Application of Economic Instruments in Environmental Management

Feasibility and Operational Plan

By Prof. Tongroj Onchan and Asst. Prof. Dararatt Anantanasuwong, Ph.D.

Executive Summary

Over the past 30 years of impressive economic growth, Thailand has experienced rapid industrialization. Unfortunately, this transition has resulted in significant industrial pollution in many areas, particularly in the BMR where there is a high concentration of factories. Environmental policies and the enactment of significant environmental laws in 1992 have increasingly emphasized the application of the Polluter Pays Principle (PPP), in particular, since the inception of the Seventh National Economic and Social Development Plan (1993). Several studies have been conducted with the main objective of convincing policy makers, industrialists and the general public of the benefits and feasibility of an approach to applying PPP which relies to a greater degree on the use of economic instruments (EIs) to overcome the deficiencies of the commonly used command-and-control (CAC) approach.

The Thailand Environment Institute (TEI) has undertaken several studies on the application of EIs, beginning with the 1994 CIDA funded study "Applying the Polluter-Pays-Principle: Time for Action", followed by the 1997 and 1998 GTZ funded studies on the "Development of Economic Tools in Industrial Environmental Management" and "An Operational Plan for the Application of Economic Tools in Industrial Pollution Management". The focus of TEI's industrial pollution management research has specifically been in the tannery, palm oil and canned fish industries. In contrast to studies recently undertaken by other research organizations, TEI's studies attempt to analyze the feasibility and implementation of EIs with the view that these findings can be applied in practice.

This paper summarizes the results of TEI's two most recent studies. The first study is focused on feasibility aspects while the latter is on an operational (management) plan for the application of EIs in industrial environmental management.

The 1992 Factory Act divides all industries into three types (Type 1 - small, Type 2 - medium and Type 3 - large). Although Type 2 is comprised of only 37 per cent of the total number of factories, it contributes significantly to industrial pollution within the BMR. The majority of industrial factories fall within the food category. In combination with the significant potential for increased levels, the existing high levels of wastewater, solid waste and air pollution generated by the tannery, palm oil and canned fish industries have contributed to TEI's selection of these sectors for research purposes. Emission Charges (ECs) and Pollution Management Fees (PMFs) have been identified as the most appropriate option among available EIs for the management of industrial pollution. Regardless if discharges meet standards, the government will collect ECs from pollution. Regardless if discharges meet standards, the government will collect ECs from pollution sources, while PMFs aim to encourage factories to reduce wastes through improved production processes.

The application of ECs depends on the amount of waste discharged, effluent loads and effluent standards. The EC amount must, therefore, be calculated using an equation with six variables. The PMF is also obtained using a specific fee calculation. The ability of factories to pay ECs and PMFs has also been assessed by studying the relationship between ECs and the cost of both production property and factory profits. In addition, interviews were conducted in the tannery, dying, metal coating, chemical, pulp and paper, food and vehicle industries to determine willingness to pay. The results indicated that 73 per cent of all participating industrial proprietors supported the collection of fees from factories which generate pollution and cannot treat it. According to the study, enforcing ECs and PMFs should have a minimal impact on factories when compared to production costs, as ECs are less than 0.5 per cent of the total cost and PMFs are less than 1.5 per cent.

The application of EIs requires comprehensive and pragmatic operational plans. The second study conducted by TEI presents a three to five year operational plan. Of the three phases of the plan, the first stage is focused on preparation (November - December, 1998), the second is focused on implementation (January, 1999 - March, 2000), and the third on post implementation (after April, 2001).

The first phase will involve the establishment of an Executive Committee which will be responsible for preparing the application of EIs over the next three years. The administration is divided into EC and PMF sections which will be under the Director General of the Department of Industrial Works. A Working Group for the Application of EIs will also be set up and act in the capacity of Secretariat. The Legal Division will be responsible for drafting the necessary rules and regulations while separate preparatory committees comprised of representatives from concerned agencies, the public sector, the private sector and NGOs will be responsible for each of the four major tasks.

Operational plans involve ECs, PMFs, monitoring activities, the establishment of the Pollution Management Fund, and the evaluation of the implementation plan. Another important organization responsible for overseeing the implementation of EIs will also be established. In this regard, an Environmental Economics Office will potentially be established within the Department of Industrial Works.

Mechanisms for effective implementation of EIs have also been proposed and include the timing and supervision of the planned schedule and activities, the legal aspects, and the responsible agencies and committees. Activities include appointing implementation committees, amending or revising the 1992 Factory Law, and inviting participants from educational and private organizations to contribute to this significant undertaking. Finally, it must be emphasized that a successful application of EIs will largely depend on the effectiveness of CAC measures, political commitments and administrative capacities of both the public and the private sectors.