For decades, environmental crime in Sri Lanka has been cheap.

Polluters paid fines that barely registered on balance sheets, violations dragged through courts and the real costs — poisoned waterways, degraded land, public health damage — were quietly transferred to the public. That arithmetic, long tolerated, is now being challenged by a proposed overhaul of the country’s environmental penalty regime.

At the centre of this shift is the Central Environmental Authority (CEA), which is seeking to modernise the National Environmental Act, raising penalties, tightening enforcement and reframing environmental compliance as an economic — not merely regulatory — issue.

“Environmental protection can no longer be treated as a peripheral concern. It is directly linked to national productivity, public health expenditure and investor confidence, CEA Director General Kapila Mahesh Rajapaksha told The Island Financial Review. “The revised penalty framework is intended to ensure that the cost of non-compliance is no longer cheaper than compliance itself.”

Under the existing law, many pollution-related offences attract fines so modest that they have functioned less as deterrents than as operating expenses. In economic terms, they created a perverse incentive: pollute first, litigate later, pay little — if at all.

The proposed amendments aim to reverse this logic. Draft provisions increase fines for air, water and noise pollution to levels running into hundreds of thousands — and potentially up to Rs. 1 million — per offence, with additional daily penalties for continuing violations. Some offences are also set to become cognisable, enabling faster enforcement action.

“This is about correcting a market failure, Rajapaksha said. “When environmental damage is not properly priced, the economy absorbs hidden losses — through healthcare costs, disaster mitigation, water treatment and loss of livelihoods.”

Those losses are not theoretical. Pollution-linked illnesses increase public healthcare spending. Industrial contamination damages agricultural output. Environmental degradation weakens tourism and raises disaster-response costs — all while eroding Sri Lanka’s natural capital.

Economists increasingly argue that weak environmental enforcement has acted as an implicit subsidy to polluting industries, distorting competition and discouraging investment in cleaner technologies.

The new penalty regime, by contrast, signals a shift towards cost internalisation — forcing businesses to account for environmental risk as part of their operating model.

The reforms arrive at a time when global capital is becoming more selective. Environmental, Social and Governance (ESG) benchmarks are now embedded in lending, insurance and trade access. Countries perceived as weak on enforcement face higher financing costs and shrinking market access.

“A transparent and credible environmental regulatory system actually reduces investment risk, Rajapaksha noted. “Serious investors want predictability — not regulatory arbitrage that collapses under public pressure or litigation.”

For Sri Lanka, the implications are significant. Stronger enforcement could help align the country with international supply-chain standards, particularly in manufacturing, agribusiness and tourism — sectors where environmental compliance increasingly determines competitiveness.

Business groups are expected to raise concerns about compliance costs, particularly for small and medium-scale enterprises. The CEA insists the objective is not to shut down industry but to shift behaviour.

“This is not an anti-growth agenda, Rajapaksha said. “It is about ensuring growth does not cannibalise the very resources it depends on.”

In the longer term, stricter penalties may stimulate demand for environmental services — monitoring, waste management, clean technology, compliance auditing — creating new economic activity and skilled employment.

Yet legislation alone will not suffice. Sri Lanka’s environmental laws have historically suffered from weak enforcement, delayed prosecutions and institutional bottlenecks. Without consistent application, higher penalties risk remaining symbolic.

The CEA says reforms will be accompanied by improved monitoring, digitalised approval systems and closer coordination with enforcement agencies.

By Ifham Nizam