The polluter-pays principle is a principle in international environmental law where the polluting parties are made liable to pay for the environmental damages they cause. The objective of this principle is to shift the responsibility from governments to the polluting entities. The PPP is normally implemented through two different policy approaches: (1) the command-and-control approach and
(2) the market-based approach. The command-and-control approach seeks to prevent environmental problems by regulating how a company should manage a pollutiongenerating process. The market-based approach charges fees or taxes to polluters.
Principle 16 of the Rio Declaration expresses this principle as follows:
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 ofpollution, with due regard to the public interest and without distorting international trade and investment.
The UNFCCC does not incorporate this principle. Instead, it leaves parties to determine the means by which to implement their obligations. Moreover, the provisions regarding financing for and technology transfer to developing countries, combined with the absence of emissions reduction commitments on the part of developing countries, indicate that developed country governments, rather than private sector polluters, are to pay for mitigation and adaptation, at least in developing countries. Indeed, part of the mandate of the Green Climate Fund is “to provide for effective direct and indirect public and private-sector financing by the Green Climate Fund.” Nevertheless, COP18 “[u]rges all developed country Parties to scale up climate finance from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources, to the joint goal of mobilizing USD 100 billion per year by 2020.” However, seeking financing from private sources is not the same as obliging the private sector to internalize the cost of pollution.
One could argue that, by having developed countries pay for their past and current emissions, PPP is implicit. However, this would imply accepting a somewhat distorted version of PPP, because it is governments that pay, not the individuals and companies that actually did the polluting. Moreover, having today’s citizens in a developed country pay for pollution that had occurred before their ancestors even immigrated is a further distortion of PPP.
Kyoto Protocol Article 2(1)(a)(v) requires that Annex I parties, in achieving their emissions commitments, take measures “such as” “ [progressive reduction or phasing out of market imperfections, fiscal incentives, tax and duty exemptions and subsidies in all greenhouse gas emitting sectors that run counter to the objective of the Convention and application of market instruments.” Cap-and-trade programs and carbon taxes are two types ofPPP-based measures that have been implemented.
Kyoto Protocol Article 2(1)(a)(v) discourages what might be termed a “pay- the-polluter” approach in developed countries. However, many developed and developing countries still spend significant amounts of money on subsidies for fossil fuels. These subsidies do not appear to be in conflict with the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement), and there is no legal obstacle to eliminating them. However, the SCM Agreement creates disincentives to subsidize clean energy technology development and permits WTO Members to apply countervailing duties that raise the cost of subsidized technologies when they are exported. The SCM Agreement thus creates obstacles to converting fossil fuel subsidies to clean energy subsidies. In this regard, it runs counter to the objective of the UNFCCC. We analyze the SCM Agreement in Chapter 3.
Clean energy technologies are often cited as an example of the kind of technology that needs to be developed and transferred internationally in order to combat climate change. However, the current multilateral legal framework favors “pay- the-polluter” over “polluter-pays.” In Chapter 8, we analyze the reallocation of fossil fuel subsidies to finance climate change adaptation and mitigation.