The PPP makes perfectly rational economic and policy sense. The non-acceptance yet of the PPP is a testimony of material power in climate regime formation, where the industrial countries, historically as the main polluters, continue to dominate [ 6 ]. However, with the urgency of addressing the problem getting more and more intense, as we are already living in a climate changed world, the adoption of the PPP in many of its varied forms is very much on the agenda of many countries, including the major emitters. Since the problem relates to a global commons, the whole contestation is about how to apply it globally, from an equitable point of view. This article attempts to analyze the PPP as an economic, ethical, and legal principle, and show that application of PPP has the potential to take care of the climate change problem, including adaptation that will be needed for sometime to come, even with adequate mitigation from now on. However, achieving an adequate mitigation regime under theWorking Group on Durban Platform (ADP) is not likely to be very soon, at least not by the stipulated timeframe of 2015, though there is an emerging consensus on application of some forms of the PPP.

The fact that atmospheric pollution as a negative externality resulting from human activities into the global commons is accepted universally, without any contestation. Additionally, the fact that the sink capacity of the atmosphere is limited and that limited capacity tends to be overwhelmed is also accepted overwhelmingly by the global community of scientists and policy-makers [ 1 5 ]. However, there is no consensus about the cardinal principle for solving this intractable problem,., the polluter-pays-principle (PPP).The contradiction is that while it rests on the neoliberal market system for addressing the problem, the UNFCCC Article 3.1 did not directly include the PPP as its provision, though the fundamental principle of “equity and common but differentiated responsibility based on respective capabilities (CBDR + RC)” implicitly recognizes this.

Other agreements, such as the North American Free Trade Association (NAFTA), Rio Agenda 21, the 2002 World Summit on Sustainable Development (WSSD) Implementation Plan, the Convention of the Protection of the Alps, and the Protocol on Water and Health also endorsed the PPP. This instrument can be applied more easily in a geographical region subject to uniform environmental laws. I will now discuss how countries in industrial and developing countries apply the PPP within their domestic contexts.

The application of PPP is currently done mainly within and across the OECD countries through many different versions of PPP, but not beyond. This “free-riding” by the major polluters is the crux of intractability of climate problem solution, which will be elaborated in the last section of this paper. Although the OECD Recommendation was not a binding document, PPP has increasingly been adopted in international treaties and laws, including codification in the European Union. Below is a list of few declarations and regimes that have internalized PPP in many different formulations:

The 1992 Convention for Protection of the Marine Environment of the North-East Atlantic (Paris Convention, 1992). Article 2b says: “[t]he contracting parties shall apply…the polluter pays principle, by virtue of which the costs of pollution prevention, control and reduction measures are to be borne by the polluter”. Disincentives such as penalties and civil liability can also be seen as application of the PPP.

The 1992 Helsinki Convention on the Protection of the Marine Environment of the Baltic Sea Area mandates the application of the PPP: Article 3.4 makes the parties responsible for producing pollution responsible for paying for the damage done to the environment.

The 1972 Stockholm Declaration Principle 21 says: “States have, in accordance with the Charter of the United Nations and the principles of international law, the sovereign right to exploit their own resources pursuant to their own environmental policies, and the responsibility to ensure that activities within their jurisdiction or control do not cause damage to the environment of other States or of areas beyond the limits of national jurisdiction”.

In this process the concerns of public realm have been transformed into the judgement and decision process by the private authorities [ 25 ]. In fact, the climate regime reflects this philosophy. The cardinal principle laid out in the Article 3.1 of the UN Framework Convention on Climate Change (UNFCCC) is the basis for a regime formation to combat climate change: this is the principle of the CBDR + RC. This principle implicitly recognizes the PPP, and can only be operationalized through the global application of the PPP and directing the fund for introducing clean technology and adapting to the impacts of climate change. A version of compensatory PPP was considered during the Conference leading up to the Kyoto Protocol (KP) in 1997, but was rejected in favor of the CBDR + RC. The Brazilian proposal of a punitive and compensatory clean development fund (CDF) was replaced with the non-compensatory clean development mechanism (CDM) [ 26 ].

As a matter of fact, environmental pollution is a result of non-internalization of environmental costs by polluters, which then becomes a public concern. However, in the climate regime, the harm, the emissions have been commodified through emissions trading under the flexible mechanisms of the Kyoto Protocol.

Again in efficiency interpretation, two versions can be distinguished, one of which is referred to by the OECD recommendation cited above: (a) a weak form (no subsidization) and (b) a strong form (cost internalization) of this doctrine. Weak form prohibits government subsidies for pollution abatement, to ensure that product prices reflect costs of pollution control. Strong form calls for governments to assure internalization of all environmental costs, including residual damage, in the form of liability and compensation. This means the strong form subsumes the weak form plus the principle of equity. Verbruggen [ 21 ] talks of the OECD light version and extended version of PPP, where the former requires polluters to pay only their own abatement expenses in meeting environmental policy obligations, and extended version adds commitment to compensate for damages inflicted occasioned to public good. Some scholars bring in the conceptions of negative and positive duties [ 22 24 ]. The negative duty must pay for damages and be stopped, while positive duty can be done out of beneficence. In this conception, PPP is a negative duty.

There are different rationales or interpretations of the PPP, of which the following four can be cited as the most common: an efficiency argument, an equity argument, a judicial/legal argument and a pedagogical argument [ 7 20 ]. Cost internationalization of negative externality as its core meaning is meant for efficient allocation of resources. This is also called the full cost pricing. The idea is that once the polluters are bound to internalize the costs, they will try to reduce the cost by reducing pollution, either through using better technology or through emissions trading. Thus, there is a built-in incentive for R&D for new technology. The judicial/legal interpretation of the PPP holds that states and local governments are jointly and severally liable for environmental damage caused by parties, either private or public, allowing the public regulatory agencies to act in “sub-rogation” against industrial polluters [ 7 ]. In addition to this, Nash [ 20 ] argues that there is a pedagogical argument for this principle, both for the producers and consumers: both these groups are instilled with a sense of responsibility about the pollution load that they generate either through production or consumption of the goods and services. Nash further argues that politicians also are likely to like it, since supporting the PPP puts them on the side of the voters. Then, in its equity interpretation, it is understood in terms of fair distribution of costs. All these three meanings are extremely important for international climate policy formulation.

In response to the first UN Conference on Environment and Development in Stockholm in 1972, the PPP was first adopted by the Organization for Economic Cooperation and Development in 1972.The OECD document contained the following elaborate recommendation [ 16 ]:

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”. This principle means that the polluter should bear the expenses of carrying out the above mentioned measures decided by the public authorities to ensure that the environment is in an acceptable state. In other words, the cost of these measures should be reflected in the cost of goods and services that cause pollution in production and/or consumption. Such measures should not be accompanied by subsidies that would create significant distortions in international trade and investment.

Thus, application of PPP was conceived as a check against socialization of environmental costs and privatization of benefits. Its proper application may require monetary valuation of environmental damages, and their estimation through expanded versions of cost benefit analysis that includes the currently non-marketed environmental goods and services [ 13 ]. Faure and Grimeaud ([ 14 ], p. 33) argue that “one can say that the polluter pays principle is probably the most ‘economic’ of all environmental principles”. This understanding of the PPP as a predominately “economic” principle is in line both with its modern origin [ 15 ] and with some of its most representative definitions that explicitly endorse the criterion of cost internalization, such as Principle 16 of the 1992 Rio Declaration and its inclusion in many international regimes. Thus, beginning with an economic principle, PPP has also become a normative doctrine of environmental law.

Fast forward more than two millennia; in the 1980s, government regulations were deemed more desirable and efficient in environmental protection ([ 12 ], pp. 198–200, 319). Since then, some change has taken place. This is reflected in Agenda 21, adopted in 1992 at the Rio Earth Summit. The new call was for international cooperation in the use of economic instruments (Agenda 21, 252–54).The current focus in environmental policy-making is on prevention as more cost-effective, rather than cure, through incentives/disincentives to change individual behavior. However, this approach is not getting enough traction at the global level.

From the above passages of Western and Eastern sages, it was clear that they have conceived of the PPP for application to address problems of pollution in the local commons, as in those days there was no such private property culture, or global commons problems the way we have them today. Gradually, it was applied as an economic instrument in domestic policy making in order to allocate costs of pollution prevention and control [ 10 11 ].

Historically, the idea of PPP for environmental harm is rooted in both Western and Eastern traditions. Luppi. [ 7 ] cite, as a footnote, in 8 ] the celebrated passage by Plato: “If anyone intentionally spoils the water of another…let him not only pay for damages, but purify the stream or cistern which contains the water”. We can cite some passages from another celebrated Indian philosopher Kautiliya, who lived more or less at the same time of Plato. This dates back to 300 BC, when Kautiliya in his(Study of Economics) prescribed different levels of financial penalties for causing harm to the environment. The fines depended on the degree of harm caused. For example, he would prescribe “fines for voiding faeces in a holy place, in a place for water, in a temple and in royal property” [ 9 ]. Another example of property damage: “In case of damage to the ploughing or seeds in another’s field—channels or a field under water, they shall pay compensation in accordance with the damage” ([ 9 ], pp. III, 9, 27).

3. Application of the PPP in Industrial and Developing Countries

etc . Conceptually, a carbon tax should be set at a level that internalizes the true costs of environmental damage, so that prices reflect the real environmental costs of pollution. This is known as Pigouvian tax. However, experience shows that Pigouvian tax has rarely been used because of difficulties in assessing the cost of damage associated with, in this case, GHG emissions. Thus, many countries have followed a more pragmatic “Baumol-Oates” approach, in which the tax is set at a rate that should influence taxpayers’ behavior ([ The Price of Inequality [ For the last two decades, PPP has been practiced in many different forms in different cultures and economic systems. It is applied through varied economic instruments, such as taxes and charges, emissions trading, as in cap and trade, deposit refund schemes, liability and insurance,. Conceptually, a carbon tax should be set at a level that internalizes the true costs of environmental damage, so that prices reflect the real environmental costs of pollution. This is known as Pigouvian tax. However, experience shows that Pigouvian tax has rarely been used because of difficulties in assessing the cost of damage associated with, in this case, GHG emissions. Thus, many countries have followed a more pragmatic “Baumol-Oates” approach, in which the tax is set at a rate that should influence taxpayers’ behavior ([ 27 ], p. xvii). The Nobel Prize economist Joseph Stiglitz has strongly argued for internalizing the true cost of natural resources in his latest book 28 ].

legal principle ([ Union policy on the environment shall aim at a high level of protection taking into account the diversity of situations in the various regions of the Union. It shall be based on the precautionary principle and on the principles that preventive action should be taken, that environmental damage should as a priority be rectified at source and that the polluter should pay (EC Treaty, Title XIX Environment, Article 174(2)). Thanks to extensive work of the OECD during the last two decades, the PPP has been transformed from an economic to aprinciple ([ 16 ], p. 9). PPP is well defined in the EU Law. After years of negotiations, environmental law regime in the EU in 1984 endorsed two very fundamental principles of environmental protection: the precautionary principle and the PPP.EC Directive 84/631 (6 December 1984) on control within the EC of transborder shipment of hazardous waste illustrates the application of PPP. It was formally adopted by the Europe Union in the Single European Act of 1987 (Single European Act, 17 February 1986, 1987 O. J. (L.169). Article 174 (2) of the consolidated versions of the Treaty on European Union and of the Treaty Establishing the European Union, 2002 O. J. (C325) 1 provides that:

However, implementation of the PPP by different states enjoyed different status in national legal systems [ 29 ]. Based on the array of application of several economic instruments, Sweden is regarded by some as having the most advanced application of the PPP in the world [ 30 ]. However, PPP continues to lack any generally accepted legal definition. Verhoef ([ 31 ], pp. 206–7) argues that “…the question of whether the polluter should pay…may often lead to different outcomes in terms of both allocative efficiency and equity…This ambiguity in the interpretation of the polluter pays principle is, unfortunately, often overlooked”.

a concept where manufacturers and importers of products should bear a significant degree of responsibility for the environmental impacts of their products throughout the product life-cycle, including upstream impacts inherent in the selection of materials for the products, impacts from manufacturers’ production process itself, and downstream impacts from the use and disposal of the products. Producers accept their responsibility when designing their products to minimize life-cycle environmental impacts, and when accepting legal, physical or socio-economic responsibility for environmental impacts that cannot be eliminated by design. The OECD also applies the extended producer responsibility in managing pollution (another interpretation of PPP), which was introduced first by Thomas Lindhqvist in his doctoral dissertation [ 32 ]. The OECD [ 33 ] defines it as:

Now the PPP has been endorsed in many national legal systems.It is implemented in the form of payments for negative environmental impact as an instrument of environmental regulation in Russia and some other former Soviet countries, such as Ukraine and Belarus [ 34 ]. Russia has also imposed resource tax on natural resource extraction, as a form of user fee. The US domestic law did not codify PPP, but it did have an influence on the development of the US environmental law in the 1970s and 1980s. For example, certain provisions of the 1970 Clean Air Act (CAA) and the 1977 Clean Water Act (CWA) require polluters to meet certain standards at their own expense. The Comprehensive Environmental Response, Compensation and Liability Act 1980 (CERCLA) mandates fulfilling the PPP by imposing liability for clean-up costs on the polluters. Under the 1990 amended CAA, the US introduced trading in sulphur dioxide, which is a variant of the PPP. The “Superfund” legislation in the US held that polluters are liable for clean-up costs of hazardous sites, even if dumped materials were not known at the time to be harmful [ 35 ]. This makes perfect sense since this strict liability inspires their clean-up [ 17 ].

There are other market-based solutions to other environmental pollution problems in the US. The California Public Utilities Commission authorized the San Diego Gas and Electric Company to collect $1.73 billion for three years from an electricity rate hike about 12 percent. This will cost the average customer an additional amount of about $10 a month. This money will be invested to underwrite the cost of attending climate policies in the state [ 36 ]. There are other market-based solutions to different environmental pollution problems in the US. For example, in a case, through a nutrient off-set bank, a large 50-acre for-profit project has been initiated, which aims at keeping excessive nitrogen and phosphorous out of the Chesapeake Bay, to maintain water quality across 64,000 sq km of the Bay [ 37 ].

the reluctance of the United States to be bound by multilateral disciplines, by laws other than its own, is a deep-rooted trait of their national character, which dates back to its pre-great power status. The current multilateral landscape is dotted with examples of treaties that the US either opposes, or accepts with reservations protecting its sovereignty, or supports without being formally bound (cited in [ 38 ]). It may be recalled that market-based ideas were put into the UNFCCC, negotiated under the administration of President Bush Sr., and the US delegation in 1997, led by the then Vice President Al Gore, played the key role in introducing market-based mechanisms in the Kyoto Protocol, as the USA by then had enough experience in emissions trading under their Clean Air Act of 1990. However, the US Senate refused to ratify. The Bush Jr. Administration took a vehement anti-Kyoto position, dubbing it as a “flawed treaty” on the grounds of non-participation in binding commitments by major emitters like China and India. Grubb argues that “the first paradox is that the United States was, in effect, rejecting its own treaty” [ 38 ]. M. Z. Cutajar, the former Executive Secretary of the UNFCCC, argues that:

In actuality, the US perhaps lags the most when compared to other industrial countries in terms of imposing pollution/carbon tax, where most of the EU countries have imposed different forms of environmental taxes, including carbon tax. The EU’s attempt at regulating airline emissions is an example of application of PPP. Another instrument, a financial transaction tax is being considered for implementation from January 2016 by 11 countries within the Eurozone. President Hollande of France is leading this initiative.

New York Times columnist Thomas Friedman [ In the US, some democrats in the Congress have been trying to initiate climate change legislation that includes a tax on carbon emissions.This is being initiated at a time when President Obama in his State of the Union Address (12 February 2013) has threatened to use regulations to stem GHGs if Congress fails to act. The new plan proposes three possible prices for a ton of carbon: $15, $25 and $30 [ 39 ]. Ascolumnist Thomas Friedman [ 40 ] put it, a carbon tax would be “win-win-win-win win” for the United States: by reducing emissions, generating funds for the deficit, “weaken petro dictators, strengthen the dollar, drive clean-tech innovation and still leave some money to lower corporate and income taxes”. However, there is a lot of skepticism among Congressmen about the potential of the bill. The opponents of the tax proposal instead prefer addressing climate change through new technologies, like electricity storage, carbon capture and sequestration and biomass plants [ 40 ].

However, US citizens tend to support some versions of PPP, including a price on carbon. An online poll conducted by Yale and Mason Universities reveals that 61 percent agree that fossil fuel producers should pay the “hidden costs” of the industry; also, about the same percentage surveyed supported revenue-neutral tax on fossil fuels, with safeguards for the poor and the money to be invested for treatment of sickness from air pollution [ 41 ]. Another poll after the super storm Sandy in October 2012, the majority of coastal residents supported paying for the costs of coastal storms and the effects of sea level rise by the residents and businesses of the coastal towns, and not by the federal government. This was revealed in a recent poll taken by the Woods Institute and the Center for Ocean Solutions, both at Stanford University. The majority of those polled supported the fact that those who live and do business in harm’s way should pay for the costs involved [ 42 ].

On the other hand, OECD prescribes imposing a carbon tax and enhancing fuel and electricity prices to tackle air pollution in China. The Chinese Finance Minister stated in November 2012 that his country was looking into consumption taxes on resource-intensive and polluting goods, and would include water and coal in a new resource-tax system. However, the time frame was not clear [ 43 ].