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This principle underpins most of the regulation of pollution affecting land, water and air.

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Pollution is defined in UK law as contamination of the land, water or air by harmful or potentially harmful substances. But because society has been slow to recognise the link between how human activities have increased the rates of greenhouse gases emissions that can cause the climate to change, emitters are generally not held responsible for controlling this form of pollution.

The polluter pays principle can be applied to greenhouse gas emitters through a so-called carbon price. This imposes a charge on the emission of greenhouse gases equivalent to the corresponding potential cost caused through future climate change — thus forcing emitters to internalise the cost of pollution.

In this way, a financial incentive is created for a factory, for instance, to minimise its pollution costs by reducing emissions. The carbon price can make the polluter pay through two different policy instruments.

The first is a straightforward price-based mechanism in the form of a carbon tax, where the price of pollution is determined by the rate of the tax for each tonne of greenhouse gas emitted. The second form is through a quota-based system, often referred to as a cap-and-trade, or emissions trading system.

How cap and trade works | Environmental Defense Fund

Some firms find it easier or cheaper to reduce emissions than others, and can thus sell permits to firms whose cost for reducing emissions is much higher. Therefore the trading takes place between high-cost and low-cost polluters, thereby determining the price of a polluting permit.

For jurisdictions that use a carbon tax, this would require directly setting the rate at the appropriate carbon price. However, this has often been politically difficult to impose. For jurisdictions that have an emissions trading system, a tighter cap can be imposed to restrict the supply of permits, and thus indirectly increase the carbon price to a level that is in line with the Paris Agreement.

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Polluter pays principle is a push-button for environmental protection

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The Origins of the Polluter Pays Principle

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What is the 'polluter pays' principle?

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