(6) Environmental Law, Policies & Protection

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The Environment and Economy In Conflict

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Environment and economics

Discussions of appropriate levels of environmental protection have long been dominated by economic understandings of the environment. Environmental economics were first brought to the mainstream in the United Kingdom by the influential Blueprint report to government in the late 1980s.39

David Pearce and Edward B. Barbier, Blueprint for a Sustainable Economy (Earthscan, 2000), p. 2

The Original Themes of Blueprint for a Green Economy

Environmental assets are important not just in themselves (so-called intrinsic value) but in economic terms, that is in terms of the economic services they provide. Economic importance relates to the contribution that those assets make to human wellbeing. Human well-being embraces everything that gives humans happiness and satisfaction. It is not confined to the satisfaction derived from material goods and services nor is the motive for being happy or satisfied confined to self-interest.

Economic value is most commonly revealed and observed in the market place. But the contributions that environmental goods and services make to human well-being may or may not be channeled via functioning markets. In a great many cases, they are not. We say there are missing markets.

Economic importance can be demonstrated by placing monetary values on environmental assets and services, values which reflect human preferences, just as if there was a market.

This is the process of non-market valuation. Once we know an asset has economic importance, we can focus on the policies to conserve it. But policies are not effective unless they address the root cause of the problem, and those root causes often lie in the structure of the economic system. Hence economic solutions are required for environmental problems.

The Blueprint approach posits incomplete economic analysis as the root cause of environmental problems, and more complete economic analysis as the solution. Economics has some powerful and useful ways of expressing how contemporary societal arrangements systematically neglect environmental issues.

Garrett Hardin, ‘The Tragedy of the Commons’ (1968) 162 Science 1243, pp. 1244-5

The tragedy of the commons develops in this way. Picture a pasture open to all. It is to be expected that each herdsman will try to keep as many cattle as possible on the commons.

Such an arrangement may work reasonably satisfactorily for centuries because tribal wars, poaching, and disease keep the numbers of both man and beast well below the carrying capacity of the land. Finally, however, comes the day of reckoning, that is, the day when the long-desired goal of social stability becomes a reality. At this point, the inherent logic of the commons remorselessly generates tragedy.

As a rational being, each herdsman seeks to maximize his gain. Explicitly or implicitly, more or less consciously, he asks, ‘What is the utility to me of adding one more animal to my herd?’ This utility has one negative and one positive component.

1. The positive component is a function of the increment of one animal. Since the herdsman receives all the proceeds from the sale of the additional animal, the positive utility is nearly +1.

2. The negative component is a function of the additional overgrazing created by one more animal. Since, however, the effects of overgrazing are shared by the entire herdsman, the negative utility for any particular herdsman is only a fraction of -1.

Adding together the component partial utilities, the rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another; and another ... But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit - in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.

 ...

In a reverse way, the tragedy of the commons reappears in problems of pollution. Here it

is not a question of taking something out of the commons, but of putting something in - sewage, or chemical, radioactive, and heat wastes into water; noxious and dangerous fumes into the air; and distracting and unpleasant advertising signs into the line of sight. The calculations of utility are much the same as before. The rational man finds that his share of the cost of the wastes he discharges into the commons is less than the cost of purifying his wastes before releasing them. Since this is true for everyone, we are locked into a system of ‘fouling our own nest’, so long as we behave only as independent, rational, free-enterprisers.

The tragedy of the commons as a food basket is averted by private property, or something formally like it. But the air and waters surrounding us cannot readily be fenced, and so the tragedy of the commons as a cesspool must be prevented by different means, by coercive laws or taxing devices.

Although this thesis has been criticized for its detail, its general explanatory force is strong. Hardin’s tragedy of the commons builds on the notion of ‘externalities’, a key concept in environmental law. Externalities are the costs of producing a product that are not reflected in the final cost of the product.

Farmers whose crops die because of pollution, government or consumers who pay to clean up pollution, and communities which suffer the health effects of pollution, by bearing the costs of pollution, are all bearing the external costs of the economic enterprise creating the pollution. In an unregulated market, a factory does not have to pay for the use of the water or air, reducing the cost of production.

This is not only intuitively unfair, but also inefficient, because the artificially low prices lead to over-production. Regulation is justified as an attempt to internalize externalities, bringing them within operating costs; the ‘polluter pays principle’ has become a core principle of environmental law, and whilst there is a certain amount of ambiguity as to the extent that the principle rests on economic efficiency as opposed to intuitive notions of justice (it is ‘fair’ that the polluter pays), it is most commonly justified and explained by reference to cost internalization. As with the precautionary principle, the Rio Declaration provides a commonly cited approach: ‘National authorities should endeavor

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 of pollution, with due regard to the public interest and without distorting international trade and investment.’40 The polluter pays principle should discipline governmental decision making in such a way as to prevent the bearing of environmental costs by the general public. The polluter pays principle is frequently called on as a justification of so-called ‘market instruments’ of regulation. The principle in no way, however, dictates the nature of a regulatory scheme. Standley involves a challenge by the applicants before the national court of the Nitrates Directive, 41 alleging that farmers were being required to ‘pay’ for ‘pollution’ caused by industry.

C-293/97 R v. Secretary of State for the Environment, Transport and the Regions ex p Standley [1999] ECR I-2603, Opinion of Advocate General Leger

92. There are two aspects to that principle.

93. It must be understood as requiring the person who causes the pollution, and that person alone, to bear not only the costs of remedying pollution, but also those arising from the implementation of a policy of prevention.

94. It can therefore be applied in different ways.

95. Thus, it may be applied either after the event or preventively before the harm occurs. In the latter case the point is to prevent a human activity from causing environmental harm. The legislation adopted for that purpose may establish a system for assessing the environmental effects of certain public and private projects ... Article 5 of the [Nitrates] Directive, which requires the Member States to put in place specific programmes involving, in particular, the prevention of any new water pollution caused or induced by nitrates from agricultural sources (for example, the construction of storage vessels for manure).

96. The polluter pays principle may equally apply after environmental harm has occurred.

The person responsible for the harmful effects will then be required to make good or bear the cost of that harm ...

97. Finally, that principle may take one further form in which, in return for the payment of a charge, the polluter is authorized to carry out a polluting activity. That is the case with taxes paid by the users of fuels which cause air pollution.

98. In this case I consider, as stated above, that Article 5 of the Directive must be interpreted as requiring the Member States to impose on farmers only the cost of plant for the reduction or avoidance of the water pollution caused by nitrates for which farmers are responsible, to the exclusion of any other cost. That interpretation therefore complies strictly with the polluter pays principle.

This case not only demonstrates that the polluter pays principle can be implemented in a number of ways, but also that the courts are willing to assess EC legislation, and national implementation of that legislation, against the polluter pays principle (and presumably other environmental principles contained in Article 175 of the EC Treaty.

 

39. David W. Pearce, Edward B. Barbier and Anil Markandya, Blueprint for a Green Economy (Earthscan, 1989).

40. Rio Declaration, para. 16.

41. Directive 91/676/EC concerning the protection of waters against pollution caused by nitrates from agricultural sources OJ 1991 L 375/1. 

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