Pollution Pays or Polluter Pays?

Here’s a brief introduction to the Economics of Environmental Pollution

By Siddharth Bhagwat

olluting the environment might be cheap today but at some point, we might have no clean air to breathe or water to drink and it might even end up draining our pockets! One way or the other, it will come back to bite us! So, here’s a brief anecdote to the Economics behind the whole pollution conundrum…

IS polluting really cheap? Are we really trying to understand the true value of polluting our environment i.e., the air, water, soil; and unhealthy human lifestyle? We may have stopped fighting World Wars but the conflict not only within ourselves but also among humans & the environment has begun to rise; and unfortunately, it has reached a stage where urgent action must be taken to negate the damage done to the Earth’s Environment.

According to a Financial Times article, Dr Arvind Kumar, a chest surgeon from Delhi, in his past practices over 30 years ago, saw patients where 80 to 90% of them were male smokers in their late 50s. He now caters to lung cancer patients that have been non-smokers, with about 40% of them being women. The patients are quite young too, with just less than 10% in their 30s and 40s. A study published in The Lancet has estimated that, in 2019, just air pollution killed 1.7 million Indians; and the death rates from ambient air pollution increased by 115% in the last 2 decades. That is absolutely staggering!

Industries polluting air with chimneys and water near them
Industries polluting air with chimneys and water near them
Air, Water and land Pollution Source: unsplash.com

Historically speaking, polluting was a very niche thing to do, our activities hardly made a dent in the natural cycle. But since the present developmental model of the human civilization began; after the Industrial Revolution and World Wars; we started not only ‘denting’ but ‘changing’ Natural patterns. We knew that the pollution coming out of our homes, industries and machines, was not pure gold but really harmful; so, we tracked it and carefully led it out the back door and into the environment. Delusion was the solution to pollution. It was the key to get rid of pollution in the cheapest way possible but such is not the case anymore. Our hard-earned money will be used by the Governments to clean up the mess we created!

So yes, it’s going to cost money, and a lot of it. But it’s nothing we can’t afford. I presume there is enough wealth to spend to ensure our survival. That’s what the economists of today say, ‘polluting now is a cheaper option and we can’t afford to spend on cleaning up the environment now, so we’ll do it in the future when we are richer’. It’s a pretty reasonable argument from their perspective, after all, we don’t need clean water or clean air and healthy food to survive, we just need to be rich. Apparently, our kids and grandkids will inherit the earth that we leave behind, so I’m sure they don’t really mean that, do they?

Can there be a real solution to stop pollution?

Today, our markets worldwide are determined by pricing synergies — ranging from the willingness of a consumer to pay, market demand and the costs incurred by the producer. This market-driven pricing falls short, however, when a voluntary transaction between two parties affects a third party, producing some kind of harm in the process. This is known to be the problem of externality, and it is the reason pollution and environmental degradation pose a challenge in the free-market system. The main source of this drawback could be the lack of clear property rights over an environmental good. If the third-party exposed to the polluted air, owned the clean air in question, then any activity that led to polluting the air would require their consent, which would be granted only if the polluter compensated them for the damage caused to their property. This would then establish a price for the environmental good, and the free-market system could account for its value to those involved.

There are a number of solutions that can be used to stop pollution; most notably used worldwide are investing in Renewable Energy and the strengthening of pollution norms for industries and municipalities. While the former has the market potential to drive by itself due to cheaper cost of producing energy from renewables, the latter can be seen as an additional cost incurred that may deter profits or use up funds. This is where a cap-and-trade system might come into play. It is a means of using economic incentives to curb activities that reduce environmental quality; like the emission of harmful particles into the air or water and over-fishing of the seas. But who will pay for cleaning up the pollution? The producer that causes it or the public that is affected by it?

sun, wind, plants and water are all necessary to provide energy to the whole world
sun, wind, plants and water are all necessary to provide energy to the whole world
Source: Wikipedia

No matter how we tackle this, achieving our environmental goals will almost always be a costly endeavour. According to a Down to Earth article, India has lost 1.4% of its GDP due to premature deaths and morbidity from air pollution. This makes it all the more important to pursue an approach that lowers the cost to our economy as much as possible. Correctly designed pollution tax regimes and cap-and-trade systems offer the most sensible means of protecting public health, keeping our environment clean, and sustaining economic growth and prosperity; all while not losing sight of the proper balance between them. Looking forward, some of the current managements in firms and those in the future will demand their organizations to minimize their environmental impact.

The main problem with a macro-analysis is that many of the costs of pollution control are incurred by specific companies and sectors while the benefits are gained by the entire society. That has given rise to the myth that we must trade off economic growth against environmental protection. Nevertheless, it can be said that on an over-populated planet like ours, with globalization and inexpensive consumerism, a company that engages in spiteful acts of environmental degradation will not be able to survive in the market for long.

The harm caused by a new type of chemical, for instance, maybe far greater than the benefit it gives. Asbestos is a prime example of this. It was very good at preventing the spread of fire, but ended up harming the human respiratory system. When the harm is brought to light, all the businesses and people using the substance must refrain from using it and if possible, repair the damage caused by the substance. This process can be very expensive and is a cost that more careful regulation could avoid.

In a future world even more dominated by manmade/anthropogenic technology, the preservation of our biosphere becomes critical to our long-term well-being. We need to ensure that our air, water and soil is free of pollutants. Making green investments today will drastically reduce pollution and increase the prospects of wealth creation. To do that we need to take pollution control more seriously than we do today. Many industries have found that environmental regulation is compatible with long term production and profits.

Source: https://search.creativecommons.org/photos/b4e17575-bd01-49b6-8477-9ee249c11c79

Environmental degradation is a global crisis, no doubt about that. But a crisis can also lead to opportunities. The thing we call waste or pollution is just a temporary state of the material that just like energy can be transformed from one form to another. So, shall we continue polluting or try to put an end to it? in short — is it justified to pollute, to create wealth? Some might agree saying -if one man creates wealth the other might suffer because of it i.e., there will always be an equal number of winners and losers in the world but some might question, why would you continue to pollute in spite of knowing this fact, shouldn’t we try to not pollute and dispel such theories?

What is pollution? It is the introduction of harmful chemicals into the environment. Pollution can be in any shape or form ranging from harmful chemicals to toxic gases that cause global warming to radioactivity and even noise pollution. Pollution of all kinds can have negative effects on the environment and wildlife and often impacts human health and well-being. From the early times of international trade to the modern era, unsanitary conditions and man-made exploitation has resulted in emergence of epidemic diseases like cholera, typhoid, swine flu and pandemic like the Covid-19.

An environmentalist with a twist, Siddharth specializes in Circular Economy and helps industries reduce their environmental impact. He currently works as a researcher for CCP and runs his own YouTube channel called Sustainability Whaaat!

CCP aims to make citizens better aware about Climate Change and proactively make cities like Pune Carbon Neutral at the earliest. #ClimateAction