'Economic valuation of nature strengthens the 'polluter pays' principle.'

Does the valuation of nature really mean that those who destroy nature are forced to pay for it?

New Economy of Nature: Emissions trading does not avoid the emission of greenhouse gases

It is often argued that the economic valuation of nature strengthens the 'polluter pays' principle, because it provides detailed information about the economic value of the environmental damage caused. As a result, the argument goes, a more accurate value can be put on the financial obligation of the person or company that caused the damage, and claims for compensation acquire more weight in legal disputes or negotiations between companies and communities over compensation.

The argument is used in two different contexts. The first involves the introduction of a price on pollution or destruction – such as greenhouse gas emissions or the destruction of habitats. The second concerns the determination of compensation payments after an environmental disaster – for example, when fertile land has been polluted as a result of a leak in an oil pipeline, or where the inhabitants of coal-mining areas are to be compensated for the loss of their land.

Economic valuation of nature can turn the 'polluter pays' principle on its head

The EU Emissions Trading System (EU ETS) illustrates how political and business interests turned the ‘polluter pays’ principle on its head with the introduction of a pricing system for the release of greenhouse gas emissions. Brought in with the aim of providing a price signal that would help cut greenhouse gas emissions, the trading scheme became a cash cow for the EU’s largest emitters of greenhouse gases.[1] Instead of incurring additional costs in accordance with the ‘polluter pays’ principle, the scheme provided substantial profits for the largest emitters of greenhouse gases in Europe: a comprehensive study showed that between 2008 and 2014 they amassed assets worth more than eight billion euros from the sale of surplus emission certificates they received free of charge. Just five of the largest cement producers in the EU received surplus emission certificates worth more than one billion euros during this period.

The British organisation Sandbag claims that without the 'regulation' imposed by the emissions trading system, greenhouse gas emissions of the cement sector in the EU would in fact now be lower than they are with the EU ETS. Steel manufacturers and energy producers, too, made profits of billions (ArcelorMittal) or hundreds of millions (ThyssenKrupp) of euros from the sale of emission certificates that they had received free of charge. Some of these profits were made by selling a portion of the emission certificates and replacing them with much cheaper emission credits. Until 2012, emission certificates handed out by the EU ETS regulatory body and carbon offset credits from CDm projects were recognised by the emissions trading system as equivalent and one could be substituted for the other to cover a company's emissions. The EU emissions trading system as a model of economic valuation of nature has turned the 'polluter pays' principle on its head.

Compensation is about more than money

Similar contradictions between theory and reality emerge in the second context in which economic valuation is said to strengthen the ‘polluter pays’ principle. In situations involving compensation for damage caused by events such as pollution of soil and water as a result of a leaking oil pipeline or a chemical spill – the alleged positive effect from economic valuation is not observable. Supporters argue that courts could determine the level of compensation payments more fairly if they had access to reliable figures for the economic value of ecosystem services that have been damaged or destroyed.

However, this argument paints far too simple a picture of the way in which different legal systems deal with compensation: for most, compensation is not limited to the imposition of a fine through payment with which the polluter wipes out the entire responsibility for compensation. A financial settlement is usually just one component of restitution: Compensating adequately for loss or damage generally involves more than just payment of money. Furthermore, those affected do not automatically see the payment of a sum of money as concluding compensation for their loss. And whether they regard the judgement as fair does not depend primarily on the size of the fine. The decisive issue is rather whether they consider the entire and often very extensive process of compensation to be appropriate.

Economic valuation threatens to restrict the dispensation of justice

Court proceedings and traditional justice processes all have their own procedures. New methods of economic valuation usually do nothing to make these procedures – and the compensation figures established through them – clearer, better or more exact. From the point of view of those affected, the increased emphasis of putting an economic value on nature actually weakens the prospect for justice: If judgements are based to an ever increasing extent on calculation of the economic value of nature, monetary compensation and indemnification will become an increasingly important aspect of these judgements. This will mean that less importance is attached to non-monetary elements of compensation – such as public acknowledgement of the injustice that has been committed, a public apology or a commitment to change one's behaviour and avoid a repetition of the loss or damage. It also increases the likelihood that the polluter will regard payment of the money as putting an end to the matter.

Economic valuation helps polluters to free themselves of responsibility by making a payment

In connection with compensation payments it should also be noted that they can be used in two completely different contexts. On the one hand, compensation may be payable retrospectively. For example, courts may determine what compensation a mining or an oil company must pay to affected individuals or communities, or what costs are payable for clean-up work and the alleviation of impacts on health.

On the other hand, compensation is increasingly becoming a standard component of many project appraisals; in this case, compensation facilitates the approval of planned destruction that previously might have been rejected or prohibited by law. It is noteworthy that people who are offered compensation in this context of facilitating the planned destruction of nature usually categorically reject this idea of financial compensation. Typical of such a situation is the response of an inhabitant of the Narmada Valley in western India. The family was due to be resettled to permit construction of the Sardar Sarovar dam, and financial compensation was offered: "You tell us to take compensation. What is the state compensating us for? For our land, for our fields, for the trees along our fields? But we don't live only by this. Are you going to compensate us for our forest? […] Or are you going to compensate us for our great river – for her fish, her water, for vegetables that grow along her banks, for the joy of living beside her? What is the price of this? […] Our adivasi [tribal] life – what price do you put on it?"

It is these contexts of compensation that facilitate approval for future environmental damage in which current initiatives of economic valuation of nature mainly take place. Here, the purpose of economic valuation is to justify through advance payment in the form of compensation credits the destruction of nature that otherwise might have been restricted by law or public opinion.

In short: it is not only questionable whether the economic valuation of "ecosystem services" really strengthens the ‘polluter pays’ principle in the context of holding companies liable for environmental damage caused through e.g. toxic spills or in negotiations between corporations and communities over compensation payments. Economic valuation also helps polluters to absolve themselves of further responsibility by making a one-off payment and calling a matter closed with the payment.

This article is part of our dossier "New Economy of Nature".