28 Apr 2016

Who pays the bill? Water pollution in Brazil

Laurent writes:*

The metropolitan area of São Paulo is with over 20 million people one of the biggest cities in the world. But not just as a living space São Paulo represents an enormous important role in Latin America, the metropolitan area is also one of the most important economic hotspots and generates around 15% of Brazil’s GDP. The region of São Paulo is responsible for a third of all industrial production and generates a third of all exports and around 40% of all imports in Brazil. Those key numbers briefly illustrate the importance of this region but also the density-related stress that occurs in such regions. São Paulo is known as one of the cities with the highest air pollution. However, not only the air condition is a problem for São Paulo but also the wastewater management is in this area with around 20 million people and over 33’000 factories is a massive undertaking.

It is paradoxical that humans are destroying their own environment in order to make business. This business does not take into account the negative externalities created through wastewater which is discharged into the Tietê River. Life would be impossible without potable water, nevertheless the costs for cleaning the river occur rarely or never in the products that we are buying. The National Geographic pictures impressively illustrate how polluted the Tietê River is with toxic foam. All the waste created by the metropolitan area of São Paulo, the companies and the inhabitants are responsible for the waste that flows through the river. In 1992, the Tietê Project has started and it was the beginning of an ambitious plan to clean the river. Dilma Seli Pena, the CEO of São Paulo’s state water sanitation company (Sabesp), explains in an interview that the last of the four phases to build the new wastewater facilities for the cleaning of the Tietê will be finished by 2018, a project that has cost US$ 2.65 billion so far. The Economist also picked up the problem of the high polluted Tietê located to a high number of factories and close to a megacity and predict a cleaner river in the future.

However, none of the articles raises the question of who is paying for the pollution. Everyone is satisfied to see a cleaned river without thinking of the costs for the cleaning of heavy metals from industrial runoff or other toxic chemicals in the river. The polluter pays principle has not reached in this case. The State of São Paulo will clean the Tietê river and will sensitize the industry and agriculture to reduce the negative impacts to the environment; the implementation of laws will also hopefully have a positive effect.

Bottom Line In the end the costs for the cleaning of the environment are paid by every taxpayer, this includes companies, but they do not pay directly for the pollution. The negative externalities are shared with the society that have to pay for the pollution but the benefits are privatized.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.


  1. Flip van de Kerkhof29 Apr 2016, 11:07:00

    You say that cleaning costs of negative externalities are paid for indirectly by taxpayers (everyone), whilst the benefits are privatized. I understand that this might seem unfair.

    However you could argue (I am arguing this in fact) that privatizing benefits provides an incentive for people to innovate. Including the costs of negative externalities will raise the price of entry to market, and could potentially harm innovation.

    I think that the argument that including negative externalities in the price will incentivize 'green' innovation does not hold because under normal conditions 'green production' is more expensive (higher entry costs) and there will thus be limited competition, which would incentivize innovation and decrease negative externalities through that.

    1. @Flip -- can you explain more of WHO receives the privatized benefits? Do you mean that THEY should face the cost of negative externalties? Where is the polluter and city in this?

  2. In your Bottom Line, you conclude that although the negative externalities are shared among members of the society by paying taxes to clean the river, the benefits are privatized. I actually think that the benefits are actually also shared among society.

    Polluted rivers exacerbate flooding through overflow of water. In the past, the Tiete River has contributed to flooding in surrounding areas. Cleaning up the river would definitely bring benefits to those living around it.

    The benefits of cleaning up the Tiete also extend beyond the communities that live around it. The ecosystem services offered by rivers and riparian areas include water cycling, nutrient cycling, soil formation, and carbon supply. These services do not only serve private or local interests, but extend much further beyond it.


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