Contents

1.Introduction

1.1.Purpose of the Fitness Check

1.2.Scope of the Fitness Check

1.3.Methodological challenges

2.What was the expected outcome of the intervention?

2.1.Description of the intervention and its objectives

2.2.Points of comparison

3.How has the situation evolved over the Evaluation period (2014-2023)

4.Evaluation findings

4.1.To what extent was the Polluter Pays Principle successful and why?

4.1.1.Effectiveness: Is the PPP applied in all policies that affect environmental protection and the improvement of environmental quality?

4.1.2.Effectiveness: How effective the PPP is in delivering efficient environmental improvements

4.1.3.Effectiveness: What factors hamper effective application?

4.1.4.Efficiency: Is the PPP fair and consistent with a just transition, including how it affects different stakeholder groups, including vulnerable groups?

4.1.5.Efficiency: Are there significant differences in the (efficient) application of the PPP across EU policies and between Member States?

4.1.6.Efficiency: Could EU policymaking be made more efficient (so an improved cost benefit ratio) by better implementing the PPP?

4.1.7.How consistent and coherent is the application of the PPP across policies?

4.1.8.How consistent and coherent is the application of the PPP outside the EU?

4.2.How did the EU intervention make a difference?

4.2.1.Is the current split of responsibility between the EU and Member States right?

4.2.2.Do current national and EU competences and Treaty legal bases support the PPP’s application in environmental policy?

4.3.Is the intervention still relevant?

4.3.1.Does the PPP meet the EU’s needs as set out in the European Green Deal (EGD)?

4.3.2.Is the PPP able to respond to new or emerging environmental issues and changes in technology?

5.What are the conclusions and lessons learned?

Annex 1: Procedural Information

Annex 2. Methodology and Analytical models used

Annex 3. Evaluation matrix

Annex 4. Overview of benefits and costs

Annex 5. Stakeholders consultation - Synopsis report

Annex 6. What is the Polluter Pays Principle?

Annex 7. Assessment of implementation

Annex 8. Discussion of the costs and benefits of PPP application.

Annex 9: Discussion of fairness and just transition

Annex 10: Application of the PPP through ex-post liability

Glossary

1.Introduction

The Polluter Pays Principle (PPP) means that the polluter should pay for the cost of measures taken to prevent, control and remedy pollution and also pay for the costs imposed on society, such as costs associated with impacts on health, the loss of ecosystem services, or impacts on the economy.

For the purposes of this Fitness Check, pollution is defined as the introduction of substances, vibrations, heat or noise or odour into air, water or land as well as the direct or indirect subtraction or use of environmental resources to an extent which may be harmful to human health or the quality of the environment, result in damage to material property or impair or interfere with amenities and other legitimate uses of the environment (reflecting definitions in the EU acquis and OECD recommendation -See Annex 6).

The PPP is a Treaty-based primary principle of EU law: Article 191(2) of the Treaty on the Functioning of the European Union (TFEU) says that “EU environmental policy should be based on the […] principle […] that the polluter should pay”. This fitness check asks whether the current level of implementation is optimal, what are the cost of applying it, whether it makes environmental policy more efficient in cost-benefit terms, and whether it is fair and just.

The principle was first set down by the OECD in 1972, as a response to market failure, that “the polluter should bear the expenses of carrying out the […] measures […] to ensure that the environment is in an acceptable state. In other words, the cost of these measures should be reflected in the cost of goods and services which cause pollution in production and/or consumption.” 1  This approach takes the fairness and economic perspective, to shift costs of prevention and control from society onto polluters. In a well-functioning market economy, prices to producers and consumers should reflect resource scarcity and impact and any externality the production and/or consumption of such a resource would entail for society.

The PPP corrects the market mechanism to provide the right price signals. So, the PPP:

oPromotes pollution reduction through incentives to change behaviour, and steers investment and innovation towards clean technology.

oShifts the burden of pollution from society to polluters.

 This Fitness Check assesses how the Polluter Pays Principle (PPP) is applied across a wide swathe of EU policies affecting the environment, in line with the scope of the 8th Environment Action Programme.

1.1.Purpose of the Fitness Check

The European Court of Auditors found that the PPP is reflected and applied to varying degrees in different environmental policies with its application being incomplete 2 . In response, the Commission accepted to carry out a fitness check of the PPP. The Commission confirmed this intention in its Zero Pollution Action Plan 3  and that it would recommend how to implement the PPP based on this Fitness Check.

The European Green Deal reiterates the Treaty provisions and is clear about the need for “sending the right price signals and providing the right incentives for sustainable behaviour by producers, users and consumers”.

This is reflected in the 8th Environment Action Programme (EAP), the EU’s legally agreed common agenda for environmental policy until 2030 4 , whose Article 1(5) states that the polluter pays principle is one of its underlying principles supporting the delivery of six priority objectives. This is reflected in the enablers, for example, “environmental taxation, market-based instruments and green budgeting and financing tools, including those required to ensure a socially fair transition”.

1.2.Scope of the Fitness Check

Article 191(2) of the TFEU sets out that Union environment policy needs to apply the polluter pays principle (PPP). What this means has been interpreted differently in different instruments (see Annex 6). Box 1 below sets out the definition used in this Fitness Check and then elaborated in the rest of the section (what is pollution, what is environment policy, what needs to be paid for).

The 8th Environment Action Programme (EAP), the EU’s legally agreed agenda 5 , states in Article 1(5) that the polluter pays principle is one of its underlying principles supporting the delivery of six priority objectives, including climate mitigation and adaptation, circular economy, biodiversity, zero pollution and limiting pressures on climate and environment stemming from production and consumption. The scope of the Fitness check reflects the scope of the 8th EAP, which includes climate and environment policies as well as sectoral policies exerting pressure on climate and environment. The scope includes all policies delivering environmental objectives regardless of their legal base.

The Fitness Check takes a comprehensive approach, examining whether the PPP is applied in policies with a significant link to the environment (76 pieces of legislation are examined along with EU funds) 6 . The geographical scope is the 27 Member States of the EU.

Which costs are assessed?

The interpretation used in this Fitness Check is that it covers the costs of measures to prevent, control and remedy both the pollution and the costs pollution imposes on society. The PPP applies to all activities in the economy causing environmental damage: primarily through releases of harmful substances into the environment, but also through activities such as soil sealing, deforestation, over abstraction of water etc 7 . This reflects the scope of environmental policy as set out in the 8th EAP, and the general understanding of coverage (see Annex 6).

This means the PPP is relevant for a wide swathe of policies to prevent or control pollution (such as industrial emissions) but also to remedy pollution (such as water purification costs, soil decontamination, waste treatment) and the costs pollution imposes on society (reflected in pricing instruments such as energy taxation or emissions trading policies) where these policies can relate to specific environmental issues (waste, air or climate policies) but also to specific economic sectors and their associated sources of pollution (such as agriculture, energy production, buildings or transport).

This Fitness Check looks at the cost of implementing environmental policies, and who pays for this as well as the overhead costs of operationalising the PPP eg the cost of identifying “pollution” and “polluters” to ensure that they pay.

To ensure a systematic approach, this Fitness Check covers costs related to: i) pollution prevention and control (incurred from investments and expenses which stem from the requirements set out in environmental policy, and including remediation) 8 ; ii) costs of administrative obligations 9 ; and iii) costs of environmental damage (i.e. costs to remedy pollution and any other environmental damage)  10 .

An Evaluation only of issues related to who pays

A standard Evaluation asks about all aspects of a policy such as what are the appropriate control measures to be taken, what administrative procedures are required, is it ambitious enough, etc. In this Fitness Check, the focus is on who pays for the required actions 11 . For example, legislation may require prevention of pollution – this Fitness Check does not evaluate whether the level of ambition of given legislation is right (so the specific limit values are a question for the Evaluation of that specific piece of legislation). It only evaluates whether polluter is the one that pays for that prevention measure 12 . This approach differs from the understanding of some stakeholders who called for more ambitious policy, stating that only when environmental damage is halted can the PPP be understood as being fully applied.  

We are looking at just one dimension…. across many pieces of legislation

The Fitness Check considers all policies that have a significant link to the environment and PPP application and are considered relevant following criteria (see Annex 2), and as validated by stakeholders 13 . The Fitness Check takes a comprehensive approach, rather than a sampling approach, examining whether the PPP is applied in 76 pieces of legislation. As set out in Annex 2, to enable effective assessment, the policies are grouped according to the priorities of the 8th EAP. These are:

·achieving the  2030 greenhouse gas emission reduction target  and  climate neutrality by 2050

·enhancing  adaptive capacity,  strengthening resilience and reducing vulnerability to climate change

·advancing towards a regenerative growth model, decoupling economic growth from resource use and environmental degradation, and accelerating the transition to a  circular economy

·pursuing a  zero-pollution ambition , including for air, water and soil and protecting the health and well-being of Europeans

·protecting, preserving and restoring  biodiversity , and enhancing natural capital

·reducing environmental and climate pressures related to production and consumption (particularly in the areas of energy, industry, buildings and infrastructure, mobility, tourism, international trade and the food system)

The classification does not consider if some policies are more important than others, but recognises that policies act closely together and that some policies, such as framework directives, play an overarching role to which other policies contribute. This approach is suited to a Fitness Check aiming to capture cumulative impacts and synergies.

Funding and subsidies

The polluter might pay for the costs of pollution but also receive subsidies that lead to pollution. State payments to an economic sector that lead to environmental damage are commonly termed environmentally harmful subsidies. Some subsidies that are considered environmentally harmful can be justified based on their social and economic objectives. This Fitness Check looks at how the application of the Do-No-Significant Harm principle (since 2020) helps to avoid environmentally harmful subsidies in EU funding.

There is a strong national dimension

The PPP is a fundamental principle of EU environmental law and so it is also the responsibility of the Member States to implement it on a national level. EU policy can require measures to prevent, control or remedy pollution, but these might be specified in detail at national level.

This issue is greatest for the costs imposed on society, where a price may be placed on these at EU level (such as the emission trading system ETS, the carbon border adjustment mechanism CBAM or extended producer responsibility) but EU competence related to taxes is limited and so Member States often have the competence to apply environmental taxes in line with the principle of subsidiarity. Reflecting this, the Fitness Check also covers how national environmental taxes complement EU legislation and deliver EU objectives. For example, section 4.1.5 assesses how the application of the PPP differs between Member States. Section 4.2.1 analyses the distribution of responsibility between the EU and the Member States (subsidiarity analysis).

1.3.Methodological challenges

While an Evaluation looks at all aspects of the assessed policy intervention, a Fitness Check looks at specific elements 14 of a related group of interventions, in this case the application of PPP. Whilst the subject is atypical, the approach has been the standard methodological approach of the Commission to ensuring a systematic and proportionate evidence base for an Evaluation. Stakeholders were consulted through a public consultation and two public workshops, with the second workshop validating the draft findings. A study supported this Fitness Check, referred to as the “support study” from now on 15 .

Figure 1: Methodological steps for the Fitness Check

The main methodological challenges are:

-Respecting the definition of PPP that this is about who pollutes and who pays and not about other aspects. For example, whether environmental policy becomes more stringent or ambitious is out of scope and the ambition level cannot be considered a proxy for the level of implementation of the PPP. The Fitness Check considers overall identification of polluters and costs linked to addressing pollution of payment, but not whether the measures they pay for are sufficient or appropriate, which is instead considered in the numerous evaluations and Impact Assessments the Commission carries out of specific policies. (The many existing evaluations and Impact Assessments also provide a valuable source of data for this Fitness Check.)

-Isolating the operationalisation of the PPP from out-of-scope aspects on costs and benefits and fairness. The response has been, for example, to ask:

oWhat are the cumulative costs that the polluter pays for and does not pay for?

oWhat are the ‘overhead’ costs that are directly related to applying the PPP, and not to the delivery of environmental targets (so how much does it cost to make the polluter pay)?

oWhat is the impact on efficiency, so does it reduce the cost of attaining a specific environmental objective by ensuring there is an incentive for polluters to act, through developing technologies or changing behaviour?

oWhat is the impact on fairness and if the polluter does not pay, then who does? 

-Identifying relevant legislation as part of a comprehensive approach. Legal texts were not sufficient as the legal fashion has not always been to include a PPP reference in the legal text as a Treaty principle does not necessarily need repeating. In response, a wide net was cast of policies relevant for delivery of the 8th EAP and the scope of legislation was explicitly validated in the course of consultations with stakeholders leading to some minor adjustments, which provides reassurance that relevant legislation is included.  

-The Fitness Check needs to examine the interaction of many policies at different levels such as EU, national etc. In line with data triangulation, it therefore looks at the issue of PPP from three sides: the EU legislation (who pays for the actions it requires?); the polluting sectors (do they pay their costs); the environmental damage (are externalities internalised?). 

2.What was the expected outcome of the intervention?

2.1.Description of the intervention and its objectives

Needs - The Polluter Pays Principle became a Treaty principle with the Single European Act in 1987 (although it was already present in secondary EU law before 1987). It responds to a market failure whereby the cost of pollution is not systematically addressed by polluters. The market price does not include the full cost of pollution and therefore, pollution levels are too high and a concern to citizens.

Objectives - The PPP addresses the costs of pollution to society and thus remedies the market failure that occurs. The PPP seeks to place the cost on polluters, and so provide the right incentives through price signals for an efficient reduction of pollution. PPP does not aim to unduly punish the polluter but to restore the correct functioning of the price mechanism in our economic system, and hence to promote economic efficiency by avoiding the waste of natural resources and damage to the environment. PPP also pursues a fairness objective, by shifting the costs of pollution away from those affected (society) and towards those causing the problem (polluters). This way it also aims to contribute to a Just Transition towards a sustainable economy.

Inputs - There are resources required to apply the PPP that are difficult to distinguish from the costs of the policies to which the principle applies (see section 4.1.6). The application of the PPP requires various resources, such as the costs for identifying the polluter and monitoring that the latter effectively pays for his pollution. This includes resources both from the public authorities and from private actors. The PPP means that the polluter should pay for the costs of these inputs, that are a form of overhead, as well as the costs of the activities (below).

Activities - The PPP is applied to activities in the form of EU environmental policies including sectoral policies that address economic sectors with polluting activities. The activities can be classified in function of the priority objectives of the 8th Environmental Action Programme. These activities are implemented through various policy instruments to which PPP applies (command and control measures, market-based instruments, sector-specific or issue-specific policies etc).

Output - Polluters face the costs of their pollution. This contributes to the reduction of pollution and a transition to sustainable production and consumption patterns in an efficient and fair way.

Results and impacts – The application of the PPP leads to an environment in a better state and a fair distribution of the cost of preventing, limiting and remedying pollution among the stakeholders. This way, the PPP contributes to meeting the objectives of the 8th Environmental Action Programme.

Other policies having an impact - The effects of PPP may be reinforced or weakened by the impact of other policies to which PPP is not applicable (because they do not refer to a specific pollution with an identifiable polluter). For example, the public support for research and development in pollution abatement techniques could reinforce the effects of PPP by reducing the cost of the policies to which PPP is applied. Similarly, support for environmentally friendly investments or cooperation with the rest to the world to tackle global environmental problems will help to reduce pollution.

The PPP is relevant to all the Sustainable Development Goals that relate to the environment, namely SDG 3 (good health and well-being), 6 (clean water and sanitation), 7 (affordable and clean energy), 11 (sustainable cities and communities) and 12 (responsible consumption and production).

In terms of the costs and the benefits of the PPP, there are:

·The cost of inputs that form an overhead for the application of the PPP.

·The costs of activities that the polluter should pay for related to prevention and control, administrative costs and costs of environmental damage.

·The benefits in terms of the result of a more efficient and fairer delivery of the 8th EAP objectives by ensuring polluters face the costs of their activities.

Figure 2: Intervention Logic for the Polluter Pays Principle

2.2.Points of comparison 

As explained in Section 1, the Fitness Check assesses how well the PPP is applied in EU environmental legislation. It focuses on the current state of play for implementing the PPP, i.e. to what extent is it implemented today.

1.The Fitness Check applies the “point of comparison” approach recommended by the Better Regulation Guidelines: The main point of comparison is the theoretical situation in which the PPP were fully applied. In such a situation, environmental legislation would ensure that the polluters pay the costs of prevention/control, the related administrative costs, and the costs of environmental damage (the latter either in specific policies or via horizontal policies). For subsidies, from the EU Funds or from national sources, Funds regulations and certain State aid rules would prohibit subsidies that cover the costs of remediating for the environmental damage and hence reward the polluter by letting the general taxpayer take up the bill instead of the polluter. The objective of the Fitness Check is to identify deviations from this “ideal” situation and to understand the reasons and consequences of this application gap. The analysis focusses on the situation as observed in 2023. However, recent policy proposals or recently adopted legislation will also be looked at, to enrich the analysis and to ensure that the Fitness Check’s conclusions are not outdated by the latest developments.

2.The year 2014 is the second (and secondary) point of comparison. The Fitness Check also assesses how the application of the PPP has evolved over time, to see whether the application gap has narrowed and what are the factors influencing this evolution. For this purpose, the Fitness Check looks at the period from 2014 to 2023. The decision to look back ten years was made because the 7th Environmental Action Programme entered into force in 2014 16 , and ten years allows for an identification of trends, with considerable changes in policy having taken place during this time.

3.How has the situation evolved over the Evaluation period (2014-2023)

As a Fitness Check, the emphasis of this section is on the cumulative costs and benefits and how they have changed over the Evaluation period. Analysis for specific policies is best found in the Evaluations, Impact Assessments, monitoring reports associated with those specific policies and that cover a wider range of issues. The breakdown of costs is set out where relevant (e.g. private sector and public authority; EU level and national level).

Given the challenge to evaluate and monetise the costs and benefits of implementing PPP across the wide spectrum of acquis through which the PPP is transposed, the present analysis of costs and benefits is based on data covering what the polluter pays for in terms of the costs of pollution and control, as well as administrative costs and costs of environmental damage. Under Section 4.1.6 there is also a discussion of the costs of making the polluter pay, so the overhead costs.

There is a strong evidence base on prevention and control costs at the level of the EU 27 Member States. Despite conceptual differences, EU’s national expenditure on environmental protection (NEEP) provides an estimate of spending on pollution prevention and control. In 2023, Eurostat reports the NEEP was EUR 357 billion 17 . There are scope issues, for example, NEEP includes some administrative costs (see Annex 2 for details). It also does not include resource management and efficiency issues: for example, in 2021 the EU spent about EUR 110 billion on circular economy 18 , largely driven by business investing to improve resource efficiency and hence profitability, and not driven by legislation (and so out of scope). EU funds are responsible for EUR 19 billion per annum of environmental investment, they are not funding polluters in line with the PPP (see Annex 7), as increasingly including DNSH criteria over the evaluation period.

NEEP has grown in nominal terms but remained relatively stable as a percentage of gross domestic product (GDP) over the evaluation period and before at about 2.0% of GDP 19 . Changes over time reflect additional demands leading to additional costs but also increased efficiency over time. Corporations and households pay the majority of NEEP with some paid by national governments (which is often recouped by charges). As discussed below, the evidence is that almost all of the costs of prevention and control are met by polluters.

Figure 3: National expenditure on environmental protection by institutional sector and as percentage of GDP, EU, 2006-2023 (€ billion (left scale) and % GDP (right scale); source: Eurostat)

Note: GG: general government; NPISH: non-profit institutions serving households

The NEEP data partially includes administrative costs at EU27 level, reflecting a moderately strong evidence base at EU level. Separate estimates for administrative costs are not available, and partial estimates are based on different conceptual definitions. For environmental reporting obligations to the European Commission (which is largely done by Member States), one small component of administrative costs, a previous Fitness Check concluded that reporting was “largely efficient and the administrative burden is moderate, justified and proportionate (estimated costs of EUR 22 million annually)” 20 .

Evaluations of specific policies have found administrative costs to be proportionate and consider the potential for burden reduction. As discussed below, the evidence shows that most but not all the administrative costs are met by polluters. For example, during the stakeholder consultation the example was given of shellfish farming, where producers are paying to develop monitoring tools to detect norovirus in their production waters, so bearing the costs instead of the polluters causing the virus spread.

Within administrative costs, some costs relate to implementing the policies and measures undertaken and are independent of the PPP (e.g. identification of polluters for the purpose of ensuring limit values are respected). Others relate to the overhead costs of application of the PPP (e.g. identification of polluters for the purpose of putting a price on those emissions). Distinguishing these two types of costs is not possible at the aggregate level, only for a few specific cases.

There is a moderately strong evidence base on environmental damage. The 8th EAP 21 , sets six priority objectives for 2030 and the European Environment Agency’s (EEA) monitoring report on progress towards the 8th EAP objectives takes stock of progress towards Europe’s key environment and climate goals and provides systematic and reliable information 22 . Whilst this part of the evidence base is strong, the evidence on how this environmental damage translates into monetary terms is less robust (being non-comprehensive and subject to methodological challenges):

·Europe’s industry has made significant progress in reducing environment and climate impacts. Over the last decade, external costs caused by air pollution from around 10,000 facilities 23 decreased by nearly 35 %. Even so, the estimated external cost over that period is in a range of between EUR 2.7 and 4.3 trillion, or on average, between EUR 268 and 428 billion per year. Note that this includes health costs, which are the most monetised impact of pollution.

·Total external costs of transport 24 are estimated at EUR 900 billion annually for EU27 (including road congestion costs), almost 7% of EU27 GDP. Around EUR 400 billion are environmental external costs (climate change, air pollution, noise and habitat damage), some EUR 250 billion are caused by accidents and some € 230 billion by congestion (delay costs generated by road transport). 25

Analysis of the degree of internalisation for environmental damage involves comparing payments by polluters to these partial monetary estimates of environmental damage. Internalisation rates appear highest for the costs of air pollution and GHGs, but even here it is estimated the polluter pays less than half of the costs across the EU, and with wide variation between Member States and between economic sectors 26 . 

The Environmental Crime Directive now including an optional accessory sanction of remediation or compensation for the environmental damage caused by the infringement, and the increased price signals from the EU Emissions Trading System.

The market-based instruments 27  (MBIs) that introduce price signals and make polluters pay for their environmental damage include liability schemes, sanctions, the EU Emissions Trading System, and environmental taxes that are often applied at national level. Overall, there have been improvements over the Evaluation period: for example, through the revision of the the increased price signals from the EU Emissions Trading System.   

Over the Evaluation period the revenue from environmental taxes has remained static 28 . The revenue generated from environmental taxes varies significantly across environmental domain and Member State, showing a varying approach to PPP implementation (as discussed Section 4.1.7). Environmental taxes (i.e. energy, transport, pollution and resource taxes, including ETS) contributed around 4.8% of total revenues from taxes and social contributions in the EU in 2022. Of this, energy taxes contribute most of the revenue (77%) 29 , while transport contributes 19% and pollution and resource use taxes contribute 4%. Despite frequent calls for environmental tax reform, there has been no systematic switch from taxing labour to taxing pollution 30 . Figure 4a and 4b show that environmental taxes have declined as a percentage of GDP over the evaluation period, whilst labour taxes have increased: the opposite of Environmental Tax Reform.

Figure 4: Change in Tax Revenues from Environmental and Labour Taxation 2014-2022 31  

Figure 5: Environmental Tax Revenues, 2000-2022 (in EUR billion (left scale) and as share of total tax revenue (TSC) and GDP (right scale) (source: Eurostat, Statistics Explained Environmental tax statistics (published July 2024) https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Environmental_tax_statistics)

Over the Evaluation period, the evidence on the size of environmentally harmful subsidies is robust for fossil fuel subsidies, which were broadly stable over the evaluation period before doubling in the last year (2023) to EUR 123 billion following Russia’s invasion of Ukraine 32 (see also section 4.1.3), although there are methodological challenges regarding the comparability and aggregability in particular of tax expenditures over time and over countries.. The evidence on non-energy environmentally harmful subsidies is less systematic, but also indicates significant financial support that leads to pollution (see also section 4.1.3).

With respect to criminal sanctions, there have been many examples over the evaluation period where they were too low to reflect the environmental damage, thus failing to implement the PPP: the ECD evaluation found that penalties in Member States mostly covered only a fraction of the environmental damage caused.

As discussed below, the evidence is overall robust that most environmental damage costs are not met by polluters, despite some improvements over the Evaluation period. The limited application of the Environmental Liability Directive also points to this conclusion.

The identification of the benefits of applying the PPP over the Evaluation period is more challenging. Over the Evaluation period there have been environmental improvements, and the PPP has contributed to these (see Section 4.1.6 and Annex 8) but the degree to which they can be attributed to the PPP cannot be quantified.

4.Evaluation findings 

The Evaluation matrix sets out the approach to answering the Evaluation questions including the definition of sub-questions. The Evaluation questions are provided and answered below, with the details of the Evaluation matrix (sub-questions, indicators etc) in Annex 3.

4.1.To what extent was the Polluter Pays Principle successful and why? 

This section looks at whether the PPP has been a success, based on an assessment of whether it is effective, efficient, and coherent.

4.1.1.Effectiveness: Is the PPP applied in all policies that affect environmental protection and the improvement of environmental quality? 

Overall

The PPP is generally well implemented in policies to address the costs of pollution prevention and control. There are some gaps in how the PPP is implemented in policies to address the costs of administrative measures (where the costs are instead borne by the authorities). This appears to confirm the findings of the macroeconomic approach in section 3.

The costs of environmental damage are not addressed by 47 of the 76 policies under review. However, in some cases, while the specific legislation does not address costs of environmental damage, these costs are addressed by other legislation (e.g. the Emissions Trading System) or by national measures (e.g. environmental taxes).

Implementation of PPP is improving. For the costs of pollution prevention and control, PPP continues to be well applied over time; for the costs of administrative measures, the PPP application is improving via the broader application of EPR and better sanction regimes; for the costs of environmental damage, there are also some improvements as seen for ETS and again through the broader application of EPR and the strengthened consideration of the amount of damage in criminal sanctioning. The PPP is most implemented through being applied to command-and-control mechanisms in EU policy. Market Based Instruments (MBIs) that place a cost on environmental damage are less common.

Despite the improvements, it was not possible to identify a sector or environmental issue for which PPP is fully implemented for environmental damage. The evidence points towards only partial internalisation of environmental damage costs.

Findings

This question considers, firstly, the extent to which the PPP is implemented in EU policy. This includes a review of how the PPP is referenced in the legal provisions together with a review of how the PPP is applied via the policy provisions. Secondly, it considers the way in which the implementation of the PPP has evolved over the appraisal period.

a)To what extent is the PPP implemented in the policy provisions of EU environmental policies?

To determine how the PPP is implemented, firstly a review of the legal texts was carried out to identify policy provisions that explicitly refer to the PPP. This analysis does not consider the level of implementation of these provisions. The PPP is explicitly referred to in the legal text of only 20 of the 76 policies reviewed, with the reference to the PPP in the legal text most often via the recitals. The Fitness Check seeks to establish who pays for the costs of pollution, irrespective of whether the policies under review explicitly refer to the PPP or not. All the 76 policies should implement the PPP, as it is a Treaty principle. The question that cannot be answered is if the failure to include the PPP in the legal text leads to worse implementation of the principle or not.

Moving on from the legal texts of the 76 policies in scope, these policies have been reviewed to see in how far they aim to implement the PPP. A detailed view of the detailed analysis for each policy is given in Annex 7. This analysis is presented by cost category to assess how the PPP is applied in practice for: costs of pollution prevention and control; costs of associated administrative measures; and costs of environmental damage or externalities.

Note that this analysis is done policy by policy. It shows for each individual policy if and how the PPP has been translated into practice 33 . For the costs of control/prevention and for administrative costs, i.e. the costs that are generated by the environmental policy itself, a colour code is used to visualise how PPP has been integrated in the policy provisions:

·Red: Red means no application or a negligible degree of application of the PPP. For costs of prevention and control and for administrative costs, the policy contains measures which incur a cost, but that cost is not, or largely not, met by the polluter.  

·Yellow: Yellow means the PPP is partially applied. The policy in question contains measures which incur a cost and that cost is partially met by the polluter and/or the policy in question establishes a duty for the Member State competent authority, hence the extent of application of the PPP depends on national plans and legislation (e.g. facultative disposition in a Directive).

·Green: Green means high degree of application of the PPP. The policy in question contains measures which incur a cost which is met or largely met by the polluter.

·White: White means the PPP is not applicable, meaning that the policy contains no measures resulting in such costs to be met by the polluter. So, the PPP is not relevant. 

For costs of environmental damage, the colour code is not useful, given that the costs are not the result of the environmental policy but rather of environmental behaviours (see below).

The rating for each legislation is provided in Annex 7. Legislation is grouped by 8th EAP priority objective and then policy area. This section now presents a summary of the findings.

Costs of pollution prevention and control

The review of policies with provisions that address the costs of pollution prevention and control shows for a great majority of these policies these costs are paid for by the polluter:

·The PPP is clearly translated into policy provisions that address pollution prevention and control for 47 of the 70 policies. For example, through the implementation of Best Available Techniques, the IED leads to pollution prevention measures that the polluters pay for. In 17 of the other cases, it would be for Member States to decide on who pays for measures (e.g. the Water Framework Directive). There are 4 cases where the PPP does not appear to be applied (MSFD, Floods Directive, Water Reuse Regulation, SEA), i.e. Member State authorities, and hence the general taxpayers, bear the costs instead of the polluter.

·By policy area, the costs incurred by the provisions are met or are largely borne by the polluter for 9 of 12 climate change policies, all of 12 circular economy policies, and 23 of 37 zero pollution policies.

·Within zero pollution, the costs incurred by the provisions are met or are largely borne by the polluter for 4 of 13 policies for water quality, 6 of 9 air quality policies, and 13 of 14 chemical risk management policies. For noise (1 policy), the extent to which the PPP is applied is dependent on national / local plans to implement the provisions of the policy (noise action plans). For 3 of the 13 water policies, the PPP is not clearly applied, singling out this policy area in this analysis (reasons include the challenge of defining who is the polluter).

·Of the 5 policies under review that contribute to biodiversity and the enhancement of natural capital, only the Regulation on Invasive Species contains provisions that directs the costs of pollution prevention and reduction to the polluters. For the other four policies, this mainly depends on the decisions taken by the Member States.

Table 1 : Implementation in legal provisions of the PPP for costs of prevention and control

Costs of administrative and enforcement measures

The review of policy provisions for administrative and enforcement measures shows a more varied coverage for the way the PPP has been implemented. In sum:

•The costs of administrative and enforcement measures for 35 of the 70 policies under review are largely borne by the polluter.

•By policy area, the PPP is fully applied to 9 of 12 climate change policies, 9 of 12 circular economy policies, and 14 of 37 zero pollution policies. Within zero pollution, the PPP is applied to 2 water quality policies, 4 air quality policies and 8 chemical risk management policies.

•For 14 policies, the provisions that address administrative and enforcement costs were found to incur costs only partially borne by the polluter, where the provisions were also found to incur costs borne by competent authorities (e.g. monitoring of air quality, or the state of nature).

•For 16 policies, costs are not borne by the polluter, and hence the PPP is not applied as measures to monitor and report progress are carried out by competent authorities and there is no provision stipulating that costs to monitor and enforce shall be recovered by the competent authority. Many zero pollution policies fall into this category, i.e. 9 water policies, 2 air policies, the Environmental Noise Directive and the POPs Regulation.

Table 2: Implementation in legal provisions of the PPP for administrative and enforcement costs

Costs of environmental damage

The colour coding is not used for the analysis of costs of environmental damage as the costs are not generated by the environmental policy itself. The policy may address the costs of environmental damage, and this is indicated in the table below. But when a policy does not address the cost of environmental damage, this does not necessarily mean that the latter is not addressed at all as it may already be covered by horizontal policies. Indeed, to a much greater extent than for the other cost types, the PPP may be applied through other pieces of legislation, i.e. the horizontal policies. It is therefore also necessary to look at the degree of internalisation of environmental damage from a more general, sectoral viewpoint (section 3 already established the only partial implementation of PPP for the costs of environmental damage).

By policy area, the assessment of policies shows:

·For climate change policies, 10 of 12 climate policies do not address costs of environmental damage and hence the PPP is not applied. However, this only tells part of the story as the EU ETS places a price on GHG emissions and the costs are borne by the polluters. The Energy Taxation Directive establishes a framework for the taxation of energy products that includes minimum tax rates.  

·8 of 12 circular economy policies partially address costs of environmental damage via extended polluter responsibility (EPR) schemes which, for example, cover clean-up costs from litter (including transport and treatment of litter collected) 34 . Where extended to clean-up actions, EPR is an increasingly common tool to address part of the costs of externalities (the analysis suggests it does not cover all such costs).

·4 of 37 zero pollution policies reviewed include provisions to ensure the costs of environmental damage are largely or partially borne by the polluter, including policies for water quality (1) and chemical risk management (3). Taking these examples in turn:

oSeveso Directive: Where such accidents occur, operators are responsible for limiting the consequences for human health and the environment.

oSafety of Offshore Oil and Gas Operations Directive: Operators are required to take all suitable measures to limit [the operation’s] consequences for human health and for the environment regarding discharges to water and they are financially liable for the consequences.

oCosmetic Regulation: Responsible persons that placed a cosmetic product on the market not in conformity with the Regulation are required to take immediate corrective action (withdraw or recall as appropriate).

·For biodiversity and natural capital policies, costs are only partially addressed directly by the instruments concerned. For the Nature Directives and the Invasive Alien Species Regulation the relevant liability rules are contained in the ELD.

·Regarding horizontal policies, ELD covers liability for environmental damage caused by economic activity. Annex III of the ELD qualifies some specific activities as hazardous, meaning that for these activities, the liability is strict and covers damage to all three relevant resources, biodiversity, water and land. This includes activities subject to permit under the IED, discharges to groundwater and surface water, water abstraction, chemical risk management for manufacture, use, storage, and transport. In case of other economic activities, liability is limited to damage to biodiversity and fault based.

In total, the review of policies with provisions that address costs of environmental damage shows that the PPP is explicitly applied to 8 out of the 70 policies; and partially applied to 15 policies. There are however 2 policies where (part of) the cost of pollution is explicitly borne by the authorities (the Drinking Water Directive and the Mercury Regulation).

Table 3: Implementation in legal provisions of the PPP for costs of environmental damage

EU funds

The Fitness Check reviewed EU funds to assess whether they are being used to pay for polluting activities or clean-up activities (see detailed analysis in Annex VII). Although the effective application of the PPP implies that clean-up activities are paid for by liable entities and EU funds should not be used to cover these costs, there appear to be cases where EU funds may potentially have financed clean-up activities, e.g. contaminated site remediation or waste infrastructure (however, this is difficult to establish at budget programme level, and would require an investigation at project level). Note that the use of EU funds to finance clean-up actions is justified when the polluter cannot clearly be identified or made liable (orphan pollution, diffuse pollution) or when they serve to finance research and development of novel techniques.

The ECA Report 35 detailed 42 projects across three Member States that financed the clean-up of industrial pollution, decontamination of non-compliant landfills, clean-up of orphan industrial pollution and investment in water treatment plants. However, 20 of the 42 projects examined relate to orphan pollution. Orphan pollution is pollution that took place in the past and where the PPP cannot be applied because the polluter is either unknown, no longer exists, or cannot be made liable. Amongst the other projects, the Commission indicated in its response to ECA that under shared management it is the responsibility of the Member States to select operations where the conditions recommended by ECA should be applied. The Commission committed to, in “its supervisory capacity, make the use of EU funds for cleaning pollution conditional on checks, in collaboration with the Member States, that the relevant authorities took all the necessary steps to charge the polluter for the pollution they are responsible for”.

State aid

The Fitness Check reviews the extent to which State Aid is contributing to clean-up actions that should otherwise be paid for by the polluter. The Fitness Check examines whether the PPP is applied in policies with a significant link to the environment. Therefore, the General Block Exemption Regulation (GBER) and the Guidelines on State aid for climate, environmental protection and energy (CEEAG) have been reviewed as the State aid instruments with a significant link to the environment. Other State aid rules fall outside the scope of the fitness check and have not been reviewed. The reviewed State aid rules require Member States to comply with the PPP for environmental aid categories to be declared compatible. In particular, the CEEAG explain that aid cannot be considered compatible where it supports the costs which the polluter must bear in accordance with the PPP. Also, the General Block Exemption Regulation contains direct references to PPP in specific articles (for more details, see annex VII).

Has the implementation of the PPP improved over time?

The analysis reviewed both changes in legal references to the PPP in recitals, and/or articles, and changes in the actual application over the appraisal period (2014-2023). Potential planned changes to policies in 2023/2024 were also reviewed to determine how these may influence the application of the PPP in the future.

There are 12 legal instruments in scope that were revised during the appraisal period. Many of these revisions included additional policy provisions that strengthen the application of the PPP. As discussed under scope (Section 1.2), this Fitness Check seeks to separate out the question of better application of PPP from simply having stricter environmental policy, but in looking at implementation over time the two issues are hard to disentangle.

One example where the PPP is clearly better applied is for the ETS Directive where the cap on GHG emissions has been identified as the key mechanism used to apply the PPP as it enables a market price for the externality associated with GHG emissions. The ETS has evolved to address the excess of allowances in the system which hindered the creation of a robust price signal. Furthermore, the sectoral scope of ETS has increased over time. In 2012, the scope that mainly included industrial installations and power generation was extended to (intra- European Economic Area, AEA) aviation. In 2023, the Directive was expanded to maritime transport and buildings, road transport and small industry sectors were brought under in a separate new system, ETS 2. Free allowances will be phased out for the aviation sector, while for certain industrial sectors, free allocations will be phased out in conjunction with the introduction of a Carbon Borden Adjustment Mechanism (CBAM). This adds up to a fuller application of PPP across economic sectors.

The most significant changes in the context of the European Green Deal are often too recent to be assessed in this Fitness Check or are still proposals under negotiation between the Council and the Parliament. Many of the revisions extend the scope of measures to prevent and control pollution (e.g. proposals for initiatives to regulate the maritime sector and soil management). In doing so, they also change the pattern of application of the PPP:

·As prevention and control costs are almost always paid for by polluters, these new provisions apply the PPP.

·Environmental damage and therefore also environmental damage costs are likely to be reduced, as these damages are prevented or controlled. 

Similarly introducing EU targets (e.g. under the Nature Restoration Regulation) can strengthen environmental law but does not necessarily change the way in which the PPP is applied.

As well as changing the pattern of costs, there is a change in the degree of application with respect to administrative and environmental damage costs through the wider application of EPR (including for the Batteries Regulation, Packaging and Packaging Waste Regulation, and UWWTD), strengthened consideration of the environmental damage in penalties (including for AAQD, IED, UWWTD and ECD), and access to health damage compensation (including for AAQD, IED and UWWTD). The proposal for a revision of the Energy Taxation Directive is still under discussion, in part because it requires unanimity.

Overall, the policies under revision are leading to stronger environmental policy. There is a tendency to better implement the PPP. For pollution prevention and control, PPP continues to be generally well applied (to more ambitious policies); for the costs of administrative measures, the PPP application improves via the broader application of EPR and better sanction regimes; for the costs of environmental damage, there are also some improvements seen through ETS and broader application of EPR against a picture of continuing gaps. There are also implementation gaps in environmental policy, which also affect the implementation of the PPP.

The avoidance of financing harmful activities in EU Funds indirectly also contributes to a better implementation of the PPP. The Do No Significant Harm (DNSH) principle, as it is used today in the EU, was initially legislated on within the EU Sustainable Finance framework. The DNSH principle found its place in several other policy documents well beyond the sustainable finance space, such as the Interinstitutional Agreement (IIA) on the EU 2021-2027 budget, the Communication on Better Regulation and in several EU funding programmes and policies of the 2021-2027 EU policy cycle. The DNSH principle has also been included in the revised Financial Regulation 36 , which lays down principles and procedures governing the EU budget. 37 The Commission’s July 2025 proposal for a long-term EU budget for 2028-2034 includes an enhanced and single performance framework to monitor how the budget is spent and what results it achieves, based on simpler rules. It sets the horizontal principle that the budget should be implemented without doing significant harm to the climate and the environment.

Sectoral viewpoint

The 8th EAP mid term review recognises that additional efforts are needed to shift towards sustainable production and consumption requiring suitable alternatives to be found across key economic sectors, whilst at the same time maintaining EU competitiveness. In this context, it is relevant to look at whether the PPP is applied to different economic sectors. In terms of the main sectors to consider, the analysis for the Taxonomy Regulation identified the following matrix of high impact sectors for environmental issues.

Figure 6: Mapping of high impact sectors (source: Technical Expert Group set up under the Sustainable Finance Strategy to identify the activities that should be covered by the EU Taxonomy )

For all of the sectors identified, there are differences in the means for application and also gaps in the application identified. The support study found different levels of analysis for different sectors. Some indications for the different economic sectors are:

·The PPP is not applied directly to greenhouse gas emissions from the sectors covered under the Effort Sharing Regulation (ESR), in particular agriculture, road transport, buildings and the waste sector as it applies to Member States and leaves Member States discretion to implement their national policies and measures. In its implementation Member States may have implemented the PPP principle to meet the (ESR) targets. In the case of agriculture, the PPP is integrated in the Common Agriculture Policy through conditionality with a set of actions that are positive for climate and the environment acting as a baseline requirement to be fulfilled by farmers benefiting from direct payments or other area-based payments. Any further application of the PPP linked to the CAP will need to be designed to support environmental and climate objectives without undermining the economic and social objectives of the CAP and most importantly, EU food security.

·Europe’s industry including energy production has made significant progress in reducing environment and climate impacts. However, as discussed in Section 3, 38  the continuing environmental impacts are significant in environmental, health and economic terms and are not fully reflected through an application of the PPP.

·The total environmental external costs of transport correspond to EUR 400 billion, as mentioned in Section 3, which exceeds the level of environmental taxes on transport (as an indication of the degree of internalisation). Analysis by the Commission of further pricing for transport indicated it would lead to further environmental improvements 39 . Within the transport sector, additional pricing policies have been introduced during the evaluation period: e.g. extension of the EU ETS to maritime transport from 2024; Member States reductions of the diesel discount compared to petrol in terms of taxes, introduced for socio-economic reasons, that is not clearly justified by environmental concerns 40 ; and, Member States are also increasingly looking at pricing mechanisms to reduce transport emissions in hotspots, with clean air zones and charging for more polluting vehicles.

·The built environment uses significant amounts of resources and accounts for about 50% of all extracted material. The construction sector is responsible for over 35% of the EU’s total waste generation. Greenhouse gas emissions from material extraction, manufacturing of construction products, as well as construction and renovation of buildings are estimated at 5-12% of total national GHG emissions. Greater material efficiency could save 80% of those emissions. In response, the strategy for a sustainable built environment is promoting coherence across relevant policy areas such as climate, energy and resource efficiency, management of construction and demolition waste, accessibility, digitalisation and skills as well as promoting circularity principles. Given the impact of the construction sector on the environment, and the failure to reflect environmental damage costs for those sectors, it seems unlikely that construction implements fully the PPP.

Overall, there is no evidence for any sector that it fully implements the PPP.

Stakeholder views

On the question whether economic sectors bear the costs of the pollution they are directly responsible for, much more participants to the public consultation disagreed than to the contrary. However, an overview of the consultation results by sector is not conclusive, as a high proportion of participants answered “don’t know” or did not answer these questions (ranging from 25% to 52% for individual economic sectors). An overview per stakeholder group is therefore not useful either.

Some respondents to the public consultation raised concerns that the use of exemptions and derogations permitted under EU policy has prevented the consistent application of the PPP. For example, reference was made to the exemptions as foreseen in Article 4, paragraphs 4 to 7 of the Water Framework Directive (WFD), that allow for pollution emission levels to vary over water bodies, hindering a uniform PPP application. To some extent, this is more about the effectiveness of policy and the need to take into account specific local conditions and balance different policy objectives rather than the application of the PPP.

4.1.2.Effectiveness: How effective the PPP is in delivering efficient environmental improvements

Overall

The PPP is effectively contributing to environmental improvements when applied to command-and-control instruments. This finding is based on existing policy evaluations where it is demonstrated that prevention and control costs are borne by the polluter at the same time as reductions in pollution are achieved. The PPP is also effectively contributing to environmental improvements via a price signal reflecting environmental damage costs. This finding is based on existing policy evaluations where it is demonstrated that price signals are achieving reductions in pollution, including from environmental taxes.

Findings

The Fitness Check assessed how EU policy is implementing the PPP to contribute to the improvement of the environment. The focus of this analysis is on command-and-control instruments and market-based instruments, based on their relevance to implementing the PPP in EU policy (as reviewed in 4.1.1). Voluntary approaches were considered of very low effectiveness as confirmed by the low support from stakeholders (and only 3 of the policies in scope use them). The analysis builds on the findings of sections 3 and 4.1.1, combined with evidence compiled from existing policy evaluations.

For command-and-control instruments, the costs of preventing and controlling pollution are largely borne by the polluter and existing policy evaluations 41 have demonstrated that significant reductions in pollution have been achieved. For example, the 2020 Evaluation of the IED 42 has shown that it significantly contributed to reducing emissions (especially to air) and the related impacts on the environment at the same time as overall economic growth, indicating that there has been a decoupling of industrial activity from emissions to air.

However, the analysis has shown that issues remain with allowable residual pollution (leading to environmental damage costs) and non-compliance that results in environmental externalities where costs are not borne by the polluter. These costs are often not addressed by policy provisions contained in command-and-control instruments but can be addressed via market-based instruments.

The use of market-based instruments (MBI) has a positive influence on the overall trends in pollution reductions where the price signal accurately reflects the value of an economic activity, including the value of environmental externalities. The findings of section 4.1.5 show that MBI that place a price on pollution (and particularly on environmental externalities) are the second most used type of policy mechanism to which PPP is applied in EU policy. The Fitness Check focused on prominent examples of MBI, including carbon pricing under the EU ETS, waste management pricing via pollution charges and taxes (as used to implement EU waste management policies), or preventive and remedial measures under the ELD.

The EU ETS is the main carbon pricing instrument in the EU, followed by carbon taxes. For emission trading, the evidence is conclusive that by setting a carbon price, the EU ETS has achieved GHG emission reductions. Since its launch in 2005, the EU ETS has helped drive down emissions from electricity and heat generation and industrial production by 37.3% 43 .

There is a range of evidence to show that carbon pricing is effective in reducing emissions. Studies 44 find that the advantages of carbon pricing policies which apply to a large number of emitters (such as the EU ETS) are that they provide a price signal to producers and consumers which incentivizes development and implementation of technologies to reduce emissions. Carbon pricing has been found to spur innovation 45 and investment in low-carbon technologies, such as carbon capture and utilization or renewable hydrogen. The IMF found support for the benefits of EU ETS on accelerating firms’ climate transition, while keeping firm-level financial costs at bay.  46

There are factors that in theory can undermine the effectiveness of carbon pricing as a mechanism to provide a price signal which include market balance and overarching policy certainty (in the case of the EU ETS) and uncertainty in abatement costs (for carbon taxes) 47 . Under the EU ETS, the formation of a robust price signal and market balance are supported by the cap on emissions (and thus the supply of allowances) and since 2019 by the Market Stability Reserve (MSR). The MSR adjusts the supply of allowances to the carbon market annually based on predefined thresholds. Analysis of the EU ETS has shown that price movements have followed market fundamentals 48 .  

Other examples of MBI, to which PPP is applied, are landfill taxes and waste incineration taxes. Moreover, pollution charges in the form of waste collection fees are increasingly being used by Member States to incentivize the waste producer to reduce waste generation and sort their waste (pay-as-you-throw schemes, PAYT). In general terms, the effectiveness of taxes to reduce pollution can be measured in terms of trends for recycling, landfilling and incineration (indication of where the use of MBI have incentivised a change in waste management). The OECD finds that PAYT systems typically have a positive impact on recycling rates (2019) 49 . The Member States with the highest recycling rates are those that have implemented a well-designed landfill tax or ban (or combination of both) and established PAYT schemes (combined with high-convenience systems for the separate collection of bio-waste).

The effectiveness of applying the PPP to sanctions is difficult to assess given that the PPP is seldom fully applied to sanctions (as mentioned in section 3), with sanctions often not related to the environmental cost.

Stakeholder views

In the public consultation, between 53% and 61% of participants 50 believed that the application of PPP to command-and-control instruments and market-based instruments was effective or fully effective for preventing, reducing or remedying pollution. The effectiveness of voluntary approaches was seen as very low or inexistent (more than half of participants found them little effective or not effective at all 51 ). Less than 20% of participants disagreed with this view and the remaining participants were undecided or had no opinion.

Several position papers referred to the issue that costs of environmental damage are not effectively addressed by the PPP through command-and-control instruments. For example, in the cases of diffuse pollution or legacy pollution, where the challenge is identifying who the polluter is. One example given was for the chemical sector where it is difficult to trace the source of chemicals, making it challenging to enforce the "duty of care" and "extended producer liability" principles upon companies. These issues are addressed in section 4.1.6.

4.1.3.Effectiveness: What factors hamper effective application? 

Overall

This section asks about the factors that have led to the partial implementation of the PPP. Firstly, there are overhead costs to applying the PPP reflecting the additional costs of making the polluter pay. There are no identifiable overhead costs associated with making the polluter pay for the costs of prevention and control, however, they are easier to identify for making the polluter pay for environmental damage costs.

Secondly, there are concerns about competitiveness, with policy makers aiming to strike a balance between enhancing competitiveness, reducing pollution, and making the polluters pay. This can lead to the application of the PPP being weakened in specific cases unless mitigation measures are applied.

Thirdly, there is a conflict between the effective application of the PPP and environmentally harmful subsidies. Fossil fuel subsidies in particular are significant and distort the price signal given. Non-energy environmentally harmful subsidies are also found, but there is less information on their value and effect.

Also, EU funds may potentially have financed clean-up activities. However, this regards mainly cases where the polluter could not be identified. For other cases, when such financing may have occurred in specific cases during the evaluation period, measures taken by the Commission in the meantime should prevent this from occurring again. There are also unintended gaps in the application of the PPP, and gaps in liability regimes.

Findings

Overhead costs of implementing PPP

The OECD noted that “At a first sight, the Polluter Pays Principle looks straightforward: if you pollute, you bear the costs of your pollution. When it comes to practical implementation, however, some challenges have revealed over the years: what is considered as pollution? Who are the polluters and who should pay? In addition, which costs should be paid by polluters?” 52

All policies have ‘overhead costs’ related to ensuring that obligations are complied with: this can include monitoring and enforcement costs and reporting obligations. It is therefore not always free to implement the PPP. Evaluations undertaken for a specific piece of legislation usually cannot separate out these overhead costs from the substantive costs, but there are Evaluations and Impact Assessments that cover aspects in detail, for example: the EU ETS is regularly monitored and evaluated; the discussion of Extended Producer Responsibility under the Batteries Regulation or the UWWTD; the application of liability through the ELD. All of these different analyses show that the costs of implementing the PPP are proportionate but do not single out overhead costs in a way that can be used in this Fitness Check covering more than 70 pieces of legislation.

These examples are also not representative, as they relate to pricing instruments, which focus on environmental damage costs where it can be argued that all enforcement costs relate to applying the PPP. However, for prevention and control costs, identifying the enforcement costs attributable to the substantive legislation and separate from applying the PPP cannot be done. Arguably, there are no additional overhead costs, as the default is that regulated entities should pay for the costs of prevention and control.

Overall, any overhead costs tend to reflect the difficulty of ensuring compliance promotion and assurance specific to making the polluter pay (so over and above the costs of ensuring the policy is implemented). Identifying the polluter and the damage they cause can be difficult and this explains why price signals are less likely to be found, for example, for diffuse pollution or where actual emissions vary significantly from permitted emissions or where the timing or geographical location of emissions is crucial. This explains findings such as:

·There tends to be poor application of the PPP to diffuse pollution, where multiple sources are contributing to pollution, and it is not possible to distinguish who the polluter is with sufficient clarity.

·There tends to be poor application of the PPP to legacy pollution, where contaminants are left in the environment by sources that are no longer discharging them (e.g. companies that no longer exist) and/or it is not clear who the polluter is.

·There tends to be good application of the PPP to GHG emissions, where the time and location is not critical.

·Within the legal instruments used there are successes, but the degree to which they can be applied further needs to be considered on a case-by-case basis.  This holds both for command-and-control instruments and also for market=based instruments, where there are good examples (eg some environmental taxes, Extended Producer Responsibility). These instruments look promising for further use, as experience with them increases and overhead costs decline accordingly (eg Extended Producer Responsibility is increasingly used in Member States and also for different environmental issues at the EU level).

Impact on competitiveness and pollution leakage

Studies into the impacts of environmental policy on the competitiveness of businesses do not produce conclusive evidence. There are two opposing views on the likely competitiveness effects. On the one hand, companies that face relatively stricter environmental regulation than their competitors abroad may lose competitiveness. On the other hand, more stringent environmental policies may promote cost-cutting efficiency improvements and foster innovation in new technologies that may (at least partially) offset the costs of the policy (“Porter hypothesis”).

The related concept of pollution leakage refers to the situation that may occur if, for reasons of costs related to pollution policies, businesses were to transfer production to other countries with laxer environmental standards. In the EU, studies into the impacts of environmental policy and pollution leakage have focussed on carbon pricing and carbon leakage in the context of the EU ETS. Studies have considered if in energy-intensive industry sectors, the cost of compliance with carbon pricing and the carbon cost being passed on in energy prices led to industries relocating 53 . The evidence of the risk of carbon leakage is not always conclusive or suggests that it is difficult to isolate carbon cost as a single factor in relocation decisions. However, ex-post studies appear to fail to detect such effects, possibly due to the effectiveness of special provisions, such as free allowance allocation or carbon tax exemptions, to mitigate the risk of carbon leakage 54 . This confirms the view that policy design plays an important role in the possible competitiveness impacts.

Given the risk that making the polluter pay could lead pollution-intensive production capacity to shift towards countries where they do not face such costs (pollution leakage), policy makers may seek to loosen the application of the PPP by shifting part of the cost of the environmental measures onto others. This way, they seek to find a delicate balance between stringency of environmental measures, preserving competitiveness, reducing pollution, and making the polluters pay.

Regarding the impact on SMEs, there is limited evidence over the impacts from the application and from the non-application of the PPP. In relation to whether SMEs are more affected than big companies (e.g. can big companies just ‘buy’ their pollution and continue polluting?) there is no conclusive evidence, and again this needs to be considered on a case-by-case basis. Illustrating this, the comments received from SME stakeholders in the consultations and workshops often referred to the negative effects of non-application. For example, that they endure higher costs because they need to clean up the pollution from other industries (e.g. shellfish farmers complained that to ensure the quality of the water for their production, they need to install monitoring devices and remediate pollution that is caused by other industries situated on the mainland and that the latter do not pay for these costs).

The present fitness check does not assess the usefulness or intensity of an environmental policy, but only the question of who pays for it. When considering the risk of pollution leakage in companies exposed to international competition, the policy choice to not fully apply the PPP comes down to shifting the cost of environmental measures from sectors exposed to international competition to sectors less exposed and to the general taxpayer (where increasing taxes may also lead to lower demand for the goods and services of these “domestic” sectors). A discussion about the application of PPP is primarily a discussion about the distribution of the costs as the underlying policy to which the PPP is applied (or not) is a given in this analysis.

From a sectoral perspective, the impact of a strict application of the PPP to environmental policies may differ from sector to sector, depending on the price elasticities of demand and supply and on the capacity to pass production cost increases into higher output prices (where the latter depends in part on the risk of substitution with goods subject to less stringent environmental requirements). The variety of possible impacts invites to carefully assess the costs and benefits of specific policy measures in specific sectors. The sparse evidence also shows that further research is needed into the competitiveness effects of environmental regulations and of the application of the PPP to ensure that policy is based on robust evidence.

Environmentally harmful subsidies

If the PPP is effectively applied, all polluters should be paying for the pollution they cause. When polluters receive subsidies for their polluting activities, although such subsidies pursue legitimate socio-economic objectives, this creates a conflict with the PPP and changes the balance of their payments.

Reforming environmentally harmful subsidies is not just about reducing the subsidies, but also about pursuing their socio-economic objectives in alternative ways, where feasible (i.e. less harmful to the environment). A careful assessment of available policy options is needed to make the trade-offs between policy objectives visible to policymakers. A first step is the identification of environmentally harmful subsidies. At present, EU-wide we mostly have data on energy subsidies, and these estimates are not necessarily comparable across countries and over time because of methodological challenges.

The 2023 Report on energy subsidies in the EU 55 shows that fossil fuel subsidies remained broadly stable over the years until 2022 when they increased substantially in the wake of the energy crisis and the war in Ukraine (but contain many temporary measures) and then fell to EUR 111 billion in 2023. 98% of the fossil fuel subsidies are considered environmentally harmful. The fossil fuel subsidies considered as not environmentally harmful mostly relate to compensation to companies and workers for curtailing or closing coal mines and coal-fired power plants, or funding for rehabilitation of the areas where such closures have taken place.

Figure 7: Fossil fuel subsidies in the EU-27 by environmental impact (2015-2022; EUR2022bn)

Source: Enerdata, Trinomics, 2023. NB: 2022 estimate are represented with hatching

The OECD 56 finds that fossil fuel tax revenues exceed fossil fuel support in the EU. However, in 2022, overall energy subsidies in the EU exceeded energy tax revenues. 57  Thus, despite the limitations imposed on how the PPP is applied, the impact of environmentally harmful subsidies on the effective application of the PPP is only partially offsetting: there is still a price signal in the right direction, if not of the right magnitude.

For other, non-energy environmentally harmful subsidies, the European Commission is developing with the Member States a methodology for their identification and reporting. In the absence of this methodology, there is no accurate information on their level or which sectors are most distorted by them. As an indication of their magnitude though, estimates of the levels of environmentally harmful subsidies developed by several Member States indicate they are substantial. 58  

Unintended gaps in PPP implementation

The following unintended gaps are identified:

·Allowable residual pollution, where the polluter has taken all the measures ordered by the authorities and is meeting the environmental requirements stipulated by the policy but the policy itself does not address all the pollution. Even if the PPP is fully applied to the prevention and control costs arising from an environmental policy, the costs borne by the polluters will not fully reflect the environmental damage costs when the policy itself leaves a degree of allowable residual pollution with associated costs incurred by wider society. This can be the case, for example, with command-and-control measures that reduce pollution but that do not address the costs of the residual pollution to society.

·Opportunity for polluters to circumvent costs of pollution. For example, ship owners could reflag their ship at end-of-life so that they are not subject to the requirements of the Ship Recycling Regulation and do not bear the costs.

·Pollution from non-compliance, where the polluter has failed to meet environmental requirements stipulated by the policy and enforcement is focussed on ensuring the requirements are met, but not addressing the damage caused.

·There have been some limitations because of the limited uptake of instruments by national administrative and judicial authorities, for example, the Environmental Liability Directive and the Environmental Crime Directive.

Gaps in liability regimes

The PPP is insufficiently applied to pollution from non- compliance, meaning environmental damage, in all three areas of ex-post liability or responsibility: administrative, criminal and civil 59   60 .

The remediation requirement in the Environmental Liability Directive is an example of PPP application but also has limitations. 61

Some sectoral administrative remediation regimes for specific activities, e.g. the Waste Framework Directive, have a strong PPP application, while others such as the Extractive Waste Directive and the IED have a mixed degree of application of the PPP. There is a positive tendency over the evaluation period, e.g. the revision of the IED includes compensation for harm to human health and adds more categories of industrial activities.

When criminal penalties are used in addition to enforce a policy, the penalties aim to dissuade the non-compliance without addressing the environmental cost of the non-compliance. Member States are not obligated to consider the damage caused when determining penalties under the crosscutting Environmental Crime Directive (pre-reform) as well as the sectoral IED and SSD. The obligation that the offences are punishable by effective, proportionate and dissuasive penalties led to the implementation of the PPP depending on the Member State transposition, which was mostly found lacking as fines were not reflecting the damage 62 .

This could potentially be improved with the introduction of (accessory) penalties of remediation or compensation. The ECD proposal stipulates that Member States shall take the necessary measures to ensure that natural persons face the obligation to reinstate the environment, provided that the damage is reversible, or, where the damage is irreversible, the obligation to compensate costs linked to the damage to the environment. This will improve the application of the PPP. However, the damage caused is still only optionally considered if the Member State decides to transpose this part into national law and the new minimum max sanctions do not necessarily equal the often very high amount of damage.

Stakeholder views

In line with the above findings, responses show that the use of environmentally harmful subsidies was deemed a very important or important obstacle for 57 % of participants (144) to the public consultation (only 15, or 6%, found it not important at all). This percentage was highest for citizens (73%), followed by public authorities (64%, 7 out of 11) and NGOs (60%). Only 29% of participating businesses and their associations thought so.

Some specific concerns were raised regarding the use of EU and national funds to finance projects that should be paid for by the polluter in position papers, e.g a “project for monitoring internal pollution of Europeans, HBM4EU24, receiving € 74 million in public funding under Horizon 2020 and its successor project PARC25 receiving € 400 million from public funding” or “hundreds of millions of euros being approved for site rehabilitation under the Just Transition Fund (JTF)”.

Competition between EU Member States was found to be a very important or important obstacle by 58% of participants to the public consultation. This 58% was led by citizens (65%), followed by businesses and their associations (57%) and NGOs (52%).

Competition between the EU versus third countries was considered an important obstacle by 62% of participants to the public consultation The 62% was led by citizens (69%), followed by businesses and their associations (58%) and NGOs (42%).

As one example, a business association for animal and human medicines believed that EPR schemes may impact patients’ access to medicines where the inability to increase prices to cover EPR costs may lead to the withdrawal of critical medications from the market, posing a threat to patient health and well-being. Also, there were concerns about the difficulties for SMEs to minimize pollution compared to larger companies as they do not have the same investment capacity.

In addition, more than half of the responses to the public consultation identified “very important” obstacles such as the

·‘lack of political willingness to introduce and enforce implementation of the principle’ (59%, 157)

·‘the price of products and services does not fully reflect (internalise) the environmental damage (externalities) of the products’ and services’ life cycles’ (55%, 147) and 

·that ‘national authorities fail to enforce environmental legislation’ (51%, 136).

4.1.4.Efficiency: Is the PPP fair and consistent with a just transition, including how it affects different stakeholder groups, including vulnerable groups?

Overall

The application of the PPP appears overall fair, as it ensures the costs of pollution are paid by whoever is causing the pollution and not by the general public or people affected by it. The application of the PPP can though be inconsistent with the just transition concept if its distributional effects disproportionately affect vulnerable groups and regions. Distributional effects depend on the way costs are recovered. Regressive effects can be avoided through a careful design of policies implementing the PPP as well as compensation mechanisms. As a result, a fair application of the PPP through carefully designed mechanisms to ensure an acceptable distribution of costs and benefits not only does not cause concerns with regards to the just transition but can directly contribute to the fairness of the transition.

Findings

The just transition principle establishes a particular dimension to fairness in the context of the green transition. This is reflected in EU policies which aim to achieve its climate and environmental targets while leaving “no person and no place behind”, thus protecting citizens from economic and social inequalities 63 .

In 2022, 21.6 % of the EU population were at risk of poverty or social exclusion. The EU aims at increasing the inclusion of vulnerable and marginalised groups by developing targeted approaches in environmental and climate policies to respond to their specific needs 64 . Europe’s most vulnerable or “lagging” regions, characterised by persistent low growth and poverty, risk being left further behind in the EU’s pathway towards a green transition.

The application of the PPP in environmental and climate policies is inherently fair. The social pollution costs are paid by whoever is causing the pollution and not by the state or people affected by it 65 . From a societal point of view and if well designed, environmental taxes reduce distortions by internalising negative externalities while at the same time providing additional public revenue 66 . 

The status quo is that the health damages caused by pollution are usually concentrated among the poorest (the so-called environmental justice gap), who work and live near the most polluted areas and have less access to green areas and more expensive eco-products. Meanwhile higher income households tend to consume more goods and services that negatively affect the environment than lower income households.  67  As a result, the application of the PPP through carefully designed mechanisms not only does not cause concerns but directly contributes to the fairness of the transition.

Nevertheless, a full implementation of the PPP means that all polluters are charged according to their level of pollution, independent of their income level. The application of the PPP can result therefore in a situation which is inconsistent with the just transition concept if policies are designed in a way that their distributional effects disproportionately affect vulnerable groups and regions in a way that is not justified by its benefits for these groups and regions. In other words, it may happen that the economic and social downsides of charging people with the costs of their pollution outweighs the benefits of the PPP for these people, including health and non-market ones.

Past policy evaluations often have not specifically assessed the PPP application, and the distributional aspects are not always considered in detail. Annex 9 gives examples of assessments that did consider these aspects, such as findings from the impact assessment of the reform of the Energy Taxation Directive.

Recent research into the distributional impacts of environmental policy does provide useful insights and lessons learned. Although research tends to focus on climate policies 68 , the findings are often also relevant for other environmental policies (such as an analysis of the impact of PPP policies on buildings and transport 69 ).

Whether a given policy has economic downsides for low-income households depends on whether its distributional effects are progressive or regressive. A distributional effect is said to be regressive (progressive) when the net benefits increase (decrease) more than proportionally with income 70 . This means that a regressive effect affects the poor more negatively than the rich reinforcing inequality. The distributional effects of implementing the PPP can only be considered on a case-by-case basis as there is no comprehensive data.

Regressive effects may be traced back to the product to which the costs are attached 71 . Examples are taxes on electricity which are usually regressive where lower income households spend a higher share of their income on energy taxes than higher income households 72 . There is some evidence that command and control instruments are more regressive than MBIs 73 . Overall, adverse distributional effects depend on the way costs are recovered.

It has been found in different cases that significant regressive effects can be effectively avoided by designing the policy to become progressive, thus lowering inequality. A progressive distributional effect can be achieved where lawmakers ensure a careful design of policies implementing the PPP, e.g with progressive pricing or exemptions for vulnerable households or areas, or by introducing a compensation mechanism within or outside the policy, e.g. a shift away from labour taxation, means-target measures (monetary or in-kind measures) using the revenues from such taxes (tax recycling) or on a EU funding level – such as the EU Social Climate Fund (funded from the new ETS 2) or the Just Transition Fund . 76 77  

There are comparatively few examples of recycling revenue at EU level, suggesting potential for its greater use to improve the fairness of the implementation of the PPP. Member States take a varied approach to the use of recycling revenue generated which is consistent with modelled analysis where the use of recycled revenue is found to be most effective when tailored to the specific tax or pollution charge 78 . Based on current approaches to implementation, recycling revenue generated through implementation of the PPP has improved the fairness of implementation particularly where the use of revenue generated can be tailored to the specific socio-economic challenges incurred as a result of introducing the tax or pollution charge 79 . 

Stakeholder views

48% (129) of participants found that concerns about the social impact (e.g., on vulnerable households) of implementing PPP more fully is “important” or “very important”. In terms of stakeholder groups, this 48% is driven by 59% (63) of citizens, 45% (17) of NGOs and 39% (37) of businesses and their associations. A further 23% (61) of participants found this concern “moderately important”.

Replies were less pronounced on the question whether the application of the PPP contributes to the objective of the Just Transition. 25% (67) of participants found that it does to full extent, and 14% (37) to a high extent. 19% (50) thought it did so to a medium extent, while 13% (35), mainly businesses and their associations, thought it did not or to a small extent.

Several issues related to fairness were identified by respondents in their open text responses, including concerns that the vulnerable social groups, e.g. low-income households as consumers ultimately bear the costs as they are passed on by the polluter, particularly in terms of limited availability of goods and rising expenditure due to higher prices of goods and services in energy and waste management sectors. 

4.1.5.Efficiency: Are there significant differences in the (efficient) application of the PPP across EU policies and between Member States?

Overall

Often, environmental policy is applied through Directives or strategies, which leave flexibility to Member States. This is especially the case for costs of environmental damage, where price signals vary considerably, for example, reflecting considerable differences in the use of environmental taxes in Member States. Across EU policies, price signals are systematically too weak: there is no evidence that any polluters pay the full cost of the environmental damage for any environmental issue. Evidence is strongest for climate impacts, but price signals are likely to be weakest where evidence is weakest, and in particular for biodiversity. Given the link between price signals and the efficiency of policy, this is significant.

Findings

The analysis considers whether there are significant differences between Member States in the application of the PPP when implementing EU policies. To answer this question the provisions used to apply the PPP in EU policy have been reviewed to identify first, where there is a significant degree of Member State choice in how they implement the PPP. Second, in such cases, the risks of inconsistent application due to a higher degree of Member State choice was assessed. This greater degree of flexibility tends to be associated with a less consistent application of the PPP (as further discussed in the analysis of subsidiarity aspect in section 4.2.1).

a)Type of legal instrument

The degree of Member State flexibility was reviewed starting from the type of legal instrument to implement the policy, i.e. whether it is a Regulation, Directive or strategy. The use of a Directive establishes a common goal together with a framework to guide implementation but ultimately it is for the Member State to identify measures and adopt and implement them.

Figure 7  shows that most policies under review are adopted by Directive (61%, 47 policies). A small number of policies contributing to the 8th EAP biodiversity and natural capital priority objective are adopted via a Strategy (3 examples), and the remainder via Regulation (35%, 27 policies). Over the Evaluation period, there has been a slight shift eg the Batteries Directive was repealed and replaced with a Batteries Regulation.

Figure 8: Share of legal instruments used by policies, grouped by 8th EAP priority objective (in the year 2023)

Source: Logika Group based on review of policy

The extent to which the flexibility afforded to Member States under a Directive impacts on implementation of the PPP varies by policy. In the case of command-and-control instruments under Directives, flexibility can exist but is limited by targets, standards and permit conditions.

For market-based instruments, there is a greater degree of flexibility afforded by Member States in the use and design of schemes which has led to differences in the way they are used to apply the PPP between Member States and between economic sectors. The use of minimum rates of excise duty (e.g. Energy Taxation Directive) or in the case of criminal sanctioning of minimum max penalties (e.g. under the revised ECD) can minimise differences.

b)Type of policy mechanisms

For the purposes of this analysis, the “policy mechanism” refers to the policy provisions that ensure the costs are borne by the polluter. These have been grouped into command and control, market-based instruments and voluntary actions.

Table 4: Application of PPP to policy mechanisms

Command and control is the most used legislative intervention to implement EU policy, specifically the use of standards (used in 22 policies) and restrictions (17 policies). It is therefore also the most common mechanism to which the PPP is applied, particularly for the costs of prevention and control.

The category of standards includes performance specifications (13 policies contributing to climate change and zero pollution) as well as limit values (10 policies contributing to zero pollution). Limit values are used in policies contributing to zero pollution (water and air policy areas). Standards are often used in combination with other legal interventions where the PPP is then applied, including targets (5 policies, all within the climate change policy area), permit conditions (2 policies: IED, MCPD), and more broadly together with EU frameworks to guide Member State implementation (3 policies: ND, AAQD, IED).

Restrictions are used mainly for policies within the circular economy (8 policies) and zero pollution policy areas (6 policies). Restrictions are also used to apply the PPP in the case of the F-gas Regulation and ODS Regulation (climate change), and the Regulation on Invasive Species (natural capital).

EU frameworks to guide Member State implementation are commonly used to implement EU policy and so where the PPP is applied to policies contributing to zero pollution (11 policies). They are also used in the case of climate change (proposal to revise the Energy Taxation Directive), circular economy (Waste Framework Directive), and enhancing natural capital (Nature Directives). Frameworks typically leave Member States considerable flexibility in how they apply the PPP.

Targets are another commonly used legislative intervention, relevant to several policy areas (climate change, circular economy, and zero pollution).

Market based instruments (MBIs), mainly applied to the costs of environmental damage, include tradeable permit schemes, sanctions, liability and compensation schemes and extended producer responsibility (EPR). There are also a number of MBIs that do not involve prices, but rather supporting markets e.g. through labelling and transparency measures. Prominent examples of MBI to apply the PPP relate to climate priorities (under the EU ETS Directive and the Energy Taxation Directive), to circular economy and waste management policies (e.g. landfill tax and plastic bag fee to implement the Waste Framework Directive or Plastic Bags Directive), remedial measures required via the Environmental Liability Directive or criminal sanctions under the Environmental Crime Directive.

Differences in application across Member States

Considering Table 4 along with the discussion on the level of implementation, the main conclusions are that:

-Command-and-control instruments are effective in ensuring that the polluter pays for the costs of prevention and control, and also largely for administrative costs. Command-and-control instruments can still be subject to some differences where implementation of the PPP occurs based on the design of programmes of measures decided at national or regional level(e.g. WFD waste, WFD water, AAQD, NEC Directive).

-Market based instruments (MBI) face the more difficult task of ensuring polluters pay for their environmental damage costs. There is often considerable flexibility afforded to Member States in the use and design of schemes which has led to differences in the way they are used to apply the PPP between Member States, economic sectors and policy areas. Member States also use national environmental taxes to deliver environmental objectives, in line with the principle of subsidiarity. The revenue generated from environmental taxes varies across type and Member State and the range of revenue generated by environmental taxes may be indicative of such differences. The use of minimum rates of excise duty (e.g. Energy Taxation Directive) or in the case of criminal sanctioning of minimum max penalties (e.g. under the revised ECD) can minimise differences.

The varied use of environmental taxes and pollution charges is one of the main drivers that have led to differences in implementation of PPP. The focus of the following section is therefore on the differences in the efficient application of the PPP via such environmental taxes and pollution charges.

Environmental taxes and pollution charges

There are differences in how much the polluter pays between Member States. The application of the PPP will lead to different levels of costs depending on national circumstances. For example, a Member State with a larger polluting sector would experience larger prevention and control costs and higher external costs of pollution.

Under the EU ETS, auctioning revenue is an indication of the costs borne by the polluter to implement the PPP. This revenue variation varies, for example, with the majority of Member States between 0.1 and 0.2% of GDP, whilst the revenues are higher in Estonia: 0.7%; Poland: 0.8% and Bulgaria at 1%. This reflects the carbon intensity of the energy mix and of industry in these countries and the challenges highlighted for the country in achieving a just and fair transition 81 .

Similarly, waste management costs also vary as a share of national GDP, most Member States’ capital investment costs range between 0.01% and 0.04%. Similarly for air and water policy, there are differences in capital investment between Member States. However, the capital investment costs are only a proxy for the costs borne by the polluter as EU funding often subsidises these investments, particularly through regional development funds.

Whilst costs of prevention and control may differ, the analysis suggests that these differences reflect variation in factors such as the economic structure, the industrial makeup, the environment, different stages of investment in infrastructure and differences in implementation of EU policies. There are limited differences in the application of the PPP, so who pays for these costs.

The analysis identifies varied use of environmental taxes and pollution charges by Member States to implement the provisions of EU policies. Currently, there are over 40 environmental taxes applied in at least one of the Member States according to the National Tax Lists prepared by Eurostat (excluding Transport Taxes). The variety of environmental taxes, in combination with their limited use so far (see section 3), indicates that there is scope for more use of market-based instruments, such as taxes for solid waste to landfill and incineration, taxes on pesticides and fertilisers, taxes on water pollution, and taxes on plastics. 82

This is significant because of the crucial role of taxation in the transition towards a greener and more sustainable European growth and the need to better align the taxation systems with EU environmental objectives. Well-designed tax reforms can indeed boost economic growth, help reduce greenhouse gas emissions by ensuring an effective carbon pricing and contribute to a fair transition. Environmental taxes (i.e., energy, transport, pollution and resource taxes,) contributed around 5.0% of total tax revenues in the EU in 2022 but were almost 10% in Greece, Bulgaria and Latvia compared to under 5% for Sweden, Germany and Luxembourg 83 . The tax rates vary between Member States. For instance, the tax rate on sulphur emissions in Sweden, Norway and Denmark is between EUR 1,300/tonne and EUR 1,600/tonne; while rates in Italy, France and Spain are lower than EUR 50/tonne. Tax rates applied to waste, plastics and water also differ significantly 84 . The Commission provides technical support to Member States looking to further use environmental taxes 85 .

It is also striking that price signals vary significantly between the priority objectives of the 8th EAP. Examples of variation include:

·The OECD reported 86 that “Carbon pricing could potentially play an important role in pathways to net zero GHG emissions, but, overall, price levels and coverage have been too low to date to do so.”

·Article 9(1) of the Water Framework Directive calls for water pricing policies to provide adequate incentives to use water resources efficiently and calls for an adequate contribution of the different water uses to the recovery of the costs of water services. In so doing, Member States should take into account the polluter pays principle, yet may also consider the social, environmental and economic effects of cost recovery efforts. The general wording used in the WFD and the possibility to exempt / differentiate between certain users or uses from the obligation of cost recovery including through water pricing policies, reduces the enforceability of this article including a stringent and consistent PPP application. Indeed, available information suggests that in many Member States the PPP is underutilised (see also box 3 on water pricing).

·Biodiversity credits markets exist but not at a significant scale yet, and so not at a scale to make a material impact on the rate of biodiversity loss. Biodiversity credits can finance actions that result in positive outcomes for biodiversity (e.g. species, ecosystems, natural habitats) through the creation and sale of biodiversity units.

·Polluters only partially pay the costs of remediation of environmental damage 87 .

·The level of environmental taxes varies across Member States, and therefore so do price signals, reflecting inconsistency across Member States and presenting a challenge for the consistent application of the PPP, and the efficient delivery of policy.

·The approach to pricing also varies across policies, for example whether the marginal price is set to reflect the social costs or the average costs or a desired policy outcome 88 . There are different pricing regimes that deliver the same amount of revenue but in different ways, and with different incentives. It is also possible to start with a price (eg taxes) or a target that then leads to a price (eg under the EU ETS).

Figure 9: Implicit tax rates across countries and fuels

Bringing these strands together, the inconsistent application for all environmental issues and sectors, linked to the successful implementation through different instruments suggests potential for further implementation. This includes:

-Further use of Extended Producer Responsibility to cover both administrative costs and some environmental damage costs. Whilst applied so far mostly in the waste context at the EU level, national approaches suggest it can be applied to other environmental issues and when combined with eco-modulation deliver a stronger price effect.

-Even with successful applications such as EU ETS, ETS 2 and CBAM, there is potential for a broader PPP application building on the existing schemes (e.g. wider scope).

-The considerable national experience with environmental taxes provides indications for where EU level environmental taxes could be applied.

-The PPP is least applied for some environmental issues and sectors (e.g. for biodiversity) suggesting a greater potential for further applications.

Taxation and other pricing instruments can lead to higher production costs that put companies at a disadvantage compared to their competitors who are not subjected to such a tax. Such impacts are, however, highly context-specific, and can be addressed through careful policy design (for example, by using the revenues from environmental taxes to reduce other taxes). Various studies confirm that well-designed environmental taxation policies do not need to harm the competitiveness of businesses 89

Views of stakeholders

On the question whether the PPP is coherently and consistently implemented across environmental policies and mechanisms at the Member State level, 55% (148) of participants in the public consultation mostly or completely disagreed. That amounts to 71% (27) of NGOs, 58% (62) of citizens and 43% (41) of businesses and their associations.

Several interviewed stakeholders discussed environmental or environmental taxes in more detail. They viewed environmental taxes largely positively; however, they also pointed out some of the shortcomings that reduce their effectiveness. According to the interviewees, the charges applied in environmental taxes (or revenues raised from environmental taxes) have been too low to a) encourage the transition from polluting to sustainable activities and/or b) tackle the issues of environmental pollution. Some respondents believed that derogations and exemptions weakened the effect of taxes. 

4.1.6.Efficiency: Could EU policymaking be made more efficient (so an improved cost benefit ratio) by better implementing the PPP? 

Overall

The PPP is a powerful tool to make environmental policy more efficient, by reducing the costs of obtaining a given policy target. It does this by delivering a price signal that makes markets work better and leads to low-cost reductions in pollution (see also Section 4.1.2). There are overhead costs (so the cost of making the polluter pay), which can often not be separated out from the costs of the policies themselves. This is especially the case for policies that apply the PPP to prevention and control costs, where overhead costs are not apparent. For other policies, case studies suggest they are marginal and have been considered as part of the Better Regulation analysis of specific policies. The PPP has the potential through further implementation to improve the cost-benefit ratio of environmental policy. As a horizontal principle, the potential for simplification and burden reduction is limited, but could be realised through facilitating implementation.

Findings

This section considers what are the implementation (or ‘overhead’) costs of the PPP and how they compare with its benefits. This section complements Section 3 and Section 4.1.2 by asking what the additional costs are specific to the application of the PPP and the resulting benefits. Annex 8 examines this issue in more detail, including with case studies.

There are two significant methodological challenges, going beyond a standard lack of data:

·It is difficult to distinguish the overhead costs of applying the PPP from the costs of the policies themselves. For the cost/benefit analysis of the PPP application, we need to separate the costs and benefits of the policies from the costs and benefits of applying the PPP to these policies. For the latter, the costs are mainly the costs of identifying the polluter and enforcing the PPP (“overhead costs”); while the benefits are the efficiency gains achieved via price signals when the polluter pays rather than someone else such as the general taxpayer. Conceptually, the difference between cost categories must exist, but identifying it in practice is harder. The analysis concludes that in practice the overhead costs of applying the PPP to prevention and control costs appear to be zero. For other policies, related to environmental damage costs, the analysis remains qualitative, but case studies suggest they are marginal and have been considered as part of the ongoing Better Regulation work associated with specific policies.

·It is difficult to separate out and measure the incentive effect of applying the PPP. There is a full consensus amongst stakeholders, academics and the literature that this incentive effect exists delivering a price signal that makes markets work better and leads to low-cost reductions in pollution. However, it is methodologically difficult to measure eg the effect of making a polluter pay the costs of prevention. 

Analysis of costs

The policy Evaluations and Impact Assessments undertaken as part of the Better Regulation practices reviewed for this analysis do not distinguish between the costs of the policies themselves and the costs of applying the PPP: the two are usually considered inseparable. It follows that it is very difficult to get an overview from them, and the analysis below remains mainly qualitative (reflecting a poor evidence base). As general comments:

·For prevention and control, the overhead costs cannot be separated, in part as the default is that the polluter should pay any overheads related to prevention and control costs. This implies that there are no additional or overhead costs from ensuring the polluter pays.

·Measures to ensure the PPP is applied for administrative costs and environmental damage costs are considered, and hence their overhead costs eg Impact Assessment 90 of EPR under the Batteries regulation, Impact Assessment 91 of the ETD revision etc. This is not a representative sample: the evidence is about the additional or overhead costs from putting in place pricing mechanisms; where such overhead costs were considered disproportionate policies were not in place.

Within administrative costs, some costs are incurred regardless of the application of the PPP and relate to the policies and measures undertaken, and that polluters then need to pay for (eg identification of polluters for the purpose of ensuring limit values are respected). Others relate to the overhead costs of application of the polluter pays principle (eg identification of polluters for the purpose of putting a price on those emissions).

Extended Producer Responsibility schemes can entail significant administrative costs, but the level of these costs also depend on their specific design. For example, the Commission’s proposals to simplify environmental legislation of December 2025 (environmental omnibus 92 ) address certain costs of EPR schemes (designation of authorised representatives). An efficient application of the PPP requires that administrative costs be maintained as low as possible. 

The main ‘overhead’ costs of applying the PPP in EU policy are incurred via administration costs, with three broad types:

1.Additional costs of identifying the polluter

2.Additional costs of monitoring the pollution costs

3.Additional costs of enforcement of the PPP

As part of the compliance assurance process for (any) legislation, there are costs associated with these different elements. Separating these costs from those that would be incurred in the absence of the PPP, is for most pieces of legislation not possible.

→ Additional costs of identifying the polluter are minimal when the pollution is addressed at source. In such cases, the provisions are targeted at the polluter which is directly identifiable (e.g. companies targeted by command-and-control measures under the IED). Regardless of who pays, the legislation usually requires such costs (for example, in a permitting regime). The main challenge of identifying the polluter occurs in the case of 93 :

·Legacy pollution, where contaminants are left in the environment by sources that are no longer discharging them and/or it is not clear who the polluter is.

·Diffuse pollution, where multiple sources are contributing to pollution, and it is not possible to distinguish who the polluter is with sufficient certainty.

→ The costs of monitoring for tracking and reporting of costs incurred to address pollution. Policy provisions that address monitoring and reporting requirements encompass pollution rather than the costs of pollution (see also related section on administrative costs below). As can be seen from the use case in Annex 8 on maritime ETS where monitoring systems are already in place for obligatory or voluntary reporting, the additional costs for both reporting entities and administration of applying the PPP to these areas are relatively low. Digital solutions also lead to a reduced cost burden for monitoring. An example is the use of blockchain technology and smart contracts for intelligence-led EPR investigation and enforcement as a best practice given existing funding constraints to detect non-compliant online sellers 94 .

→ Costs of enforcement apply for all policies, and there are limited examples of enforcement measures dedicated solely to the PPP identified in Annex 7.  

In conclusion, there are conceptually overhead costs to the application of the PPP. These are considered on a case by case basis, and have been considered proportionate for all the legislation under scope. It is not possible to provide a quantified estimate, but they seem to be minor in most cases, and relatively larger for applications to environmental damage.

Analysis of benefits 

Section 4.1.2. discusses benefits of the PPP application in the form of achieving reductions in pollution and concluded that the PPP is effective in contributing to efficient environmental improvements. This section expands on the benefits in the form of efficiency gains, i.e. by remedying market failures and achieving pollution reduction in the most cost-effective way. The intervention logic shows one of the objectives of the PPP as to provide price signals to reduce pollution efficiently.

Price signals steer the behaviour of producers and consumers by increasing the cost of activities that harm the environment. A company that needs to pay for its own prevention and control costs will do so at least cost, whereas if subsidised it will not have that incentive. Households that move from a flat rate charge for water to volumetric charging significantly reduce water consumption 95 .

Providing a quantification of this incentive effect necessitates estimation of the price elasticity of abatement – a measure of the responsiveness of pollution to increases in the pollution price. Literature on the topic points towards the difficulty of arriving at comparable estimates for different types of pollution, pricing instruments and contexts and therefore a lack of reliable average values. As an example, introducing pricing for water may reduce consumption by around 15%, but the impact of different tariffs is less certain. Figures for water may differ from those for transport, air, nature etc and the long-term response normally outweighs the short-term (due to innovation).

One example of an efficiency gain brought about by application of the PPP is the EU ETS. Under the EU ETS, the PPP provides an incentive to polluters to take action and reduce pollution at the lowest cost possible and develop new technologies and ways of working that are cleaner e.g. where carbon pricing has contributed further to innovation and investment in low-carbon technologies, such as carbon capture and utilisation or electrolytic hydrogen. For instance, improvements in energy efficiency and carbon intensity of production and increased low-carbon innovation are both impacts of the current EU ETS and forecasted effects of its extension.  96  As such, the PPP reduces the cost of meeting a given environmental target. 

Analysis of environmental expenditures over time, shows that protection and control costs decline over time, other things equal. This seems to be driven by technological progress driven in turn by the incentive to develop new ways of working by the PPP. 97  National expenditure on environmental protection has remained stable over the evaluation period even as environmental legislation has become stricter (see Section 3).

Comparing the costs and the benefits

Impact Assessments and Evaluations of specific policies in scope of this fitness check do not include a discussion of costs and benefits of the application of PPP. Where there is some discussion of the PPP, this tends to be because there was an explicit choice about applying it (eg where a market based instrument is introduced). In these cases the overhead costs of applying the PPP through the chosen option were considered justified. However, this sample is not representative, though it could be seen as showing the principle justified at the margins of its application.

Overall, the analysis suggests that the PPP reduces the overall cost of environmental policy by reducing the cost of meeting a given environmental objective, improving the cost-benefit ratio of policy. Analyses of specific policies consider the trade-off between overhead costs and efficiency gains, leading to the policy designs under scope.

Simplification and administrative burden reduction

This is best considered in the Evaluations of specific policies. For example, the Evaluation of the Environmental Liability Directive 98 considers that the liability regimes in the EU (notably ecological and civil liability) are now covered in many sectoral and horizontal instruments and the overall complexity may be a factor making it more difficult to implement such tools by Member States.

Looking at the PPP in a horizontal manner, there are actions that could potentially have made it simpler to implement. This includes further sharing of best practice amongst Member States, reflecting the considerable flexibility that they have under the subsidiarity principle and so the rich patchwork of experiences that exist. This already happens to some extent, through the various fora in which Member States are active (including expert groups), but the question was posed by Member States over whether this could be made more systematic for proposed environmental taxes.

Evaluations of individual policies consider the associated individual reporting obligations. Economy-wide reporting related to PPP is made to Eurostat on environmental taxes and environmental protection expenditure including investments. 99 The recent revision of this Regulation will improve reporting, extending it to environmental subsidies and with a feasibility study of monetary valuation of ecosystem services.

At the same time, the Governance Regulation 100 requires reporting of fossil fuel subsidies, and this is being complemented with reporting of other (non-energy) environmentally harmful subsidies 101 . These two elements of reporting should use the same definitions, and their timing should be linked.

However, the evidence base for this study is affected by a limited analysis and reporting of costs. Issues exist both at the level of governments, and also at the level of businesses. Better information on a business’s impact on the environment, for example through natural capital accounting, would allow for improved environmental management and voluntary consideration of the PPP. Some of the ongoing changes in policy, such as the CSRD should improve the quality of information.

No potential simplifications of reporting obligations were identified in the analysis. Due to the nature of the fitness check, which assesses environmental policies only regarding a specific aspect, it was not an appropriate exercise to analyse the potential for administrative cost reductions. This can be done more efficiently in a dedicated exercise. In the context of the Commission’s commitment to reduce the reporting burden by 25%, DG ENV is currently assessing the administrative burden across the environmental acquis, and making proposals to reduce them. This builds up on DG ENV’s action plan 102  to modernise environmental reporting which followed up on the 2017 Fitness Check on reporting in the environmental acquis. The Commission’s proposals of December 2025 to simplify environmental legislation (environmental omnibus) contribute to reducing the administrative burden for businesses. Ongoing evaluations of environmental policy instruments will also contribute to this exercise.

Views of stakeholders

At the stakeholder workshop held in December 2023, a number of participants stressed the importance and effectiveness of ‘environmental taxes’. An example given was that in the Flemish region in Belgium, after the introduction of a sufficiently high landfill tax, a strong migration away from landfilling towards recycling has been observed. In addition, there was a suggestion to establish an EU-wide database illustrating which environmental taxation, pricing mechanisms and other instruments are implemented or foreseen for the future in each Member State. 103

4.1.7.How consistent and coherent is the application of the PPP across policies? 

Overall

Coherence of EU policies is strong, with no identified contradictions but coherence could be strengthened e.g. through better implementation of the Environmental Liability Directive, or biodiversity markets.

Consistency varies, being strongest for prevention and control costs, and weakest for environmental damage. In particular, the extent to which environmental damage costs are reflected in prices varies considerably, with the level of internalisation being partial for all environmental issues, but probably weakest for biodiversity issues.

Findings

Assessment of coherence reviewed whether there is conflict or mutual support amongst mechanisms used to apply the PPP between policies. Assessment of consistence reviewed the degree of variation in application of the PPP across policies grouped by 8th EAP priority objectives and policy areas.

With regards to coherence, the analysis found no identified contradictions and/or overlaps in how the PPP is applied. Instead, it found that policies worked together. For example, the ETS and ELD apply across a wide range of pollutants and complement many policies, reflecting the synergies between nature, zero pollution policies and climate policies. Where incoherence does exist, it is in policies not fulfilling their potential. Another example of potential for stronger coherency would be biodiversity markets to deliver both nature and climate objectives and support the full range of nature legislation 104 .

With regards to consistency, there is variation in the application of the PPP between cost types. As discussed under the effectiveness questions, there is very good application in costs to address pollution prevention and control, good application for costs to address administrative measures and mixed application for costs of environmental damage.

There is also variation in the application of the PPP between policies grouped by 8th EAP priority objectives. For example, pricing for environmental damage is better implemented for climate and air policies 105 than for nature policies.

Analysis in the run-up to this Fitness Check 106 , estimated the external environmental costs of different sectors of the economy in five areas: air pollution and greenhouse gas emissions, water pollution, waste treatment, water scarcity and biodiversity loss. These costs were then compared with the revenues generated from those economic sectors through environmental taxes and other economic instruments, to show the degree of internalisation. The findings were that EU polluters are not being made to pay in full – across all pollutants, in all Member States and across all sectors of the economy. The evidence was strongest in the case of air pollution and GHGs and water pollution, for which good data on both costs and emissions is available. More localised evidence about other forms of environmental damage told the same story and suggested lower levels of internalisation. The analysis found that households contribute more in revenues in relation to their air pollution and GHG costs than do sectors like industry, energy or agriculture.

Table 5: Coherence and consistency by priority objective for environmental damage costs

Scoring: 1 = no evidence of pricing; 2= some evidence of pricing but incomplete and inconsistent; 3= moderate evidence of pricing but incomplete and inconsistent; 4 = strong evidence of pricing but still incomplete and inconsistent; 5 = strong evidence of pricing - largely complete and consistent

The overall picture is that the implementation of the PPP is:

·Incomplete across environmental issues (climate, air, water, nature etc) and sectors (eg industry, transport, agriculture, construction etc), in relation to covering the costs of environmental damage.

·Not quantitatively assessed for its level of completeness in covering the costs of environmental damage, due to methodological challenges and a lack of quantified evidence. However, it is qualitatively assessed, being more successful in carbon pricing (which is still underpriced) than in, say, biodiversity pricing.

·Largely complete and consistent across environmental issues and sectors for prevention and control costs.

·Strong but not complete across environmental issues and sectors for administrative costs. 

Stakeholder views

Respondents to the public consultation expressed overall dissatisfaction with the coherency and consistency of implementation of the PPP in various areas. The majority disagreed regarding its coherent and consistent implementation at Member State and European Union (EU) levels, both in relevant policies/strategies and environmental policies/mechanisms. In the public consultation, 62% (167) of participants disagreed that the PPP is consistently applied across relevant policies (e.g., agriculture, transport, trade) and strategies at the Member State level (and still 52% when it comes to the EU level). Disagreement was highest among NGOs (92% for EU level and 76% for Member State level consistency) and lowest for businesses and their associations (52% for both EU and Member State level). Participating citizens largely disagreed with the EU-wide Member State level consistency (65%) but less on EU-level (37% disagreement and 13% agreement while half of participating citizens had no clear opinion on the matter).

4.1.8.How consistent and coherent is the application of the PPP outside the EU? 

Overall

The application of the PPP worldwide varies between countries and regions while being influenced by national laws, regulations, and international agreements. The PPP is recognised as a fundamental principle in international environmental law and many global agreements and conventions explicitly endorse the PPP. Countries with strong environmental governance structures are more likely to incorporate and enforce the PPP in practice.

Findings

It is difficult to draw a robust conclusion on the degree of application of the PPP outside the EU: analysis (e.g. by OECD, UNEP etc) suggests that different countries have very different practices, and arguably the EU has a fuller implementation than many other countries. Pollution does not stop at borders and the EU is committed to promoting the zero-pollution ambition for a toxic-free environment in its external action, including its Green Deal diplomacy and investments, providing expertise and financial resources to scale up international partnerships and action in and with non-EU countries 107 . Many EU policies entail spill-over environmental benefits for non-EU countries, given the interconnection of supply chains and the transboundary nature of much pollution. Clearly some policies have a stronger positive impact, such as the Waste Shipments Regulation 108 which controls transboundary movements of hazardous wastes and their disposal.

As indicated in section 4.1.3, the effects of environmental policy regarding the risk of pollution leakage have primarily been studied with respect to climate policy. The most notable policy directly addressing the implementation of the PPP in the external context is the EU’s Carbon Border Adjustment Mechanism (CBAM). As the EU raises its climate ambition, and as long as less stringent climate policies prevail in many non-EU countries, there is a risk of ‘carbon leakage'. Carbon leakage occurs when companies based in the EU move carbon-intensive production abroad to countries where less stringent climate policies are in place than in the EU, or when EU products get replaced by more carbon-intensive imports.

CBAM puts a price on the carbon emitted during the production of carbon intensive goods that are entering the EU. The gradual introduction of the CBAM is aligned with the phase-out of the allocation of free allowances under the EU ETS to support the decarbonisation of EU industry. CBAM will ensure the carbon price of imports is equivalent to the carbon price of domestic production, addressing the risk of carbon leakage.

In terms of application of the PPP in third countries, the OECD analysis of effective carbon prices 109 provides insights into global carbon pricing, covering fuel excise taxes, carbon taxes, and emissions trading systems. It analyses 72 countries, responsible for 80% of global GHG emissions in 2021, ensuring comparability through a standardized methodology. The OECD found increasing use of explicit carbon pricing mechanisms both in terms of coverage and marginal prices, and more through emissions trading than through carbon taxes.

Key findings are that in 2021, 58% of 40 billion tonnes of GHG emissions were unpriced. About 16% of emissions were priced at EUR 30 per tonne of CO2 or more, with 7% exceeding EUR 60. Carbon pricing coverage varies across sectors, with fuel excise taxes playing a significant role. Emissions trading remains the primary explicit carbon pricing instrument.

Worldwide, carbon pricing is gaining traction, with explicit carbon pricing instruments playing an increasingly significant role. Emission Trading Systems (ETSs) are expanding both in countries with established systems and those newly adopting them. ETS permit prices have shown robust resilience to the energy crisis, maintaining an upward trend since 2021 in most cases. Despite this momentum, there are notable disparities in carbon pricing coverage and price levels across countries and sectors, leaving over half of global emissions unpriced.

According to the World Bank 110 , there are 75 carbon taxes or ETSs in operation (see Figure 10). Direct carbon pricing is seen through a broader lens, not just as a climate policy but also as a tool to increase revenues that can be allocated to climate action, promote innovation and contribute to broader sustainability and development goals.

Figure 10: Carbon pricing globally

A report from the European Commission titled “Green taxation in non-OECD countries: a review of experience and lessons learned” 111 found that many opportunities are being missed to make the polluter pay as the PPP is applied inconsistently in both the EU and non-OECD countries. This is reflected also by green tax instruments, which are often set at too low a level to internalise fully the external costs of pollution or to incentivise pollution reductions.

The EU has ambitions to support the application of the PPP outside of its Member States. This is primarily taking place through the Zero Pollution Action Plan 112 , and a mix of diplomacy and investments, providing expertise and financial resources to scale up partnerships and action in and with third countries. Furthermore, the plan explicitly states that the EU will “continue supporting international action for zero pollution and implementation of the polluter pays principle” through multilateral forums.

Stakeholder views

50% (135) of the respondents to the public consultation believed the EU's PPP implementation had a positive or very positive impact on environmental legislation in other developed regions. However, many respondents lacked a firm opinion, with 25% expressing neutral views and 20% choosing 'don't know' or giving no answer. Citizens were the most positive (63%), followed by public authorities (55%, 6 of 11), NGOs (50%, 19 of 35) and businesses and their associations 113 (36%).

37% (97) of respondents considered international agreements insufficiently effective/not effective in preventing/reducing pollution 114 , with 41% (113) expressing uncertainty or neutrality. Concerning the effectiveness to remedy remaining environmental pollution again a substantial number was not knowledgeable or expressed neutrality. This suggests a lack of awareness or confidence in the impact of such agreements.

Participants to the second workshop recommended making sure that products imported in the EU are compliant with environmental rules through market surveillance authorities and customs control. In this context, it was suggested that the Carbon Border Adjustment Mechanism (CBAM) should be extended to all markets facing the risk of carbon leakage outside the EU.

4.2.How did the EU intervention make a difference?

4.2.1.Is the current split of responsibility between the EU and Member States right?  

Overall

The analysis of EU-added value shows that EU action has brought advantages in the form of improving consistency, allowing for economies of scale and ensuring a greater degree of market harmonisation, and so allowing for political objectives to be met more efficiently. This reflects the clear benefits from application of the PPP at the EU level intervention. Where national policies decide on the degree of implementation, it is less consistent. Further EU level action would have led to greater market harmonisation and a stronger application of the PPP, strengthening the internal market.

Findings

Under the principle of subsidiarity, the EU should only act when the objectives can be better achieved by EU level action rather than Member State action. The analysis therefore considered whether Member States would be able to apply the PPP in national policies without EU action.

The analysis found across multiple priority objectives that where flexibility is afforded to Member States in applying the PPP, there are risks to ensuring a uniform approach to addressing the costs of pollution across Member States. For example, in the climate change context, the application of the PPP is to a large extent driven by EU intervention and the Emission Trading Scheme. Another significant piece of legislation is the Energy Taxation Directive that establishes a framework for the taxation of energy products; this leaves the specificities to Member States, but they need to respect minimum rates of excise duty set out in the Directive. The current nationally driven approach has presented risks in implementing the PPP due to the varied tax rates across EU Member States. The Evaluation of the Directive highlighted that there would have been value to be gained from EU intervention and a common framework and a “level of systemisation of product definitions, categories and respective tax rates”.

In practice, there is no evidence of differences in approach to who pays for costs of prevention and control (although the actual measures may differ). With regards to administrative costs and the costs of environmental damage, there do appear to be differences in the approach to the implementation of PPP. For example, different Member States have different approaches to environmental taxes and putting price signals on pollution. In the absence of EU level action, it seems likely that these differences would be greater, as some measures would be much harder e.g. the creation of an Emissions Trading System, and the harmonising approach in the internal market would not have been manifest along with concerns over competitiveness impacts from isolated actions.

In the absence of a coordinated EU framework for addressing transboundary pollution, Member States working in isolation face challenges ensuring that the polluter pays. The Fitness Check of the AAQD highlights that, in the absence of an EU-wide approach facilitating a level playing field in the internal market, there is a possibility of individual Member States lowering their national air quality standards in efforts to gain competitive market advantages 115 . 

One additional benefit of EU-level action is legal clarity. An issue that may have different interpretations between Member States is the definition of the polluter, which can vary between Member States 116 .

The current approach to implementing the PPP in EU policy also provides Member States with some flexibility in application of the PPP, for example in consideration of socio-economic policy objectives, if application of the PPP would contradict them. Flexibility is also needed to achieve time-critical environmental objectives. There are limits on these flexibilities, in that they must not create distortions in the single market.

As discussed above, the application of the PPP is inconsistent. The implication is that further EU level action would have led to greater market harmonisation and a stronger application of the PPP, strengthening the internal market. This would be particularly the case where the PPP is applied to EU level intervention addressing transboundary pollution, but also where the costs of national action affect the degree of competitiveness. Further EU level action would have reduced the inconsistency between Member States across all priority objectives and be justified as increasing the efficiency of environmental policy.

Stakeholder views

50% (135) of respondents to the public consultation indicated that EU requirements had resulted in PPP implementation in Member States ‘to a limited extent’, and 27% (72) indicated that they had led to PPP implementation ‘to a large extent’. 41% (39) of businesses and their associations, 56% (60) of EU citizens and 58% (22) of NGOs thought that EU requirements had a limited impact, while 40% (38) of businesses and their associations, 21% (23) of EU citizens and 10% (4) of NGOs among the respondents answered that EU requirements to a large extent led their Member States to implement the PPP. Overall, these findings are broadly consistent with the findings above review, which indicate that benefits in terms of implementation of the PPP have been realised, although some challenges have persisted.

Asked about the EU added value of the PPP, most interviewees evaluated it positively and highlighted the role of the EU in the coordination of efforts of the Member States, facilitating the solution of transboundary issues and driving the development of the environmental policies all over the EU.

4.2.2.Do current national and EU competences and Treaty legal bases support the PPP’s application in environmental policy?

Overall

The analysis suggests there is scope for greater implementation of the PPP at EU level, with a particular focus on addressing the costs from environmental damage. Where consistent with the subsidiarity principle, the use of MBIs, perhaps within a co-ordinated or harmonised framework at EU level may have been an efficient and effective instrument to do this. The requirement for unanimity in Council votes on environmental taxes has also been a limiting factor, compared to the alternative of Qualified Majority Voting (QMV).

Findings

As established above, the current split between EU and national action is delivering the PPP in a manner that is only partially consistent, effective and efficient. The benefits of implementation of the PPP in policy measures at both EU and Member State level are clear, but there are also trade-offs. EU level action can provide greater legal clarity, harmonised rules and a level playing field in the internal market. Member State action can better reflect national circumstance, provide greater flexibility and accountability, and accords to the principle of subsidiarity.

An example of this is the use of EPR schemes to apply the PPP in the WFD (waste). There is evidence to show that EPR schemes are effective in ensuring investment and driving reductions in pollution 117 . The challenge with applying the PPP via EPR schemes is that they are often implemented at national or local level. The analysis found though potential for EU action to facilitate a more harmonised approach between Member States, including through eco-modulation of the fees.

More generally, the potential for distortion is highest for environmental taxes, which when applied at the national level may cause distortions. Therefore, there may be a conflict between the subsidiarity principle and application of the PPP, if Member States opt to implement the PPP through environmental taxes.

For tax policies, decision-making relies on unanimity in terms of Member State voting in Council. It has been argued that this blocks the advance of environmental taxes, because it is usually not possible to have the support of all Member States. In response, in 2019, the European Commission published a Communication 118 proposing a gradual shift to qualified majority voting. A change of the Treaty is not necessarily needed to move from unanimity to qualified majority - this can be done with the so-called “passerelle clauses” in the current Treaties upon the approval of the Council or the European Council. This is referred to in Article 48(7) of the Treaty on European Union (TEU).

The Commission argued that a purely national approach to taxation was not working as an efficient way of decision-making. Article 192(2) of the Treaty on the Functioning of the European Union (TFEU) contains a clause for measures in the environmental field currently subject to unanimous voting, including provisions “primarily of a fiscal nature”. Given the discussions above, a shift to more QMV would have allowed for a stronger implementation of the PPP, and on a case-by-case basis be consistent with the principles of subsidiarity and proportionality.

In the case of MBIs, establishing minimum rates, rules and a policy framework at EU level, leaving the detail and level of ambition to be determined nationally, could have minimized differences in application, striking a balance between the two and increasing effectiveness and efficiency when the rates are set at a sufficiently ambitious level. For example, the ETD establishes a set of minimum taxation rates to be applied by Member States to a variety of fuels and electricity. Whilst the ETD needs updating, the general approach of bringing in more harmonisation could have worked for other green taxes as well where Member States are currently moving ahead individually.

Stakeholder views

The respondents to the public consultation were asked to assess where the PPP would have been better implemented through a market-based instrument on an EU level rather than on a Member State level. Two market-based instruments, Extended Producer Responsibility and the EU Emissions Trading System, were mentioned mostly by business associations and companies as desirable or working tools on the EU level. Another instrument, Payment for Ecosystem Services (PES), was mentioned by a wider respondent group, including instances of businesses, non-governmental organisations, public authorities, and EU citizens. The use of such instruments via EU action was noted across several sectors including agriculture, water, waste, textile, chemicals, packaging and transport.

As found by the above analysis, where respondents favoured EU action over national action, the benefit highlighted was the potential for EU action to achieve a harmonious approach to implementing the PPP.

4.3.Is the intervention still relevant?

4.3.1.Does the PPP meet the EU’s needs? 

Overall

The PPP is highly relevant to the needs of the EU as set out in its climate and environment policies. This is particularly the case for the PPP’s commitment to reduce pollution levels via price signals and correcting market failures, as set out in EGD’s headline targets. Where concerns exist, they are over the support for a just transition, and the possibility that the costs for internalisation of pollution may be passed through to consumers, and disproportionally affect vulnerable groups. There is therefore a need to address potentially conflicting outcomes with other priorities: policy design in the context of a just transition and also to pollution leakage.

Findings

The objectives of the PPP, as set out in the intervention logic, of delivering efficient environmental policy and facilitating a just transition, are fully reflected in the EU policies. For example, the EGD sets out that: “Well-designed tax reforms can boost economic growth and resilience to climate shocks. They play a direct role by sending the right price signals and providing the right incentives for sustainable behaviour by producers, users and consumers. At national level, the European Green Deal will create the context for broad-based tax reforms, removing subsidies for fossil fuels, shifting the tax burden from labour to pollution.”

The 8th Environment Action Programme mid-term review 119  takes stock of the progress in achieving the 8 EAP’s climate and environment 2030 objectives, providing an overview of European Green Deal deliverables. The mid-term review underlines the importance of further delivering on the enabler of financing the transition, and further implementing the PPP.

Such a price signal is provided if the PPP is fully applied, internalising the environmental externalities 120 . The extension of the EU ETS to new sectors was highlighted in the EGD, e.g. maritime transport, which is also identified above as an example of better PPP implementation over the Evaluation period. Likewise, the EGD identified EHS as inconsistent with the green transition. Moreover, by incentivising businesses to decrease their environmental impact and emissions, the PPP can drive innovation. This is essential to the EGD’s ambition to transform the EU’s economy to more sustainable, circular, and resource-efficient practices.

While the provision of price signal while phasing out EHS is a major headline of the EGD, the fiscal transition should “help contribute to a fairer society and to a just transition […] taking into account social considerations”. The application of the PPP through carefully designed mechanisms not only does not cause concerns, but directly contributes to the fairness of the transition (see Section 4.1.4). Disproportionate regressive effects of policies implementing the PPP which would endanger the just transition aspect, proportionately burdening vulnerable groups and regions more than rich ones, can be avoided by designing the policy to become progressive, thus lowering inequality. A progressive distributional effect can be achieved where lawmakers ensure a careful policy design, e.g with progressive pricing or exemptions for vulnerable households or areas, or by introducing a compensation mechanism within or outside the policy, e.g. a shift away from labour taxation, means-target measures (monetary or in-kind measures) using the revenues from such environmental taxes (tax recycling). 121 An example of an Impact Assessment, setting out different regressive or progressive distributional effects depending on the policy design is the reform of the Energy Taxation Directive 122 which was also part of the EGD strategy.

The EGD expresses concerns over the “risk of carbon leakage, either because production is transferred from the EU to other countries with lower ambition for emission reduction, or because EU products are replaced by more carbon-intensive imports, frustrating the efforts of the EU and its industries to meet the global climate objectives of the Paris Agreement”. By increasing costs of production at least in the short to medium term, the PPP may incentivise such pollution leakage 123 . However, the Carbon Border Adjustment Mechanism in the case of climate shows that where such risks are material there are pricing mechanisms to mitigate against a shift of pollution to third countries.

Finally, in the context of liability it is important not only that the polluter pays but also that the actual damage is repaired. In the context of the Green Deal, this is advocated through measures to clean up contaminated sites. In the Environmental Liability Directive this is translated into an obligation of damage prevention and remediation in kind (and not only of financial compensation for the damage).

Stakeholder views

Respondents to the public consultation generally agreed with this finding, given that over two thirds of the respondents emphasised the full or sufficient PPP's contribution to the following objectives of the Green Deal: a zero-pollution ambition for a toxic-free environment (66%, 175), mobilising industry for a clean and circular economy (68%, 182) and preserving and restoring ecosystems and biodiversity (62%, 167). Note that this support was consistently higher for citizens and NGOs than for businesses and public authorities 124 .

4.3.2.Is the PPP able to respond to new or emerging environmental issues and changes in technology? 

Overall

The PPP can play a part in responding to current, new and emerging environmental issues as the costs of prevention and control, administrative costs and environmental damage are expected to remain significant in the future. A particular strength of the PPP is in promoting technology change through price signals, so it should drive technology change. As the PPP is technology neutral, it can respond to changes in technology.

Findings

According to the intervention logic, the objectives of the PPP are to provide price signals to reduce pollution and to support the just transition. Significant environmental damage related to current and continuing pollution persists, with consequent costs of pollution. Internalisation rates for environmental damage vary across the different priority objectives, as discussed under earlier questions.

Given the current environmental damage and lack of internalisation across policy areas, the PPP’s objective to reduce current pollution through price signals remains highly relevant to the needs of the EU. Relevance is high both in areas where price signals currently apply (such as climate change) and in areas with low price signals and so larger untapped potential.

For example, biodiversity offset markets are instruments based on the PPP, provided the mitigation hierarchy applies first, and offsets are only applied to the residual impact. Biodiversity markets aim ‘to internalise the external costs of biodiversity loss from development projects by imposing a cost on the activities that cause adverse impacts to biodiversity’ 125 . Biodiversity-positive carbon credit and nature certificate markets could be developed to ensure equitable, nature-positive outcomes, but would require robust principles for defining and verifying credits, consensus on their use, mechanisms to safeguard market integrity, and clear long-term demand signals.

The implementation of the PPP is technology neutral, and incentivises the development of innovative technologies to deliver efficient environmental improvements. For example, if the polluter has to meet an environmental standard, and pays to do so, then there is an incentive to seek cheaper approaches both in the short and long term. Indeed, the PPP’s price signals yields incentives to develop less-polluting technologies. In this context, Section 4.1.3 identified technological innovation as one of the benefits of applying the PPP, for example through carbon pricing instruments.

Among the emerging pollutants and pollution types an overwhelming majority of interviewees mentioned perfluoroalkyl and polyfluoroalkyl substances (PFAS – used in various sectors) as generating costs in relation to preventing, reducing and eliminating environmental pollution 126 . A recent study 127 confirms that PFAS pollution causes considerable costs to society. If the current levels of PFAS pollution in Europe continue until 2050 without regulatory action, the cost will reach approximately €440 billion during that period. Tackling such PFAS releases at the source by 2040 would save €110 billion, whereas treating polluted water alone would cost more than €1 trillion. The EU has already taken steps to address the issue, mainly through bans and restrictions (thus using command-and-control instruments). Moreover, in the Chemicals Industry Action Plan 128 and in the Water Resilience Strategy 129 , the Commission indicated that the cleanup of PFAS pollution should be based on the polluter pays principle, while acknowledging that public financing would be needed to clean up orphan sites, where no liable entity could be found. The challenge is to apply the right combination of the various PPP instruments to efficiently cope with the considerable environmental and health costs involved. Extended Producer Responsibility schemes are often mentioned as relevant instruments in relation to PFAS pollution, while France has introduced a charge on PFAS discharged through industrial wastewater. In parallel, several court cases are ongoing across the EU, involving financial compensation to be paid by the identified polluters to polluted communities.

Stakeholder views

The above analysis is in line with the stakeholder interviews conducted in the context of this study, where many respondents considered current PPP implementation inadequate to resolve problems related to new forms of pollution.

Responses to the public consultation were mixed on this issue. 42% (112) of the respondents found that the implementation of the polluter pays principle in the EU acquis was adequate to tackle new or emerging environmental issues and changes in technology (59% of citizens, 38% of businesses and their associations, and 21% of NGOs found it adequate). 23% (62) found it inadequate while 20% (53) found it neither adequate nor inadequate.

5.What are the conclusions and lessons learned?

The Polluter Pays Principle implies that the polluter should pay for the cost of measures taken to prevent, control and remedy pollution and the costs imposed on society. A long-established principle, captured in the Treaty, it should apply to all actions leading to environmental damage.

The following section presents the key findings including examples of best practice, and the critical success factors that need to be addressed in line with the theory of change. As many of these critical success factors are case specific, future considerations of how to better apply the PPP will also need to be considered on a case-by-case basis.

1.The PPP is only partially implemented in EU policies, affecting its effectiveness. It is relatively well implemented for prevention and control, but there are gaps in implementation for administrative costs and especially there are gaps for environmental damage.

Findings (based on Section 4.1.1)

·The macroeconomic analysis (see NEEP analysis in section 3) and the analysis of individual legal provisions (section 4.1.1) both suggest that the principle is relatively well implemented in EU policies to address the costs of pollution prevention and control. The same analyses provide strong indications of gaps in how the PPP is implemented for the administrative costs of policy implementation (where the costs can be borne by the authorities), and especially for costs of environmental damage (where the costs are often borne by society as a whole), although additional measures at national level may cater for that and are outside the scope of this analysis. The picture of partial implementation for environmental damage applies across all economic sectors.

·For no sector or environmental issue is there evidence that polluters fully cover the cost of environmental damage. Where evidence is available, estimates of the degree of internalisation point to only a partial implementation of the PPP. The degree of implementation varies but is always less than full implementation. This reflects environmental taxes of EUR 341 billion per annum 130 , that are much lower than even the partial estimates of the monetary damage.

·Over the evaluation period, the implementation of the PPP has improved, as can be seen from both the legal texts revised and those currently under revision. Overall, the changes are that: for pollution prevention and control, PPP continues to be well applied (but to more ambitious policies); for the costs of administrative measures, the PPP application improves e.g. via the broader application of EPR and better sanction regimes; for the costs of environmental damage, there are improvements as seen for the EU ETS and broader application of EPR and improved consideration of the environmental damage in penalties.

2.Making the polluter pay is an effective mechanism for providing price signals that increase the efficiency of environmental policy.

Findings (based on Sections 4.1.2 and 4.1.6)

·The analysis in individual evaluations strongly suggests that the PPP makes environmental policy more efficient, by giving to economic agents the price incentives to modify their behaviour or innovate, and thus reduce pollution costs. Price signals steer investment and innovation towards clean technology, and so can drive development of new ways of working and eco-innovation. A fuller implementation of the PPP might further reduce the costs of environmental policy.

·It is a challenge to provide a cost-benefit analysis of a principle. The costs of applying the PPP are mainly overhead costs to identify the polluter, to monitor the pollution costs and to enforce the PPP. In current applications of the principle, such costs are limited when pollution is addressed at the source (as for command-and-control measures) and appear proportionate for market-based instruments currently applied (see also point 5 below). For further applications, a case-by-case consideration of costs and benefits would be necessary to ensure that the overhead costs of applying the PPP remain justified by the benefits of doing so. 

3.Making the polluter pay is potentially an effective mechanism for supporting the just transition. Careful policy design with consideration to distributional effects is a critical success factor to make sure this happens in practice.

Findings (based on Section 4.1.4)

·The application of the PPP in environmental policies starts from a position of being inherently fair; in the sense that the social pollution costs are paid by the polluter and not by the general taxpayer or people affected by it.

·The PPP can though be inconsistent with the just transition when costs are passed along in a way that distributional effects negatively affect vulnerable groups or regions in a way that, for them, is not justified by the benefits 131 . Indeed, depending on the market structure and the relative power of the market participants, producers may pass the costs of the PPP application through to consumers. Although this means that consumers and producers face the effective cost of their choices (addressing the initial market failure), this may have regressive effects. The latter can be particularly concerning for consumers and vulnerable groups in the context of the ongoing affordability and cost-of-living crisis.

4.A second critical success factor for improving implementation of the PPP relates to addressing concerns over competitiveness impacts and pollution leakage.

Findings (based on Section 4.1.3)

·Making the polluter pay increases costs for polluting businesses and can impact on competitiveness. However, environmental policy can also support and drive innovation and so the competitiveness of the industry.  The issue of competitiveness needs to be considered on a case-by-case basis. There are examples where policies have been designed to address negative side effects.

·Policies may also be designed to avoid that polluting activities move outside the EU and continue contributing to pollution globally and in the EU via cross-border impacts. For example, CBAM puts a fair price on the carbon emitted during the production of carbon intensive goods that are entering the EU and aims to avoid carbon leakage 133 .

5.A third critical success factor for improving implementation of the PPP relates to addressing the difficulty of application, and the resulting administrative ‘overhead’ costs.

Findings (based on Sections 4.1.3 and 4.1.6)

·Although difficult to isolate, there are overheads to applying the PPP. These include the administrative costs of identifying who are polluters and measuring their pollution, for the purpose of applying the PPP (e.g. through price mechanisms for environmental damage). For prevention and control measures, the default is usually that the polluter pays, and there do not appear to be extra costs associated with this. Analysis of specific cases suggests that these overhead costs are proportionate where identified. Thus, careful consideration in impact assessments ensures that the PPP is applied without causing disproportionate costs.  

·Reporting obligations are almost all embedded in the specific pieces of legislation, and no scope for simplification was identified with the exception of ensuring co-ordinated reporting of all environmentally harmful subsidies (so aligning future non-energy EHS with the reporting of energy related EHS under the Governance Regulation) and exploring the potential for further standardisation under the Environmental Economic Accounts managed by Eurostat.

6.Positive coherence is reflected by the lack of conflicts between measures to which the PPP is applied. The implementation of the PPP could be enhanced by addressing the existing unequal level of implementation, especially for costs related to environmental damage.

Findings (based on Section 4.1.3, 4.1.5, 4.1.7 and 4.1.8)

·Coherence of EU policies is positive, in the sense of no identified contradictions or overlaps in the application of the PPP. Indeed, some policies such as the EU ETS provide pricing for environmental damage related to multiple policies and across economic sectors.

·However, the full potential of the PPP application is not deployed in the absence of consistent implementation. There is more variation in the application of the PPP in relation to environmental damage than to the costs of pollution control and reduction and to administrative costs. Best practice examples to address the costs of environmental damage include the EU ETS, environmental taxes at the national level and Extended Producer Responsibility schemes.

·Member States show considerable differences in the use of environmental taxes. Environmental taxes contributed around 5% of total tax revenues in the EU (in 2023) but were almost 10% in Greece and Bulgaria compared to under 4% for Sweden, Spain and Luxembourg.

·Extended Producer Responsibility (EPR) makes producers responsible for their products at the post-consumer stage of the lifecycle. It is currently most commonly used for waste e.g. from batteries, packaging, and tyres, and was recently introduced for pharmaceuticals and cosmetics in wastewater. The success of EPR in increasing material recovery rates has triggered a debate about expanding the use of EPR to additional product groups, and additional impact categories and of strengthening the eco-modulation of fees.

·The application of the PPP outside the EU varies across countries whilst being recognised as a fundamental principle in international environmental law and many global agreements. The OECD found increasing use of explicit carbon pricing mechanisms both in terms of coverage and marginal prices, and more through emissions trading than through carbon taxes. 

7.Consistency could be improved across priority objectives.

Findings (based on Section 4.1.7)

·The finding above reflected that consistency varies, being strongest for prevention and control costs, and weakest for environmental damage. Consistency also varies within and between priority objective issues: climate policy has introduced the most widespread pricing mechanism covering environmental damage, and this was strengthened over the evaluation period. Other priority objectives lag, and have generally weaker implementation of the PPP, for example, pricing of environmental damage is weak for nature issues.

·Analysis has identified economic sectors with polluting activities (such as transport, agriculture, construction). Reflecting the conclusion that PPP is not fully applied to environmental damage costs, the picture is of partial implementation of the PPP for economic sectors. For example, EU law currently does not apply the PPP to greenhouse gas emissions from agriculture; the Commission is currently exploring whether this is implementable or not and if rather than leading to higher cost for farmers, well-designed implementation could also provide farmers with additional financial incentives for climate action and carbon farming 134 . There are also positive examples over the evaluation period, for example in the transport sector with the switch of subsidies for the use of company cars away from internal combustion engines and to greener electric vehicles in many countries 135 .

8.Environmentally harmful subsidies send price signals that contradict the implementation of the PPP.

Findings (based on Section 4.1.3)

·Environmentally harmful subsidies reward the polluter and distort market prices. Fossil fuel subsidies were around EUR 55 billion over much of the evaluation period, before doubling to EUR 123 billion following Russia’s invasion of Ukraine and then decreased to EUR 111 billion in 2023. Other environmentally harmful subsidies are not yet consistently identified across Member States (although partial data suggest that they could be as substantial as the energy subsidies 136 ).

·The application of Do No Significant Harm (DNSH) principle in EU funds helps to improve their compatibility with the PPP. It has been agreed that the DNSH principle will be applied to the future MFF programmes where feasible and appropriate in accordance with sector-specific legislation 137 .

9.The PPP is highly relevant to the needs of the EU .

Findings (based on Section 4.3.1 and 4.3.2)

·PPP aims to reduce pollution levels via price signals. As the midterm review of the 8th Environment Action Programme 138  shows, our environmental objectives have not yet been delivered, and further action is needed.

·A particular strength of the PPP is in promoting technology change through price signals, so it should drive technology change. As the PPP is technology neutral, it can respond to changes in technology and so remain relevant.

10.EU action had EU value-added.

Findings (based on Section 4.2.1 and 4.2.2)

·There are consistent benefits from application of the PPP at the EU level, with interventions improving consistency across Member States and ensuring a greater degree of market harmonisation, thus allowing for more efficiently meeting political objectives. Where national policies decide on the degree of implementation, it appears to be less consistent.

·There is a tension between the implementation of the PPP and the subsidiarity principle, reflected in the variety of environmental taxes. An example of good practice to manage this tension is the Plastic Bags Directive, which requires Member States to charge for plastic bags, but allows for better national measures if identified.

Annex 1: Procedural Information

a)Lead DG and internal references

The "Fitness Check of the Polluter Pays Principle" is led by DG Environment. It is PLAN/2022/1776 in the Agenda Planning (AP).

An inter-service steering group (ISG) was set up and met first on 11 October 2022. The ISG had representatives from the Directorate Generals for Environment; Agriculture and Rural Development; Climate Action; Competition; Defence Industry and Space; Energy; Economic and Financial Affairs; Eurostat; Employment, Social Affairs and Inclusion; Health and Food Safety; Humanitarian Aid & Civil Protection; Internal Market, Industry, Entrepreneurship and SMEs; Joint Research Centre; Justice and Consumers; Maritime Affaires and Fisheries; Mobility and Transport; Regional and Urban Policy; Recovery and Resilience Task Force; Research and Innovation; Structural Reform Support; Taxation and Customs Union; Trade; the Legal Service and the Secretariat General. The European Environmental Agency was invited to the meetings as experts. In addition, a DG Environment Focus Group was set up with all interested Directorates within DG Environment.

The ISG met frequently and was fully involved in steering the file including comments on the terms of reference and on the interim and draft final reports of the support study, comments on the public consultation questionnaire and was invited to participate in the workshops. At the final ISG meeting, the ISG commented on the draft Fitness Check report (SWD).

b)Consultation of the Regulatory Scrutiny Board

The Regulatory Scrutiny Board held the hearing with DG ENV on the results of the Fitness Check on 24 April 2024. The outcome was a positive opinion with reservations, issued on 26 April 2024. The following table provides information on how the comments made by the RSB were addressed in the Staff Working Document.

c)Evidence provision

Evidence has been pulled from multiple sources, with as far as possible data triangulation to provide for a strong evidence base (see below the Evaluation question matrix).

A support study was tendered, “Study on the Polluter Pays Principle and Environmentally Harmful Subsidies” under Framework Contract ENV.F.1/FRA/2019/0001. The study was undertaken by the following companies:

·RPA Europe and Risk & Policy Analysts;

·Air Quality Consultants (AQC);

·Metroeconomica;

·CEPS.

The purpose of this study was:

·To provide administrative, organisational and technical support for the Fitness Check; and

·To assist the Commission in the establishment of the methodology for the identification and reporting of Environmentally Harmful Subsidies (EHS).

The specific objectives were:

·To assess the implementation of the polluter pays principle in terms of its effectiveness, efficiency, relevance, coherence and EU added value;

·To support the Commission in developing a methodology for the identification, assessment and reporting of EHS;

·To assist the Commission in gathering evidence through literature review and consultation of stakeholders — including experts and Member State representatives-, in organising workshops and focus groups.

In terms of stakeholder consultation, an open public consultation 139 took place, along with interviews, two workshops and a literature review. Together these covered both objective information and subjective opinions allowing for informed assessments to be taken and reflected in the answers to the Evaluation questions above.

Annex 2. Methodology and Analytical models used

1.Introduction

The methodological approach for this Fitness Check, covers:

·The definition of the scope: PPP and the costs to which it applies, the geographic, temporal dimension and the policies.

·The intervention logic

·The identification of the Evaluation matrix and the approach to evidence gathering including the stakeholder consultation activities

The definition of the PPP has evolved over time, and is now considered to be:

·Pollution is the introduction of substances, vibrations, heat or noise or odour into air, water or land as well as the direct or indirect subtraction or use of environmental resources to an extent which may be harmful to human health or the quality of the environment, result in damage to material property or impair or interfere with amenities and other legitimate uses of the environment.

·Polluters are everyone causing environmental damage, including through releasing harmful substances into the environment, over-abstracting water, or causing deforestation. These polluters should pay for the costs of measures to prevent, control and remedy pollution. They should also pay for the environmental damage costs imposed on society, for example, of greenhouse gas emissions or water pollution such as costs associated with impacts on health, the loss of ecosystem services, or impacts on the economy.

·The principle applies to environmental damage to the climate, air, water, soil, or biodiversity whatever its sectoral origins.

Environmental policies provide measures to prevent, control and remedy pollution. Whether these are the right measures or not for the specific objectives of each legislation is outside the scope of this Fitness Check, and can be considered in an Evaluation of the different pieces of legislation. This Fitness Check focusses on who pays for those measures and the costs of pollution. Underlying the methodology is therefore:

-the need to evaluate only issues related to who pays. This differs from a standard Evaluation where questions are asked such as what the appropriate control measures are to be taken, what administrative procedures are required. In this Fitness Check, the focus is on who pays for those control measures and administrative procedures. The assessment covers costs of pollution prevention and control, costs of administrative measures and costs of environmental damage and externalities.

-the need to evaluate this issue across a wide range of legislation, as the PPP covers measures taken to prevent or control pollution (such as industrial emission) but also to remedy it (such as liability policies) and the costs it imposes on society (such as energy taxation or emissions trading policies) and these policies can relate to specific environmental issues (such as waste, air or climate policies) but also to specific economic sectors and their associated sources of pollution.

-The Fitness Check covers the objectives of the PPP, and so the impact on costs and benefits and fairness. It is about efficiency (does it reduce the cost of attaining a specific environmental objective by ensuring there is an incentive for polluters to act, through developing technologies or changing behaviour and are the costs of applying the principle proportionate) and about fairness (if the polluter does not pay, then who does).

-The Fitness Check needs to reflect the principle of subsidiarity. EU policy can require measures to prevent, control or remedy pollution, but these are specified at national level.

-An assessment of whether polluter pays needs to consider both positive and negative payments. Environmentally harmful subsidies are in scope, as these are payments to polluters.

2.The scope of the Fitness Check – which costs?

The definition of the PPP used in this report is that 'application of the principle means that polluters bear the costs of their pollution including the cost of measures taken to prevent, control and remedy pollution and other costs for society’. There is no general agreement on this definition, as sometimes the definition of PPP refers instead to the internalisation of externalities (i.e. the costs imposed on society).

The cost categories incurred by the policies in scope of the Fitness Check, are as follows:

1.Costs of pollution prevention (i.e. stop pollution occurring) and control (i.e. limit pollution to defined levels and/or mitigate the effects). For example, pollution prevention would include restriction of a substance under REACH, where the use of an environmentally harmful substance is prohibited. An example of pollution control would be compliance with emission limit values by medium combustion plant (MCP) operators to reduce/control emissions to air under the MCP Directive. Another example would be remediation activities.

2.Costs of administrative activities, defined as costs borne by businesses, citizens, civil society organisations and public authorities as a result of administrative activities performed to comply with the obligations of the policies. Such costs include labelling, reporting, registration, monitoring, and assessment needed to provide information. An example is the monitoring of permit conditions to demonstrate compliance under the Industrial Emissions Directive (IED). Enforcement costs (monitoring, inspections and litigation) are also administrative costs where they support the functioning of the policy provision to implement the PPP. An example is the obligation on operators to verify annual emission reports by an independent verifier under the EU Emission Trading System (ETS) Directive. Note that some portion of administrative costs in some cases will be directly the result of implementing the PPP (referred to as overhead costs).

3.Costs of environmental damage including negative externalities of consumption/production activities, these are the costs of pollution borne by wider society. Such costs include the costs of measures to remedy environmental damage caused, irrespective of whether the pollution causing the damage was within legal limits (called “allowable residual pollution”) or if it was accidental. An example is the polluter being required to comply with compensatory measures to address environmental damage under the Environmental Liability Directive (ELD). Another example is Extended Producer Responsibility for textiles under the Waste Framework Directive. These costs can also include a price that is put on pollution to act as a disincentive. For example, the Emissions Trading System puts a price on greenhouse gas emissions.

The geographical scope of the Fitness Check is the 27 Member States of the EU.

3.The scope of the Fitness Check – which policies and funds?

The PPP can apply to any policy affecting the environment. To allow for clustering of policies, they are first grouped by 8th EAP priority objectives (PO):

·PO1 achieving the 2030 greenhouse gas emission reduction target and  climate neutrality by 2050

·PO2 enhancing adaptive capacity, strengthening resilience and reducing vulnerability to climate change

·PO3 advancing towards a regenerative growth model, decoupling economic growth from resource use and environmental degradation, and accelerating the transition to a circular economy

·PO4 pursuing a zero-pollution ambition, including for air, water and soil and protecting the health and well-being of Europeans

·PO5 protecting, preserving and restoring biodiversity, and enhancing natural capital

·PO6 reducing environmental and climate pressures related to production and consumption (particularly in the areas of energy, industry, buildings and infrastructure, mobility, tourism, international trade and the food system)

The way these priority objectives are interlinked is not reflected in the groupings of policies, rather it will be assessed as part of the coherence Evaluation analysis.

Policies are further grouped by area, defined to disaggregate the priority objectives for better analysis. The policy areas are: Climate change; Waste and recycling; Water; Air quality; Noise; Chemicals risk management; Nature, biodiversity, soil and land; Horizontal (environmental liability, environmental crime, built environment); EU funding and State aid. The policy areas defined for this Fitness Check differ slightly from those listed for the 8th EAP 140 .

Differences are:

·PO1 and 2: Policies to respond to the first two priority objectives regarding climate change are dealt with together under the policy area of climate change.

·Policies that contribute to accelerating the transition to a circular economy are grouped under the waste management policy area.

·Zero pollution consists of four policy areas: air and noise, water, chemicals.

·Soil is included for the fifth priority objective (nature) which is different to the 8th EAP breakdown.

·The sixth priority objective is cross-cutting and includes measures in the areas of energy, industry, buildings and infrastructure, mobility, tourism, international trade and the food system. These measures are dealt with under the other five POs to avoid duplication, leaving the truly cross-cutting policies.

The scoping identified relevant EU policy to the environment based on:

-Environmental targets

-Environmental quality standards to protect EU environment from pollution

-Source controls to reduce or prevent emissions at their source

-Risk controls to minimise and manage risks of pollution

-Measures to safeguard from adverse impacts on the environment

-Measures relating to environmental crime and liability; and

-EU funds and their role in safeguarding the environment

Grouping policies by 8th EAP priority objective and by policy area

To make the scope of the Fitness Check manageable, policies have been grouped by 8th EAP priority objective and then by a series of more granular policy areas that the project team has defined for the Fitness Check to disaggregate the priority objectives for clearer analysis. The rationale for how policies are mapped to the priority objectives is explained below. No policies that are considered significant have been omitted in this process. The approach consists of:

·For each priority objective and policy area, individual policies are set out. The Fitness Check explicitly considers 76 policies that have material costs and where there is a question over who pays. These policies all: firstly, contribute to the environmental outcomes targeted in European Green Deal (EGD) and the 8th EAP priority objectives, based on an examination of the acquis and confirmed through the stakeholder consultation (where stakeholders were asked if a material policy is ignored); secondly, no excluded policies could be identified that relate to significant costs covered under this Fitness Check and so their exclusion is deemed appropriate. Examples of policies not explicitly considered include policies on stakeholder involvement 141 , relating to Agency operation 142 , policies seen as not having a strong link to the delivery of the 8th EAP 143 , targeting environmental management systems 144 , policies related to identification of impacts e.g. of sustainable finance 145 . Policies which are under negotiation are referred to in italics.

·Reflecting the fact that policies often work together and not in isolation, and to facilitate the analysis, policies are grouped. For example, this reflects environmental policies that support implementation of a broader framework policy such as the Groundwater and Environmental Quality Standards Directives which provide detailed procedures for implementing the requirements in respect of good chemical status of water bodies under the Water Framework Directive. Another example is the Euro Standards Regulation where compliance with the vehicle manufacturing standards contributes towards the achievement of air quality standards and emission reduction commitments under the AAQD and NEC Directive, respectively. The extent to which the PPP is applied in EU policy is reviewed for all policies identified (as part of the effectiveness analysis): this is therefore a comprehensive analysis, rather than a sampling approach.  

·The Fitness Check reviews the extent to which EU funds and certain environmental State Aids are contributing to clean-up actions that should otherwise be paid for by the polluter. Clean-up actions are defined, for the purpose of this Fitness Check, as structural investments and rural development schemes. Research and development is not defined as a clean-up action. EU funds and the selected State Aid Rules are in scope of the Fitness Check where they contribute to the achievement of wider environmental policy objectives. These include funds under EU budget headings: 1: Single Market, Innovation and Digital, 2: Cohesion and Values and 3: Natural Resources & Environment. Besides being the most thematically relevant from the point of view of this Fitness Check, these programmes were also picked to represent the large majority of expenditure under the EU budget. The programmes within scope amount to over 70% of the long-term budget and above 80% when taking into account the NextGenEU top-ups and the RRF. In keeping with the categories outlined above, EU funds and the selected State Aid Rules are classified as secondary policies for the Fitness Check.

·Analysis was undertaken of the relevant impact pathways (i.e. pollution and its source) respecting the Driver-Pressure-State-Impact-Response (DPSIR) framework. For each policy area, the main economic sectors responsible for the source of pollution and the policies which seek to address these pressures were identified, via literature review. 

Although the Fitness Check can only evaluate how the PPP is applied in the current legislation, it also analyses where possible recent legislation and proposals currently in negotiation (for example, further use of EPR for textiles in the recent targeted revision of the Waste FD). Where policies are not yet adopted and implemented, it reflects how the PPP is expected to be implemented and the most significant planned effects, recognising that some of the questions are not yet resolved (e.g. co-decision processes ongoing). Such analysis is necessary to avoid that the conclusions of the Fitness Check would become quickly obsolete by the effects of new legislation entering into force.

:  

Summary of the definitions used and of the polices in scope

A summary of the definitions used for the Fitness Check and characteristics of the policies in scope is presented below. These definitions and characteristics are used to frame the Evaluation analysis and present findings in a meaningful way.

There are different approaches to setting prices. These include, primarily:

·Marginal social cost pricing – Under this approach the price is incurred for the marginal (last) infrastructure and/ or external cost. This can be combined with varying prices, for example, for consumption of water or energy, there can be an initial tranche of consumption that is charged at a lower unit price, then the marginal tranche is set at a higher price reflecting the marginal infrastructure and/or external costs whilst avoiding excessive revenue recovery. Under this pricing approach, there is a clear incentive mechanism, and it is found for external cost charging in the Eurovignette Directive, or for water consumption in most Member States.

·Average cost pricing – Under this approach the price is set at the level of the average infrastructure and/or external cost. This can be seen as more fair and simpler to apply, and ensuring that users/polluters pay for the costs they cause.

·Baumol pricing - Under this approach the price is set at the level that is expected to be sufficient to achieve a given (environmental) objective. The intention is to focus on influencing behaviour to achieve specific objectives, and the EU ETS can be interpreted as generating a Baumol price.

·Ramsey pricing - Under this approach the price is set at the level that maximises revenues. This has been applied to minimise the incentive effect of prices, for example, charging a lower price for water for sectors that are more responsive to the price (and vice versa).

4.Approach to evidence gathering

The Fitness Check is based on the combination of various data sources (e.g. support study, research papers and Commission evaluations), validated by stakeholder consultation. A template was developed to compile evidence consistently between policy areas. Key information sources to compile the evidence reviews include legislative texts, policy Evaluation support studies, Impact Assessment support studies, policy implementation assessments, statistical data and other policy reviews and analysis. A list of the policy references reviewed is provided in the support study, grouped by policy area and by policy.

For example, an Evaluation of the Environmental Liability Directive was ongoing during this Fitness Check. This Evaluation provided relevant information that fed into this Fitness Check, which has value added by looking at the issue of liability through the specific prism of the PPP. Whilst much of the legislation in scope has been subject to an Impact Assessment, not all has.

The support study includes standalone evidence review templates to ensure information was consistently gathered across the 8th EAP priority objectives and by policy area. The template was structured as follows:

Overview (by policy area)

-Based on the EEA’s 2020 State of Environment Report, description of pollution and how that has evolved (including identification of main economic sectors that contribute to the pollution).

-List of EU policies to govern the pollution. Additional evidence has been gathered as needed for Directives to summarise transposition to national legislation and which has influenced the way the PPP is implemented within the EU 27. Examples of national policies or schemes are included where identified.

-External factors influencing the polluters capacity to prevent, reduce or remedy pollution.

Policy information (by individual policy):

-A description of implementation of the PPP for the individual policy and how implementation has changed during the appraisal period, lessons learned to improve implementation and drivers influencing implementation.

-Costs and benefits related to specific policy mechanisms used to implement the PPP and presented by stakeholder group (where available).

-Monitoring and reporting arrangements to monitor how the PPP is applied and who is responsible for associated costs of such administrative measures.

-Approaches to enforcement for the application of the PPP and who is responsible for associated costs of such administrative measures.

-Additional Evaluation findings from existing Evaluations on the way in which the PPP is applied.

In most cases, the data gaps and limitations were resolved through consultation activity or deeper dives into the literature and available analysis. Where this was not possible, the support study acknowledges the limitations and applied a focussed approach to the Evaluation analysis based on available data.

5.Baseline expenditure on prevention and control

Data on environmental investments and environmental protection expenditure is collected by Eurostat and defined in the Environmental Protection Expenditure Accounts (EPEA). EPEA measure the economic resources devoted to prevention, reduction, and elimination of pollution and any other degradation of the environment. They cover the spending by resident units of a country (i.e. by its households, corporations and government) on environmental protection (EP) services, e.g. pollution abatement (air, water, soil and noise), waste and wastewater management, protection of biodiversity as well as related research and development, education and training activities.

According to Eurostat, “Used jointly with physical data, information on environmental protection can help to follow up and monitor the efficiency of environmental policy, the application of the 'polluter pays' principle and the costs of compliance with environmental regulations, and to provide a basis for cost/benefit analyses for new environmental policy proposals”. 151  

Eurostat has further stated that EPEA ‘assesses the application of the polluter pays principle’ 152 and later in the same Handbook that “EPEA measure the economic resources devoted to all activities and actions which have as their main purpose the prevention, reduction and elimination of pollution and of any other degradation of the environment. This assesses the financial commitment of an economy to environmental protection, evaluates how the environmental protection costs influence international competitiveness, assesses the application of the polluter pays principle and the cost-effectiveness of environmental control mechanisms.”

The Handbook also discusses the aspect of ancillary services (activities whose output is intended for use within the enterprise) in the context of EPEA describing that: “Ancillary activities are often considered as a substitute of paying taxes: enterprises may choose to develop ancillary environmental protection activities as a means to avoid paying pollution taxes. It is therefore interesting to add pollution taxes and ancillary output on environmental protection as a measure of the burden that environmental protection exerts on industries.”

The environmental protection services are produced by both corporations and government and EPEA data are available broken down by institutional sector, data on production of environmental protection services by environmental domain.

Activities undertaken for the purpose of resource management, such as production of energy from renewable sources, energy efficiency, forest management, fall outside the scope of EPEA, and related expenditure is not included in National expenditure on environmental protection ('NEEP'). NEEP is the sum of the following components:

·total output (environmental protection market output, environmental protection non-market output and environmental protection ancillary output),

·plus gross fixed capital formation (GFCF) and net acquisition of non-financial, non-produced assets for environmental protection (EP) activities,

·minus intermediate consumption of EP services by specialist producers (corporations specialist producers and general government producers of EP services)

·plus VAT and other taxes less subsidies on EP services

·plus imports of EP services

·minus exports of EP service

·plus transfers received by the rest of the world from general government

·minus transfers paid by the rest of the world to general government, corporations and households

NEEP measures the resources used by resident units in a given period for protecting the natural environment. It is calculated as a sum of current expenditure on environmental protection (EP) activities and investments for EP activities, including net transfers to the rest of the world.

Note that there is as part of the NEEP government expenditure, which is general government (GG) and non-profit institutions serving households (NPISH) (considered for the purposes of EPEA as one sector) that accounted in 2022 for 28 % of the total. Some of this will be payments that should have been met by the polluter but are not. There are though payments under this total that are being met by the polluter e.g. through charges paid to government or NPISH.

In 2023, EU NEEP amounted to €357 billion, according to Eurostat's estimates (subject to revisions). This includes both CAPEX (around a fifth of the total) and OPEX. The Figure below sets out the split for investment. Some of this would not be considered as relevant for the Polluter Pays Principle (mainly the R&D component).

Figure 11: Investment for environmental protection by environmental domain, 2023

There is also some spending that is not included in NEEP but is relevant for PPP. This is primarily the circular economy spending driven by legislation, rather than by business cases. The Circular Economy indicators report that private investments under the circular economy label are around EUR 120 billion per annum: this is a significant increase from the previous estimate of EUR 20 billion per annum, indicating the methodological difficulty of such estimates. To be clear, only a fraction of this estimate can be considered relevant under the PPP.

There is also EU funding that will be partially reflected in the NEEP, but not entirely (depending on whether it is a loan or direct expenditure). There is EU funding of environmental expenditure (investment), of around EUR 40 billion per annum. Again, this should not be considered as solely driven by legislation or entirely relevant for the PPP and this analysis.

Overall, therefore, the Eurostat produced data on National expenditure on environmental protection ('NEEP') provide a strong estimate of the costs of prevention and control, despite some concerns over their coverage.

6.Desk research

Desk research has comprised three strands: legal review of the policy provisions, qualitative literature/evidence assessment and quantitative assessment for selected indicators relating to costs and pollution trends.

Legal texts were extracted from the Official Journal of the European Union (EUR-Lex).

Evidence and literature was sourced in the first instance by references in the terms of reference for this support study, including in particular the ECA report on ensuring polluters pay as well as a wealth of material on the development of the principle by the OECD. In addition, evidence was sourced from existing Impact Assessments, policy Evaluation, and implementation assessment studies, as well as specific sectoral reports and other evidence signposted by the European Commission. Quantitative data sources were sourced from Eurostat, the EEA and OECD.

Lastly, evidence and literature was sourced from signposting by stakeholders in response to the call for evidence, public consultation, interviews, and workshops.

Legal texts were reviewed for all 76 items of legislation covering policies, EU funding programmes and strategies. The search also would have identified any legal texts referring to PPP but not included in the scope of the Fitness Check, which would then have been added: but none were. Documents reviewed as part of the evidence and literature review number 273 items. Of this total, the majority (172) were existing Impact Assessments (45), policy Evaluation (45) and implementation assessment (87) studies that were reviewed as part of a rapid evidence assessment following a structured template for data extraction.

7.Consultation strategy and consultation activities

a.Consultation strategy

The main objective of the stakeholder consultation is to collect information, data, evidence and opinions on the application of the ‘polluter pays’ principle in the EU acquis; and also to ensure that findings are evidence based and validated. As first step, the support study carried out a stakeholder mapping by checking the respondents to the call for evidence and to other relevant consultation activities (e.g. public consultation, targeted stakeholder consultation, workshop and additional surveys in support to other Evaluations). This resulted in a list of over 850 people from around 500 organisations.

b.Consultation activities

The public consultation ‘Polluter Pays Principle – Fitness Check of its application to the environment’ aimed at collecting public views and evidence about the implementation of the Polluter Pays Principle (PPP) in the EU for the Fitness Check, specifically looking at its effectiveness, efficiency, coherence, and the EU added value of its application.

A twelve-week public consultation was launched on 12 May 2023 and closed on 4 August 2023. The questionnaire consisted of sixteen questions organised into the following parts:

· An introductory section that collected information about the demographic profile of the respondents,

· Five thematic sections that gathered opinions about the PPP implementation in the EU,

· A final section where the survey participants submitted general comments and uploaded the supplementary documents.

In September 2023, the study team prepared a factual summary report of five pages that has been published on the ‘Have Your Say’ portal 153 and an in-depth report with the analysis of the responses to public consultation. 268 respondents completed the survey and, excluding one duplicate answer, 267 responses were considered suitable and included in the analysis.

The respondents represented 27 countries: 95% (253) were from EU Member States, while 5% (14) were from non-EU countries. Six EU countries represented over two-thirds of the responses (68%, 181): Germany (16%, 44), Belgium (13%, 36), Portugal (12%, 31), Italy (9%, 25), France (9%, 23) and Spain (8%, 22).

Most respondents submitted their responses as EU citizens (39%, 104), followed by business associations (29%, 77). Nearly 80% of respondents represented a business entity (i.e., a company or a business association 40%, 107) or an EU citizen (39%, 104).

In the survey, a group that comprised ≥ 5% of respondents and shared at least 50% of the responses was to be considered a campaign. Campaigns were reviewed in Excel by assessing responses to the closed and open-ended questions, sorting the responses by the categories of respondents, and identifying potential patterns in the responses. No campaigns were identified in this survey.

A total of 69 documents were received in the public consultation. Thirty-five of them were position papers, while the remaining 34 documents were academic articles, reports, research papers, pamphlets, brochures, or position papers not focused on the Polluter Pays Principle. Seven identical position papers were submitted by different organisations. For the interpretation of position papers, thematic analysis – a qualitative method for identifying major patterns and themes in texts was applied. Although some position papers were identical, they did not influence the outcomes of the analysis because of a qualitative approach. Thematic analysis resulted in the list of topics identified in the papers, but it did not measure and compare the frequency of mentions of specific topics.

To collect complementary information to the results of the literature review, 30 semi-structured interviews with expert stakeholders were undertaken in November – December 2023. Experts were identified through the analysis of public consultation responses, discussions during the stakeholder workshops, web search and recommendations from the Commission and the interviewed experts. In the list of experts, the study team to the extent possible maintained diversity of the representatives of various stakeholder groups (e.g., public authorities, business entities, non-governmental organisation, research organisations, etc.),    from specific sectors/areas (e.g., waste, water, chemicals, transport, etc.) and countries. To effectively summarise the opinions of specific stakeholder membership organisations that represented multiple countries (e.g., European business associations, non-governmental organisations, networks and platforms) were contacted.

Semi-structured interviews included a set of open-ended questions on a topic shared with the respondents in advance. Two thematic interview guides reflected the research needs of the study team:

· The guide ‘Implementation of the PPP’ aimed to get more insight into the issues of practical implementation of the ‘polluter pays’ principle with a focus on costs and impacts.

· The guide ‘Design of policies related to the PPP’ collected insights about the design of the policies and tools for implementing the ‘polluter pays’ principle at the EU level and in the EU Member States.

Thematic analysis was be applied to analyse contributions of the respondents.

Two stakeholder workshops aimed to gather stakeholder feedback on the implementation of the PPP, present and validate the findings and emerging conclusions of the supporting study to the Fitness Check as well as disseminating information about development of the methodology for the identification and reporting of non-energy EHS. The workshops were organised online on 4 July and 20 November 2023 and included presentations of the study progress and preliminary findings and thematic discussions with the participants. The study team used panel discussions as the main method for moderating the interaction with the workshop participants.

The first online workshop was organised on 4 July 2023. A total of 194 people registered for the event, with 121 participants joining on the day. Attendees were from competent authorities, EU institutions, industry and trade associations, private companies, non-governmental organisations, researchers and members of the study team. The proceedings have also been published on the event webpage 154 along with the slides used by the speakers.

A second online workshop took place on 20 November 2023. A total of 253 people registered for the event, with 169 attendees. The participants were from public authorities, EU institutions, industry and trade associations, business entities, non-governmental organisations, researchers and members of the study team. The proceedings have been published on the event webpage 155 along with the slides used by the speakers.

8.Scope – the appraisal period and points of comparison

As explained in section 2.2, the focus of the Fitness Check is on the current state of play for implementing the PPP, i.e. to what extent it is implemented today. The Fitness Check seeks to identify today’s gaps in the application of the PPP as a basis for future assessment of policy action.

The diversity of the legislation covered and the fact that this would involve assuming that the application of the PPP has remained stable since 2014, a quantitative counterfactual (“a dynamic baseline”) is unrealistic. Hence the choice for the “point of comparison” approach as recommended by Tool #46 of the Better Regulation Guidelines 156 .

According to the BR Toolbox, there is a need to:

Identify the appropriate point(s) of comparison: the different Evaluation questions should be answered against relevant starting points (e.g. benchmarks) or expected achievements for example, comparisons may be drawn against the changes projected or expected under the preferred policy option (as in the Impact Assessment) or changes since measurements made at the start of an intervention.

The main point of comparison is the theoretical situation in which the PPP were fully applied, and this in the context of well-functioning markets that transmit correctly price signals to the market participants.

The Fitness Check also assesses how the application of the PPP has evolved over time and what are the factors influencing this evolution. For this purpose, the Fitness Check looks at the period from 2014 to 2023. The year 2014 is the second (and secondary) point of comparison. The decision to look back ten years was made because the 7th Environmental Action Programme entered into force in 2014.

Whilst the PPP predates the 7th EAP, it contained a clear commitment to the principle:

·Art 2, 2.  “The 7th EAP shall be based on the precautionary principle, the principles of preventive action and of rectification of pollution at source and the polluter-pays principle.”

The 7th EAP also included “Priority objective 6:  To secure investment for environment and climate policy and address environmental externalities” and stated that

“The Union and its Member States will need to put in place the right conditions to ensure that environmental externalities are adequately addressed, including by ensuring that the right market signals are sent to the private sector, with due regard to any adverse social impacts. This will involve applying the polluter-pays principle more systematically, in particular through phasing out environmentally harmful subsidies at Union and Member State level, guided by the Commission, using an action-based approach, inter alia, via the European Semester, and considering fiscal measures in support of sustainable resource use such as shifting taxation away from labour towards pollution. As natural resources become increasingly scarce, the economic rent and profits associated with their ownership or exclusive use may increase. Public intervention to ensure that such rents are not excessive and that externalities are taken into account will lead to a more efficient use of those resources and will help to avoid market distortions, as well as generate public revenue. Environment and climate priorities will be pursued in the framework of the European Semester, including via lead indicators where those priorities are relevant to the sustainable growth prospects of individual Member States to which country-specific recommendations are addressed. Other market-based instruments, such as payments for ecosystem services, should be used more extensively at Union and national level to incentivise private sector involvement and the sustainable management of natural capital.”

Annex 3. Evaluation matrix 157  

Annex 4. Overview of benefits and costs

Annex 5. Stakeholders consultation - Synopsis report

In accordance with the Better Regulation Guidelines, the synopsis report provides an outline of the consultation strategy, consultation activities undertaken, methods and tools used for collecting and analysing the data, stakeholder groups that participated in consultation activities, and the findings of consultation activities.

Consultation strategy

The Fitness Check considers how well the PPP is applied. This includes looking at a wide range of activities and policies that relate to the environment in terms of their primary objectives (such as climate change, water policy, air policy, waste policy or environmental liability requirements), and sectoral policies in other areas that mainstream and integrate environmental considerations, such as activities in and policies for industry and the circular economy, agriculture, fisheries, energy and transport, to name just a few.

The main objective of the stakeholder consultation is to collect information, data, evidence and opinions on the implementation of the ‘polluter pays principle’ in the EU acquis. It included call for evidence, online public consultation, two online stakeholder workshops and semi-structured interviews.

Figure 12: Overview of consultation activities

The following major stakeholders groups were identified to support the recruitment of respondents to the public consultation, online workshops and semi-structured interviews:

·Stakeholders engaged in occupational activities that can produce environmental damage cover business entities and business associations representing their interests that carry out activities defined in Annex III of the ELD and Annex I of the IED. These stakeholders obtain obligations under the relevant environmental legislation to comply with the PPP principle in terms of prevention and remedy of environmental damage.

·Public authorities that are responsible for the implementation and enforcement of the ‘polluter pays principle’ under the different pieces of environmental legislation.

·Financial security and risk management organisations that work in the field of risk management related to environmental damage or provide financial security instruments enabling the operators that can produce environmental damage to use financial guarantees to cover their responsibilities.

·Environmental non-governmental organisations active in the fields of water, land, air, and habitat protection.

·International organisations engaged in developing and implementing international documents and agreements related to liability for environmental damage.

·EU institutions and agencies that play an important role in the PPP implementation and enforcement.

·Research and academia that conducted studies concerning economic, legal and environmental aspects of the PPP.

·Citizens – members of the public (both EU and non-EU citizens) who are interested in the issue of the implementation of the PPP in Europe.

The strategy for compiling the database of stakeholders followed the advice of the Better Regulation Guidelines, Tool #52, which recommends considering several criteria for selecting relevant stakeholders: level of interest, nature of impact (direct, indirect, potential), influence and expertise related to the PPP. It should be noted that stakeholders who experience direct impact have more expertise and interest to influence the PPP’s future development than those who are affected indirectly or only under certain conditions.

The stakeholder database covered most comprehensively those target groups who were directly affected by the PPP because they have the highest interest in the PPP and have high levels of expertise on the subject.

Methods and tools used for collecting and analysing the data

A Call for evidence 172  was followed by a public consultation 173 ‘Polluter Pays Principle – Fitness Check of its application to the environment’ aimed at collecting public views and evidence about the implementation of the PPP in the EU for the Fitness Check, specifically looking at its effectiveness, efficiency, coherence, relevance, and the EU added value of its application. The public consultation was accessible through the EU Survey between 12 May and 4 August 2023.

The questionnaire consisted of 16 questions organised into the following parts:

·An introductory section that collected information about the demographic profile of the respondents,

·Five thematic sections that gathered opinions about the PPP implementation in the EU,

·A final section where the survey participants submitted general comments and uploaded the supplementary documents.

Two online stakeholder workshops aimed to discuss the state of play in the implementation of the PPP, present and validate the findings, evidence collected and emerging conclusions of the supporting study to the Fitness Check as well as disseminating information about development of the methodology for the identification and reporting of non-energy environmentally harmful subsidies (EHS). The workshops were organised on 4 July and 20 November 2023 and included presentations of the study progress and preliminary findings and thematic discussions with the participants.

Semi-structured interviews with stakeholders involved in the implementation of the PPP aimed to complement the evidence gathered through literature and legislation review as well as other consultation activities with insights on the following:

·the design of the policies and tools for implementing the PPP at the EU level and in the EU Member States.

·the issues of practical implementation of the PPP with a focus on costs and impacts.

The interviews contained 15 questions that were thematically organised in two templates – one focused on the practical implementation issues and the other – on the design of policies. The semi-structured interviews were carried out in November-December 2023.

Quantitative data collected in consultation activities were analysed by using the descriptive statistics method. For the interpretation of qualitative data (e.g., open-ended survey questions, position papers, the feedback of semi-structured interviews and workshop discussions) thematic analysis – a qualitative method for identifying major patterns and themes in texts was applied.

Stakeholder groups that participated in consultation activities

106 stakeholders provided feedback to the call for evidence. They represented 19 countries: 17 EU Member States and 2 non-EU countries (Norway and Switzerland). More feedback originated from Belgium (22%, 23), Slovakia (15%, 16), and France (15%, 16). Most stakeholders were EU citizens (40%, 42), business associations (24%, 25) and non-governmental organisations (20%, 21). Fewer responses were received from companies (8, 8%), environmental organisations (4%, 4), public authorities (2%, 2), academic/research organisations (1%, 1) and non-EU citizens (1%, 1). Two stakeholders (2%) categorised themselves as ‘other’ type of respondents.

268 respondents completed the online public consultation questionnaire and, excluding one duplicate answer, 267 responses were considered suitable and included in the analysis 174 . The respondents represented 27 countries: 95% (253) were from EU Member States, while 5% (14) were from non-EU countries. Six EU countries represented over two-thirds of the responses (68%, 181): Germany (16%, 44), Belgium (13%, 36), Portugal (12%, 31), Italy (9%, 25), France (9%, 23) and Spain (8%, 22).

Most respondents submitted their responses as EU citizens (39%, 104), followed by business associations (29%, 77). Fewer responses were received from companies/businesses (11%, 30), NGOs (8%, 21), others (5%, 14), public authorities (4%, 11), academic/research institutions (1%, 4), environmental organisations (1%, 4) and non-EU citizens (1%, 2). Nearly 80% of respondents represented a business entity (i.e., a company or a business association 40%, 107) or an EU citizen (39%, 104). Organisations (60%, 161) of various sizes participated in the survey.

Figure 13: Respondents by organisation type, N=267

The number of participants representing micro (31%, 50), small (26%, 42) and large (26%, 42) organisations was similar, while fewer medium organisations (17%, 27) took part in the public consultation.

In the online public consultation, a group that comprised ≥ 5% of respondents and shared at least 50% was considered a campaign. Campaigns were reviewed in Excel by assessing responses to the closed and open-ended questions, sorting the responses by the categories of respondents, and identifying potential patterns in the responses. No campaigns were identified in the online public consultation.

A total of 194 people registered, and 121 participants (62% of registrants) participated in the first online workshop held on 4 July 2023. The participants represented 22 countries including 19 EU Member States, and 3 non-EU countries: the UK, Norway and Iraq. Many participants represented Germany (11%, 13), Austria (7%, 8), and France (5%, 6). Attendees were from competent authorities, EU institutions, industry and trade associations, private companies, non-governmental organisations, researchers and members of the study team. Many attendees were from business associations (37%, 44), public authorities (17%, 21) and business companies (17%, 20).

The second online workshop held on 20 November 2023 attracted the attention of 253 registrants and 169 participants (67% of registrants). A total of 22 countries were represented during the workshop. This number included 20 EU Member States, and 2 non-EU countries: the UK and Norway. Many respondents were from Germany (9%, 15), the Netherlands (8%, 13), and the UK (6%, 10). Attendees were from competent authorities, EU institutions, international bodies, industry and trade associations, private companies, non-governmental organisations, researchers, consultants, and members of the study team. Three attendees did not provide their affiliation and country of operation and were not included in the detailed workshop attendance statistics. Many respondents were from non-governmental organisations (23%, 38), business associations (17%, 29), and public authorities (17%, 29).

Figure 14: Attendees of online workshops by organisation type

Twenty-nine interviews with 39 interviewees (some of the interviews were held with 2 or three respondents) were carried out in November-December 2023. In addition, one stakeholder was consulted on specific questions related to the collection of evidence without using the semi-structured interview template.

Many interviewees represented organisations of a European focus, i.e., European business associations, non-governmental organisations, research organisations and think . Few organisations were international and sixteen national interviewees from the following countries participated in the conversations: France (5), Germany (4), Austria (2), Spain (1), Denmark (1), the Netherlands (1), Lithuania (1), the UK (1).

Organisations that took part in the interviews in many cases were business entities, i.e., business associations or companies (17%, 44 respondents), non-governmental organisations (11%, 28 respondents) and academic, research organisations and think tanks (18%, 7 respondents). Few interviewees represented public authorities, European institutions and platforms and networks.

Twelve interview participants sent links to studies, excerpts or translations of documents relevant to the PPP topics after the interviews. This material was reviewed in the context of evidence collection.

Limitations

Several limitations of stakeholder consultation research should be considered in the interpretation of the findings:

·Consultation activities employed a quantitative public consultation survey based on non-probability sampling and qualitative consultations (i.e., stakeholder workshop and interviews). Therefore, the findings of these consultation activities reflect only the opinion of their participants and cannot be generalised to the EU population or specific stakeholder groups.

·There was uneven participation of various organisations and countries in the consultation activities. Some types of organisations and countries prevailed in certain consultation events.

·Stakeholders represented specific (but not all potentially relevant) sectors where the PPP has been implemented. The PPP is a horizontal element of the EU environmental policies and is relevant to multiple sectoral policy areas. The consultation activities captured opinions of some of those sectors in more detail than others.

·The respondents could not comprehensively answer all questions due to the broadness and complexity of the PPP topics. The consultation activities contained a wide range of questions covering the design of policies and their implementation on different – EU and national levels, as well as required specific knowledge of the costs not borne by the polluter, legal and non-legal instruments, etc. Therefore, the respondents typically could not answer some questions or give a comprehensive response.

Findings of the call for evidence

The overall impression of the feedback is that the PPP is seen as in theory a good principle to ensure the green and just transition, but stakeholders ask for improvement regarding its implementation.

One of the most recurring comments was that the polluter is not paying or is paying less than the costs of his pollution. Some stakeholders also stress that currently the PPP leads to environmental unfairness because rich people or big enterprises can afford polluting, whereas this is not the purpose of the PPP. This opinion appears to mainly refer to market based instruments as the same stakeholders ask for a better implementation strategy that would be accompanied by other instruments (such as quotas and limits).

Respondents to the call for evidence often gave sector-specific comments. Some stakeholders find that the PPP is badly applied when it comes to plastic pollution, especially micro plastics. They find that plastic producers and those who put plastic products on the market currently only pay for the emissions during the production while there is insufficient policy to take care of the waste streams in the whole product chain.

A lot of the feedback concerns the transport sector, focussing on the internalisation of all key external costs across all transport modes. The lack of internalisation hinders the modal shift and meeting the objectives of the Green Deal. PPP is seen as a key mechanism to manage the traffic demand, boosting the transition to cleaner vehicles and to place the right incentives to mobility.

Another topic mentioned several times is the diffuse pollution of surface water and sediments. This is a problem for owners and managers (public or private) of reservoirs and canals. They are disturbed by pollutants emitted upstream which are stored in the reservoir/canal sediments. EU policy is perceived as not making the polluter pay for the environmental damage done by pervasive litter in the marine environment and the ongoing entry of plastic waste into the ocean.

Many stakeholders indicated that the PPP is not well applied in the agricultural sector (especially use of pesticides, GMOs, nitrogen fertilisers, non-essential use of antibiotics).

Many stakeholders found that carbon pricing is very fragmented. In sectors not covered by the ETS carbon pricing varies widely across the Member States. ETS free allowances hinder the application of the PPP. In addition, the EU and Member States are paying polluters through fossil fuel subsidies (FFS). In general, environmentally harmful subsidies (EHS) are seen as at odds with PPP.

Stakeholders also commented on the problem of hidden polluters for the application of the PPP. Polluters releasing pollution with no current legislation and where it is difficult and costly to prove the polluter in court or that the polluter has no longer the financial strength to pay.

Findings of the public consultation

The respondents were to various degrees familiar with the PPP. 85 per cent of respondents (227) indicated that they were familiar with the PPP. When asked about their level of knowledge, 45% (120) of the respondents were familiar with the PPP implementation in various pieces of the EU legislation, while 21% (57) of the respondents were aware of the PPP implementation in at least one piece of the EU environmental legislation. Finally, 22% (59) of respondents were familiar with the implementation of the PPP in the national legislation.

A substantial number of respondents believed that ensuring the implementation of the PPP is a major priority (67%, 180) and that it was important (22%, 58).

According to many respondents, market-based/economic instruments (61%, 162 responses) and command and control measures (56%, 150) were sufficiently or fully effective for preventing/reducing pollution. A small number of respondents indicated that market-based/economic instruments (18%, 48) and command and control measures (15%, 38) were ineffective or insufficiently effective.

Similarly, over half of the respondents considered market-based/economic instruments (54%, 144 responses) and command and control measures (53%, 140) sufficiently or fully effective for remedying the remaining pollution. For a small number of respondents, market-based/economic instruments (19%, 49) and command and control measures (16%, 44) were ineffective or insufficiently effective.

More than half the respondents distinguished three very important obstacles to ensuring that polluters pay for the pollution they are responsible for: lack of political willingness to introduce and enforce implementation of the principle (59%, 157), the price of products and services does not fully reflect (internalise) the environmental damage (externalities) of the products and services’ lifecycles (55%, 147) and national authorities fail to enforce environmental legislation and to make the polluters pay (51%, 136). Additionally, the respondents were invited to elaborate on other factors that may have hindered the effective implementation of the PPP and prevented it from meeting its objectives. The lack of a robust definition of a polluter was highlighted in multiple comments. This issue prevailed in the responses of business associations and individual business companies. Various respondents, including businesses, public authorities, NGOs and EU citizens, mentioned the ‘lack of implementation’ of the PPP, i.e., the lack of a joint/unified approach to the PPP implementation on the EU level, the national PPP implementation issues, and implementation gaps in specific policy areas (e.g., agriculture, textile, waste management, etc.).

What concerns costs, 61% of the respondents (161) believed that the implementation of the PPP has not led to disproportionate costs of products and services for EU consumers. Similarly, 56% of the respondents (149) completely or mostly disagreed that the PPP implementation caused disproportionate costs in the production of products and provision of services by EU companies.

However, respondents were more divided on whether the implementation of the PPP caused negative effects on some social groups. A similar number of respondents indicated that the implementation of the PPP has been to at least a certain extent (35%, 93 responses as ‘Yes’ and ‘In part’) and has not been (40%, 107 responses as ‘No’) to the detriment of some social groups.

Over two thirds of the respondents emphasised the full or sufficient PPP's contribution to the following objectives of the Green Deal: a zero-pollution ambition for a toxic-free environment (66%, 175), mobilising industry for a clean and circular economy (68%, 182) and preserving and restoring ecosystems and biodiversity (62%, 167).

The respondents had diverging opinions about the adequacy of the EU acquis for tackling new of emerging environmental issues and changes in technology. Forty-two per cent of respondents (112) believed that the implementation of the PPP in the EU acquis is adequate to tackle new or emerging environmental issues and changes in technology. Twenty-three per cent (62) of respondents thought the implementation of the PPP in the EU acquis was inadequate and 19% (52) were neutral.

Opinions of the respondents varied considering the extent to which the EU PPP requirements were implemented on the national level. Seventy-eight per cent (207 responses) of respondents indicated that their country has implemented the PPP to a limited (51%, 135) or large extent (27%, 72) compared to 6% (15 responses) who thought that their country has not implemented the PPP in its policies at all.

At the end of the questionnaire, the respondents were offered an opportunity to submit general comments and suggestions regarding the Evaluation of the implementation of PPP in the EU legislation. 111 respondents (42%) submitted text to the suggestions and comments field. Of those 13 respondents directed the study team to their position papers or links to relevant academic studies, and several respondents answered that they don’t have any more feedback. Main themes in the respondents’ feedback included appropriately identifying and defining the polluter, competitiveness within the EU and with non-EU countries (mainly raised by business associations and companies),  mechanisms (e.g., environmental taxes, etc.) that could have been used for the PPP implementation, insufficient implementation of the PPP in specific sectors (e.g., waste, water supply, textile, packaging, pharmaceuticals, transport, fishing and energy) or insufficiently addressed types of pollution (e.g., air pollution, noise pollution, etc.).

A total of 69 documents were received in the public consultation. 35 of them were position papers, while the remaining 34 documents were academic articles, reports, research papers, pamphlets, brochures, or position papers not focused on the Polluter Pays Principle. Seven identical position papers were submitted by different organisations. Two position papers were received after the end of public consultation. They were not considered in the analysis but were consulted as part of evidence collection activities.

Most position papers were submitted by business associations (16) and NGOs and environmental organisations (11), while the lesser number of papers were by companies (5), public authorities (1), Chamber of Commerce (1), and non-EU citizens (1).

Most authors of position papers were based in Belgium (10), representing organisations and associations operating at the EU level. The remaining 25 submissions were received primarily from European countries, including Germany (5), France (4), Austria (3), Hungary (3), Italy (2), Sweden (2), the Netherlands (1) and Spain (1), while a small number of position papers were by respondents based in non-European countries, including the USA (2), Australia (1), and South Africa (1).

Position papers focused on the issues related to the implementation of the PPP, including specific measures & implementation requirements in certain legal acts, exemptions and derogations, diffuse pollution and legacy pollution, the granularity of the PPP-related definitions and the use of the EU and national funds. Some position papers also discussed potential solutions to the identified issues, including operationalisation of the PPP in the relevant legislation, improving/expanding the Extended Producer Responsibility schemes, and working on preventive measures.

Findings of the stakeholder workshops

The main topics in the discussions of both stakeholder workshops focused on the issues/gaps and solutions (instruments/measures) in the PPP implementation. The participants of both stakeholder workshops emphasised the following issues in the PPP implementation:

·Identifying (and defining) a polluter in the situations of legacy, chronic and diffuse pollution. According to the participants, in such cases, determining a polluter is not a straightforward and often a complex process that requires clear and standardised approaches in key pieces of legislation.

·The participants of both workshops recognised that the EU funds have been used to finance projects that should be paid for by the polluter. At the first workshop, the stakeholders highlighted the reasons of such issue that included limited capacity of the national competent authorities to appropriately implement the PPP, the issues of inappropriate distribution of the EU funds in shared management programmes, explicit mentioning of the PPP in the funding mechanism legislation, etc.

·Insufficient communication and public awareness raising about the PPP. The lack of proper communication about the rationale, objectives, and benefits of the principle has been one of the possible reasons for misunderstandings or resistance from various stakeholders.

Some of the PPP implementation issues were discussed during one of the stakeholder workshops (see the summary in Table 9).

Table 9: Other PPP issues mentioned at the workshops

While not relevant for a (backward-looking) Evaluation, it must be noted that the participants of both workshops highlighted the legal and non-legal instruments for effective implementation of the PPP:

·Environmental (green) taxes were highlighted by the workshops’ participants as effective and important instruments for the PPP implementation. The participants claimed that the introduction of environmental taxes or levies on polluting activities facilitates the internalisation of the costs associated with pollution, making polluters bear the financial burden of their actions. The revenue generated from these taxes could then be used to fund environmental initiatives, promote sustainable practices, and support the transition to a greener economy.

·The participants believed that the application of Extended Producer Responsibility (EPR) schemes and the increase of their coverage (e.g., in terms of sectors and pollutants) could have helped define and assign responsibility to a polluter.

Some of the PPP implementation instruments/measures were discussed during one of the stakeholder workshops (see the summary in Table 10).

Table 10: Other PPP instruments/measures mentioned at the workshops

Two contributions to the public consultation were received after the closure of the public consultation. They were not counted into the above results of the public consultation but were nevertheless taken into consideration in the overall consultation activities.

Findings of the stakeholder interviews

The respondents approached the effectiveness of the PPP from several perspectives. Some of them highlighted the developments and gaps in specific legislation, while others focused on the issues related to the implementation of the PPP.

Few interviewees provided examples where, in their opinion, the implementation of the PPP has been improved. These examples covered policies in the areas of cement industry, waste, and single-use plastics. Some interviewees referred to specific gaps or lack of the application of the PPP in specific legal acts, such as the Energy Taxation Directive, REACH, the Environmental Liability Directive, and the Water Framework Directive. Many respondents indicated general issues, such as identifying and defining the polluters that have affected the effectiveness of various PPP instruments and the focus of the existing PPP measures on supporting the linear business models instead of encouraging businesses to move towards sustainable and circular business models.

Furthermore, the respondents indicated sectors/policy areas where the PPP has not been (sufficiently) applied. Several sectors were mentioned by the interviewees, including aviation, maritime shipping, drinking water, wastewater management, waste generation, agriculture and aquaculture.

A lot of interviewees discussed the specific PPP legal and non-legal instruments and identified their shortcomings. Many interviewees discussed the Emission Trading System (ETS), Extended Producer Responsibility (EPR) and environmental taxes. Some interviewees only briefly mentioned Carbon Border Adjustment Mechanism (CBAM), biodiversity offsetting and emission thresholds.

Many respondents described the Extended Producer Responsibility (EPR) schemes. The respondents had mixed opinions about the effectiveness of the EPR schemes. Some of them considered it an effective tool for implementing the PPP, while others had serious doubts about its effectiveness. According to the interviewees, the scope of EPR schemes did not cover significant polluters, the EPR fees were not sufficiently harmonised in the EU Member States, and the EPR fees were too low to cover the costs of pollution.

The attitudes to the ETS among the respondents were mixed with some of them positively and others – negatively evaluating this instrument. The interviewees highlighted several constraints of the ETS: insufficient scope of the ETS with many emitting sectors not covered, availability of free emission allowances that had not incentivised the polluters to move to sustainable business models, and the price of the emissions that had not been sufficiently high to change the polluters’ behaviour.

Several respondents discussed environmental taxes in more detail. The respondents viewed environmental taxes largely positively; however, they also pointed out some of the shortcomings that reduce their effectiveness. According to the interviewees, the charges applied in environmental taxes (or revenues raised from environmental taxes) have been too low to a) encourage the transition from polluting to sustainable activities and/or b) tackle the issues of environmental pollution. Some respondents believed that derogations and exemptions weakened the effect of green taxes.

The opinions of the interviewees concerning the competitiveness within the EU and with non-EU countries diverged. Although most respondents who commented about competitiveness represented business associations, their opinions varied. Some respondents believed that the existing legal and non-legal instruments ensured a level playing field, while other interviewees indicated that there were issues related to competition between the EU and non-EU economic operators and the competitiveness of sustainable businesses.

The interviewees discussed the distributional effects of specific legal and non-legal PPP instruments. The areas where distributional effects were discussed included the use of fossil fuels, transport, agriculture, pharmaceuticals, food, energy and water. Several commonly affected audiences usually included specific industry sectors or social groups (e.g., low-income populations). The respondents highlighted that both positive and negative distributional effects were the outcomes of the design of environmental policies or instruments.

Responses about the examples of costs (or benefits) caused by economic operators and have not been borne by them substantially varied in the level of detail. Moreover, quite many respondents were not able to answer this question. Therefore, the limited number of responses mostly covered the drinking water and waste sector.

According to the interviewees, the costs of drinking water treatment have been mostly paid by consumers but not the economic operators who caused the pollution. Costs of quaternary treatment of water for removing chemical pollutants (e.g., active substances in medicines, pesticides, etc.) from water were highlighted by many respondents. In addition, the respondents noted that the use of quaternary treatment caused higher consumption of energy and additional emissions.

The respondents from waste management sectors outlined two problems considering the costs that have not been borne by polluters – the uncovered costs of particular waste management processes and the low waste management charges to tackle the consequences of pollution.

The respondents listed several useful measures for internalising the externalities. These included measures for preventing pollution, such as monitoring and reporting pollution, controlling the pollution at source, putting efforts into calculating externalities to ensure that the instrument covers the relevant costs and using financial security instruments that enable economic operators to bear the costs of environmental pollution.

Three coherence issues were prominent in the answers of the stakeholders – environmentally harmful subsidies, the use of public funds to tackle environmental pollution that should be paid for by polluters and different levels of ambition to implement the PPP in the EU Member States. The interviewees claimed that some policies in the Member States or at the EU level enabled environmentally harmful subsidies (EHS) that conflicted with the PPP and mentioned diverse instances of what they considered such subsidies (for instance, EHS in the field of energy and fossil fuels. Some respondents emphasised that the use of EU funds (e.g., through various funding mechanisms) to cover the costs to be paid by the polluters contradicted PPP. Finally, a few respondents highlighted that the national policies substantially varied in the level of ambition to implement the PPP in the EU Member States.

The respondents discussed the emerging pollutants and pollution types that generated externalities and elaborated on the role of innovation and technologies in preventing, controlling or remedying environmental pollution. The overwhelming majority of interviewees mentioned perfluoroalkyl and polyfluoroalkyl substances (PFAS) as (emerging) manufactured in various sectors that generated costs in preventing, reducing and eliminating environmental pollution. The main reasons for considering these substances were their volatility, persistence in the environment and negative effects on health and the environment coupled with their wide use in a variety of products. Although the respondents often recognised that the issue of PFAS was not new (to be considered emerging), they believed that the situation with the use and phase-out of PFAS was alarming.

Other topics, that emerged in several interviews included the emerging environmental issues associated with the activities in IT, mobile communications and electronics. According to the interviewees, their effects have been underscored. According to a few interviewees, there was a potential pollution issue (or a threat) of mining critical raw materials in Europe to reduce the dependency on third countries. Several respondents indicated that plastics in general or specific plastic materials have been problematic due to recycling issues.

Several respondents reflected on whether the instruments for implementing the PPP encouraged the use of emerging technologies and innovation for preventing, reducing and remediating environmental pollution. The opinions expressed by the interviewees substantially varied. Some respondents considered that the PPP had a positive effect on the application of new technologies or innovation. Other interviewees emphasised that the economic feasibility of sustainable business models was more important than the application of innovative technologies per se. Finally, some respondents draw attention to the emerging risk of greenwashing related to specific technologies (e.g., carbon capture).

Asked about the EU added value of the PPP, most interviewees evaluated it positively and highlighted the role of the EU in the coordination of efforts of the Member States, facilitating the solution of transboundary issues and driving the development of the environmental policies all over the EU. In addition, some respondents highlighted that the EU has been extending its influence on environmental policies on a global scale.

Recurring and diverging opinions in consultation activities

The problematic definition of ‘who is the polluter’ was prominent in all stakeholder consultation activities (i.e., call for evidence, public consultation questionnaire, stakeholder workshops and interviews). The stakeholders emphasised that the definition is an important pre-requisite of the PPP implementation effectiveness.

Similarly, the respondents of all consultation activities highlighted that the PPP has not been sufficiently implemented in some policy areas of sectors. Typically, the stakeholders mentioned transport (especially, aviation and maritime shipping), waste management, water supply, agriculture, textile, aquaculture, and energy.

Extended Producer Responsibility (EPR) schemes were discussed as an instrument for the PPP implementation by the participants of all consultation activities. In various consultation activities, the stakeholders expressed the opinion that the scope of EPR should be expanded. While in the call for evidence, public consultation, and stakeholder workshops, the approach to EPR was largely positive, in the interviews, the opinions concerning the effectiveness of EPR diverged.

Other important PPP instruments were mentioned by stakeholders in several consultation activities. In the call for evidence and interviews, the stakeholders elaborated on the Emission Trading Schemes (ETS). The respondents highlighted two limitations of ETS – insufficient scope that has not covered certain emitting sectors and free emission allowances that weakened the PPP implementation. At online workshops and in the interviews, the stakeholders discussed environmental (green) taxes that were viewed largely positively. The stakeholders saw the environmental taxes as an effective means to making the polluters bear the financial burden of their action and emphasised that the revenues generated from the taxes can be used to fund environmental initiatives. The interviewees also expressed some criticism of environmental taxes concerning low charges and derogation and exemptions.

Annex 6. What is the Polluter Pays Principle?

There is no single version of the PPP. Instead, the PPP has various forms depending on the jurisdiction in which it is applied, the governmental body that applies it, and the type of legislation to which it is applied – including international, EU, and national legislation. Some jurisdictions such as the EU, France, and Canada have codified the PPP. Whereas other jurisdictions such as the US have not done so, the PPP has heavily influenced their environmental legislation.

1.Scope: What is pollution?  

Pollution according to this Polluter Pays Principle Fitness Check is defined as:

“The direct or indirect introduction, as a result of human activity, of substances, vibrations, heat or noise or odour into air, water or land as well as the direct or indirect subtraction or use of environmental resources to an extent which may be harmful to human health or the quality of the environment, result in damage to material property or impair or interfere with amenities and other legitimate uses of the environment”.  

This definition reflects the extensive scope of application of the Polluter Pays Principle in EU law. It does not just mean traditional forms of polluting activities, e.g. the introduction of waste into the environment. Additionally, other harmful activities are included such as soil sealing, soil degradation because of extensive use, deforestation or over abstraction of water.

 “Quality of the environment” means the quality of land/soil, air, water, biodiversity and climatic conditions. “Biodiversity” is defined according to the Taxonomy Regulation which is also cross-referenced in the Guidelines on State aid for climate, environmental protection and energy 2022 175 (‘CEEAG’), as the variability among living organisms from all sources including terrestrial, marine and other aquatic ecosystems and the ecological complexes of which they are part and includes diversity within species, between species and of ecosystems.

The unified definition in this paper also reflects the heterogeneous economic and legal meanings of the Polluter Pays Principle, as it was developed overtime in environmental law (see below) which calls for an extensive definition.

The definition of pollution above is not limited to environmental policies, but also applies when enacting EU policy in areas other than that of the environment, which might have a significant environmental impact, e.g. transport, fisheries, or agriculture policy. Article 191(2) of the 2007 Treaty on the Functioning of the European Union (TFEU) states that: “Union policy on the environment shall be based on the principle that the polluter should pay”. The PPP is explicitly referenced in the Eurovignette Directive 1999/62/EC as a transport policy and can help with the fair development of all policies impacting the environment.

The definition does not include neutral activities which do not cause harm to but also do not maintain or restore the environment as there is no general obligation to positively contribute to the environment. This is reflected in the Habitats Directive 92/43/ EEC which states that the PPP is of limited relevance for measures to maintain or restore natural habitats as it only covers environmental damage. So, excluded from the definition are improvements to the environment e.g. nature restoration or maintenance.

1.1The definition of pollution according to the Polluter Pays Principle: a legal assessment 

 Article 191(2) 176 of the 2007 Treaty on the Functioning of the European Union (TFEU)11 states that: “Union policy on the environment (…) shall be based on the precautionary principle and on the principles that preventive action should be taken, that environmental damage should as a priority be rectified at source and that the polluter should pay”.

The Treaty does not provide a strict definition of the scope regarding the PPP within the Treaties. Art. 191(2) TFEU just states that Union policy on the environment should be based inter alia on the fact that the polluter should pay, without further details.

Pollution is defined directly or indirectly in EU environmental legislation from which a general definition can be taken.

The Industrial Emissions Directive 2010/75/EU and its predecessor Council Directive 96/61/EC defines ‘pollution’ as the “direct or indirect introduction, as a result of human activity, of substances, vibrations, heat or noise into air, water or land which may be harmful to human health or the quality of the environment, result in damage to material property, or impair or interfere with amenities and other legitimate uses of the environment”. The proposed revised IED will further expand the term ‘pollution’ to include odour.

The Environmental Liability Directive announces in its recital its implementation of the PPP to environmental damage. Environmental damage is defined as “damage to protected species and natural habitats, which is any damage that has significant adverse effects on reaching or maintaining the favourable conservation status of such habitats or species and water damage, which is any damage that significantly adversely affects the ecological, chemical or quantitative status or the ecological potential of the waters concerned or the environmental status of the marine waters concerned and land damage, which is any land contamination that creates a significant risk of human health being adversely affected as a result of the direct or indirect introduction, in, on or under land, of substances, preparations, organisms or micro-organisms”.

 Whereas the Commission rejected extending liability to damage to biodiversity as defined in the Convention on Biological Diversity when it proposed the ELD in 2001 due to that definition (that is, “biological diversity”) including the concept of variability among living organisms, CEAG uses the convention’s broader definition by cross-referring to the definition of “biodiversity” in the Taxonomy Regulation. The definition of ‘biodiversity’ in the Taxonomy Regulation is materially the same as the definition in the convention by defining the term “biodiversity” as “the variability among living organisms from all sources including terrestrial, marine and other aquatic ecosystems and the ecological complexes of which they are part and includes diversity within species, between species and of ecosystems”. 

The Polluter Pays Principle is also explicitly mentioned concerning the introduction of pollutants into water in the Water Framework Directive 2000/60/EC. More concretely, it requires Member States to apply water pricing policies for the purpose of efficient use of water resources, as well as to apply cost recovery of water services to different water uses, taking into account the polluter pays principle.

Concerning the climate, the Polluter Pays Principle is referenced in the ETS Directive (EU) 2023/959 as well as the FuelEU Maritime Regulation (EU) 2023/1805 concerning the emission of greenhouse gases contributing to climate change.

All other provisions where the PPP is mentioned describe the introduction of substances into the environment:

·Waste: in general according to the Waste Framework Directive 2008/98/EC, Waste batteries according to the Batteries Regulation (EU) 2023/1542, waste ships according to the Ship Recycling Regulation (EU) No 1257/2013, single use plastics according to the Single-use plastics Directive (EU) 2019/904, extractive waste according to the Extractive Waste Directive 2006/21/EC, waste electrical and electronic equipment according to the WEEE Directive, 2012/19/EU, end-of-life vehicles according to the End of life Vehicles Directive 2000/53/EC, packaged and packaging waste according to the Directive 94/62/EC, waste in a landfill according to Landfill Directive 1999/31/EC.

·Other pollutants: according to the Environmental Quality Standards (EQS) Directive 2013/39/EU, the Safety of Offshore Oil and Gas Operations (2013/30/EU), the Eurovignette Directive (EU) 2022/362

·Invasive species according to the Regulation on Invasive Species (EU) 1143/2014

Note that going beyond this legal analysis, many legal acts do not refer to the PPP even but are clearly environmental policy and help to apply it. Note also the decision on the degree to which to reflect the PPP has obviously been weighed against other concerns such as enforceability, costs of doing so etc.

1.2The definition: an economic assessment 

The direct or indirect impact on or use of environmental resources to an environmentally harmful extent was also included in the above definition as it reflects the meaning of “pollution” originally established for the Polluter Pays Principle.

“Polluters” was used as a shorthand for anyone creating environmental costs, not limited to pollution in a narrow sense. This common understanding about markets and their misallocation of resources reflects the fact that the principle is relevant in all contexts affecting the environment. Given the broad scope including all environmental policies in Article 191 (2) TFEU, which only partially concern the introduction of environmentally harmful substances, such a broader definition is a logical consequence of the importance of the internalisation of externalities to achieve environmental fairness in EU legislation.

The concept of internalisation of externalities was first established by British economist Arthur Pigou. A tax on any market activity that generates negative externalities, i.e. external costs incurred by the producer that are not included in the market price, is therefore called a Pigouvian tax. The tax is normally set by the government to correct an undesirable or inefficient market outcome and does so by being set equal to the external marginal cost of the negative externalities.

The Recommendation of the OECD Council on OECD Legal Instruments Guiding Principles concerning International Economic Aspects of Environmental Policies Guiding Principles 177  first described the Polluter Pays Principle for Cost Allocation:

“The Environmental resources are in general limited and their use in production and consumption activities may lead to their deterioration. When the cost of this deterioration is not adequately taken into account in the price system, the market fails to reflect the scarcity of such resources both at the national and international levels. Public measures are thus necessary to reduce pollution and to reach a better allocation of resources by ensuring that prices of goods depending on the quality and/or quantity of environmental resources reflect more closely their relative scarcity and that economic agents concerned react accordingly. In many circumstances, in order to ensure that the environment is in an acceptable state, the reduction of pollution beyond a certain level will not be practical or even necessary in view of the costs involved. The principle to be used for allocating costs of pollution prevention and control measures to encourage rational use of scarce environmental resources and to avoid distortions in international trade and investment is the so-called "Polluter-Pays Principle". This principle means that the polluter should bear the expenses of carrying out the above-mentioned measures decided by public authorities to ensure that the environment is in an acceptable state. In other words, the cost of these measures should be reflected in the cost of goods and services which cause pollution in production and/or consumption. This Principle should be an objective of Member countries.” Thus, pollution was seen as a loose term, describing any use of environmental resources in production and consumption activities which the markets do not reflect. It signifies the application of the Pigouvian tax to negative environmental externalities.  

In 1975, the Council of the European Communities issued a recommendation concerning the PPP on the allocation of costs and action by public authorities:

“Charging to polluters the costs of action taken to combat the pollution which they cause encourages them to reduce that pollution and to endeavour to find less polluting products or technologies thereby enabling a more rational use to be made of the resources of the environment. Moreover, it satisfies the criteria of effectiveness and equitable practice. A polluter is someone who directly or indirectly damages the environment or who creates conditions leading to such damage. 

If identifying the polluter proves impossible or too difficult, and hence arbitrary, particularly where environmental pollution arises from several simultaneous causes or from several consecutive causes, the cost of combating pollution should be borne at the point in the pollution chain or in the cumulative pollution process, and by the legal or administrative means which offer the best solution from the administrative and economic points of view and which make the most effective contribution towards improving the environment.” This identification of the polluter as someone who directly or indirectly damages the environment shows the broader economic understanding established by the OECD.

The Rio Declaration 1992 also included based on this understanding that “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.” 178

This economist understanding of the Polluter Pays Principle can also be found in EU guidelines.  Article 4.6.3, point 284, CEEAG 179 states that:

“Without prejudice to [the ELD] or other relevant Union rules, aid for the remediation of environmental damage, the rehabilitation of natural habitats and ecosystems, the protection or restoration of biodiversity and the implementation of nature-based solutions for climate change adaptation and mitigation may be regarded as having an incentive effect only when the entity or undertaking at the origin of the environmental damage cannot be identified or be held legally liable for financing the works necessary to prevent and correct environmental damage in accordance with the [PPP]”. The CEEAG thus reflect the continually expanding nature of the PPP by referring to the increasing scope of environmental damage for which ‘polluters’, instead of the public purse, must pay the costs.

Article 9 of the Water Framework Directive also requires Member States to “take account of the principle of recovery of the costs of water services, including environmental and resource costs, and in accordance in particular with the polluter pays principle”. The over abstraction of water creating resource cost is therefore both directly and indirectly recognised as a harmful activity to which the PPP is applied.

Such a broad definition of pollution can be found in other jurisdictions as well. The UK government explicitly indicated in their description of different environmental principles that the terms environmental pollution, damage and environmental harm are used interchangeably to refer to a negative environmental effect 180 .

2.Scope – what is meant by environment policy?

The question is if EU legislators are bound by the Polluter Pays Principle when enacting EU policy in areas other than that traditionally understood as the environment (i.e. managed by DG ENV 181 ), even when they might have a significant environmental impact, e.g. transport, construction, fisheries, or agricultural policy and as a result it has to be defined what environment policy means under these circumstances from a legal perspective.

Firstly, Art. 191 (2) TFEU states that “Union policy on the environment (…) shall be based on the precautionary principle and on the principles that preventive action should be taken, that environmental damage should as a priority be rectified at source and that the polluter should pay.” The principle only provides attention concerning environmental legal aspects and therefore is non-binding in general.

From a legal perspective a systematic approach is provided: the PPP is one of the guiding principles not only in environmental but in European law in general. This follows from its constitutional status. In combination with the environmental integration principle of Art. 11 TFEU, which states that environmental protection requirements must be integrated into the definition and implementation of the Union’s policies and activities, in particular with a view to promoting sustainable development, this shows the importance not only of the PPP but also of environmental protection within the EU legislation.

The PPP is therefore a guiding principle applicable to a wide range of EU policies. The Member States and the European institutions are obliged to consider PPP and all the remaining environmental principles when acting in all the competence domains and every EU policy fields.

Therefore, environmental policy in a European context must be defined broadly. To ensure that the constitutional status of the PPP is taken into account, environmental policy applies to all policies likely having environmental effects. That means it has a binding effect concerning the EU legislators and the national authorities responsible for implementing the EU law. Concerning sectors like transport, fisheries or agricultural policies, there is an impact on the environment and so the PPP is relevant for them. As an example, the PPP is explicitly referenced in the legal text of the Eurovignette Directive 1999/62/EC which is a transport policy, but is relevant for environmental policy as understood in the context of the PPP.

EU funding policies which finance the achievement of EU objectives (e.g. CAP, Cohesion Policy, RRF, CEF) and the application of environmental principles are designed to ensure that both Treaty and environmental objectives are observed and considered. This means that the EU financing should at least preserve the existing EU laws and/or be consistent with EU policies and future initiatives. The EU funding policies and tools introduce spending mechanisms, the EU co-legislators should put in place specific arrangements to effectively implement the PPP. To a certain extent, this has been reflected by the DNSH, the targets for financing climate/biodiversity, the introduction of tracking mechanisms. However, this was not translated to all EU policies and there are inconsistencies in the mechanisms envisaged. In addition, the PPP was not reflected by specific tools which would limit the EU financing in a proportionate way depending on the generated costs or refuse it for actions/operations projects which are incompatible with EU environmental objectives.

This is also supported by the Charter of Fundamental Rights of the European Union requiring the EU to protect the fundamental right to life (Article 2(1) of the Charter) and provides that “a high level of environmental protection and the improvement of the quality of the environment must be integrated into the policies of the Union and ensured in accordance with the principle of sustainable development” (Article 37 of the Charter). The consistency requirement of articles 7 and 11 TFEU, and obligations under international law, also legally require the European Commission to take environmental benefits fully into account.

As a final comment on what is environmental policy, environment action programmes have led the development of EU environment policy since the early 1970s. The 8th Environment Action  Programme 182  sets out six priority objectives related to climate neutrality, climate adaptation, circular economy, zero pollution, protecting and restoring biodiversity, and reducing environmental and climate pressures related to production and consumption. Policies contributing to these objectives can be understood as environmental.

In conclusion, there is an obligation for the EU institutions to respect the PPP in all policies concerning an environmental issue.

3.Scope – Which type of costs?

What are the type of costs that the PPP may impose on polluters and how those costs are or could be recovered? In practice, the PPP has a wide range of applications with diverse methods to ensure that the polluter pays, covering:

-Costs of pollution prevention and control 

-Administrative costs borne by polluters and by competent authorities to enforce environmental controls

-Costs of environmental damage

As well as polluters needing to pay for their costs, the PPP also means that polluters should not be paid to pollute. So, if an operator receives a subsidy that supports pollution (so a fossil fuel subsidy or other environmentally harmful subsidy) then this is inconsistent with the PPP. the PPP is implemented by proofing mechanism in the case of policies for EU funding streams, i.e. to ensure that polluters do receive EU funding to cover the costs of pollution.

Pollution is a term that is used as shorthand for all policies that affect environmental protection and the improvement of environmental quality.

4.Scope – which type of interventions?

In general, the following mechanisms are applied to recover costs from polluters:

·Taxation of pollution (e.g. Eco tax: shifting taxation from labour to pollution) and pricing of the use natural resources (e.g. water pricing);

·Reforming environmentally harmful subsidies;

·Environmental funds, just transition funds etc (the PPP is implemented by proofing mechanism in the case of policies for EU funding streams, i.e. to ensure that polluters do not receive EU funding to cover the costs of pollution);

·Extended Producer Responsibility (EPR): shifting responsibility for e.g. waste from governments to producers. 

·Prevention: Public and private measures for strategic environmental management such as environmental information systems;

·Command and control measures: since these also shift the cost of prevention towards the operators.

5.Tracking the origins

5.1. Adoption and evolution of the polluter pays principle by the OECD

5.1.1 Adoption

The first significant official recognition of the Polluter Pays Principle (PPP) came from the Organisation for Economic Co-operation and Development (OECD) in 1972 183 . It re-affirmed it in 1974 in the wider context 184 . The purpose of the PPP was to charge the polluter for the costs of measures determined by public authorities to prevent and control pollution.

The aim of the PPP was to persuade businesses to adopt a harmonised approach to internalise the costs of complying with the substantial amount of environmental legislation that was being introduced at that time and to reflect the costs of complying with it in the market price of goods and services. A corollary aim was progressively to reduce chronic pollution from substances lawfully emitted into the environment to an acceptable level.

The OECD issued a recommendation on guiding principles for international economic aspects of environmental policies (see above) stating that the polluter should bear the costs of pollution, prevention and control measures (the latter referring to administrative costs borne by competent authorities to enforce environmental controls) 185 .

The OECD text requires the polluter to bear the expense of pollution prevention and control measures introduced by public authorities (which presumably was not always the case in the 1970s). But it is also a recognition of the market failures at play, and the need to respond by incentivising polluters to avoid environmental damage as well as being held responsible for the pollution that they cause. At the same time, there is a pragmatic recognition that the principle should be only applied where reasonable to do so.

The OECD was both reflective of the developments in environmental economics at the time, but also influential of them. An academic survey of the principle is beyond this Fitness Check, but the two are interlinked. Seminal works 186  advocated valuing environmental effects and making use of market incentives through market-based instruments such as pollution taxes, tradable permits and conservation payments.

5.1.2 Extension to accidental pollution

In 1981, the OECD Council extended the focus of the PPP from chronic pollution to include accidental pollution by recommending that the PPP should apply to measures carried out by public authorities to respond to accidental marine oil spills, especially those that affect more than one country. Thus the definition was further extended to hold polluters liable in the case of accidental pollution, noting that managing both the risk and the consequences of accidental pollution should not be paid from public funds 187 .

This meant that the OECD extended the PPP from internalisation of the costs of pollution in the market price of goods and services (the efficiency interpretation of the PPP) to the distribution of costs between a polluter and a victim or a victimised society (the equity interpretation of the PPP). The equity interpretation is basically a principle of equity (as applied in common law jurisdictions) or fairness. That is, the PPP “seeks to assign responsibility to a polluter and to hold him accountable for the pollution he has created in order to avoid passing on costs to third parties who did not contribute to the creation of that pollution”.

A purpose of the recommendation concerning accidental marine oil spills was for countries to agree in advance how the costs of prevention and control actions by one country should be reimbursed by another country after an oil spill. A subsequent report by the OECD’s Environment Committee stated that application of the PPP at domestic level to the prevention and control of oil spills meant that the person or entity responsible for a spill or the risk of a spill should bear the full cost of such measures following a spill and should not benefit from any direct or indirect financial assistance from public authorities that would alleviate the financial burden of the measures.

The report further stated that consideration should be given to including “an appropriate fraction” of fixed costs related to the measures.

In 1988, the concluding statement of an OECD conference on accidents involving hazardous substances stated that the PPP should be applied as far as possible in connection with them.

Also in 1988, the OECD Council issued a declaration specifically to recognise that the PPP applies to accidental pollution. In 1989, the OECD Council followed the declaration by a recommendation to extend the PPP to “accidental pollution” at “hazardous installations”, with a focus on off-site pollution. The Guiding Principles Related to Accidental Pollution which were appended to the recommendation defined the term “accidental pollution” as “substantial pollution resulting from an accident in a hazardous installation”. They defined the term “hazardous installation” as:

“fixed installations which are defined under applicable law as being capable of giving rise to hazards sufficient to warrant the taking of precautions off-site, excluding nuclear or military installations and hazardous waste repositories”.

The Guiding Principles further stated that the PPP implies that the “operator” of a hazardous installation, that is “the legal or natural person who under applicable law is in charge of the installation and is responsible for its proper operation”, should bear the costs of “reasonable measures” for “administrative convenience or for other reasons”. If a third party was liable for the accident, that party should reimburse the operator for the costs of the measures carried out to control pollution caused by the accident. The Environment Directorate of the OECD subsequently stated that an operator has a claim against the person to whom an accident is wholly or partially attributable for reimbursement of all or part of the costs paid by the operator to authorities. The Directorate further stated that unless civil liability legislation channels liability solely to the operator, the operator or public authorities may invoke the alleged civil liability of third parties for all or part of the accident, noting that the operator may be required to pay compensation to victims of an accident even when the operator is not liable.

The Guiding Principles thus separated responsibility for remediating environmental damage from liability for remediating it. That is, the operator of the installation is designated as the “polluter” for economic and administrative reasons and is responsible for remediating the environmental damage or reimbursing the authority for its costs in remediating it. The operator could then seek reimbursement of its costs from the person that was partially or fully liable for the damage.

The Guiding Principles also stated that allocating the cost of reasonable measures carried out by public authorities to control accidental pollution to the operator (or other person that caused an accident) does not affect the possibility that such a person is also required to pay other costs connected with the public authority’s response to an accident, such as the supply of potable water. Further, public authorities may also seek compensation from a liable person for costs incurred by them that have not already been reimbursed.

The Guiding Principles further stated that measures to prevent and control pollution include “acting promptly following an accident in order to protect human health and the environment, carrying out clean-up operations and minimizing without undue delay the ecological effects of accidental pollution”. Such measures include “reasonable pollution control measures” determined by the authority following an accident that are taken “without undue delay” by the operator or, in an emergency by the authority (at the cost of the operator) to prevent further environmental damage such as stopping emissions from the operator’s installation, installing floating booms/barriers on a river to prevent the spread of pollutants, carrying out clean-up or decontamination measures, and “rehabilitating the polluted environment”. The OECD thus extended the PPP to the cost of measures to rehabilitate (restore) the environment.

The OECD Secretariat noted that the definitions of measures to prevent and control pollution were not comprehensive and did not, for example, include measures that were not directly related to pollution, general administrative measures for specific hazardous installations, or compensation to victims. The Secretariat defined “prevention measures” in the context of accidents involving hazardous substances as:

“measures taken to prevent the occurrence of accidents capable of causing accidental pollution, and the measures taken prior to an accident to ensure that, if an accident does occur, damage is mitigated outside the site of the accident. They comprise on-site measures to improve the safety of the installation and accident preparedness, to reduce the rate of accidents and limit the release of pollutants from the installation in the event of accident, installation-specific emergency plans, and certain off-site measures such as the acquisition of land around the installation or the cessation of building in the vicinity of the installation so that a sufficient distance separates the installation from the neighbouring area that could be affected in the case of an accident from the neighbouring area that could be affected in the case of an accident (for example the release of pollutants, materials or hazardous substances, or the generation of heat or pressure waves).”

The Secretariat described other prevention measures that could be covered by the PPP as “administrative measures” implemented by public authorities to prevent accidents in specific hazardous installations or subsequently carrying out remedial measures if accidental pollution occurred. Examples of such measures were the following measures for specific hazardous installations: special studies before an environmental permit/licence was issued, detailed inspections, preparation of specific emergency plans, and purchasing equipment to handle an accident.

The Secretariat defined “control measures” as:

“measures taken without undue delay after an accident to control the pollution caused by the accident, with a view to limiting possible damage which accidental pollution might cause anywhere. They comprise, first, measures to halt the release of pollutants, to prevent the pollution from spreading, to remove the pollutants released outside the installation as a result of the accident and to clean up the polluted environment, and second, measures taken without undue delay after the accident to rehabilitate the environment.”

The PPP was slowly but surely evolving into a principle fully to internalise the costs of pollution by among other things extending it to include compensation to victims and other pollution-related expenses, including damage at installations themselves as well as the unowned environment.

In 1990, the organisation, Business at OECD (BIAC), stated that:

“the principal objective of liability regimes should be to promote environmental protection. This can best be achieved by linking liability to operational control” in order to create an “incentive for the controlling entity to adopt all precautions for environmental protection”.

In other words, the PPP channels liability for remediating environmental damage from potential accidents to an operator to induce the operator to adopt measures to prevent such accidents as well as to identify the “polluter” for administrative convenience.

The OECD Secretariat inferred that there was no need to apply the PPP to measures carried out by operators on their own initiative, but that the PPP related in essence to measures carried out by authorities within the limits of their competence before a possible accident or after an accident in a specific installation in order to protect human health and the environment. Such measures could be carried out by the operator or public authorities (at the cost of the polluter) according to applicable law. The Secretariat referred to the need for the costs of measures to be “reasonable”, commenting that criteria could be established to determine reasonableness, whilst noting that authorities should bear the costs of measures determined by courts not to be reasonable because the requirement to carry them out was an abuse of an authority’s discretionary power or was without a legal basis.

In 1992, the Environment Directorate of the OECD stated that the PPP had evolved from an economic principle to a legal principle that had not, at that time, been codified. The Directorate stated that the cost of measures to prevent and control pollution should be borne by the potential originators of the pollution regardless of whether they or public authorities carry out the measures, and that the originators of “actual accidental pollution” should bear the reasonable costs of controlling it, including remediating the environment. The Directorate recognised that the polluter may sometimes be prevented by competition from passing on the costs of pollution control measures.

The Directorate further stated that the “predominant trend [was] to place further liability on the polluter and to alleviate the economic burden which pollution places on the authorities”, including costs from damage when the polluter had carried out all the measures ordered by the authorities but the level of pollution was still “quite substantial” or the damage was “significant”. If however the residual pollution was not substantial, the Directorate stated that it seemed that the damage would “not as a rule be compensated for”, commenting that greater use of strict liability systems for pollution cases should assist in increasing the number of cases in which polluters were required to pay the cost of damage.

In 2002, the Joint Working Party of the OECD on Trade and Environment stated that clean-up costs and compensation “are generally paid in the event of non-compliance with permits, or of excessive pollution”. The Working Party also stated that:

“Holding the polluter liable for the cost of restoring the contaminated site to its prior state once it has been cleaned and decontaminated (e.g. reintroducing species, replanting, re-vegetation, etc.), and for compensating the victims of the pollution (for direct and indirect economic losses and loss of amenities), is consistent with the purpose assigned to the PPP in the broad sense. However, it derives essentially from liability regulation that determines the responsible party and sets the scale of the payments due for site restoration and compensation for damages.”

5.1.3 Continued extension

The OECD version of the PPP continues to evolve and expand. For example, a background note for the OECD stated that the PPP applies in the form of mandatory financial security for environmental responsibilities and liabilities. Environmental responsibilities to which the PPP has been applied include the costs of closure and post-closure measures at landfills to ensure that funding for them is available after the operational phase and the closure and restoration of sites where extractive mining has been carried out.

There is also an argument that the failure to have financial security for the costs of remediating accidental pollution breaches the PPP because it raises the potential that the State will be required to pay such costs if the operator becomes insolvent or otherwise cannot pay the costs. For example, in Croatia, the cost of remediating pollution has often been borne by state-owned companies or government agencies because the company or agency remediated the damage when the polluter became insolvent.

A further expansion of the PPP is corporate law that imposes liability on persons such as directors and officers of a company if the company becomes insolvent or is not sufficiently financially viable to remediate environmental damage caused by its operations. A background note for the OECD stated that such legislation is aligned with the PPP because it incentivises business with potential polluting activities to avoid decisions on environmental damage by holding them liable for pollution resulting directly or indirectly from the decisions.

Still further, creation of environmental offences including the crime of ecocide is a further application of the PPP.

5.1.4 Identification of the polluter

The “polluter” under the OECD’s version of the PPP is the person designated by the relevant legislation taking into account economic and administrative expediency considerations, not equity.

A note by the OECD Secretariat, drafted in 1989, stated that application of the PPP meant that the person that should reimburse a public authority for its costs after an accident is the “polluter”, that is, “the person at the origin of the accidental pollution”. The Secretariat referred to EU law to state that the person designated as the “operator” of a hazardous installation is generally the person in charge of the installation who is responsible for its proper operation. If this person is a legal person, employees of the installation are not responsible in a personal capacity. The reason for designating the operator as the polluter is because the operator is usually in the best position to prevent and limit the consequences of pollution in a cost-effective way. The Secretariat stated that if the operator is “not in a position to prevent the accident, i.e. when the operator is clearly not at the origin of the accident, the costs could be charged to another person”. The Secretariat commented that the PPP does not require the operator necessarily to be “the only person who may have to bear the cost of control measures”. If another person contributed to all or part of the accident, the operator has a claim against them for monies paid to the authority for its costs in controlling the accident.

In 1992, the OECD’s Environment Directorate referred to the European Council’s recommendation that identified the “polluter” as “someone who directly or indirectly damages the environment or who creates conditions leading to such damage”. The Directorate commented that the polluter was “simply the first to pay” the costs of pollution.

The Directorate further stated that the PPP:

“does not deal with liability since it does not point to the person “liable” for the pollution in the legal sense. When a polluter is identified he does have to bear certain costs and compensate the victims, but he may pass the costs on to the actual party liable for the pollution, whoever it may be. The polluter accordingly acts as the guarantor of compensation, but not as the party liable for the pollution. In order to ensure that a liable party who is not the polluter reimburses the latter’s costs, the polluter will need to secure financial safeguards and/or insurance. In some cases, the State has to step in to ensure that the cost of damage is paid out to victims, when the polluter and the party liable and their insurers fail to do so. Compensation funds financed by potential polluters are not contrary to the [PPP]”.

The OECD Secretariat stated that identifying the polluter who should pay compensation has the advantage of making it easier for victims to identify the person who should pay their claims for damage from pollution but has the disadvantage of requiring an operator to compensate victims without necessarily being able to obtain reimbursement from the liable person due to not being able to identify them or because they are insolvent. The Secretariat considered however that such a situation was:

“exceptional since it is rare for such person, if he is not the operator, to be unable to meet his financial obligations. As the operator generally has contractual relations with this other person, he can reduce the risk of the latter causing an accident and being unable to bear the costs by monitoring his activities closely and requiring him in the contract to provide security or take out insurance. Where the risk of non-repayment to the operator of the cost of pollution damage caused by such person is insured, the premium would be lower if the insurance were taken out by the operator than if it were taken out by the vast numbers of potential victims”.

The Secretariat had previously stated that purchasing insurance is not contrary to the PPP because the operator contributes to the average cost of pollution control measures by way of premiums for the insurance.

In 2022, a non-attributable background note on implementation of the PPP by the OECD commented that the PPP “is rarely applicable to legacy pollution” because, as noted by the European Court of Auditors in its special report on the PPP, the persons responsible for the pollution no longer exist, cannot be identified, or are insolvent. The background note commented that the insolvency of a polluter limits application of the PPP, causing costs to be covered by the public purse.

In contrast, the US Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund) is based on a different version of the PPP in that it imposes retroactive, strict, and joint and several liability for the costs of cleaning up historic contamination on persons that are most likely to have been responsible for the contamination. Instead of channelling liability to a single person, CERCLA has a broad definition of a “polluter” or “potentially responsible party” (PRP) as:

·1current owners and operators of facilities;

·owners and operators of facilities at the time at which the disposal of hazardous substances took place;

·persons who arranged to dispose of or treat a hazardous substance (often called generators); and

·transporters that selected the facility at which the hazardous substance was disposed or treated.

The terms “facility” and “hazardous substances” are extremely broad. A “facility” includes, for example, a roadside, stables, and a residential subdivision. Over 700 substances are designated as “hazardous substances”.

Establishment of a broad categories of liable persons was intentional due to CERCLA’s retroactive liability and thus the need to include a broad range of persons under its provisions. As the US Supreme Court stated in Pennsylvania v Union Gas Co, “[t]he remedy that Congress felt it needed in CERCLA is sweeping: everyone who is potentially responsible for hazardous waste contamination may be forced to contribute to the costs of cleanup” (emphasis original).

5.1.5 Exceptions

The OECD’s version of the PPP does not apply to all pollution or other environmental damage. The OECD’s Guiding Principles stated that measures to remediate pollution do not include “humanitarian measures or other measures which are strictly in the nature of public services and which cannot be reimbursed to the public authorities under applicable law nor measures to compensate victims for the economic consequences of an accident”. Humanitarian services include evacuation and shelter. Emergency services include medical, police, and fire services to protect human life and property.

The Guiding Principles further stated that:

“If the accidental pollution is caused solely by an event for which the operator clearly cannot be considered liable under national law, such as a serious natural disaster that the operator cannot reasonably have foreseen, it is consistent with the [PPP] that public authorities do not charge the cost of control measures to the operator.”

The OECD Secretariat’s report on compensation for victims of accidental pollution, dated 1992, reiterated that it was not justified to allocate the cost of serious pollution damage to an operator if the operator had no influence over an event. The Secretariat stated that the operator could not clearly be held under national law to be the origin of an accident because, for example, the accident arose solely from a major natural disaster such as an earthquake, an external cause such as an aircraft crash; or acts of third parties such as sabotage. The Secretariat qualified the statement however by adding that the operator should not be liable if the operator had taken all the measures, it could reasonably be expected to take. The Secretariat stated that the same principle would apply if accidental pollution was caused solely by the fault or negligence of an authority.

The Secretariat further specified the following as events to which the PPP does not apply:

a)an act of war, hostility, civil war or insurrection

b)an act of a third party (including victims);

c)an act performed in compliance with an order or a compulsory measure of a public authority; and

d)natural phenomena of an exceptional, inevitable and irreversible character’.

Further, the OECD’s Environment Directorate stated that a polluter should only have to pay for “reasonable” measures so that the polluter “adopts the most economically efficient decisions”. That is, the Directorate stated that the purpose of the PPP was not to transfer all public expenditure to the polluter, or someone who could not avoid accidental pollution, but rather “to allocate the financial burden to the party best able to take the most effective decisions”.

The OECD Secretariat noted that limiting the civil liability of polluters for compensation to victims results in victims bearing part of the cost of major accidents and a reduction in the internalisation of the costs of damage. The Secretariat stated that the limitation of compensation could be an acceptable exception if the limit was set at a sufficiently high level so that it did not undermine the incentive value of the liability risk.

5.2. The EU version of the polluter pays principle

This section examines the adoption and evolution of the PPP in the EU and preliminary rulings that concern the PPP by the CJEU.

5.2.1 Adoption and evolution

Environmental policy was not included in the Treaty of Rome of 1957, which established the European Economic Community (now the EU). In 1973, the European Council adopted the PPP (and the preventive action principle) when it established the first environmental action programme for the following three years. Adoption of the PPP (and other environmental principles) by the Council followed a note by the German delegation on 25 September 1972 requesting the Council to base its resolution on a Community policy for the environment “on a general environmental conception”. The resolution contained a general part that determined the “basic principles of a European environmental policy” and an action programme that set out specific actions. The PPP was included in the general part (together with nine other environmental principles). On 31 October 1972, environment ministers for the Member States agreed eleven “principles of a Community environmental policy”, including the PPP. The environmental action programme envisaged application of the PPP to measures to remediate pollution, the proposal for the programme having referred to payment for the costs of pollution and remedial measures by persons that damage or pollute the environment. Principle 5 of the first environmental action programme stated in pertinent part that “[t]he cost of preventing and eliminating nuisances must in principle be borne by the polluter”. The programme also stated that the (now) EU would act in collaboration with the OECD to establish a common method to estimate the cost of anti-pollution measures.

The environmental principles were subsequently included in the second, third and fourth European Community environmental action programmes without any detailed discussion as well as further action programmes.

In 1975, the Council issued a recommendation concerning the PPP on the allocation of costs and action by public authorities. The recommendation identified the polluter as “someone who directly or indirectly damages the environment or who creates conditions leading to such damage”.

The recommendation stated that:

“If identifying the polluter proves impossible or too difficult, and hence arbitrary, particularly where environmental pollution arises from several simultaneous causes ("cumulative pollution") … or from several consecutive causes ("pollution chain") … the cost of combating pollution should be borne at the point in the pollution chain or in the cumulative pollution process, and by the legal or administrative means which offer the best solution from the administrative and economic points of view and which make the most effective contribution towards improving the environment.

Thus, in the case of pollution chains, costs could be charged at the point at which the number of economic operators is least and control is easiest or else at the point where the most effective contribution is made towards improving the environment, and where distortions to competition are avoided.”

The recommendation thus implied that application of the PPP should be channelled, when possible, to a single person even when the person identified as the “polluter” was not the person that caused the pollution.

The recommendation further stated that “[t]he concept of polluter … does not affect provisions concerning third-party liability”. As the OECD Joint Working Party on Trade and Environment subsequently commented, it is thus possible to designate a polluter to bear the costs of preventive measures and a third party that is responsible for the pollution to pay compensation.

In July 1987, the Single European Act included the PPP in article 130r(2) of the Treaty establishing the European Economic Community (subsequently article 174(2) of the Treaty on the Functioning of the European Union (TFEU)).

Article 130s(5) (subsequently article 175(5) of the TFEU) recognised the need for reasonableness in applying the PPP by stating that:

“Without prejudice to the principle that the polluter should pay, if a measure based on the provisions of paragraph 1 involves costs deemed disproportionate for the public authorities of a Member State, the Council shall, in the act adopting that measure, lay down appropriate provisions in the form of:

·Temporary derogations, and/of

·Financial support from the Cohesion Fund.”

The current version of the PPP (now in article 191(2) of the TFEU) states that:

“Union policy on the environment shall aim at a high level of protection taking into account the diversity of situations in the various regions of the Union. It shall be based on the precautionary principle and on the principles that preventive action should be taken, that environmental damage should as a priority be rectified at source and that the polluter should pay.”  

The PPP does not apply to the remediation of all environmental damage in the EU. For example, the European Court of Auditors’ Special Report on the PPP commented on difficulties faced by competent authorities in applying the cost recovery principle to pollution that originates from diffuse sources such as agricultural practices, noting that diffuse agricultural pollution from nitrates and pesticides is the main cause of groundwater failing to achieve good chemical status.

The Commission considered in its official reply 188 and in relation to the previous CAP (2014-22) that was based on cross compliance, that the PPP is implemented in the Common Agricultural Policy (CAP) through, inter alia, the sanction system of cross-compliance where reductions of CAP payments are applied when farmers do not respect applicable EU relevant law on the environment and climate including certain statutory rules (e.g. the Nitrates Directive). In addition, the CAP can directly support practices, investments, etc., in the service of the environment and climate that compensates only for action going beyond relevant legal obligations. To be noted that in the CAP 2023-2027 the system of cross-compliance was replaced by the conditionality rules, which include a higher level of ambition through its strengthened green architecture (see p. 179-180 with details about current CAP).

The Court of Auditors’ 2021 special report also referred to the 2014 EU guidelines on State aid for environmental protection and energy regarding application of the PPP to legacy pollution, including the situation where the persons responsible for the pollution no longer exist, cannot be identified, or are insolvent.

Under the EU version of the PPP, a landowner that purchased an interest in a contaminated site and did not contribute to the pre-existing contamination is not liable because the landowner did not contribute to the contamination. Under the version of the PPP that applies to the national law of most if not all Member States, however, the landowner may be held liable. Further – and crucially – there is no need for the current owner or occupier of land on which there was pre-existing contamination to have breached any laws or indeed, for such laws to have existed at the time of the disposal or treatment of pollutants/contaminants that caused the contamination. Although a person that caused land to be contaminated or water to be polluted may be prosecuted for causing the contamination or pollution, legislation that imposes liability for remediating the contamination or pollution is separate and independent of such legislation.

Another example is the introduction in the ELD of primary, complementary, and compensatory remediation. Primary remediation is the remediation of biodiversity and/or waters and services rendered by them to other natural resources and the public to or towards their baseline condition, that is, their condition at the time of the damage that would have existed if the environmental damage had not occurred. If primary remediation does not restore the damaged biodiversity or waters to their baseline condition, the liable operator must carry out complementary remediation, that is measures to provide a similar level of biodiversity and waters and services provided by them, including at an alternative site if appropriate, that would have been provided if the damaged site had been returned to its baseline condition. The alternative site should be geographically linked to the damaged site if possible and appropriate. In addition, the liable operator must carry out compensatory remediation, that is, additional improvements at the damaged site or an alternative site to compensate for the interim loss of the damaged biodiversity or waters and services provided by them from the time of the damage until recovery to their baseline condition.

Prior to introduction of the ELD, a person that caused damage to biodiversity and waters, was not required to carry out, or pay the costs of, complementary or compensatory remediation.

Further, the ELD introduced liability for remediating environmental damage caused by intentional authorised activities in addition to accidental damage, as evidenced in Folk v Unabhängiger Verwaltungssenat für die Steiermark, which concerned alleged water damage by a hydroelectric power plant on the River Mürz in Austria, and Naturschutzbund Deutschland — Landesverband Schleswig-Holstein eV v Kreis Nordfriesland, which concerned damage to a population of black tern (Chlidonias niger), listed in annex I of the Birds Directive, at a bird sanctuary in Germany.

5.2.2 Rulings by the Court of Justice of the European Union

The CJEU has ruled on application of the PPP in the EU in the context of accidental pollution and other environmental damage by stating that a polluter is only responsible for remediating the pollution to which they have contributed. That is, unlike application of the PPP by some Member States and CERCLA in the US in which the owner of a contaminated site can be liable even though the owner did not cause or acquiesce in the contamination, or even in some cases know that the site was contaminated when it acquired it, there must be a causal link between a polluter and environmental damage under EU law.

In the combined cases of Raffinerie Mediterranee (ERG) SpA v Ministero dello Sviluppo economico (both of the same name), the CJEU stated that Member States have broad discretion in establishing a causal link. They may for example, create a rebuttable presumption that reverses the burden of proving that a causal link exists from the competent authority to an operator. Evidence to establish the link may include the location of the operator’s facility near a contaminated site and correlation between substances used by the operator and those identified at the contaminated site. In such a case, the operator is liable for remediating the pollution unless it rebuts the presumption of liability.

The CJEU also recognised proportionality in its ruling in R v Secretary of State for the Environment (ex parte Standley), which concerned water pollution by nitrates. The court stated that:

“Member States are to take account of the other sources of pollution when implementing the [Nitrates] Directive and, having regard to the circumstances, are not to impose on farmers costs of eliminating pollution that are unnecessary. Viewed in that light, the [PPP] reflects the principle of proportionality”.

The CJEU has extended the designation of a polluter to include more than one person in the context of liability for remediating accidental damage. In Van de Walle v Texaco Belgium SA, which involved hydrocarbons accidentally spilled in land at a service station, causing soil and groundwater contamination, the CJEU stated that the manager/operator of the service station that was in possession of the hydrocarbons was responsible as a holder of waste as well as the oil company that supplied petrol to the service station if the poor condition of the service station’s storage facilities and the leak of hydrocarbons could be attributed to a breach of the oil company’s contractual provisions with the owner or operator of the service station.

The CJEU further ruled in Commune de Mesquer v Total France SA, which involved a marine oil spill, that previous holders or producers of the product that became waste “may, in accordance with the [PPP] be responsible for bearing the cost of disposing of waste”. Such persons could include the owner of the ship carrying hydrocarbons (heavy fuel oil) that was in possession of them immediately before they became waste, the company that sold the hydrocarbons, and the company that chartered the ship that carried the hydrocarbons when the spill occurred, provided they “contributed to the risk” that pollution would occur and failed to take measures to prevent the incident.

Extending the PPP in Commune de Mesquer to persons that “contributed to the risk” of pollution injected a proportionality approach to the PPP in respect of producers of products that become waste when they no longer control or hold the product when it becomes waste. Arne Bleeker commented that, in such a case, courts will need to establish the extent to which the product contributed to damage caused by the waste through their negligence or (as in Van de Walle) through a breach of contractual obligations. He further stated that, although at least in the context of the Waste Framework Directive, the “risk responsibility” notion makes it easier for courts to impose responsibility on a producer of a product that becomes waste – and thus to induce them to reduce such a risk – establishment of such risk liability could be difficult to prove, thus increasing the costs of victims in claims against product producers.

In Naturschutzbund Deutschland — Landesverband Schleswig-Holstein eV v Kreis Nordfriesland, which concerned damage caused by management of a Natura 2000 site, the CJEU referred to the PPP in the context of the interpretation of the term “occupational activity” under the ELD. The court rejected an argument that, according to the German language version, the ELD implied that an occupational activity was covered by the ELD only if the activity had a purely economic meaning instead of also including activities carried out in the public interest pursuant to a statutory assignment of tasks. The CJEU stated that such an interpretation would exclude many activities that posed a risk to human health or the environment and would thus deprive the ELD of part of its practical effect in holding operators financially liable for causing environmental damage and thus inducing them to adopt measures and to develop practices to minimise the risk of such damage.

Application of the PPP in EU legislation does not inhibit application of a different version of the PPP by Member States. For example, in Ministero dell’Ambiente e della Tutela del Territorio e del Mare v Fipa Group Srl, the CJEU stated that if a causal link cannot be established between environmental damage and an activity of an operator, the situation is governed by national law. The court further ruled that the ELD does not preclude national legislation in cases in which it is not possible to identify the polluter of the site or to require the landowner that is not responsible for the pollution to carry out preventive or remedial measures. Under the Italian law at issue in the case, a competent authority cannot require the owner of contaminated land to carry out remedial measures unless the owner caused the damage. If the competent authority cannot identify the polluter or require the polluter to carry out remedial measures, the authority may carry them out. If the competent authority carries them out, the landowner must reimburse the authority for the increase in market value of the site after the measures have been carried out.

Advocate General Kokott mentioned the potential for owners of contaminated/polluted sites, as holders of waste under articles 14 and 15 of the Waste Framework Directive, being responsible for remediating the waste/contamination in Ministero dell’Ambiente e della Tutela del Territorio e del Mare v Fipa Group Srl. She recommended to the court however that it should not address the “difficult and, in part, delicate questions” because their possible significance for the case was unclear. The issue has not arisen in any other case heard by the CJEU.

5.3 Member State versions of the polluter pays principle

Member States refer to the PPP in different ways. For example, the Bulgarian Cabinet referred to the PPP in approving amendments to legislation that raised the level of penalties for causing damage to air, water, soil, landscapes, biodiversity, and other environmental components in January 2024. A statement accompanying the amendments commented that low penalties had resulted in the payment of fines instead of taking measures to stop pollution.

The main difference between application of the PPP under EU law and the national law of Member States, however, is its application to the remediation of legacy contaminated land. Under the national law of Member States, the scope of persons to which the PPP applies is extended from a person that causes or contributes to such contamination also to include the owner or occupier of contaminated land. The differences between application of the PPP to the remediation of damage to waters and biodiversity are much less than they are for land.

5.3.1 Land damage

Under the law of many Member States, a person that owns or occupies land that was contaminated when they acquired an interest in it may be liable for remediating the legacy contamination despite the lack of a causal link between them and the contamination. The legislation focuses on the remediation of contaminated land. It does not tend to apply to land that is damaged by any other causes.

The issue for the application of the PPP to liability for remediating legacy contamination first arose in the EU in the early 1980s when seriously contaminated sites were discovered in Denmark, the Netherlands, and Sweden. Denmark and the Netherlands established public funds to pay to remediate the sites but were largely unsuccessful in recovering funding under tort law because they could not prove that the companies that had caused the contamination many years before were negligent when they had caused it. Gradually, countries in Europe began to introduce strict liability systems for remediating legacy contamination, not only for persons that caused it but also, liability (generally secondary liability) for current owners and occupiers of contaminated sites.

Inclusion of current owners and occupiers of contaminated sites assists in avoiding difficulties noted by the OECD and the Court of Auditors in that persons that caused the contamination may no longer exist or may be insolvent. Inclusion of current owners and occupiers does however mean application of a different version of the PPP to the OECD and the EU versions that extends liability for remediating contamination beyond persons that caused or otherwise contributed to the contamination.

Member States extended liability for remediating legacy contamination to owners and occupiers in various ways, especially by reducing or removing the requirement for causation. The following is a very brief overview of the national legislation for remediating legacy land/soil contamination by some Member States to demonstrate differences in application of the PPP between them.

As noted above, the tendency is for the national liability legislation of Member States to impose primary liability for remediating contamination on persons that contaminated land, and secondary liability on owners (and sometimes also occupiers) of land that did not cause the contamination.

For example, as a general rule in Austria, a landowner is liable for remediating contaminated land if the person that caused the contamination cannot be found, no longer exists or is insolvent and the landowner permitted or acquiesced in the contamination and failed to carry out reasonable measures to prevent it, or if the landowner acquired contaminated land and, when it did so, knew or should have known about the contamination.

The three regions of Belgium have sophisticated regimes to remediate legacy contamination. In the Flemish Region of Belgium, the operator of a facility subject to an environmental permit is primarily responsible for remediating contaminated land. If the site is not subject to an environmental permit, the user of the land is secondarily responsible. If there is no user or the user is exempt from liability, the owner of the land has tertiary responsibility unless the owner can show that another person controls the land. There is thus a difference between responsibility and liability. If a person that is responsible for remediating contamination remediates it, that person may claim against the person that polluted it – assuming of course that the liable person can be found and is financially viable.

A similar system exists in the Walloon Region, in which the person that caused contamination is primarily liable for remediating it. If that person cannot be located or cannot pay to remediate it, the operator of activities subject to an environmental permit is secondarily liable. If neither person can be located or pay to remediate the contamination, the owner of the freehold or leasehold of the land has tertiary liability.

In the Brussels-Capital Region, the operator, owner, or occupier of land that contaminated it is primarily liable for its remediation unless that person had stopped activities on the land before 1 January 1993, or after that date provided that the person had carried out the activities in compliance with applicable legislation. If more than one person caused the contamination, the person who last contributed to it is responsible for the remediation. If the person that caused the contamination cannot be identified, or is no longer liable for the remediation, the owner of the freehold or leasehold interest in the land is secondarily liable for its remediation. They may however claim the remediation costs against the person that caused the contamination, provided that person can be found and is financially viable.

If contamination in the Netherlands occurred before or after 1 January 1987, the person that caused the contamination is liable for its investigation and remediation. If the contamination occurred between 1 January 1975 and 1 January 1987, the owner of the contaminated land is also liable for its investigation and remediation. If the contamination occurred before 1 January 1975, the owner of the contaminated land is not liable unless it caused the contamination, was at fault in doing so, and knew or should have known that causing the contamination would lead the State to suffer financial harm in the form of clean-up costs (known as the relativity principle).

Under German law, the following persons are jointly and severally liable for investigating and remediating soil and groundwater:

·the person that caused the pollution;

·the legal successor of the person that caused the pollution, for example by a merger or inheritance;

·the owner of the contaminated land;

·the tenant or other occupier of the contaminated land; and

·the former owner provided that it transferred the land on or after 1 March 1999 when the Act entered into force.

Persons in the first two categories are called “disturbers by conduct”; persons in the following three categories are called “disturbers by status”. There is no hierarchy in the above categories. The competent authority may require persons in any category to investigate and remediate contaminated land. As a practical matter, authorities tend to require the person that is most able promptly and efficiently to remediate the contamination to do so subject to the constitutional principle of proportionality.

Under Hungarian law, the owner and possessor/user of real property are jointly and severally liable for remediating damage to it. The landowner may avoid liability by identifying the actual user and proving beyond any reasonable doubt that the owner was not liable for the imminent threat of, or actual, environmental damage.

Under Polish law, the owner of contaminated land is jointly and severally liable with the operator that caused the damage for carrying out preventive and remedial measures if the damage was caused with the consent and knowledge of the owner. The landowner may avoid liability by notifying the competent authority of the imminent threat of, or actual, environmental damage immediately upon learning about it.

Some Member States have a so-called “innocent purchaser” defence in their contaminated land legislation. The defence applies if land was contaminated before the person acquired an interest in it and did not know and could not have known that the land was contaminated when it acquired it. There are various versions of the defence.

In Finland, the owner or occupier of land on which contamination exists before they acquired the land is not liable unless: (1) the order to remediate the contamination was issued or predicted before their acquisition of the land, and the order was not complied with notwithstanding that such compliance was emphasised and the circumstances were reported to the police; (2) they knew or should have known that an order to investigate or remediate the land had been issued when they acquired the land, or (3) the acquisition was made by a person which itself was or could be required to comply with the order. If land was contaminated between 1 April 1979 and 31 December 1993, the landowner is liable for its remediation if the person that caused the contamination cannot be found or cannot pay. If the contamination ceased completely before 1 April 1979, the current landowner is primarily liable regardless of whether it caused the contamination; a former landowner who did not cause the contamination is not liable.

In Latvia, liability applies to a person that acquired an interest in a site after the site was registered under the regime for remediating land contaminated by historic pollution.

In Sweden, the owner of a contaminated site that did not cause the contamination has a defence to liability for remediating it if the owner carried out investigations to show that it did not know and should not have known that contamination existed when it acquired the contaminated site. The defence only applies, however, if the source of contamination no longer exists and the contamination is not ongoing. For example, if the contents of a pit continue to seep into groundwater or migrate, the landowner is considered to be an operator even though it is not continuing to operate the pit.

5.3.2 Water damage

Differences between application of the PPP between EU and Member State law for the remediation of water damage tend to be less than for the remediation of land damage. There are two main reasons for this.

First, the primary cause of damage to water is pollution, which tends to dissipate much more quickly than pollution/contamination of land. There are, for example, no regimes to remediate legacy water pollution as there are regimes to remediate legacy contaminated land, with the caveat that national contaminated land legislation in some Member States (e.g., Belgium, Denmark, Finland, Germany, the Netherlands, Romania, Slovakia) includes requirements for the remediation of polluted groundwater, and to a lesser extent surface water. Thus, at least to this extent, the version of the PPP applied to the remediation of water differs from the version of the PPP in EU legislation.

Second, EU legislation that requires the remediation of polluted water (notably conditions of permits under the IED and, to a much lesser extent, provisions of the ELD), tends to be applied to the remediation of water pollution. There are limited exceptions to this general rule. For example, Irish law imposes liability for preventing of remediating pollution on persons that cause or permit ‘polluting matter’ to enter waters as well as persons that breach relevant authorisations in allowing the discharges. Ireland is however in the minority of Member States in this regard.

5.3.3 Biodiversity damage

Application of the PPP to national law that requires the remediation of damage to biodiversity differs from its application to EU law only to a limited extent. There are two main reasons for this.

First, the ELD and to a much lesser extent articles 6(2) and 6(3) of the Habitats Directive tend to be applied for the remediation of damage to protected species and natural habitats. Member State legislation does not tend to require owners and occupiers of sites on which protected species and natural habitats are damaged to remediate the damage, although there is at least one exception. Irish legislation imposes liability for remediating protected species and natural habitats on the owner, occupier, and user of the relevant land as well as the person that carried out the activity that caused damage to a Natura 2000 site.

Second, only a few Member States have national legislation that requires the remediation of damage to protected species and natural habitats below the significance criteria of the ELD. This legislation does not tend to extend liability beyond the person that caused the damage.

There is an exception to the above if land on which there are protected species and natural habitats is damaged by pollution with the result that they are contaminated land under national law. In such a case, however, the focus is on the remediation of the contaminated land and not ecological systems on that land.

5.National Responsibility for implementing the PPP

As the PPP is a fundamental principle of EU environmental law it is also the responsibility of the Member State to implement it on a national level.

In general, the Member States are bound by the goals of the different Directives, so especially implementing the PPP in the way the specific directives specify. It is up to the Member States to devise their national laws on how to reach the directive’s goals. Once adopted at EU level, they are then transposed by EU Member States, so they become law in the Member State.

Article 288 of the Treaty on the Functioning of the European Union states that a directive is binding, as to the result to be achieved, in the Member States to whom it is addressed (one, several or all of them), while leaving national authorities the power to choose the form and methods to achieve the result. So it is the responsibility of the Member State to achieve the objectives set by the directive and to communicate the measures taken to the European Commission. Therefore, there needs to be at least some information from every Member State concerning the different directives implementing the PPP.

Furthermore, it is worth noting that all OECD Member Countries should apply the PPP and this is a consideration during their accession process. Currently, 23 EU Member States are also Member Countries with 3 more going through the accession process.

The principles of subsidiarity and proportionality 189 govern all EU actions. In all areas, in line with the principle of proportionality, Union actions should be restricted in their content and form to what is necessary to achieve the objectives defined in the Treaties. The principle of subsidiarity ensures that decisions are taken as closely as possible to the citizen by the most appropriate level where the intended objective(s) can be most effectively achieved. Subsidiarity means that the Union should only act if, and in so far as, the objective of the action cannot be achieved sufficiently by the Member States (at national, regional and local levels). This principle aims to ensure that policy measures are decided at Union level only where necessary and as close as possible to the citizen, which makes it a relevant question as to how Member States apply the PPP.

6.European Court of Auditors

The European Court of Auditors revised the application of the Polluter Pays Principle as a key principle underlying the European Union’s (EU) environmental policy 190 . They noted that “Application of the principle means that polluters bear the costs of their pollution including the cost of measures taken to prevent, control and remedy pollution and the costs it imposes on society. By applying the principle, polluters are incentivised to avoid environmental damage and are held responsible for the pollution that they cause. It is also the polluter, and not the general taxpayer, who covers the cost of remediation.”

The ECA report focuses on whether the principle was well applied in four EU environmental policy areas: industrial pollution, waste, water, and soil. There was also an assessment of whether the Commission’s actions related to the Environmental Liability Directive for regulating environmental damage from economic activity brought results. Also, an assessment of whether the Commission and Member States protected the EU budget from being used to bear expenses that polluters should have paid.

Their conclusions were:

Overall, we found that the Polluter Pays Principle is reflected and applied to varying degrees in the different EU environmental policies and its coverage and application was incomplete. With regards to environmental liability, the Commission’s actions to support Member States’ implementation of the Environmental Liability Directive had not solved key weaknesses, such as unclear key concepts and definitions and the absence of financial security in cases of insolvency. The EU budget is sometimes used to fund clean-up actions, that should under the Polluter Pays Principle have been borne by polluters.

We recommend the Commission to:

o assess the scope for strengthening the integration of the Polluter Pays Principle into environmental legislation;

o consider reinforcing the application of the Environmental Liability Directive ; and

o protect EU funds from being used to finance projects that should be funded by the polluter

The Commission responded in its Zero Pollution Action Plan with a commitment to undertake this Fitness Check and to use it to make recommendations on how to better implement the PPP 191 .

A 2021 report by the European Court of Auditors concluded that EU law does not apply the polluter-pays-principle to agricultural emissions and recommends that the Commission should “assess the potential of applying the […] principle to agricultural emissions, and reward farmers for long-term carbon removals”. In the replies of the Commission, the Commission accepted the recommendation and clarified that the [current] CAP, the Farm to Fork Strategy and the Green Deal do foresee positive incentives to reward farmers for long-term carbon removals. The Commission has also carried out a study to assess the polluter pays principle in relation to agricultural greenhouse gas emissions, which was published on 13 November 2023.

7.Current political commitments

The Green Deal 2019 called for: “Well-designed tax reforms can boost economic growth and resilience to climate shocks and help contribute to a fairer society and to a just transition. They play a direct role by sending the right price signals and providing the right incentives for sustainable behaviour by producers, users and consumers. At national level, the European Green Deal will create the context for broad-based tax reforms, removing subsidies for fossil fuels, shifting the tax burden from labour to pollution, and taking into account social considerations.”

The European Semester 2020 Communication underlines: “Moreover, simplifying the tax system can help limit economic distortions and reduce the administrative burden for companies. Since an efficient and fair tax system is particularly important to support an effective economic recovery in the medium term, some Member States are recommended to reform their tax system, including through shifting from labour to environmental taxation.”

In response to the COVID-19 crises, many countries took unprecedented steps and introduced broad fiscal measures to keep the economy alive. Once recovery is well underway, governments should shift from crisis management to more structural tax reforms. “Once the recovery is firmly in place, rather than simply returning to business as usual, governments should seize the opportunity to build a greener, more inclusive and more resilient economy,” quote Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration. “One path that should be urgently prioritised is environmental tax reform and tax policies to tackle inequalities”.

On 15 July 2020, the Commission adopted an ambitious Tax Package for fair and simple taxation (europa.eu) The package underlines well-designed tax systems’ important role in supporting the green transition by creating the right incentives for sustainable and environment-friendly behaviour, including sustainable investment, and ensuring that the polluter pays principle is respected. It subsequently adopted a proposal for a revision of the Energy Taxation Directive .

The Commission’s guidance to help Member States prepare and present their recovery and resilience plans (RRPs) includes potential reforms such as: For instance, shifting away from labour taxation into well-designed environmental taxation, with due consideration to possible distributional effects, has the potential to stimulate employment, change behaviour towards more sustainable consumption and production and to help the EU and Member States achieve their environmental and climate objectives Guidance to Member States - Recovery and Resilience Plans - Part 1 (europa.eu)

8.Conclusions on the scope of PPP

In summary, the PPP in EU environmental policy is generally applicable. In terms of scope, PPP currently concerns mainly fiscal aspects, as well as preventive measures (including permits) and the comprehensive cost implications of environmental damage already caused (criminal, civil and environmental liability). As a Treaty principle it is relevant for all policies affecting the environment (whether it is mentioned in their recitals or not), including internal market policies, climate policies, agricultural policies, transport policies etc. It reflects the idea that the environmental costs of economic activities, including the cost of preventing potential harm, should be internalized rather than imposed upon society at large. Environmentally harmful subsidies, where the State pays the polluter to pollute are inconsistent with the PPP. All issues related to responsibility for cost for environmental remediation and compliance with pollution control regulations involve this principle.

Many Directives and Regulations refer explicitly to the PPP, but others do not. This seems to reflect the legal practices at the time, but in itself is not material as secondary legislation (Directives and Regulations) that does not explicitly include the PPP in its recitals is still bound by primary legislation (the Treaty) and should implement the PPP.

The PPP should also be applied by Member States, in line with the principle of general applicability. Any assessment of the PPP therefore needs to also consider if in line with the principle of subsidiarity, Member States are best placed and actively implementing the principle, for example, to internalise environmental externalities.

Annex 7. Assessment of implementation

Assessment of implementation is considered from three perspectives: the EU legislation (who pays for the actions it requires); the polluting sectors (do they pay their costs); the environmental damage (are externalities internalised?)

A.EU legislation – do polluters pay for it?

In the tables below, we examine the legal provisions for each individual policy and indicate in how far they apply the PPP. This analysis is limited to the legal provisions, it does not include a judgement of the effectiveness and implementation of these provisions.

For the costs of prevention/control and for the administrative costs, we have applied a Red-Yellow-Green colour coding to denote the extent to which the PPP is currently applied for these two cost categories and for each policy in scope. This rating is an expert judgment based on secondary evidence review and assessment of the policies in question. It is based on two elements. First, a policy perspective, which examines the extent to which the PPP is applied by the policy in question. Second, an economic sector perspective, which examines the extent to which the sectors in question incur the external costs associated with the activities via the PPP:

·Red: the policy contains measures which incur a cost, but that cost is not, or largely not, met by the polluter. 

·Yellow: The policy in question contains measures which incur a cost and that cost is partially met by the polluter. The policy in question establishes a duty for the Member State competent authority, hence the extent of application of the PPP depends on national plans and legislation.

·Green: The policy in question contains measures which incur a cost which is met or largely met by the polluter. So, a high degree of application of the PPP.

·White : The policy contains no measures which result in costs to be met by the polluter. So, the PPP cannot be applied.

For the costs of environmental damage, these costs are not generated by the environmental policy itself but may be addressed by it. The tables below therefore use no colour coding but they do indicate when policies address environmental damage costs. The colour code was avoided as it would be confusing, given that the costs for environmental damage are often already addressed by horizontal policies.

The following analysis is based on the situation in the year 2023 for each policy, grouped by 8th EAP priority objectives.

Table 11: State of play for policies contributing to the 8th EAP climate change priority objectives