Taiwan's Experience in Environmental Management Daigee Shaw Institute of Economics Academia Sinica April 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 failures  Incomplete property rights for the environment and natural resources  Agency problems  Bias toward scientific management

Introduction  Types of environmental management instruments Who initiates When to use Ex anteEx post VictimsInjunction Negotiation Liability Penalty Imprisonment Govern- ments Economic instruments Prices: env. taxes Quantity control and trading Subsidies Command and Control Env. quality standards Emission standards Fines Penalty Imprisonment

Introduction  Evolution of Pollution Control Policy in Taiwan  The 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 1980s  Accelerating deterioration in the environmental quality  Rise in public environmental awareness  Many Not-In-My-Back-Yard (NIMBY) protests  Established the Environmental Protection Administration in 1987  Command-and-control Approach and EIA with stronger enforcement  Environmental 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 instruments  Emission 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 projects  Water 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 instruments  Product fee  Soil and Ground Water Pollution Control Fee since 2001 The fee based on the quantity of petrochemical and chemical 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 cases  Air Pollution  Solid waste  Recycling 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 Waste  A trend to move from Supply Management to Demand Management  Fee for municipal solid waste services  In the Past  Based on the consumption of tap water  Two 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 Waste  At present, three different systems  Charging fees based on tap water  Mandatory recycling Taichung City since July 1, % reduction of household waste per capita Kaohsiung City since January 1, % reduction Every city and county since January 1, 2006 Mandatory 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 Waste  According to my survey (Shaw and Tsai, 2002), the households change their behavior significantly  The fee-per-bag program is the most effective approach  It not only creates incentives for households to reduce their waste by all means, but it also encourages strong recycling practices Economic Instruments

 Solid Waste  Three 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 products  Mandatory reduction of packages for computer software, gift, cake, cosmetic and wine since July 1, 2006 Economic Instruments

 Recycling Program  First Phase (prior to 1988)  Free markets of recyclables  Second Phase ( )  Managed by Private PROs (producer responsibility organizations)  EPA monitors and enforces  Third Phase ( )  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 Rate Review Committee Recycling Fund Management Board Certification Company Monitoring Committee 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 Problems Market failures Government failures Public goods Externalities Rent-seeking by interest groups A lot of political processes Principal-agent problem Due to Evaluation 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 Instruments  Recycling 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

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