Making the Polluter Pay

Common Law Remedies Provide Better Solutions to Environmental Pollution

Mr. Adler is Associate Director of Environmental Studies at the Competitive Enterprise Institute in Washington, D.C.

The experience of the past few decades indicates that “pollution control” is often a pretext by which the federal government regulates the minutiae of each and every industrial process and economic transaction. Much of this so-called pollution control is done in the name of the “polluter pays” principle. This principle, which is intuitively sensible, was trumpeted by early environmentalists as a means to discourage environmental harms.[1]

The “polluter pays” rhetoric is still often used, and most Americans probably think that current environmental policies make polluters pay. In truth, however, this approach is seldom embodied in American environmental laws.

Rarely are particular polluters forced to pay for actual damage caused. For example, when Congress enacted Superfund, the federal program to clean up hazardous waste, “polluter pays” was used to justify generic taxes on producers of materials (chemicals and oil) that ended up in waste dumps. Even if companies had acted responsibly—even if none of their materials or products ended up at waste sites—and they had caused no damage, they had to pay the tax if they happened to produce certain materials. Superfund is a policy under which polluters and nonpolluters alike are forced to pay exorbitant sums.

The polluter pays principle is valid, but it needs to be better understood and, ultimately, to be reinstated under institutional-arrangements that make it effective and fair. To begin with, one must recognize that emissions per se are not pollution. Pollution is the imposition of a harmful waste product or emission onto the person or property of another without that person’s consent; it is a “trespass” under the principles of common law. If the trespass is so minor that it creates no impact or inconvenience for the property owner, it will normally be tolerated. Otherwise, it will likely result in legal action of some kind.

The generation of a waste, in and of itself, does not necessarily harm other people or their property. Not every emission, waste, discharge, or industrial by-product is pollution. Thus there is no reason for government policy to discourage waste per se. Yet environmental regulators are eager to adopt “pollution prevention,” “waste reduction,” and “toxics-use reduction” schemes. Such programs completely miss the point. They tend to move away from any true concern for limiting pollution, and from holding polluters accountable for the damages that they cause.

Current environmental policy rarely focuses on harm. Indeed, sometimes it doesn’t even focus on pollution at all! Much of the time the emphasis is on compliance with byzantine rules and requirements. Fines are levied not when the property of another is contaminated, but when a permit is improperly filed, or a waste-transport manifest is not completed in line with the demands of regulatory officials. The Environmental Protection Agency itself has observed that under current law “a regulated hazardous waste handler must do hundreds of things correctly to fully comply with the regulations, yet doing only one thing wrong makes the handler a violator.”[2] Environmental rules are now so complex that only 30 percent of corporate counsels believe that full compliance with environmental laws is actually possible, according to a survey conducted by the National Law Journal.[3]

The Exxon Valdez Case

Even when harm occurs as a result of pollution, the “polluter pays” principle is routinely violated. Consider the case of the Exxon Valdez. In 1989, an oil tanker ran aground because its captain was drunk, and over 300,000 barrels of crude poured into the water of Prince William Sound, causing significant, though not permanent, environmental disruption. Few people are aware that the crime for which Exxon was punished was killing migratory birds without a permit. Extensive shorelines were covered in oil, and the government prosecuted Exxon for not having permission to go hunting!

Exxon was subject to civil suits from those, such as local fishermen, who claimed damage from the spill. However, much of the money that Exxon was forced to pay did not go to alleged victims of the spill. Exxon paid $125 million in fines to the federal government and the state of Alaska. In addition, Exxon was forced to pay $900 million into a fund to be doled out by government officials for environmental projects, habitat protection, and scientific research, among other things.[4] In May 1994, $38.7 million of this money was used to create a new state park.[5]

Exxon was under tremendous political pressure to restore the “public” shoreline so it engaged in a costly, and extensive, cleanup operation. Much of the cleanup was unnecessary—nature has its own methods of cleaning up spills of natural substances like oil—and in some cases the extensive beach cleaning actually caused harm. So, not only was Exxon prosecuted on generic offenses against “public” goods rather than for specific harms to specific parties, but the politicization of the spill resulted in a thoughtless policy response. Had a similar spill occurred in a more private setting—if, for example, a tanker truck had overturned, spilling onto private properties—the owners of the affected properties would have had clear, direct recourse. Additionally, they would have had a tangible incentive to ensure that any cleanup or remediation was a proper way to address the problem at hand.

There was no means for affected citizens to hold Exxon directly responsible for much of the actual damage caused to the Alaskan shoreline. The Alaskan coast had no private owners, stewards, or protectors who could seek redress or ensure that cleanup dollars were well spent, as they could if that oil had spilled into someone’s backyard. The only direct payments made by Exxon to those actually harmed were to fishermen and Alaska natives who claimed damages from a temporary decline in the salmon and seal harvest.[6]

If we truly want polluters to pay, there need to be private property owners that can defend threatened or harmed resources. Ownership of ecological resources can serve as a deterrent against causing harm against others, in the same manner that private property provides such incentives in other areas. Private ownership also provides tangible incentives for better stewardship.[7]

Polluters such as Exxon should be held responsible, not for violating a bureaucratic proscription about the hunting of birds or for having harmed some “public” resource, but because they harmed someone else’s person or property, and they have no right to do that. Moreover, any restitution should be paid to those harmed, not simply to a government agency that proclaims it will spend the money in the public interest.

Making Polluters Pay

A fishing club in England, the Pride of Derby Angling Club, demonstrates how property rights can prevent stream pollution. In England, clubs own the right to fish along some rivers and they protect their “beats” from pollution. In 1948, several fishing club members joined to form the Anglers’ Co-operative Association (ACA). The association won a major case soon thereafter, known as the Pride of Derby case. Upstream polluters were required to stop polluting, and pay damages and legal costs, since their pollution threatened the fishery. The ACA has helped fishing clubs pursue injunctions against upstream pollution ever since. To date, the ACA has been involved in over 1,500 cases, including several against municipal water authorities.[8]

This ability of private parties to restrain upstream polluters is rarely available in the United States. Historically, some communities and individuals did obtain traditional common law remedies for water pollution. However, many such actions have since been preempted by the federal Clean Water Act.[9] Under the Clean Water Act, politically preferred polluters are treated more favorably than others. Municipal polluters face cleanup goals that are often less stringent than those of industrial polluters, and their cleanup schedules are far more lenient. Yet, to the rivers and fish, pollution is pollution.

This problem of unequal treatment is compounded by the prevalence of citizen suit provisions in the Clean Water Act and other environmental laws. Although it may sound good to allow any citizen or citizen group to force the government to enforce pollution laws (and to allow the citizen or group to recoup legal costs), what it means is that special interest groups can effectively determine the enforcement priorities of government agencies. Many of the environmental organizations that engage in citizen suits have an anti-business bias. As a result, private industry is subject to more legal actions than either agricultural activities or governmental facilities, even though both of the latter are greater sources of water pollution. Indeed, between 1984 and 1988, environmentalist citizen suits against private industry were more than six times as common than suits against governmental facilities.[10] “There are no environmental reasons why environmental groups would display such a pronounced preference for proceeding against corporate polluters,” notes Michael Greve of the Center for Individual Rights.[11]

Many environmental groups have found that citizen suits can be a lucrative source of revenue.[12] There is something profoundly unjust about limiting the legal recourse of persons harmed by polluting activities, as the politicization of pollution control has done, while at the same time encouraging the use of citizen suits by organizations with no stake in the resources they claim to be protecting.

Another example of failure to make polluters pay is the case of air pollution. It is well established that a small fraction of automobiles are responsible for the vast preponderance of auto-related emissions. Indeed, over half of all auto emissions are generated by only ten percent of the cars on the road.[13] This means that for every ten cars, the dirtiest one pollutes as much as the other nine. But federal officials insist upon imposing significant costs on the owners of all cars through “clean fuel” requirements, periodic emissions inspections, and the like, in order to meet federal air quality standards. If emission reductions are necessary in some regions to protect human health (an arguable proposition), targeting the dirtiest portion of the automobile fleet would reduce pollution more efficiently and more equitably. Indeed, if airsheds were managed privately, one would expect this sort of approach to emissions reductions.

The broad approaches (which I call “drift-net” approaches) achieve pollution reductions more through their scope than their efficiency and tend to produce environmental improvements at the expense of innocent individuals who have not contributed to environmental harm. Environmental protection and simple justice are better served when pollution reduction efforts focus on the true sources of pollution, and ensure that it is the polluters that pay for the damages caused.

Do Pollution Taxes Work?

There is one other approach that appears to embody the “polluter pays” principle: the imposition of emission taxes. This idea is generally associated with the economist A.C. Pigou, who argued that pollution taxes would force offending industries to “internalize” the costs they were imposing on others.

But there are several problems with this approach. First, such taxes would be used to enrich government coffers, not to compensate those who were harmed by the pollution. It is one thing for the state to decide disputes and ensure that polluters make restitution to those whom they have harmed. It is another thing for the state to identify polluting activities and use pollution taxes as a source of general revenue. The former is in accord with common law principles of justice; the latter encourages the continued growth of the regulatory state.

The second problem is that the state is in no position to assess the actual costs imposed by pollution. Pollution taxes enacted through the political process are likely to reflect political priorities rather than environmental ones. The federal gasoline tax, for example, is often defended as a “polluter pays” approach because oil exploration, refining, and use all have environmental impacts. However, a tax on gasoline is a poor proxy for taxing environmental impacts—the same gallon of gasoline will produce different levels of emissions in different vehicles. And special-interest pleading ensures that certain types of fuels and fuel additives receive special exemptions from the tax.

In fact, pollution tax schemes almost inevitably rely upon some proxy for pollution that can be taxed. It is far easier to levy a tax on an easily measurable factor, such as use of a resource or aggregate emissions, than it is to try and measure the impact on people—yet it is the impact on people and the environments that they are concerned about that should matter. Using tax mechanisms in place of common law principles, no matter how well intentioned the policy, is a “polluter pays” approach that is destined to fail.

In sum, making the polluter pay should not entail trying to eliminate the generation of wastes and other by-products of a modern industrial society. Nor does it mean regulating every emission, every industrial process, indeed every aspect of economic life. It means focusing environmental protection efforts on the greatest sources of harm and ensuring that polluters pay for the costs of the harms they inflict upon others. This goal can be best accomplished through a decentralization of environmental policy and a greater reliance upon common law remedies. Central government dictates are not up to the task. []

1.   See, for example, Sydney Howe, “Making the Polluters Pay,” The Washington Post, January 30, 1977, C8.

2.   U.S. Environmental Protection Agency, The Nation’s Hazardous Waste Management Program at a Crossroads: The RCRA Implementation Study (Washington, D.C.: U.S. EPA, July 1990), p. 36.

3.   Figure cited in Marianne Lavelle, “Environmental Vise: Law, Compliance,” National Law Journal, August 30, 1993, p. S1.

4.   Jeff Berliner, “Exxon Pleads Guilty, Judge Accepts $1 Billion Settlement,” United Press International, October 8, 1991.

5.   “Oil Spill Money Creates New Alaska Park,” Associated Press, May 27, 1994.

6.   However, it should be noted that the jury awards to the fisherman were more likely the product of outrage over the spill than actual demonstrated damage (see Jeff Wheelwright, “Exxon Was Right, Alas,” The New York Times, July 31, 1994, p. 15). This is another product of focusing on “public” harms rather than harms inflicted on particular parties.

7.   This point is elaborated upon in Robert J. Smith, “Resolving the Tragedy of the Commons by Creating Private Property Rights in Wildlife,” Cato Journal, Fall 1981, pp. 439-468.

8.   This history is recounted in Kent Jeffreys, Who Should Own the Ocean? (Washington, D.C.: Competitive Enterprise Institute, Fall 1991), pp. 17-18.

9.   See Roger E. Meiners and Bruce Yandle, “Clean Water Legislation: Reauthorize or Repeal?” in Taking the Environment Seriously, Meiners and Yandle, eds. (Lanham, Md.: Rowman and Littlefield, 1993), pp. 88-94.

10.   Michael Greve, “Private Enforcement, Private Rewards,” in Environmental Politics: Public Costs, Private Rewards, M. Greve and F. Smith, eds. (New York: Praeger, 1992), p. 111.

11.   Ibid.

12.   Ibid., pp. 109-110.

13.   J.G. Calvert, et al., “Achieving Acceptable Air Quality: Some Reflections on Controlling Vehicle Emissions,” Science, July 2, 1993, p. 40; and, Donald Stedman, et al., On-Road Remote Sensing of CO and HC Emissions in California, Final Report Contract No. A032-093 (Sacramento: California Air Resources Board, February 1994), p. 13.