Taiwan's Experience in Environmental Management

Daigee ShawInstitute of Economics

Academia SinicaApril 24, 2006

Hong Kong

Presentation Outline

Introduction

Command and Control

Economic Instruments

Quantity control and trading

Price instruments

Three cases

Management Institutions

Introduction

Necessity of Environmental Management Market failures Policy failures Institutional failures

Types of Instruments When to use Who initiates

Evolution of Pollution Control Policy in Taiwan

Introduction Necessity of Environmental Management

Policy failures

Public goodsExternality

Gov’t steps in,env. management

Market failures

Institutional failures

•No env. property rights•Bias toward scientific management•Agency problems

Introduction

Institutional failuresIncomplete property rights for the environm

ent and natural resourcesAgency problemsBias toward scientific management

Introduction

Types of environmental management instruments

Whoinitiates

When to use

Ex ante Ex post

Victims InjunctionNegotiation

LiabilityPenaltyImprisonment

Govern- ments

Economic instruments• Prices: env. taxes• Quantity control and tradin

g• SubsidiesCommand and Control• Env. quality standards• Emission standards

Fines PenaltyImprisonment

Introduction

Evolution of Pollution Control Policy in TaiwanThe 1950s and 1960s

No environmental protection policies

The 1970s Environmental-load indicators increased rapidly Heavy industries and the petro-chemical industry The increase in personal income Environmental awareness surfaced in a premature state Several environmental laws were passed: Command and Control Approach However, poor enforcement Deteriorated environmental quality

Introduction

The 1980sAccelerating deterioration in the environmental

quality Rise in public environmental awareness Many Not-In-My-Back-Yard (NIMBY) protests Established the Environmental Protection

Administration in 1987Command-and-control Approach and EIA with

stronger enforcementEnvironmental concerns still have a lower priority

Introduction

The 1990s ~To enhance the efficiency of pollution control The economic incentive approach to supplement

the command-and-control and EIA approaches• Emission fee

• Quantity (total emission) control with trading

• Deposit-refund

Command and Control

Environmental quality standards Emission standards Emission permits Prohibit certain products or behaviors Requirements

For example: Best Available Control Technology

Economic Instruments

Quantity control with trading Emission trading

Credit trading • Allows emission reductions of existing dischargers

above and beyond a required baseline to be certified as tradable credits

• The Air Pollution Control Act of 1999

• Not implemented yet

Allowance trading

Economic Instruments

Price instrumentsEmission fee

Air Pollution Control Fee since 1995• The fee based on the type and quantity of air pollutants

emitted • The fee revenue earmarked for financing air pollution

control projectsWater Pollution Control Fee

• Similar to the air pollution control fee• Not implemented yet

Fee for municipal solid waste services since 1982• Based on the consumption of tap water • Fee-per-bag in Taipei City since 2000

Economic Instruments

Price instrumentsProduct fee

Soil and Ground Water Pollution Control Fee

since 2001• The fee based on the quantity of petrochemical and chemi

cal products

• The fee revenue earmarked for financing soil and ground water pollution control projects

Economic Instruments

Price instruments Combined product tax and recycling subsidy /

Deposit-refund system / Performance bond Recycling program

• Collect recycling fees from the manufacturers and importers to subsidize recycling and to fund recycling programs

Economic Instruments

Price instruments Subsidy

Tax-allowance subsidy for inputs (machinery)• Implemented since 1980s

Emission reduction subsidy• none

Economic Instruments

Three casesAir Pollution Solid wasteRecycling program

Economic Instruments Air Pollution

Air pollution control policies prior to the reforms

The command-and-control (CAC) approach• Ambient air quality standards

• Air pollution emission standards

Subsidies • Tax-allowance subsidy for inputs (machinery)

• Soft loans programs for inputs

• The total subsidy reached 40% to 60% of its purchase cost

• This is a case of “environmentally-harmful subsidy”

Economic Instruments

Air Pollution Evolution of the reform since 1987

Reductions in the tax-allowance subsidy Air pollution emission fee program since 1995

• The fee based on the type and quantity of air pollutants emitted

• The fee revenue earmarked for financing air pollution control projects

• The program provides very valuable information about firms’ emissions for the trading program in the future

Economic Instruments Air Pollution

Evolution of the reform since 1987 Credit trading program

• Allows emission reductions of existing dischargers above and beyond a required baseline to be certified as tradable credits

• The Air Pollution Control Act of 1999

• Not implemented yet

Solid WasteA trend to move from Supply Management to

Demand Management Fee for municipal solid waste services In the Past

Based on the consumption of tap waterTwo kinds of market failures

• Pricing the services at zero• Subsidizing the generation of waste and its disposal• Induce households and small businesses to generate too

much waste

Economic Instruments

Solid WasteAt present, three different systems

Charging fees based on tap water Mandatory recycling

• Taichung City since July 1, 199917% reduction of household waste per capita

• Kaohsiung City since January 1, 200112% reduction

• Every city and county since January 1, 2006Mandatory separation of solid wastes into: rubbish, recyclable resource, food leftover

Fee-per-bag • Taipei City since July 1, 2000 • NT$0.5 per liter of capacity• 32% reduction

Economic Instruments

Solid WasteAccording to my survey (Shaw and Tsai, 2002),

the households change their behavior significantlyThe fee-per-bag program is the most effective

approachIt not only creates incentives for households to

reduce their waste by all means, but it also encourages strong recycling practices

Economic Instruments

Solid WasteThree new programs for reducing wastes at sources:

Since January 1, 2006, mandatory separation of solid wastes into

• Rubbish• Recyclable resource• Food leftover

• It works because of an old practice of municipal solid waste collection:

No solid wastes can be left on the ground. They should be put directly into trash cars. No dumps provided.

Government procurement of green productsMandatory reduction of packages for computer software,

gift, cake, cosmetic and wine since July 1, 2006

Economic Instruments

Recycling ProgramFirst Phase (prior to 1988)

Free markets of recyclables

Second Phase (1988-1997)

Managed by Private PROs (producer responsibility organizations) EPA monitors and enforces

Third Phase (1997-1998)

Producers pay Managed by 8 semi-public PROs under EPA’s tight control Congressional review

Fourth Phase (1998 ~ )

Producers pay Managed by EPA Congressional review

Economic Instruments

Manufacturers, importers and sellers of products or their packaging

Recycling Responsibility

Recycling enterprises

Collectors

Households Municipalities Communities, Schools NGOs Retail stores

Recycling System

Recycling Funds

Pay recycling fees

Report quantities sold or imported

Fee RateReviewCommittee

Recycling FundManagement Board

CertificationCompanyMonitoringCommittee

Management of the Funds

Subsidize

Certification Companies

Institutional Framework of Recycling Funds

Economic Instruments

Articles announced for recycling PET containers, PVC containers expansible PS containers, unexpansible PS containers PP/PE containers, Other plastic containers iron cans, aluminum cans plastic products, glass containers, paper containers Teltra pak brand containers Agriculture and special environmental agents containers cars/motorcycles Tires Lubricant Batteries dry batteries lead-acid accumulators electrical appliances

refrigerator, washing machine, television, air conditioning computer appliances

printer, monitor, motherboard, notebook, power transformer

Economic Instruments

•Asymmetric information•Interest groups

Asymmetric accountability to

authority

Typical inefficiency of public

enterprises

Serious fee evasions, and

Over-claim for recycling subsidy

Four committees are

independent

Hard to set different rates of the fee and

subsidies

ProblemsProblems

Market failuresGovernment

failures

Public goods

ExternalitiesRent-seeking by interest groups

A lot of political processes

Principal-agent problem

Due to

Evaluation of Recycling ProgramsEvaluation of Recycling Programs

Economic Instruments

Government is lack of information to set the rates of fees and subsidies

Create excess profits for recycling enterprises Recycling enterprises collude, fix the price for

collectors, and evenly distribute the recycling amounts The colluded recycling enterprises have worked

together to lobby the government for it’s own benefits

Imperfect market Rent seeking Cause great social losses

Economic InstrumentsRecycling Program

Management Institutions

Two important features of Institutions

for Environmental Management Must provide incentives for agents to manage the

environment well Must provide principals with incentives to monitor

the agents

Three principles Simplify the resources responsible for management Stakeholder-based management Principle of Interest-Pay-Participation

Thank you for your attention