The Polluter Pays Principle

The application

Facts. In Indian Council for Enviro-Legal Action v. Union of India, AIR 1996 SC 1446, chemical units at Bichhri in Rajasthan, two of which made H acid, produced enormous quantities of iron-based and gypsum-based sludge and highly toxic waste water, which percolated into the earth, poisoning the wells and the soil of the surrounding villages.

Held. The Court held the units absolutely liable on the rule in the Oleum gas leak case, held that the polluter pays principle applied, and directed the Central Government to determine the amount required to carry out remedial measures and, if the units did not pay, to recover it from them in accordance with law, attaching their immovable assets meanwhile. It also held that the polluter is liable to pay the cost of removing the sludge and of restoring the soil and water.

Why it matters. It is the leading Indian authority on remediation cost. It is also a lesson in enforcement: the money was not recovered for many years, and the Court had to return to the case repeatedly.

The limit

Facts. In Deepak Nitrite Ltd v. State of Gujarat, (2004) 6 SCC 402, the Gujarat High Court had directed industrial units in an estate that had not met the standards prescribed by the State Board to pay one per cent of their annual turnover as compensation for environmental damage, without finding what damage any of them had caused.

Held. The Supreme Court held that compensation in a public law remedy must rest on a finding that damage was in fact caused, that a percentage of turnover imposed without such a finding could not stand merely because the norms had not been observed, and that the High Court must investigate broadly, not as an action in tort but as an action in public law, whether damage had been caused, what norms should govern compensation, and whether one per cent of turnover was an appropriate formula at all.

Why it matters. It is the boundary of the principle. Breach of a standard is not by itself damage, and a levy imposed across an estate without a finding of harm is not the polluter pays principle but a tax.

The four things a polluter may be made to pay

Compensation to the victims. Money to the people harmed, for their loss.

The cost of restoration. The expense of removing the pollutant and returning the medium to its previous condition. This is the specifically Indian limb.

The cost of the regulatory measures. The original economic form: the polluter bears the cost of the treatment plant, the monitoring and the abatement equipment.

Environmental compensation. A modern administrative levy fixed by formula, which has a chapter of its own in Module IV and which is where the criticism in Deepak Nitrite bites hardest.

Worked example

A dye intermediate unit at Vapi has been discharging into a percolation pit for eleven years. Wells within two kilometres are contaminated. Sixty families draw water from them.

What is the loss? Three separate things: the illness and the cost of alternative water to the sixty families; the contamination of the aquifer, which must be pumped and treated for years; and the cost of the closure and clean-up of the site.

Who assesses it? Not the court itself. On the Vellore Citizens model an authority is constituted under section 3(3), or the National Green Tribunal appoints a committee, and a report is made.

Can the unit say it complied with its consent conditions? It can, and it will not help against the first two limbs. Compliance is a defence to a prosecution, not to a liability to restore what has actually been damaged.

Can it say it cannot afford it? No. The Kanpur Tanneries case held the financial capacity of the tanneries irrelevant to their duty to treat effluent, and the Oleum gas leak case makes compensation for harm a cost of carrying on a hazardous activity.

Can it be made to pay one per cent of turnover? Not without a finding that it caused damage. That is Deepak Nitrite.

Distinctions

What it does NOT mean

It does not mean a licence to pollute on payment. This is the commonest misunderstanding. The principle allocates the cost of pollution that has occurred; it does not authorise pollution in exchange for money, and an activity that is prohibited does not become lawful by paying for it.

It does not mean compensation without a finding of damage. Deepak Nitrite decides that for compensation in public law, although Research Foundation (2005) refused to read it as barring payment for repair where the principle otherwise applies.

It does not mean the polluter pays only the victims. The restoration limb is the Indian addition and it is what a student most often omits.

It does not mean the principle is confined to compensation. It also justifies the cost of regulation being placed on the regulated, which is the basis of the fees, the extended producer responsibility schemes and the environmental compensation regime.

Limits and criticism

Identifying the polluter. Where an aquifer has been contaminated by forty units over thirty years, the principle says who pays and cannot say how much each pays. Joint and several liability is the usual answer and it is rough.

Valuing the environment. There is no market price for a wetland. Restoration cost is the usual proxy, and it understates the loss where restoration is impossible.

The historic polluter. Many of the worst sites were contaminated by companies that no longer exist. The principle then produces nobody to pay and the cost falls on the public.

It can become a tax. That is the Deepak Nitrite objection, and it is a real risk wherever compensation is fixed by formula rather than by finding.

Quick revision

• Origin: the Organisation for Economic Co-operation and Development in 1972; Principle 16 of the Rio Declaration 1992.
• Indian statement: Vellore Citizens (1996), part of the environmental law of the country.
• Two limbs: compensation to victims and the cost of restoring the environmental degradation.
• Bichhri (1996) applied it to remediation cost; recovery as arrears of land revenue was ordered only in 2011.
• Deepak Nitrite (2004) is the limit: no compensation without a finding of damage.
• It is not a licence to pollute on payment.

Test yourself

1. State the Indian formulation of the polluter pays principle and say how it differs from the original. The Indian formulation, from Vellore Citizens Welfare Forum, is that the absolute liability for harm to the environment extends not only to compensating the victims of pollution but also to the cost of restoring the environmental degradation, remedying the damaged environment being part of the process of sustainable development. The original formulation of 1972 was narrower and economic: the polluter should bear the expense of the abatement measures decided by public authorities, so that their cost is reflected in the price of the goods that cause the pollution. The Indian version adds compensation to victims and restoration of the medium.

2. A unit has breached its consent conditions for three years but no damage can be identified. Can it be made to pay compensation? Not on the polluter pays principle. Deepak Nitrite holds that compensation in public law must rest on a finding that damage was in fact caused, and that a levy imposed for breach of norms without such a finding cannot stand. The unit can be prosecuted, penalised under the statutory penalty provisions and have its consent revoked, all of which turn on the breach itself, but compensation requires harm.

3. Why is the identification of the polluter the hardest part of the principle in practice? Because environmental harm is usually cumulative and multi-source. An aquifer contaminated over thirty years by dozens of units cannot be apportioned on the evidence, and some of the units will have closed or changed hands. The courts respond with joint and several liability among those who are before them and with recovery as arrears of land revenue, which is effective against the survivors and leaves the historic share to be borne by the public.