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Principle for distributing the costs of tackling climate change

Introduction

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The manner in which the costs associated with mitigation of climate change has become a fundamental facet of the ongoing public and scholarly discourse on climate change (Watanabe 2008). While it may appear palpable that the current generation stands to bear the major burden by their existence, and their governments are the only agents in a position to act now to prevent dangerous climate change, this cannot be necessarily the solution. At the same time, postponing the problem for future generations is abominably unfair. On the other hand, giving the current generation, the sole responsibility to mitigate climate change merely translates to transferring the problem of climate change mitigation to various agents, institutional bodies, and multinational corporations to address the issue (Nash 2000). Still, there appears to be a lack of an agreement on the cardinal principle that can be used to solve such an obstinate problem. Examples of these agreements include the polluter pays principle (PPP), ability to pay principle, and equal shares principle. Within the context of this paper, the recommended principle for distributing the costs of tackling climate change is the PPP. A major concern is how to apply the PPP globally, from an equitable perspective. This paper examines the PPP as an ethical, legal, and economic, principle. It further shows that by using the PPP, climate change problems can be adequately mitigated. It is argued that because of the apparent urgency of resolving the climate change problems, adopting the PPP appears to be at the centre of policy-making in many countries, including the major emitters.

Brief background 

Polluter Pays Principle contends that individuals responsible for causing climate change problems should also take responsibility for the full cost of the past emissions or its abatement. What this simply means is that the agents that should pay for the full costs of the climate change detriments about their contribution (Gross 2007). Indeed, this definition reflects the key objectives of the PPP. As Khan (2015) observes, the concept of PPP was first adopted in 1972 by the UN Conference on Environment and Development in Stockholm as a framework for allocation of costs of pollution mitigation and adoption of the rational control mechanism for encouraging judicious utilisation of scarce environmental resources. Therefore, it places the obligation of covering the costs of environmental damage, to ensure it attains an acceptable state, on the polluter. 

Rationale for selecting PPP

The PPP promotes rationally and ethical decision-making by companies that potentially cause environmental damage. According to Khan (2015), the PPP is appropriate for distributing the costs of tackling climate change, as it makes logical sense to economic development and policy-making. By weighing the benefits of the PPP to the general society against the costs to those who damage the environment, PPP can be viewed as encouraging ethical practices in production. However, some of the benefits and costs of climate change mitigation come about in economics terms, which also imply that certain principles of economics can be applied to weigh up the benefits against costs (Broome, 2008). Overall, costs of climate change mitigation consist of the sacrifices that the current generation has to make to cut the emission of greenhouse gases (Caney 2005). The PPP has extended the definition of the polluter also to include how it cause risk to the environment, as well as where the risk is yet to happen. The PPP recommends that one would be liable when he or she contributes to environmental damage through his or her actions. For instance, in the case of Erika oil spill case in 2008, the PPP facilitated the decision by the European Court of Justice based on Art. 15 of the EU Waste Framework Directive (2006) ruled that the company that produced hydrocarbons, which had become a waste because of a sea accident had to be held accountable for the costs of cleaning up the spill (Europa 2012).

The PPP also ensures efficient resource utilisation and greater levels of investment in research and development to encourage innovation. An explanation for this is based on internationalisation of costs of negative externalities, which are at the core of efficient resource allocation (O’Connor 1997). The process, according to Khan (2015), can also be called “full cost pricing.” An underlying reason for bringing up this point is that, as polluters are supposed to internalise the climate-change costs, they would be driven to cut the cost by mitigating pollution, through a process, such as emissions trading or advanced technology.  This also implies that the companies are likely to invest more in research and development (R&D) to come up with technologies that can reduce their emissions. The PPP has triggered the need for greater levels of R&D in the fishery sectors of many countries, such as New Zealand, Australia, Iceland, and South Africa. During the late 1990s, these countries set an upper limit on the charge at 4% the catch limit, leading to a recovery of up to US$120 million by 2000. In Australia, the Australian Fisheries Management Authority (AFMA) has legislative objectives of recovering environmental costs, since the 1980s. The industry was made to pay 100% of recoverable management costs. As a result, fishery companies intensified their R&D efforts to discover ways to minimise environmental damage, and the consequent costs (Coffey & Newcombe 2001). Theoretically, this implies that PPP provides an indirect incentive for companies to encourage technological innovations, to develop technologies that can reduce climate change.

The PPP principle in its legal and judicial form ensures that local governments take actions on private parties to take responsibility for their roles in environmental damage. In which case, the government may revoke a private party’s operational licence. To this end, PPP stands to instil a feeling of responsibility among companies, particularly on issues related to pollution load they have generated through their production processes. As Tol (2006) himself explains, the PPP contends that national and local governments are equally authorities for the detriments cause to the environments. It also permits public regulatory authorities to engage in “sub-rogation” against the industries causing pollution. Ultimately, all other stakeholders subject to the regulatory authority perceive a sense of responsibility. According to Khan (2015), a pedagogical discourse exists, for both the producers and consumers, which are infused with a sense of responsibility regarding pollution load that they potentially generate through their operational and production processes. According to Pettinger (2013), politicians tend to prefer PPP, as this enables them to gain political mileage.

PPP ensures equitable distribution of costs, particularly when the prices set to reflect the actual cost of environmental damage. As Nash (2000) explains, during the last two decades, the concept of PPP has been applied in various forms, as well as in different economies and cultures through policy instruments. Among the most popular form in which it has been applied, include taxes and charges, liability and insurance, as well as emissions trading. Technically, when a carbon tax is set to the extent that it can internalise the actual costs of damage caused to an environment, Kim (2000) discusses that prices would depict the real costs of pollution to an environment. Khan (2015) explains that this is the reason many nations are using a more pragmatic approach called “Baumol-Oates,” where companies set up tax at a rate that influences the behaviour of taxpayers. This is the reason Lindhout and Broek (2014) argued that the concept of PPP shifted focus from merely being an economic principle into a legal principle. This argument has evident of proof, including an attempt in the EU Law to define PPP, under the PPP.EC Directive 84/631 (6 December 1984). Still, the concept of PPP has been approved by several national legal systems, such as in Ukraine, Belarus and Russia. Russia has imposed resource tax on the extraction of natural resources. In the United States, the PPP was not codified in the US domestic law, yet it influenced the enacting of the US environmental law during the 1970s and 1980s, such as the Clean Air Act (CAA) of 1970 and Clean Water Act (CWA) of 1977, which demanded that polluters had to attain certain standards at their costs (Khan 2015).

Still, there are objections to the effectiveness of the PPP. For instance, Luppi et al. (2012) argue that while the PP was initially targeted at eliminating government aid for polluters, it was not supposed to abolish all types of pollutions. Hence, it merely guarantees partial internalisation of the costs of environmental damage without even ensuring that all polluters are obliged to taking full responsibilities of the consequences of their actions.

Conclusion

Due to the apparent urgency of resolving the climate change problems, adopting the PPP appears to be at the centre of policy-making in many countries, including the major emitters. The PPP has triggered the need for greater integration of R&D in companies’ internal policies to promote research and innovation on environmentally friendly materials. It also serves to distribute the costs of tackling climate change rationally and ethically. Additionally, it appropriately distributes the costs of tackling climate change, as it makes logical sense to economic development and policy-making.  The PPP also ensures efficient resource utilisation and greater levels of investment in research and development to encourage innovation. This includes internationalisation of costs of negative externalities, which are at the core of efficient resource allocation. The PPP principle in its legal and judicial form ensures that local governments take actions on private parties to take responsibility for their roles in environmental damage. This serves to instil a feeling of responsibility among companies, particularly on issues related to pollution load they have generated through their production processes. Lastly, it ensures equitable distribution of costs, particularly when the prices set to reflect the actual cost of environmental damage. 

Reference List

Caney, S 2005, “Cosmopolitan Justice, Responsibility and Climate Change.” Leiden Journal of International Law, vol 18, pp.747–75.

Coffey, C & Newcombe, J 2001, The Polluter Pays Principle And Fisheries: The Role Of Taxes And Charges, viewed 19 Oct 2016, <http://www.ieep.org.uk/assets/238/thepolluterpaysprincipleandfisheries.pdf>

Europa 2012, Principles of EU Environmental Law, viewed 19 Oct 2016, <http://ec.europa.eu/environment/legal/law/pdf/principles/2%20Polluter%20Pays%20Principle_revised.pdf>

Gross, M 2007, “Agriculture and the Polluter Pays Principle,” Electronic Journal of Comparative Law, vol. 11 no 3, pp. 1-5

Khan, M 2015, “Polluter-Pays-Principle: The Cardinal Instrument for Addressing Climate Change,” Laws, vol 4, pp.638–653

Kim, H 2000, “Subsidy, Polluter Pays Principle and Financial Assistance among Countries,” Journal of World Trade, vol 34 no 6, pp. 115-141

Lindhout, P & Broek, B 2014, “The Polluter Pays Principle: Guidelines for Cost Recovery and Burden Sharing in the Case Law of the European Court of Justice,” Utrecht Law Review, vol 10 no 2, pp.46-59

Luppi, B, Parisi, F & Rajagopalan, S 2012, “The rise and fall of the polluter-pays principle in developing countries,” International Review of Law and Economics, vol 32, pp.135-144

Nash, J 2000, “Too much market? Conflict between tradable pollution allowances and the polluter pays principle,” Harvard Environmental Law Review, vol 24, pp.1–59.

O’Connor, M 1997, “The internalization of environmental costs: Implementing the Polluter Pays principle in the European Union.” International Journal of Environment & Pollution, vol 7, pp.450–83.

Pettinger, T 2013, Polluter pays principle (PPP), viewed 19 Oct 2016, <http://www.economicshelp.org/blog/6955/economics/polluter-pays-principle-ppp/>

Tol, R 2006, The Polluter Pays Principle and Cost-Benefit Analysis of Climate Change: An Application of Fund, Research unit Sustainability and Global Change, Hamburg University and Centre for Marine and Atmospheric Science, Institute for Environmental Studies, Vrije Universiteit Engineering and Public Policy, Carnegie Mellon University

Watanabe, R 2008, Who should pay for climate protection? Another side of the same coin of burden sharing, viewed 19 Oct 2016, <http://wupperinst.org/uploads/tx_wupperinst/pay_for_climate_protection.pdf>

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