The polluter pays principle is an environmental law that was passed to make the party responsible for generating the pollution responsible for paying for the damage done to the environment (Gaines, 1991). The polluter pays principle fundamentally means that polluters should pay for pollution prevention and control procedures as well as for the environmental damage they cause and that the government should not promote pollution (Woerdman et al., 2008).
The polluter pays principle was adopted as an improvement over the absolute liability principle because most industrial factory owners did not recognise an improvement in environmental conditions to be in their interest so they needed more incentive than just their social responsibilities (Trehan
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Because of this “grandfathering” has turned out to be the more prevalent method of assigning emission allowances (Woerdman et al., 2008).
The downside to “grandfathering” is that firms may now have an incentive to pollute in order to acquire more allowances (Woerdman et al., 2008). ). In some countries, the polluter-pays principle is applied by national governments through direct regulation that generates economic incentives, making the polluter to accept the cost of the environmental harm caused by its activity through regulation that enforces direct environmental liability on the polluting agents (Luppi et al., 2012).
In developing countries cases of environmental pollution and degradation, a different variation of the polluter pays principle appeared focusing mainly on the primary need to provide immediate reparation to victims of environmental harm (Luppi et al., 2012). Through legislation and judicial standards, a number of countries created a responsibility on local governments to provide direct and rapid compensation to the victims of environmental harm (Luppi et al.,