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The Polluter Pays Principle The Polluter Pays Principle The Polluter Pays Principle The Polluter Pays Principle PolluterPays The This is a facsimile edition produced using print-on-demand technology. The content of the book is unchanged from the original edition in all respects except for the use of colour (one colour only). The cover for this edition has been generated from a database, and is therefore different from the original. The ISBN is the same as used for the original print edition. If you have any comments or questions about OECD Print-on-Demand editions, please write to [email protected]. ISBN 978-92-64-11337-4 99 1951 28 1 P www.oecd.org/publishingwww.oecd.org/publishing -:HSTCQE=VVXX\Y: THE POLLUTER PAYS PRINCIPLE DEFINITION ANALYSIS IMPLEMENTATION ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT The Organisation for Economic Co-operation and Devel- opment (OECD) was set up under a Convention signed in Paris on 14th December, 1960, which provides that the OECD shall promote policies designed : * to achieve the highest sustainable economic growth and employment and a rising standard of living in Member countries, while maintaining financial sta- bility, and thus to contribute to the development of the world economy; * to contribute to sound economic expansion in Member as well as non-member countries in the process of economic development; * to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obligations. The Members of OECD are Australia, Austria, Belgium, Canada, Denmark, Finland, France, the Federal Republic of Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. * ** # Organisation for Economic Co-operation and Development, 1975. Queries concerning permissions or translation rights should be addressed to: Director of Information, OECD 2, rue Andre´-Pascal, 75775 PARIS CEDEX 16, France. TABLE OF CONTENTS Foreword ................................. 5 Part One DEFINITIONS AND RECOMMENDATIONS Recommendation of the Council on Guiding Principles concerning International Economic Aspects of Environmental Policies ...................... 11 NoteontheImplementationofthePolluter-PaysPrinciple . 15 Council Recommendation on the Implementation of the Polluter-Pays Principle ..................... 18 Part Two ANALYSES The Polluter-Pays Principle and the Instruments for Allocating Environmental Costs . ............ 22 The Polluter-Pays Principle: Interpretation and Principles of Application, (W. Beckerman) ......... 37 The Polluter-Pays Principle: Scope and Recommendations for Putting it into Force (Note by the German Delegation) ............................. 67 Note on Some Aspects of the Polluter-Pays Principle and its Implementation (Judith Marquand and David R. Allen) . 77 An Examination of the Polluter-Pays Principle Based on Case Studies ............................. 93 3 FOREWORD The recent meeting at the OECD of the Ministers in charge of the environment in Member countries (November 1974) provided further specification of the scope of application of the Polluter-Pays Principle. On this occasion the OECD Council issued a Recommendation on the implementation of the Principle. The OECD has been pursuing important studies in this field for several years. Shortly after its creation, the Environment Committees recognized the importance and merits of the Polluter-Pays Principle, not only as an efficiency principlefor theimplementationofnationalenvironmental policies, but also as a principle which promotes the international har- monization of these policies. A first stage was marked by the OECD Council Recommendation on ‘‘Guiding Principles concerning the International Economic Aspects of Environmental Policies’’ of 26th May, 1972 which, among other things, recommended that Member countries apply the Polluter-Pays Principle. A second stage, still under-way, consists of studying which in- struments, at the practical level, are the most efficient for the im- plementation of this principle. Additional research is being carried out on the possible exceptions to this principle in conjunction with the dynamic aspects of its application. With respect to the latter, at the meeting of the Environment (Committee at Ministerial Level (13th- 14th November, 1974), the Council issued a Recommendation limiting the exceptions to the Principle. It was believed that a selection of relevant theoretical and prac- tical analyses might usefully be brought to the attention of the public, now that the Polluter-Pays Principle must be regarded as a mainstay of Member countries’ environmental policies. It was felt no less useful at the same time to state the rules and definitions officially recognized by OECD bodies, since so many definitions, interpretations and misunderstandings of the Principle, now become a slogan, appear to prevail among the general public. The OECD has adopted precise definitions which were thought might best be included in the early part of the present collection. The reader should therefore bear in mind that the first three documents alone are official texts. The rest of this volume contains analyses which do not necessarily reflect the views expressed in the first two papers and which may even, in some cases, differ from them. 5 As the Polluter-Pays Principle is a fundamental principle of cost allocation, its analysis covers a substantial part of the vast field of environmental resource allocation. While it would be idle to try to sum up all the subject matter of this collection in these pages, the main topics discussed can be briefly listed. i) First, in the matter of definitions of the Polluter-Pays Prin- ciple, the definition officially adopted by the OECD will be found, together with an answer to the questions which consequently arise; for example, since the Polluter-Pays Principle means that the pol- luter should be charged with the cost of pollution prevention and control measures, then from the standpoint of the compliance with the Prin- ciple it matters little whether the polluter’s prices reflect all or part of his environmental costs. The Polluter-Pays Principle is not violated if costs are passed on into prices. What matters, therefore, is that the polluter should be the first party to pay, so that he can give full weight in his decision-making process to the economic factor of overall environmental costs. What should the polluter pay? The Polluter-Pays Principle is not a principle of compensation for damage caused by pollution. Nor does it mean that the polluter should merely pay the cost of measures to prevent pollution. The Polluter-Pays Principle means that the polluter should be charged with the cost of whatever pollution prevention and control measures are determined by the public authorities, whether preventive measures, restoration, or a combination of both. If a country decides that, above and beyond the costs of controlling pollution, the polluters should compensate the polluted for the damage which would result from re- sidual pollution (when the measures taken by the public authorities do not imply a total ban on pollution), this measure is not contrary to the Polluter-Pays Principle, but the Principle does not make this addi- tional measure obligatory: in other words the Polluter-Pays Prin- ciple is not in itself a principle intended to internalize fully the costs of pollution. An account will also be found of the circumstances in which the Polluter-Pays Principle may be subject to exceptions, such as in the form of subsidies paid to polluters. This problem of exceptions is important as it relates to the international aspect of the Polluter-Pays Principle. As an effective rule of cost allocation the Polluter-Pays Principle has international extensions: it is thus a matter of avoiding distortions in international trade. For this purpose it is important that the various countries should implement their policies according to common cost-allocation rules; if one country subsidizes its polluters while another makes them pay, producers in the first country will enjoy a competitive advantage over those in the second. In short, the comparative advantages in the different countries must be made fully 6 evident instead of being artificially concealed by various aids polluters may enjoy. For this reason possible exceptions to the Polluter-Pays Principle, which are sometimes necessary in order to prevent any too rigid approach, must be strictly defined. It is for this reason that the Council of the OECD issued a recommendation designed specially to define the limits of these exceptions and to provide a notification and consultation procedure at the OECD in order to prevent any kind of distortionintradewhichcouldeventuallyresultfromtheimplementation of environmental policies. ii) With regard to analysis of the Polluter-Pays Principle, one study deals in detail with the economic foundations of the Principle and possible effects of its application, such as on behaviour of the polluting firm. iii) Lastly, the important problem of implementing the Polluter- Pays Principle is discussed it some length. What ‘‘instruments’’ are consistent with the Polluter-Pays Principle? What are the most effec- tive instruments (pollution charges, direct controls, etc.) and are they applicable in all circumstances? With the sudden recent emergence of ‘‘environmental economics ’’, a large number of analyses have tackled the problem of designing and applying
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