Categories: Pollution Article 3

The Polluter-Pays Principle in Environmental Impact Assessments: A Case of “Bipolar” Regulatory Failure (Chile)

Ezio Costa Cordella*
Central University of Chile, Santiago, Chile
*Corresponding author (contact: ecosta@derecho.uchile.cl)

EPL, Vol.47, Iss.5-6, pp.169-181, 2017



One of the main roles that literature has given to regulation is that of determining how to address particular challenges, once the overall legal approach has been determined. This idea is linked not only to the ambition of having perfect markets, but also to the concept of the public interest. It is deemed that regulation will be in line with the public interest if its goal is to fix market failures. This idea pervades many different sectors, from consumer goods to utilities regulation, passing through environmental regulation, where market solutions and regulations compete with other approaches to the problem.

A reflection of the intent to fix market failures in environmental regulation was the creation of the PolluterPays Principle (PPP). This principle mandates that those who produce pollution have to bear the costs of managing it. It is based on the economic concept of externalities and in the understanding that if costs are adequately considered in economic activities, then the consequences of those activities should be tolerable for third parties, including society as a whole. Thus, environmental regulation systems that implement the PPP expect that application of the principle will lead to an internalisation of the externalities of activities that have an impact on the environment. This is an important point and this research is based on this expectation.

Chile’s Sistema de Evaluación de Impacto Ambiental (Environmental Impact Assessment System or SEIA) is one of the most important tools in the country’s environmental regulation. It was created after the Rio Conference (1992) and its basis includes the PPP. In this system, the principle works by setting an obligation for project owners to mitigate, repair or provide compensation for the impacts produced by their activities. In other words, to internalise the environmental costs of their projects.

This research will evaluate whether the PPP is being applied in Chile’s SEIA in a way that complies with its declared objective of solving the externalities, especially with regard to the human environment. To do so, this research will be conducted with a qualitative methodology that mixes case studies with semi-structured interviews of relevant actors. It will show that even when a regulatory arrangement is created to fulfil the public interest, its application may deviate from and fail to fully comply with its declared and intended purpose. Analysing the causes of the failure, this research will suggest how the lack of resources and the discrepancy between the world-views of the design and the application of a regulatory arrangement can lead to a “bipolar” regulatory failure – i.e., one that projects two very different and inconsistent views of itself. In the first part, this research conducts a literature review on the PPP and public interest regulation, in order to establish a connection between them. In the second part, the Chilean SEIA is briefly explained, stressing the role that the PPP plays in it. The third section is devoted to the case studies, explaining how they were selected and the main information that can be extracted from them, ending with the findings of those cases. The last part will present the results and conclusions of the research.

The Polluter-pays Principle and its Position in Public Interest Regulation

Principles in Environmental Regulation
Especially in environmental regulation, principles have played a crucial role. A good part of environmental regulation – both national and transnational – is based on principles found in two international instruments: the 1972 Declaration of the United Nations Conference on the Human Environment and the 1992 Rio Declaration on Environment and Development, both of which are built on the recognition of some general principles that must be observed by all States. Principles, especially those expressed in the Rio Declaration, are recognised as a source of international environmental law. According to Birnie et al. (2009), the fact that these principles are endorsed by the signatory States is authoritative enough to give them legal force. The authors explain that “[s]uch principles have legal significance in much the same way that Dworkin uses the idea of constitutional principles. They lay down parameters which affect the way courts decide cases or how an international institution exercises its discretionary power” (Birnie et al., at 28).

An important feature of principles in environmental law and regulation is the fact that they hold a double function: to inform decision making and to be an unspecific prescription for the regulated persons and entities. This duality serves Braithwaite’s (2002) vision of effectiveness in the use of principles or detailed rules. As he says, principles are better suited to solving issues of greater complexity and with larger economic interests involved, such as environmental matters; on the other hand, in complex matters, a mixture of principles and rules would be an optimal solution. Such is the case with the PPP, which has some degree of autonomy as a general principle, while at the same time being mediated by more detailed rules.

The Polluter-pays Principle
The basic formulation of the PPP is that those who produce pollution have to bear the costs of it. It has been part of numerous international treaties and has also been accepted, recognised and materialised in detailed rules in national and transnational legislations. “The principle basically demands for the person who is in charge of polluting activities to be responsible for the damages it causes” (Louka, 2006, at 51).

The OECD “Recommendation of the Council on Guiding Principles Concerning the International Economic Aspects of Environmental Policies” of 1972 was the first instrument that made reference to the PPP, with the specification that the measures to protect the environment should be financed by those who cause pollution (OECD Council, 1972). Its scope was extended to environmental damage with the 1989 OECD “Recommendation of the Council concerning the Application of the Polluter-Pays Principle to Accidental Pollution” (Sands, 2003, at 282). The fact that the principle was accepted by the international community may be explained by the OECD and the European Community actively promoting it (de Sadeleer, 2002).

A more specific explanation is given by de Sadeleer for whom the principle derives from the theory of externalities. Given that the use of environmental goods produces externalities, they must be internalised by the one that produces them. “The polluter-pays principle is an economic rule of costs allocation whose source lies precisely in the theory of externalities. It requires the polluter to take responsibility for the external costs arising from his pollution” (de Sadeleer, at 21). The Rio Declaration adopts the PPP as its Principle 16: "National authorities should endeavour to promote the internalization of environmental costs and the use of economic instruments, taking into account the approach that the polluter should, in principle, bear the cost of pollution, with due regard to the public interest and without distorting international trade and investment."

The duality of the concept is given by the fact that it allocates the costs of preventing pollution to the producers, while on the other hand it gives them the financial responsibility to deal with the environmental damage that the pollution could cause. De Sadeleer sees in this duality that the PPP makes it possible to obtain resources for preventive policy and modify the behaviour of the regulated person or entity (de Sadeleer, at 59). Despite the broad recognition of the principle, there are some controversies around its functions. It has been said that those functions are: (i) to assure competition by preventing distortions and environmental subsidies, (ii) to be an instrument of redistribution and prevention, and (iii) to guarantee the reparation of environmental damage. Another controversy surrounds the identification of the polluter, particularly in determining if the polluter is deemed to be the one that emits over a threshold given by law, or be anyone that causes an impact or damages; in any case, it is also disputed who is responsible in the chain of production. A third controversy is how much should the polluter pay. Some might argue that polluters should completely internalise all costs; however, most of the interpretations of the principle and the original formulation point towards a partial internalisation, especially in light of the difficulties of valuing environmental damage (de Sadeleer).

These controversies, and what Woerdmann et al. (2008) call the ambiguity of the principle, lead to two fundamental versions of it – one that points toward the internalisation of costs to reach efficiency; and another that addresses redistribution and equity concerns. Under the efficiency interpretation, they distinguish between a weak version, that entails no subsidies, and a strong version that points towards internalisation of costs (Woerdman et al.). Internationally, the latter is more broadly used, and it has been used in this research.

The ambiguity of the PPP is solved in national legislation that implements the principle. In fact, even when the PPP has faced controversies over its application in the international arena, there is agreement about its use at the domestic level (Sands, at 281). According to de Sadeleer (at 32), the PPP has been recognised in many national laws as a guiding norm of environmental policy. Typical actions to incorporate the principle are taxation and regulatory standards limiting or banning some damaging economic activities (de Sadeleer, at 21). Yet, as it will be observed, the PPP may be implemented through the Environmental Impact Assessment (EIA) process, in the form of specific conditions imposed on projects.  What is relevant for this research is the fact that the PPP’s objective is to resolve the environmental externalities of activities with environmental impacts in such a way that they are internalised by those who produce them. Following Sands, one practical use of the PPP is the allocation of economic obligations and the creation of economic tools regarding environmental impacts.

The PPP and Chile’s Environmental Regulation 

The SEIA was created by Law 19.300 in 1993 and it has been implemented in detail by the DTO 30/1997 MINSEGPRES replaced in 2013 by DTO 40/2013 MMA. The system resembles the one applied in the US and it was in part created to satisfy the international pressures for minimal environmental standards, both by the World Bank and the North American Free Trade Agreement (Silva, 1994). Moreover, the SEIA has been labelled as a neoliberal environmental regulation since its attention is focused more on the impact on private profits than environmental protection (Tecklin et al., 2011).

The agency in charge of the SEIA is the Servicio de Evaluación Ambiental (Environmental Assessment Service or SEA) and its role is to assess the impacts of projects and coordinate the assessment made by other public agencies as well as the public participation process. In addition, the SEA is authorised to grant the Resolución de Calificación Ambiental (Environmental Qualification Resolution or RCA) through a special Committee, the Comisión de Evaluación Ambiental (Environmental Evaluation Committee or COEVA). SEA is a technical agency, while COEVA is a collective body formed by regional heads of technical agencies and regional secretaries of the ministers.

The SEIA includes two alternative procedures, one that is simplified and can be used for small projects (a Declaration of Environmental Impact) and another that is more complex and must be used by projects having one of the characteristics specified by law (EIA). This second procedure is the one that is used for big projects and that is important for this research because it is mandatory for the proponent to include measures of mitigation, compensation and reparation. The process in these cases includes a phase of public participation and evaluation by the SEA and other relevant agencies (Project SEA Chile). The SEIA has been seen as the most relevant environmental regulation tool in Chile. Its importance could be attributed to the fact that it is the densest regulatory space relating to environmental issues. This importance is reflected in the fact that most of the socioenvironmental conflicts in Chile are related to this system (Boettiger, 2010; Costa, 2012).

Case Studies and Findings

MMCRs are the practical way in which the PPP works in the SEIA. The main idea is that the environmental externalities of the project can be balanced by these measures and therefore make the polluters pay for them. This presumes that the concept of MMCRs and the PPP matched the public interest proposed by PIT. To assess this statement, MMCRs of three projects that have been submitted and approved by the SEIA will be studied. The projects were selected using the following criteria:
(1) Each selected project had to be facing relevant opposition. To assess this, the Map of Socioenvironmental Confl icts of the Instituto Nacional de Derechos Humanos (National Institute of Human Rights or INDH) has been used (INDH, n.d.).
(2) The project also must have already been approved and have an RCA.
(3) In addition, the selected cases must have been initiated via EIA in order to have the obligation to propose MMCRs.

The presence of indigenous rights led to a project being discarded, because these factors could change the logic of the MMCRs and are therefore outside the scope of this research. With those filters and using the tools of the INDH, particularly its map, 30 conflicts (projects) were identified. In order to make a smaller group, the filters offered by the online tool were used. Firstly, “conflict causes” offers the options: (i) residues and emissions, (ii) place of the exploration or exploitation, (iii) use or pollution of natural resources, and (iv) others. Options (i) and (iii) were selected because they are more related to the PPP, while number (ii) represents problems of zoning. The filter derechos en juego (rights at stake), which refers to those rights claimed to be affected by the conflict, was left blank, as well as “productive sector”, “levels of human development” and “level of poverty”, as they are not relevant to this research (INDH). After applying these filters, there were 22 possible projects. They are classified geographically, according to the jurisdictional territories of the Environmental Courts (Law 20600, Article 5). From this selection, the idea was to study the most representative possible group of cases. In order to do so, the projects were classified by type, with the results shown in the Table, where it is possible to extract some conclusions. Of the 22 conflicts, three kinds of projects predominate: fossil-fuel power plants (12), mining projects (3) and waste projects (3). Those classified as “others” were discarded as unrepresentative.

EPL Pollution Article 4

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