New millennium, new regulations

David Wheeler, David Shaman, Susmita Dasgupta,
Benoit Laplante
and Hua Wang
describe how pioneering economic initiatives and information technology
are creating a new model of pollution control for developing countries

Conventional wisdom holds that developing countries cannot hope to clean up the industrial pollution of their air and water until they reach a level of affluence today seen only in wealthy countries. This conventional view also claims that further expansion of industrial output will inevitably worsen the already severe levels of pollution common in their urban areas. Another widely held belief is that growing global trade and open borders are encouraging dirty industries to move to developing countries, which cannot afford to curb environmental abuses.

Five years of research, policy experiments and first-hand observation have shown all this to be false. Factories in many poor countries are now run more cleanly than they were a decade ago. Total emissions are actually falling in some areas where industry is growing rapidly. Furthermore, ‘pollution havens’ – where developing countries provide a permanent home to dirty industries – have failed to materialize. Instead, poorer nations and communities are acting to reduce pollution because they have decided that the benefits of abating it outweigh the costs.

A flexible approach
Environmental regulators in developing countries are trying fresh approaches and finding new allies in the battle to curb pollution. These initiatives stem from a widespread recognition that traditional pollution regulation is inappropriate for many developing nations. New regulatory institutions are often unable to enforce conventional standards for discharges from factories. Many regulators also recognize that such standards are not cost-effective, because they require all polluting factories to toe the same line, regardless of the costs of abatement and local environmental conditions.

Developing country regulators are now breaking out of this one-size-fits-all approach, opting instead for more flexible and efficient systems that provide strong incentives for polluters to clean up. Some of these pioneers have turned to charging polluters for every unit of their emissions. Experience in Colombia, China and the Philippines has shown that many managers institute serious pollution control when they face steep, regular payments of this kind. Such charges generate public revenue as well as cutting emissions – and this, in turn, can be used to support local efforts to control pollution.

Other environmental reformers are using rating systems that give public recognition to factories that adhere to pollution standards – and to train the communal eye on those that do not. By classifying factories on their emissions, and widely broadcasting the results, they enable communities to identify serious polluters and to pressure them to clean up. Investors, lenders and consumers, concerned over liability from poor environmental practices and wanting to reward green manufacturers, also bring pressure to bear. Public disclosure programmes have been particularly effective in curbing pollution at modest cost in Indonesia and the Philippines, and have proved potent even in places where formal regulation is weak or absent.

Public education on the sources and impacts of pollution also provides a powerful lever for improving the lives of poor people, who suffer greatly from emissions. Armed with good information, poor citizens can work with environmental agencies and elect political leaders willing to pressure factories to curb pollution.
Economic development and industrial pollution are not immutably linked

Regulators are relying on low-cost information computer technology which allows citizens to report environmental problems – and cuts the cost of gathering, processing and distributing information – to make such programmes work. Selective, focused use of environmental databases and computer models – together with public involvement – can help communities and businesses to negotiate environmental priorities and action plans based on a common understanding of the effects of pollution and the costs of abating it.

These initiatives are working because they have a solid economic foundation. Plant managers do not pollute because they enjoy fouling the air and water, but because they are trying to minimize their costs. They will tolerate emissions up to the point where the penalty for more pollution becomes greater than the cost of controlling it.

Indeed managers’ sensitivity to costs gives regulators many opportunities to influence their decisions. Environment agencies can, for example, lower pollution control costs by supporting training in environmental management for small and medium-sized enterprises. Recent pilot projects in Mexico have shown that this can be a cost-effective complement to conventional regulation.

Anticipating impacts
National economic reforms can also reduce pollution. Greater openness to trade can enhance managers’ access to cleaner technology, while cutting subsidies for raw materials can encourage companies to reduce waste. State-owned enterprises are often heavy polluters, so privatization can contribute to cleaner production. Countries as diverse as China, India and Brazil have demonstrated the power of such measures to reduce pollution. But economic reforms are no panacea, because some growth-promoting measures can sometimes make local pollution worse. Economic reformers should anticipate such impacts and work closely with environmental agencies to offset them.

Overall, the proliferation of innovative channels for reducing emissions has created a new information-intensive and transparent model for pollution control in developing countries. As environmental agencies exert influence through formal and informal channels, they become more like mediators and less like dictators. Community representatives take their place at the negotiating table with regulators and factory managers. Market agents make their presence felt through the decisions of consumers, bankers and stockholders. The new model gives policy makers more options, but it also imposes new responsibilities – for strategic thinking about the benefits and costs of pollution control; for a strong commitment to public participation; for clever, focused use of information technologies; and for a willingness to try new approaches such as pollution charges and public disclosure. Of course, regulators will always have important responsibilities for monitoring factories’ environmental performance and enforcing legally mandated standards, and regulations. But in the new model they use more resources to encourage informal regulation, to provide better public information, to give managers technical help, and to promote environmentally sound economic reforms.

We have helped establish many of the innovative programmes we discuss, and have studied their impact. Since 1993, we have collaborated with pioneers of the new model in Indonesia, Colombia, China, Brazil, Philippines, Mexico and other countries.

Together, these experiences have persuaded us that the conventional wisdom is wrong. Economic development and industrial pollution are not immutably linked. Developing countries can capitalize and build on the new model to reduce emissions significantly, even if they grow rapidly during the coming decade

David Wheeler is Lead Economist; David Shaman is Environmental Research Analyst; and Susmita Dasgupta, Benoit Laplante and Hua Wang are Environmental Economists, at The World Bank’s Development Economics Research Group on Infrastructure and Environment.

PHOTOGRAPH: John Chandler/UNEP/Topham

This issue:
Contents | Editorial K. Toepfer | Time to act | A climate of change | Melding heart and head | Looking through green glasses | Multi-local business | World Environment Day 2000 |
At a glance | Competition | The greening of Goliath | Unfair trade | No sleeping after Seattle | Disproportionate effects | Liberal rations | New millennium, new regulation | Secretary-General’s Report | Pachamama: Our Earth, Our Future


Complementary articles in other issues:
Theodore Panayotou: Win-win finance (The Way Ahead) 1997
Richard L. Sandor: Trading gases (Climate & Action) 1998