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A better option

  • 30/08/1997

A better option environmental negligence is cos-t-ing the Asians dearly. But as adb states, the potential to reverse the downward trend exists. Asian policymakers need to adopt a different environmental policy, one that will sustain and stretch the resources further. Though regulation should be the keyword, a more flexible approach and implementation policy combined with more reliance on economic instruments should be put into action.

For instance, a flexible antipollution approach would use economic instruments to substitute for or complement regulatory standards. This, according to adb , would allow the industry a much freer hand in setting its own means of compliance based on the cost of pollution to the polluting entity.If there is sufficient institutional capacity to implement industry-specific programmes, some governments may also provide information and other incentives to encourage the adoption of clean technologies.

Different pollution minimising options should also be provided to polluters. For instance, if a factory can choose between changing its product processes, inputs, or pollution abatement efforts; relocating; or paying charges for polluting rather than being forced to stick to a single technology or emissions standard, it will choose the cheapest option.

Money wise
The cost benefits of a flexible form of pollution control are stupendous. A study calculated the difference between the price of China"s existing combination of discharge permits and fines on excess emissions (a command-and-control system) with the cost of a full emission charge system (a market-based instrument). Based on a sample of 260 enterprises in Beijing and Tianjin with multiple water pollution sources, it was found that an emission charge that would achieve the current abatement rate for each pollutant would reduce abatement costs from $47 million to $13 million per year, a saving of $34 million from this group of enterprises alone, or a 70 per cent reduction from the cost of the command-and-control system.

A comparison of the proposed command-and-control-based antipollution investment program in China and India with the least-cost alternatives also demonstrates the inefficiency of Asia"s current policies. The command-and-control approach consists of investments required in the power sector from 1992 to 2000 to achieve a certain percentage reduction in emissions of major pollutants. The least-cost policy consists of selecting least-cost technologies using a model that minimises costs. The cost of the command-and-control approach is 10 times higher than the least-cost alternative for China and three times higher for India. The saving is greatest in the case of particulates, Asia"s most serious and widespread air pollution problem. Even if a more efficient regulatory system meant that only two-thirds of the current cost of environmental protection could be saved, the effect would be equivalent to tripling environmental expenditures under the existing system. By improving efficiency, a more flexible and effective regulatory regime can also enhance a country"s competitiveness.

Asian policymakers will have to slowly bring about emission charges, tradeable permits and other economic instruments. To be effective, the more sophisticated instruments require effective monitoring and enforcement whereas many simpler economic instruments such as product charges and deposit refund systems do not, because they are incorporated into the product price. Several Asian countries have begun to introduce market-based instruments for environmental management on an experimental basis.

Charges and permits for effluents require effective monitoring. In Malaysia, the introduction of charges on palm oil effluent in the late "70s was remarkably successful. Despite a 50 per cent increase in the number of palm oil mills between 1978 and 1982, the extent of water pollution as measured by the bod levels fell from 222 tonnes of effluent per day in 1978 to only five tonnes in 1984. These changes did not result in a loss of competitiveness for the palm oil industry or reduced production.

Asian communities need to phase out subsidies which have only proved costly to the environment. Globally, the annual costs of subsidies detrimental to the environment (including water, energy and pesticide subsidies ) exceed us $500 billion. Asia currently accounts for about a third of this estimate.Asian environmental policy must be characterised by a strong but limited governmental role, by effective management, by an efficient pricing policy, by secure property rights and by a prominent role for the private sector and civil society.

The state of environment in Asia in say, the next 30 years will, therefore, depend on Asia"s own policy choices. As adb forecasts, in the coming 30 years, Asia will become more industrialised but the sector will be dominated by light rather than heavy industries. Its population is also likely to increase by 50 per cent to reach almost five billion by the year 2025. With only 24 per cent of its population currently living in cities, Asia is the world"s least urbanised region; however, at the current rate of urban population growth, by 2020, adb predicts that half of Asia"s population will be living in cities.

Like other developing countries, Asian countries too face the possibility that stringent environmental standards will not only make their products non-competitive, but will also be used as non-tariff barriers.

Money matters
Environment-related funding needs for the Asian and Pacific region, selected years 1991-2025 (1990 $ million)

FIELD 1991 1995 2000 2005 2010 2015 2020 2025 AVERAGE GROWTH RATIO PER YEAR (PER CENT)
Water supply 5,941 6,919 8,924 10,306 11,840 13,689 14,489 16,017 3.0
Sanitation 3,008 3,340 4 ,187 4,762 5,404 6,010 6,595 7,150 2.6
Population 4,233 4,568 5,027 5,421 5,818 6,194 6,555 6,899 1.4
Education _ 2,249 2,486 2,993 3,394 3,774 4,140 4,487 3.4
Agriculture _ 1,738 2,537 2,995 3,553 4,232 5,059 6,065 8.6
Transportation _ 1,875 8,817 13,390 14,806 16,096 17,499 19,054 15.0
Industrial Waste _ 1,564 9,039 20,781 26,616 32,460 39,482 48,026 19.5
Biodiversity 67 67 67 67 67 67 67 67 0.0
Forestry 3,701 3,701 3,701 3,701 3,701 3,701 3,701 3,701 0.0
Electric power _ 6,679 19,376 40,969 63,216 82,521 102,979 5,550 12.9
Acid rain 407 512 684 887 1,140 1,447 1,822 2,278 5.2
Global climate 5,365 5,365 5,365 5,365 5,365 5,365 5,365 5,365 0.0
Total 22,723 38,577 70,212 111,637 144,921 175,160 207,953 244,660 7.2

- = not avaible
Note:Asian and Pacific region refers to a sample of 30 countries in Asia plus Fiji and Papua New Guinea

Environmental infrastructure
Infrastructure provision is a function of population growth and of growth in gdp per person as adb puts it. Because policyma-kers tend to view environmental infrastructure as unproductive, the relationship between growth and infrastructure provision is lower than for productive infrastructure. For example, a 10 per cent increase in gdp per person results in only a three per cent increase in water supply and a two per cent increase in sani-tation as per D Cannings"s paper referred to earlier.

Assuming urban water supply costs of us $ 200 per person and rural supply costs of us $60 per person, annual net investments in water supply are projected to range between a low of less than 0.2 per cent of gdp for Malaysia and Thailand to more than 0.7 per cent for Nepal and Pakistan. For most Asian countries to achieve water supply coverage of 100 per cent in the next 10 years, their annual net investment must at least double or triple, but will nevertheless remain at less than one per cent of gdp according to adb . The most important exceptions are Bangladesh, Myanmar, Nepal and Pakistan, where investment requirements will rise to between two to four per cent of gdp per year, which is obviously excessive for poor countries. China, India and Indonesia are intermediate cases (with rises to 1.5 per cent of gdp ) but in absolute terms they face the greatest demands, because they have by far the largest populations and high rates of urbanisation.

The aggregate costs of 100 per cent coverage in water supply and sanitation during the next 10 years for all of developing Asia are approximately us $30 billion per year, compared to $10 billion per year to maintain the current level of service in the face of population growth.

adb estimates of environment-related funding needs for the Asian and Pacific region for 1991-2025, based on the assumption that environmental policies will not change are presented in the table: Money matters . Estimates for water supply and sanitation are based on an average annual growth rate that is consistent with full coverage over 30 (rather than 10) years. The aggregate funding needs for all sectors rise from less than us $40 billion in 1995 to almost us $250 billion in 2025, an average annual growth of 7.2 per cent in expenditures or twice the projected average growth rate of gdp . If such an enormous investment requirement were to be funded wholly by the public sector, this would pose intolerable fiscal burdens.

Alternative policy approaches that involve pricing reform and improved management would reduce the burden considerably. Full-cost pricing of water, for instance, would achieve nearly full coverage without supply expansion in most Asian countries. As adb states, with an improved approach to environmental policy, the private sector could meet a large part of these investment requirements. With improved policies, Asia could keep its environmental expenditures to less than two per cent of gdp or thereabouts with the public sector providing less than half this amount.

This article has been excerpted from Emerging Asia: Changes and Challenges , an Asian Bank Development publication (1997) authored by Theodore Panayotou of the Harvard Institute for International Development; and Toward an Environmental Strategy for Asia , a World Bank discussion paper authored by Carter Brandon and Ramesh Ramankutty.

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