On-going deterioration of the state of the environment and the continuous risk of an environmental disaster has forced society to reconsider its environmental and developmental objectives. For economic and environmental reasons, the costs of prevention and reparation of environmental harm should be channelled to the polluter. However, such channelling may run counter to legal principles. This work scrutinizes this field of tension between economic and legal principles at state level. It provides a unique analysis of traditional thinking on state liability for transboundary harm and the theories which have challenged it since the proliferation of hazardous activities in the 1960s. The author favours a return to traditional thinking, but has an eye for the theories that challenged it with the aim of safeguarding the compensation of victims of transboundary harm.