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Profit and Loss: Playing Accounts with Trees

While hearing the Public Interest Litigation for the fall of 356 trees to complete Setu Bharatam Mega Project, the Supreme Court of India came up with two ideas that are essential for the environment. First, the SC published the report of the Somnath Pandey Committee. It was appointed to calculate the cost of falling a single tree. The Committee has calculated the value as 74,500 multiplied by its age. The amount of 74,500 considers the value of oxygen, micro-nutrients, and trees as valuable parts of the environment. Second, SC asked to frame a new protocol by which road and highway projects are to be built only after checking the feasibility of other modes of transportation.

This article attempts to analyze the validity of covering environmental loss with monetary compensation, as well as to judge if the gap is large enough to merit a new protocol for transportation.

Replace Environmental Loss by Compensating in Economic Terms

The SC-appointed Pandey committee has arrived at a 10-digit figure worth Rs. 220 crores for the fall of 356 trees. SC said, “if the apex court accepts this report, the government will go bankrupt and emphasized to ‘rationalize’ the calculation”. The Committee has considered only the basic benefits derived from the trees. It has not considered prevention of soil erosion, medical usage of trees, non-territorial impact on the environment, and some remote but extremely essential usage. To cut down trees and replace them with new ones, damages paid by defaulting parties are not the new concepts. The difference lies in how much benefits of the trees are covered in determining cost and how well the amount collected is used for rejuvenation of the environment. These concepts can be better understood with further reading.

How Comprehensively has the Environmental Loss been calculated?

Carbon Sequestration is the natural process of capturing and storing atmospheric carbon dioxide. It is one of the most important ways to reduce the amount of carbon dioxide level thus, reducing its unnecessary addition to global warming and the ecosystem. But this essential function was not considered by the Net Present Value Committee Report of 2006. This report provides a formula to calculate monetary compensation when individuals and companies pollute the environment. In the past fourteen years, an unimaginable amount of loss has been done to the ecosystem but we are satisfied as the environment is cared for properly by calculating compensation in monetary terms. In terms of forests, there isn’t a conscious effort to sow seeds, regardless of which there is regular growth of new trees. How is this possible? This is a result of pollination and seed dispersal where the companies are incurring crores of rupees for plantations, trees can easily perform the same without any cost. But this basic function of trees is not accounted for by the Net Present Value Committee.

Deforestation has been one of the main problems that have arisen due to the cutting down of trees. An eye-opening dimension has been provided by environmental journalist David Wallace-Wells in his book The Uninhabitable Earth. He cites a case study where every square kilometer of deforestation leads to 27 new cases of malaria due to vector proliferation. In simpler terms, when the land is cleared, it provides space for bugs to enter and reproduce, and as a consequence of which there is a significant proliferation of diseases and infections.

Policymakers do consider the cost of wood, fruits but the cost of malaria and its related problem is hard to be taken into account, especially since we are yet to understand various hidden benefits of trees. Further, monetary compensation can provide limited relief i.e. for present conditions only, but it does not compensate for future losses and related impacts. Sambhavna Trust Clinic found in its 2015 study that even after 25 years of Bhopal Gas Tragedy, children are born differently-abled in the region.

Policymakers cannot justify their formulae against long-lasting environmental losses. Whatever the factors are considered for calculating, they are not exhaustive. This argument can be further substantiated by understanding the basic principles of macroeconomics. It provides two reasons, as to why the economic cost cannot be properly calculated.

Only the Explicit Cost is Used

There are two types of cost, explicit and implicit. Explicit Costs are those whose impact can be measured due to their tangibility and visibility. But implicit costs are hidden costs. It includes emotional, societal, and futuristic impact.

The major usefulness of trees is considered while calculating costs (oxygen, medicines, woods) but many are left unaccounted for. The Cost of preventing soil erosion, preventing floods, and maintaining ecosystems are either forgotten or intentionally left unaccounted for. These unique responsibilities of trees cannot be replaced by any other kind of resource.

Cost in Terms of Time

According to the scarcity theory of economics, resources are scarce. There exists an imbalance between the demand for resources and their supply. Resources which we see around us are not limited to use for our generation. But future generations also have rights over it. What has been consumed by the present generation may not be left for future generations to consume. Some resources are renewable. But they are renewed only after some time. This time could range from a year to generations. In between, people have to suffer without using resources or on the impacts of resources used. Thus, whatever the cost is estimated would be wrong as the value of time and its associated costs cannot be considered.

How Efficiently are the Funds Utilized?

In India, funds for the environment have been created either by statutory laws or by judgments pronounced. But here also problem exists. First, the values determined are not accurate. Second, the amount credited to various funds has not been properly utilized. The Examples discussed below will show the true picture of environmental funds.

When forest lands are diverted for non-forests purposes, The Forests Act, 1980 mandates that an equivalent area of land should be taken as compensatory afforestation. In addition to this, the cost of raising forest is also charged from the person who is doing diversion of land. In the year 1980, legislators found diversion of land and charging amount as a solution to deal with cutting down of trees. Over time, a void was felt to deal efficiently with environmental matters. In 2002, by the case of T. N. Godavarman v. Union of India, the apex court ordered to create a fund for compensatory afforestation and net land value. SC observed that a large number of funds have been left unutilized with states.

After all these efforts, the CAG report of 2013 shows a completely different picture. Between the years 2006 and 2012, funds grew from Rs. 1,200 crores to Rs. 23,607 crores, of which only 60% has been utilized. There has been inefficient utilization of 5.92 crores. The state of Punjab had a case, where CAMPA funds were used for litigation purposes. Even Supreme Court and National Green Tribunal have passed strong judgments imposing heavy penalties. But its impact on the ground is hard to find.

From the given data, it seems that the accumulation of funds is faultier than the calculation of cost.

It can be said that neither the legislative orders nor judicial judgments have been able to utilize funds created for the restoration of the environment. Thus, there exists no sense of calculating the loss of cutting trees in monetary form when crores of funds have been left unutilized.

The Need for a New Protocol

To evaluate the second argument i.e. the need for a new protocol, there is a need to analyze the existing policies. Further is to study the mode of transportations as how much environment friendly they are.

Environmental Jurisprudence in India

Indian Constitution has been guiding the Government of India to protect the environment by way of articles 47 and 48A. It directs govt. to maintain the environment, ecosystem, and good public health. Parliament of India has passed historic legislation from The Forests Act, 1927 to Environment Protection Act, 1986. According to the demand of generations, the judiciary has provided life to legislations by way of liberal interpretations.

In M.C. Mehta v. UoI (1986), Supreme Court asserted that the privilege of living in a clean environment is essential under article 21, which has the provision of ‘right to life. In the same case, from the doctrine of strict liability, SC has shifted to the doctrine of absolute liability i.e. whenever damage is caused by inherently hazardous companies, they are absolutely liable to pay the required compensation. In the case of M.C. Mehta v. Kamal Nath (1997), the doctrine of public trust was evolved. It provides that natural resources are not the private property of individuals but owned by the public at large. It deterred financially sound private companies from destroying rich natural resources claiming themselves as ‘private’. ‘Polluters pay principle’ became customary law in India, which created liability upon polluters to compensate in monetary terms.

India has mixed experiences from the legislature, judiciary, and executive towards the environment. In January 2021, the SC bench approved Central Vista projects, when many eyebrows were raised on the route taken for environment clearances. Even the dissenting judge, Justice Sanjiv Khanna wrote a beautiful dissenting opinion. The Objective of the Environment Impact Assessment (EIA) is to ensure that developmental plans are environmentally sound and maintain a safe environment for society. Indian Railways has a wide net of railway tracks in India. It has lines from Darjeeling hilly region to Bandhavgarh National Park. Surprisingly, as provided by Down to Earth magazine, Indian Railway projects are not covered under the ambit of EIA. There are 13 railways projects which have been provided permits through forests. The Draft Rules of EIA, 2020 shows the developmental approach of legislatures. It has left chemical, construction, inland waterways companies out of the purview of rules. Holding public consultation, which was at the core of the policy has been omitted in strategically important cases. Here, what constitutes ‘strategic’ is left to the sole will of legislatures.

Least Loss to the Environment

According to a study titled Economical and Ecological Comparison of transport modes by PLANCO and Budesanstalt, Inland waterways have ‘least’ environmental impact when compared with railways, airways, and highways. Does it imply that the environment can be damaged smoothly by adopting the least polluted method? No, it should not. Prima facie, waterways would not be polluted by inland shipping but they have huge invisible environmental costs. In 2016, a study was conducted by ICAR-Central Inland Fisheries Research Institute on Hoogly River to assess the impact of NTPC activities on it. The study revealed that there was a sharp fall in fish diversity and the income of 25,000 fisherpeople also declined. In 2010, the Gulf of Mexico had experienced a major oil spill. It resulted in the deaths of thousands of species from plankton to dolphins. This clearly shows that even the ‘least’ considered environmental impact option can lead to huge environmental losses.

SC stated that roads and highway projects should be cleared only after checking other alternatives. It means that projects will be undertaken after going through all procedures. But at the cost of the environment either using roadways, airways, or waterways.

The Trade-off between environment and economic growth is one of the recognized concepts in macroeconomics. It states that countries have to use resources either for economic growth or for the maintenance of the environment. It has been explained with the help of concave-shaped curves, which shows that either of the resources has to be forgiven for the increase of another. It implies that both the requirements of society cannot be met at the same time. So, either country can opt for economic development or save the environment, balance is hard to achieve.

Further, there is no need to bring new protocols and create false pictures in the mind of the public that the environment has cared. Because neither the cost can be estimated correctly nor the funds have been utilized properly. There exist sufficient international conventions, legislations, judgments, and protocols, that if worked upon, can save the environment for future generations. There is strong demand for the proper execution of existing laws and policies. At this point, Judiciary may direct appoint a committee to review the conditions of all the existing funds and provide a practical plan with strong checks and balances to execute it in the best manner.




  3. RAMESH, JAIRAM. “The Two Cultures Revisited: The Environment-Development Debate in India.” Economic and Political Weekly, vol. 45, no. 42, 2010, pp. 13–16. JSTOR, Accessed 7 Feb. 2021.

  4. DASGUPTA, PARTHA. “The Economics of the Environment.” Environment and Development Economics, vol. 1, no. 4, 1996, pp. 387–428. JSTOR, Accessed 7 Feb. 2021.










Article by Shreya Maloo, BALLB (Hons.), 1st-year student of The Rajiv Gandhi National University of Law, Patiala, Punjab

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