Regulatory Measures and Technological Changes in the Cement, Iron & Steel, and Pulp & Paper...

8/9/2019 Regulatory Measures and Technological Changes in the Cement, Iron & Steel, and Pulp & Paper Industries - AIT, Th

1/243

School of Environment, Resources and DevelopmentAsian Institute of Technology

Bangkok -Thailand

REGULATORY MEASURES AND TECHNOLOGICALCHANGES IN THE CEMENT, IRON & STEEL, AND PULP

& PAPER INDUSTRIES

A

SIAN

INST

ITUT

E

1959

OF TECHN

OLOG

Y

POLICY

FRAMEW

ORKD E -R

E GU A

L TI O N

E MI S S

I O N S T

A ND A

R DS

ECONOMIC INSTURMENTS

NORMS

CODES

&

Institutions

EfficiencyDecentralization

Command-and-Control

Approach

Standards

MonitoringEnforcement

Market-Based

Instruments

Charges/taxes

SubsidiesFunds

Industries

MarketMechanism

EnergyPerspectives

EnvironmentalPerspectives

TechnologicalChanges


2/243

REGULATORY MEASURES ANDTECHNOLOGICAL CHANGES IN THE

CEMENT, IRON & STEEL, AND PULP &PAPER INDUSTRIES

POLICY

FRAMEW

ORKD E -R

E GU A

L TI O N

E MI S S

I O N S T

A ND A

R DS

ECONOMIC INSTURMENTS

NORMS

CODES

&

Institutions

EfficiencyDecentralization

Command-and-Control

Approach

StandardsMonitoringEnforcement

Market-BasedInstruments

Charges/taxesSubsidiesFunds

Industries

MarketMechanism

EnergyPerspectives

EnvironmentalPerspectives

TechnologicalChanges

Brahmanand Mohanty

School of Environment, Resources and Development

Asian Institute of Technology

Bangkok - Thailand


3/243

Regulatory Measures and Technological Changes in theCement, Iron & Steel Industry, and Pulp & Paper Industry

Asian Institute of Technology, 1997

Edited by Brahmanand Mohanty

Published by School of Environment, Resources and DevelopmentAsian Institute of TechnologyP.O. Box 4, Pathumthani 12120

Thailande-mail: [email protected]

NOTICE

Neither the Swedish International Development Cooperation Agency (Sida) nor the AsianInstitute of Technology (AIT) makes any warranty, expressed or implied, or assume anylegal liability for the accuracy, completeness, or usefulness of any information, appratus,product, or represents that its use would not infringe privately owned rights. Referenceherein to any trademark, or manufacturer, or otherwise does not constitute or imply its

endorsement, recommendation, or favoring by Sida or AIT.

ISBN 974 - 8256 - 69 - 3

Printed in India by All India Press, Pondicherry.


4/243

FOREWORD

The use of fossil fuels leads to the emission of so-called "Green House Gases (GHG)", aconcept which comprises carbon dioxide, nitrous oxides, sulfur oxides, etc. In recent years,a good deal of research has provided enough material to put forward the claim that a bigincrease in the concentration of carbon dioxide in the atmosphere would lead to a rise inthe average global temperature, with negative consequences for the global climate. Thisclaim has been confirmed by the United Nations Intergovernmental Panel on ClimateChange (IPCC) in its second scientific assessment published in 1996.

Global warming can have catastrophic impact on human and global security: island nationsand low lying coastal regions would be permanently drowned by the rise in the level of theoceans brought on by the melting of polar ice; drought would become widespread; anddesertification would expand and accelerate. Persistent famines, mass migrations and large-scale conflict would be the result. Agriculture, food and water security, and internationaltrade would come under severe strain.

Until recently, industrialized countries have accounted for most of the emission of theGHG, in particular carbon dioxide, because their economic development has been verystrongly based on the use of fossil fuels. However, the same dynamic has also led to asituation where the newly industrializing countries of Asia and Latin America (the strongSouth) are today contributing significantly to the emission of carbon dioxide. This tendency

will spread to and encompass an increasing number of developing countries unless boththe industrialized and the developing countries jointly agree on implementing the measuresto halt and then reverse the global trend towards a rapid rise in the emission of carbondioxide. That is the central purpose of the IPCC, which has succeeded in obtainingcommitments from most of the industrialized countries to reduce their emissions of carbondioxide.

At the 1995 meeting in Berlin of the Conference of the Parties (CoP) to the UnitedNations Climate Convention, it was decided to initiate negotiations to strengthen theemission-reduction measures by the industrialized countries, as well as countries of EasternEurope and the Former Soviet Union. The final negotiations are planned to take place atthe December 1997 meeting in Kyoto of the CoP, which ought to result in legalinstruments to ensure that the agreed measures are being fulfilled.

The fossil fuel generated climate problem is very complex, with strong vested interests andspecial alliances. There is still considerable skepticism in the developing world about theneed for measures to counter global warming, in particular in the strong South, which in no

way wants to jeopardize its own rapid economic development. It is therefore imperative tofind innovative solutions, both technical and institutional, to the climate problem, whichare acceptable to both the North and the South. Meeting this challenge calls for inter aliaresearch programs that tackle the technological, techno-economic and policy problems inpromoting the transition to decreasing use of fossil fuels, increasing energy efficiency andfuel substitution, and carbon recycling systems of energy production and use.

The Asian Regional Research Programme on Energy, Environment and Climate(ARRPEEC) is part of this global effort, which Sida is very pleased to have initiated and is


5/243

fully supporting. The ARRPEEC comprises technological, techno-economic and policyresearch on energy efficiency, fuel substitution and carbon recycling in the principaleconomic sectors of East, Southeast and South Asian countries.

M R BhagavanSenior Research Adviser, Department for Research CooperationSwedish International Development Cooperation Agency, Sida


6/243

PREFACE

Industries have always played a crucial role in the socio-economic development of acountry. They have contributed primarily to increased prosperity, greater employment andlivelihood opportunities. On the other hand, industries are accused of accelerating theconsumption of scarce fossil fuels and of polluting the local, regional, and globalenvironment by releasing solid, liquid and gaseous pollutants to their surroundings.

Experiences gained worldwide have shown that these impacts of industries on resource useand the environment can be contained through more efficient production processes andadoption of cleaner technologies and procedures. Thus, fossil fuel consumption can be cutdown drastically and waste generation can be avoided or minimized to the lowest possiblelevel. Regulatory regimes introduced in several countries have led the industries to adoptappropriate measures. Some countries have adopted economic instruments to reflect thetrue cost of goods and services by internalizing the environmental costs of their input,production, use, recycling and disposal.

The improvement of production system through the use of technologies and processes thatutilize resources more efficiently and achieve more with less is an important pathwaytowards the long-term sustenance of industries. It is in this context that a research project

was undertaken by the Asian Institute of Technology (AIT), with the support of theSwedish International Development Cooperation Agency (Sida). The project entitledDevelopment of Energy Efficient and Environmentally Sound Industrial Technologies in

Asia was launched with the specific objective to enhance the synergy among selected Asian developing countries in their efforts to grasp the mechanism and various aspectsrelated to the adoption and propagation of energy efficient and environmentally soundtechnologies. Three energy intensive and environmentally polluting industrial sub-sectors(cement, iron & steel, and pulp & paper) and four Asian countries of varying sizes, politicalsystems and stages of development (China, India, Philippines, Sri Lanka) were selected inthe framework of this study. To enhance in-country capacity building in the subject matter,collaboration was sought from reputed national institutes who nominated experts toactively participate in the execution of the project.

The activities undertaken in the first phase of the project were the following:

- Evaluation of the status of technologies in selected energy intensive andenvironmentally polluting industries;

- Identification of potential areas for energy conservation and pollution abatementin these industries;

- Analysis of the technological development of energy intensive and polluting

industries in relation with the national regulatory measures;- Identification of major barriers to efficiency improvements and pollution

abatement in the industrial sector.


7/243

Based on the initial guidelines prepared at AIT under the leadership of Dr. X. Chen,discussions were held with the experts from the national research institutes (NRIs) of thefour participating countries. The outcomes of these meetings were used as a basis for thepreparation of country reports which were presented at two project workshops held atManila in May 1995 and at Bangkok in November 1995. On the basis of the reportssubmitted, cross-country comparison reports were prepared at AIT and additional relevantinformation was sought from the NRIs to bridge some of the gaps found in theirrespective reports. This is the last of the four volumes of documents which have resultedfrom this interactive research work between AIT and the NRIs.

This volume on Regulatory measures and technological changes in the cement, iron andsteel, and pulp and paper industries covers an introduction to the regulatory and economicinstruments for environmental management in Asian industrializing countries. Then thereis a cross-country comparison of the status of regulatory measures and technologicalchanges in the four countries, followed by individual country reports prepared by the fourNRIs. The first introduction chapter was prepared by Dr. X. Chen and Ms. Lilita B.Bacareza. The second cross-country comparison chapter was prepared by Dr. B. Mohanty

and Mr. Aung Naing Oo.

Sincere thanks are extended to all the members of the Project Team including thesupporting staff, past and present, for their active participation and contribution to theproject. The enthusiasm and dynamism of Dr. X. Chen during the execution of the firstphase and the understanding and leadership provided by Dr. C. Visvanathan in the crucialcompletion period of the project are acknowledged here. The project would have neverseen the light of the day without the support of Sida. Finally, appreciations are due to twoindividuals who have actually conceived the Asian Regional Research Programme onEnergy, Environment and Climate (ARRPEEC) and provided constant support andencouragement to this specific project under the overall program: Dr. M.R. Bhagawan,Senior Research Adviser at Sida, and Dr. S.C. Bhattacharya, Professor at AIT.

Brahmanand MohantyAsian Institute of TechnologyJune, 1997


8/243

PROJECT TEAM

Faculty Members (Asian Institute of Technology - School of Environment,

Resources and Development)- Dr. Xavier Chen, Energy Program (Until February 1996)

- Dr. Brahmanand Mohanty, Energy Program

- Dr. Uwe Stoll, Environmental Engineering Program (Until January 1996)

- Dr. C. Visvanathan, Environmental Engineering Program (From January 1996)

Research Associates (Asian Institute of Technology - School of Environment,Resources and Development)

- Ms. Nahid Amin

- Ms. Lilita B. Bacareza

- Mr. Z. Khandkar

- Mr. Aung Naing Oo

- Mr. K. Parameshwaran

National Research Institutes

- Institute for Techno-Economics and Energy System Analysis, TsinghuaUniversity, Beijing, China (Prof. Qiu Daxiong)

- Energy Management Centre, Ministry of Power, New Delhi, India (Mr. S.Ramaswamy)

- Department of Energy, Manila, Philippines (Mr. C.T. Tupas)

- Energy Conservation Fund, Ministry of Irrigation, Power and Energy, Colombo,

Sri Lanka (Mr. U. Daranagama)

Research Fellows

- Dr. Wu Xiaobo, School of Management, Zhejiang University, China (January-June 1996)

- Ms. Wang Yanjia, Tsinghua University, China (May-November 1996)

- Mr. Anil Kumar Aneja, Thapar Corporate R&D Centre, India (May-November1996)

- Ms. Marisol Portal, National Power Corporation, Philippines (May-November

1996)- Mr. Gamini Senanayake, Industrial Services Bureau of North Western Province,

Sri Lanka (May-November 1996)


9/243

CONTENTS

FOREWORD

PREFACE

PROJECT TEAM

1. REGULATORY AND ECONOMIC INSTRUMENTS FOR

ENVIRONMENTAL MANAGEMENT IN ASIAN INDUSTRIALIZINGCOUNTRIES..1

1.1INTRODUCTION........................................................................................................................2

1.2ENVIRONMENTAL EXTERNALITIES OF INDUSTRIALIZATION INASIAN DEVELOPINGCOUNTRIES .....................................................................................................................................21.3THE COMMAND-AND-CONTROL APPROACH AND EXPERIENCES OF ITS APPLICATIONINASIA.............................................................................................................................................41.4THE EFFECTIVENESS OF COMMAND-AND-CONTROL INASIAN COUNTRIES...............131.5ANALTERNATIVEAPPROACH:USE OF MARKET-BASED (ECONOMIC)INSTRUMENTS(MBI/EIS).....................................................................................................................................17

1.5.1 Why MBIs should be used in Asian developing countries ................. ................... .................171.5.2 The development of MBIs in Asian developing countries.......................................................181.5.3 Conditions for successful application of MBIs in Asian developing countries..........................21

1.6CONCLUSIONS ........................................................................................................................23

2. CROSS COUNTRY COMPARISON OF IMPACTS OF ENERGY &

ENVIRON-MENTAL MANAGEMENT POLICY INSTRUMENTS ON

TECHNOLOGICAL CHANGES IN INDUSTRIES ............................................. 25

2.1INTRODUCTION......................................................................................................................252.2MAJORDRIVING FORCES BEHINDTECHNOLOGICAL CHANGES...................................25

2.2.1 Market mechanism ................... ................... ................. .................... .................. ................262.2.2 Energy perspectives..............................................................................................................262.2.3 Environmental perspectives..................................................................................................26

2.3IMPORTANT ELEMENTS OF REGULATORYMEASURES.....................................................272.3.1 Policy framework ................. ................... ................. .................... .................. .....................272.3.2 Institutional interaction.......................................................................................................282.3.3 Command-and-control approach ................... .................. ................... .................. ................292.3.4 Market-based instruments...................................................................................................29

2.4COMPARISON OF REGULATORYMEASURES IN SELECTEDASIAN COUNTRIES ............302.4.1 Market reforms...................................................................................................................302.4.2 Institutional structure and interaction...................................................................................32


10/243

2.4.3 Energy regulatory measures..................................................................................................34

2.4.4 Environmental regulatory measures......................................................................................352.4.5 Command-and-control practices .................... ................. ................... ................... ................362.4.6 Market-based instruments/measures ................. .................... ................. .................... .........38

2.5CONCLUSION ..........................................................................................................................40ANNEXES...................................................................................................................................42

3.COUNTRY REPORT: CHINA........................................................................... 49

3.1INTRODUCTION......................................................................................................................493.2INSTITUTIONAL STRUCTURES OF THE STATE STEEL,CEMENT AND PAPERINDUSTRIES50

3.2.1 State situation.....................................................................................................................50

3.2.2 Status of the target industries in China................................................................................513.2.3 Situation of the pulp and paper industry .................. ................... ................... ................... ...573.2.4 Local institutional structure.................................................................................................58

3.3REGULATIONS ON ENVIRONMENTAL PROTECTION,INDUSTRIAL DEVELOPMENTAND ENERGYEFFICIENCY.........................................................................................................60

3.3.1 Overall environmental regulations and their implementation..................................................603.3.2 General industrial regulations and their implementation.......................................................623.3.3 Sector-specific regulations, their implementation and impact on technological changes ..............65

3.4CONCLUSION ..........................................................................................................................77ANNEXES...................................................................................................................................78

4. COUNTRY REPORT: INDIA..............................................................................81

4.1INTRODUCTION......................................................................................................................814.1.1 Importance of government regulations ................. ................. ................... ................... ...........81

4.2INSTITUTIONAL STRUCTURE OF CEMENT, IRON AND STEEL AND PULP AND PAPERINDUSTRIES...................................................................................................................................84

4.2.1 Overview of the institutional structure of the Indian industry.................................................844.2.2 Institutional structure of target industries .............................................................................864.2.3 Industrial associations ................... ................. .................... .................. .................... ...........884.2.4 Institutional structure for environmental protection................................................................904.2.5 Institutional structure for energy efficiency improvement.........................................................934.2.6 Scope of authority of local institutes......................................................................................94

4.3REGULATIONS ON INDUSTRIAL DEVELOPMENT,ENERGYEFFICIENCY&POLLUTION

DISCHARGES

.................................................................................................................................954.3.1 Regulations on industrial development..................................................................................954.3.2 Environmental regulations and policies ................... ................. ................... ................... ......984.3.3 Regulatory measures for energy conservation....................................................................... 1014.3.4 Industry-specific government regulations............................................................................. 106


11/243

4.4IMPACT OF REGULATIONS ON SECTORALTECHNOLOGICAL DEVELOPMENT.......... 108

4.4.1 Impact of general regulations............................................................................................. 1084.4.2 Impact of sector-wise regulations...... ................... ................. .................... .................. ........ 1104.4.3 General barriers to energy efficiency improvement ................... .................. .................. ........ 1164.4.4 General barriers to environmental pollution control............................................................ 121

4.5CONCLUSIONS AND RECOMMENDATIONS...................................................................... 1234.5.1 General recommendations................. ................... .................. .................. .................... ..... 1234.5.2 Industry specific recommendations ..................................................................................... 127

ANNEXES....... .................. .................... ................. ................... ................... .................. .......... 129

5. COUNTRY REPORT: PHILIPPINES ..............................................................132

5.1INTRODUCTION................ .................. ................... ................... ................. .................... ...... 1325.2INSTITUTIONAL STRUCTURE OF THE CEMENT,IRON AND STEEL,&PULP AND PAPER

INDUSTRIES................... .................. ................... ................... ................. .................... ................ 1335.2.1 Ownership in the target industries..................................................................................... 1335.2.2 Industrial associations in the cement, iron & steel, and pulp & paper sub-sectors .............. 1345.2.3 Government and local authorities on technological development, energy consumption andefficiency, and environmental pollution ................. .................. ................... ................... ............... 136

5.3REGULATIONS ON INDUSTRIAL DEVELOPMENT,ENERGYEFFICIENCY&POLLUTIONDISCHARGES ................. .................. ................... ................... ................. .................... ................ 141

5.3.1 Overall environmental regulations and policies................................................................... 1415.3.2 General Industrial Regulations......................................................................................... 1495.3.3 Sector-specific (environmental) regulations.......................................................................... 1615.3.4 Implementation of the regulatory measures......................................................................... 165

5.4IMPACT OF REGULATIONS ON SECTORALTECHNOLOGICAL DEVELOPMENT.......... 168

5.4.1 Cement sector................................................................................................................... 1695.4.2 Iron & steel sector ........................................................................................................... 1705.4.3 Pulp & paper sector......................................................................................................... 171

5.5CONCLUSION ................ .................... ................. ................... ................... .................. .......... 172ANNEXES....... .................. .................... ................. ................... ................... .................. .......... 173

6. COUNTRY REPORT: SRI LANKA................................................................... 181

6.1INTRODUCTION................ .................. ................... ................... ................. .................... ...... 1816.1.1 Pollution patterns............................................................................................................. 1816.1.2 Environmental management efforts ................. .................. .................... .................. .......... 181

6.2INSTITUTIONAL STRUCTURE ................. .................. ................... ................... ................. ... 1826.2.1 Institutions for industrial development............................................................................... 182

6.2.2 Institutions for environmental management........................................................................ 1836.2.3 Institutions for energy conservation ................. ................... .................. ................. ............. 1846.2.4 Financial institutions ................. ................... ................... ................. .................... ........... 1856.2.5 Research institutions......................................................................................................... 186

6.3EVOLUTION OF ENVIRONMENTAL REGULATIONS........................................................ 186


12/243

6.3.1 Overall environmental regulations ................. .................... ................. ................... ............ 186

6.3.2 Regulations specific to the industrial sector......................................................................... 1906.3.3 Sector-specific regulations ................. .................... .................. .................. ................... ...... 1936.3.4 Cases of negotiation with industries in setting standards..................................................... 1936.3.5 Market based instruments................................................................................................ 194

6.4IMPACT OF REGULATIONS ON SECTORALTECHNOLOGICAL DEVELOPMENT.......... 1956.4.1 Successes of environmental regulations ................ .................. ................... .................. ........ 1956.4.2 Negative effects and industrial implications .................. ................. .................... ................ 1976.4.3 Industrial sector viewpoint on regulations........................................................................... 200

6.5CONCLUSIONS AND RECOMMENDATIONS...................................................................... 200ANNEXES................... .................. ................... ................... ................. .................... ................ 204


13/243

Regulatory and economic instruments for Environmental Management... 1

1. REGULATORY AND ECONOMIC INSTRUMENTS FORENVIRONMENTAL MANAGEMENT IN ASIAN INDUSTRIALIZINGCOUNTRIES

1.1 Introduction

The growing industrialization in Asian countries is being accompanied by a rapiddegradation of environmental quality. The impact of environmental degradation is already

very high in terms of damage to human health, degradation of living habitat, andirreversible damage to the local and regional ecology through the pollution of the air, soiland water. If environmental problems are ignored by the local authorities who give priorityto economic development, the industrialization process of Asian countries may fail due tothe environmental externalities.

To integrate environmental considerations into the economic development process, Action21 of the United Nations called for the adoption of Polluter-Pays-Principle in all countriesthrough the reinforcement of the environmental laws and regulations and the use ofmarket-based economic instruments (United Nations, 1993, Chapter 8).

While environmental laws and regulations are of the Command and Control (CAC)approach which is based on the enforcement of legally mandated standards throughpenalties and other sanctions, the market-based (MB) approach which has long beenadvocated by economists to address domestic environmental problems, employs economicinstruments according to market mechanisms to control pollution. The Command andControl approach is compulsory; it mandates the compliance of laws and regulations byeveryone. On the contrary, the market-based approach gives everybody the freedom tochoose their own means of pollution control according to market signals. It facilitatesderegulation and lessens government involvement.

Since the start of environmental policy in the developed countries, governments have usedcommand-and-control (CAC) as the predominant strategy in pollution control and wastemanagement. The approach requires the setting up of health-based or ecology-basedambient and emission/effluent standards which are to be achieved through legal oradministrative enforcement of performance standards and other regulations. The standardsdefine environmental targets and establish the permissible amount of concentration ofparticular substances or discharges into air, water, land or consumer products. They aretypically associated with penalties (such as loss of license), and polluters can also beprosecuted or be threatened with prosecution (Pearce and Turner, 1990). Permits andlicenses or other authorizations are also other tools for controlling pollution. These providegovernments with a significant amount of control over polluting behavior. In most

countries, non-compliance of standards may lead to fines, revocations of licenses orimprisonment. In recent years, however, there is a growing perception in OECD countriesthat market-based instruments (MBI) should be developed and widely applied for effective


14/243

2 Regulatory Measures and Technological Changes...

environmental management, to complement the direct Command and Control regulations(Potier, 1995).

While there may be considerable differences on the idea of what makes up an acceptable

level of environmental quality between the developed OECD countries and theindustrializing Asian countries, various efforts to curb widespread mismanagement ofenvironmental resources, e.g. air, water, land, forests and energy, have been or are beingenacted through environmental policies in these latter countries.

The objective of this section, therefore, is to analyze the role of economic and regulatoryinstruments in the environmental management practices of the Asian developing countries.

The discussion is primarily directed within the context of rapid industrialization in the Asian region, and with the growing perception of the Polluter-Pays Principle forenvironmental protection. The section presents experiences of these countries in theapplication of CAC instruments, assesses its effectiveness and the underlying causes. It alsodiscusses issues related to the adoption of economic instruments in the industrialization-

environmental protection agenda of these developing countries.

1.2 Environmental Externalities of Industrialization in Asian DevelopingCountries

Industrialization is a common driving factor of economic growth in Asian developingcountries. Between 1965 and 1990, East Asias industrial sector grew nine times its originalsize with a growth rate of 9.1% per annum and a total output from 32 to 45% while South

Asia grew by 5.6% with a total output of 21 to 26%. During the period 1980 to 1992,industrial value-added increased by a factor of 2.06 in India, 3.62 in China, 3.33 inIndonesia, and 2.78 in Thailand (Chen, 1995).

The rapid industrialization process has also been paralleled with an increasing amount ofenergy consumed per capita and per unit of GDP (Figures 1 & 2). China alone in 1990 wasthe worlds third largest consumer of primary energy after the US and the defunct USSR,and was also the third largest source of greenhouse gas emissions (Perlack, et al., 1991). Itsenergy demand growth rate was 14% and 13%, with industrial output growth rate of 21%and 18%, respectively, in 1992 and 1993.

While the technological system of developed countries is more and more information-intensive (Chen, 1994), that of Asian developing countries is still dominated by the energyand resource-intensive technologies.

The climbing of the energy intensity hill (Berrah, 1989) by Asian countries has creatednot only high tension in the energy demand-supply balance, but also given rise tonumerous burning questions (Ramani, et al., 1992) regarding the extent to which theindustrialization and economic growth in these countries is permissible with respect to theenvironmental threat entrained by them.


15/243


With the current growth trend, Asian energy demand is doubling every 12 years as opposedto the world average of every 28 years. In addition, energy intensity (the amount of energy

per unit output) in Asian developing countries is very high, with China as the highest in theworld.

Industrialization in all its glory, however, has also brought the negative externalities which Asian developing countries are now besieged with. For Thailand, Malaysia, and Korea, water and air quality have deteriorated, specially around urban areas, and the costs ofpollution abatement have escalated. In the Philippines, years of neglect have resulted inserious environmental degradation of the river basins with an increase in heavy metals andorganic residues, and the extensive coastal contamination of the Manila Bay and inland

water bodies. All together, Asian developing countries now account for 18.6% of the worlds total fossil-fuel related CO2 emissions which, the World Energy Council (1993)estimates, will increase to 31.3% by 2020, offsetting any emission reductions achieved in

OECD countries. While the greenhouse effect of the CO2 emission can be observed in thelong term and will affect the global environment, emission of other pollutants is seriouslydamaging the local and regional environment. These negative externalities, includingcontamination of water resources, unacceptable level of air pollution, unsafe handling anddisposal of toxic substances, degradation of urban living environment, loss of naturalhabitat, and worsening of working conditions, are being lived daily by all industrializing

Asians.

According to a study carried out by UN/ESCAP, the Jamuna river that runs through NewDelhi picks up 5 million gallons of industrial effluent everyday, including 125,000 gallons ofDDT waste (ESCAP, 1992). The World Health Organizations data show that twelve of the

worlds fifteen cities with the highest levels of particulate matters, and six with the highest

levels of sulfur dioxide are in Asia. Five of the seven most air-polluted cities in the worldare also in Asia: Calcutta (India), Jakarta (Indonesia), New Delhi (India), Beijing andShenyang (China). The level of air pollutants with very serious health impacts is rising in

virtually all the cities of industrializing Asia (WRI, UNEP and UNDP, 1992). Besides thehuge traffic congestion on its roads, Bangkok citys air and water receive hundreds of tonsof pollutants from the concentrated industrial activities around the city everyday.

From 1975 to 1988, emissions of SO2, NO2 and total suspended particulates increased by afactor of ten in Thailand, eight in the Philippines, and five in Indonesia (World EnergyCouncil, 1993). Toxic pollutants measured by an index of air-born, water-born and solidtoxic wastes also increased several time over during this time.

Questions about the sustainability of current economic growth in these countries are morethan an abstraction as far as limits to growth are concerned. They cost highly in the formof increasing health costs and mortality, reduced output in resource-based sectors, and theirreversible loss of biodiversity and overall environmental quality. Quantitative estimates of


16/243


the cost related to the urban environmental degradation show that the environmental costof air and water pollution in Jakarta and Bangkok exceed $1 and $2 billion per year (around8% of the total income of the city), respectively. Costs in Asias other large cities are

comparable.

Governments in Asian countries are now urged to refocus and expand their environmentalprotection efforts with thorough environmental management programs and plans topromote resource conservation, environmentally-sound and safe industrial growth, andpollution abatement. An effective environmental management is desired for the integrationof environmental concerns in economic policy making, and the adoption of a commonmanagement strategy for environmental policy at the central and regional levels with theactive participation of the private and public sectors.

1.3 The command-and-control approach and experiences of its application inAsia

Following the environmental management approaches of the western countries, Asiancountries have also developed environmental policies that draw heavily on regulatory oradministrative policies. Japanin the early 1960s was an early adopter of the CAC, and hassince then achieved marked environmental improvements. The laws and regulations withregard to the environment have been strengthened since the Environmental agency wasestablished in 1971. Under the Basic Law for Environmental Pollution Control,environmental quality standards concerning air and water quality were regulated. Laws(which were amended through the years since its establishment) included the Air PollutionControl Law (1968), the Noise Regulation Law (1968), the Water Pollution Control Law,etc. Inherent to the success of CAC in the country is the strong and effective institutionalstructure whose main function includes strict monitoring, evaluating and enforcing ofenvironmental standards.

Other countries such as Korea and Taiwan, who have followed in Japan's footsteps havealso achieved significant improvements in environmental management. The enactment ofthe Environmental Preservation Act of Korea in 1978 (later amended in 1979 and 1981)helped the authority of the Ministry of Public Health and Social Affairs to promulgateenvironmental standards and environmental monitoring, to set up an emission chargesystem to enforce emission standards, and make environmental impact assessments anobligation for specific types of projects. The governments quick response to the

weaknesses in the implementation of the EPA was instrumental in the success of its CACapproach. This entailed the decentralization of authority to the regional levels and somereforms of the legal and institutional framework for environmental management in thedemocratization process that the country was undergoing since 1987.

The 1987 Environmental Protection Law ofTaiwansets the precepts for the environment.These are to be translated into measures dealing with the prevention, control and remedy


17/243


of pollution damage. The decentralization process in the country provided the localgovernments with the authority to set stricter environmental quality standards. National airemission standards have been strengthened with reference to SOx and NOx. Fines and

penalties have likewise been increased under the Water Disposal Act for illegal dumping ofwaste materials.

Relevant legislation in Singapore, on one hand includes the Trade Effluent Regulations of1976 which regulates the manner in which, and the locations at which effluents maybedischarged according to prescribed standards. For hazardous waste control, a number ofapplicable relevant regulations include the Water Pollution Act, the Environmental PublicHealth Act, and the Environmental Public Health (Toxic Industrial Waste Regulations) of1988. These rules require a toxic waste generator to discharge wastes at certain specifiedlimits. Their transport and reporting notification conditions are also stated.

Thailand

Thailand, with its Factory Act in 1969 (later amended in 1975 & 1992), laid down the basicguidelines for industrial pollution control and the monitoring of factory pollution by thirdparties. Under the Ministry of Industry, various regulations on industrial pollutants wereissued, and a Public Health Act governing certain aspects of environmental management

was enacted. Following this was the industrial emissions standards in 1971 whichcontrolled smoke intensity from industries at the mouth of the stack and penalized

violators to one month imprisonment or a fine of not more than Baht 10,000, or both(Ministry of Industry, 1971). In 1975, a major legislation called the National EnvironmentalQuality Act created the Office of the National Environment Board (ONEB), whoseresponsibilities were advisory in nature, and which was given the authority to set standardsand act as a watchdog to the countrys environmental protection. Other legislations (aspresented in Table 1.1) include the National Ambient Air Quality Standard and the

Boat/Ship/Vessel Emission Standards in 1981, amendment of the 1967 Toxic SubstancesAct in 1992, and other revisions and amendments.

While environmental legislation and regulation have expanded over the years, deteriorationof the environment continued with the Office of the National Environment Boards lackof enforcement authority and deficient enforcement machinery. Environmental problemsin the country became high in the list of government priorities, and thus, the SeventhNational Economic & Social Development Plan (1991-1996; Ch. 3) called for a thoroughoverhauling of the legislative and institutional framework for environmental protection. Anew legislation, the Improvement and Conservation of National Environmental Quality

Act of 1992 dramatically changed the environmental protection regime in Thailand. TheONEB has been elevated to that of a quasi-cabinet on the environment, with the Prime

Minister and the Minister of Science, Technology, and the Environment, presiding asChairmen. Under the new act, the ONEB is authorized to set the standards of quality forthe environment, to designate territories as environmental regulation or pollution controlzones, and that regulations can be enacted in these zones to ensure the maintenance of


18/243


19/243


Environment). However, the conversion of concerns about the environment into practicalpolicies has so far been relatively slow.

In 1974, the deterioration in water quality in Java and the increase of water-related diseasesprompted the Ministry of Health (MOH) to issue guidelines on water quality and dischargelimits on industrial waste water. The decree was based upon World Health Organizationguidelines issued in the early 1970s. In a number of provinces, the MOH decree wasmodified which set water standards for the provinces. The decree was subsequentlysupplemented by two regulations on water usage: Law 11/1977 and Presidential Decree22/1982 which were primarily intended to improve and protect the quality of irrigation

water and empowered the Ministry of Public Works (MPW) to monitor ambient waterquality at particular point sources. The laws also empower the provinces to enforcestandards with civil penalties and to charge firms for water usage and waste waterdischarge. Neither power has however been exercised, and it is generally agreed that waterstandards are too strict for immediate application. As a result, enforcement of the standards

has been virtually non-existent (World Bank, 1990). In March 1982, steps were taken forthe ratification of Statute no. 4 concerning Basic Stipulations for the Management of theLiving Environment, known generally as the Environmental Management Act (Law4/1982). Since then, other measures have been introduced, including GovernmentRegulations No. 29 of 1986 concerning Environmental Impact Analysis which make itobligatory for such an assessment to accompany all proposals for projects that could havean effect upon the environment. In 1986, government bodies were set up at provincial levelto monitor the use of groundwater and most departments now have an environmentalcontrol-unit. On the whole, there is greater appreciation of the fact that the environment isnot just the responsibility of one department since all are affected in some way byecological deterioration. Shortly before the commencement of the Fifth five-yearDevelopment Plan (Repelita V) in April 1989, government commitment to conserving the

interests of sustainable development for future generations was stated even moreunequivocally; Section 13 of the 1988 Broad Outlines of State Policy on which the FifthPlan is based, spells out clearly the importance of the environment in all matters relevant tonational development.

In June 1990, a new decree created an Environmental Impact Management Agency calledBAPEDAL, the head of which reports directly to the President. Its creation was anindication that enforcement will be the central feature of the governments environmentalagenda in the 1990s. In February 1991, BAPEDAL formulated effluent standards for 14polluting industries, and draft standards are now being prepared for new and extendedoperations in the same sectors which are to be based on best available technologies (BAT).In early 1993, the environment has been separated from population to create its ownministry. The Ministry of Environmental Affairs assumes responsibility for overall policyformulation, including global environmental issues. With BAPEDAL, legislation andregulations for pollution control, hazardous waste management and EIA wereimplemented. Revised ambient standards have recently been prepared for the 5 most


20/243


common pollutants (SO, CO, NO2, O3 and suspended particulates) and 2 hazardous airpollutants (hydrocarbons and lead). Relevant legislation for hazardous waste controlincludes a number of decrees for the control of the circulation and storage of pesticides,

the transport of radioactive materials. Similarly, BAPEDAL is finalizing a new regulationon air pollution control from automobiles and other mobile sources

China

Environmental legislation in China dates back to 1956 when the Sanitary standards fordesigning industrial enterprises was promulgated. It included norms for air, water and soil,applied to the industrial, agricultural, and residential areas. In 1959, sanitary regulations fordrinking water was implemented. These two were the main laws till the 1970s. In 1972, theprinciples of environmental protection were laid down, including standards for discharge ofindustrial waste, and a revision of the sanitary standards for designing industrial enterprises.

After the end of the cultural revolution in 1976, environmental policy was reborn in China.

In 1979, the Environmental Protection Law was put forth, and standards and regulationsfor the protection of water were also legislated. The importance of environmentalprotection was reflected by its incorporation into the national economic and socialdevelopment planning. The main policies concerning environmental protection includedprevention (and treatment) of pollution, an integrated approach to environmentalprotection through coordination of pollution prevention (and treatment) with economicconstruction, and strengthening environmental management with legal, economic &administrative measures (Long-Hai & Lu-Jun, 1993).

Environmental protection institutions at various levels have been established in thecountry. At the national level, the Environmental Protection Committee under the StateCouncil was formed with the State Administration of Environmental Protection as its

executing body. The Administration is responsible for drawing up environment-relatedpolicies, plans and regulations for the country and is also in charge of managing andsupervising the national environment. The importance of the legal framework led thegovernment to work out a series of laws and regulations which include the Detailed Rulesand Regulations for Implementation concerning Pollution Prevention and Treatment andEnvironmental Protection of the Peoples Republic of China, the Regulations concerningthe Prevention and Treatment of Noise Pollution, Forest Law and Land Law. InDecember 1989, the Law of Environmental Protection of PRC was revised after ten yearsof experimental practice and was officially promulgated.

Incorporated in the various laws are the requirements that the discharge of pollutants fromindustries should meet standards set by the government and should conform to the

relevant rules and regulations. In recent years, alarming cases of pollution in the coastal seascalled for the National Marine Ministry to issue more regulations for oil exploration anddumping at seas. In the area of industrial pollution, on the other hand, Beijing hasintroduced a range of environmental management systems. Through pollution discharge


21/243


permit and fee systems, success in the development of its strong command-and-controlframework is seen. The pollution discharge permit system addresses phased pollutionloading reduction based on the results of environmental audits and pollution prevention,

i.e., clean technologies, reduction of raw materials consumption, energy efficiency, wasteminimization and end-of-pipe treatment.

Philippines

In the Philippine setting, environmental management involves legislating of variousstandards and prohibition of specific polluting activities. The National EconomicDevelopment Authority (NEDA) is the highest government entity for the long-rangedevelopment planning of the environment, while the Department of Environment andNatural Resources (DENR) police the implementation of environmental laws. Theinstitutional arrangements for pollution control involve environmental policy, legislationand administrative machinery. The Philippines is regarded as having moderate coverage onpollution control legislation. This form of legislation deals with point sources of pollution

usually concentrated in the industrial sectors. The usual mechanism to regulate the behaviorof polluters is the licensing of waste emissions and operation permits. The major policyinstruments to control industrial pollution are the enforcement of a set of environmentalquality standards prepared by the DENR, and the administration of a system of EIA by theEnvironmental Management Bureau of DENR. The four major pieces of legislation whichserve as the core of environmental laws are the Presidential Decree (P.D.) # 984 (PollutionControl Law of 1976) which defines the declaration of a national policy to prevent, abateand control pollution of water, air and land; P.D. # 1152 (Philippine Environment Code)

which establishes standards for air and water quality, and prescribes guidelines for land usemanagement, natural resources management, and conservation, utilization of surface andground water, and waste management; P.D. # 979 (Marine Pollution Decree) which statesthe national policy to prevent and control the pollution of seas; Republic Act 6969 (Toxic

Substances and Hazardous and Nuclear Waste Control of 1990) which controls theimportation, manufacture, storage, transport, sale, use and disposal of nuclear waste inaccordance with national policies and international commitments. The Act also providespenalties for violators.

Most noteworthy pieces of legislation were promulgated in the late 1970s and becameoperational in the 80s. Enforcement, however, is rather weak for several reasons. Theproblem of waste emissions is entrusted to industries with very minimal support from thegovernment. The guidelines for pollution control have failed to realize the enormousexpenditures for control facilities and its maintenance. Despite the tax exemptions benefitsgranted to the industries for imported equipment and devices, emission control still entailsbig (and expensive) investments. Most industries are not able to meet the standards and

existing treatment plants are not sufficient to accommodate the waste load. Smallindustries are also not able to comply with the standards since most of the small industryowners are not well acquainted with the environmental policies and standards.


22/243

10 Regulatory Measures and Tec

Table 1.1 Legislation history for environmental protection in selected Asian coun

Year Legislation Description

THAILAND1969 Factory Act (amended 1975; 1992) basic guidelines for industrial pollution co

Ministry of Industry; monitoring of factothird partiescontrol smoke intensity at the mouth of tMinistry of Industry

1971 Industrial Emission Standards (under FactoryAct)Motor Vehicle Emissions Standards

control of black smoke and carbon monoNEB, the Police Department, and the DeTransport)

1975 National Environmental Quality Act (revised1978; 1992)

created ONEB; endorsement of the EIA

1978 Industrial Wastewater Pollution Control modifications under Factory Act of 1978standards for industries; submission of po

analysis reports1981 National Ambient Air Quality Standards established by ONEB: regulates concentr

monoxide, sulfur dioxide, suspended soli(based on EPA, USA; modified guidelinelocal conditions)

1985 Boat/Ship/Vessel Emission Standards to control black smoke emissions (under Department)

1992 Hazardous Substance Act (amendment of the1967 Act)

The 1992 Act

empowers government to control (via liceexport, manufacture, sale, storage, transpor poisonous substancesestablishment of environmental fund; PoPrinciple; decentralization of enforcemenpollution control areas; publics right to

INDONESIA1967 Basic Forestry Provisions Act revised in 1990 as Conservation of Natur

Ecosystems Act1973 Prevention and Control of Water Pollution in


23/243

Application of regulatory and economic instruments

Mining and Energy1974 Water Resources Development Act1978 Prevention and Handling of Environmental

Pollution from Industry

1982 Basic Provisions for the Management of theLiving Environment

1986 Regulations for Analysis of EnvironmentalImpacts

1988 Regulation of the Ministry of Demography andEnvironment

Orientation standard decision of environ

1990 Control of Water Pollution Govt. Regulation#20Controlling the Quality of Water at its Source

prescribes measures designed to monitorcontrol the disposal of wastes into water treatment

MALAYSIA1974 Environmental Quality Act (and regulations

under it)1975 Environmental Quality Act (Clean Air

Regulations)controls pollution of the atmosphere maisources

1987 Environmental Quality (EIA) Order specifies 19 categories of activities requirproject approval or implementation

1989 Environmental Quality (Scheduled Wastes)Regulations 1989

stipulates the handling, storage, treatmentransport restrictions applicable to hazardwastes

1991 Amendments to the Merchant ShippingOrdinance

control of pollution of the seas

PHILIPPINES1976 Pollution Control Law (P.D. 984) declaration of national policy to prevent,

pollution of water, land and air1977 Philippine Environmental Policy (P.D. 1151) sets forth statements namely, the Nationa

Policy, National Environmental Goal, RigEnvironment, and Environmental Impac


24/243

12 Regulatory Measures and Tec

Philippine Environment Code (P.D. 1152) establishes standards for air and water quguidelines for land-use management, natumanagement, and conservation, utilizatioground water, and waste management

EIA Law (P.D. 1586) outlines procedural guidelines in adminissystem

1987 Marine Pollution Decree (P.D. 979) states the national policy to prevent and cpollution of the seas

Water Code of the Philippines (P.D. 1067) revises and consolidates the laws of goveappropriation, utilization, exploitation, deconservation of waters and watershed

1990 Toxic Substances and Hazardous and NuclearWaste Control Act (R.A. 1067)

controls toxic, hazardous and nuclear waimportation, manufacture, storage, transpdisposal in accordance with national policcommitments

DENR Administrative Orders 34 & 35 Usage and Classification Water Quality CStandards

CHINA1956 Sanitary standards for designing industrial

enterprisesnorms for air, water, and soil applicable tagricultural and residential areas

19591973

1979

1989

Sanitary regulations for drinking waterStandards for the discharge of industrial waste:solid, liquid, gasRevision of Sanitary standards for designingindustrial enterprisesEnvironmental Protection Law of PRC

Revision of the Environmental Protection Lawof PRC

various regulations and standards which wof aquatic resources, quality of water, etcForestry Law (tentative)

Sources: EC- ASEAN COGEN Program, 1992; Notifications from Ministry of Industry (ThailBlum, 1993; DENR, 1990.


25/243

Application of regulatory and economic instruments 13

1.4 The Effectiveness of Command-and-Control in Asian Countries

As clearly seen earlier, legislation has been adopted in practically all the developing

countries in Asia to reduce the conflict between environmental protection and industrialpractices. Most often than not, the laws and regulations adopted are similar to those of thedeveloped nations. Governments set ambient pollution and industry standards based on

WHO standards, or those of the United States and the European countries. However, theeffectiveness of the enforcement of command and control measures varies according tocountries.

In Thailand, data on pollution loading and ambient quality point to a deteriorating situation.It is anticipated that pollutants will increase to disturbing levels over the next 20 years, withthe transport sector emitting the maximum amount of hydrocarbons, NOx and CO. Theindustrial sector, also a major contributor of suspended particulate matter is expected totriple its current level of SPM emissions, and its share will rise to 67% of the total

emissions. The Department of Industrial Works is primarily responsible for monitoringemissions from stationary sources and the enforcement of industrial discharge standards,but until recently, its officers had limited power to enforce standards through civil orcriminal penalties. The Bangkok Metropolitan Transit Authority also conducts vehicleinspections on its trucks and buses but is not particularly effective in controlling blacksmoke emissions.

InMalaysia, pollution control measures adopted by the Department of Environment haveled to an improvement in the air quality between 1985 and 1989. In a number of cases,however, the government is still not able to control various repeating offenders due to itslimited power and some loopholes in the regulations itself. For example, under the presentEnvironmental Quality Act, the DOE can prohibit certain industrial operations only for

those factories which are listed in the Act as prescribed premises (those which require alicense for the DOE to operate). Moreover, DOE as the principal public institution forenvironmental planning and management is not adequately provided with resources toeffectively monitor the state of the environment and to institutionalize measures to enforcecompliance. Therefore, a bill of amendment of the EQA is now being passed. If approved,the DOE director-general will have the power to stop factories from operating, regardlessof whether they are in the prescribed premises or not, for posing a threat to public safetyand health. In 1994, DOEs enforcement data shows that 65 cases have been brought tocourt (Table 1.2). Of this, 51 or 78.5% concerned factories pollute the waterways with

waste discharges. One loophole in the Act is that DOE cannot apprehend polluters on thespot because the existing regulations on sewage and industrial effluents do not have such aprovision.

In Indonesia, the forecast of pollution loading to year 2000 shows a fourfold increase in thedaily automobile emission of pollutants over the 1989 levels. In the industries, SO2emissions are envisaged to rise by 10 times, and suspended particulate matter by fifteentimes. Industrial BOD loads have increased one and a half times since 1980 and are


26/243

14 Regulatory Measures and Technological Changes

projected to rise 10 times by 2020. A study conducted in the Surabaya river (in Indonesias2nd largest city Surabaya) found that 80% of the rivers pollution was caused by industrieslocated along the lower Brantas and Surabaya Rivers (World Bank, 1990). Moreover,

responses from over 70 industries investigated to the legislation ranged from no apparentaction at all to provision at one factory of sophisticated pretreatment facilities. From 28firms selected for detailed analysis, only 4 (14%) complied with the provincial standards forBOD and 11 (30%) with the standard for chemical oxygen demand.

Table 1.2 Number of cases brought to court in 1994 in Malaysia

Failure to comply with license conditions (Section 16 of EQA) 4Operating without a license (Section 18 of EQA) 5Polluting inland waters (Section 25 of EQA) 51Open burning without license (Clean Air Regulations) 1Failure to submit Envl. Impact Assessment (Section 34A of EQA) 1Constructing premises for the purpose of discharging effluent without

DOEs approval (Sewage and Industrial Effluents Regulation)

2

Discharging effluent onto land without prior permission from DOE(Sewage and Industrial Effluents Regulations)

1

TOTAL

Source: DOE, 1994Note: No. of prosecutions for the year 1992 and 1993 are 85 and 144, respectively.

Surveillance of environmental quality now rests on the provincial governors. Monitoring isconducted on an ad hoc basis, in response to complaints from pollution victims. Whereappropriate, the governor issues orders to remedy the situation. Permits and licenses arealso used for monitoring and enforcing pollution standards, the former being issued afteran EIA is made. Technical capabilities and equipment needed to conduct suchinvestigations, however, are limited, and there is hardly any systematic program formonitoring industrial firms. The fact that only a minority of firms causes a major portionof industrial pollution suggests that a program to identify and eliminate major pollutersshould be prioritized for immediate support (World Bank, 1990).

In China, data from the Beijing Environmental Protection Bureau from 1988 to 1990shows that as a result of its pollutant discharge permit, there was a 5% increase inproduction output and a 6% (1,000 ton/year) decrease in COD discharges system for threeof Beijings largest chemical polluters. Total production output is projected to increase by50% in 1995, with a 16% reduction in COD discharges. Table 1.3 shows that among all thepollution problems, control of water pollution has been taken most seriously. Industrialsolid waste levels have also become stable during the second half of the 1980s and realprogress has been made in controlling industrial solid wastes from large and medium urbanenterprises.


27/243


Table 1.3 Proportion of expenditure in P.R.C. for various types of pollution control

1985 1986 1987 1988 1989 1990 1991 Total (million yuan) 2221 2877 3594 4241 4354 4545 5973Percentage spent on:

Water Pollutioncontrol

44.9 44.0 43.6 44.0 45.3 47.6 48.9

Air Pollution control 32.8 33.3 34.5 36.0 36.2 32.6 33.0Solid Waste Control 8.6 10.6 11.1 10.1 9.1 11.2 11.3Noise Control 2.5 3.2 3.1 2.9 3.0 2.6 3.1Others 11.2 8.9 7.7 7.0 6.4 6.0 3.7

Source: Guojia Tongjiju, 1991; 1992 (extracted from Edmonds, 1994).

With the intensified efforts of the government through relevant policies, regulations, and

environmental protection agencies at different levels, progress has indeed been made inenvironmental protection and pollution treatment in China. While this progress is expectedto continue over the next decade, the overall trend will lead to the worsening of Chinasoverall environmental conditions. Poor pollution conditions will continue to prevail inareas where small-scale industries abound since these industries often use outdatedequipment and cannot afford to spend on pollution abatement equipment. With an annualaverage growth rate of 25.3% between 1985 and 1990, and an employment of one-fourthof the rural workforce, rural industrial pollution is expected to increase (Edmonds, 1994).It will therefore require a big amount of effort, finances, manpower, as well as strictenforcement of regulations on the part of the government to deal with the environmentalproblems brought about by the rural industry. In the early 1980s, some forms of marketmechanisms have appeared on the scene, and a number of publications sees market

mechanisms as the ultimate key to Chinas environmental problems.

In the Philippines, assessment of command-and-control has also shown some failures inimplementation, as cited earlier. Added to these problems is the fact that there is a shortageof technologists and experts, assessors and reviewers, to conduct monitoring andenforcement of industrial standards for pollution control, which eventually leads toinadequate identification and evaluation of environmental quality. Even though a degree ofdecentralization of authority is being exercised, there are delays in monitoring of projects,delays in paperwork (processing of permits, reports, etc.), and the implementation of lawsand regulations, partly due to the lack of political will to enforce and implement the laws.Reviews on the regulatory nature of solution to environmental management conclude thatregulations alone have not produced the expected results in the Philippines (Villavicencio,

1987).

It can be seen that many Asian developing countries have so far experienced loweffectiveness in the implementation of CAC. While rules and regulations are important


28/243


policy instruments for environmental management, the legalistic approach is not workingsuccessfully. For one, the authorities in most countries, particularly the local authorities, donot have sufficient qualified personnel to enforce the regulations. There is also a need for

empowerment in the lower levels of the government hierarchy so that local specificitiesmay be addressed directly, without having to pass through the channels of bureaucracy.Moreover, the lack of political will on the part of the government to strictly enforcelegislation is evident in most Asian developing countries. Usually, litigation causesopposition and the approach is always proven to be ineffective. In the implementationphase, fines may be set too low to deter violators, or the regulations set by the governmentbecome non-incentives for firms to go beyond what is required once they are able toachieve the minimum required standards.1

Also, setting up the regulatory body to monitor, enforce and implement the various rulesand regulation for environmental pollution requires not only the technical competence ofthose in charge with regulatory design and implementation, but also the financial capacity

and the machinery needed to regulate the industries. In the developing countries, thecountrys ability to implement is hampered by the fact that while regulatory frameworks arealready in place, enforcement remains weak due to financial constraints and lack ofequipment. Due to the surge of rapid industrialization in the region associated withexplosive growth in energy consumption, monitoring hundreds of thousands of scatteredsmall-scale industry operators is met with financial, technical, and human resourcelimitations, and in cases where only a handful of industries operates, various ways havebeen found to bend the rules, making exceptions or granting exemptions. Even whenmonitoring is achieved to some degree, the state of technology in the industries itself (withold and outdated processes and technology) calls for a re-education of the public and anawareness of environmentally sound technologies. Moreover, further tightening ofindustrial pollution laws and regulations leads to high costs since abatement technology

could be very expensive. Therefore, there is also a need to search for cost-effective ways ofachieving further environmental improvements.

Reasons for the ineffectiveness of the CAC, however, do not deter the governments of Asian developing countries from preferring the use of the CACs due to the fact thatregulations set specific objectives that are clearly specified in physical terms. This then givesthe regulators a reasonable degree of predictability about how much pollution levels arereduced. Moreover, the use of regulations is a source of power and influence for thegovernments and provides a way to hide the true cost of environmental protection. This

1The Environmental Management Bureau of the Department of Environment and Natural Resources in

the Philippines reports that the existing fines and penalties currently imposed against polluters at amaximum of P50,000 (under P.D. # 1586), are just not serving the purpose. Because of the low rate,

industries opt to pay the P50,000 fine rather than install treatment facilities. In its review of fines and

penalty system, a 200% to 300% raise in existing fines should be created, though the step will also need

congressional action (Carlos, 1994).


29/243


lack of "transparency", however, can make enforcement pave the way for bribery andcorruption.

1.5 An Alternative Approach: Use of Market-based (Economic) Instruments(MBI/EIs)

Environmental protection arose in the wake of economic growth, and should therefore bemanaged in accordance with economic laws. There is then a need to make enterprisesaware of their responsibilities for environmental protection aside from their economicresponsibilities. In recent years, there has been an increasing interest to use economicinstruments in most industrialized countries and the NICs of Asia. While not eliminatingthe regulatory framework in favor of the MBIs, mixed or hybrid systems have evolved thatretain the positive elements of CAC while enhancing the potential advantage of the MBIs(O'Connor, 1994; O'Connor and Turnham, 1992).

The mechanics of the MBIs vary according to type, but share a basic underlying principle:government sets up financial incentives (or disincentives) on pollution-related activities(rather than 'command') to propel firms and individuals (consumers) to behave in sociallydesirable ways. These instruments are designed to restore the link between resource scarcityand resource price, and its application embodies the polluter-pays principle whereinenvironmental costs imposed on society through production and/or consumption activitiesare integrated into decision-making, i.e., internalizing externalities.

OECD studies (Potier, 1995; EPAT, 1993; Horstmann, 1993) have identified fivecategories of market-based economic instruments. These are: 1) taxes and charges, 2)deposit-refund schemes, 3) emission trading or marketable permit systems, 4) financialenforcement incentives, and 5) subsidies. There is, however, no fixed list to MBIs since

these represent a broad approach to environmental policy which allows tremendous scopefor innovative instrument design.

1.5.1 Why MBIs should be used in Asian developing countries

Nowadays, Asian developing countries are characterized by rapid urban and industrialgrowth coupled with rapid increase of population. This growth causes environmentalproblems in various ways: increased air pollution from households, industries andtransport sector, water pollution due to inadequate sewerage, inadequate treatment anddisposal of waste charges, increasing traffic congestion in urban areas, etc.

For these countries, economic instruments have the advantages over the CAC regulations.First, economic instruments can achieve the desired effect at the least possible cost.Implementing MBIs entails lower information, monitoring and enforcement costs (vis--visCAC which involves high litigation and legal expenses). A policy based on this may chargea polluter an impact fee given the following options: pay the full fee, treat their own waste


30/243


discharge thereby reducing the fee, or routing their discharge by means of a commonwastewater facility.

Second, economic instruments are easier to enforce for countries with limited enforcementcapability. Whereas Japan and Korea have been successful with the use of CAC in theimplementation of their pollution measures (mainly due to strong political will inenforcement and the highly concentrated nature of large industries allowing easier pollutioncontrol and monitoring), Thailand has started to rethink its environmental policy in relationto the use of economic instruments. Experience has shown that with only a few pollutioncontrol officers compared to a large number of scattered small and medium-scale firms andother polluters to monitor nationwide, total monitoring is very costly and not feasible. Asin most developing countries of Asia, the scattered nature of these industrial firms requiresbetter government enforcement capabilities, a characteristic which these governments aremostly inadequate with.

Third, the economic incentive discourages rent-seeking behavior due to its transparentnature. Tietenberg (1988) describes rent-seeking as the use of resources in lobbying andother activities directed at securing protective legislation. Due to the transparency ofeconomic incentives, the formula to assess a charge is readily available for public scrutiny.

This leads to the perception of equity where everyone knows the rules, whether or not therules are enforced fairly.

Fourth, economic instruments generate revenues, whereas regulations require bloatedbureaucracies. Depending on the relevant elasticities, market-based policies will lead tosome increase in financial flows to the owner of the resource, e.g. the government, andthese revenues can be invested in the resource itself. This is advantageous for developingcountries which face tight and budgetary deficits.

Finally, the processes of decentralization, democratization, and the emerging trend ofeconomic liberalism in the developing countries of Asia have paved the way for theeffective use of MBIs. Being in their embryonic stages, the market and financial systems ofthese countries are open for the design and insertion of MBIs for an effectiveenvironmental management.

1.5.2 The development of MBIs in Asian developing countries

The choice of MBI depends on the kind of pollution problem that needs to be addressed.In some cases, a direct regulation might be needed, while in other cases, some form ofcharge or other economic instrument has to be chosen.

Thailand


31/243


In Thailand, a number of economic instruments have already been in use. The governmenthas promoted the use of lead-free gasoline by restructuring its tax regime. Excise tax on alltypes of gasoline was reduced after January 1992, and that of unleaded gasoline was

reduced by 20% compared with approximately 15% for leaded gasoline. The pricedifferential in turn generated a market for the retrofitting of lead-burning engines to burnunleaded gasoline.In 1988, the Bangkhuntien Industrial Waste Treatment Center started its operation fortreating hazardous waste from small-scale electroplating, metalworking and tanningindustries. Its services include waste transport, waste treatment, stabilization and fixation,and final landfill. The Department of Industrial Works oversees the collection of servicefees and other operations of the private company which leases and manages the center.Service fees are charged at the lowest cost possible, based on the type of service beingrendered. The operation has generally been successful, although problems arise, e.g. under-reporting of waste volume by the industries in order to lessen disposal expense, and thelittle incentive for factories to reduce their waste during the contract period (usually one

year) due to the minimum treatment charge of 70% of the full cost of the waste amountspecified in the contract (TEI, 1994).

To decrease water pollution in the countrys main rivers, central wastewater treatmentfacilities were set up by the Ministry of Industry in industrial estates in the province ofSamut Prakan. Effluent charges are levied on factories based on the BOD and suspendedsolid concentrations of waste flows.

Subsidies are also provided for pollution control equipment. The National EnvironmentBoard is proposing that the government cut tariffs from the current 30-40% to 5% in thenext 4 years on equipment designed to reduce pollution and protect the environment. Theaim is to promote environmental conservation in small- and medium-scale industrial plants

(The Nation, 1994).

Indonesia

Indonesia is also well on its way to utilize MBIs. Import tax reprieves for wastewatertreatment equipment has been implemented, and industrial waste treatment facilities havebeen installed through subsidies from donor agencies. The development of industrial plants

with centralized water treatment facilities provide a cost-effective solution for waste watermanagement. First, the industrial estate specifies minimum standards for each firms

wastewater, and firms exceeding these levels must invest in pretreatment facilities. Whenminimum standards are reached, a system of effluent charges for both the quantity andquality of the industrial discharge determines the cost of pollution. Revenues from thiseffluent charge system are used to fund the operations of the laboratory and the treatment

plants.

Philippines


32/243


The Philippinesis still in its infancy stage in the use of economic instruments. The PhilippineStrategy for Sustainable Development emphasizes the concept of the polluter internalizingthe social price of an environmental resource (air, land, water) within his/her profit-

oriented decision-making process (Republic of the Philippines, 1989), though itstranslation in form of market-based policies is yet to be seen. Some steps to this effect,however, are taking place: the signing of the Healthy Air Pact between the incumbentPresident and the Oil Industry led to the reduction of lead content in gasoline from 0.6 to0.15 g/liter - a move that has contributed to the reduction of lead emissions. This has beenfollowed by the Presidents Executive Order mandating the Department of Energy and theDepartment of Trade and Industry to implement incentives and measures to promote theuse of unleaded gasoline.

Tax incentives in the form of tax exemption benefits for imported pollution controlequipment and devices are also granted to the industries. This incentive is contained insection 56 of the Philippine Environment Code which guarantees importers of pollution

control devices and equipment, a tax credit equivalent to 50% of the value of thecompensating tax and tariff duties. A form of deposit-refund scheme also exists in thepackaging industries of the country for soft-drink, beer and milk bottles.

A variation of the deposit-refund scheme is the recycling scheme that was introduced bythe Department of Environment and Natural Resources in cooperation with McGillUniversitys Geotechnical Research in Canada. This industrial waste exchange system isbased on a simple concept: one companys waste can easily be anothers treasure, and itsimplementation is the first in Southeast Asia. Under the scheme, companies voluntarilyexchange their wastes. They gain by being paid for waste they would not know what to do

with, and by saving considerable sums by acquiring raw materials at bargain basementprices (IDRC, 1994). The exchange system reduces environmental pollution, recovers

usable resources and cuts the cost of waste disposal.

Malaysia

During the initial years of implementing discharge standards in the palm oil mills andrubber factory effluents ofMalaysia, a form of effluent-related fee pitched at a realistic level

was charged, applying the polluter-pays principle in order to induce the industries to installtreatment systems. Mills were also permitted to dispose off their untreated effluent in

which case, a license fee was charged at the rate of RM$ 50 per 1000 tons of effluentdisposed (Ong, et al., 1987). The charging of a high effluent-related fee as well as grantingincentives by way of the waiver of fees for research had the effect of hastening the pace ofresearch while notable successes have been achieved in the palm oil mill effluent treatmenttechnology. A novel feature of the factory effluent control is the combined use of

regulation and charging effluent-related fees based on the pollution load discharge in termsof BOD.


33/243


China

Chinas utilization of economic instruments is embodied in its environmental protectionlaw that stipulates the execution of policy with awards2. Factories which use waste gas,

waste liquid and other residues as their main material qualify for tax reductions orexemption, or for special considerations in price policies. Profits generated from thisscheme should not be turned over to the State, but can be used to manage pollution andimprove the environment. Fines for the discharge of pollutants are also set by the State,and in principle, are a little higher than the costs of pollution control. Such conditionmakes it clear to enterprises that it is better to use the money for good environmentmanagement than to pay fines. It also serves as an incentive to start the propermanagement of the environment early. In the past, administrative measures were taken andregulations were passed, but they did not get enough attention from the departmentsconcerned. The practice of charging fines for the discharge of pollutants has put an end tothis indifference, and contributes to improvements in the technical aspects and monitoringcapacity of the State.

In the countries studied, taxes, charges, and incentives have by far been the mostcommonly used forms of economic instruments for pollution control, but other MBIs havenot been as widely employed as they are in the industrialized countries of Asia, Europe andthe U.S. Marketable permits for example, are only being used in the United States andSingapore. Governments in Asia are not yet ready and do not have adequate ability to makeuse of this new and unfamiliar scheme where monitoring and supervising the market is

important.

Deposit-refund schemes may also prove to b

Regulatory Measures and Technological Changes in the Cement, Iron & Steel, and Pulp & Paper...

Documents

Transcript of Regulatory Measures and Technological Changes in the Cement, Iron & Steel, and Pulp & Paper...