Before jumping on the main theme of the blog, let us understand more about the Economic Burden of Pollution.
The total annual cost of air pollution in China is estimated at $900 billion annually, and it costs the United States $600 billion annually. Indian cities have been suffering from low air pollution index for years and the problem costs the country an average of $150 billion annually. In 2018, the cost of dirty air was equivalent to 6.6% of China's GDP, 5.4% of India's GDP, and 3% of the US GDP.
Regulatory bodies in several forms tried to make top polluters pay by an instrument widely known as the ‘polluter pay principle’.
The polluter pays principle is the generally accepted practice that those who cause pollution should bear the costs of addressing it, in order to avoid harm to human health and the environment. For example, factories that produce potentially toxic substances as a by-product of their activities are usually responsible for their safe disposal.
Greenhouse gas emissions cause potential harm and damage from climate impacts and also contribute to outdoor or ambient air pollution. It is therefore considered a form of pollution. However, as society has been slow to recognize the link between human activity increasing greenhouse gas emissions and its potential to change the climate, emitters generally seek to control this form of pollution. Thus when the environmental costs of greenhouse gas emissions are not passed on to the emitters, these costs are 'externalised' to society, what economists call 'market failure'. Society bears these costs because greenhouse gases are emitted into the atmosphere. This is called the "global commons" because everyone has the right to "use" them.
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The polluter pays principle can be applied to greenhouse gas emitters through the so-called 'CO2 price'. It imposes a charge on greenhouse gas emissions corresponding to the corresponding potential costs caused by future climate change, causing emitters to absorb or internalize the cost of pollution. Known as cost of ownership (SCC), it is considered by many mainstream economists to be the best way to price carbon. Alternatively, carbon prices can be based on desired outcomes. In other words, it can be adjusted to meet a specific emissions target by a specific date, Net zero by 2050. This is commonly referred to as the "goal consistency" approach. Both approaches provide financial incentives for polluting entities (such as factories) to reduce their emissions.
There are two ways to make the polluter pay for the carbon price:
There is a straightforward price-based mechanism in the form of a carbon tax, which determines the price of pollution based on the tax rate for each tonne of greenhouse gases released.
The second is through quota-based systems, often called cap-and-trade or emissions trading systems. It sets a cap or limit on the maximum level of emissions over a period of time and distributes permits or allowances per unit of greenhouse gas among companies that generate emissions. Some companies find it easier or cheaper to reduce their emissions than others, so they can sell allowances to companies where the cost of reducing emissions is much higher. Emissions trading is therefore conducted between cost-intensive polluters and low-cost polluters to determine the price of pollution permits. Polluters are "paying" by ensuring they have enough permits to cover their total emissions in a given year.
Many economists argue that carbon prices should be global and consistent across countries and sectors regardless of the instrument used. Regulations allow pollution to continue without restrictions. The High-Level Commission on Carbon Pricing report (2017) stated that an appropriate global carbon price of USD 40-80/tCO2e by 2020 and USD 50-100 by 2030, in line with the achievement of the targets. We estimate that it should be /tCO2e. Paris Agreement. Countries that apply carbon taxes should set the tax rate directly at a fair carbon price. However, carbon taxes have often been politically difficult to implement. Tighter caps could be imposed on jurisdictions with emissions trading schemes to limit the supply of emissions credits and indirectly raise carbon prices to levels consistent with the Paris Agreement.
Let's say you decide to buy a car. Who should be responsible for the pollution caused by this vehicle, including its manufacture and use? Should these costs be borne by you, the manufacturer, or the purchaser?
In practice, the cost of pollution could be recovered by regulations that force manufacturers to take action to reduce pollution. If a factory or mine produces toxic or hazardous waste, who should be responsible for its disposal? Who should be held accountable for the impact of air and water pollution on the environment and on human health? Industries must bear the costs of addressing them in order to avoid harm to human health and the environment. PPPs are an economic argument for absorbing the costs arising from pollution, called the “Pigovian tax” or social tax on negative externalities that arise when the production or consumption of a product is too costly for one-third party. It starts with this principle entering the legal world through various international instruments and is now recognized as a principle of international environmental law within the European Union and the Organization for Economic Co-operation and Development (OECD) and is applied by courts in judicial interpretation. (De Sadeleer, 2020). It has also been gradually incorporated into international climate protection legislation (Kodolova & Solntsev, 2020).
Despite these positive advances and apparently simple application of PPPs – polluters should pay for the environmental damage they cause by bearing the cost of pollution prevention and control measures. – The application of PPPs in international environmental law still presents considerable uncertainty and ambiguity (Beyerlin & Marauhn, 2011). Contrary to the Common But Differentiated Responsibility (CBDR) principle, PPPs refer to financial compensation from those responsible for environmental damage. This is a matter of individual responsibility, not a state responsibility.
PPPs thus help establish mechanisms to reduce environmental degradation but do not determine who is responsible. Not surprisingly, few people or organisations claim the title of "polluter." This ambiguity about who is the link in the polluter chain is why PPPs have been introduced into regulations in some countries, especially the European Union, but there is a universal international standard that all countries need to set.
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