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.