PPP plus: towards full resource pricing for LDC primary exports

Internalization of environmental costs through the ‘polluter pays principle’ (PPP) is widely encouraged. This principle normally assumes that real, additional environmental costs can be passed on to consumers (user pays). Application of a PPP policy may be difficult for industries which export a large share of their production. If competition in export markets is such that additional production costs due to environmental measures cannot be passed on to international consumers, the profit margin on export commodities is eroded and export is consequently discouraged. This situation prevails for many primary export commodities of developing countries. Since these countries depend strongly on those exports, implementation of environmental policy in primary export sectors will be very problematic when the incremental production costs due to such measures are substantial. Only international regulatory arrangements can restore the principle that consumers should in principle bear the full resource costs of the commodities they demand, and thus create a necessary precondition for domestic environmental policy in developing countries. The author describes International Commodity-Related Environmental Agreements as potentially useful instruments to strengthen the internalization of environmental costs.

Title: PPP plus: towards full resource pricing for LDC primary exports
Author: Kox, Henk L.M.
Year: 1994
ISSN: 1381-1649
Issue: 1994-36
Pages: 29
Language: English
Series: Serie research memoranda
City of publisher: Amsterdam
Publisher: Vrije Universiteit, Faculteit der Economische Wetenschappen en Econometrie
Geographic term: developing countries
External link: https://hdl.handle.net/1871/12506
Abstract: Internalization of environmental costs through the ‘polluter pays principle’ (PPP) is widely encouraged. This principle normally assumes that real, additional environmental costs can be passed on to consumers (user pays). Application of a PPP policy may be difficult for industries which export a large share of their production. If competition in export markets is such that additional production costs due to environmental measures cannot be passed on to international consumers, the profit margin on export commodities is eroded and export is consequently discouraged. This situation prevails for many primary export commodities of developing countries. Since these countries depend strongly on those exports, implementation of environmental policy in primary export sectors will be very problematic when the incremental production costs due to such measures are substantial. Only international regulatory arrangements can restore the principle that consumers should in principle bear the full resource costs of the commodities they demand, and thus create a necessary precondition for domestic environmental policy in developing countries. The author describes International Commodity-Related Environmental Agreements as potentially useful instruments to strengthen the internalization of environmental costs.