Polluter

pays________________________________ A Proper Guide for Environmental Policy

The Polluter Pays Principle:

by Roy E. Cordato, Ph.D. Institute for Research on the Economics of Taxation Studies in Social Cost, Regulation, and the Environment: No. 6

Roy E. Cordato, Ph.D., Project Director

Institute for Research on the Economics of Taxation 1730 K Street, NW • Suite 910 • Washington, D.C. 20006 Phone: (202) 463-1400 • Fax: (202) 463-6199 • Internet: www.iret.org

Copyright © April 2001 by The Institute for Research on the Economics of Taxation (IRET)

EXECUTIVE SUMMARY

"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.)

Few people could disagree with the proposition that those who cause damage or harm to others should "pay" for those damages. It appeals directly to our sense of justice. Forcing polluters to bear the costs of their activities is also said to enhance economic efficiency. Appropriately applied, policies based on a polluter pays principle (PPP) should enable us to protect the environment without sacrificing the efficiency of a free market economic system. But the devil is in the details. The polluter pays principle needs to answer four questions: What constitutes pollution? Who are the polluters? How much must the polluters pay? To whom they must make the payment? A correct interpretation of the polluter pays principle would define pollution as any byproduct of a production or consumption process that harms or otherwise violates the property rights of others. The polluter would be the person, company, or other organization whose activities are generating that by-product. And finally, payment should equal the damage and be made to the person or persons being harmed. Inanimate objects and the environment do not incur costs, people do. It is not merely the physical property that is being...