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2. Make More Effective Use of Economic Instruments
}} 51. Pollution is a form of waste, and a symptom of inefficiency in industrial production. When industries recognize pollution as a cost, they are sometimes motivated to make investments in improved products and processes to increase efficiency and hence to reduce the pollution and waste they generate, particularly when there are economic incentives to do so. It largely depends on whether such investments will increase their economic performance.

52. But there are limits to what society can expect industry operating in competition with other industries to do voluntarily. Regulations imposing uniform performance standards are essential to ensure that industry makes the investments necessary to reduce pollution and waste and to enable them to compete on an equal footing,

53. Air and water have traditionally ben regarded as 'free' goods, but the enormous costs to society of past and present pollution show that they are not free. The environmental costs of economic activity are not encountered until the assimilative capacity of the environment has been exceeded. Beyond that point, they cannot be voided. They will be paid. The policy question is how and by whom they will be paid, not whether. Basically, there are only two ways. The costs can be 'externalized' that is, transferred to various segments of the community in the form of damage costs to human health, property, and ecosystems, or they can 'internalized' paid by the enterprise. The enterprise may invest in measures to prevent the damages and, in the market for its product allows, pass the costs along to the consumer. Or it may invest in measures to restore unavoidable damage replanting forests, restocking fish, rehabilitating and after mining. Or it may compensate victims of health and property damage. In these cases, too, the cost may be passed on to the consumer.

54. Enterprises may be encouraged to invest in preventive restorative, or compensatory measures with subsidies of various kinds. Indeed, in most industrialized and many developing countries, subsidies are a common way of encouraging companies to invest in measure needed to prevent external damage. But in this care, of course, it is the taxpayer who pays, rather than the consumer of the product. Moreover, if the subsidies are large and paid to industries operating in an international market, they can lead to trade distortions and should be avoided.

55. In 1972, the member countries of OECD agreed to base their environmental policies on a Polluter Pals Principle (ppp). Essentially an economic efficiency measure, PeP is intended to encourage industries to internalize environmental costs and reflect them in the prices of products. At the same time, state regulations in CMEA countries are carried out through government bodies that allow environmental concerns to be taken into account. /…