The polluter-pays principle states that those responsible for environmental harm should bear the costs of preventing, controlling and repairing it. In IB ESS, it is an HL-only response to market failure within HL.b Environmental economics.
How the Principle Works
Environmental damage can create a negative externality: a cost imposed on third parties but excluded from the market price. A factory may profit while residents or governments bear health-care and clean-up costs.
The principle internalizes the externality by making that environmental cost part of the polluter's private cost. Governments can apply it through several mechanisms:
| Mechanism | How the Polluter Pays |
|---|---|
| Pollution tax or charge | Charge rises with pollution released. |
| Tradeable emission permits | Firms buy permits covering emissions, incentivizing reductions. |
| Legal liability | Polluters fund compensation or restoration. |
| Mandatory clean-up | Polluters fund removal and ecosystem restoration. |
Suppose a factory gains monetary units but causes units of environmental damage. A charge of units makes it consider the wider , encouraging cleaner technology or lower emissions.