The polluter pays principle: an assessment of various economic instruments' for the control of pollution

This paper compares and contrasts the policy implications of certain important economic instruments, namely, taxes on pollution emissions; subsidies; tradable emission permits; and "strict liability" at law devised for repairing market failure in the context of industrial pollution. The respective ability of the various economic instruments to aid control of pollution from the perspective of the "polluter pays principle" is reviewed and, in each case, what the polluter is expected to pay and to whom, are reported. The views of a carefully selected set of respondents were solicited in a survey of the FTSE 100 companies where respondents were asked to assess the extent to which the specific economic instruments comply with this principle and the findings from this survey are reported. The authors conclude that market mechanisms, for example effluent taxes and tradable permits, despite their limitations, are not only capable of achieving a given pollution standard at least cost but, of the instruments considered here, are the ones preferred by the majority of the TSE 100 company survey respondents.