy
of the European Communities, Graham & Trotman, London,1983; and Doolittle, “A Guide to EC
Regulation: Environmental Liability”, International Financial Law Review, June 1992, pp. 20- 24.
62
Council‟s Recommendation of 3 March 1975, 75 / 436, OJ L 194, 25 / 07 /75, p.1.
63
Although, economic literature does not accept the idea of „eliminating pollution‟ or „zero pollution‟, see
Pearce, D & Turner, K, Economics of Natural Resources and the Environment, 1990, p. 64.
64
Ist Action Programme: OJ C 112 / 1, 20 / 12 / 73, Pt. 5, Title II.
 (preventive action) which are decided by the authorities for the conservation
of an acceptable environmental standard. In other words, the costs of such
measures should be shifted onto the price of the goods and services which, as
a result of the production process and / or the use made of them, are the cause
of damage to the environment. Such measures should not be supported by
subsidies since that would lead to significant distortions in international trade
and investment.”65
It seems that the EC has adopted the OECD interpretation almost in extenso.66 The EC
view of the PPP is, however broader than the OECD as it is not only to prevent and
reduce pollution but as far as possible to eliminate both pollution and nuisances.
Economic literature, however, does not accept the idea of “eliminating pollution” or
“zero pollution”.67 The EC has used the word “nuisances” which is broader than pollution
because apart from pollution it also covers noise and vibration. 68

Following Commission‟s communication of 5 March 1974 to the Council regarding

cost allocation and actions by public authorities on environmental matters the Council
adopted, on 3 March 1975, a Recommendation ( not legally binding) 69 which called upon
the Member States to conform in respect of allocation of costs and of action by public
authorities in the field of environmental protection to the principles and rules governing
their application which were contained in the Commission‟s communication annexed to
the Recommendation. 70

The Commission defines a polluter as “someone who directly or indirectly damages

the environment or who creates conditions leading to such damage”. 71 According to the
Recommendation, if identifying the polluter proves impossible or too difficult, and hence
arbitrary, particularly where environmental pollution arises from several simultaneous
causes or from several consecutive causes, the cost of combating pollution should be
borne at the point in the pollution chain or in the cumulative pollution process, and by the

65
Commission Proposal, Ist Action Programme: OJ C 52 / 1, 1973, Pt. II, No. I A 4.
66
Kågeson, 1994, p. 75.
67
Pearce & Turner, 1990, p. 64. “Zero pollution” means zero economic activity. For details see Munir, The
Polluter Pays Principle, chapter 2, sec. 2.5 (a).
68
See Walker, Oxford Companion to Law, for the definition of “Nuisance”, p. 894. Clarendon Press.
Oxford, 1980.
69
Art. 189, Treaty on European Union.
70
Recommendation 75 / 436, OJ L 194 /1, 25 / 7 /1975.
71
Annex to Recommendation 75 / 436, OJ L 194/1, 1975, Pt. III.
legal or administrative means which offer the best solution from the administrative and
economic points of view and which make the most effective contribution towards
improving the environment.72

Moreover, in Commission‟s view, under the PPP natural or legal persons governed by
public or private law who are responsible for pollution must pay the cost of such
measures as are necessary to eliminate that pollution or to reduce it so as to comply with
the standards or equivalent measures which enable quality objectives to be met or, where
there are no such objectives, so as to comply with the standards or equivalent measures
laid down by the public authorities. Consequently, environmental protection should not in
principle depend on policies which rely on grants of aid and place the burden of
combating pollution on the Community. 73 The communication proposes standards or
charges or the possible combination of two, to be the major instruments of action
available to public authorities for the avoidance of pollution under the PPP. 74 In this way
the Commission closely follows the OECD‟s solution of pollution abatement.75

On the whole, the Recommendation stresses the need that measures should be taken
for combating pollution and the tax-payers or the general public should not pay for such
measures, but as Dr. Krämer argues it “takes no position on matters of legal policy” and
thus “it is establishing basic rules which are economic rather than legal.” 76 In other
words, it is more about environmental policy rather than environmental law.

1.7 APPLICATION OF THE PPP TO ADMINISTRATIVE COSTS

Essentially the PPP related to measures taken by the polluters to reduce and control the
emission of pollutants into the environment. The EC Council Recommendation on Cost
Allocation and Action by Public Authorities on Environmental Matters, while explaining
expenditure on pollution control measures, stated that it includes investment in anti-
pollution installations and equipment, introduction of new processes, cost of running anti-
pollution installation, etc. even if they go beyond the standards laid down by the public
authorities. 77 The Recommendation also made the polluter liable for the costs of

72
Ibid.
73
Recommendation 75 / 436, Pt. II.
74
Ibid, Pt. 4.
75
See OECD, The Implementation of the Polluter Pays Principle, Nov, 1974 and OECD, Note on the
Implementation of the Polluter Pays Principle, 1975.
76
Krämer, 1992, p. 255.
77
Recommendation 75/436, pt. 5 (b).
administrative measures directly linked to the implementation of anti-pollution
measures.78 Furthermore, the Recommendation also states that “the polluter should bear
(under the PPP) all the expenditure necessary to achieve an environmental quality
objective” but the document is silent about these expenditures except the “costs of
administrative measures” which is in addition to the costs of pollution prevention and
control measures. 79

The OECD has mentioned the same to be borne by the polluter in their
Recommendation on the Application of the PPP to Accidental Pollution; whereby
administrative measures implemented by the authorities prior to an accident with a view
to prevent accidents in specific hazardous installations or taking remedial action should
an accidental pollution occur could be covered by the PPP. 80 According to the
Recommendation, such measures are: special studies carried out prior to the issue of a
license, detailed inspections of a hazardous installation, preparation of the specific
emergency plan for such an installation, etc.81

1.8 EXTENSION TO ACCIDENTAL POLLUTION

There seems to be a wide consensus that the PPP deals at least with the costs of
measures decided by public authorities to prevent and control pollution. 82 Pollution here
is in the context of continuing or chronic pollution that needed to be reduced to an
acceptable level. The OECD, in a declaration adopted in 1988, recognized that the

78
Ibid.
79
According to the OECD document and the article by SMETS PPP was extended to cover the costs of
administrative measures by the EC Council Directive of 15 July 1975 on wastes OJ L 194/39, Art. 11, but
according to that particular article “the cost of disposing of wastes ... shall be borne by the holder ... and/or
the previous holders or the producer of the product ...”. Moreover, this Directive is amended by the
Council Directive of 18 March 1991, OJ L 078, 26/03/91, where Article 15 corresponds to Article 11 in the
old Directive. The new Article states that “in accordance with the Polluter Pays Principle, the cost of
disposing of waste must be borne by: - the holder ... and/or - the previous holders or the producer of the
product ...”. Art. 11 of the Council Directive of 20 March 1978 on toxic and dangerous wastes OJ L 84/43,
is almost identical to the above-mentioned Article 11 and Article 15. Thus both the new and the old
Articles don't say anything about the extension of PPP to administrative cost. For the opposite view, see
OECD, The Polluter Pays Principle, Monograph OCDE/GD (92) 81, p. 6, and SMETS, 1993, p. 346.
80
OECD, Recommendation on the Application of the Polluter Pays Principle to Accidental Pollution, C
(89) 88 (Final).
81
Ibid.
82
See EC Council‟s Recommendation 75/436 & OECD, Note on the Implementation of the Polluter Pays
Principle, OCDE/GD (92) 81.
principle was also applicable to accidental pollution. 83 In 1989 the OECD adopted a
Recommendation on the issue 84 which accepted that the cost of measures to prevent and
control accidental pollution should be borne by potential originators of such pollution,
whether the measures are taken by them or by the authorities. Such measures include the
costs of preventing accidents capable of causing damage to the environment as well as
the costs of clean-up after the accident and the costs of reinstatement of the
environment.85 Thus polluter would not only pay for the measures carried out by them
but also for those carried out by the authorities because of potential or actual
environmental damage. As Henri Smets points out “some of the post accident costs
initially borne by the victims (i.e. clean-up) may be charged to the polluter at the origin of
the accident (gestion d' affaire ).”86 The operator of the installation can be held liable for
his negligence which caused the accident.87 Moreover, after an accident has occurred the
authorities should be in a position to obtain from the polluter, i.e.; the person at the origin
of the pollution, the reimbursement of the costs of reasonable measures taken for
controlling accidental pollution and protecting human health or the environment.88

1.9 EXTENSION TO THE COST OF RESIDUAL DAMAGE

From the above it is clear that the polluter who fails to comply with the measures
taken by the authorities have to compensate the victims of his pollution and have to make
sure that the environment is in an acceptable state. Moreover, he has to pay for the
residual pollution. 89 The question that arises, however, is whether a polluter has to pay

83
Concluding Statement of the OECD Conference on Accidents Involving Hazardous Substances, held in
Paris on 9 and 10 Feb. 1988, C (88) 83 (Final).
84
OECD, 1989, C (98) 88 final.
85
Ibid.
86
Smets, “The Polluter Pays Principle in the Early 1990s”, The Environment after Rio: International Law
and Economics, Graham & Trotman, London, 1994; p.137. (Hereinafter Smets, 1994).
87
The operator is liable not only in national laws but also in a number of international conventions. Most
notable are the Nuclear Convention of 1960 on Third Party Liability in the Field of Nuclear Energy,
(Article 3); the most recent example is the Council of Europe Convention on Civil Liability Resulting from
Dangerous Activities to the Environment, 1993 , 32 I. L. M. 1228 (19939. Generally, liability is strict and
polluter bears the cost of compensation to the victims and restoration of the environment, but in some cases
the individual polluter cannot be identified or is insolvent. To ensure compensation in such cases other
mechanisms, such as compulsory insurance, lender liability, and joint compensation system are used. For
details see Munir, The Polluter Pays Principle, chapter 5.
88
OECD, 1989, C (89) 88 final. Operator or the person controlling the dangerous activity is defined
broadly to include even a State. See Article 2 (5, 6) of the Council of Europe Convention of 1993.
89
Here the payment is not to the victims. It is the tax or charge to the controlling authorities. For details
see Munir, The Polluter Pays Principle, chapter 2.
for pollution damage when he has taken all the measures required by the authorities? If
the level of pollution is substantial or the damage considerable, then the current view of
the OECD appears to be that the polluter should bear the cost.90 This is a question which
although, has attracted much attention still remains largely unresolved.

It is extremely difficult if not impossible to prove the casual link in individual cases as
it is not easy to find the exact polluter whose pollution caused the damage if there are
more than one polluters in one area all of whom have complied with the law. But this is
the question of proof which does not mean that the victim should not get any
compensation. In cases where there is no state legislation about this problem the only
solution for the victim / victims is to resort to civil (tort) law. It is of little importance for
the victim from whom he gets the compensation, that is, the polluter or the state. What is
important for him is to get compensation. In such a situation a joint compensation fund
raised by the polluters to compensate the victim of their collective pollution seems to be
an attractive solution. 91 State law should require the polluters to have such a fund from
which the victim could get compensation. The American Superfund is a good example of
this. Unfortunately such a law is not welcomed by the polluters.

On the other hand, in such a situation the state can be held responsible instead of
polluter or polluters because the state authorized them to pollute more than the capacity
of the environment. Moreover, the polluter/polluters have been paying for the pollution
they make. In other words, they have not violated the law on pollution. Thus, state has to
accept responsibility in such cases and allocate some of the money charged to the
polluters in compliance with the law for treating the victims of such pollution and fix the
level of pollution in a way which is tolerable both by the human health and the
environment. The victim should instead sue the state for negligence. Therefore, a law
which will make the polluter liable even if he complies with the existing law on pollution
will be based on strict-liability instead of fault-liability. Some of the OECD states have
already such a law 92 which is not in conformity with the 1993 Council of Europe
Convention on Civil Liability for Damage Resulting from Activities Dangerous to the
Environment. Article 8 of the Convention states that:

90
See Foreword to the OECD Monograph, The Polluter Pays Principle, OCDE/GD (92) 81; p. 6. See also
SMETS, 1993. p. 346.
91
For details see Munir, The Polluter Pays Principle, chapter 5.
92
See Forward to the OECD Monograph OCDE/GD (92) 81, p. 7.
 “the operator shall not be liable under this Convention for damage which he
proves... was caused by pollution at tolerable levels under local relevant
circumstances”. 93

Thus there is no liability for authorized or tolerable pollution. However, as discussed

above it leaves the victim of authorized pollution without any compensation which is a
great injustice. He has the only recourse to tort law under which he could claim
compensation either from the state or from the polluters but when the casual link will be
difficult to establish the court may make all the polluters liable which will be the same as
the joint compensation system already discussed. Tolerable pollution as construed from
above is that which is not harmful for human health and the environment. 94 The capacity
of the environment to tolerate pollution differs from place to place and so should be the
law on pollution. The question of liability for environmental damage is discussed in
detail in the last chapter.

Scientific uncertainty should not be used by the authorities as an excuse to keep the
environmental standards low. In such cases the “Precautionary Principle” or “prevention
is better than cure” should be used to avoid any future danger to the environment. The
effect of some pollution is felt after a long time and it is impossible to ascertain the real
polluter who could be either dead or cannot be identified. The PPP cannot be applied in
such cases and as Krämer puts it “as a basic legal rule the polluter pays principle must
focus on a known polluter whose responsibility for the pollution is not in issue”, 95
consequently the PPP should not be applied when the polluter is unknown.96

The PPP cannot answer the questions of who is responsible for past-contamination and
soil-erosion, how to clean up the Baltic or the North Sea, how to contain the dying of the
forests or end the reduction in the number of species occurred because of the
unsustainable development of the past and before environmental laws were
promulgated.97 Requiring individuals or companies to pay for wastes dumped legally and

93
The preamble to this Convention contains the following recital: “having regard to the desirability of
providing for strict liability in this field taking into account the “Polluter Pays Principle”. It is important to
note that although, the Convention is based on strict liability but this liability is limited as there is no
liability for authorized pollution which is the tolerable pollution.
94
However, in all cases authorized pollution may not be tolerable pollution for which the state should be
blamed and not the polluter.
95
Krämer, 1992, p. 258.
96
See Duren, “Le pollueur payeur”, Revue du Marche Commun, no. 305, March 1987, p. 149.
97
See John, A. Hird, “Environmental Policy and Equity: The Case of Superfund”, Journal of policy
Analysis and Management, Vol. 12, No. 2, 1993, p. 332; and Krämer, 1992, p. 258; and Susanne. S,
properly decades before they were even considered to be hazardous is questionable,
especially when they may be different people altogether. In our opinion, in such cases
both the potential polluters and the state should share the burden. 98

1.10 EXTENSION TO TRANSFRONTIER POLLUTION

The first international environmental convention in which the PPP was included was
the International Convention on Oil Pollution Preparedness, Response and Cooperation
(London, 1990) which called it a general principle of environmental law. 99 Henry Smets
concludes that “it reflects the general opinion” 100 as representatives of 90 states
participated in the Diplomatic Conference. The Convention however, did not give the
definition or the interpretation of the PPP. Some two years later the same text was
repeated in the ECE Convention on Transboundary Effects of Industrial Accidents
(Helsinki, March 1992).101 The same month the ECE Convention on the Protection and
Use of Transboundary Watercourses and International Lakes (Helsinki, March 1992) was
signed which states that: “the parties shall be guided by the... (b) the polluter pays
principle, by virtue of which costs of pollution prevention, control and reduction
measures shall be borne by the polluter”.102 This was the first time that PPP was defined
in an international convention. The definition is almost the same as the OECD definition
as the addition of the word “reduction” is implied in prevention and control measures.

One month later the parties to the Convention on the Protection of the Marine
Environment of the Baltic Area (Helsinki, April 1992) agreed to apply the PPP.103

Graham. C, and Philip. L, “Nitrates in Water: The Politics of the Polluter Pays Principle”, Sociologia
Ruralis, Vol. XXXII, 1992, p. 96.
98
For details see Munir, The Polluter Pays Principle, chapter 5.
99
Preamble of the Convention contains the following recital “taking account of the polluter pays principle
as a general principle of international environmental law”. Conference Resolution No. 5 contains the recital
“the conference... recognising also that one of the basic principles used for providing funds following
pollution damage is the polluter pays principle”.
100
Smets, 1994, p. 133.
101
The Preamble of this Convention contains the following recital “taking into account the polluter pays
principle as a general principle of environmental law”. See Basic Documents of International
Environmental Law, Hohmann, Harald, (ed.), Graham & Trotman, 1992, V. 2, No. 43, p. 693.
102
ECE Convention on the Protection and Use of Transboundary Watercourses and International Lakes
(Helsinki, March 1992). Art. 2.5, 31 I. L. M. 1312 (1992).
103
Convention on the Protection of the Marine Environment of the Baltic Sea Area (Helsinki, April 1992.
Art. 3.4 states that “the contracting parties shall apply the polluter pays principle”.
 The same year (Sep. 1992), the parties to the Oslo and Paris Conventions for the
Prevention of Marine Pollution of the North-East Atlantic decided that: “the contracting
parties shall apply... (b) the polluter pays principle, by virtue of which the costs of
pollution prevention, control and reduction measures are to be borne by the polluter”. 104
This Convention gives almost the same definition of the PPP. The only difference is that
the word “shall” is replaced by “are” in the latter definition.

The PPP in all these conventions is either a guiding principle or just a principle and
not a directly binding legal rule as the definition is similar to the one given by the OECD
which attributes only the cost of controlling and prevention to the polluter and does not
include damage cost. These conventions do not contain any detailed interpretation of the
PPP and the reference to it by mentioning its name or simply defining it may be
interpreted in two ways; either it may be considered to be a well-known concept which
does not need any explanation or that the question of who is to pay in such contexts is of
lesser importance.

1.11 EXTENSION TO AGRICULTURE

Agriculture has been considered as a “special case” with regard to the PPP105 and the
environmental effects of agriculture have not been given adequate attention in the
environmental policy making. Agriculture heavily rely on subsidies where as the PPP
seeks to restrict it. This is probably the reason why agriculture was not mentioned in the
early discussion on the PPP.106

This attitude of treating agriculture differently changed in the 1980s when the EC
Commission stated for the first time that: “agriculture ... should be subject to reasonable
public prescriptions and controls designed to avoid the deterioration of the environment”,
while “in general the principle of „polluter pays‟ will apply (to agriculture) and it would
not be normal for farmers to expect to be compensated by the public authorities for the
introduction of such rules”.107 This was reaffirmed by the Commission Communication

104
Convention for the Protection of the Marine Environment of the North-East Atlantic (Paris, Sep. 1992),
Art. 2.2.
105
For details, see Baldock, 1992, pp. 53, 54.
106
The OECD Recommendation on the Implementation of the Polluter Pays Principle 1974, C (74) 223
does not mention agriculture at all, while the EC Recommendation regarding Cost Allocation of 3 March
1975 mentions it in the list of exceptions.
107
Commission of the EC (1985) Perspective for the Common Agricultural Policy, COM (85) 332.
which was solely on environment and agriculture where it stated bluntly that the PPP “...
must of course apply to agriculture as it does elsewhere”. 108

The OECD did likewise in its own agricultural and environmental policies when it
stated in 1989 that the PPP “ ... should apply to all agricultural policies and programs
which are designed to prevent, control or reduce both point and non-point sources of
pollution”. 109 According to the OECD report, payments made primarily for non-
environmental purposes, such as income support or the promotion of regional
development should not be incompatible with the PPP.110 The OECD expects the PPP to
be a policy sphere in which political processes will continue to dominate. 111

Unfortunately, the PPP instead of being a means of resolving the issue of agricultural
pollution is highly contested and its application has often led to estimations of political
nature.112

Sustainability requires that agricultural and environmental policies should be

“integrated” and for achieving this environment should be taken into account while
formulating agricultural policies and vice versa. Thus environmental and agricultural
objectives should be complementary and not contradictory to each other. 113 Moreover,
policies that internalize the external costs of pollution in agriculture should be developed.
Economic instruments should be used for environmental protection and should be
designed to influence the behavior of the polluters rather than to generate revenue for the
government. Opshoor and Vos argue that in practice, the issue appears to be one of a
degree – how far do polluters have to pay for the costs of control? Thus according to
them, all those policies which do not result in having the polluter bear the full costs of

108
Commission of the EC (1988), Environment and Agriculture, COM (88) 338 final.
109
OECD, Agricultural and Environmental Policies: Opportunities for Integration (Paris, 1989).
110
Ibid.
111
OECD, Agriculture; Environmental Policies, 1989.
112
See for example SEYMOUR. S, COX. G, and LOWE. P, “Nitrates in Water: The Politics of the Polluter
Pays Principle”, Socialogia Ruralis, Vol.XXXII- 1992, pp. 82-101.
113
For a comprehensive study of how to integrate environmental concerns into agricultural policies see
Lutz and Young, 1992. pp. 241-253. Also see Conway, “A Role for Economic Instruments in Reconciling
Agricultural and Environmental Policy in Accordance with the Polluter Pays Principle”, Paper presented to
the Congress of the European Association of Agricultural Economists held in the Hague, 3-7 Sep. 1990,
European Review of Agricultural Economics, Vol. 18-3 / 4, 1991, pp. 469-483.
pollution control measures would be inconsistent with the PPP. The more the cost shared
by the polluter, the more the adherence to the PPP.114

1.12 APPLICATION TO OTHER ACTIVITIES CAUSING HARM TO THE

ENVIRONMENT
The PPP should have been made applicable to all types of pollution and there was no
need of mentioning every activity separately. The OECD, however, excluded some types
of pollution, particularly transfrontier pollution 115 and did not mention others like
agricultural pollution. The Organization however, stated in 1991 that the PPP should be
applied consistently,… particularly in the energy, agriculture, transport, and coastal zone
management sectors.116 Two months later the OECD admitted that current energy prices
do not properly reflect the cost of production because the cost of climatic change is not
included in the price. 117 Unfortunately, in the US energy prices are the lowest of any
major industrialized economy because taxes on energy are one-half to one-twelfth of
those in other Western countries. 118 Such low prices do not reflect the real costs of the
externalities and send a wrong economic signal to consumers, delaying progress toward
the inevitable energy transition away from fossil fuels to renewable energy sources.119

In 1975 the EC however, extended the PPP first to waste oils 120 and then to waste.121
In 1976 it was made applicable to the disposal of PCBs 122 and in 1978 to toxic and

114
Opshoor, J. B. and H. B. Vos, Economic Instruments for Environmental Protection (Paris, 1989). David
Baldock also supports thier view. See Baldock, 1992, p. 51.
115
OCED, C (72) 128.
116
“OECD Members Resolve to Factor Environment Into Economic Issues,…,” (Current Reports)
International Environmental Reporter, ( BNA ), Feb. 13, 1991, pp. 68, 69.
117
OECD Urges „Phased Approach‟ in Introducing Technology to Cut Greenhouse Gas Emissions,
(Current Reports), Int‟ l Env ‟ t Rpe. (BNA), April 10, 1991, p. 190.
118
Chandler. U.W. & Nicholask, “Assessing Carbon Emissions Control Strategies: A Carbon Tax or a
Gasoline Tax?” American Council for an Energy Efficient Economy, Policy Paper no. 3, Feb. 1990, p. 43.
119
See James, J. Mackenzie, “Why We Need a National Energy Policy”, World Resources Institute, August
1990, & Speth, J. Gustve, “We Must Pay Full Price for Energy”, Los Angeles Times, August 19, 1990.
120
Council Directive of 16 June 1975 on disposal of waste oils, OJ L 194, 25/07/1975, p.23.
121
Council Directive of 15 July 1975 on waste, OJ L 194, 25/07/1975, p. 39. As amended by Council
Directive of 18 March 1991, OJ L 078, 26/03/91. p. 32. Art. 15.
122
Council Directive of 6 April1976 on the disposal of polychlorinated bipheyls and polychlorinated
terphenyls, OJ L 108, 26/04/1976, p. 41. Point 6.
dangerous waste. 123 The supervision and control within the EC of the transfrontier
shipment of hazardous waste was made subject to the PPP in 1984. 124

1.13 INCLUSION OF THE PPP IN THE EC PRIMARY LEGISLATION

The importance of the PPP can be understood from the fact that it has got the status of
a permanent principle in the EC Environmental legislation since it was adopted by the
Community in 1973. 125 In 1987 the PPP was raised to a constitutional principle within
the European Community by the new Article 130r of the Single European Act.126 It was
reaffirmed in 1992 by the Treaty on European Union. Article 130 r (2) of the latter
outlines the Community policy on the environment according to which it “shall be based
on the precautionary principle and the principles that … the polluter should pay”. 127 But
as is always the case “pay” here is not explained. Since the question is that of policy on
which the Community environmental policy should be based and not of law, therefore,
“pay” should be the cost of pollution prevention and not that of damage. Being a
principle of policy gives the organs of the Community considerable room for
maneuvering on the question of the extent to which they bring about its application.128
Moreover, the paragraph does allow measures for the protection of the environment
which do not have regard to the PPP because it does not say that the Community
environmental policy shall be “only” based on the principles mentioned in article 130r (2)
of the Treaty. Its incorporation into the Treaty will induce the tax-payers of the
Community that they are not supposed to pay for the cost of pollution prevention and
control measures as it is the polluter who have to pay for them. The perception of the
general public is not wrong, but strictly speaking the costs of pollution prevention and
control measures is paid by the users (the UPP) after the polluter has internalized the
external cost, i.e. he has added them to the price of his products. In this way, the polluter
gets back the money spent for pollution control and the one who uses the product have to
pay and not all the tax-payers. In economic terms it is called “internalization of external
costs”.129 Nevertheless, the polluter is liable for damage done to human health or the

123
Council Directive of 20 March 1978 on toxic and dangerous waste, OJ L 084, 31/03/ 78, p. 043. Art. 11.
124
Council Directive of 16 Dec. 1984 on the supervision and control within the EC of the transfrontier
shipment hazardous waste, OJ L 326, 13/12/84, p. 31. Art. 10.
125
EC First Programme of Action on the Environment, OJ C 112, 20 Dec.1973, point 5.
126
Single European Act 1987, OJ L 069, 26/6/1987.
127
Treaty on European Union (Maastricht, Feb. 1992).
128
Also see Krämer, 1992, p. 252.
129
For details, see sec. 1.2 of this work and Munir, The Polluter Pays Principle, sec. 2.3 chapter two.
environment if the level of pollution is exceeded or there is an accidental pollution
causing damage to property or the environment.

1.14 CONCLUSION
Summing up, economic solutions to the problems of externality are to internalize the
external costs of pollution. This solution became the basis of the PPP. This is the
combined name of the various economic instruments of pollution reduction. However, in
economics the emphasis is on the cost of pollution prevention and control measures
while, in law the focus is on the damage cost. Adopted by the OECD and the EC and
mentioned in a number of regional and international conventions the PPP remains as a
principle of environmental policy.