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Developing Countries Should Get Paid for Environmental Damage

Martin Khor | South Centre | October 2010

These days, the casual observer might be tempted to think that on the world stage, it is not the extent of environmental damage that determines what - if any -compensation is paid to victims, but the identity of the party sustaining the damage. At least that is the impression one gets when following the media coverage of the Gulf oil spill. After all, throughout the past decades far greater disasters have caused far more extensive damage in developing countries without any compensation at all for human or material losses. Today, it is high time that the governments of developing countries follow the Obama Administration's example and put greater pressure on multinational corporations to compensate for long-term damages their business activities inflict on local communities.

While everyone is still talking about the BP oil spill, large-scale ecological disasters caused by private, international firms are nothing new. What is new is the concentrated and largely successful effort by a government (US) to induce a major international corporation (BP) to pay for damages. The following examples clearly show that this has hardly ever been the case up to date, in particular in the context of developing countries. In Ecuador, Texaco - today known as Chevron - continued to dump crude oil into the Amazon rain forest for years. The Niger delta is the site of yet another environmental catastrophe of gigantic proportions, thanks to leaky oil wells at the site of old drilling holes. Neither in Ecuador nor in Nigeria did the damaged parties succeed in obtaining court-settled compensation payments. This was due to the firms' reluctance to admit to any wrongdoing and be forthcoming about payments, as well as to the ineffectiveness and corruption of the regimes on the spot. The best known example remains Bhopal in India, where a poisonous gas leakage at Union Carbide killed over 2,300 individuals and injured tens of thousands of others, many of whom retained permanent health damage. While symbolic payments were made in this case, they were blatantly insufficient given the sheer scale of the disaster. Inspired by the recent successes of the Americans, Bhopal victims are currently attempting to get their cases retried in court.

However, it is not only governments in developing countries that must do a better job at getting multinational corporations to pay for damages inflicted in the event of ecological disasters, but also the appropriate authorities where these firms are registered. Throughout the world, firms should have to face the fact that they have to pay compensation. It is simply not acceptable that they cash in on profits while ignoring the long-term costs of their business activities. In the firms' countries of origin, governmental authorities must pass laws that hold them accountable for any environmental damage they cause not only at home, but also abroad. It is imperative to speedily conclude international agreements that will regulate compensation claims and payments in the event of environmental damage.

This summary was prepared by the Atlantic Community editorial team from "Pay Developing Nations for Eco-Disasters" published here by South Centre.

Mon, Nov 8th 2010, 23:39

Ximena Benavente, NYU, Bronze Contributor (23)

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Obama's reaction to the Gulf spill is not surprising, it was just part of the redeeming process of putting some attention to environmental issues given their Kyoto Protocol fiasco. It is also in his interest to be the voice of environmental concern as he massively advocated in his electoral campaign having a country committed to alternative sources of energy. Yet, given the nature of the American economy nobody seems to remember this vague promises of the American president.

A growing globalization process makes environmental damages even more critical. Contamination and pollution does not respect sovereignty or borders. Yet, achieving a common and binding environmental agreement seems mission impossible to the international community.

The fact that the spills where in the United States says much of the reactions in other parts of the world. Nobody pays enough attention to the hundreds of indigenous populations that have lost their homes, and in some cases their family members, in Ecuador or Nigeria. Oil spillages in these parts of the world are extremely common and yet President Obama's reaction seems shocking.

What do third world countries need to do so that oil corporations repay for the damanges? How do we ensure national governments cover for the negative externalities of the corporate world?

Thu, Nov 11th 2010, 00:19

Meital Tzobotaro, NYU, Center for Global Affairs, Silver Contributor (41)

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I agree with the author's point that environmental damage has long been a problem in the resource extractive industry. There has been a lot of commentary during the BP oil spill that exemplified that this is nothing new, but has just been taken into new proportions when it happend in the US.

I think that in order for developing countries to hold companies responsible to environmental damage there needs to be some pre-conditions that enable it. Unfortunately, those conditions do not exist or do not operate properly in most developing countries. When oil spills happen in developed countries, all hell breaks loose. When they happen in developing countries, its business as usual. I think that an example of developing countries' reluctancy to care about the benefit of its resources for its citizen can be seen quite clearly from tracking where the money is going. Unfortunately, the money is most often going to private pockets and not to social welfare programs.

On the suggestion of country of origin governments holding their own companies responsible, i have to state my skepticism.
First, it implies heavy involvement on the government in private business, something that is a no-no for liberal countries and that will face heavy resistance. Second, with so many Multi National Corporations or transnational companies now days, it will be hard to decide which is truly the home country - maybe there is more than one.
Also, when it comes to companies that are owned by the government such as the case in some of the big oil companies, it will be a conflict of interest to hold the company responsible for environmental damage since the company and the government obviously have the same interests.

Maybe the Extractive Industry Transparency Initiate (EITI) should be given a more concret mandate to monitor both the fair trade and environmental implication of this industry.

Thu, Nov 18th 2010, 19:19

Andrea Aquino, NYU, Bronze Contributor (23)

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I definitely agree with the proposition that the article suggests. It is important for corporations that inflict environmental damage on a community to be help responsible. There are far too many examples of the corporate world, who are usually closely tied to the government, to get away unscathed after a project gone wrong. Those left behind have to suffer the effects on their livelihood and communities. Especially in the developing world where countries are striving to move forward, an oil spill or gas leek can have tremendous effects which can inhibit the community from progressing.

I think that governments should hold private companies accountable to reimburse the community who has suffered. Yes, this does suggest the government being involved in private corporations however I think when it comes down to the well-being of that countries people this intervention is necessary.

This is a difficult suggestion to make, because many times private companies and their government indirectly work closely together. This can make it hard to reprimand a company at fault. However, if the government does not hold the company responsible who will? As the articles states, one of the biggest issues is accountability. Sometimes the private company will not even consider itself accountable for those negatively impacted by their work. Sometimes, all a community needs is the recognition that a wrong as been done and assurance that the committing party is doing something to facilitate a change so that this mistake will not be made again.

There is a enormous lack of accountability in our world, and this needs to change. Corporations rarely hold themselves accountable for the atrocities they indirectly and directly commit. As such, I do think the government should take a stronger role in ensuring that this accountability takes place.

Sat, Nov 20th 2010, 07:31

Basia A Bubel, NYU, Platinum Contributor (191)

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great article and great examples that you referred to with the disasters that have occurred in other parts of the world. We in the US never really hear about the environmental damages that are occurring in other parts of the world. The US oil spill was so big in the news because it happened to us so we publicized it everywhere. While I agree that the governments need to pass laws that hold the corporations accountable for paying for clean up and the damages of the spills, leaks and what have you, I also believe it is very important to enforce higher standards. These corporations must be held accountable for ensuring the safety of their equipment and machinery. Most of these disasters could have been prevented. This can definitely be enforced in the US however in other countries, especially the third world, i find that these regulations will be hard to enforce. Officials could be more interested in receiving bribes from the corporations to not enforce regulations that will enforce high standards for safety equipment and for overall functioning of the equipment.

Sat, Nov 20th 2010, 21:29

Erica Mukherjee, NYU, Silver Contributor (51)

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The author speaks of an idealized world in which the governments of developing worlds have both the incentive and the wherewithal to hold multinationals accountable for their actions. He ignores the fact that, in many cases, government officials are at least complicit in the actions of the multinationals. Kickbacks, bribes, and outright theft is the unfortunate reality in many developing countries, especially those endowed with ample natural resources. It is unrealistic to expect a system to change overnight, especially a system that attracts people willing to engage in suspect activities.

Asking the host countries of these extractive companies to enforce environment rules is equally unrealistic. Nearly three-quarters of all energy extraction is done by state-owned companies. Many of these countries wish to support their national champions as a way to earn revenue and prestige. Therefore doing anything to hurt their bottom line is not in the country's self-interest.

Even self-regulating institutions such as EITI, are not making as much of an impact on extractive industries. Consumers are not able to make a fuel-buying choices based on whether a company has EITI approval or not. Therefore, this voluntary organization has even less teeth than the Kimberly Process.

Unfortunately, I do not have any policy recommendations at the moment, but I do know that clinging to idealistic notions, such as those put forward by the author will continue to make the world rich in rhetoric but poor in bio-diversity.

Mon, Nov 22nd 2010, 06:13

Leimer Tejeda, New York University, Bronze Contributor (23)

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This is a very interesting question that the author points to and I agree with many of the comments above that government intervention in a market economy to control environmental issues is not the best solution. I would like to point to out a potential solution that has been implemented in the U.S. with air pollution. The Clear Air Act of 1990 gives interested parties the ability to 'buy' the amount of pollution that they need to emit out of a total basket allocated. These companies can buy their rights to pollute and if not used they can sell or trade them off.

Even though this might have its pros and cons it is a more market driven approach to controlling environmental damages. Now, there is a big challenge when an approach like this must be copied across borders. Perhaps, other foreign governments can create laws that limit the amount of 'damage' that they deem appropriate by oil firms or any other type of business that has a direct effect on natural resources. This approach can even act as an incentive to governments as they will be 1) protecting their environments and 2) making revenues off of selling the limited rights to pollution. In turn, companies banking on businesses that have an adverse effect on the environment will have to become more competitive and innovative in their ways of doing business in developing countries and how they affect the local environments.

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