It sounds logical: let the parties responsible for producing pollution pay for the damage and they will stop the pollution. But an even better way is to find the cheapest solution to these environmental problems, says the LEI.
'Do you want to stimulate car producers to make even cleaner cars by implementing emissions taxes, or do you want to deter car owners from driving to the supermarket by imposing high parking charges?' he asks, using these as examples. He recommends finding the link in the production chain which can reduce the problem at the least cost.
In the case of the food chain, too, one should not automatically point a finger at the consumer. Do your sums first, says Backus. 'For example, I want to reduce food wastage by adjusting the size of the portions. Should I in this case go to the producer, or the retailer who stocks the shop shelves, or the consumer who throws them away? You can use economics stimulants to stop companies from selling big portions, or you can influence consumer behaviour by implementing a garbage levy.' Here, too, he advocates the cheapest way to prevent food waste.
Backus warns that this approach may however mean that a levy can be imposed on a party not directly responsible for the external environmental effect. 'The most effective way does not have to be the most acceptable way.' An example is odour pollution, an external effect of intensive livestock farming. 'For an area with many livestock barns and a few private homes, would you equip all the barns with air washers or get the home owners to move away?' he asks. 'The latter may be more effective, but more difficult to be accepted.'
In all situations, the government has to provide good market stimulations where the environmental costs can be made visible for all parties in the production chain. Only in this way can the costs be shared among these parties. Backus' study was commissioned by the Ministry of Economic Affairs, Agriculture and Innovation. He drew upon the research done by many other economists who examined the 'polluter pays' principle, especially in the transportation sector. But the study can also be applied to the food sector, now that European governments are considering imposing a meat or 'fat tax' to bring out the environmental pollution costs of meat production via pricing.