IV. POLLUTER-PAYS AND USER-PAYS
1. The OECD Polluter Pays Principle
In 1972, the OECD Council adopted the "polluter-pays principle" (PPP) as a general principle of environmental policy, and has reaffirmed it on several occasions since. The Council decision states:
The principle to be used for allocating costs of pollution prevention and control measures to encourage rational use of scarce environmental resources and to avoid distortions in international trade and investment is the so-called "Polluter-Pays Principle". The principle means that the polluter should bear the expenses of carrying out the above mentioned measures decided by public authorities to ensure that the environment is in an acceptable state. ... Such measures should not be accompanied by subsidies that would create significant distortions in international trade and investment.
The PPP is thus essentially a non-subsidization principle, ie polluters should not be compensated for the costs of complying with environmental requirements. However, the 1972 Council decision also noted that "there may be exceptions [to the PPP] or special arrangements, particularly for transitional periods". The 1974 Council Act on "The Implementation of the Polluter-Pays Principle" [C(74)223] clarifies that government assistance for pollution prevention and control might be given:
- to ease transition periods when especially stringent environmental protection regimes are being implemented;
- to stimulate the development of new pollution control technologies and abatement equipment; and
- in the context of measures to achieve specific socio-economic objectives, such as the reduction of serious interregional imbalances.
A Council Recommendation in 1991 added to these exceptions by stating that:
financial assistance may be applied in the framework of appropriately designed redistributive charging systems, or in circumstances where payments are made to reinforce other measures designed to achieve appropriate natural resource use.
To avoid abuse, the 1974 decision specified that any assistance granted under the OECD exceptions should be selective and restricted to those parts of the economy where severe difficulties would otherwise occur; limited to well-defined transitional periods, laid down in advance; and, should not create significant distortions in international trade and investment.
2. The PPP and New Zealand agriculture
The Polluter Pays Principle is generally applied in New Zealand agriculture, with the main exception being certain programmes which target soil conservation. While these are not strictly contrary to the PPP because there are no set standards with which landowners are being subsidised to comply, they are essentially substitutes for such standards. The main exception to the PPP is the East Coast Forestry Project, where erosion problems are considered too severe and widespread, and the solution to require too much infusion of capital, to be solved through regulation. As forestry in the East Coast region reaches critical mass, however, the amount of government subsidy needed to switch land use from agriculture to forestry may decline. The regional council for the area has also indicated that it will study the application of an "eroder-pays" policy.
Other programmes which might be considered contrary to the PPP are ending or diminishing. The Rabbit and Land Management Programme, which ends in June 1995, provided rabbit control subsidies in the South Island high country, but has focused on getting landholders to reorganise their operations on a financially and environmentally sustainable basis, taking all costs into account. While it is questionable whether landholders in such a situation should be termed "polluters," there is increasing agreement that they should be responsible for the costs of controlling pests on their properties.
The PPP is applied in other areas of agriculture. Dairy farmers and others discharging waste to water bodies are required to get a permit and meet discharge standards set by the regional council, without any financial assistance. Pesticide companies must meet the costs of ensuring that their products comply with environmental standards. Where there are air quality standards to be met, whether for smell or other criteria, the farmer is responsible for meeting the costs of compliance.
From the viewpoint of encouraging resource users to take all costs into account, however, one could take a much wider interpretation of "polluter pays". In particular, resource users ("polluters") could also be required to pay all administrative costs associated with developing, monitoring and enforcing standards associated with the use of the resource. To go even further, resource users could be required to compensate the public for any pollution or environmental damage allowed up to the level of the standard. This would accomplish full "internalization" of environmental costs and encourage use of resources only when the benefits exceeded all costs to the community.
In New Zealand, regional councils are increasingly requiring payment for all administrative costs associated with environmental permits. Pest management, flood control and land drainage programmes are also now increasingly funded on a user-pays basis, through special property tax assessments on landowners who benefit. In some cases, regional councils charge for technical advice, including assistance with soil conservation planning. This is all part of a wider movement in New Zealand government towards "user-pays," ie requiring payment for services from those who benefit from them, or from those who generate the costs. This ensures that services are not demanded unless fully justified, and that the community does not pay for services required by an individual or a small group. Both objectives are consistent with the polluter pays principle.
To date, no government agency in New Zealand, either at central or local level, has required polluters or other resource users to compensate the public for environmental damage that is allowed within standards. There are two main reasons for this. First, such a policy is contrary to some landholders' perceptions of existing use rights, and second, it is technically difficult to determine an appropriate level of payment without causing suspicion that such charges would be used as general revenue-raising devices. Nonetheless, the use of environmental user-charges is under discussion in New Zealand, and resource rentals are being charged in some regions for use of the marine coastal area for marine farms and boat moorings. Though resource rentals are not compensation for environmental damage in a theoretical sense, their implementation faces the same practical difficulties.
Implementation of user-pays and polluter-pays policies is also conditioned by the existence of market failure for public goods. It is not always possible to charge the user or polluter to prevent free-riders (ie the good is "non-excludable"). In other cases it would be inefficient to do so, because charging would discourage use of a "non-rival" good (ie one person's use does not compete with or detract from another person's use). For some services, such as quarantine controls which protect society at large as well as agriculture, it may be impractical or inappropriate to implement user-pays. However, in New Zealand and elsewhere, commodity and industry levies are being used to overcome these problems in funding research, promotion and management of agricultural pests.
In resource management, problems of non-point source pollution have some attributes of public goods (or public bads). Many regional councils in New Zealand are trying a "landcare" approach to overcome these obstacles, encouraging landowners and others who share a common problem to take collective responsibility for addressing it. This recognises that those closest to an issue are often best placed to devise a solution, provided they have access to information, and is consistent with community expectations regarding the polluter-pays principle.
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