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The World Bank |
GREENING INDUSTRY: COMMUNITIES, STOCK MARKETS AND GOVERNMENTS JOIN HANDS
TO CUT INDUSTRIAL POLLUTION
WASHINGTON, November 22, 1999-A growing number of
developing countries are significantly cutting industrial pollution by using the combined
power of local communities, stock markets, and the news media to police air and water
discharges from private companies. This new community-based approach is proving more
effective in curbing pollution than relying on traditional approaches to environmental
regulation, which can often be under-funded, inefficient, and stymied by cronyism and
corruption, according to a new World Bank report released today.
The report- Greening Industry: New Roles for
Communities, Markets and Governments-says this new
approach is good news for some of the worlds poorest people, and shows how local
industrial pollution can be held within acceptable bounds, without hindering growth.
In Indonesia, for example, the government has cut industrial water pollution sharply by
monitoring factories discharges and publicizing their findings in the news media.
Colombia and Philippines have recently achieved success in cleaning up their rivers and
lakes by imposing charges on factories that pollute. Moreover, during the past two
decades, China has used pollution charges and other measures to keep both air and water
pollution levels constanteven as economic output has doubled.
The World Bank has been very fortunate to collaborate with the pioneers of
this new approach, in which communities themselves negotiate with polluting factories to
achieve the clean air and water that their physical and economic health demand,
says David Wheeler, a senior World Bank economist and the author of the report.
Since 1993, Wheeler and a World Bank team have collaborated closely with pollution
regulators in developing countries, such as Brazil, China, Colombia, Indonesia, Mexico and
Philippines.
Greening Industry is really their storyand it is a hopeful story. After six years
of research, policy experimentation, and first hand observation, we believe that
environmentally sustainable industrial development is within reach, says Wheeler.
New approach versus old-style enforcement
Greening Industry describes how environmental regulators in developing countries
pioneered new approaches after the so-called command and control model of pollution
control, imported from industrial countries, failed to cut poisonous discharges. Under
this approachstill widely usedgovernment regulators set maximum pollution levels and
then fine companies that exceed them.
Where enforcement agencies are weak- as they are in many
developing countriescompanies run little risk of being caught and punished. Therefore,
polluting firms which violate regulatory standards have little incentive to clean up their
activities, and firms that do respect legal limits have even less incentive to cut their
pollution.
To address these limitations, the new approach- as mapped
out in Greening Industry? combines market-based
incentives and public information disclosure to encourage factory managers to improve
their environmental performance while they are pursuing profits.
With the new model, government, communities, and markets all have important roles to
play in reducing pollution.
Governments in developing countries are cutting pollution by tapping the
power of markets and local communities.
For example, in some countries, local community representatives join government
regulators and factory managers at the negotiating table to decide on acceptable pollution
levels and set pollution charges accordingly. In other developing countries, public
information enables consumers, bankers and stockholders to evaluate a companys
environmental record before deciding whether to buy a product, lend money, or trade the
companys shares.
Indonesia grades polluters by color
Governments now realize that they can increase the influence of communities and stock
markets by compiling reliable pollution statistics and reporting them to the public in
easily understood forms. In Indonesia's PROPER program, for example, government officials
rank water polluters using color codes: black for factories that make no attempt to
control pollution and cause serious damage; red for those which have some pollution
control but fall short of compliance; blue for those that meet national standards; and
green for those that are much cleaner than required. World class performers will receive a
gold rating, but no factory has earned it yet.
Indonesia creates incentives for firms to cut pollution by ranking them
according to performanceand then disclosing the results.
Of 187 large polluters rated in a pilot study before PROPER began, two-thirds failed to
comply with Indonesian regulations. The remaining third were in compliance, despite the
governments weak enforcement capacity, because they were already responding to pressure
from markets and communities. Better information, regulators hoped, would increase the
pressure and bring additional plants into compliance.
To increase their leverage, officials organized a high-profile awards ceremony to
congratulate five top-ranked green factories. Privately, they notified illegally
polluting factories of their failing grade and gave them six months to clean up. According
to Greening Industry, company executives who had previously ignored regulators
started calling to ask how they could improve their ratings. Within 18 months, water
pollution from the 187 pilot plants fell by 40 percent.
The Indonesian program has since been expanded, and its success has caught the
attention of regulators and NGO's in Philippines, China, India and Mexico, where similar
programs are either planned or underway
The power of public information
Since the poor are less able to protect themselves from industrial pollution, their
communities particularly value public information that tells them which companies pollute,
and the impact of their discharges on public health. In countries where governments have
provided local communities with reliable pollution data, poor people living in the
vicinity of offending plants have been able to negotiate better arrangements for
compensation and clean-up.
Stock market investors can also be an important ally. Markets may view high pollution
levels as evidence that a firms operations are inefficient, and may raise concerns
about financial liabilities and penalties. On the other hand, research shows that media
accounts of good environmental performance, such as investments in cleaner technology, can
enhance a firms expected profitability and stock value.
In Philippines, share prices for beer-maker San Miguel shot up nearly 60 percent when
environmental regulators highlighted the firms green record and the installation
of new pollution control equipment. In Mexico, share prices for paper manufacturer
Kimberly Clark fell nearly 50 percent after the government levied substantial fines for
violating water pollution regulations.
Investors care about the environment: changes in share prices in
response to good and bad news about environmental performance.
Pollution charges are another way to create incentives for pollution reduction. Unlike
fines, which are often subject to dispute in the courts, regularly-assessed pollution
charges can be imposed on companies as a simple cost of doing business that can be reduced
by cutting pollution. Experience with pollution charges in Colombia, China and Philippines
has shown that managers embrace serious pollution controls when they face recurring and
expensive charges for damaging emissions.
These new approaches work because they have a solid economic foundation. Cost-conscious
factory managers will generally tolerate pollution up to the point where the expected
penalty for pollution becomes greater than the cost of controlling emissions.
At the national level, economic reforms can also reduce pollution. Greater openness to
trade can spur commercial access to cleaner technology. Cutting subsidies for raw
materials can encourage companies to reduce waste. State-owned enterprises are often heavy
polluters, so privatization can often stimulate cleaner production. Countries such as
China, India and Brazil have all demonstrated the power of such measures to reduce
pollution.
Greening Industry and World Bank policy research
Greening Industry is the seventh report in the World Banks Policy Research
series, which is designed to bring the results of important new policy research to the
attention of policymakers, program administrators, and the wider development community.
Each copy of Greening Industry includes a CD-ROM which provides a large set of
reference materials, databases and audio-visual presentations. An Internet version of Greening
Industry will be available free of charge at the "New Ideas in Pollution
Regulation website. (http://www.worldbank.org/nipr/).
The site includes extensive links to related Internet sites and new software which allows
readers to search the report for all references to topics of interest.
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