Applications of Economic Instrument (EI) for Pollution Management in Industries

byDepartment of Industrial Works

Ministry of Industry

January 2002

Economic Instruments (EI)

Policy instruments that rely for their effect on financial incentives rather than regula t ion are of ten ca l l

e c o n o m i c i n s t r u m e n t se c o n o m i c i n s t r u m e n t s .

Distinguished five categoriesof economic instruments

1. Taxes and charges (fees, duties, levies)

2. Subsidies3. Deposit - refund systems4. Market - creation 5. Financial enforcement incentives

150 Instruments

The OECDs’ first review of the use of environmental economic economic instrumentsinstruments in member countries (OECD 1989) identified about 150 instruments in use in 1987.

International common economic instruments

Emission ChargeUser ChargeProduct Charge or Excise TaxDeposit Refund System)Market Creation for EmissionTrade & Exchange

International common economic instruments

Tradable Pollution PermitsTradable Water MarketGrantSoft LoanTax Allowance

Applications of Economic Instrument (EI) for Pollution Management in Industries

Use price- or market mechanism, according to Polluters Pay PrincipleTo support and enhance present rules and regulationsTo apply in parallel with control and regulation for the

efficient pollution management in industries

Benefits of Economic Instrument Applications

To stimulate and encourage the industries to reduce pollution/emission.

Reduction of pollution/emission, according to price mechanism will reduce the overall pollution with cost-efficiency for industries.

To set up fund for the industries, to reduce pollution/emission.

To manage pollution/emission with efficiency due to level of the…..in areaThe industries have flexibility and alternatives

for pollution/emission management.Money , collected from the factories, will be

used for environmental management for pollution/emission, released from industrial sector.

Benefits of Economic Instrument Applications

Essential Factors

Emission Charge (EC)Pollution Management Fee (PMF)Industrial Pollution Management Fund (IPMF)Third Party Monitors & Auditors

ECBOD load

~ 9,500 factories class 3

PMFHigh polluting

industry

3rd partyEC monitors(for variable rate)

3rd partyPMF auditors

IPMF fund~350 MB/yr.(f=0.25)

EI Admin.(~12%)

Industry supportsGrants (~3 %)

Loans (up to ~70-75%)

~350 MB/yr.(f=0.25)

Reserves(~ 10-15%)

Transferable

Emission Charge (EC)Emission Charge, which is collected from the industries, in case of emission released to outside, by concerning the environmental lost and impacts to the health and safety of the population.

Emission Charge, collected from factories/ Emission Charge, collected from factories/ industries level 3 with BOD waste water industries level 3 with BOD waste water (BOD)(BOD)

Emission Charge (EC)There are 2 collecting systems

Variable RateFor the factories with BOD waste water more or equivalent to 100 kg./day and to hire Third Party Monitor to check the quantity of BOD form industriesFlat Rate

For the factories with BOD waste less than 100 kg./day

Emission Charge (EC)

There are two(2) types of waste water discharge

Direct Discharge of waste waterIndirect Discharge of waste water

Direct Discharger(Must pay Emission Charge)

Indirect Discharger

Indirect Discharger

RIVER

Central Waste Water Treatment Plant

Direct Discharger(Must pay Emission Charge)

Direct Discharger((must pay Emission Charge)

EC Calculation

EC = f x c x B

EC = Emission Charge (THB/year)f = Co-efficiencyc = Baseline rate = 35 THB / kg.BOD

B = Volume BOD(kg./year)

Impacts of EC rates for the Industries

At f = 1.0, average EC ~ 0.27 of gross profits of industries, at Std. = 20 mg/liter

At f = 1.0, average EC ~ 2.36 of gross profits of industries, at Std. = 60 mg/liter

In 1997 Company A has gross profits of 75 In 1997 Company A has gross profits of 75 Million THB and has volume of BOD as Million THB and has volume of BOD as followsfollows

BOD inf. = 1,563 kg/d = 562,680 kg/yrBOD inf. = 1,563 kg/d = 562,680 kg/yrBOD BOD effeff. = 30 kg/d = 10,800 kg/yr. = 30 kg/d = 10,800 kg/yr

EC = EC = f x 35 (THB/f x 35 (THB/kg.BODkg.BOD) x BOD Load (kg/yr.)) x BOD Load (kg/yr.)At f = 0.10, EC = 0.10x35x10,800 = 37,800 THBAt f = 0.10, EC = 0.10x35x10,800 = 37,800 THBEC/Gross Profit = 37,800 / 75,000,000 = 0.05 % EC/Gross Profit = 37,800 / 75,000,000 = 0.05 %

Sample of ECSample of EC--CalculationCalculation

Pollution Management Fee (PMF)PMF- Pollution Management Fee is the fee, which has the objectives to grant the opportunities for the entrepreneurs/factories to improve the production processes, including to manage or to reduce the pollution, which generated and the factories can select the appropriate alternative to be implemented.

ObjectivesTo grant the opportunities for volunteer factories to reduce the pollution/emission, to improve the production processes or to find the method to reduce the pollution/emission at source and end of pipe.

Pollution Management Fee (PMF)

Benefits of PMFTo stimulate and encourage the industries to improve the production processes and to manage the pollution/emission, in order to reduce the environmental impacts.

PMF is a voluntary system to grant the opportunities for the factories to make a decision to join Emission Charge-EC or Pollution Management Fee - PMF

Pollution Management Fee (PMF)Criteria

The industries join the program voluntary.The industries propose its objectives and action

plan to reduce the pollution/emission by hiring Third Party Auditor to evaluate.

The industries will sign the contract to reduce the pollution/emission with Department of Industrial Works-DIW and the duration for the pollution/ emission reduction will be less than 3 years.

The industries will pay deposit of Bank Guarantee with Department of Industrial Works-DIW.

The industries must pay the PMF.

Benefits from the PMF program

year 0 1st year 2nd year 3rd year 4th year

Expenses per year

EC, calculated fr.

PMF,calculated fr ageedload

PMF-Contract Period

PMF-factors

Pollution/emission reduction contract agreement of 3 yearsPMF-rate, calculated from Emission Charge as proposed objectives at the end of the contract period.Bank Guarantee, according to the amount of reduced expenses (?)Evaluations/audits by Third Party AuditorReturn of Bank Guarantee, in according to the ratio of the reduced volume within the contract period.

PMF-Calculations

PMF = Reduced EC + Administration Fee

Bank Guarantee (BG) = ∑ (ECyear n – Reduced ECyear n)

Returned BG = BG – [Total Paid Reduced EC x (Actual BOD Load – Proposed BOD Load)]

Proposed BOD Load

t

n = 1

Sample of PMF-Calculations

I tem Year 1 Year 2 Year 3 End of Year 3

f Factor 0.10 0.10 0.25 0.25

Normal EC System 229,950 229,950 574,875 191,625

PMF System

Reduced EC 76,650 76,650 191,625

Administration fee 80,000 50,000 80,000

Total PMF 156,650 126,650 271,625 Return to Normal EC

Bank Guarantee 689,850 (689,850)

Sample of PMF-Calculationsnnual EC / PMF

Baht

600,000

550,000 574,875 B

500,000

450,000

400,000

350,000

300,000

250,000 229,950 B

200,000

150,000 191,625 B

100,000 76,650 B

50,000

-1 0 1 2 3 4 Year

Χ Χ

EC

Reduced EC

Χ Χ

Χ Χ

ΧΧ

Χ

ΧΧ

End of project /cancellation of projectEnd of project

The volume of BOD in waste water is in accordance to the proposed amount, the factory will claim back 100% Bank GuaranteeThe volume of BOD in waste water is higher than prior proposed amount, the factory will claim back as per proportion of Bank Guarantee

Cancellation of projectThe factory has intention to cancel the project.The project has no progress or the factory does not start to implement the project, as per recommen-dation of the DIW.

From EC scheme to PMF schemeThe conditions to leave EC scheme to PMF scheme

The volume of BOD is high and the factory belong to the 7 industrial sectors, which DIW has issued in prior the Environment Management Guidelines to maintain the industrial sectors. Other industrial sectors beside the above 7 sectors but are high-polluted, have capacity to reduce the pollution/emission and have enough industrial audit/evaluation technique knowledge.The factory has re-engineering or improved the production processes to reduce the environmental impact.The factory has expanded or improved the waste water treatment system.

From PMF scheme Back to EC schemeThe conditions to leave PMF scheme to EC scheme

The factory can reduce the pollution/emission as agreed.1. The factory goes back to EC scheme, pay EC due to BOD,

which reduced and released.2. The factory receive back full Bank Guarantee.

The factory is not able to reduce the pollution/ emission as agreed.

1. The factory goes back to EC scheme, pay EC due to BOD, which reduced and released.

2. The factory receive back Bank Guarantee as per as reduced BOD amount proportion.

The factory has cancelled the contract agreement.The factory wants to leave the project.The project has no progress, within the appropriate period as planned.

Industrial Pollution Management Fund (IPMF)

Objectives of the IPMFTo support industrial sectors and environ-mental restoration.To support the EI activities of the DIW.To support R&D within industrial environ-mental management

IPMF Structure

IPMF CommitteeBy Permanent Secretary

As Chairman

IPMF Sub-CommitteeAppointed by the Committee

Fund Manager

Fund Office

Industrial Pollution Management Fund (IPMF)

Income: EC-Emission Charge and PMF-Pollution Management Fee

Administration: Professional Private Sectors as Management Service Contract

Monitoring: Official sector, Ministry of IndustryPurpose of the Fund: To support industrial sector

Cost-Estimation for IPMF

- Fund Management 14,640,000 -- Implementation of EI 42,714,000 -

* Trainings for monitors 2,405,000 -* Trainings for auditors 3,965,000 -* Cross Check 959,000 -* Proj. Assessment & Report 5,952,000 -* Update of data for EC 277,000 -* EC Collection 11,016,000 -* PR & Info. Dissemination 3,500,000 -

Third Party EC Monitor

EC MonitorVariable Rate

To monitor the factories quality and amount of waste water dischargeAnalysis of pollution/emission discharge from factoriesTo report to DIW every 3 months

EC Monitor must be a juristic person with the qualification as per stated by DIWEC Monitor must be licensed and registered at the DIW.

Third Party EC Monitor

PMF AuditorHas a role as consultant to the factories, which join the PMF systemStudy, issue report for the EIA, pre-feasibility, detailed, advanced and compete studiesStudy the alternatives to reduce the environmental impactsfor the factoriesDesign the env. impact reduction measures, analysis of finance and operation plan

EC Monitor must be a juristic person with the qualification as per stated by DIWEC Monitor must be licensed and registered at the DIW.

Action Plan

Pre-implementation periodFor industrial factories

- Collecting of production data.- Collecting of waste water data.To be submitted to the DIW.

Duration of the project ~ 2 years

Action PlanPreparation Period ( First Year )

- To make PR / to disseminate EI information to related stakeholders

- To collect data of factories, which join the EC system

- To update and improve waste water data by using Data Base Management and to develop the Co-efficiency.

Action Plan

Preparation Period ( First Year )- To register and provide trainings for EI Monitors

and Auditors- To provide training for DIW’s officers- To set up Environmental Industrial Management

Fund and appointment of Fund Management Committee

Action PlanDuration of the Project

Preparation period, second year- Classification

(Variable Rate and Flat Rate)- The factories, which use Flat Rate, can ask

for petition for the revised estimated and declared BOD volume by the DIW.

- To provide training and registration of Monitor and Auditor.

Action PlanDuration of the Project

Preparation Period- Set regulations for Fund Management Administration.

- The factories with Variable Rate will contact and assign EC-Monitor

- Announcement of eligible factories, which can join the PMF Project.

- Appoint PMF Committee.

Action PlanDuration of the Project

Project Duration (Third Year)- The factories monitor and report the result of the monitoring to the DIW

- Update Waste Water Data Base

Project Duration- DIW collects Emission Charge, based on Third Year Data

Action Plan

Structure for Administrative Management for the application of EI in the proposed plan in the first period

Data Updating Officer

EC CalculationOfficer

EC CollectionOfficer

EC Section Head

PMF ApplicationOfficer

PMF EvaluationOfficer

PMF Section Head

EC Monitor&PMF AuditorTraining Officer

EC Monitors&PMF AuditorsRegistration Officer

EI Third Party Control Head

Public RelationOfficer

AdministrationOfficer

EI Secretariate Head

Project Director

Bureau 1Director

Bureau 2Director

Bureau 3Director

Bureau 4Director

EI Implementation Project OfficeProject Director

(administrationand operation of EI)

Bureau ofEnvironmental Economics

(Director of Bureau)

Others...........................

Department of Industrial Works

Structure of Organization for Operating of EI-Application, which

proposed in the first period

IPMF

Application of Economic InstrumentsReduction of pollution can be done under the conditions of

Rules & RegulationLess expenses

The factories reduce discharge emission when;Less expenses when discharge is reduced than to discharge the pollution/emission

FineLost when the factories are closedEmission FeeLess liability for the financial institutesLess turnoverSocial image

Alternatives for the Reduction of Pollution/Emission

The factories release pollution/emission, which does not exceed the stipulated standard (BOD)

Pollution/Emission DischargeThe factories discharge pollution/emission over

the stipulated standardDelution with waterExpansion of standard level The factories are closed by Authority for improvement Improvement of treatment system Construction of expanded systems

Alternatives for the Reduction of Pollution/Emission

Control by regulationInvestment for the installation of the standard system and treatment No incentives to reduce the pollution/emission lower than standardState authorities have to take the tools seriously, to close down the factories and to order the fine

Application of economic instrumentReduction of pollution/emission as well expenses, compared with Emission ChargeIncentives to reduce pollution/emission lower than standard The authorities have more tools for management

Estimation of EC incomeType No.

Of Factory

Average Waste Water

(m2/day)*

Emission Charge (THB/day)

Flat Rate 5,221 1,566,300 1,096,410

Variable Rate 4,321 4,212,975 2,949,083

Total 9,542 5,779,275 4,45,493 THB/year

Year 2540/1997 Company B has Gross Profits = Year 2540/1997 Company B has Gross Profits = 2.2 Million THB and the BOD as follows;2.2 Million THB and the BOD as follows;

BOD inf. = 623 kg/d = 224,280 kg/yrBOD inf. = 623 kg/d = 224,280 kg/yrBOD BOD effeff. = 21 kg/d = 7,560 kg/yr,(BOD conc. = 42 mg/l. = 21 kg/d = 7,560 kg/yr,(BOD conc. = 42 mg/l

At f = 0.10, EC = 0.10x35x7,560 = 26,460 THBAt f = 0.10, EC = 0.10x35x7,560 = 26,460 THBEC/Gross Profit = 26,460 / 2,200,000 = 1.20 % EC/Gross Profit = 26,460 / 2,200,000 = 1.20 % In case the factory reduce the BOD from 42 mg/l to 20 mg/l , In case the factory reduce the BOD from 42 mg/l to 20 mg/l , it will beit will beBOD Load = 3,600 kg/yr, BOD Load = 3,600 kg/yr, EC expenses = 0.1x35x3,600 = 12,600 THBEC expenses = 0.1x35x3,600 = 12,600 THBEC/Gross Profit = 12,600 / 2,200,000 = 0.57 %EC/Gross Profit = 12,600 / 2,200,000 = 0.57 %

Sample of EC CalculationSample of EC Calculation

DATA MUNIPULATION SYSTEM

Applied program for addition and changes of informationApplied program for Variable Rate and Co-efficiency Applied program for EC-calculationApplied program for Issuing of invoices, receipts and document Applied program for resource searching under conditions Applied program for addition and changes of user’s right.

RELATIONSHIP OF APPLICATION PROGRAMS & DATABASE

Main Menu for Additional and Changes of Information

Main Menu for Variable Rate and Eco-efficiency

Main Menu for EI-Calculation

Main Menu for Issuing Invoices, Receipts and Document

Main Menu for Resource Searching Under the Condition

Main Menu for Additionand Change of User’s Right