INDONESIAN THEMATIC RESEARCH ON UTILIZATION OF ECONOMIC

INDONESIAN THEMATIC RESEARCH ON UTILIZATION OF ECONOMIC INSTRUMENTS: Case Study on Pulp and Paper Industry Ministry of Environment Indonesia Objectives  To support the development of cost effective solutions to achieve the sustainable use of natural and environmental resources To institute a multi-stakeholder process in identifying and implementing economic instruments. To stimulate decision-makers to take a proactive role in formulating country and sector specific’ economic instruments To enhance coordination among institutions in the use of economic instruments    Why Industry sector?  Industrial development significantly contributes to the national income The need to solve environmental pollutions and degradations caused by the industrial activities. Utilization of economic instruments to encourage the sustainability of natural resources and to control the pollution   Why Pulp and Paper industry?  related to other activities such as forestry management & policies, air & water pollution control, and the use of energy efficiency an interrelation from upstream to downstream industry  What’s Scope of the Study? Trade Liberalization to identify, analysis, and Select appropriate economic instruments to encourage the sustainable use of natural resources and to Internalize environmental Impact of pulp and paper industry resulting from trade liberalization and increasing export growth Export Growth Increased used of natural resources Increase Pollution Economic Instruments Promoting better practice Sustainable natural Resources and environment Review Pulp and Paper in trade liberalization Identify Process of Production Methodology Assess Impacts on the Environment Analysis Policy Instruments Identify Policy Recommendations Review Pulp and Paper in trade liberalization How’s Pulp & Paper Industry in Indonesia? Statistics of Paper & Paperboard 1995-2000 (Million tones) Year Capacity Production Import Export Apparent Consumption 1995 1996 4.472.500 5.595.280 3.425.800 4.120.490 140.110 197.700 924.520 1.198.220 2.641.390 3.119.970 1997 1998 1999 2000 7.168.290 7.479.530 9.097.180 9.116.180 4.821.600 5.487.260 6.720.560 6.849.000 261.000 130.130 143.800 212.630 1.800.000 2.833.960 2.950.800 2.837.210 3.282.600 2.783.430 3.913.560 4.224.420 Source: Indonesian Pulp & Paper Industry Directory 2001 Performance of Pulp & Paper Industries 1997 2000 Commodities 1997 1998 4.323.600 7.479.530 2.783.430 1999 4.543.600 9.097.180 3.913.560 2000 5.228.100 9.116.180 4.224.420 Installed Capacity (tones per 4.266.600 annual) 7.168.290 Pulp 3.282.600 Paper Waste Paper (WP) Production (Metric tones) Pulp Paper Waste Paper Recovery Utilization (%) Pulp Paper Waste Paper Recovery Rate of WP 3.058.450 4.821.600 1.224.000 71,70 67,30 54,10 37,30 3.430.000 5.487.260 1.355.000 79,30 61,80 48,70 3.694.630 6.720.560 1.917.650 81,32 73,13 58,80 49,00 4.089.550 6.849.000 1.679.265 77,34 75,13 60,00 39,00 Source: Indonesian Pulp & Paper Industry Association (2001) Export Growth of Pulp and Paper (1996-2000) 3000000 2500000 2000000 1500000 1000000 500000 0 1996 1997 1998 1999 2000 PU LP PAPE R Source: Indonesian Pulp & Paper Association, 2001 Review Pulp and Paper in trade liberalization Identify Process of Production How to make pulp and paper? MAIN POINT PROCESS STEP POTENTIAL ENVIRONMENTAL IMPACT Raw Material HANDLING RAW MATERIAL PULPING (RECOVERY) Solid Waste, Forest Degradation & Biodiversity Chemical Energy Gaseous Material, Water Vapor, Energy use Dissolved Material, Residual Chemical, Water use Solid Waste, Energy use Dissolved Material, Residual Chemical Energy Use Efficiency Solid Waste, Dissolved Material, Residual Chemical Water use, Energy Use Water Energy Chemical Energy Energy Energy, Water, Chemical WASHING SCREENING BLEACHING DRYING PAPER MACHINE Review Pulp and Paper in trade liberalization Identify Process of Production Assess Impacts on the Environment Any Impacts on the Environment? Preliminary Assessment of the Environmental Impact Traderelated Effects Product effects Technology effects Scale effects Structural effects Regulatory effects Impact on Forest Degradation Impacts on Biodiversity Impact on water use Impact on Energy Use Impact on Aquatic Impact on Surface & Ground Water Impact on Acid Rain Impact on Health & Safety (0) (-) (-) (-) (+) (0) (-) (-) (-) (+) (0) (+) (-) (-) (0) (0) (+) (-) (-) (0) (-) (+) (-) (-) (+) (-) (+) (-) (-) (-) (+) (-) (-) (+) (-) (+) (-) (-) (+) (+) Review Pulp and Paper in trade liberalization Identify Process of Production Assess Impacts on the Environment Analysis Policy Instruments How about the policy instruments? Matrix Economic Instruments Analysis LIFE CYCLE STAGES EXISTING POLICY INSTITUTION POLICY ANALYSIS STRENGTH WEAKNESSES RAW MATERIAL To push P&P To attract people to industries utilized apply the HTI waste from IPK With a little (land clearing) realization To push conversion a natural forest to HTI To encourage P&P for developing HTI to fulfill Raw Material supply for P & P that is not from natural forest. -There is a guarantee on reforestation -Long experience now exist with its use; effective use requires close field monitoring To attract people to apply the HTI With little realization To push conversion a natural forest to HTI Complicated Bureaucratic& fund administration Not all of the fund was used for correct allocation POSSIBLE IMPROVEMENT To keep on this instrument but increase control on IPK implementation PERFORMANCE BOND To continue use this EI, but Govt. should give more attention to P&P industry to proceed HTI immediately To use reforestation fund is only for reforestation programs To simplify bureaucratic disbursement to be on time HTI Policy should be concerned on political & social issues, regulation consistency Raw material would be an essential problems in developing Pulp & Paper, so it has to take into account now. ASSUMPTION REMARKS FREE TAXATION on wood from land clearing (Fiscal Instrument) Ministry of Forestry Law Enforcement consistency REFORESTATION FUND (Dana Reboisasi) 1. Free Interest Loan Dana Reboisasi (Fiscal Instrument) Ministry of Forestry Ministry of Forestry Raw material wood fiber 2.Reforestations Fund Disbursement (Fiscal Instrument) Need Governmental Political will to use reforestation fund only for improving forestry program E ECOLABELLING (Certificate Hutan Lestari) Ministry of Forestry and LEI (Indonesia Ecolabelling Institute) Voluntary Market driven Local People demand on ecolabel product Mandatory for timber tracking STUMPAGE FEES (wood from natural forest) (Forest Taxation/Fiscal Instrument) Ministry of Forestry -To encourage sustainable forest management -Significant revenues and profit redistribution effect & Environmental. Effect less clear-cut -Relative easy to administer once stumpage fee assessed. Each level of local Simplified the government charge mechanism collected fee (cause distortion) PERFORMANCE BOND Need Consumer Pressure & campaign to boost consumption on ecolabel end product To simplify or shortcut in collecting forestry fee Matrix Economic Instruments Analysis LIFE CYCLE STAGES EXISTING POLICY INSTITUTION POLICY ANALYSIS STRENGTH WEAKNESSES POSSIBLE IMPROVEMENT ASSU MPTION COMMENT RAW MATERIAL Non wood Fiber Raw Material None -to establish a polic y incentive in order to encourage the industry using non wood fiber Almost all of P&P machine & equipment can process non wood fiber raw material Market pushes the use nonwood fiber Ad vantages of Nonwood Fiber: To Utilize the side products from rice field harvest; sugar cane To save wood fiber used To save forest destruction Waste paper as Raw Material Soft loan on Recycle equipment Ministry of Environment Ministry of Finance To reduce a volume of solid waste To decrease dependency on wood fiber from natural forest There is not yet supported polic y on utilizing waste paper Supply not continue To de velop policy for developing refund system To increase soft loan The use of waste paper is still having any possibilities to be development as raw material To establish polic y to support development of non-wood fiber supply PULP MANUFACTURING Pulp Production Process Soft Loan on CP technology (IEPC & PAE) Ministry of Finance Ministry of Environment Soft loan available Limited fund Limited handling Bank Bureaucracy was relatively not simple as commercial loan Increase fund Simplified procedure Increased handling bank No bad debt from debtor Matrix Economic Instruments Analysis LIFE CYCLE STAGES EXISTING POLICY INSTITUTION POLICY ANALYSIS STRENGTH WEAKNESS POSSIBLE IMPROVEMENT ASSUMPTION COMMENT National Policy cleaner Production Ministry of Environment Ministry of Finance Ministry of Industry & Trade Ministry of Forestry PULP MANUFACTURING To push the Need more fund used of CP for change equipment & equipment & concept technology Technical guidance provided CP technology not easy to implement CP is widely accepted Increase soft loan Provide Technical assistance Chemical Ratification of Basel Convention MoIT MoE Government Regulation 18/1999 on Management of Hazardous waste jo PP 85/1999 MoIT, MoE (as facilitator in cooperation with Responsible Care) There is no Technical Assistance PRODUCTION PROCESS There is strong regulation to manage Hazardous waste traffic Voluntary To be in effect Self regulation on specific industries - All of the countries ratified Basel Convention Tax differentiation Liability insurance Deposit refund system - There is an institution that have responsible to execute the regulation Ministerial Decree (SK Menperindag) No. 231/MPP/KP/07 /1997 on Waste Import Procedure MoIT MoE Existing regulation on waste import procedure Lack of knowledge of custom and cease officer on hazardous waste Matrix Economic Instruments Analysis LIFE CYCLE STAGES EXISTING POLICY INSTITUTION POLICY ANALYSIS STRENGTH WEAKNESSES POSSIBLE IMPROVEMENT ASSUMPTION COMMENT Paper Production Process Soft Loan on CP technology (IEPC & PAE) Ministry of Finance Ministry of Environment PAPER MANUFACTURING Soft loan Limited fund available Limited handling Bank Bureaucracy was relatively complicated compare with commercial loan Need more fund for change equipment & technology CP technology not easy to implement Increase fund Simplified procedure Increased handling bank No bad debt from debtor National Policy cleaner Production Ministry of Environment Ministry of Finance Ministry of Industry & Trade Ministry of Forestry To push the used of CP equipment & concept Technical guidance provided Increase soft loan Provide Technical assistance CP is widely accepted Water Used (surface and ground water Mining Agency - surface water tax - Deep well tax Dispenda,(Regio nal Income Agency) Limited technical Assistance UTILITY AND SUPPORTING PROCESS There was The price / fee income too low (revenue) from water resource Not yet use considered sustainability water supply Determine Water Value considering catchments protection factor Implement Progressive Water Tariff on the Use of Surface & Ground Water Enable to control ground water & surface water use - Water right -Increase Water Tariff - Catchments area protection charge Establish National Water Management Board Matrix Economic Instruments Analysis LIFE CYCLE STAGES EXISTING POLICY INSTITUTION POLICY ANALYSIS STRENGTH WEAKNESSES POSSIBLE IMPROVEMENT ASSU MPTION COMMENT Pollution Discharge Waste water retribution Dispenda,(Regio nal Income Agency) Bapedalda (Regional Environmental Impact Management Agency) PROCESS WASTE There is Revenue Revenue is not from pollution use to manage discharge environment Tariff is still too low To push right to pollute PULP AND PAPER TRADING To strengthen There is any Indonesia in pressure from penetrating any country that international have a surplus of market pulp production To optimize competitive advantage domestic P & P industry Use progressive tariff Use the pollution discharge fund only for environmental management Don’t collect Pollution Discharge Revenue into general pot Pulp & Paper Trade Regulation on establishing Anti Dumping Committee to manage trade (PP No.3, tahun 1996: Bea Masuk Anti Dumping dan Bea Masuk Imbalan) Free Import Duty on Pulp Ministry of Industry & Trade Ministry of Finance Ministry of Finance To reduce the use of wood fiber raw material from natural forest in Indonesia To ease export paper Indonesia will be flooded by pulp import as raw material Indonesia Anti Dumping Committee should have more power to regulate & produce policy that controls any possibilities export & import dumping activities It should be similar polic y on import duty exist among pulp producer countries No dumping practice Mutual agreement endorsed Free import Duty on paper from AFTA countries Ministry of Finance Indonesia will be flooded paper product from ASEAN countries, AFTA commenced Review Pulp and Paper in trade liberalization Identify Process of Production Analysis Policy Instruments Assess Impacts on the Environment Identify Policy Recommendations What instrument for what purpose? Identification Potential Recommendation of Economic Instruments No Economic Instrument 1 Deposit Refund & Bond a) Deposit-refund b) Performance Bond Charge Systems a) Effluent Charges b) c) User Charges Product Charges Forest Degradation Potential Environmental Impact Could Be Reduced Biodiversity Deterioration Water Use Energy Use Aquatic Pollution Surface & Ground Water Pollution Acid Rain Health & Safety Remark (Characteri stic/Purpose s) X XX X XX X X X XX 2 X X X X X X X X X X To arrange safe disposal of hazardous material and encourage recycling or reuse of waste paper products Used on HTI operation to maintain forest sustainability; Used on Pulp & Paper Production process, Waste treatment Used on value & number of the raw material, surface & ground water X d) e) Water Catchments Area Protection Charge Water Right XX To charge harmful product in production process & disposed of in order to be able to reduce/substitute hazardous material etc. To protect the sustainability of water XX X X X X X X X XX X X X X X X X X X X X X X 3 Fiscal Instruments a) Input Taxes b) Tax Differentiation Import Tariffs c) d) To protect the effic iency of water use and its sustainability Reduce Taxes to push the use of non wood fiber & and also the use of non hazardous material To push the use of non hazardous materials and; to control surface & ground water Use Free import tariff/duty on waste treatment equipment; w aste paper; imported pulp. Installing New Tech. on each step of process production Non-w ood fiber should be more encouraged to be developed as a raw material alternative 4 Financial aid in Installing New Technology Financial Instruments a) Financial Subsidies b) Soft Loan & Grant X XX= most suitable applied X X XX Incentive system to push the implementation of CP system & Pollution Control Technology Note: X = suitable applied  each of EIs has a specific best practice  each of EIs has its nature to cope with the potential environmental impacts to choose the most appropriate of EIs requires further study, to assess:       Effectiveness Economic Efficiency Equity Principle The Administrative Cost-Effectiveness Principle Institutional Concordance