How Not to Assess Environmental Compensation

The disparity in the fight against the climate crisis evidently arises from the inability to track one’s own culpability for the environmental degradation and the long-term consequences of it which might not be apparent instantly. Hence, there is a need to depend on and embrace the relevant conversations materializing in the scientific community. One such area of interest is the determination of environmental compensation. The courts have been dealing with a variety of cases, from projects without authorized Environmental Clearance (EC), a mandatory approval from the State for projects impacting the environment, to oil spills and other man-made disasters of the environment that directly impact the climate. So that raises the importance on how the court has understood compensation and how it has justified it. In this article let us try to understand what procedure has been laid out by the Indian Courts to determine environmental compensation and what the reasoning given by the courts says about the nature of climate justice in the country. Are these compensations brashly retributive or are they consciously transformative?

Polluter Pays Principle

The procedure to determine the compensation for a particular instance of environmental damage is not laid out legislatively. So, in the National Green Tribunal (NGT) Act, 2010 (the Act), Section 20 gives the NGT the capacity to award compensation through the Polluter Pays Principle. The Polluter Pays Principle was introduced in 1972 by the Organization of Economic Cooperation and Development (OECD). The principle fundamentally expresses the idea to hold the polluter liable for their actions that consequently led to environmental degradation. So, the polluter will be imposed with the liability to restore the caused environmental damage. Meaning, the polluters would need to bear all costs, direct and indirect, that will be required to restore the environment and to compensate all the affected stakeholders.to restore the caused environmental damage. Meaning, the polluters would need to bear all costs, direct and indirect, that will be required to restore the environment and to compensate all the affected stakeholders.

Applying Guess Work

The NGT has been applying the Polluter Pays Principle to award compensation, however there hasn’t been any coherence or scientific rationale in how they determine the compensation. The Act doesn’t lay down a method to calculate compensation either. An important facet of this jurisprudence stemmed from the case of Samir Mehta v. Union of India. The case revolved around an oil spill incident and consequently the NGT struggled to assess the situation due to the damage being attributable to multiple sources. It was held that monetary compensation can’t be determined with ‘exactitude and precision’, so some hypothesizing or guess work would be required. Ecological damage to aquatic life, mangroves, seashore and tourism can’t be computed exactly in terms of money. Similarly, in the case Deshpande Jansamsaya Niwaran Samiti v. State of Maharashtra, the NGT reinforced the necessity to rely on guesswork when there isn’t enough information to compute the compensation.  information to compute the compensation.

In another case, Gurpreet Singh Bagga v. Ministry of Environment and Forests and Ors, the NGT again resorted to the method of guesswork, and held that lack of ability to determine the compensation in exactitude by itself wouldn’t be a ground for exempting the polluters from their liability. This method of guesswork is not an invention of the NGT but an extension of the principle from the SC’s (SC) decision in the case, A.P. Pollution Control Board v. Prof. M. V. Nayudu, which notes that such a method of limited guesswork is an accepted principle. The uncertainty in determining the damage and lack of scientific knowledge forces NGT to take arbitrary decisions when it comes to assessing compensations, and this highlights the need for the NGT to find alternatives. to find alternatives.

Arbitrarily Fixed Penalty

NGT has not been relying solely on the method of guesswork to calculate the compensation. The other approach in this jurisprudence is that the NGT arbitrarily adopted the SC’s approach to determine the compensation in Goa Foundation v. Union of India. In this case, SC had to determine the compensation because of illegal mining in Goa. The lessee, who was authorized to mine for iron ore, violated the Forest Conservation Act, 1980, Environment Protection Act,1986, and other laws. SC decided to award the polluter a compensation of 10% of their sale proceeds. Instead of halting the illegal mining activity, as it would affect the employment and the revenue that it generated for the state, the court awarded a compensation from its sale proceeds.. The court's rationale was that if the mining had to continue then it would make sense to determine the compensation based on the sale proceeds as it would directly affect the profitability of the project. However, this method of determining compensation took varying forms in the cases that followed.

In The Forward Foundation v. State of Karnataka, the court dealt with unauthorized construction in an ecological sensitive area. NGT adopted the SC’s approach in the Goa Foundation case and imposed a modified penalty of 5% of the ‘project cost’. These two changes, a) arbitrarily bringing down the compensation from 10% to 5% and b) using ‘project cost’ instead of the ‘sale proceeds’ criteria, were not explained by the NGT. In the subsequent cases, the lack of consistency in the application of the “sales proceeds” criteria has led to arbitrary imposition of compensation which might not be able to impose full liability on the polluter, thus violating the polluter pays principle and absolute liability principle.

Furthermore, this approach was followed in later instances when NGT simply levies a penalty amount of 5 percent of the project value as compensation. This approach could prove detrimental as it enables potential polluters to perform a cost-benefit analysis before initiating a project. Imposing a fixed penalty, such as an initial sum of 5 crores or 5% of the project cost, regardless of the extent of damage caused, might encourage polluters to factor these predictable penalties into their calculations of profitability. Such a rigid framework should be avoided in favor of a more flexible and dynamic method of assessing compensation based on the specifics of each case. Adopting this approach would not only deter future polluters from undermining their true liability, as outlined by the polluter pays principle, but also ensure that the courts can recover adequate funds to address and restore the environmental harm caused.Adopting this approach would not only deter future polluters from undermining their true liability, as outlined by the polluter pays principle, but also ensure that the courts can recover adequate funds to address and restore the environmental harm caused.

A Progressive Attempt by the NGT

One such attempt by the NGT to address this issue was in the case of Tanaji Balasaheb Gambhire v. Union of India. The respondent of this case constructed residential buildings and had been charged with several infractions of the law including EC Regulations such as utilisation of excess FSI, construction of additional basements without obtaining EC and illegal construction of shops and commercial premises. The NGT declined to issue an order to demolish the illegal construction charged with violation of EC regulations for three reasons:

1. The project at the time was nearing completion,

2. Since it was a residential project, other individuals have invested their money in the project,

3. The demolition of the structures in question would also result in further environmental damage and generation of construction waste.

Without enforcing an order of injunction on construction or an order of demolition, the Court is undermining the importance of breaching EC regulations. Though an order of demolition could be far from a good solution, the Court should take a strict action for such a breach and set a strong precedent to prevent future violations. This is only possible by awarding the polluter a high penalty for the violation of the law.

Furthermore, in this case, to assess the compensation, the review applicant introduced the concept of carbon footprint. The Intergovernmental Panel on Climate Change (IPCC) has adopted the following as the definition of carbon footprint: “measure of the exclusive total amount of emissions of carbon dioxide (CO2) that is directly and indirectly caused by an activity or accumulated over the life stages of a product”. Though the respondents claimed that the concept of carbon footprint has not been mentioned anywhere in the Law, section 19 of the NGT Act states that the NGT has the freedom to regulate its own procedure, guided by the Principles of Natural Justice. The NGT identified that awarding the compensation of “100 crores or 5% of the total project cost, whichever is less” was a soft approach because the polluter might be penalized less if the assessed amount is less than 100 crores. Acknowledging the existing arbitrariness in awarding compensations, the NGT upheld the validity of the concept of carbon footprint for its scientific merits. The judgment acknowledged that the environmental burden caused by CO2 emissions from illegal construction, exceeding lawful limits, could serve as a valid metric for quantifying environmental harm.The judgment acknowledged that the environmental burden caused by CO2 emissions from illegal construction, exceeding lawful limits, could serve as a valid metric for quantifying environmental harm.

Scientifically, this concept therefore cannot be faulted and can be one of the measures for quantifying the environmental compensation/damages eschewing the ignorance cast upon everybody due to its absence from legal texts.

The assessment of compensation put forth by the review applicant was upheld as the NGT stated that no significant flaws were pointed out by the learned counsel of the respondent.  So, the polluter had to pay a compensation of 190 crores or 5%, whichever is more. The NGT also held that if a choice must be made between notional and reasonable to give what is due to the environment and be just, the choice must fall in favor of reasonable and not notional. The rationale laid down in this judgment acknowledged the existing arbitrariness in the jurisprudence and encouraged the utility of scientific methods to ensure climate justice.

However, this decision was reversed in the appeal to the SC. The SC rejected the consideration of carbon footprint as a factor in determining compensation, citing two reasons:

1. the review applicant introduced the concept of carbon footprint after the evidence has been closed, at the stage of arguments, and

2. the impact cannot be assessed in any terms, so the court could impose damages on principles that are only well settled by Law.

Though the SC doubted the integrity of the concept of carbon footprint and its implementation, it didn’t disqualify the possibility of using such a concept to assess environmental damages in the future. However, the judiciary has clearly let down an opportunity to address the problem of non-existent rationale to assess and award compensation for environmental damage.

Conclusion

The judiciary’s approach to environmental compensation, as discussed, reflects a pattern marked by inconsistency and a lack of scientific rationale. While most judgments have relied on guesswork and arbitrary penalties, one case attempted to integrate progressive scientific concept like the carbon footprint. However, the reversal of such innovative attempts by the SC highlights a missed opportunity to establish a more robust and rational framework for environmental justice. The arbitrariness in determining compensation sets a harmful precedent, enabling future polluters to evade the actual liability. This setback perpetuates the judiciary’s failure to take decisive steps toward addressing the pressing need for formulative and rational environmental compensation.

[This article has been authored by Tharun, a second-year LLB student at JGLS]