As I indicated last time, one of the problems with the Polluter Pays principle is that economists seem to have been particularly dilatory in finding appropriate ways to implement it. As a result, so many products whose manufacture cause excess carbon emissions, noxious air pollution or the fouling of lakes, rivers and even aquifers, escape penalty when sold, distorting the business model of companies. As for other sorts of damage such as deforestation, damage to coastal environments, or wholesale trashing of the seafloor by bottom-trawling, the idea that these all have a cost which could be measured has hardly penetrated academia, it would appear. However, there are some positive signs, if you look for them. The recent EU regulation outlawing palm-oil from deforested land is one particularly striking move in the right direction, predictably opposed by the Malaysian Government and others on the grounds of ‘interference with free trade’, and ‘possible infringement of the World Trade Organisation rules’. I’d like to suggest that if we are to save the planet ‘interfering with free trade’ is the least of the adjustments we are going to need – indeed it will have to be accelerated, not outlawed. And as for the WTO rules ‘Protection and preservation and of the environment are fundamental goals’ as enshrined in the Marrakesh Agreement that established the WTO, although as with any radical change there is likely to be a cascade of other changes needed to be made at the local level. In Indonesia smallholders are already complaining that they don’t have the necessary documentation to allow the sort of certification the new regulations will need.
A potentially game-changing move to combat climate change is the EU’s new Carbon Border Adjustment Mechanism (CBAM) which will insert the Polluter Pays principle into cross-border trade. This has drawn a horrified reaction from a variety of observers. It represents ‘wild ambition at the regulatory front’ according to Emily Lydgate, Professor of Environmental Law at the University of Sussex. ‘Wild ambition’ or logical progress? In the Ecospeak of the EU Green Deal publicity ‘carbon leakage occurs when companies based in the EU move carbon-intensive production abroad to countries where less stringent climate policies are in place than in the EU’. ‘Carbon leakage’ seems an odd term to use, but the idea is that lower standards give foreign exporters (or EU companies that have shifted production) an unfair advantage. Rather than raise a complaint under WTO rules, the EU has decided upon this more direct approach.
Under the scheme the first, and most useful, stage will be the requirement of major industries to start accounting in detail their carbon emissions, ahead of the actual levying that won’t come in until several years ahead. Restricted to carbon emissions, one might add that since there is also ‘labour leakage’ and ‘biodiversity leakage’ and general ‘pollution leakage’, some detailed accounting of these features might be started as well, but so far the EU’s ‘wild ambitions’ are restricted to carbon.
As envisaged by the EU the CBAM scheme is to begin with certain ‘carbon intensive’ products like cement, iron and steel fertilisers and aluminium which will be subject to a levy on entering the EU by requiring the purchase of CBAM certificates to compensate for emissions involved in their production. Businesses will receive a certain number of free allowances but to emit more carbon they will pay E80 ($75) per metric ton for the harmful privilege. The idea is to level the playing-field so that eventually manufacturers everywhere have the same effective carbon levy, whether they are located in China, Bangladesh or South Wales, encouraging them all to reduce their carbon emissions.
Press coverage suggest this ‘bold plan’ is one to which ‘the rest of the world is paying very close attention’. To soften the blow, the scheme will take years to be fully implemented. Until January 2026 industries will only have to submit carbon data, and the entire scheme will be phased in gradually, not becoming fully operational until 2034. By which time…
As readers of this blog will know, we also face a biodiversity crisis which deserves as much urgent attention as climate change if we are to ensure a liveable planet. So, while applauding the intentions underpinning the CBAM scheme, I wonder if an equivalent scheme could be devised to penalise industrial damage to nature? It would be an appropriate application of the Polluter Pays principle Some of the obvious candidates would be palm-oil, soya, rubber, and beef which are associated with a variety of damage to nature by transforming habitats, polluting air or water, or generally reducing biodiversity. Perhaps it’s no coincidence that some of the most environmentally damaging industries have distorted trade in their favour making them particularly profitable and thus most strongly defended – as usual with the fossil-fuel industry leading the way. The WTO seems to have remained strangely quiet when major industries like fossil-fuel production pollute whole watercourses and industrial scale deforestation transforms land into plantations of rubber or vast fields of soya. The ‘fundamental principles’ look good on paper, but that seems to be where they stay.
Applying the Polluter Pays principle isn’t part of some political manifesto but follows from an understanding that the costs of pollution are real. Pretending that these costs don’t exist damages the planet for everyone today and, perhaps more seriously, for future generations. Worse than that, by suppressing the true costs the business model of many industries is distorted, and this even affects our most basic perception of the global situation.
Among the sources of information that the UN International Panel on Climate Change depends on are data about the livestock industry supplied by FAO (the UN Food and Agriculture Organisation). Livestock are a major source of methane, which we know is even more serious in its polluting effects as a greenhouse gas than carbon dioxide. It is particularly depressing to read that for years officials at FAO censored research on methane emissions from livestock. Commercial lobbying ensured that research into livestock as a source of methane was systematically suppressed, so the true dangers posed by the ever-expanding livestock industry were hidden and ignored. To be profitable livestock rearing on deforested land depends on not having to account for the damage caused by the forest destruction or the methane produced by the animals; without these effective subsidies the industry would not be viable.
Climate change and the biodiversity crisis are going to increasingly affect the lives of every human being on this planet. How the needs of commerce interact with the natural world is of fundamental significance; applying the Polluter Pays principle seems crucial to a better understanding of both our actual situation and future trends. Commercial lobbying must not be allowed to distort this work – not the collection of appropriate data nor the theoretical work of specialist economists devising new techniques for measuring the real-world costs. And certainly not the brave administrators and public servants devising concrete procedures like the EU’s ground-breaking CBAM scheme. But I’m not holding my breath in expectation.
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