Regulatory Measures and Technological Changes in The Cement, Iron & Steel, and Pulp & Paper Industries - AIT, Thailand

REGULATORY MEASURES AND TECHNOLOGICAL
CHANGES IN THE CEMENT, IRON & STEEL, AND PULP

& PAPER INDUSTRIES
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T I O
E G U A L
Market R
D E -
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Mechanism
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FR
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Energy Technological
E CO N
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Changes OM IC
Perspectives I NST
UR M
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Environmental D S
Perspectives D A R
T A N
S I O N S
S
E M I
NOR
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CO
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Institutions
Efficiency
Decentralization
Command-and-Control Market-Based
Approach Instruments
Standards Charges/taxes
Monitoring Subsidies
Enforcement Funds
Industries
School of Environment, Resources and Development

Asian Institute of Technology
Bangkok - Thailand
TE O F T E
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I A N IN ST
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O L O GY
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19 5 9
REGULATORY MEASURES AND
TECHNOLOGICAL CHANGES IN THE
CEMENT, IRON & STEEL, AND PULP &
PAPER INDUSTRIES
I O N
G U A L T
Market R E
D E -
K
OR
Mechanism
EW
M
A
FR
CY
E CO N
LI
PO
Changes OM IC
Perspectives I NST
UR M
E NT S
Environmental S
A R D
Perspectives N S T
A N D
I S S I O
E M
NOR
MS
&
CO
D ES
Institutions
Efficiency
Decentralization
Standards Charges/taxes
Monitoring Subsidies
Enforcement Funds
Industries
Brahmanand Mohanty
School of Environment, Resources and Development

Bangkok - Thailand
Regulatory Measures and Technological Changes in the
Cement, Iron & Steel Industry, and Pulp & Paper Industry
© Asian Institute of Technology, 1997
Edited by Brahmanand Mohanty
Published by School of Environment, Resources and Development

P.O. Box 4, Pathumthani 12120
Thailand
e-mail: visu@ait.ac.th
NOTICE
Neither the Swedish International Development Cooperation Agency (Sida) nor the Asian
Institute of Technology (AIT) makes any warranty, expressed or implied, or assume any
legal liability for the accuracy, completeness, or usefulness of any information, appratus,
product, or represents that its use would not infringe privately owned rights. Reference
herein to any trademark, or manufacturer, or otherwise does not constitute or imply its
endorsement, recommendation, or favoring by Sida or AIT.
ISBN 974 - 8256 - 69 - 3
Printed in India by All India Press, Pondicherry.

FOREWORD
The use of fossil fuels leads to the emission of so-called "Green House Gases (GHG)", a
concept which comprises carbon dioxide, nitrous oxides, sulfur oxides, etc. In recent years,
a good deal of research has provided enough material to put forward the claim that a big
increase in the concentration of carbon dioxide in the atmosphere would lead to a rise in
the average global temperature, with negative consequences for the global climate. This
claim has been confirmed by the United Nations Intergovernmental Panel on Climate
Change (IPCC) in its second scientific assessment published in 1996.
Global warming can have catastrophic impact on human and global security: island nations
and low lying coastal regions would be permanently drowned by the rise in the level of the
oceans brought on by the melting of polar ice; drought would become widespread; and
desertification would expand and accelerate. Persistent famines, mass migrations and large-
scale conflict would be the result. Agriculture, food and water security, and international
trade would come under severe strain.
Until recently, industrialized countries have accounted for most of the emission of the
GHG, in particular carbon dioxide, because their economic development has been very
strongly based on the use of fossil fuels. However, the same dynamic has also led to a
situation where the newly industrializing countries of Asia and Latin America (the strong
South) are today contributing significantly to the emission of carbon dioxide. This tendency
will spread to and encompass an increasing number of developing countries unless both
the industrialized and the developing countries jointly agree on implementing the measures
to halt and then reverse the global trend towards a rapid rise in the emission of carbon
dioxide. That is the central purpose of the IPCC, which has succeeded in obtaining
commitments from most of the industrialized countries to reduce their emissions of carbon
dioxide.
At the 1995 meeting in Berlin of the Conference of the Parties (CoP) to the United
Nations Climate Convention, it was decided to initiate negotiations to strengthen the
emission-reduction measures by the industrialized countries, as well as countries of Eastern
Europe and the Former Soviet Union. The final negotiations are planned to take place at
the December 1997 meeting in Kyoto of the CoP, which ought to result in legal
instruments to ensure that the agreed measures are being fulfilled.
The fossil fuel generated climate problem is very complex, with strong vested interests and
special alliances. There is still considerable skepticism in the developing world about the
need for measures to counter global warming, in particular in the strong South, which in no
way wants to jeopardize its own rapid economic development. It is therefore imperative to
find innovative solutions, both technical and institutional, to the climate problem, which
are acceptable to both the North and the South. Meeting this challenge calls for inter alia
research programs that tackle the technological, techno-economic and policy problems in
promoting the transition to decreasing use of fossil fuels, increasing energy efficiency and
fuel substitution, and carbon recycling systems of energy production and use.
The Asian Regional Research Programme on Energy, Environment and Climate

(ARRPEEC) is part of this global effort, which Sida is very pleased to have initiated and is
fully supporting. The ARRPEEC comprises technological, techno-economic and policy
research on energy efficiency, fuel substitution and carbon recycling in the principal
economic sectors of East, Southeast and South Asian countries.
M R Bhagavan
Senior Research Adviser, Department for Research Cooperation
Swedish International Development Cooperation Agency, Sida
PREFACE
Industries have always played a crucial role in the socio-economic development of a

country. They have contributed primarily to increased prosperity, greater employment and
livelihood opportunities. On the other hand, industries are accused of accelerating the
consumption of scarce fossil fuels and of polluting the local, regional, and global
environment by releasing solid, liquid and gaseous pollutants to their surroundings.
Experiences gained worldwide have shown that these impacts of industries on resource use
and the environment can be contained through more efficient production processes and
adoption of cleaner technologies and procedures. Thus, fossil fuel consumption can be cut
down drastically and waste generation can be avoided or minimized to the lowest possible
level. Regulatory regimes introduced in several countries have led the industries to adopt
appropriate measures. Some countries have adopted economic instruments to reflect the
true cost of goods and services by internalizing the environmental costs of their input,
production, use, recycling and disposal.
The improvement of production system through the use of technologies and processes that
utilize resources more efficiently and achieve “more with less” is an important pathway
towards the long-term sustenance of industries. It is in this context that a research project
was undertaken by the Asian Institute of Technology (AIT), with the support of the
Swedish International Development Cooperation Agency (Sida). The project entitled
“Development of Energy Efficient and Environmentally Sound Industrial Technologies in
Asia” was launched with the specific objective to enhance the synergy among selected
Asian developing countries in their efforts to grasp the mechanism and various aspects
related to the adoption and propagation of energy efficient and environmentally sound
technologies. Three energy intensive and environmentally polluting industrial sub-sectors
(cement, iron & steel, and pulp & paper) and four Asian countries of varying sizes, political
systems and stages of development (China, India, Philippines, Sri Lanka) were selected in
the framework of this study. To enhance in-country capacity building in the subject matter,
collaboration was sought from reputed national institutes who nominated experts to
actively participate in the execution of the project.
The activities undertaken in the first phase of the project were the following:
- Evaluation of the status of technologies in selected energy intensive and
environmentally polluting industries;
- Identification of potential areas for energy conservation and pollution abatement
in these industries;
- Analysis of the technological development of energy intensive and polluting
industries in relation with the national regulatory measures;
- Identification of major barriers to efficiency improvements and pollution
abatement in the industrial sector.
Based on the initial guidelines prepared at AIT under the leadership of Dr. X. Chen,
discussions were held with the experts from the national research institutes (NRIs) of the
four participating countries. The outcomes of these meetings were used as a basis for the
preparation of country reports which were presented at two project workshops held at
Manila in May 1995 and at Bangkok in November 1995. On the basis of the reports
submitted, cross-country comparison reports were prepared at AIT and additional relevant
information was sought from the NRIs to bridge some of the gaps found in their
respective reports. This is the last of the four volumes of documents which have resulted
from this interactive research work between AIT and the NRIs.
This volume on “Regulatory measures and technological changes in the cement, iron and
steel, and pulp and paper industries” covers an introduction to the regulatory and economic
instruments for environmental management in Asian industrializing countries. Then there
is a cross-country comparison of the status of regulatory measures and technological
changes in the four countries, followed by individual country reports prepared by the four
NRIs. The first introduction chapter was prepared by Dr. X. Chen and Ms. Lilita B.
Bacareza. The second cross-country comparison chapter was prepared by Dr. B. Mohanty
and Mr. Aung Naing Oo.
Sincere thanks are extended to all the members of the Project Team including the
supporting staff, past and present, for their active participation and contribution to the
project. The enthusiasm and dynamism of Dr. X. Chen during the execution of the first
phase and the understanding and leadership provided by Dr. C. Visvanathan in the crucial
completion period of the project are acknowledged here. The project would have never
seen the light of the day without the support of Sida. Finally, appreciations are due to two
individuals who have actually conceived the Asian Regional Research Programme on
Energy, Environment and Climate (ARRPEEC) and provided constant support and
encouragement to this specific project under the overall program: Dr. M.R. Bhagawan,
Senior Research Adviser at Sida, and Dr. S.C. Bhattacharya, Professor at AIT.
Brahmanand Mohanty
June, 1997
PROJECT TEAM
Faculty Members (Asian Institute of Technology - School of Environment,

Resources and Development)
- Dr. Xavier Chen, Energy Program (Until February 1996)
- Dr. Brahmanand Mohanty, Energy Program
- Dr. Uwe Stoll, Environmental Engineering Program (Until January 1996)
- Dr. C. Visvanathan, Environmental Engineering Program (From January 1996)
Research Associates (Asian Institute of Technology - School of Environment,

Resources and Development)
- Ms. Nahid Amin
- Ms. Lilita B. Bacareza
- Mr. Z. Khandkar
- Mr. Aung Naing Oo
- Mr. K. Parameshwaran
National Research Institutes

- Institute for Techno-Economics and Energy System Analysis, Tsinghua
University, Beijing, China (Prof. Qiu Daxiong)
- Energy Management Centre, Ministry of Power, New Delhi, India (Mr. S.
Ramaswamy)
- Department of Energy, Manila, Philippines (Mr. C.T. Tupas)
- Energy Conservation Fund, Ministry of Irrigation, Power and Energy, Colombo,
Sri Lanka (Mr. U. Daranagama)
Research Fellows
- Dr. Wu Xiaobo, School of Management, Zhejiang University, China (January-
June 1996)
- Ms. Wang Yanjia, Tsinghua University, China (May-November 1996)
- Mr. Anil Kumar Aneja, Thapar Corporate R&D Centre, India (May-November
1996)
- Ms. Marisol Portal, National Power Corporation, Philippines (May-November
1996)
- Mr. Gamini Senanayake, Industrial Services Bureau of North Western Province,
Sri Lanka (May-November 1996)
CONTENTS
FOREWORD
PREFACE
PROJECT TEAM
1. REGULATORY AND ECONOMIC INSTRUMENTS FOR

ENVIRONMENTAL MANAGEMENT IN ASIAN INDUSTRIALIZING
COUNTRIES ….………………………………………………………………….……1
1.1 INTRODUCTION ........................................................................................................................2
1.2 ENVIRONMENTAL EXTERNALITIES OF INDUSTRIALIZATION IN ASIAN DEVELOPING
COUNTRIES .....................................................................................................................................2
1.3 THE COMMAND-AND-CONTROL APPROACH AND EXPERIENCES OF ITS APPLICATION
IN ASIA .............................................................................................................................................4
1.4 THE EFFECTIVENESS OF COMMAND-AND-CONTROL IN ASIAN COUNTRIES ...............13
1.5 AN ALTERNATIVE APPROACH: USE OF MARKET-BASED (ECONOMIC) INSTRUMENTS
(MBI/EIS).....................................................................................................................................17
1.5.1 Why MBIs should be used in Asian developing countries .....................................................17
1.5.2 The development of MBIs in Asian developing countries.......................................................18
1.5.3 Conditions for successful application of MBIs in Asian developing countries..........................21
1.6 CONCLUSIONS ........................................................................................................................23
2. CROSS COUNTRY COMPARISON OF IMPACTS OF ENERGY &

ENVIRON-MENTAL MANAGEMENT POLICY INSTRUMENTS ON
TECHNOLOGICAL CHANGES IN INDUSTRIES ............................................. 25
2.1 INTRODUCTION ......................................................................................................................25
2.2 MAJOR DRIVING FORCES BEHIND TECHNOLOGICAL CHANGES ...................................25
2.2.1 Market mechanism .............................................................................................................26
2.2.2 Energy perspectives..............................................................................................................26
2.2.3 Environmental perspectives ..................................................................................................26
2.3 IMPORTANT ELEMENTS OF REGULATORY MEASURES .....................................................27
2.3.1 Policy framework ................................................................................................................27
2.3.2 Institutional interaction .......................................................................................................28
2.3.3 Command-and-control approach ..........................................................................................29
2.3.4 Market-based instruments...................................................................................................29
2.4 COMPARISON OF REGULATORY MEASURES IN SELECTED ASIAN COUNTRIES ............30
2.4.1 Market reforms...................................................................................................................30
2.4.2 Institutional structure and interaction...................................................................................32
2.4.3 Energy regulatory measures..................................................................................................34
2.4.4 Environmental regulatory measures......................................................................................35
2.4.5 Command-and-control practices ...........................................................................................36
2.4.6 Market-based instruments/measures ...................................................................................38
2.5 CONCLUSION ..........................................................................................................................40
ANNEXES...................................................................................................................................42
3. COUNTRY REPORT: CHINA ........................................................................... 49

3.1 INTRODUCTION ......................................................................................................................49
3.2 INSTITUTIONAL STRUCTURES OF THE STATE STEEL, CEMENT AND PAPER INDUSTRIES50
3.2.1 State situation.....................................................................................................................50
3.2.2 Status of the target industries in China................................................................................51
3.2.3 Situation of the pulp and paper industry ..............................................................................57
3.2.4 Local institutional structure.................................................................................................58
3.3 REGULATIONS ON ENVIRONMENTAL PROTECTION, INDUSTRIAL DEVELOPMENT
AND ENERGY EFFICIENCY .........................................................................................................60
3.3.1 Overall environmental regulations and their implementation..................................................60
3.3.2 General industrial regulations and their implementation .......................................................62
3.3.3 Sector-specific regulations, their implementation and impact on technological changes ..............65
3.4 CONCLUSION ..........................................................................................................................77
ANNEXES...................................................................................................................................78
4. COUNTRY REPORT: INDIA..............................................................................81

4.1 INTRODUCTION ......................................................................................................................81
4.1.1 Importance of government regulations ...................................................................................81
4.2 INSTITUTIONAL STRUCTURE OF CEMENT, IRON AND STEEL AND PULP AND PAPER
INDUSTRIES ...................................................................................................................................84
4.2.1 Overview of the institutional structure of the Indian industry.................................................84
4.2.2 Institutional structure of target industries .............................................................................86
4.2.3 Industrial associations .........................................................................................................88
4.2.4 Institutional structure for environmental protection................................................................90
4.2.5 Institutional structure for energy efficiency improvement .........................................................93
4.2.6 Scope of authority of local institutes......................................................................................94
4.3 REGULATIONS ON INDUSTRIAL DEVELOPMENT, ENERGY EFFICIENCY & POLLUTION
DISCHARGES .................................................................................................................................95
4.3.1 Regulations on industrial development..................................................................................95
4.3.2 Environmental regulations and policies ................................................................................98
4.3.3 Regulatory measures for energy conservation....................................................................... 101
4.3.4 Industry-specific government regulations............................................................................. 106
4.4 IMPACT OF REGULATIONS ON SECTORAL TECHNOLOGICAL DEVELOPMENT .......... 108
4.4.1 Impact of general regulations............................................................................................. 108
4.4.2 Impact of sector-wise regulations........................................................................................ 110
4.4.3 General barriers to energy efficiency improvement ............................................................... 116
4.4.4 General barriers to environmental pollution control............................................................ 121
4.5 CONCLUSIONS AND RECOMMENDATIONS ...................................................................... 123
4.5.1 General recommendations ................................................................................................. 123
4.5.2 Industry specific recommendations ..................................................................................... 127
ANNEXES................................................................................................................................ 129
5. COUNTRY REPORT: PHILIPPINES .............................................................. 132
5.1 INTRODUCTION ................................................................................................................... 132
5.2 INSTITUTIONAL STRUCTURE OF THE CEMENT, IRON AND STEEL, & PULP AND PAPER
INDUSTRIES ................................................................................................................................ 133
5.2.1 Ownership in the target industries..................................................................................... 133
5.2.2 Industrial associations in the cement, iron & steel, and pulp & paper sub-sectors .............. 134
5.2.3 Government and local authorities on technological development, energy consumption and
efficiency, and environmental pollution ........................................................................................ 136
5.3 REGULATIONS ON INDUSTRIAL DEVELOPMENT, ENERGY EFFICIENCY & POLLUTION
DISCHARGES .............................................................................................................................. 141
5.3.1 Overall environmental regulations and policies................................................................... 141
5.3.2 General Industrial Regulations......................................................................................... 149
5.3.3 Sector-specific (environmental) regulations.......................................................................... 161
5.3.4 Implementation of the regulatory measures......................................................................... 165
5.4.1 Cement sector................................................................................................................... 169
5.4.2 Iron & steel sector ........................................................................................................... 170
5.4.3 Pulp & paper sector......................................................................................................... 171
5.5 CONCLUSION ....................................................................................................................... 172
ANNEXES................................................................................................................................ 173
6. COUNTRY REPORT: SRI LANKA ................................................................... 181
6.1 INTRODUCTION ................................................................................................................... 181
6.1.1 Pollution patterns............................................................................................................. 181
6.1.2 Environmental management efforts ................................................................................... 181
6.2 INSTITUTIONAL STRUCTURE ............................................................................................. 182
6.2.1 Institutions for industrial development............................................................................... 182
6.2.2 Institutions for environmental management........................................................................ 183
6.2.3 Institutions for energy conservation .................................................................................... 184
6.2.4 Financial institutions ....................................................................................................... 185
6.2.5 Research institutions......................................................................................................... 186
6.3 EVOLUTION OF ENVIRONMENTAL REGULATIONS ........................................................ 186
6.3.1 Overall environmental regulations ..................................................................................... 186
6.3.2 Regulations specific to the industrial sector......................................................................... 190
6.3.3 Sector-specific regulations .................................................................................................. 193
6.3.4 Cases of negotiation with industries in setting standards..................................................... 193
6.3.5 Market based instruments................................................................................................ 194
6.4.1 Successes of environmental regulations ............................................................................... 195
6.4.2 Negative effects and industrial implications ....................................................................... 197
6.4.3 Industrial sector viewpoint on regulations........................................................................... 200
6.5 CONCLUSIONS AND RECOMMENDATIONS ...................................................................... 200
ANNEXES................................................................................................................................ 204
Regulatory and economic instruments for Environmental Management... 1
1. REGULATORY AND ECONOMIC INSTRUMENTS FOR

ENVIRONMENTAL MANAGEMENT IN ASIAN INDUSTRIALIZING
COUNTRIES
1.1 Introduction
The growing industrialization in Asian countries is being accompanied by a rapid

degradation of environmental quality. The impact of environmental degradation is already
very high in terms of damage to human health, degradation of living habitat, and
irreversible damage to the local and regional ecology through the pollution of the air, soil
and water. If environmental problems are ignored by the local authorities who give priority
to economic development, the industrialization process of Asian countries may fail due to
the environmental externalities.
To integrate environmental considerations into the economic development process, Action

21 of the United Nations called for the adoption of Polluter-Pays-Principle in all countries
through the reinforcement of the environmental laws and regulations and the use of
market-based economic instruments (United Nations, 1993, Chapter 8).
While environmental laws and regulations are of the Command and Control (CAC)
approach which is based on the enforcement of legally mandated standards through
penalties and other sanctions, the market-based (MB) approach which has long been
advocated by economists to address domestic environmental problems, employs economic
instruments according to market mechanisms to control pollution. The Command and
Control approach is compulsory; it mandates the compliance of laws and regulations by
everyone. On the contrary, the market-based approach gives everybody the freedom to
choose their own means of pollution control according to market signals. It facilitates
deregulation and lessens government involvement.
Since the start of environmental policy in the developed countries, governments have used
command-and-control (CAC) as the predominant strategy in pollution control and waste
management. The approach requires the setting up of health-based or ecology-based
ambient and emission/effluent standards which are to be achieved through legal or
administrative enforcement of performance standards and other regulations. The standards
define environmental targets and establish the permissible amount of concentration of
particular substances or discharges into air, water, land or consumer products. They are
typically associated with penalties (such as loss of license), and polluters can also be
prosecuted or be threatened with prosecution (Pearce and Turner, 1990). Permits and
licenses or other authorizations are also other tools for controlling pollution. These provide
governments with a significant amount of control over polluting behavior. In most
countries, non-compliance of standards may lead to fines, revocations of licenses or
imprisonment. In recent years, however, there is a growing perception in OECD countries
that market-based instruments (MBI) should be developed and widely applied for effective
2 Regulatory Measures and Technological Changes...
environmental management, to complement the direct Command and Control regulations

(Potier, 1995).
While there may be considerable differences on the idea of what makes up an acceptable
level of environmental quality between the developed OECD countries and the
industrializing Asian countries, various efforts to curb widespread mismanagement of
environmental resources, e.g. air, water, land, forests and energy, have been or are being
enacted through environmental policies in these latter countries.
The objective of this section, therefore, is to analyze the role of economic and regulatory
instruments in the environmental management practices of the Asian developing countries.
The discussion is primarily directed within the context of rapid industrialization in the
Asian region, and with the growing perception of the Polluter-Pays Principle for
environmental protection. The section presents experiences of these countries in the
application of CAC instruments, assesses its effectiveness and the underlying causes. It also
discusses issues related to the adoption of economic instruments in the industrialization-
environmental protection agenda of these developing countries.
1.2 Environmental Externalities of Industrialization in Asian Developing

Countries
Industrialization is a common driving factor of economic growth in Asian developing

countries. Between 1965 and 1990, East Asia’s industrial sector grew nine times its original
size with a growth rate of 9.1% per annum and a total output from 32 to 45% while South
Asia grew by 5.6% with a total output of 21 to 26%. During the period 1980 to 1992,
industrial value-added increased by a factor of 2.06 in India, 3.62 in China, 3.33 in
Indonesia, and 2.78 in Thailand (Chen, 1995).
The rapid industrialization process has also been paralleled with an increasing amount of
energy consumed per capita and per unit of GDP (Figures 1 & 2). China alone in 1990 was
the world’s third largest consumer of primary energy after the US and the defunct USSR,
and was also the third largest source of greenhouse gas emissions (Perlack, et al., 1991). Its
energy demand growth rate was 14% and 13%, with industrial output growth rate of 21%
and 18%, respectively, in 1992 and 1993.
While the technological system of developed countries is more and more “information-
intensive” (Chen, 1994), that of Asian developing countries is still dominated by the energy
and resource-intensive technologies.
The climbing of the “energy intensity hill” (Berrah, 1989) by Asian countries has created
not only high tension in the energy demand-supply balance, but also given rise to
numerous “burning questions” (Ramani, et al., 1992) regarding the extent to which the
industrialization and economic growth in these countries is permissible with respect to the
environmental threat entrained by them.
With the current growth trend, Asian energy demand is doubling every 12 years as opposed
to the world average of every 28 years. In addition, energy intensity (the amount of energy
per unit output) in Asian developing countries is very high, with China as the highest in the
world.
Industrialization in all its glory, however, has also brought the negative externalities which
Asian developing countries are now besieged with. For Thailand, Malaysia, and Korea,
water and air quality have deteriorated, specially around urban areas, and the costs of
pollution abatement have escalated. In the Philippines, years of neglect have resulted in
serious environmental degradation of the river basins with an increase in heavy metals and
organic residues, and the extensive coastal contamination of the Manila Bay and inland
water bodies. All together, Asian developing countries now account for 18.6% of the
world’s total fossil-fuel related CO2 emissions which, the World Energy Council (1993)
estimates, will increase to 31.3% by 2020, offsetting any emission reductions achieved in
OECD countries. While the greenhouse effect of the CO2 emission can be observed in the
long term and will affect the global environment, emission of other pollutants is seriously
damaging the local and regional environment. These negative externalities, including
contamination of water resources, unacceptable level of air pollution, unsafe handling and
disposal of toxic substances, degradation of urban living environment, loss of natural
habitat, and worsening of working conditions, are being lived daily by all industrializing
Asians.
According to a study carried out by UN/ESCAP, the Jamuna river that runs through New
Delhi picks up 5 million gallons of industrial effluent everyday, including 125,000 gallons of
DDT waste (ESCAP, 1992). The World Health Organization’s data show that twelve of the
world’s fifteen cities with the highest levels of particulate matters, and six with the highest
levels of sulfur dioxide are in Asia. Five of the seven most air-polluted cities in the world
are also in Asia: Calcutta (India), Jakarta (Indonesia), New Delhi (India), Beijing and
Shenyang (China). The level of air pollutants with very serious health impacts is rising in
virtually all the cities of industrializing Asia (WRI, UNEP and UNDP, 1992). Besides the
huge traffic congestion on its roads, Bangkok city’s air and water receive hundreds of tons
of pollutants from the concentrated industrial activities around the city everyday.
From 1975 to 1988, emissions of SO2, NO2 and total suspended particulates increased by a
factor of ten in Thailand, eight in the Philippines, and five in Indonesia (World Energy
Council, 1993). Toxic pollutants measured by an index of air-born, water-born and solid
toxic wastes also increased several time over during this time.
Questions about the sustainability of current economic growth in these countries are more
than an abstraction as far as “limits to growth” are concerned. They cost highly in the form
of increasing health costs and mortality, reduced output in resource-based sectors, and the
irreversible loss of biodiversity and overall environmental quality. Quantitative estimates of
the cost related to the urban environmental degradation show that the environmental cost
of air and water pollution in Jakarta and Bangkok exceed $1 and $2 billion per year (around
8% of the total income of the city), respectively. Costs in Asia’s other large cities are
comparable.
Governments in Asian countries are now urged to refocus and expand their environmental
protection efforts with thorough environmental management programs and plans to
promote resource conservation, environmentally-sound and safe industrial growth, and
pollution abatement. An effective environmental management is desired for the integration
of environmental concerns in economic policy making, and the adoption of a common
management strategy for environmental policy at the central and regional levels with the
active participation of the private and public sectors.
1.3 The command-and-control approach and experiences of its application in

Asia
Following the environmental management approaches of the western countries, Asian

countries have also developed environmental policies that draw heavily on regulatory or
administrative policies. Japan in the early 1960s was an early adopter of the CAC, and has
since then achieved marked environmental improvements. The laws and regulations with
regard to the environment have been strengthened since the Environmental agency was
established in 1971. Under the Basic Law for Environmental Pollution Control,
environmental quality standards concerning air and water quality were regulated. Laws
(which were amended through the years since its establishment) included the Air Pollution
Control Law (1968), the Noise Regulation Law (1968), the Water Pollution Control Law,
etc. Inherent to the success of CAC in the country is the strong and effective institutional
structure whose main function includes strict monitoring, evaluating and enforcing of
environmental standards.
Other countries such as Korea and Taiwan, who have followed in Japan's footsteps have
also achieved significant improvements in environmental management. The enactment of
the Environmental Preservation Act of Korea in 1978 (later amended in 1979 and 1981)
helped the authority of the Ministry of Public Health and Social Affairs to promulgate
environmental standards and environmental monitoring, to set up an emission charge
system to enforce emission standards, and make environmental impact assessments an
obligation for specific types of projects. The government’s quick response to the
weaknesses in the implementation of the EPA was instrumental in the success of its CAC
approach. This entailed the decentralization of authority to the regional levels and some
reforms of the legal and institutional framework for environmental management in the
democratization process that the country was undergoing since 1987.
The 1987 Environmental Protection Law of Taiwan sets the precepts for the environment.
These are to be translated into measures dealing with the prevention, control and remedy
of pollution damage. The decentralization process in the country provided the local
governments with the authority to set stricter environmental quality standards. National air
emission standards have been strengthened with reference to SOx and NOx. Fines and
penalties have likewise been increased under the Water Disposal Act for illegal dumping of
waste materials.
Relevant legislation in Singapore, on one hand includes the Trade Effluent Regulations of
1976 which regulates the manner in which, and the locations at which effluents maybe
discharged according to prescribed standards. For hazardous waste control, a number of
applicable relevant regulations include the Water Pollution Act, the Environmental Public
Health Act, and the Environmental Public Health (Toxic Industrial Waste Regulations) of
1988. These rules require a toxic waste generator to discharge wastes at certain specified
limits. Their transport and reporting notification conditions are also stated.
Thailand
Thailand, with its Factory Act in 1969 (later amended in 1975 & 1992), laid down the basic
guidelines for industrial pollution control and the monitoring of factory pollution by third
parties. Under the Ministry of Industry, various regulations on industrial pollutants were
issued, and a Public Health Act governing certain aspects of environmental management
was enacted. Following this was the industrial emissions standards in 1971 which
controlled smoke intensity from industries at the mouth of the stack and penalized
violators to one month imprisonment or a fine of not more than Baht 10,000, or both
(Ministry of Industry, 1971). In 1975, a major legislation called the National Environmental
Quality Act created the Office of the National Environment Board (ONEB), whose
responsibilities were advisory in nature, and which was given the authority to set standards
and act as a ‘watchdog’ to the country’s environmental protection. Other legislations (as
presented in Table 1.1) include the National Ambient Air Quality Standard and the
Boat/Ship/Vessel Emission Standards in 1981, amendment of the 1967 Toxic Substances
Act in 1992, and other revisions and amendments.
While environmental legislation and regulation have expanded over the years, deterioration
of the environment continued with the Office of the National Environment Board’s lack
of enforcement authority and deficient enforcement machinery. Environmental problems
in the country became high in the list of government priorities, and thus, the Seventh
National Economic & Social Development Plan (1991-1996; Ch. 3) called for a thorough
overhauling of the legislative and institutional framework for environmental protection. A
new legislation, the “Improvement and Conservation of National Environmental Quality
Act” of 1992 dramatically changed the environmental protection regime in Thailand. The
ONEB has been elevated to that of a ‘quasi-cabinet’ on the environment, with the Prime
Minister and the Minister of Science, Technology, and the Environment, presiding as
Chairmen. Under the new act, the ONEB is authorized to set the standards of quality for
the environment, to designate territories as environmental regulation or pollution control
zones, and that regulations can be enacted in these zones to ensure the maintenance of
existing standards. Added to this, the 1992 Act endorses the Polluter-Pays-Principle (PPP),
the decentralization of implementation and enforcement authority to provincial and local
governments. It also encourages the participation of citizens in environmental matters
(UNIDO, 1992). Decentralizing authority to provincial governors was to entrust them
with the duty of developing administrative plans at the provincial levels, and imposing
standards (that regulate pollution at its source) that are higher than those established by the
Minister of Science, Technology & Environment.
Malaysia
In Malaysia, concern for the protection of the environment received attention with the
introduction of the Mining Enactment in the early 1920s. It was generally designed for
regulating the exploitation of natural resources and environmental protection. In 1974, the
Department of Environment adopted its pollution control and prevention strategy through
the enforcement of the Environmental Quality Act and the regulations under it. Fifteen
regulations have already been enforced and the Environmental Quality (Clean Air)
Regulations of 1978 is directed for controlling the pollution of the atmosphere from
industrial sources. Also included are the Regulations for Industrial Wastewater Pollution
and those of 1989 for Environmental Quality (Scheduled Wastes) which stipulate handling,
storage, treatment, notification and transport restrictions applicable to hazardous and toxic
wastes. Violations of the rules are penalized with fines of up to RM$ 10,000 and/or
imprisonment of one year (COGEN, 1992). Failure to comply with sea pollution ordinance
also merits a fine of up to RM$ 50,000. Moreover, a ship’s cargo and the ship may be
detained if they fail to pay expenses incurred by an enforcement authority. The Act was
further improved by the inclusion of the EIA Order in 1987 and the Environmental
Quality Order (Prescribed Activities) which came into being on 1 April 1988.
The state authorities are primarily responsible for the regulation of waste disposal and
facilities within their jurisdictions as mandated by a number of Acts, such as the Local
Government Act (1976), the Town and Country Planning Act (1982), the Street, Drainage
and Building Act (1974), and the Water Act. Progress has been made in the control of
pollution from the industries and the number of waste generators complying with the
regulations has increased significantly (Blum, 1993). Inadequacies in the enforcement and
legislative machinery, however, still exists, and authorities fail to implement, enforce and
enact effective legislation for pollution control as a consequence of these inadequacies.
Indonesia
Since 1968, Indonesia has made extensive use of its natural resources to finance
development, yet relatively little consideration has been given to consequences that are
environmental in their impact. Even so, a greater appreciation of the significance of the
natural environment has become evident in government statements concerning
developments since 1978, when for the first time a Minister of State was appointed for
Development Supervision and the Environment (known since 1983 as Population and the
Environment). However, the conversion of concerns about the environment into practical
policies has so far been relatively slow.
In 1974, the deterioration in water quality in Java and the increase of water-related diseases
prompted the Ministry of Health (MOH) to issue guidelines on water quality and discharge
limits on industrial waste water. The decree was based upon World Health Organization
guidelines issued in the early 1970s. In a number of provinces, the MOH decree was
modified which set water standards for the provinces. The decree was subsequently
supplemented by two regulations on water usage: Law 11/1977 and Presidential Decree
22/1982 which were primarily intended to improve and protect the quality of irrigation
water and empowered the Ministry of Public Works (MPW) to monitor ambient water
quality at particular point sources. The laws also empower the provinces to enforce
standards with civil penalties and to charge firms for water usage and waste water
discharge. Neither power has however been exercised, and it is generally agreed that water
standards are too strict for immediate application. As a result, enforcement of the standards
has been virtually non-existent (World Bank, 1990). In March 1982, steps were taken for
the ratification of Statute no. 4 concerning Basic Stipulations for the Management of the
Living Environment, known generally as the Environmental Management Act (Law
4/1982). Since then, other measures have been introduced, including Government
Regulations No. 29 of 1986 concerning Environmental Impact Analysis which make it
obligatory for such an assessment to accompany all proposals for projects that could have
an effect upon the environment. In 1986, government bodies were set up at provincial level
to monitor the use of groundwater and most departments now have an environmental
control-unit. On the whole, there is greater appreciation of the fact that the environment is
not just the responsibility of one department since all are affected in some way by
ecological deterioration. Shortly before the commencement of the Fifth five-year
Development Plan (Repelita V) in April 1989, government commitment to conserving the
interests of sustainable development for future generations was stated even more
unequivocally; Section 13 of the 1988 Broad Outlines of State Policy on which the Fifth
Plan is based, spells out clearly the importance of the environment in all matters relevant to
national development.
In June 1990, a new decree created an Environmental Impact Management Agency called
BAPEDAL, the head of which reports directly to the President. Its creation was an
indication that enforcement will be the central feature of the government’s environmental
agenda in the 1990s. In February 1991, BAPEDAL formulated effluent standards for 14
polluting industries, and draft standards are now being prepared for new and extended
operations in the same sectors which are to be based on best available technologies (BAT).
In early 1993, the environment has been separated from population to create its own
ministry. The Ministry of Environmental Affairs assumes responsibility for overall policy
formulation, including global environmental issues. With BAPEDAL, legislation and
regulations for pollution control, hazardous waste management and EIA were
implemented. Revised ambient standards have recently been prepared for the 5 most
common pollutants (SO, CO, NO2, O3 and suspended particulates) and 2 hazardous air
pollutants (hydrocarbons and lead). Relevant legislation for hazardous waste control
includes a number of decrees for the control of the circulation and storage of pesticides,
the transport of radioactive materials. Similarly, BAPEDAL is finalizing a new regulation
on air pollution control from automobiles and other mobile sources
China
Environmental legislation in China dates back to 1956 when the ‘Sanitary standards for
designing industrial enterprises’ was promulgated. It included norms for air, water and soil,
applied to the industrial, agricultural, and residential areas. In 1959, sanitary regulations for
drinking water was implemented. These two were the main laws till the 1970s. In 1972, the
principles of environmental protection were laid down, including standards for discharge of
industrial waste, and a revision of the sanitary standards for designing industrial enterprises.
After the end of the cultural revolution in 1976, environmental policy was reborn in China.
In 1979, the Environmental Protection Law was put forth, and standards and regulations
for the protection of water were also legislated. The importance of environmental
protection was reflected by its incorporation into the national economic and social
development planning. The main policies concerning environmental protection included
prevention (and treatment) of pollution, an integrated approach to environmental
protection through coordination of pollution prevention (and treatment) with economic
construction, and strengthening environmental management with legal, economic &
administrative measures (Long-Hai & Lu-Jun, 1993).
Environmental protection institutions at various levels have been established in the

country. At the national level, the Environmental Protection Committee under the State
Council was formed with the State Administration of Environmental Protection as its
executing body. The Administration is responsible for drawing up environment-related
policies, plans and regulations for the country and is also in charge of managing and
supervising the national environment. The importance of the legal framework led the
government to work out a series of laws and regulations which include the Detailed Rules
and Regulations for Implementation concerning Pollution Prevention and Treatment and
Environmental Protection of the People’s Republic of China, the Regulations concerning
the Prevention and Treatment of Noise Pollution, Forest Law and Land Law. In
December 1989, the Law of Environmental Protection of PRC was revised after ten years
of experimental practice and was officially promulgated.
Incorporated in the various laws are the requirements that the discharge of pollutants from
industries should meet standards set by the government and should conform to the
relevant rules and regulations. In recent years, alarming cases of pollution in the coastal seas
called for the National Marine Ministry to issue more regulations for oil exploration and
dumping at seas. In the area of industrial pollution, on the other hand, Beijing has
introduced a range of environmental management systems. Through pollution discharge
permit and fee systems, success in the development of its strong command-and-control
framework is seen. The pollution discharge permit system addresses phased pollution
loading reduction based on the results of environmental audits and pollution prevention,
i.e., clean technologies, reduction of raw materials consumption, energy efficiency, waste
minimization and end-of-pipe treatment.
Philippines
In the Philippine setting, environmental management involves legislating of various
standards and prohibition of specific polluting activities. The National Economic
Development Authority (NEDA) is the highest government entity for the long-range
development planning of the environment, while the Department of Environment and
Natural Resources (DENR) police the implementation of environmental laws. The
institutional arrangements for pollution control involve environmental policy, legislation
and administrative machinery. The Philippines is regarded as having moderate coverage on
pollution control legislation. This form of legislation deals with point sources of pollution
usually concentrated in the industrial sectors. The usual mechanism to regulate the behavior
of polluters is the licensing of waste emissions and operation permits. The major policy
instruments to control industrial pollution are the enforcement of a set of environmental
quality standards prepared by the DENR, and the administration of a system of EIA by the
Environmental Management Bureau of DENR. The four major pieces of legislation which
serve as the core of environmental laws are the Presidential Decree (P.D.) # 984 (Pollution
Control Law of 1976) which defines the declaration of a national policy to prevent, abate
and control pollution of water, air and land; P.D. # 1152 (Philippine Environment Code)
which establishes standards for air and water quality, and prescribes guidelines for land use
management, natural resources management, and conservation, utilization of surface and
ground water, and waste management; P.D. # 979 (Marine Pollution Decree) which states
the national policy to prevent and control the pollution of seas; Republic Act 6969 (Toxic
Substances and Hazardous and Nuclear Waste Control of 1990) which controls the
importation, manufacture, storage, transport, sale, use and disposal of nuclear waste in
accordance with national policies and international commitments. The Act also provides
penalties for violators.
Most noteworthy pieces of legislation were promulgated in the late 1970s and became
operational in the 80s. Enforcement, however, is rather weak for several reasons. The
problem of waste emissions is entrusted to industries with very minimal support from the
government. The guidelines for pollution control have failed to realize the enormous
expenditures for control facilities and its maintenance. Despite the tax exemptions benefits
granted to the industries for imported equipment and devices, emission control still entails
big (and expensive) investments. Most industries are not able to meet the standards and
existing treatment plants are not sufficient to accommodate the waste load. Small
industries are also not able to comply with the standards since most of the small industry
owners are not well acquainted with the environmental policies and standards.
10 Regulatory Measures and Technological Changes…
Table 1.1 Legislation history for environmental protection in selected Asian countries
Year Legislation Description
THAILAND
1969 Factory Act (amended 1975; 1992) basic guidelines for industrial pollution control under
Ministry of Industry; monitoring of factory pollution by
third parties
control smoke intensity at the mouth of the stack; under
Ministry of Industry
1971 Industrial Emission Standards (under Factory control of black smoke and carbon monoxide (under the
Act) NEB, the Police Department, and the Department of Land
Motor Vehicle Emissions Standards Transport)
1975 National Environmental Quality Act (revised created ONEB; endorsement of the EIA in 1978;
1978; 1992)
1978 Industrial Wastewater Pollution Control modifications under Factory Act of 1978: establish effluent
standards for industries; submission of poisonous matter
analysis reports
1981 National Ambient Air Quality Standards established by ONEB: regulates concentrations of carbon
monoxide, sulfur dioxide, suspended solids, lead and ozone
(based on EPA, USA; modified guidelines to account for
local conditions)
1985 Boat/Ship/Vessel Emission Standards to control black smoke emissions (under Harbor
Department)
1992 Hazardous Substance Act (amendment of the empowers government to control (via licenses) the import,
1967 Act) export, manufacture, sale, storage, transport, and use of toxic
or poisonous substances
The 1992 Act establishment of environmental fund; Polluter-Pays-
Principle; decentralization of enforcement authority;
pollution control areas; public’s right to know
INDONESIA
1967 Basic Forestry Provisions Act revised in 1990 as Conservation of Natural Resources and
Ecosystems Act
1973 Prevention and Control of Water Pollution in
Application of regulatory and economic instruments 11
Mining and Energy

1974 Water Resources Development Act
1978 Prevention and Handling of Environmental
Pollution from Industry
1982 Basic Provisions for the Management of the

Living Environment
1986 Regulations for Analysis of Environmental
Impacts
1988 Regulation of the Ministry of Demography and Orientation standard decision of environment quality
Environment
1990 Control of Water Pollution Gov’t. Regulation prescribes measures designed to monitor water quality,
#20 control the disposal of wastes into water sources and waste
Controlling the Quality of Water at its Source treatment
MALAYSIA
1974 Environmental Quality Act (and regulations
under it)
1975 Environmental Quality Act (Clean Air controls pollution of the atmosphere mainly from industrial
Regulations) sources
1987 Environmental Quality (EIA) Order specifies 19 categories of activities requiring EIA prior to
project approval or implementation
1989 Environmental Quality (Scheduled Wastes) stipulates the handling, storage, treatment, notification and
Regulations 1989 transport restrictions applicable to hazardous and toxic
wastes
1991 Amendments to the Merchant Shipping control of pollution of the seas
Ordinance
PHILIPPIN
ES
1976 Pollution Control Law (P.D. 984) declaration of national policy to prevent, abate, and control
pollution of water, land and air
1977 Philippine Environmental Policy (P.D. 1151) sets forth statements namely, the National Environmental
Policy, National Environmental Goal, Right to a Healthy
Environment, and Environmental Impact Statement
Philippine Environment Code (P.D. 1152) establishes standards for air and water quality; prescribes
guidelines for land-use management, natural resources
management, and conservation, utilization of surface and
ground water, and waste management
EIA Law (P.D. 1586) outlines procedural guidelines in administering the EIS
system
1987 Marine Pollution Decree (P.D. 979) states the national policy to prevent and control the
pollution of the seas
Water Code of the Philippines (P.D. 1067) revises and consolidates the laws of governing ownership,
appropriation, utilization, exploitation, development,
conservation of waters and watershed
1990 Toxic Substances and Hazardous and Nuclear controls toxic, hazardous and nuclear waste such as
Waste Control Act (R.A. 1067) importation, manufacture, storage, transport, sale, use and
disposal in accordance with national policies and
commitments
DENR Administrative Orders 34 & 35 Usage and Classification Water Quality Criteria and Effluent
Standards
CHINA
1956 Sanitary standards for designing industrial norms for air, water, and soil applicable to industrial,
enterprises agricultural and residential areas
1959 Sanitary regulations for drinking water
1973 Standards for the discharge of industrial waste:
solid, liquid, gas
Revision of Sanitary standards for designing
industrial enterprises
1979 Environmental Protection Law of PRC
various regulations and standards which were for protection
1989 Revision of the Environmental Protection Law of aquatic resources, quality of water, etc.
of PRC Forestry Law (tentative)
Sources: EC- ASEAN COGEN Program, 1992; Notifications from Ministry of Industry (Thailand), various years;
Blum, 1993; DENR, 1990.
1.4 The Effectiveness of Command-and-Control in Asian Countries
As clearly seen earlier, legislation has been adopted in practically all the developing
countries in Asia to reduce the conflict between environmental protection and industrial
practices. Most often than not, the laws and regulations adopted are similar to those of the
developed nations. Governments set ambient pollution and industry standards based on
WHO standards, or those of the United States and the European countries. However, the
effectiveness of the enforcement of command and control measures varies according to
countries.
In Thailand, data on pollution loading and ambient quality point to a deteriorating situation.
It is anticipated that pollutants will increase to disturbing levels over the next 20 years, with
the transport sector emitting the maximum amount of hydrocarbons, NOx and CO. The
industrial sector, also a major contributor of suspended particulate matter is expected to
triple its current level of SPM emissions, and its share will rise to 67% of the total
emissions. The Department of Industrial Works is primarily responsible for monitoring
emissions from stationary sources and the enforcement of industrial discharge standards,
but until recently, its officers had limited power to enforce standards through civil or
criminal penalties. The Bangkok Metropolitan Transit Authority also conducts vehicle
inspections on its trucks and buses but is not particularly effective in controlling black
smoke emissions.
In Malaysia, pollution control measures adopted by the Department of Environment have

led to an improvement in the air quality between 1985 and 1989. In a number of cases,
however, the government is still not able to control various repeating offenders due to its
limited power and some loopholes in the regulations itself. For example, under the present
Environmental Quality Act, the DOE can prohibit certain industrial operations only for
those factories which are listed in the Act as “prescribed premises” (those which require a
license for the DOE to operate). Moreover, DOE as the principal public institution for
environmental planning and management is not adequately provided with resources to
effectively monitor the state of the environment and to institutionalize measures to enforce
compliance. Therefore, a bill of amendment of the EQA is now being passed. If approved,
the DOE director-general will have the power to stop factories from operating, regardless
of whether they are in the prescribed premises or not, for posing a threat to public safety
and health. In 1994, DOE’s enforcement data shows that 65 cases have been brought to
court (Table 1.2). Of this, 51 or 78.5% concerned factories pollute the waterways with
waste discharges. One loophole in the Act is that DOE cannot apprehend polluters on the
spot because the existing regulations on sewage and industrial effluents do not have such a
provision.
In Indonesia, the forecast of pollution loading to year 2000 shows a fourfold increase in the
daily automobile emission of pollutants over the 1989 levels. In the industries, SO2
emissions are envisaged to rise by 10 times, and suspended particulate matter by fifteen
times. Industrial BOD loads have increased one and a half times since 1980 and are
projected to rise 10 times by 2020. A study conducted in the Surabaya river (in Indonesia’s
2nd largest city Surabaya) found that 80% of the river’s pollution was caused by industries
located along the lower Brantas and Surabaya Rivers (World Bank, 1990). Moreover,
responses from over 70 industries investigated to the legislation ranged from no apparent
action at all to provision at one factory of sophisticated pretreatment facilities. From 28
firms selected for detailed analysis, only 4 (14%) complied with the provincial standards for
BOD and 11 (30%) with the standard for chemical oxygen demand.
Table 1.2 Number of cases brought to court in 1994 in Malaysia

Failure to comply with license conditions (Section 16 of EQA) 4
Operating without a license (Section 18 of EQA) 5
Polluting inland waters (Section 25 of EQA) 51
Open burning without license (Clean Air Regulations) 1
Failure to submit Env’l. Impact Assessment (Section 34A of EQA) 1
Constructing premises for the purpose of discharging effluent without 2
DOE’s approval (Sewage and Industrial Effluents Regulation)
Discharging effluent onto land without prior permission from DOE 1
(Sewage and Industrial Effluents Regulations)
TOTAL 65
Source: DOE, 1994
Note: No. of prosecutions for the year 1992 and 1993 are 85 and 144, respectively.
Surveillance of environmental quality now rests on the provincial governors. Monitoring is

conducted on an ad hoc basis, in response to complaints from pollution victims. Where
appropriate, the governor issues orders to remedy the situation. Permits and licenses are
also used for monitoring and enforcing pollution standards, the former being issued after
an EIA is made. Technical capabilities and equipment needed to conduct such
investigations, however, are limited, and there is hardly any systematic program for
monitoring industrial firms. The fact that only a minority of firms causes a major portion
of industrial pollution suggests that a program to identify and eliminate major polluters
should be prioritized for immediate support (World Bank, 1990).
In China, data from the Beijing Environmental Protection Bureau from 1988 to 1990
shows that as a result of its pollutant discharge permit, there was a 5% increase in
production output and a 6% (1,000 ton/year) decrease in COD discharges system for three
of Beijing’s largest chemical polluters. Total production output is projected to increase by
50% in 1995, with a 16% reduction in COD discharges. Table 1.3 shows that among all the
pollution problems, control of water pollution has been taken most seriously. Industrial
solid waste levels have also become stable during the second half of the 1980s and real
progress has been made in controlling industrial solid wastes from large and medium urban
enterprises.
Table 1.3 Proportion of expenditure in P.R.C. for various types of pollution control
1985 1986 1987 1988 1989 1990 1991
Total (million yuan) 2221 2877 3594 4241 4354 4545 5973
Percentage spent on:
Water Pollution 44.9 44.0 43.6 44.0 45.3 47.6 48.9
control
Air Pollution control 32.8 33.3 34.5 36.0 36.2 32.6 33.0
Solid Waste Control 8.6 10.6 11.1 10.1 9.1 11.2 11.3
Noise Control 2.5 3.2 3.1 2.9 3.0 2.6 3.1
Others 11.2 8.9 7.7 7.0 6.4 6.0 3.7
Source: Guojia Tongjiju, 1991; 1992 (extracted from Edmonds, 1994).
With the intensified efforts of the government through relevant policies, regulations, and
environmental protection agencies at different levels, progress has indeed been made in
environmental protection and pollution treatment in China. While this progress is expected
to continue over the next decade, the overall trend will lead to the worsening of China’s
overall environmental conditions. Poor pollution conditions will continue to prevail in
areas where small-scale industries abound since these industries often use outdated
equipment and cannot afford to spend on pollution abatement equipment. With an annual
average growth rate of 25.3% between 1985 and 1990, and an employment of one-fourth
of the rural workforce, rural industrial pollution is expected to increase (Edmonds, 1994).
It will therefore require a big amount of effort, finances, manpower, as well as strict
enforcement of regulations on the part of the government to deal with the environmental
problems brought about by the rural industry. In the early 1980s, some forms of market
mechanisms have appeared on the scene, and a number of publications sees market
mechanisms as the ultimate key to China’s environmental problems.
In the Philippines, assessment of command-and-control has also shown some failures in

implementation, as cited earlier. Added to these problems is the fact that there is a shortage
of technologists and experts, assessors and reviewers, to conduct monitoring and
enforcement of industrial standards for pollution control, which eventually leads to
inadequate identification and evaluation of environmental quality. Even though a degree of
decentralization of authority is being exercised, there are delays in monitoring of projects,
delays in paperwork (processing of permits, reports, etc.), and the implementation of laws
and regulations, partly due to the lack of political will to enforce and implement the laws.
Reviews on the regulatory nature of solution to environmental management conclude that
regulations alone have not produced the expected results in the Philippines (Villavicencio,
1987).
It can be seen that many Asian developing countries have so far experienced low
effectiveness in the implementation of CAC. While rules and regulations are important
policy instruments for environmental management, the legalistic approach is not working
successfully. For one, the authorities in most countries, particularly the local authorities, do
not have sufficient qualified personnel to enforce the regulations. There is also a need for
empowerment in the lower levels of the government hierarchy so that local specificities
may be addressed directly, without having to pass through the channels of bureaucracy.
Moreover, the lack of political will on the part of the government to strictly enforce
legislation is evident in most Asian developing countries. Usually, litigation causes
opposition and the approach is always proven to be ineffective. In the implementation
phase, fines may be set too low to deter violators, or the regulations set by the government
become non-incentives for firms to go beyond what is required once they are able to
achieve the minimum required standards.1
Also, setting up the regulatory body to monitor, enforce and implement the various rules
and regulation for environmental pollution requires not only the technical competence of
those in charge with regulatory design and implementation, but also the financial capacity
and the machinery needed to regulate the industries. In the developing countries, the
country’s ability to implement is hampered by the fact that while regulatory frameworks are
already in place, enforcement remains weak due to financial constraints and lack of
equipment. Due to the surge of rapid industrialization in the region associated with
explosive growth in energy consumption, monitoring hundreds of thousands of scattered
small-scale industry operators is met with financial, technical, and human resource
limitations, and in cases where only a handful of industries operates, various ways have
been found to “bend the rules”, making exceptions or granting exemptions. Even when
monitoring is achieved to some degree, the state of technology in the industries itself (with
old and outdated processes and technology) calls for a re-education of the public and an
awareness of environmentally sound technologies. Moreover, further tightening of
industrial pollution laws and regulations leads to high costs since abatement technology
could be very expensive. Therefore, there is also a need to search for cost-effective ways of
achieving further environmental improvements.
Reasons for the ineffectiveness of the CAC, however, do not deter the governments of
Asian developing countries from preferring the use of the CACs due to the fact that
regulations set specific objectives that are clearly specified in physical terms. This then gives
the regulators a reasonable degree of predictability about how much pollution levels are
reduced. Moreover, the use of regulations is a source of power and influence for the
governments and provides a way to hide the true cost of environmental protection. This
1
The Environmental Management Bureau of the Department of Environment and Natural Resources in
the Philippines reports that the existing fines and penalties currently imposed against polluters at a
maximum of P50,000 (under P.D. # 1586), are just not serving the purpose. Because of the low rate,
industries opt to pay the P50,000 fine rather than install treatment facilities. In its review of fines and
penalty system, a 200% to 300% raise in existing fines should be created, though the step will also need
congressional action (Carlos, 1994).
lack of "transparency", however, can make enforcement pave the way for bribery and
corruption.
1.5 An Alternative Approach: Use of Market-based (Economic) Instruments

(MBI/EIs)
Environmental protection arose in the wake of economic growth, and should therefore be
managed in accordance with economic laws. There is then a need to make enterprises
aware of their responsibilities for environmental protection aside from their economic
responsibilities. In recent years, there has been an increasing interest to use economic
instruments in most industrialized countries and the NICs of Asia. While not eliminating
the regulatory framework in favor of the MBIs, mixed or hybrid systems have evolved that
retain the positive elements of CAC while enhancing the potential advantage of the MBIs
(O'Connor, 1994; O'Connor and Turnham, 1992).
The mechanics of the MBIs vary according to type, but share a basic underlying principle:
government sets up financial incentives (or disincentives) on pollution-related activities
(rather than 'command') to propel firms and individuals (consumers) to behave in socially
desirable ways. These instruments are designed to restore the link between resource scarcity
and resource price, and its application embodies the polluter-pays principle wherein
environmental costs imposed on society through production and/or consumption activities
are integrated into decision-making, i.e., internalizing externalities.
OECD studies (Potier, 1995; EPAT, 1993; Horstmann, 1993) have identified five
categories of market-based economic instruments. These are: 1) taxes and charges, 2)
deposit-refund schemes, 3) emission trading or marketable permit systems, 4) financial
enforcement incentives, and 5) subsidies. There is, however, no fixed list to MBIs since
these represent a broad approach to environmental policy which allows tremendous scope
for innovative instrument design.
1.5.1 Why MBIs should be used in Asian developing countries
Nowadays, Asian developing countries are characterized by rapid urban and industrial
growth coupled with rapid increase of population. This growth causes environmental
problems in various ways: increased air pollution from households, industries and
transport sector, water pollution due to inadequate sewerage, inadequate treatment and
disposal of waste charges, increasing traffic congestion in urban areas, etc.
For these countries, economic instruments have the advantages over the CAC regulations.
First, economic instruments can achieve the desired effect at the least possible cost.
Implementing MBIs entails lower information, monitoring and enforcement costs (vis-à-vis
CAC which involves high litigation and legal expenses). A policy based on this may charge
a polluter an impact fee given the following options: pay the full fee, treat their own waste
discharge thereby reducing the fee, or routing their discharge by means of a common
wastewater facility.
Second, economic instruments are easier to enforce for countries with limited enforcement
capability. Whereas Japan and Korea have been successful with the use of CAC in the
implementation of their pollution measures (mainly due to strong political will in
enforcement and the highly concentrated nature of large industries allowing easier pollution
control and monitoring), Thailand has started to rethink its environmental policy in relation
to the use of economic instruments. Experience has shown that with only a few pollution
control officers compared to a large number of scattered small and medium-scale firms and
other polluters to monitor nationwide, total monitoring is very costly and not feasible. As
in most developing countries of Asia, the scattered nature of these industrial firms requires
better government enforcement capabilities, a characteristic which these governments are
mostly inadequate with.
Third, the economic incentive discourages rent-seeking behavior due to its transparent
nature. Tietenberg (1988) describes rent-seeking as the use of resources in lobbying and
other activities directed at securing protective legislation. Due to the transparency of
economic incentives, the formula to assess a charge is readily available for public scrutiny.
This leads to the perception of equity where everyone knows the rules, whether or not the
rules are enforced fairly.
Fourth, economic instruments generate revenues, whereas regulations require bloated

bureaucracies. Depending on the relevant elasticities, market-based policies will lead to
some increase in financial flows to the owner of the resource, e.g. the government, and
these revenues can be invested in the resource itself. This is advantageous for developing
countries which face tight and budgetary deficits.
Finally, the processes of decentralization, democratization, and the emerging trend of

economic liberalism in the developing countries of Asia have paved the way for the
effective use of MBIs. Being in their embryonic stages, the market and financial systems of
these countries are open for the design and insertion of MBIs for an effective
environmental management.
1.5.2 The development of MBIs in Asian developing countries
The choice of MBI depends on the kind of pollution problem that needs to be addressed.
In some cases, a direct regulation might be needed, while in other cases, some form of
charge or other economic instrument has to be chosen.
Thailand
In Thailand, a number of economic instruments have already been in use. The government
has promoted the use of lead-free gasoline by restructuring its tax regime. Excise tax on all
types of gasoline was reduced after January 1992, and that of unleaded gasoline was
reduced by 20% compared with approximately 15% for leaded gasoline. The price
differential in turn generated a market for the retrofitting of lead-burning engines to burn
unleaded gasoline.
In 1988, the Bangkhuntien Industrial Waste Treatment Center started its operation for
treating hazardous waste from small-scale electroplating, metalworking and tanning
industries. Its services include waste transport, waste treatment, stabilization and fixation,
and final landfill. The Department of Industrial Works oversees the collection of service
fees and other operations of the private company which leases and manages the center.
Service fees are charged at the lowest cost possible, based on the type of service being
rendered. The operation has generally been successful, although problems arise, e.g. under-
reporting of waste volume by the industries in order to lessen disposal expense, and the
little incentive for factories to reduce their waste during the contract period (usually one
year) due to the minimum treatment charge of 70% of the full cost of the waste amount
specified in the contract (TEI, 1994).
To decrease water pollution in the country’s main rivers, central wastewater treatment
facilities were set up by the Ministry of Industry in industrial estates in the province of
Samut Prakan. Effluent charges are levied on factories based on the BOD and suspended
solid concentrations of waste flows.
Subsidies are also provided for pollution control equipment. The National Environment
Board is proposing that the government cut tariffs from the current 30-40% to 5% in the
next 4 years on equipment designed to reduce pollution and protect the environment. The
aim is to promote environmental conservation in small- and medium-scale industrial plants
(The Nation, 1994).
Indonesia
Indonesia is also well on its way to utilize MBIs. Import tax reprieves for wastewater
treatment equipment has been implemented, and industrial waste treatment facilities have
been installed through subsidies from donor agencies. The development of industrial plants
with centralized water treatment facilities provide a cost-effective solution for waste water
management. First, the industrial estate specifies minimum standards for each firm’s
wastewater, and firms exceeding these levels must invest in pretreatment facilities. When
minimum standards are reached, a system of effluent charges for both the quantity and
quality of the industrial discharge determines the cost of pollution. Revenues from this
effluent charge system are used to fund the operations of the laboratory and the treatment
plants.
Philippines
The Philippines is still in its infancy stage in the use of economic instruments. The Philippine
Strategy for Sustainable Development emphasizes the concept of ‘the polluter internalizing
the social price of an environmental resource (air, land, water) within his/her profit-
oriented decision-making process’ (Republic of the Philippines, 1989), though its
translation in form of market-based policies is yet to be seen. Some steps to this effect,
however, are taking place: the signing of the Healthy Air Pact between the incumbent
President and the Oil Industry led to the reduction of lead content in gasoline from 0.6 to
0.15 g/liter - a move that has contributed to the reduction of lead emissions. This has been
followed by the President’s Executive Order mandating the Department of Energy and the
Department of Trade and Industry to implement incentives and measures to promote the
use of unleaded gasoline.
Tax incentives in the form of tax exemption benefits for imported pollution control
equipment and devices are also granted to the industries. This incentive is contained in
section 56 of the Philippine Environment Code which guarantees importers of pollution
control devices and equipment, a tax credit equivalent to 50% of the value of the
compensating tax and tariff duties. A form of deposit-refund scheme also exists in the
packaging industries of the country for soft-drink, beer and milk bottles.
A variation of the deposit-refund scheme is the recycling scheme that was introduced by
the Department of Environment and Natural Resources in cooperation with McGill
University’s Geotechnical Research in Canada. This industrial waste exchange system is
based on a simple concept: one company’s waste can easily be another’s treasure, and its
implementation is the first in Southeast Asia. Under the scheme, companies voluntarily
exchange their wastes. They gain by being paid for waste they would not know what to do
with, and by saving considerable sums by acquiring raw materials at bargain basement
prices (IDRC, 1994). The exchange system reduces environmental pollution, recovers
usable resources and cuts the cost of waste disposal.
Malaysia
During the initial years of implementing discharge standards in the palm oil mills and
rubber factory effluents of Malaysia, a form of effluent-related fee pitched at a realistic level
was charged, applying the polluter-pays principle in order to induce the industries to install
treatment systems. Mills were also permitted to dispose off their untreated effluent in
which case, a license fee was charged at the rate of RM$ 50 per 1000 tons of effluent
disposed (Ong, et al., 1987). The charging of a high effluent-related fee as well as granting
incentives by way of the waiver of fees for research had the effect of hastening the pace of
research while notable successes have been achieved in the palm oil mill effluent treatment
technology. A novel feature of the factory effluent control is the combined use of
regulation and charging effluent-related fees based on the pollution load discharge in terms
of BOD.
China
China’s utilization of economic instruments is embodied in its environmental protection
law that stipulates the execution of policy with awards2. Factories which use waste gas,
waste liquid and other residues as their main material qualify for tax reductions or
exemption, or for special considerations in price policies. Profits generated from this
scheme should not be turned over to the State, but can be used to manage pollution and
improve the environment. Fines for the discharge of pollutants are also set by the State,
and in principle, are a little higher than the costs of pollution control. Such condition
makes it clear to enterprises that it is better to use the money for good environment
management than to pay fines. It also serves as an incentive to start the proper
management of the environment early. In the past, administrative measures were taken and
regulations were passed, but they did not get enough attention from the departments
concerned. The practice of charging fines for the discharge of pollutants has put an end to
this indifference, and contributes to improvements in the technical aspects and monitoring
capacity of the State.
In the countries studied, taxes, charges, and incentives have by far been the most
commonly used forms of economic instruments for pollution control, but other MBIs have
not been as widely employed as they are in the industrialized countries of Asia, Europe and
the U.S. Marketable permits for example, are only being used in the United States and
Singapore. Governments in Asia are not yet ready and do not have adequate ability to make
use of this new and unfamiliar scheme where monitoring and ‘supervising the market’ is
important.
Deposit-refund schemes may also prove to be not as effective if the mechanisms for its
operation are not set out right, e.g. very low deposit rates. In the case of Korea and
Taiwan, low rates combined with consumers’ indifference for recycling appear to impede
the effectiveness of their newly-introduced deposit-refund scheme.
One caveat in the use of MBIs: while they help solve environmental problems, they can also
introduce distortions in the economy as a result of “over-incentives”. An example is the
subsidies set up by governments to encourage pollution abatement or to mitigate economic
impacts of regulation by helping firms meet compliance costs. This can result in
inefficiencies by encouraging over-investment in pollution control or increased pollution
2
The Environmental Protection Law of the People’s Republic of China was adopted in principle at the
11th Meeting of the Standing Committee of the 5th National People’s Congress on 13 September 1979
and was revised 10 years later.
activity. The reason for the popularity of the use of subsidies, however, is more political
than economic: that the government does not always rely on “sticks” but can also provide
“carrots”.
1.5.3 Conditions for successful application of MBIs in Asian developing countries
Asian developing countries differ across borders, but the common issues facing the use of
MBIs can be summarized as follows: 1) political acceptability and administrative capability;
2) international trade implications and industrial competitiveness; 3) design of the
instrument in relation to the polluter-pays principle; and 4) adequate knowledge base.
1) The application of MBIs is also dependent on its acceptability by the government

agencies, other environmental groups, NGOs and the public. Regulating agencies would
tend to oppose changes in the current pollution control systems since new ways would
require new skills and new technologies. Beyond its political acceptability is the political
will to enforce and implement such policy instruments. This leads to the question of
administrative capability to design, administer, monitor, enforce and modify the instrument
in response to changing conditions. MBIs that are poorly designed become useless and will
result in more distrust and disrespect for the government. Polluters too must have the staff
and financial resources to work out the integration of these incentives into their decisions
regarding production, investment and pollution control.
2) Industry concerns regarding the use of MBIs focus on its effects on the competitiveness
of industries at the international and micro levels. Industries generally oppose
environmental taxes and charges for fear of losing their competitiveness in world markets
(OECD, 1994). Environmental costs to the industry not only include direct expenditures,
but also the short-term costs of reduced economic activity while the industry adjusts to
higher environmental standards. Thus, while costs may be of moderate proportions, the
uncertainty as to the final level of increase and economic impact is the industry's great
concern.
Researches, however, indicate that the cost of compliance with policies based on MBIs had
generally had fewer negative effects on overall industrial competitiveness than regulatory
instruments (Stevens, 1993), and that there is little systematic relationship between higher
environmental standards and competitiveness. The emerging challenge to the industries
therefore is: is avoiding the costs and continuously having low environmental controls in
line with the society's long term goals, or is short-term saving in expenditures (by falling
short of the required performance and adjustments) worth the long-term loss of
competitive advantage?
Another reason for the industries’ opposition to environmental taxes and charges is linked
to the costs involved and the distrust of regulating agencies.
3) The design of the MBI should consider its effectiveness, efficiency and equity, and
should be considered within the broad framework of the Polluter-Pays Principle.
Governments, however, have failed to abide by the PPP especially in the use of subsidies
which are likely to cause distortions in international trade.
Other considerations in the design of the instruments is the general level of public
consciousness and administrative costs for implementing the policies. Even if an
instrument is politically acceptable, public opinion also shapes attitudes towards a policy.
Moreover, an instrument would be of no use if the costs of implementing it is too high and
unacceptable. Design of the economic instrument therefore, in general, should have the
attributes of simplicity and transparency.
4) Policy makers, the general public and the private sectors should have access to
information regarding MBIs, the technical skills and capacity to use it and the knowledge
needed to respond accordingly. In most cases, governments' reluctance to make use of
MBIs has been due to lack of real experience and existing pre-judgments about its relative
uncertainty of results. In some Asian governments, the complex linkages between
economic policy instruments and investment allocations in the context of environmental
effects still remain to be explored (Ramani, 1992).
Industries, on the other hand, may also need to know more about the opportunities they
gain or lose through the use of MBIs before they can be expected to introduce changes in
their inputs, technology, decision-making, and management behavior.
1.6 Conclusions
From the foregoing discussion, the response to environmental problems in Asia differs
across countries. This difference could be due to the differences in geography and
resource base, the historical, cultural, economic and political philosophies, the structures in
government administration, economic status and technological strengths, and political
leadership. One common feature in the environmental management systems is the heavy
reliance on command-and-control instruments for environmental protection, the success of
which depends greatly on the political leadership’s commitment to solving the problems
and on the efficiency of institutional structures put in place.
Experience shows that only regulations do not achieve the desired effect in most of the
developing countries of Asia. The centralized nature of economic planning and
development has failed to consider the environment as an integral part in the development
strategies, and the monitoring and enforcement efforts of environmental policies,
regulations and rules are constrained by the nature of bureaucracy in these countries.
Economic instruments are designed for environmental management where regulations

have failed, and their superiority over the CAC cannot be denied within the framework of
environmental protection in Asian developing countries. Their use in Asia, however, is still
limited, and experiences have shown that while there is an increasing interest in their use,
there is still a need to combine MBIs with elements of CAC. MBIs therefore, should not
be viewed as replacements of regulations which are still vital for environmental protection,
but rather, are to be seen as complementary to the regulations.
Effective institutions and enforcement mechanisms are vital to the success of any
command-and-control as well as market-based strategy to improve environmental quality
and protection. Moreover, a strategy of enforcement should be embodied in the selection
and implementation of each CAC, MBI, or both, and the national, state and local
institutions should strengthen their human resources, organizational structure, and financial
resources.
In recent years, countries in Asia are moving towards democratization and increased
decentralization processes. Within the current context of Asian economic development,
there is a special interest in the application of MBIs for environmental protection, since the
changes that are taking place in the economic systems are favorable for the implementation
of economic instruments.
Finally, Asian developing countries in the foreseeable future should be able to formulate
their own economic instruments to meet the newly-recognized needs for environmentally
sound development in the Asian region, needs which would no longer be practical and
feasible if addressed by command-and-control measures. These should be directed to
country-specific problems rather than attempting to solve environmental problems by
simply copying the solutions of the industrialized countries.
Cross-Country Comparison of Impacts of Energy and Environmental Management... 25
2. CROSS COUNTRY COMPARISON OF IMPACTS OF ENERGY &

ENVIRON-MENTAL MANAGEMENT POLICY INSTRUMENTS ON
TECHNOLOGICAL CHANGES IN INDUSTRIES
2.1 Introduction
The dynamism of technological changes in industrialized countries has been greatly

influenced by the regulatory measures adopted by the national authorities. These measures
were enforced mostly as results of market reforms, increasing pressure of energy demand
and higher awareness of the impacts of human activities on the natural environment.
Developing countries (DCs) are now following suit by taking certain actions in the forms
of regulations and acts to globules the market mechanism, to guide the efficient use of
energy resources, and to sustain the environment. Keeping pace with the world-wide
changes in energy and environmental issues is challenging for the governments and
industries. Though various approaches have been adopted and practiced in the DCs, only a
handful of these have found some degree of success. Based on the country reports
provided by the national research institutes, this chapter compares the regulatory measures
affecting technological changes in industries of China, India, Philippines and Sri Lanka. A
comparative analysis of these countries is done to track the evolution of the different
features of the norms and regulations in place, and to assess their successes and failures,
and possible reforms.
2.2 Major Driving Forces Behind Technological Changes
Experiences of several countries show that the major driving forces behind technological
changes in industries are the market mechanism, and energy and environmental
perspectives (Figure 1).
Market
Mechanism
Perspectives Changes
Environmental
Perspectives
Figure 2.1 Major driving forces behind technological changes

2.2.1 Market mechanism
Market forces have a considerable influence on the technologies adopted by a specific

enterprise. The changing demand and supply patterns of a given product are likely to lead
to changes of technologies used to manufacture that product. An example would be the
evolution of technology employed in computers in fulfilling the demand of customers for
higher memory capacity and faster data manipulation. A particular technology becomes
obsolete if the client no longer accepts the product manufactured. An outdated technology
will lose its market in free competition if no efforts are made to develop it further and if
upgraded options are available elsewhere.
After several decades of governing experiences, many countries have found that market
forces should be left to act freely instead of being under a central command. The
government can only play a fair role by guiding the economy and preventing possible
unfairness in the free competition and not by controlling the prices of commodities. The
recognition of the importance of market forces has slowly driven several countries towards
the market-based economy. Many developing countries have relaxed their tight holds and
approved the policy framework and regulations of decentralization. Recent world history
has shown how society and technological status of developing countries were affected by
decentralization and changing market mechanism.
2.2.2 Energy perspectives
The oil crisis of 1973 led the policy makers to think more seriously about energy supply
and reducing the dependence on energy import. Governments felt the urgent need of
intervening in the manner energy was consumed by various economic players by means of
regulations and standards to assure sustained economic growth. As a result, energy
efficiency standards and limitations on fuel use were set for industries and the power
sector. For instance, Power Plant and Industrial Fuel Use Act of 1978 in the USA
prohibited the use of oil and gas in new power plants and major fuel-burning installations
(Hu, 1985).
Technological changes have taken place due to the enforcement of several regulations and
acts in relation with energy efficiency standards and limitations such as those for boilers,
insulation, power factor charges, time-of-use tariff, etc. As an example, cool thermal
storage systems have been adopted by several commercial enterprises to avoid the purchase
of expensive electricity during peak-demand periods, imposed by the modified utility tariff
structures.
2.2.3 Environmental perspectives
The basic thinking which encourages the creation of environmental regulations is that
everybody should have the right to live in a clean environment. Activities of some should
not adversely affect all the others in the society. Sustainable development is founded on the
principle that the present society should not leave a deteriorated world to the next
generations.
In order to contain the negative effects of human activity on the environment, regulations
have been emerging world-wide such as SOx and CO2 emission and waste water discharge
norms. Enterprises are being forced to adopt more advanced technologies to cope with the
increasingly stringent standards. Decision makers in the industries need to consider the
design aspects of manufacturing systems by accounting for their environmental impacts. In
meeting the environmental standards, there has been a shift from end-of-pipe treatment
techniques to cleaner production methods, thus the long-term impact of environmental
regulations on technological changes is being witnessed.
2.3 Important Elements of Regulatory Measures
Changing world-wide market mechanism, increasing pressure of energy demand and higher
awareness of environment are challenging issues for the governments of developing
countries. Letting industries switch over suddenly from controlled regime and subsidy
culture to free market mechanism often leads to the closure of many factories due to the
lack of their ability to cope with competition. Setting national energy and environmental
standards by adopting them blindly from industrialized world can result in stopping of
production in a number of energy intensive and/or environmentally polluting factories.
Therefore, regulatory measures need to be tailored to suit the specific socio-economic
fabric of each country, targeting to minimize the negative effects to a practicable level while
moving gradually towards international norms. In relation with the technological changes,
the important elements in a regulatory framework are shown in Figure 2.
2.3.1 Policy framework
The very first step prior to the promotion of energy efficient and environmentally sound
technologies is the awareness of the government personnel about their significance and
impacts. Although awareness of the problems may be high, lack of competent people at the
authority level sometimes leads to their inability to initiate policy framework for
undertaking market reforms and to manage the energy and environmental matters
systematically. The policy framework should cover awareness campaign for public and
industries, cooperation with regional and international organizations, market reforms,
strategies for energy production and consumption based on the indigenous energy
resources and concern for environmental preservation.
Policy Framework
Institutions
# Efficiency
# Decentralization
# Standards # Charges/taxes
# Monitoring # Subsidies
# Enforcement # Funds
Industries
Figure 2.2 Important elements of regulatory measures
2.3.2 Institutional interaction
Once national governments have decided to adopt policies to introduce market reforms
and to face energy and environmental concerns, appropriate legal authorities must be
established and institutional mechanism set up for addressing each issue. It is important to
clearly define tasks for approval of regulations, the issuance of licenses, the enforcement of
laws, the launching of legal actions, etc. The liabilities and responsibilities of industries
must also be defined.
Failures in the implementation of some policies have been experienced due to improper
interaction of institutions involved in market reforms and in managing energy and
environmental matters. Common drawbacks observed in institutional interactions are: the
overlapping of responsibility among institutions; the conflicts of interest among
organizations; the lack of transparency in procedures; the centralized nature of authority;
the improper division of powers and responsibilities between institutions; the imbalance of
legal and judicial powers given to an institution; more institutions than necessary, leading to
complicated procedures; insufficient institutions to implement the policies, etc.
2.3.3 Command-and-control approach
The command-and-control (CAC) approach has been generally practiced in managing the
energy and environmental matters. The CAC approach contains basically three steps: the
setting of standards, the monitoring of actual performances, and the enforcement of
standards.
As far as energy is concerned, limitations on fuel use are set, based on the availability of
indigenous energy resources, and efficiency standards of energy intensive equipment (e.g.
boilers, furnaces) and processes which are normally adopted from industrialized countries.
The three types of environmental standards generally in use are: ambient standards, which are
measures of the quality of environmental media like air and water; performance standards,
which apply to the emissions/effluents released into the environment through specific
types of pollution sources; and technology standards, which specify a particular technique or
method to be used for pollution control.
A common problem not only in the developing countries but even in some industrialized
economies is that, while a detailed set of energy and environmental standards exists on
paper, monitoring and enforcement have generally been weak. Effective monitoring, which
may prove to be quite expensive, remains the greatest regulatory challenge. The monitoring
can basically take three forms: spot monitoring, which is a surprise check method; self
monitoring, which requires the industries to install monitoring instruments and send reports
to regulatory agency; and remote monitoring, which needs high technology for automatic data
transfer from monitoring instruments installed at industries to the regulatory agency. Public
participation in monitoring the compliance of standards is also found to be a good
approach (i.e. right of an individual to sue the industries for not meeting the standards set).
Enforcement of energy and environmental regulations and standards normally occurs at

both national and local levels. This can be in the form of fines, imprisonment, warning of
administrative personnel, suspension of operation, and the closing of the factory.
2.3.4 Market-based instruments
Practicing the CAC approach has several flaws and drawbacks. The CAC approach
depends heavily on litigation and monitoring, and its enforcement; the legal expenses are
very high. Although energy and environmental regulations and standards have been set in
many developing countries, monitoring and enforcement are weak due to financial,
technical and human resources constraints. A major cause for the reluctance of many
governments to impose stricter enforcement is understandably the concern over possible
negative impacts on industrial competitiveness. Market-based instruments (MBIs) have
long been advocated by economists as more cost-effective means of achieving energy and
environmental norms (O’Connor, 1994; Chen and Bacareza, 1995). Keeping the positive
elements of the CAC approach, the MBIs should be incorporated in order to enhance the
development of energy efficient and environmentally sound technologies in a cost-effective

way.
The most commonly employed MBIs in practice are taxes or charges, subsidies, specific
funds, and deposit-refund schemes (O’Connor, 1994). Charges can be imposed (e.g., power
factor charges, $/ ton of CO2 emission, etc.) in order to internalize several factors which
are generally not taken into consideration by the industries while conducting
economic/financial analyses. Subsidies to improve the energy efficiency and environmental
performance of industries may be in the forms of low interest loan, tax
exemption/deduction, duty exemption/ deduction, and incentives. Another instrument
used increasingly in several parts of the world is the creation of special funds by depositing
revenues generated from energy or pollution taxes. These funds are used to finance energy
efficiency improvement projects and pollution control measures. Yet another scheme
which is employed is the Deposit-refund System, as it is normally practiced by soft drinks
manufacturers. Customers have to pay a deposit amount for bottles they carry with them,
which is later refunded when they return the bottles so that these can be reused.
2.4 Comparison of Regulatory Measures in Selected Asian Countries
A comparison of regulatory measures affecting technological changes in the industries of

the four selected countries is made here on the basis of the elements of the above
described regulatory measures. The objective is to assess the driving forces behind
technological changes and understand how each country considered here practices the
major aspects of the regulatory framework. Strengths and weaknesses of the different
measures employed are highlighted.
2.4.1 Market reforms
Major market reforms occurred in the last two decades in the four countries are
summarized in Table 2.1 (Aling et al, 1995; EMC, 1995; Habitan and Alora, 1995;
Gunaruwan and Joseph, 1995). These are basically of two types, the first being the
decontrol of price and distribution of commodities so that market forces can react more
freely in determining the equilibrium of supply and demand. Secondly, many inefficient
public industries have been privatized.
These market reforms have led to rapid technological changes. For instance, the Indian
cement industry that was mainly run by the public sector, has been gradually liberalized
from price and distribution control since 1982 and completely decontrolled in 1992. This
has resulted in increased production whose annual growth rate has been 7.25% from 1985
to 1993. As for the technological changes, the share of more efficient dry-process cement
manufacturing has increased from 32.7% in 1980 to 82% in 1992 along with the emergence
of modern large cement plants (EMC, 1995). As a result, the Indian cement industry is
rapidly approaching an efficiency level comparable to the world standards.
Table 2.1 Summary of the evolution of market reforms in selected Asian countries
Country Market Reforms Remarks
China - Attempts to adapt market-oriented - Rapid increase in production and installed
economy and opening to outside world capacities was seen in iron, cement and paper
started in early 1980’s. industries in 1980s. New industries employing
modern imported technologies have been
- Stock share system was created for some emerging.
enterprises.
- By the end of 1993, 38 enterprises have
implemented the stock system.
- Most of the industries are still state owned. No

report confirms that price and distribution of
commodities were completely deregulated.
India - The industrial policy statement of 1980 - Liberalization policy helped induce competition
encouraged foreign investment in high- and enhance the efficiency of operation. This is
technology areas. Liberalization of especially demonstrated in the cement sector
industries from controls started around which is fast approaching world standards since
1982. it was totally deregulated.
- Controls on price and distribution of - Private sector investment has been rapidly
commodities were gradually released until increasing (e.g., massive investment in steel
around 1991. The list of industries reserved sector, emergence of larger and modern cement
for the public sector was reduced from 17 plants).
to 6. The power sector is being slowly
privatized. - Some barriers still exist and only a small
fraction of equity of public enterprises has been
- In 1992, most industries were fully sold off.
liberalized.
- The reforms will be more effective if the
- The exchange rate came to be market- government power is more decentralized.
determined in 1991.
Philippines - Government participation in some - Under privatization policy, most of the
industries was prominent during the 1980’s companies have negotiated with APT since
and was gradually reduced by creating 1990 on settlement of their debt under the
stock market and converting loans of “Direct Debt Buy Out” scheme.
industries to equity.
- Significant production increase since 1985 in
- Asset Privatization Trust (APT) is taking iron and steel, pulp and paper and cement sector
care to bring back all the control and due to rapid capacity expansion.
operation of the public industries to private
sector. - Some firms in pulp and paper industry have also
been taken over by the APT and are awaiting
- Deregulation of downstream oil industry to eventual sale through public bidding.
be completed in two phases, by December
1996.
Sri Lanka - Process of changing from a controlled - The privatization process was found to be slow
economy to open economy commenced in until 1990. At present, most of the industries are
the mid 1970’s and privatization is still either owned or operated by the private sector.
underway.
- Emergence of small private mills and rapid
increase in production was found in iron and
steel and cement sector.
There is no standardized path for switching from a centralized economy to a

market-oriented system. It can be clearly seen that in the four countries considered here,
the process of market reforms and privatization has not been smooth, especially when
dealing with old industries. For instance, shifting of the iron and steel industries of China
to a market-oriented economic system with the specific economic characteristic of the
country is still under a research stage (Aling et al, 1995). However, the push towards the
free-market orientation has resulted in the emergence of new and modern industries, and
higher efficiencies of resource utilization.
Some important sectors such as power generation and distribution are still managed by the
state and subsidies need to be removed to eliminate the market distortion. As long as
electricity can be easily accessed from grid at subsidized low prices, no industry will be
interested in improving its energy efficiency and technological changes along with energy
conservation measures cannot be expected. With this in mind, the Indian power sector is
undergoing privatization with several memoranda of understanding (MOUs) being signed
by private sector agencies (EMC, 1995).
2.4.2 Institutional structure and interaction
A list of institutions responsible for the technological development, energy and

environmental matters in the countries is given in Annex 2.A. The characteristics and
features of the institutional structures are compared in Table 2.2 (Aling et al, 1995; EMC,
1995; Habitan and Alora, 1995; Gunaruwan and Joseph, 1995).
The evolution of the institutional structures shows a gradual shift from a centralized to
decentralized system. In some countries, however, there is a need for greater
decentralization of authority. The important factor in decentralization is the power sharing
mechanism between the state and local institutions. Local authorities are at times found to
act only as regional offices, e.g. local monitoring and enforcement offices. The experience
of Japan, which manages energy and environmental matters well, has shown that local
governments played relatively prominent role in environmental management efforts and
initiated setting of environmental standards (O’Connor, 1994). In decentralization, it is
preferable to leave the administrative guidance flexible to local institutions.
The measure taken to solve the conflicts among institutions in the Philippines is quite
impressive (see note #7 in Table 2.2). Regular meetings of personnel from all institutions
are recommended to weed out the overlapping/contradicting policies and the problems
associated with their implementation.
Table 2.2 Comparison of institutional structure characteristics and features

China India Philippines Sri Lanka
Technology development
- Information dissemination and education
- Science and technology research
- Quality control of products
- Financing new technologies
- Decentralized or local institution
- Voluntary organization
Energy
- Research and development of efficient tech.
- Energy conservation/audit
- Financing efficient technologies
- Setting/reviewing efficiency standards
- Monitoring and enforcement of regulations
- Consultant organization
- Decentralized or local institution 1
- Cooperation between institutions 2 3
Environment
- Research and development of clean tech.
- Environmental management
- Financing clean technologies
- Setting/reviewing environmental standards
- Monitoring and enforcement of regulation
- Decentralized or local institution 4 5 6
- Consultant organization
- Cooperation between institutions 7
exists does not exist or not reported
1 Further decentralized energy management centers are planned in the Energy
Conservation Act that is awaiting Senate approval.
2 As a rule, the working meeting for energy conservation under the State Council is held
once every two years chaired by the Vice-Premier.
3 It was reported that the coordination among these institutions is weak.
4 For those projects whose total investment exceeds 200 million yuan, an environmental
impact assessment report should be ratified by National Environmental Protection
Agency. In other cases, the local authority is in charge.
5 In 1992, certain EIA functions of the Department of Environment and Natural
Resources (DENR) were decentralized to local offices and the DENR handles only the
projects defined as “environmentally critical” and projects located in an
“environmentally critical area”.
6 Industries are classified into three categories: low polluting, medium polluting and high
polluting. Local authorities can issue environmental protection license to low polluting
industries while Central Environmental Agency retains power for the other two types of
industries.
7 An inter-agency task force was formed in 1992 between DENR and thirty other
agencies including the government-owned and controlled financial institution to solve
the conflicting or overlapping requirements of different agencies.
2.4.3 Energy regulatory measures
The existing regulatory measures concerning energy matters in the countries are
summarized in Annex 2.B. Table 2.3 compares the key features of these regulations (Aling et
al, 1995; EMC, 1995; Habitan and Alora, 1995; Gunaruwan and Joseph, 1995).
Table 2.3 Comparison of regulatory measures related to energy

Energy law 1
Energy efficiency standards 2
Fuel use limitation
Time-of-use electricity tariff 7 3
Obligation of timely energy consumption reports 4
Obligation of timely reports on energy 4
conservation measures
Obligation of employment of energy manager 5
Obligation of carrying energy label on appliances 8 6 3
1 A draft legislation spelling out the consumption standards and requirement for trained
personnel, ensuring mandatory energy audits and including a proposal for institutional
set up for its enforcement was prepared by the Advisory Board on Energy. This draft
legislation is still under modification.
2 Rule IV, section 3 of Republic Act No. 73 states the promulgation of energy utilization
standards, prescribing the setting up of minimum requirement of energy efficiency
standard for equipment and other machinery but no standard was reported.
3 Energy labeling of household appliances and restructuring of electricity tariffs are
planned.
4 Although there is no separate energy law, the obligation of timely energy consumption
and conservation reports are stated in Companies Act.
5 In some energy intensive industries (e.g. metallurgy industry), one vice-director of the
factory must take over the energy conservation work.
6 Under the guidance of the Bureau of Indian Standards, energy labeling of appliances is
still on voluntary basis.
7 Recently (in April 1995), one of the state electricity boards has announced time-of-use
electricity tariff.
8 National norms of electricity consumption for ten categories of electric appliance,
including refrigerator, air conditioner and washing machine, etc., are being implemented.
The rate of growth of energy consumption was greatly reduced in China after energy
conservation was initiated in late 1970’s and the sixth five-year plan (1980-1985)
represented a radical change in China’s energy policy. With the establishment of an
administrative organization for energy management with a widespread network, more than
500 regulations, norms and standards for energy conservation were formulated (Aling et al,
1995).
Energy efficiency regulations and standards are effective means to eliminate inefficient
products and technologies from the market and are driving forces of technological changes.
However, standards and regulations are relatively easier to set up but rather difficult to
enforce without adequate accompanying measures. It should be noted that regulations and
energy efficiency standards in many industrialized countries have materialized through
negotiations with industries and setting up of voluntary energy efficiency standards. For
instance, the German Government has opted for voluntary agreements on car fuel
efficiency and on the efficiency of domestic electrical appliances with the local industry so
as not to jeopardize their competitiveness (ECE, 1992). Therefore, countries which have
yet to set energy efficiency standards must carefully consider the current technological
status of their industries.
Implementation of energy efficiency labeling on equipment is found to be rather weak in all

countries although it features in their energy conservation policies.
Concerning the obligations to appoint energy managers and timely submission of energy
performance reports, the Energy Conservation Promotion Act in Thailand is worth
mentioning. The regulation obliges the industries/buildings which have a power demand
exceeding 1,000 kW or which consume more than 20 million MJ per year to appoint an
energy manager, record and submit report on energy consumption, conduct energy audit
and set target for improvement, and monitor and evaluate the identified measures
(Mohanty, 1995).
2.4.4 Environmental regulatory measures
The regulatory measures on environmental management are given in Annex 2.C. A

comparison of the key features of environmental regulations is made in Table 2.4 (Aling et
al, 1995; EMC, 1995; Habitan and Alora, 1995; Gunaruwan and Joseph, 1995). It can be
seen that all countries have set up various environmental standards, displaying a high
awareness of the environment. China has developed comprehensive industry-specific
standards (e.g. Pollutant emission standard of iron and steel industry, 1985) whereas the
others have adopted general environmental standards. However, no country reported in
detail how the standards are actually set up. It should be noted that in Japan, ambient
standards were set up by the national government whereas the local governments played a
more prominent role in the setting up of emission standards. Local governments often
engage in plant-by-plant negotiations and agreements to define emission allowances for
each major polluting facility in the area (O’Connor, 1994).
Table 2.4 Comparison of environmental regulatory measures

China India Philippine Sri Lanka
s
Environmental Law
Environmental standards
- Ambient standards
- Performance standards
(emission/effluents)
- Technology standards
Obligation of environmental impact
assessment (EIA) reports
Obligation of timely environmental 1
performance report
Right of public participation 2
1 Although there is no obligation for timely submission of environmental report,
industries need to renew Environmental Protection License once a year to continue
their operations.
2 Individual citizens could go to courts against any polluting industry on the grounds of
violation of their fundamental right to have access to an environment with a minimum
acceptable quality specified by the standards. According to the draft of the new
Environmental Protection Act, individuals can also sue the Central Environmental
Authority (CEA) and the Minister In-charge for not enforcing the legal provisions
against the industries.
Environmental impact assessment (EIA) reports are in general effective preventive

measures but it is undesirable to take very long to get an EIA approval. For instance, it
takes 6 months to 1 year for an EIA appraisal of a large project in Sri Lanka (Gunaruwan
and Joseph, 1995). It is interesting to note that there is no national law requiring the EIA
report for high-impact projects in Japan which happens to manage her environment quite
well (O’Connor, 1994).
The right of public participation in environmental management as practiced in Sri Lanka is

found to be quite appropriate for the developing countries. Although setting up of
environmental standards is relatively easy, monitoring and enforcement are quite difficult in
developing countries due to the dispersed nature of small industries and other financial and
human resources constraints. Cases of bribery are frequently encountered. Therefore, the
right of individual participation would strengthen the monitoring and enforcement of
environmental regulations.
2.4.5 Command-and-control practices
The command-and-control approach as practiced in the countries studied is compared in

Table 2.5 (Aling et al, 1995; EMC, 1995; Habitan and Alora, 1995; Gunaruwan and Joseph,
1995).
Table 2.5 Comparison of command-and-control practices

Energy
- Energy efficiency standards
- Monitoring
spot monitoring
self monitoring
- Enforcement 1
fines
imprisonment
temporary closing of the factory
Environment
- Environmental standards
- Monitoring 2
spot monitoring
self monitoring
remote monitoring3
- Enforcement 4 2
fines
imprisonment
disapproval of business license based on EIA
temporary closing of the factory
1 There are rewards as well as penalties in the national energy conservation policy but
details are not reported.
2 Although there are well-structured environmental regulations, monitoring and
enforcement are still very weak primarily due to manpower and financial constraints and
the possibility of the old industries closing down. For instance, investment cost of
proper pollution control measures is beyond the present financial capability of the pulp
and paper mills and no existing mill can be expected to comply with the required
environmental protection standards. The present dust emission levels from the kilns in
most cement mills exceed the permissible limit of the regulations.
3 In several industrialized countries, many large-scale factories have remote metering
systems at emission sources, connected to control centers of local environmental
authorities.
4 There are some difficulties in enforcing the standards. For instance, electrostatic
precipitators in Indian cement industry are not operating well due to erratic power
supply, frequent voltage fluctuations, water scarcity and inconsistent quality of coal and
lack of trained man-power. Data obtained from most of the iron and steel industries
showed that SO2, NOx and particulate emission in existing installations are higher than
those currently permitted or specified in the standards.
China has achieved higher energy efficiency and better environmental performances
through command-and-control approach thanks to the well-structured institutions and
accompanying actions since most of the industries are state-owned. Staff members are
employed to monitor and enforce energy efficiency and environmental standards. A great
reduction in energy consumption and better environmental performance are observed in
public sector due to gradual technological changes. However, the command-and-control
practice is found to be weak for rural and township industries due to their scattered nature.
Much more financing and manpower as well as strict enforcement of regulation is
necessary to deal with small industries where outdated equipment are often used and
investments for energy efficiency and pollution abatement are out of reach.
The Philippines and Sri Lanka have yet to set energy efficiency standards in industries. In
China and India, monitoring and enforcement of energy efficiency standards are still weak
although some achievements have been made by means of energy conservation programs
initiated and financed by central organizations.
All countries have set up environmental standards. However, like other developing
countries, monitoring and enforcement are weak, especially in dealing with small industries,
due to financial and human resource constraints. In the case of China, with an annual
average growth rate of 25.3 percent between 1985 and 1990, rural or township industries
are increasingly polluting air, soil and water (Aling et al, 1995). The industries of all
countries are faced with the difficulty of complying to environmental standards at the
expense of competitiveness. The recommended approach in dealing with existing old
industries is to negotiate the granting of a grace period so that the industries have ample
time to adjust their operation.
2.4.6 Market-based instruments/measures
The market-based instruments (MBIs) that are in place for promoting energy efficient and
environmentally sound technologies are compared in Table 2.6 (Aling et al, 1995; EMC,
1995; Habitan and Alora, 1995; Gunaruwan and Joseph, 1995). Like other developing
countries, the use of MBIs is mainly constrained to managing the environment.
The evolution of environmental policy in OECD countries over three decades is shown in
Figure 3. Industrialized countries are now practicing the hybrid approach in solving energy
and environmental matters with the restructuring of institutions and enforcement
mechanisms. The common issues faced by developing countries in promoting the MBIs are
their political acceptability and administrative capability, industrial competitiveness and the
designing of the MBIs.
The application of the MBIs is dependent on their acceptance by government agencies,

environmental groups, NGOs and the public. Regulating agencies would require new skills
and knowledge to use the MBIs and the CAC in harmony. The lack of administrative
capability to design and implement the MBIs is one of the major barriers.
Table 2.6 Comparison of market-based instruments/ measures

Energy
- Energy tax 1
- Subsidies 2
subsidized energy audit
soft loan
tax/duty exemption or reduction for
efficient technologies
subsidies for first demonstration project
energy conservation funds
- Awards for the best energy performance
Environment
- Polluter pay principle 3 4
- victim paid5
- Subsidies 6
soft loan
tax/duty exemption or reduction for
clean technologies
subsidies for first demonstration project
- Deposit-refund scheme
- Awards for the best environmental
performance
1 It was reported that the taxation system reform in 1993 had negative impact on energy
conservation encouragement and new preferential policies are under formulation.
2 There are incentives provided in the form of financial measures such as loans and
subsidies in energy conservation program but their details are not reported.
3 Pollution charges such as imposing levy on SO2 emitters is being conducted in some
provinces as a pilot program.
4 Philippine Strategy for Sustainable Development emphasizes the concept of “the
polluter internalizing the social price of an environmental resource (air, land, water)
within his profit-oriented decision-making process”. But in the Philippines, where the
use of economic instruments is just beginning, this concept has not yet been translated
into market-based policies.
5 Japan has long levied a pollution tax on both stationary and mobile sources of air
pollution for the purpose of financing compensation payments to pollution victims and
other environmental costs.
6 Revenue generated from pollution charges is planned to be used as an incentive to
manage pollution and improve the environment.
Industries are generally opposed to energy and environmental taxes and charges for fear of
becoming less competitive. However, keeping the sustainable development goal in mind,
taxes and charges should be set after negotiation and on voluntary basis.
Hybrid approach
Efficiency MBIs approach # Strategic long-term plan

# Voluntary agreements
CAC approach # Regulatory reform
# Taxes and charges
# Pollution clean-up # Pricing policy
# Regulation
1970’s 1980’s 1990’s
Figure 2.3 Evolution of environmental policy in OECD countries

(Long, 1994)
Taxes and charges need to be well designed. For instance, the power factor charges should
be greater than the costs of power factor correction so that industries should not be willing
to pay charges instead of correcting it. It should be borne in mind that the MBIs having a
provision for high incentives would lead to market distortion. Therefore, formulation of
appropriate MBIs is a challenging issue for the developing countries.
2.5 Conclusion
General recommendations concerning the regulatory measures that can assist in the
development of energy efficient and environmentally sound technologies in the DCs are
presented below.
Technology development
Technological change is a major agent of economic growth. Managing technologies needs a
systematic approach in the industrialization process. Since financial resources are rather
limited in the DCs, development of new technologies by indigenous R&D facilities may
not be appropriate, especially when these are available elsewhere. The development of new
and innovative technologies in DCs may typically consist of three stages (Kim and
Dahlman, 1992):
- acquiring foreign technology: technology transfer by means of foreign investment,

importation, R&D cooperation, etc.;
- diffusion of technology: utilization of acquired technology across industries in the country;
and
- improving and developing technology: local R&D efforts to adapt and improve the acquired
technology so that it would suit the local conditions.
The acquiring of foreign technologies can be effectively pursued by the creation of a sound
investment climate in the country. Some economic instruments such as tax reduction on
energy efficient and environmentally sound technologies should be practiced more
comprehensively. Regulatory measures are needed to continue the process of
decentralization and decontrolling the price and distribution of commodities in order to
reduce the level of market distortion. There should be an awareness campaign of the
modern technologies through the decentralized institutions in order to facilitate the
diffusion of the acquired technologies. The local R&D efforts should emphasize on
adoption and improvement of acquired technology to make it appropriate to the local
conditions.
Energy and environment

The energy efficiency and environmental standards should be reviewed through negotiation
with the industries since it may be difficult to comply in many cases, especially by the old
industries. Setting of sector-specific energy efficiency and environmental standards is under
way and more collaboration with industries is necessary.
As already mentioned, more MBIs should be employed in the countries studied. MBIs can
be designed in collaboration with international organizations so that the hybrid approach
(CAC and MBIs) can be practiced. MBIs should not be viewed as replacements of
regulations which are still vital for energy efficiency improvement and environmental
protection; they should rather be seen as complementary to regulations. The application of
a hybrid approach requires the establishing of effective institutions and enforcement
mechanisms. There is a need for restructuring the existing institutions since they are
organized and oriented specifically towards the CAC approach.
Annex 2.A
Table 2.A.1. Influential institutions for technological changes in China
Institution Responsibility
Industry:
State Science and Technology Commission Formulate the national science and technology
(SSTC) development strategies, policies, program and
plans; organize and coordinate sectors,
provinces and universities to implement key
science and technology programs as well as
inter-governmental science and technological
exchanges and cooperation
Department of Industrial Science and
Technology
Department of Production Coordination (by Formulation of product standards and sector’s
sector) production standards
General Association of Chinese Light The departments under GACLI responsible for
Industry (GACLI) specific sector are in charge of macro
management, formulation of mid-term and
long-term plans and policies, solving problems
appearing in the capital construction,
technological reform projects and production.
Energy:
Department of Resource Conservation and Institution under State Economic and Trade
Comprehensive Utilization Commission (SETC)
Department of Transportation and Energy Department under State Planning Commission
Resource (SPC)
Department of Raw Materials Department under State Planning Commission
(SPC)
State Economic and Trade Commission Deals with the administration for the
(SETC) application of energy and raw materials,
integrated utilization of resource and planning
and approval of key technical updating and
transformation projects. Together with the SPC
and SSTC formulate the energy strategies,
policies, program and plans, protection and
control of industrial pollution as well as
awareness campaign.
State Planning Commission (SPC) Responsible for the formulation of national
energy development strategies, policies,
programs and construction projects and
management works to enhance substitution of
oil by coal.
Environment:
State Environmental Protection Agency
(SEPA)
Research Center of Environment and
Policy
Technology Consultation Committee for
Air Pollution Prevention
Monitoring Department
Planning Department
Pollution Management Department
Department of Policy and Regulation
Sector specific Environmental Protection Organization such as Environmental
Committee Protection Specialized Committee of China
Paper Association is responsible for
implementing the government’s policies,
rules and regulations on environmental
protection, organizing basic units to protect
environment, facilitating and strengthening
the links between the government and
enterprises, making efforts to get good
results in the environment protection of the
respective sector.
Environmental Protection Division Division under Economy and Trade
(EPD) Department of GACLI. Responsible for the
macro management of Light Industry’s
environment protection and energy saving
program.
Table 2.A.2. Influential institutions for technological changes in India

Industry:
Ministry of Industry
Ministry of Science and Technology
Department of Industrial Policy and Promotion Under Ministry of Industry
Bureau of Indian Standards (BIS)
Department of Scientific & Industrial Research
National Research Development Corporation
Council for Scientific & Industrial Research
National Productivity Council
National Council for Cement and Building
Materials
Energy:
Ministry of Power
Energy Management Centre Under the Ministry of Power to coordinate the
fragmented efforts and initiatives of various
institutions active in energy management. Its
activities include the development of energy
database, the identification of barriers, the reviewing
of laws and regulations, the introduction of
standards, the setting up of policies, the organization
of public awareness campaign, etc.
Ministry of Coal
Ministry of Non-Conventional Energy Sources
Indian Renewable Energy Development Agency
Petroleum Conservation Research Association
State Electricity Boards
Environment:
Ministry of Environment & Forests
Central Pollution Control Board Preparation of industry-specific norms and
standards and monitoring the pollution control
measures
State Level Pollution Control Boards
Central Forestry Board
Indian Council of Forestry Research and
Education
National Land Use and Wasteland Development
Council
Indian Board of Wildlife
Table 2.A.3. Influential institutions for technological changes in the Philippines

Industry:
Board of Investment (BOI) Review projects, registration of enterprises,
incentives for capital investment
The Bureau of Product Standard (BPS) Enforce quality control
Energy:
Department of Energy (DOE) Leading agency mandated to promote the judicious
and efficient utilization of energy, information
dissemination, monitoring of energy performance,
energy audit and preparation of project feasibility
studies with financial assistance packages
Philippines Council for Industrial Energy Attached agency of the Department of Science and
Research and Development Technology (DOST) supporting the research and
development of new technologies
Energy Managers Association of the Philippines Non-profit organization serving as the forum for
transfer of idea, technical service to ENMAP
members
Energy Development and Utilization Non-stock corporation, information dissemination,
Foundation, Inc. R&D, training and education, demonstration of
appropriate energy technology
Renewable Energy Association of the Non-profit organization for carrying out R&D on
Philippines renewable energy technologies
University of the Philippines - National Information dissemination, training and workshop,
Engineering Center basic energy management courses,
Philippines Energy Conservation Center, Inc. Consulting service for industries, energy audit,
design of engineering system
Environment:
Department of Environment and Natural Mandated to oversee matters related to
Resources (DENR) environmental protection
Environmental and Research Office (ERO) Bureau under DENR for research activities,
Environmental management Bureau (EMB) is
under ERO as in-charge of environmental
protection
Natural Resources and Management Office Bureau under DENR
(NRMO)
Field Operation Office (FOO) Bureau under DENR, regional offices under FOO
are responsible for the implementation and
enforcement of environmental policies, regulations,
and standards
Local Government Units (LGUs) Handle types of projects that fall under the category
of Kalakalan 20, a country-side business enterprise
scheme established through Republic Act 6810.
Table 2.A.4. Influential institutions for technological changes in Sri Lanka

Industry:
Ministry of Industrial Development Apex body governing the promotion of industries in
the country and works in close collaboration with
other ministries such as the Ministry of Finance and
Planning , the Ministry of Science and Technology,
the Ministry of Environment and the Ministry of
Labor.
Ministry of Science and Technology Responsible for establishing industrial estates,

Industrial Development Board assisting the industries in obtaining finance from
lending institutions, carrying out R&D activities
and information dissemination.
Provincial Industrial Service Bureau (e.g. Assists in the industrial development of the
Industrial Services Bureau of North Western respective province.
Province)
Ceylon Institute of Scientific and Industrial
Research
National Engineering Research and
Development
Sector Specific R&D institutions
Energy:
Ministry of Irrigation, Power and Energy
Ceylon Electricity Board
Ceylon Petroleum Corporation
Environment:
Ministry of Environment (MOE) Appraises development policies and programs,
comments on environmental implications and
develops environment- specific action plans.
Central Environmental Authority (CEA) Institution under MOE. It has legal power to act on
environmental issues, particularly through
administration of Environmental Protection License
(EPL) Scheme, and the Environmental Impact
Assessment (EIA) procedure.
Project Approving Agencies All ministries handling development projects
having PPAs to approve environmentally sensitive
projects
Local Authorities Issue EPLs to low polluting industries
Annex 2.B
Table 2.B.1. Energy regulations and their features
China
Regulations for Energy Conservation Management (samples)
1986: Regulation for energy conservation management
1987: Regulation for strengthening electricity conservation
1986: Raw materials, fuel saving measures for state-owned enterprises in industry and transportation
sector
Design standard of energy conservation of steel plant
Design standard of energy conservation of synthetic Ammonia
Design standard of energy conservation of cement plant
Management Standards (samples)
GB 3715-83 Technical terms of coal quality and coal analysis
GB 4123-84 Technical terms of insulation material
GB 6425-86 Terms of Thermal Analysis
GB 2581-81 General rule of energy balance of thermal equipment
GB 2588-81 General rule of energy consumption measurement of enterprise
GB 8222-87 General rule of electricity balance of equipment in enterprise
GB 483-81 General guideline and measuring method to analyze coal quality
GB 4179-84 Methodology for calculating heat balance, thermal efficiency and comprehensive energy
consumption.
India
National Standards requiring display of energy consumption on the nameplate of equipment
Draft legislation on energy conservation prepared by the Advisory Board on Energy
Companies Act requiring annual report to include energy data and energy conservation measures
implemented
Philippines
1979: Republic Act No. 33 Energy conservation geared towards judicious end efficient use of energy
1979: Republic Act No. 36 Energy tax on electricity use in residential sector to promote efficiency
1980: Republic Act No. 73 Energy efficiency program for commercial energy users
Bureau of Energy Utilization Memorandum Circular No. 82-08-165, DOE Memorandum Circular No.
93-03-05 Quarterly energy consumption reports for high energy consumers
1986: Omnibus Energy Conservation Law after expiration of R.A. No. 73 Enforcement of energy
conservation law
Sri Lanka
- No regulation and law was reported
Annex 2.C
Table 2.C.1. Environmental regulations and their features
China
1982: Marine Environmental Protection Law
1983: Regulations on Administration of National Environmental Monitoring
1984: Prevention and Control of Water Pollution
1984: Forestry Law
1984: Regulation of Technical Policy on Prevention and Control of Coal-smoke
Pollution
1985: Grassland Law
1986: Land Administration Law
1986: Management measures for Environmental Protection of Construction Projects
1987: Prevention and Control of Atmospheric Pollution
1988: Mineral Resources Law
1988: Water Law
1988: Wildlife Protection Law
1988: Regulations on Reclamation of Land
1989: Prevention and Control of Environmental Noise Pollution
1991: Law on Water and Social Conservation
1992: Regulation on Disciplinary Sanction of Environment Protection
1992: Regulation on Management of Pollutant Emission License
1992: Six “Time Limited” Pollutant Emission Standards of the Iron & Steel Industry
1992: Notice on Enhancing Management of Environment Protection of the Foreign
Investment Project
1993: Regulations on the marine life and Wildlife Protection
India
1938: Motor Vehicle Act (amended in 1988)
1972: Wildlife Protection Act (amended in 1991)
1974: Water Act (amended in 1988)
1977: Water Cess Act (amended in 1988)
1980: Forest Act (amended in 1988)
1981: Air Prevention and Control of Pollution Act (amended in 1988)
1986: Environmental Protection Act
1991: Public Liability Insurance Act
1991: Notification on Coastal Regulation Zone
Philippines
1977: Presidential Decree (PD) 1151 Philippines Environmental Policy
1977: PD 1152 Philippines Environmental Code
1978: PD 158 Establishing an Environmental Impact Statement (EIS) System
Sri Lanka
1980: National Environmental Act (amended in 1988 and expected to be replaced with
new “Environmental Protection Act” in the near future)
Regulatory Measures in Selected Asian Countries: Country Report from China 49
3. COUNTRY REPORT: CHINA

3.1 Introduction
China is a rapidly industrializing country with the largest population of the world and has
relatively abundant energy resources. It is therefore a big consumer of energy and coal is
predominant in its energy mix. In its vast rural areas, more than 70% of the fuel for
cooking and heating comes from biomass. The energy consumption in industries, especially
energy intensive sectors, accounts for 70% of the total energy consumption. Table 3.1
shows some basic data about China’s economy and energy.
Table 3.1. Basic data about China’s economy and energy

Year 1985 1990 1994
Item
Population (Billion) 1.058 1.143 1.199
GDP (109 Yuan RMB) 896.4 1853.1 4500.6
Per Capita GDP 847.26 1621.26 3753.63
Total Energy Production(Mtce) 855.46 1039.22 1187.29
Raw Coal(%) 72.8 74.2 74.6
Crude Oil(%) 20.9 19.0 17.6
Gas(%) 2.0 2.0 2.0
Hydro-Electricity(%) 4.3 4.8 5.8
Total Energy Consumption(Mtce) 766.82 987.03 1227.37
Raw Coal(%) 75.8 76.2 75.0
Crude Oil(%) 17.1 16.6 17.4
Gas(%) 2.2 2.1 1.9
Hydro-Electricity(%) 4.9 5.1 5.7
Per Capita Energy Consumption(Mtce) 0.725 0.864 1.024
CO2 Emission(Mt-c) 640.2 655
CH4 Emission(Mt) 21-35
Energy related environmental issues in China mainly encompass pollution from the
production and utilization of coal. The huge coal combustion over the years has resulted in
air pollution, while over-consumption of biomass has led to ecological damages in the rural
areas. China’s environment protection faces a stern challenge from its fast economic
development that requires increased use of its energy resources. In this process of
economic development and industrialization, some areas and enterprises had been pursuing
a high pace of development and productivity, while ignoring the efficiency and the quality
of production.
China assumes an important position in global energy consumption and environmental

protection, therefore regulating efforts aimed at achieving better energy-environment
scenario is likely to benefit not only China, but also the region. Accordingly, the Chinese
government is adjusting the industrial development strategy so as to achieve better energy
efficiency and reduced emission figures by technology reform and process improvement in
the enterprises. In order to effectively carry out the sustainable development strategy, the
Chinese government has formulated and enforced various policies, laws and regulations.
This chapter discusses the various policies, regulations and standards on technology,
economy, environmental protection, resources, credit, reward and punishment strategies,
etc. Some of these schemes are already bearing good results. In the following section, the
main institutes and organizations responsible for industrial development and environmental
protection, their responsibilities and relationships are introduced. The laws, rules and
regulations used in energy efficiency improvement and emission reduction in industry as
well as the impact of these regulatory measures on sectoral technological development are
discussed later in section 3.3.
3.2 Institutional Structures of the State Steel, Cement and Paper Industries
3.2.1 State situation
In 1993, along with the reforms in the economic system as well as in government
organizations, an adjustment was accordingly made in China’s management system. The
functions of the government bodies in the new market economy system are focused on a
combination of economic and legal measures with monitoring and coordination instead of
depending on mandatory measures.
A flowchart of the institutional structure of the State Council to deal with energy-
environment related activities is shown in Figure 3.1, while Figure 3.2 depicts that of the
State Environment Protection Agency (SEPA). As a rule, the working meeting for energy
conservation under the State Council is held once every two years, chaired by the Vice-
Premier who is in charge of energy resources. The persons-in-charge in the related
ministries or at provincial levels attend this meeting to discuss and examine policies,
regulations and plans on energy consumption and efficiency, energy intensive and polluting
industries, etc. The government organizations at the top level in charge of energy
conservation are:
- Department of Resource Conservation and Comprehensive Utilization of the
State Economic and Trade Commission (SETC),
- Department of Transportation and Energy Resource and Department of Raw
Materials of the State Planning commission (SPC),
- Department of Industrial Science and Technology of the State Science and
Technology Commission (SSTC).
SETC mainly deals with the administration of the application of energy and raw materials,
integrated utilization of resource and planning and approval of key technical updating and
transformation projects. Together with SPC and SSTC, SETC develops energy strategies,
policies and programs for the protection and control of industrial pollution. SPC is
responsible for formulating the national energy development strategies, policies and
programs as well as construction projects and management work of coal resources
substituting oil. SSTC is responsible for formulating the national energy, science and
technology development strategies and policies. It also coordinates with the different
sectors, provinces and universities to implement key science and technology programs as
well as inter-government science and technological exchanges and cooperation. In order to
arouse public awareness on energy efficiency and protection of resources and environment
in China, SETC, together with the SPC and SSTC, has been carrying out a routine activity
of “energy conservation propaganda week” during the second week of October every year
since 1991.
In order to strengthen the work for energy efficiency monitoring and its technical services,
there are over 200 monitoring and technical service centers on energy efficiency operating
at the national to the municipal level or at different industries, with over 7000 total staff
members.
In addition, many non-governmental organizations (NGOs) dealing with energy and

environmental issues are being set up. China Energy Conservation Association (CECA),
Energy Conservation Commission of China, Association for Science and Technology,
China Building Energy Conservation Association (CBECA) and China Rural Energy
Association (CREA), etc. are some of them. They play a very important role in providing
consulting service for decision making, appraisal and evaluation of related projects,
organizing public propaganda and educational training for energy conservation as well as in
promoting information exchange between China and the outer world.
3.2.2 Status of the target industries in China

3.2.2.1 Status of the cement industry
The State Administration of Building Materials Industry comprises the Department of
Policy and Regulations and the Department of Production Coordination as illustrated in
Figure 3.3.
The Department of Policy and Regulations is responsible for the designation of technology
policy, industry policy and development strategy.
The Department of Production Coordination formulates product standards and sectoral

production standards. This department has one Building Materials Production Division for
each province as well as two other bodies under its patronage.
The Comprehensive Division of Enterprises Management Energy Conservation Office is

in charge of energy and environment issues, equipment, production safety, sector’s
regulation and related measures.
State Council
Working Conference of
the State Council
on Energy Conservation
SPC SSTC SEPA SSB Other Ministries Province and CIties
Depa. Transportation Department of Department of Department of Industry Energy Conservation

and Energy Industry Technology Social Development and Transportation Agency
Division of Energy Energy Division Environment Division Energy Division China Energy
Conservation and Conservation
New Energy Association
China Energy BNTM Information Network

Saving of Energy
Investment Conservation
Corp. Service Center
SETC Department of State Measure of Energy
Standardization Institute Conservation
Department of
Resource Reservation Energy conservation
and Comprehensive Division
Utilization
Figure 3.1 Flowchart of the National Institute Structure

State Environment
Protection Agency
Department of Science General Environment

Science & Technology Monitor Station
Monitor Department Research Center

of Environment
and Policy
Plan Department Technology Consult Committee

of Air Pollution Provention
Pollution Management
Department
Department of Policy
and Regulations
Figure 3.2 Flowchart of the Institute Structure of the SIPA

State Administration of Building

Meterials Industry
Department of Deaprtment of
Policy and Regulations Production Coordination
Buliding Materials Bureau Comprehensive Division of Association of

Production Division Enterprises Management State Building Materials
in each Province Energy Conservation Office
Institute of Association of
Building Materials Product
Institution of Cement
Energy Conservation Center
Figure 3.3 Flowchart of the Cement Sector

3.2.2.2 Status of the iron and steel industry

The iron and steel industry is one of the most important industrial sectors in China’s
economic framework. Along with the progress of the national economic reform, the iron &
steel industry is also undergoing an adjustment and reform of its management system and
operation mechanism.
Some enterprises had tried the stock-market system after the Fourteenth National Congress
of the Chinese Communist Party and by the end of 1993, 38 enterprises had implemented
it. Although the stock system was an important step towards the modern enterprise system,
it was not the only option and had to be adapted according to international practice and
domestic law. In general, China’s iron and steel enterprises are state-owned. It is still under
research as to how to integrate them into the market-oriented economic system and set up
a modern enterprise system well suited to the needs and characteristics of China. The
systems regarding leadership, democracy, personnel, labor, salary and finance have also
been reformed. A new system, according to which the directors can be in charge of the
operation of the plants, is established and competent mechanisms as well as fiscal systems
are introduced. In implementing the principle of sharing these functions between the
government and the enterprises, the target had been to make small organizations provide
adequate services.
China’s iron & steel plants belong to the Ministry of Metallurgy Industry (MMI). The
departments responsible for energy conservation and environment protection include the
Department of Policy and Regulation‚ the Department of Safety and Environment
Protection and the Department of Production Coordination.
The Department of Policy and Regulations is responsible for the designation of technology
policy, industry policy and development strategy.
The Department of Production Coordination formulates product standards and sectoral

production standards. The Energy Office belonging to this department studies and
examines the energy consumption of metallurgy enterprises. It promotes the technical
improvement and power management of plants. The Office also plans and implements the
policy and regulations on energy conservation.
The Environment Protection Committee is a combined committee involving all

departments of the MMI. It chiefly coordinates the issue of environment protection.
The Department of Safety and Environment Protection is the principal office that works to
protect the environment in metallurgical enterprises. It implements the national and
sectoral policies, regulations and norms of environment protection. It also promotes the
adoption of new technologies. Figure 3.4 illustrates the institutional structure of different
bodies of the MMI.
The Ministry
of Metallurgy
Industry
The Envrionment Department of Safty and Environment Department of

Protection Production Protection Department Policy and
Committee Coordination Regulations
Information Network Environment Energy Office

of Environment Monitor
Protection Center
Monitor Center Service Center Information Network Energy Committe of

of of of Association of Metallurgy
Energy Conservation Energy Conservation Energy Conservation Enterprises
Figure 3.4 Flowchart of the Ministry of Metallurgical Industries (MMI)

3.2.3 Situation of the pulp and paper industry

China’s pulp and paper industry belongs to the General Association of Chinese Light
Industry (GACLI), the former Light Industry Department. Within the GACLI, two
departments are directly responsible for papermaking management - the Food and
Papermaking Department and the Department of Economy and Trade. The Papermaking
Office of the Food and Papermaking Department is the chief administrative body of the
national paper industry, which is in charge of macro management. This includes
formulation of mid-term and long-term development plans and industry policies as well as
solving problems regarding capital construction, technical reform projects and production
of paper mills. The local Papermaking Offices all over the country are in charge of the pulp
and paper industry management in regions.
The Environmental Protection Division (EPD) of the Economy and Trade Department of
GACLI is responsible for the macro level management of environment protection and
energy saving issues pertaining to the Light Industry. One of its major tasks is to compel
the paper industry to reduce pollution and save energy as this industry is a big source of
water contamination and a large consumer of energy. The EPD carries out its operations
together with the Papermaking Office of the Food and Papermaking Department. The
national administration is in charge of devising mid- and long-term plans on environment
protection and energy saving.
The China Technical Association of Paper Industry (CTAPI, founded in 1964) is an

academic group including papermaking enterprises, scientific research and development
agencies, universities and machinery departments functioning on a voluntary basis. The
CTAPI is responsible for organizing academic research and exchange of information on
pulp and paper industry, especially those related to significant technical development, major
technical measures and policies.
Under the CTAPI there are over ten specialized committees, such as the comprehensive
specialized committees of energy, alkali recovery, standards, enterprise management, etc.
The Energy Specialized Committee (ESC, founded in 1981) is in charge of organizing

academic activities and communicating on energy saving issues of paper industry.
The Alkali Recovery Specialized Committee was founded in 1983. It aims to exploit
academic exchanges, spreading technical knowledge and sharing experiences on production
and management in order to improve the scientific and technical level of alkali recovery in
China.
China Paper Association (CPA), founded lately, involves paper mills, scientific R&D
agencies, universities, etc., on a voluntary basis. It acts as a bridge between the government
and the enterprises by solving problems in production and proposing policy matters to the
primary administration.
The Environmental Protection Specialized Committee (EPSC, founded in 1994) belongs to
the CPA. It aims to implement the government policies, rules and regulations on
environmental protection, by organizing basic units to protect environment, facilitating and
strengthening the links between the government and enterprises and making joint efforts to
achieve good results in environment protection of the paper industry.
Under GACLI there are two specialized research institutes: China’s Pulp and Paper
Research Institute (CPPRI) and The Environmental Protection Research Institute of
China’s Light Industry (EPRICLI).
There are about 5,600 pulp and paper mills in China. However, if the Town and Village
Enterprises (TVE) are also considered, the total number of enterprises will be over 10
thousand; but most of these small mills open and shut down repeatedly, so the number
varies widely all the time. Of the 5,600 regular enterprises, 1,660 mills belong to the Light
Industry System, and their output is 42 percent of the total output. Other mills belong to
the Agriculture Department, the Forestry Department and the Military System. From the
perspective of industrial management, the paper industry is managed by GACLI. No
enterprise is directly under the GACLI; all the mills are local, and managed by local
administration.
There are two kinds of papermaking enterprises: enterprises with public ownership (state
owned) and enterprises with collective ownership. As already mentioned, there is a great
uncertainty regarding the number of the latter. Figure 3.5 illustrates the institutional
structure of the pulp and paper industry.
3.2.4 Local institutional structure

Similar to the institutional structures of the state and the industry, there are some
institutions at local levels which are responsible for the corresponding local affairs in
setting standards and regulations. These local bodies coordinate the issues of energy
efficiency, and environmental and ecological protection at the local levels.
The Chinese government promotes energy efficiency mainly by economic, legal and
administrative means of macroscopic regulations and control so as to propel the various
local bodies into intensifying their efforts of energy conservation and environmental
protection. The government worked out plans for energy conservation from the 6th to 9th
five-year Plans and promulgated a series of legal norms and standards concerning energy
efficiency. Targets for energy efficiency were then set for each locality and department and
plans and measures as well as examination indices were made known to the lower level.
The local authorities and departments then broke the targets for the local enterprises and
guided them in their energy efficiency efforts.
General Association of
Chinese Light Industry
GACLI
Food and Deparment of Research Institute

Papermaking Economy and of Environment
Department Trade Protection in
Light Industry
China Papermaking China Technical Research Institute

Environment of
Association Association
Protection Papermaking
of
Division
Paper Industry
Environment Protection
Specialized
Committee
Alkali Recovery
Specialized
Committee
Papermaking
Office
Papermaking
Company
in Each
Province
Figure 3.4 Flowchart of the Ministry of Metallurgical Industries (MMI)

3.3 Regulations on Environmental Protection, Industrial Development and

Energy Efficiency
3.3.1 Overall environmental regulations and their implementation
3.3.1.1 Environmental regulations and policies
The rapid economic growth of China has been exerting tremendous pressure on the basic
industries like energy, transportation and raw materials. The rapid increase in the amount of
energy consumption has had an adverse impact on the environment and ecology,
prompting the government to take powerful economic and legal measures. The
environmental laws related to energy include: Law on the Prevention and Control of
Atmospheric Pollution (1987, in the process of revision); Law on the Prevention and
Control of Water Pollution (1984), Mineral Resources Law (1988), Marine Environmental
Protection Law (1982), Land Administration Law (1986), Forestry Law (1984), Grassland
Law (1985), Water Law (1988), Forestry Law (1984), Grassland Law (1985), Water law
(1988), Wildlife Protection Law (1988), Law on Water and Social Conservation (1991), etc.
The State Council has enacted a series of administrative measures and regulations, such as
Regulations on the Prevention and Control of Environmental Noise Pollution (1989),
Regulations on Reclamation of Land (1988), Regulations on the Marine life and Wildlife
Protection (1993), Management Measures for Environmental Protection of Construction
Projects (1986), Management Measures for Environmental Protection Standard (1983),
Regulations on Administration of National Environmental Monitoring (1983), Regulation
of Technical Policy on Prevention and Control of Coal-smoke Pollution (1984), Regulation
on Disciplinary Sanction of Environment Protection (1992), Regulation on Management of
Pollutant Emission License (1992), Six “Time Limited” Pollutant Emission Standards of
the Iron & Steel Industry (1992), Notice on Enhancing Management of Environment
Protection of the Foreign Investment Project (1992) etc.
After the UN Conference on Environment and Development, the Standing Committee of

the National People’s Congress approved the Convention on Biodiversity and the
Framework Convention on Climate Change, and the SPC and SSTC drafted the discussion
paper on “Guidelines for China’s Agenda 21st Century”. The Standing Committee set up
the Commission of Environmental Protection in 1993, then the China International
Cooperation Committee on Environment and Development, chaired by the State
Councilor and Chairman of the SSTC and joined by renowned scholars and government
officials from home and abroad, was set up as a consultant agency for the Chinese
government. The Second national conference on industrial pollution put forward the basic
guiding principles for prevention and control of industrial pollution as follows:
− To shift traditional development models to sustainable ones by active promotion

of cleaner production.
− To strengthen the functionality of government environmental management in

order to adapt to the market-oriented economy.
− To implement prevention and control of industrial pollution by integration of

terminal sources control with the control of all sources in the whole process of
production, and integration of emission concentration control with total
emissions control as well as centralized with decentralized pollution control
system.
According to these principles, a series of technological policies has been formulated. The
license system on air pollution control for trial implementation was carried out in 16 cities
in 1993. In two provinces of Guangdong and Guizhou, and nine cities of Congqing, Ybin,
Nanning, Guilin, Liuzong, Changsha, Hangzhou, Qingdao and Yichang, a pilot practice on
imposing levy on SO2 emitters is being conducted.
In March 1994, the Chinese government approved China Agenda 21, which is now being
used as a guiding document to formulate the national plan for medium and long term
economic and social development.
The Chinese environment legislative construction work made great progress in 1994.
Environment protection legislative system was perfected to a greater degree. Some major
laws and regulations such as Prevention and Control of Atmospheric Pollution, Prevention and
Control of Water Pollution, Prevention and Control of Solid Waste Pollution were devised or
modified.
The local legislative construction work also made great progress in 1994. Existing
environmental management systems were improved while, with the improvement of the
level and the extent of environmental management and the change of industrial pollution
protection methods, new protection and management methods were adopted in the
regulations. Examples are clean production, total control of pollutant emission, pollutant
emission license, regional environmental impact assessment, compensation fare for
ecological environment, etc.
It is also considered important to proclaim environmental protection measures, improve

the level of enforcement of the local law, promote environmental legislation and research,
and widen international exchanges on the environment legislation.
3.3.1.2 Environmental standards

The different state environmental quality standards, state environment quality determination methods,
and the sectoral environment standards are listed in Annex 3.A.
In the 4th chapter of Environmental Protection Law, the 26th item stipulates that, in the
construction projects, the equipment for pollution prevention and cure must be designed, constructed and put
into operation at the same time as the main engineering. Only when the equipment for pollution prevention
and cure pass the scrutiny of the chief environmental protection administration in charge of ratifying the
report on environmental effect, could the construction project be put into production or use.
For projects with total investments exceeding 200 million yuan, the environmental impact
evaluation report should be ratified by NEPA; the local body is in charge of smaller
projects.
The three-simultaneity principle applied to instant construction projects obliges the enterprises
to consider pollution prevention and cure not only in newly built or extension projects but
also in the technical retrofits. This principle has great influence on paper mills.
The industry criterion made by NEPA, namely the Technical guidance of Environmental Effect
Evaluation (HJ/T2.1-93), gives general principles, methods and contents of the environment
evaluation.
The general content consists of the origin of the task, the basis of formulation, targets of
pollution control and environment protection, the evaluation criteria used, and evaluating
project and its grade or working emphasis, including:
− general situation of the construction project
− general environmental condition of the construction area
− contents and methods used in the engineering analysis of the project
− environmental survey of the areas around the construction project
− prediction and evaluation of the project’s environmental impact
− evaluation items, the intended conclusion and suggestion
− organization and plan arrangement of evaluation
− financial budget of the evaluation
3.3.2 General industrial regulations and their implementation

3.3.2.1 General industrial and energy conservation regulations
The government of China has been making necessary investments in the capital
construction and technical innovation for energy efficiency since the 1980s and the
investment has been increasing year after year. During the ten years from 1980 to 1990, a
total of RMB 17 billion Yuan has been invested in energy conservation capital construction
with a savings capacity of 30 Mtce. Since the 1980s, the central government has formulated
and implemented approximately 30 energy conservation laws. In 1993, such laws as
Provisional Regulations on Energy Conservation Management and Suggestions on Rural Energy
Development were already implemented. A new law was added as Provisional Regulation for
Addition of Energy Conservation Issues on the Feasibility Study Report for Capital Construction and
Transformation Investment Projects. Now the draft of China's Energy Conservation Law has
been prepared for approval by the National People's Congress. However, the taxation
system reform in 1993 had a negative impact on energy conservation encouragement.
Because of the regulatory tax in investment orientation of fixed assets, some departments
and localities relaxed their administrative management of energy conservation since the
necessary economic and legal means were not available in time. This resulted in the
weakening of the working norms and the guidelines in energy conservation. Moreover,
there was a lack of awareness of energy conservation tasks and consequently a lack of a
sense of urgency. The state therefore offered new preferential policies which had
provisions for reduction and exemption of taxes on energy efficiency projects. For
example, there was no regulatory tax for fixed asset investments towards energy
conservation, provisions were made for soft loans on energy conservation projects of
technically innovative nature and for tax reduction or exemption on new energy saving
products. Demonstration and publicity efforts for some of these products were organized
and products of low efficiency and high energy consumption were required to be phased
out within a specified time frame. An energy conservation promotion week was launched
every year in October. Various forms of contract systems for energy conservation were
implemented in enterprises so that those who saved energy were to be rewarded and those
exceeding designated quotas of energy usage were to be punished. All these efforts worked
to improve the energy conservation management system.
Considerable progress has been made through the market reforms and the opening up to
the outside world. The energy products and some commodities will soon be left to the
market regulation. Foreign capital investments for building power stations have expanded
from the coastal areas to the hinterland. Many experiments had been launched for turning
the energy enterprises into shareholding companies or corporations. The monopoly of the
state in running the energy enterprises has been replaced by more market oriented patterns
like raising of funds for building power stations, mobilizing the public to take part in
running coal mines and encouraging cooperative development of petroleum. The Electricity
Construction Fund (two per cent per kWh) and special funds allocated to coal and oil
exploration have provided a part of the stable resources to develop the energy industry.
However, insufficient input has been a major problem in achieving energy efficiency at
present. There was an enthusiasm for developing energy projects in all localities and at all
levels while the input for energy conservation was relatively small.
As regards the distribution of high energy consumption industries, the state will restrict the
development of such industries and products in areas which are short of energy resources
and would encourage these industries to shift to energy production bases. The state will not
approve of the construction of high energy consuming projects in areas seriously short of
energy supply and will not guarantee their supply of energy.
In energy conservation with township and village industries, emphasis was laid on raising
the energy efficiency in the manufacturing of energy intensive products such as brick, tile,
cement, coke, paper and ferroalloy, which had a total energy consumption of more than
half of the aggregate consumption in the township and village enterprises. Consequently,
14,500 energy saving brick kilns were built and 12,300 outdated kilns eliminated, saving
energy in the same year amounting to 2.39 Mtce. Furthermore, technically innovative
energy conservation efforts were carried out in processing technologies for agricultural and
subsidiary products that have a high consumption of energy. This involved revamping
29,400 tea stir frying stoves and 43,800 tobacco flu curing rooms.
According to the decision of the Council Committee on Environmental Protection in its

second meeting in September 1995, the State Council has shut down 999 paper mills with
outputs of less than 5,000 tons per year in the Huai river area. This action has reduced the
total pollution in the Huai river area by 10-15%.
3.3.2.2 Industrial energy standards and norms

The different industrial and energy consumption standards are listed in Annex 4.B.
As for energy conservation in construction, the authorities concerned have made design
standards and legal norms on energy conservation in heating of residential houses. Since
1993, the design standards and the standardization of general design of 1980 have been
followed in all the newly built residential houses in cold climates, resulting in an energy
saving rate of over 30%. Moreover, special scientific research and development projects
were arranged by hundreds, heat preserving building materials were developed, model
districts of energy conserving buildings were put up in places like Beijing and Harbin, and
about 40 million m2 of energy saving residential houses have been built to date.
To promote energy saving in household electric appliances, the state has developed
national norms of electric consumption for ten categories of household electric appliances
including refrigerators, air conditioners and washing machines. Researches have been
carried out to develop and manufacture energy saving household appliances. Moreover,
some hotels and restaurants have adopted energy saving lighting which have reaped good
economic results.
The construction Department of SPC requires that there should be chapters on energy
savings in the project feasibility research report. The specific energy consumption should
achieve national advanced level or approach international advanced level. The chief
department in charge of energy saving should make checks on the energy saving chapters
strictly, so that the specific energy consumption could reach the advanced level as soon as
the newly built project is put into operation.
In the Primary Design Standard of project there is a chapter on energy saving, which gives the
design requirements on energy saving for the newly built, extended or rebuilt projects in
their primary design.
3.3.3 Sector-specific regulations, their implementation and impact on technological

changes
3.3.3.1 Cement industry regulations
Policies and regulations on energy efficiency and their impact
According to the statistics of the State Building-materials Industry Bureau in 1989, China’s
total cement output amounted to 210 million tons. Of this, 65 state-owned large or middle
enterprises shared 35.9 million tons, the average scale of production being 535 thousand
ton cement per year. 2100 or more county and collective owned middle and small
enterprises accounted for 130 million tons, the average scale being 62 thousand ton of
cement per year. About 3500 town and village enterprises accounted for 43 million tons,
the average scale being only 13 thousand ton of cement per year. Compared with the
industrialized countries, the scale of China’s cement enterprises is small. In Table 3.2, the
single-machine capacity of mechanized shaft kilns, with more than 60% share of the total
national capacity, is compared with that of the main kilns in Japan and Germany.
Table 3.2. Comparison of average single-machine capacity of cement kilns

Country Year Single-machine capacity
(104 ton clinker/set/year)
Japan*1 1985 69.84
Germany*2 1982 38.0
U.S.A*3 1985 32.3
China (mechanized shaft kilns) 1989 3.8
*The numbers following the asterisk represent the country’s ranking in the world.
There were 22 advanced pre-dissociation dry processes all over the country in 1990, the
output being 4.5% of the nation’s total cement output. The distribution of the equipment
based on the share of output is shown in Figure 3.6.
The analysis of energy conservation potential in the cement industry includes two parts,
one is technology reform of the present capacity, the other is improved energy-efficiency of
the newly built capacity.
* Technology reform of the present capacity

In the 1980s, with the assistance of the State’s credit, the State Building Material Bureau
continuously developed and adopted new energy conservation technologies, implemented
various laws and standards, exploited many sample projects in the cement industry. The
energy conservation potential of various technologies may be analyzed according to the
technology distribution of the present capacity in the cement industry using these sample
projects:
1. Comprehensive energy conserving innovation on mechanized shaft kilns1
2. Innovation of other shaft kilns
3. Substituting dry process for wet process
Total clinker production

c a p a c i t y, 1 0 0 %
Shaft kilns Rotary kilns

71% 29%
M echanized s haf t kilns Ordinary shaft kilns Local shaft kilns Libor rotary kilns Dry-process rotary Wet-process rotary
60% 1 1% 1% 2.5% k i l n s, 1 6 . 5 % k i l n s, 1 1 %
Predissociation Inner hollow Wast e heat gener at ion Blow i ng pr eheat Ver t ical t ube
dry-process,4.5% k i l n s, 4 % k i l n s, 3 % k i l n s, 2 . 5 % pr eheat er , 2%
Figure 3.6. Process mix of China’s cement production capacity in the late 1980s
Notes: * The percentage figures in the box is the share of clinker output of the kiln
in the nation’s total clinker output.
* The number below the box is the average clinker energy intensity of the kiln
(kgce/ton clinker).
1
In cement industry there are three key problems:
* The product quality is not consistent
* The energy intensity is high (average energy intensity of shaft kilns is 165 kgce/ton clinker, the highest in the
country is 225 kgce, the average electricity consumption per ton cement is 98.7 kWh)
* The dust pollutant is heavy
If the following 10 recently developed technologies are adopted in most of the shaft kilns, the comprehensive
innovation of shaft kilns can get substantial energy saving. This has been demonstrated by a few sample projects
supported by the State.
1) Raw material and fuel pre-homogenizing
2) Raw material burden
3) Raw material mixing
4) Raw material grinding
5) Integrated kiln reconstruction
6) Pre-watering
7) Close-door operation monitored by instruments and controlled by computers
8) Cement grinding and mixing
9) Powder comprehensive administration
10) Forming a complete set of fire-proof materials
* Adapted from the primary data of reference [9] and the State Building Material
Industry Bureau statistics.
4. Substituting wet grinding and dry burning for the wet process
5. Integrated renewal of wet process kilns (Some existing wet process cement
factories that are not fit for the above two technologies can remain the same)
6. Innovation of Libor kilns
7. Innovation of inner hollow kilns.
8. Innovation of kilns with vertical shaped preheater
9. Innovation of the grinding machine
The effect of the above mentioned energy conservation innovations in the cement industry
is summarized in Table 3.3. If the above 9 mature innovations could be adopted, the total
coal conservation potential would be 11.22 million tce per year, electricity conservation
potential would be 3.8×109 kWh per year, the sum of these two potentials would equal 32%
of the overall energy consumption in the cement industry in 1990, while the incremental
capacity would be 64.35 million ton cement per year, representing 31% of the nation’s
overall cement output in 1990. The potential investment of the above 9 innovations would
amount to 15.77 billion yuan.
Table 3.3. Main energy conservation technologies in the cement industry of China
Sl. Technology Energy Incremental Potential
No conservation capacity potential investment
potential (106 (106 ton (108 1990
tce/year) cement/year) yuan)
1 Integrated renewal of wet process kilns 0.26 0.28
2 The comprehensive energy conserving 6.55 37.8 1.6
innovation on mechanized shaft kilns
3 Substituting dry process for wet process 0.89 5.6 85
4 Substituting wet grinding and dry 0.629 3.36 20
burning for wet process
5 Innovation of grinding machine 1.62 0 13
(electricity)
6 Innovation of kilns with vertical shaped 0.103 2.2 20.9
preheater
7 Innovation of Libor kilns 0.141 0.83 5.2
8 Innovation of inner hollow kilns. 2.65 14.28 106
Total 11.22 x106 tce 64.35 257.7
3.8×109kWh/y
r
Policies and regulations on environmental protection

The environment protection in building material industry started in the late 1970s. The
cement industry is highly energy intensive and the corresponding pollution is very high,
specially dust, NO2 and SO2 emissions. Table 3.4 summarizes some environmental
protection laws pertaining to the cement industry.
Table 3.4. List of the environmental protection laws in building-material industry
Laws Approving authority Effective Date
1 Pollutant Emission Standard in the China Environment Protection Aug. 1985
Cement Industry Bureau
2 Environment Protection Regulations in China Building Materials Bureau Feb. 1986
the Building Material Industry
3 Environment Protection Regulations of China Building Materials Bureau June 1986
Design in the Cement Industry
4 Limit standard of waste radioactive China Environment Protection Sept. 1986
materials used in building-materials Bureau (GB 6763-86)
5 Process Environment Standard and the China Building Materials Bureau Aug. 1987
Assessment Criterion in the Building
materials enterprises
6 Management Regulations of electrostatic China Building Materials Bureau Aug. 1986
precipitators in the Cement Enterprises
3.3.3.2 Regulations for the iron & steel industry

Energy conservation policies and regulations
Numerous energy conservation policies and standards have been set up in China since the
80s. The special regulations and standards for iron & steel plants are:
− Regulation on energy conservation in metal products process (provisional) (1988, MMI),
− Regulation on energy conservation of steel rolling process (provisional) (1988, MMI)
− Regulation on energy conservation of wrought steel process (provisional) (1988, MMI)
− Energy Balance Regulation of steel plants (provisional) (1990, MMI)
− Detailed Regulation of ‘Some Suggestions to Enhance Energy Conservation Management’ (1991,
MMI)
− Detailed Regulation of ‘the Methods of Energy Conservation Monitor Management’ (1991,
MMI)
− Regulation of New Scenario of Metallurgy Enterprise’s Energy Conservation (1992, MMI), etc.
According to these regulations, the iron & steel plants were asked to improve their
processes to conserve energy. Now, many energy consumption standards have been set up
by the MMI and the plants will be examined regularly.
Some energy conservation management policies were set up in the Detail to Implement ‘the
Regulation of Energy conservation (Provisional)’ in the Metallurgy Industry. In this regulation, the
energy conservation system in MMI was set up. There should be one vice minister of the
MMI in charge of energy conservation activities. The system of energy conservation

meeting should also be set up. The vice minister will implement the national policies,
regulations and norms on energy conservation, lay down energy conservation policies and
plans in the metallurgy industry, guide the research and improvement of energy
conservation technology, supervise energy conservation in the metallurgy industry and plan
energy conservation as a whole.
The Metallurgy Department of each province should also place one vice minister in charge
of the energy conservation work and set up relevant institutions.
In each plant of the metallurgy industry system, one vice factory director will take over the
energy conservation work. Other plants, which do not belong to the metallurgy industry
system, will implement energy conservation policies on the basis of the local policy. The
Institution of Energy Conservation in Plants will be responsible for the implementation of the
national, local and departmental energy conservation policy, regulation and norms. In this
connection, the system of rewards and penalties will also be founded.
Another important regulation is the Provisional Regulation of Business management

Upgrading(Grading) of Energy Conservation in Enterprises. On the basis of this regulation, any
upgraded plant would get preferential treatment along with a certification of praise from
the relevant administration. The local administration will award prize to the person who
contributes to energy conservation in the plant. The plant will be given priority in the
supply of energy (especial electricity and fuel). The funds to improve the energy
conservation technology will be planned as a priority. On the basis of the document of the
Ministry of Finance and the National Committee of Economy as well as the regulations of
local administration, the plant can be awarded the energy conservation prize.
Environmental regulations and norms

In 1972, the MMI promulgated “Some Rules on the Metallurgy Plant’s Environment Protection
Design”. These rules played an important role in the promotion of environment protection
activities in the metallurgy industry. It was pointed out emphatically in this regulation that
the environment protection devices should be safeguarded, operated and overhauled with
the production devices simultaneously. This is referred to as the “Three Simultaneity”.
In 1979, the MMI together with the Ministry of Finance promulgated the decree of “The
Repeated and Subsidiary Terms on the Method to Pay the Needed Funds on Managing ‘Three Trashes’ to
Protect Environment”. In the same year, “The Temporary Implementation Detail Rules on Praising the
Management on ‘Three Trashes’ in Metallurgy Industry” was also decreed.
In 1981, the MMI pronounced “Some Regulations on Environment Management in Metallurgy

Industry”. In 1982, “The Temporary Regulations on Distinguishing of Environment Protection Devices in
Iron & Steel Plants” was issued. Here, the environment protection devices are distinguished
clearly from the production devices so that the investment on the environmental devices
can be counted as a part of the environment protection project investment.
In 1992, the National Environment Protection Bureau and the National Technology
Monitoring Bureau put forward the “Six ‘Time Limited’ Pollutant Emission Standards in the iron
and Steel Industry”. In this regulation, six pollutant emission standards were set. On one
hand, this regulation considered the fact that the production processes and pollution
addressing devices of some old pollution sources were out of date. On the other hand, it
controlled strictly the new pollution sources in advance. This would be beneficial for the
plants in adopting advanced processes and pollution prevention technologies. In the same
year, the MMI also examined and verified some environment impact reports of major
projects, such as Direct Iron Reduction Project of TianJing Steel Pipe Corporation, Middle Steel Plate
Project of JiuQuan Steel Corporation, Eighty Two Ton Steel Scale Project of ZhuJiang Steel Corporation,
etc.
The other regulations for environment protection are Notice on Setting Up the Statistical
Regulation of Environment Protection (1980, MMI), Temporary Regulation on the Environment
Monitoring Works in Metallurgy Industry (1980, MMI), Implementation Method on Environment
Protection: Assessable Target in the Metallurgy Plants (1982, MMI), Standards on Clearing the Plant
(Mine) in Metallurgy Industry (1982, MMI), Regulation on Management of Pollution from Mine
Remains (1992), Regulation on Disciplinary Sanction of Environment Protection (1992), Regulation on
Management of Pollutant Emission License (1992), Notice on Enhancing Management of Environment
Protection of the Foreign Investment Project (1992), etc.
Every year the MMI plans some pollution treatment projects. For example, on the basis of
the plan designed by the Pollution Management Committee of the State Council, the BenXi
steel enterprise planned 32 pollution management projects during 1989 to 1995. The total
investment was 2.571 million yuan. When all of the projects are completed, the dust
emission will be decreased by 78.9 kton every year, the qualified rate of discharged waste
water will be 95%, and the reuse rate of waste water will be 90%. Some environment
quality standards of the metallurgy industry are listed below:
− GBJ4 -73 Emission Standard of Industry “Three Stage” (provisional) (1973)
− GB4911 - 85 Pollutant Emission Standard of Iron & Steel Industry (1985)
− GB8978 - 88 Comprehensive Emission Standard of Water Pollutant (1988)
− GB9078 - 88 Dust of Emission Standard of Industrial Oven (1988)
− GB12348-90 Sound Pollution Standard in Industrial Plant (1990)
− GB13271-91 Air Pollutant Emission Standard of Boiler (1991)
− GB13456-92 Water Pollutant Emission Standard of Iron & Steel Industry (1992)
Impact of the policies and regulations on energy-efficiency and environmental protection

As a whole, during the past ten or more years, a remarkable achievement of energy
conservation has been made. As shown in Table 3.5, the specific energy consumption per
ton of steel in the iron & steel industry of China has been reduced from 2.04 tce/t-steel in
1980 to 1.574 tce/t-steel in 1992 (a drop of 22.8%) through efforts on technical innovation
and enhanced energy management.
Table 3.5. Specific energy consumption of the iron & steel industry of China
Year 1980 1985 1987 1989 1991 1992
Specific energy consumption per 2.04 1.75 1.67 1.64 1.60 1.57
ton of crude steel (tce/t-steel)
National key plants 1.66 1.48 1.41 1.21 1.21 1.19
Local major plants -- 1.81 1.78 1.51 1.39 1.34
Comparable energy consumption
per ton crude steel (tce/t-steel)
Local major plants 1.554 1.220 1.137 1.097 -- 1.020
Energy conservation per 104* 23.14 17.19 16.39 16.18 8.89 10.67
yuan output (tce/104 yuan)
Local major plants 30.05 22.30 18.39 19.41 8.29 7.78
Note * at 1990 constant price
Source: Yearbook of the iron & steel industry of China, 1993,
Statistics of iron & steel of China, 1993
3
2.5
2
tce / t
1.5
1
0.5
0
1978 1980 1982 1984 1986 1988 1990 1992
year
Figure 3.7. Specific energy consumption per ton of steel in China

Since 1978, when the energy conservation began to gain importance in the development of
the iron & steel industry, the specific energy consumption per ton of crude steel in China
reduced from 2.524 kgce in 1978 to 1.574 kgce in 1992, i.e., an annual average rate of
3.31%. During the past 14 years, the cumulative energy conservation amounted to 36.7
Mtce, over three distinct periods as follows:
First period (1978-1982): this starting period focused on improving the public consciousness
of energy conservation, enhancing the management of energy utilization, reducing the
waste and loss of energy, etc. The cumulative energy conservation was 20.67 Mtce and the
annual average saving rate was 6.78% during this period.
Second period (1982-1986): this expanding period, spread from the iron & steel plants to the
other plants of iron ore, ferroalloy, carbon, fire-resistant material and mental products, and
the laws and regulations on energy conservation were further perfected. Thirty efficient
techniques, including recovery of converter gas, continuous casting, waste heat & energy
recycling, etc., were introduced and an annual energy saving capacity of 2.26 Mtce was
established during this period. The annual average energy saving rate was 2.75%.
Third period (1987- ): this is the integrated energy saving period. Due to the trend of low
output, high quality and high level oriented production, as well as the lack of investment
and prize, energy conservation became more difficult during this period and the average
annual saving rate was considerably reduced to less than 1%.
As a whole, during the past ten or more years, a remarkable achievement has been made in
the field of energy conservation, which can be summarized as follows:
• Energy management has been a part of the management system of plants.
Through continuous efforts since 1978, an efficient energy management system has been
established around the industry sector, which includes a professional team with thousands
of staff; and a large number of projects for energy conservation has been implemented.
Since energy measurement has been treated seriously as a major part of energy
management, the accuracy of the measurement has been improved to provide a base for
developing the management level. By now, not only the computer-based energy statistic
system has been widely used in China’s metallurgical plants, the norms and standards for
heat balance test of the major devices and furnaces, energy balance test for plants or works,
electricity balance and water balance test, etc., have been introduced and the
standardization of the quota of energy consumption has been implemented. Also, a series
of laws and regulations for energy conservation has been formulated to speed up the
development of energy conservation in a more systematic, standardized and normalized

manner.
• The old pattern of the iron & steel industry development mainly relying on the state supply has been
adopted to a new one, mainly relying on energy conservation.
During the period of 1980-1990, the energy consumption increased by only 39.2% while
the output of iron & steel increased by 80.5%. The target has been reached to meet the
rising demands of energy in the iron & steel industry partly by energy conservation (50%),
while the rest comes from additional state supply. The lack of energy supply which has
been restricting the development of the industry has been alleviated.
• The energy-mix of the iron & steel industry has been better adapted to the Chinese condition.
Since 1978 when the Central Government announced the reduction of the quota of fuel-
oil, the proportion of oil in the energy-mix of the industry sector has been kept low (less
than 7% by now).
• Sound technical capability of energy conservation has been established through the dissemination of a series
of energy efficient technologies.
During the “sixth five-year plan” period, more than 780 energy saving projects, including
those of fundamental construction and technical innovation/retrofit, were implemented
and formed an energy saving capacity of 2.26 Mtce, representing about 20% of the actual
consumption during the same period. And during the “seventh five-year plan” period, the
figures achieved values of 700 projects, 3 Mtce savings and 40% reduction in the
consumption. The typical demonstrative techniques are CC (continuous casting), CDQ,
TRT, converter gas recovery and energy center, which would provide available experiences
and lessons for further energy conservation in the future.
• The overall energy consumption index has been reduced.
The specific energy consumption per ton of crude steel was reduced by about 37% during
the period of 1978-1992. The value of the national key plants was reduced to 964 kgce/t-
steel, 31.14% lower than that in 1978; and those of the local major plants were 1,023
kgce/t-steel and 55.07%, respectively. The values for large and medium scale plants in 1992
were lower by 8.35% and 47.2%, respectively, than those in 1978.
The environment protection job of the MMI has been carried out over a period of ten
years or more. The system of environmental management, research, monitoring,
information and statistics has been set up and improved. From Table 3.6, we can see the
main achievements in environmental protection efforts.
Table 3.6. Status of pollution and its treatment in iron & steel industry of China
Item Unit 1980 1986 1987 1989 1990 1991 1992
Industry waste water reuse % 60 71 72.8 74.95 76.07 77.84 78.27
rate
Gross discharged waste 104 ton - 27.69 28.66 27.59 28.18
water
Discharged waste water per ton/ton - 53.0 50.5 45.0 43.2 39.0 35.0
ton crude steel
Water consumption per ton ton/ton 90.0 67 61.7 63.15 58.15 55.39 51.7
steel
Treatment rate of waste % 12.6 72.0 84.3 91.23 93.21 94.01 94.34
water
Dust discharged per ton steel kg/ton - 14.7 13.3 11.0 - - -
Treatment rate of waste gas % 25 79.5 83.1 86.81 86.95 88.92 89.9
Standard rate of discharged % - 58.4 60.9 69.28 70.19 75.01 78.36
waste gas
Usage rate of metallurgical % 10 76.06 77.41 76.69 74.75 76.53 79.19
slag
Qualified rate of all % - 58.1 63.9 72.55 72.72 74.13 76.24
pollutants discharging
Investment in pollution 108 yuan - 2.9 3.04 4.1124 3.9237 5.0282 7.2434
control
Output value of three-waste 108 yuan - 3.5 6.3 8.656 9.4544 13.842 16.371
comprehensive utilization
Profit of three-waste 108 yuan - 1.61 2.65 3.97 4.41 5.62 5.884
comprehensive utilization
Afforestation % - - - 19.32 18.39 21.45 19.16
The main technical measures are summarized below:
• Removal of dust from discharged gas of sintering machine, open hearth furnace and the
top of coke oven. To transform from side-blow converter to top-blow converter in order
to decrease the discharged smog.
• Raising of the industry’s water reuse rate in order to decrease the water consumption per
ton of steel and discharged waste water, and to raise the treatment rate of waste water. The
rate increased from 12.6% in 1980 to 94.34% in 1992.
• Recovery of mud with iron content and paying more attention to the usage of
metallurgical slag.
• Raising of the recovery rate of flammable gas in order to save energy and get rid of some
boilers with serious pollution problems. In China, recovery rate of gas from coke ovens
and blast furnaces was over 90% in 1985, and kept increasing. But the recovery rate of gas
from the converter is low. It was only 12% in 1985 and has increased a little in recent years.
By means of the comprehensive utilization of waste gas and slag, the metallurgy sector can
control the pollution and raise the profit. The profit in 1992 was almost double the value of
1980.
For almost two decades, the metallurgy sector of China has been engaged in environmental
protection activities. Its investment on pollution control kept increasing and the
environmental concern has been taken into consideration in newly built or enlarged
construction projects. The government enhanced the management and promulgated some
decrees such as “Management measures for environment protection in construction project”,
“Stipulations on Environment Protection Responsibilities in Metallurgical industry (Provisional)” and
“Stipulations on Management of Environment Protection Facilities in Metallurgical Enterprises
(Provisional)”. Meanwhile, the R&D projects on environment protection in metallurgy sector
were also operating. As a result, over 100 research works on environment protection have
been successfully completed, which include the following main aspects:
− Purification and stabilization quality of waste water.
− Smog control techniques and treatment of smog.
− The treatment and recovery techniques of Metallurgical slag and mud.
Hence, the environmental protection in metallurgy sector of China has made great
progress, keeping pace with the development of steel production. However, compared to
the developed countries, the techniques and management are still at a lower level and
pollution still remains a serious problem.
3.3.3.3 Regulations for the pulp and paper industry

Policies and regulations on energy efficiency
The Design Standard of Pulp and Paper Mills stipulates the loss rate for each process (such as
the raw material preparation, beating, screening, bleaching, etc.), the consumption indices
of wood, water, coal, and energy, all kinds of pulp yield rates and also the pulp, steam and
electricity consumed by paper.
When the mills are newly built, extended or reconstructed, the design standard must be
strictly observed in every stage, both design and construction, making sure that the project
could meet the energy saving demand after being built.
A whole set of industry standards have been established since 1991:
Detailed Calculation Items of Comprehensive Energy Consumption of Pulp and Paper Enterprises
(QB1022-91 ) was made in 1991. The General Calculation Method Rule for Energy Balance of The
Equipment of Pulp and Paper Enterprises (QB/T-1927.1-93), the Calculation Method of Energy
Balance and Heating Efficiency for the Equipment, such as acid-mode steamer, alkali-mode steamer,
steaming ball, continuous steamer, sulphonating chemical mechanical pulp, waste paper treatment system,
paper machine, multi-effect evaporating alkali recovery furnace, caustic equipment, lime-kiln transfer,
bleaching tower, bleaching pool, CEH three-stage bleaching system, etc. (QB/T-1927.16-93) and the
Calculation Method of Coal Consumption used for Power and Heat Supply by Pulp and Paper Mill
Owned Thermal Power Station (QB/T-1927.17-93) were formulated in 1993.
The above set of industry standards can guide the paper mills in carrying out energy
balance and calculating their energy utilization ratios, especially stipulating the comparable
criterion for product energy consumption among enterprises. Ever since the whole set of
standards was implemented, it has been playing an important role in standardizing the
energy management of enterprises by driving off the confusion caused by different
calculation methods of energy balance used previously by the different paper mills.
The government provides annual statistics and announces the specific consumption of the
pulp and paper mills as reference. Early in 1986, the government announced the national
average and advanced level of specific energy consumption of the pulp and paper
production (including the comprehensive energy consumption of sulfate pulp per ton and
newsprint paper per ton, as well as other ten kinds of main products). Recently, the 1994
level was announced in order to make mills identify their disparities and further decrease
their specific energy consumption, and at the same time also provide a reference base for
the comparable specific energy savings.
The government also stipulates that the pulp and paper mills must achieve a relevant level
of specific energy consumption if they are to prosper.
Policies and regulations on environmental protection

In 1988, the Environmental Protection Committee, the Light Industry Department, the
Agriculture Department and the Finance Department of the State Council jointly published
The Regulations on Water pollution of the National Paper Industry ([88] Environment Document
No.015). This regulation has been issued to the concerned branches of the State Council
and the local government at all levels, stipulating definite requirements on the pollution
prevention work on the newly built, extended and rebuilt paper mills. There are concrete
stipulations, appropriate policies of reward and penalties and other economic policies.
In 1988 The National Comprehensive Effluent Standard for pollutants (GB8979-88) was
promulgated, which stipulates the highest effluent density of pollutants permitted for the
newly built, extended and rebuilt paper industry projects. These criteria are also applicable
for environment impact evaluation. It was modified as The Effluent Standard for Pollutants from
the Paper Industry (GB3544-92 ) in 1992, which stipulates the effluent density for pollutants
of paper mills, as well as the reference value of effluent capacity.
The Design Standard for Environment Protection of Light Industry stipulates the necessary measure
for environmental protection that should be adopted in project designing. The Units in
charge of design or construction must strictly obey the design standards when the mills are
being built, extended and reconstructed in order to make sure that the new project meets
the environmental protection index.
The material presented in section 3.1.2 is especially applicable to the pulp and paper industry.
Being entrusted by GAIL, the EPRICLI is setting the technical outline of the
environmental impact assessment procedure for the pulp and paper construction projects,
expected to be completed by 1996.
3.4 Conclusion
Since the 1980s, the Chinese Government has formulated the policy of “energy use and saving
in the short term: priorities for energy saving." It has set up effective energy conservation and
environmental protection regulations, promoting energy efficiency, environment and the
economy.
Considering the overall energy efficiency, environmental pollution and the analysis of
energy consumption and utilization, the development of the efforts on energy efficiency
and reduction of environmental pollution should chiefly focus on the following measures:
− strengthening the energy efficiency and application of new advanced
technologies,
− improving the coal utilization efficiency,
− promoting industrial energy conservation,
− enhancing the overall planing and organization cooperation,
− further perfecting the policy, simulating new technology policy, accelerating the
formulation of laws (for example energy conservation law and others),
implementing the energy policy and environmental pollution standards.
Annex 4.A. Environmental Standards
♦ State Environmental Quality Standards:
GB J4 -73 Emission Standard of Industry “Three Stages” (provisional)

GB 3095-82 Air Quality Standard
GB 3097-82 Sea Water Quality Standard
GB 3838-83 Environment Quality Standard of the Surface Water
GB 3544-83 Water Pollutant Emission Standard of the Pulp & Paper Industry
GB 4911-85 Pollutant Emission Standard of the Steel Industry
GB 4915-85 Pollutant Emission Standard of the Cement Industry
GB 8978-88 Comprehensive Emission Standard of Water Pollutants
GB 9078-88 Dust of Emission Standard of the Industrial Oven
GB12348-90 Sound Pollution Standard in an Industrial Plant
GB13271-91 Air Pollutant Emission Standard of Boilers
GB3544 - 92 Water pollutant Emission Standard of the Pulp & Paper Industry
GB13456-92 Water Pollutant Emission Standard of the Iron & Steel Industry
GB3096 - 93 Sound Pollution Standard in the City
♦ State Environmental Quality Determination Methods:
GB 4918-85 Industrial Waste Water : Spectrophotometry

GB 4919-85 Industrial Waste Water : Gas Chromatograph
GB 4920-85 Sulfuric-acid Tail Gas : Colorimetric Analysis
GB 6921-86 Airborne Dust Determination Method
GB/T 3840-91Method on Local Air Pollutant Emission Standard Designation
GB 5468-91 Boiler Dust Determination Method Standard
GB13268-91 Dust Sample Standard in Atmosphere Test : Yellow Dust
GB13269-91 Dust Sample Standard in Atmosphere Test : Coal Dust
GB13270-91 Dust Sample Standard in Atmosphere Test : Airborne Dust
GSBZ50021-91 BF-1 Yellow Dust
GSBZ50022-91 BF-2 Airborne Dust
GSBZ50023-91 FA-1 Coal Dust
GSBZ50024-91 FA-2 Coal Dust
GB/T13906-92 Air Quality : NOx Determination
GB/T15262-94 Air Quality : SO2 Determination
GB/T15263-94 Air Quality : Gas Chromatograph
GB/T15264-94 Air Quality : Lead Determination
GB/T15265-94 Air Quality : Drop Dust Determination
♦ Sectoral Environment Standards:
HJ/T1-92 Fix Device for Air Parameters Determination and Sampling

HJ/T2.1-93 Environment Assessment Technology : General Program
HJ/T2.2-93 Environment Assessment Technology : Atmosphere Environment
HJ/T2.3-93 Environment Assessment Technology : Surface Water Environment
HJ/T7-94 Chinese Archives Classification: Environment Protection Archives
Classification Table
HJ/T8.1-94 Environment Protection Archives Management Norms : Science
Research
HJ/T8.2-94 Environment Protection Archives Management Norms : Environment
Monitor
HJ/T8.3-94 Environment Protection Archives Management Norms : Environment
Protection Management of Ongoing Project
HJ/T8.4-94 Environment Protection Archives Management Norms: Pollution
Source
HJ/T8.5-94 Environment Protection Archives Management Norms: Environment
Protection Device
Annex 4.B. Industrial and energy standards
♦ Energy Regulations and Management:
1980-1988: 80 Main National Energy Standards

14 fundamental Standards
18 Management Standards
49 Products and methods Standards
43 Environment Quality Standards
1988-1990: 161 National Energy Management Standards
♦ Example of Energy Regulations and Management
(1) Regulations and laws:

Regulation for energy conservation management 1986
Regulation for strengthening electricity conservation 1987
Raw materials, fuel saving measures for state-owned enterprises in industry and
transportation sector 1986
National environment law 1989
Energy conservation law (being devised, Design standard of energy conservation)
YBJ51-86 Design standard of energy conservation of steel plant
HGJ3-86 Design standard of energy conservation of synthetic Ammonia
SHJ2-87 Design standard of energy conservation of cement plant
(2) Standards
Fundamental standards
GB 3715-83 Technical terms of coal quality and coal analysis
GB 4132-84 Technical terms of isolation material
GB 6425-86 Terms of Thermal Analysis
Management standards
GB 2581-81 General rule of Energy Balance of Thermal Equipment
GB 2588-81 General rule of Energy consumption measurement of enterprise
GB 8222-87 General Rule of electricity balance of equipment in enterprise
Product and Methodology standards

GB 483-81 General guidelines on measuring methods for coal quality analysis
GB 4179-84 Methodology for calculating heat balance, thermal efficiency and
comprehensive energy consumption
Regulatory Measures in Selected Asian Countries: Country Report from India 81
4. COUNTRY REPORT: INDIA

4.1 Introduction
There is no country in the world where the Government does not have a role to play in the
conduct of the economic activity. Such Government intervention circumscribes the scope of
industrial economic activities. This chapter analyzes the impact of Government regulations on
technological development, energy efficiency and environmental pollution in the following
industrial sectors in India: cement, iron & steel, and pulp & paper.
There is today a recognition that in many areas of activity, development can best be ensured by
freeing it of unnecessary controls and regulations and withdrawing State intervention. At the
same time, the growth and development of the country cannot be left entirely to the market
mechanism. The market can be expected to bring about an "equilibrium" between "demand"
backed by purchasing power and "supply", but it will not be able to ensure a balance between
"need" and "supply". Government regulations and planning measures are necessary to
overcome such limitations of the market mechanism. It is essential for macro-economic
management in order to take care of the poor and the downtrodden, who are mostly outside
the market system and have little asset endowment. It is thus not a choice between the market
mechanism and planning, the challenge is to effectively dovetail the two so that they are
complementary to each other.
4.3.1 Importance of government regulations

In India the entry operation and exit of firms in most industries are regulated by the
Government. The general regulations include an industrial license for setting up production
capacity, clearance for the large and monopoly firms under the Monopolies and Restrictive
Trade Practices Act (MRTP), reservations for the small scale sector and the public sector, price
controls, distribution controls, import and export control, foreign exchange control, credit
control, control of capital issues, etc. The precise scope of these regulations varies across
industries. Generally, these regulations act as an entry barrier for the firms and also as a
constraint on their growth and diversification. The regulations and their specific character with
respect to each industry are important factors that have an impact on the number, size,
expansion, prices, profitability and therefore growth of firms in that industry.
A liberal policy towards the entry and expansion of firms helps induce competition and
enhance the efficiency of operations. However, the benefits of such a policy are greatly
reduced because of the lack of rational policy regarding nonviable firms. India's industrial exit
policy is highly restrictive and time consuming. This is one of the major factors behind the
widespread sickness in the industrial sector, both in the public and the private sectors.
These regulations also affect the technological development, energy efficiency and pollution
abatement in the industrial sector. In the following subsections, importance of such regulations
in cement, iron and steel, and pulp and paper sectors has been discussed.
…
4.3.1.2 Cement industry

India ranks as the fourth largest producer of cement in the world after China, Japan and the
United States and is poised to emerge as a leader among cement producing countries. The
cement industry has come a long way since the first bag of cement was packed in the year 1914
at Porbunder. A mere 945 metric tons was produced in that year throughout India compared to
the production of about 57.96 million tons in the year 1993-94 as against an installed capacity
of 75.21 million tons.
The progress of the cement industry falls broadly into five phases. The first period beginning
from 1947 till 1980 is the period during which Government exercised strict control over the
entire industry by various policies and legislation. The cement industry experienced a period of
price and distribution controls. Until 1982, cement was under price and distribution control,
and was identified as a core industry by the Government for inclusion in planning at the
national level. The price of cement was uniform all over the country, and the freight pooling
system ensured that the distance to markets did not have an impact on the profitability of
companies. This resulted in most cement companies being concentrated around the raw
material source, i.e., limestone clusters. The years from 1982 to 1989 mark the second phase of
partial decontrol. The third period could be considered as beginning from 1989 to 1992 when
the industry functioned free from price and distribution controls but remained still under a
regime of controlled economic decision making. The fourth period beginning from 1992
onwards is the period when cement industry has been free from all price, distribution and
controls. However, it was still compelled to face pangs of transition in the process of
undergoing structural reform. The fifth and decisive period commenced from 1995 onwards
when free market conditions in cement worked within a reformed economic system.
4.3.1.2 Iron and steel industry

The era of modern steel industry in India began only in 1907 with the launching of the Tata
Iron and Steel Company in Jamshedpur, Bihar. Today, the industry with six integrated plants,
the seventh under construction, and 160 odd mini steel plants has come a long way. India has
now an installed capacity of around 24 million tons of steel and produces around 16 million
tons of salable steel per annum.
The industrial policy statement of 1956 placed the iron and steel in schedule A, which meant
that all new units in the industry were to be set up only by the Government, the private units
already in existence were, however, permitted to expand their capacities.
The development of the Indian steel industry can be divided into two phases: Pre-liberalization
and Post-liberalization.
Pre-liberalization saw the Government owned Joint Plant Committee (JPC) controlling
licensing of facilities, price of end products, freight-equalization and establishment of the steel
development fund for upgradation/expansion of facilities. The Government fully

decontrolled the industry in January 1992.
The one challenge the steel industry has to face in the nineties is the product imbalances. There
are significant shortages in certain categories and surpluses in others. This is the reason why
steel imports continue to be substantial.
The steel policy announced in September 1990 allows the private sector to set up integrated
steel works via the blast furnace route, subject to a capacity ceiling of one million tons a year.
Subsequently, Government has totally withdrawn any restrictions on the steel industry and
now it is not necessary to obtain a license. The demand supply gap is sought to be bridged by
providing proper incentives to private sector plants.
Thanks to the liberalization policy, the nineties may witness massive investments in the
integrated steel plants and mini and medium steel plants. Improvement in the performance of
public and private enterprises is to be achieved through greater competition. The ultimate
objective is to make the steel industry internationally competitive.
4.3.1.2 Pulp and paper industry

At present there are around 340 paper mills in India with an aggregate capacity of 3.8 million
tons per annum (TPA) of which the effective capacity is only around 2.6 million TPA due to
the closure of a number of mills. The industry is cyclical in nature with the demand strongly
linked to the industrial growth while the supply is influenced by international trade in Pulp and
Paper.
Most large integrated mills use bamboo as raw material, the availability of which is on the
decline. The Government in encouraging a shift to agro-based raw materials and waste paper
by levying a concessional excise duty of only 5% as against the 15-20% for other units.
However, delay on the Government's part in formulating a concrete plan for industrial forestry
is further aggravating the raw material situation. India has over 270 major sugar mills providing
around 4.6 million tons of bagasse on bone-dry basis every year. The use of bagasse as raw
material for paper-making has become imperative to save the forest wealth and to make better
use of this commodity. The Union Government, having recognized the importance of this raw
material has allowed full excise duty relief on paper manufactured by using 75% of bagasse.
4.2 Institutional Structure of Cement, iron and Steel and pulp and Paper Industries
4.2.1. Overview of the institutional structure of the Indian industry
India adopted planning in a "Mixed Economy" framework to achieve economic growth and
other desired goals. The industrial policy of independent India was first announced in 1948. It
…
envisaged a "Mixed Economy" for India, entrusting to the Government the right and
responsibility for planned development of industries and their regulation in the national
interest. The motivating philosophy behind market regulation and Government itself
undertaking the task of entrepreneurship is that a mixed economy combines the best of a
market society and socialism while avoiding the evils of both. In the context of the mixed
economy of India, the industries are divided into public, private, joint and cooperative sectors
depending upon the ownership.
4.3.1.2 Public sector

For the purpose of planning and National accounting, public sector in India includes all
activities funded out of the government's budget. In this sense, the size of the public sector is
indeed very large. It includes government departments and their companies, whether in the
central or in the state sector, irrigation and power projects, railways, posts and telegraphs,
ordnance factories and other departmental undertakings including banking, insurance, financial
and other services. The focus is, however, on the central public sector enterprises established
as Government companies or statutory corporations excluding banking units.
As of 31 March 1993, there were 245 central public sector enterprises out of which 165
enterprises were engaged in manufacturing/producing goods like steel, fertilizers, heavy
engineering products, transportation equipment, drugs and pharmaceutical, petro-chemicals,
cement, textiles, mining of coal and minerals, extraction and refining of crude oil, and 72 were
engaged in rendering services like trading and marketing, transportation services, contract and
construction services, financial services, telecommunication services, tourist services and
consulting services, and eight enterprises had yet to start commercial production. Investment
in central public enterprises has grown appreciably over the years.
From a figure of Rs. 290 million in 1951 in five enterprises, investment rose to Rs. 1,354.5
billion1 in 246 enterprises by March 1992 and to Rs. 1,469.7 billion in 245 enterprises by March
1993. Thus investment increased by more than Rs. 115 billion during 1992-93 representing an
increase of 8.51 percent.
The plan-wise growth of investment in public enterprises from April 1951 is shown in Table
4.1.
Table 4.1. Plan-wise growth of investment in central government public enterprises

Plan Investment (Rs. No. of
Billion) Enterprises
At the commencement of the first Five-year plan (1.4.51) 0.29 5
At the commencement of the 2nd Five-year plan (1.4.56) 0.81 21
1
US$1 = Rs 35 approximately (1996)
At the commencement of the 3rd Five-year plan (1.4.61) 9.48 47

At the end of the 3rd Five-year plan (31.3.66) 24.10 73
At the commencement of the 4th Five-year plan (1.4.69) 38.97 84
At the end of the 5th Five-year plan (31.3.79) 155.34 169
At the end of the 7th Five-year plan (31.3.90) 993.29 244
As on 31.3.91 1132.34 246
4.3.1.2 Private sector

The public sector has played a pioneering role in the development of the Indian economy and
has a number of achievements to its credit. However, there are some notable weaknesses too,
the most important being the inability of the public sector to generate adequate resources for
sustaining the growth process. Besides, the private sector has now come of age and has
developed considerable entrepreneurial, managerial, technological, financial and marketing
strength.
The private sector covers not only organized industries but also small scale industries,
agriculture, trade and a great deal of activities in housing, construction and other fields. The
growth in the number of public and private sector companies is depicted in Table 4.2.
Table 4.2. Public and private companies in India

Year Number of companies Paid-up-capital**
(Rs. Million)
Public Sector Private Sector Public Sector Private Sector
1 1960-61 142 26,007 5470 12,715
(0.5) (99.4) (30.1) (69.9)
2 1970-71 314 30,008 20644 24,392
(1.0) (99.0) (45.8) (54.2)
3 1980-81 851 64,706 114426 49,141
(1.3) (99.0) (69.9) (30.0)
4 1991-92* 1180 249,181 564814 224,153
(0.5) (99.5) (71.6) (28.4)
Notes: * Provisional; ** Risk Capital; Figures in parentheses are the percentage of
the total
4.3.1 Institutional structure of target industries
4.3.1.2 Institutional structure of the cement industry
Institutional structure of the cement industry is illustrated in Figure 4.1.
…
Figure 4.1. Institutional structure of the cement industry
As of March 1994 there were 103 large cement plants and over 200 mini cement plants in the
country. Out of the large cement plants' capacity of 69.51 million tons as of March 31, 1994,
60.01 million tons were accounted for by the private sector. The balance of 9.5 million tons
was in the public sector. Mini cement plants account for about 7.5% of the total industry
capacity and are all in the private sector. Distributions of capacity and production by
ownership are given in Table 4.3.
Table 4.3. Distribution of capacity & production by ownership

1977 1983 1991 1992
C P C P C P C P
Share of 11.46 9.92 17.40 16.10 15.5 10.2 14.7 10.4
Public Sector
Share of 88.54 90.08 82.6 83.9 84.5 89.8 85.3 89.6

Private Sector
Total (million tons) 21.67 19.17 36.2 25.70 61.31 50.6 64.84 50.7
The cement industry in India developed largely in the private sector and in 1993, it accounted
for 88% of the total installed capacity and 90% of the production. With the setting up of the
Cement Corporation of India (CCI) in 1965, cement plants came up in the public sector as
well. A number of cement plants have since been set up by the various State Industrial
Corporations.
4.3.1.2 Institutional structure of the iron and steel industry

Institutional structure of the Iron & Steel Industry is depicted graphically in Figure 4.2.
Figure 4.2. Institutional structure of the iron & steel industry

The Indian steel sector comprises 7 integrated plants and around 180 mini mills and rerollers,
77 of which are listed on the country's stock exchanges. The total output of the Indian Steel
Industry in 1993-94 was approximately Rs. 250 billion, which comprised roughly 15% of value
added by the Indian Manufacturing Sector. India now has an installed capacity of around 24
million tons of steel and produces around 16 million tons of salable steel. The ownership-wise
…
trend in the installed capacity for producing crude steel is given in Table 4.4. The public sector
accounts for 63% of the present installed capacity.
Table 4.4. Growth in the installed capacity of crude steel

A. Private sector
Units Late 4Os Mid 60s March 93
1 TISCO 1.7 2.0 2.5
2 IISCO 0.5 1.0 -
3 MINI STEEL PLANTS 0.1 0.5 9.0
TOTAL 2.3 3.5 11.5
B. Public sector
Units Late 4Os Mid 60s March 93
1 IISCO - - 1.0
2 ROURKELA - 1.0 1.8

3 BHILAI - 1.0 4.0
4 DURGAPUR - 1.0 1.6
5 BOKARO - - 4.0
6 VIZAG - - 1.5
TOTAL - 3.0 13.9
4.3.1.2 Institutional structure of the pulp & paper industry

The institutional structure of the Pulp and Paper Industry is shown in Figure 4.3, depicting
various details like ownership and government departments dealing with technological
development, energy consumption and efficiency, and environmental pollution control. The
pulp and paper industry covering pulp, paper, paper board and newsprint is one of the oldest
industries in India. The first paper mill was set up in 1832 in West Bengal and by 1950 the
industry was fairly well-established. However, a rapid growth of the industry has taken place
only after 1950 within the statutory framework; the industry grew largely in the private sector.
At present there are around 340 paper mills with an aggregate capacity of 3.8 million tons per
annum.
4.3.1 Industrial associations

Following is a list of most prominent industrial associations in India:
- The Associated Chambers of Commerce and Industry in India (ASSOCHAM)
- Federation of Indian Chambers of Commerce and Industry (FICCI)
- Cement Manufacturers' Association (CMA)
- Indian Paper Makers' Association (IPMA)
- Confederation of Indian Industry (CII)
- Steel Rerolling Mills' Association
- Steel Scrap Dealers' Association
- Alloy Steel Producers' Association

- Furnace Steel Manufacturers Association
- Sponge Iron and HB9 Manufacturers' Association
Figure 4.3. Institutional structure of the pulp and paper industry
Some of these Associations are organized in such a way that they represent all industries in
general such as ASSOCHAM, FICCI, CII. The others like CMA are active in their respective
sectors. Activities of some of these associations are described briefly here.
ASSOCHAM: The aim is to bring to the notice of the government and policy makers the
views of the Industries (and businessmen) with regard to the direction and advancement of the
various industrial and business fields. With the emphasis on high standard of business ethics,
interested genuinely in the economic progress of the country, this organization’s voice is fairly
strong in the country. The Association provides a number of services like arranging trade
missions, conducting surveys and maintaining data and economic information.
FICCI: It is the apex body of a Nation-wide network of regional, State and Local Chambers
of commerce, industry and trade associations, professional institutions, corporate bodies and
private firms. This Association stands for rapid economic progress through domestic
enterprise and International business cooperation committed to mixed economy and planned
…
development. FICCI works towards close partnership with the government. It arranges
conferences, seminars, workshops on specific issues, receives and sends out trade delegations.
A tribunal of Arbitration is available for settlement of commercial disputes.
CMA: This Association’s main role is to promote and protect the trade, commerce and
industries connected with cement. It collects and disseminates technical and statistical
information in respect of cement industry and trade. It arranges conferences, seminars on vital
issues connected with the cement industry.
Indian Paper Makers’ Association: This Association looks after the interests of the paper
manufacturers and voices to the authorities concerned the views of the members with regard
to the government policies, availability of raw materials, processes for environmental pollution
control and other fields of common interest.
As far as the iron and steel industry is concerned, the main integrated steel plants are in the
public sector and are governed by the Steel Authority of India Ltd. (SAIL). The three hundred
and odd small plants are not organized under any single association. In fact there are several
organizations (listed above) which look after the interests of the kindred mini steel mills.
Without mentioning the rest of the Industrial Associations listed above, it can be pointed out
that they look after the interests of the members of the associations in their specific fields and
bring into perspective the likely effects of government policies, international situations, etc., on
the industry.
4.3.1 Institutional structure for environmental protection

At the time of India's Independence, the priorities of the country were to provide for its
citizens the basic human needs of food, fuel, shelter, health and employment. As such, the
focus of the first five-year plan was on agriculture, health and family welfare. In the fourth
five-year plan, problems related to environment received direct attention and a committee was
set up in 1972 to look into these problems and suggest a solution in consultation with experts
and concerned Ministries or Departments of the government. Another committee was set up
in January 1980, for reviewing the existing legislative measures and administrative machinery
for ensuring environmental protection and for recommending ways to strengthen them. On
the recommendation of this high-powered committee, the Department of Environment was
set up in 1980. Consequently in 1985, it was upgraded to a full-fledged Ministry of
Environment & Forests to serve as the focal point in the administrative structure for the
planning, promotion and coordination of environmental and forestry programs.
The Central Pollution Control Board (CPCB) is the National apex body for assessment,
monitoring and control of water and air pollution, the executive responsibilities for
enforcement of the Acts for Prevention and Control of Pollution of Water (1974) and Air
(1981) and also of the water (CESS) Act, 1977 are carried out through the Board. Besides
CPCB, there are 23 State level pollution control boards and other agencies, like chief inspectors
of factories and insecticide inspectors of agricultural departments, involved in the
implementation of various policies. Further, there are 84 recognized environmental
laboratories to carry out field tests and certification works.
Major activities undertaken by the Central Pollution Control Board relate to development of
laboratories and management and operation of National air and water quality network,
controlling pollution at source, river basin studies and evolution and implementation of
National Standards. The Central and State Pollution Control Boards have been implementing
laws on pollution control regarding water and air. Fourteen river basins of the country are
being monitored for water pollution. Two hundred water quality monitoring stations, 85 air
quality monitoring stations and 173 coastal monitoring stations have been established.
The institutional structure for environmental protection has been represented graphically in
Figure 4.4, which shows the working of the above authorities and coordination among them to
achieve their respective responsibilities.
The various institutions set up for the purpose of environmental protection are listed below:
- Department of Environment in 1980 and the integrated Ministry of Environment &

Forests in 1985, Department of Science and Technology, Department of Agriculture
and Cooperation, Department of Biotechnology, Department of Ocean
Development, Department of Space, Department of Non-Conventional Energy
Sources, Energy Management Centre, Council of Scientific and Industrial Research
etc. at the Center, Departments of Environment at the State and Union Territory
level.
- Central Pollution Control Board and State Pollution Control Boards.
- Central Forestry Board.
- Indian Council of Forestry Research and Education with specialized Institutions for
research in arid zone, forestry, moist and deciduous forests, wood technology,
genetics and tree breeding and deciduous forests.
- Forest Survey of India (FSI) and the Wildlife Institute of India (WII) in addition to
the existing organizations such as the Botanical Survey of India (BSI) and Zoological
Survey of India (ZSI).
- National Land use and Wasteland Development Council.
…
- National Wastelands Development Board.

- Indian Board of Wildlife.
The National Museum of Natural History, Centre for Environmental Education, Institute for
Himalayan Environment and Development and Centers of Excellence in specialized subject
areas are among the various institutions set up.
Figure 4.4. Institutional structure for environmental protection

Like many other infrastructure development issues, there is an element of power sharing
between the central and local governments in handling environmental impact assessment
(EIA) of a project. The Ministry of Environment and Forecasts, government of India has
issued a notification on EIA studies pertaining to certain industrial sub-sectors requiring them
to submit EIA reports to the concerned State Pollution Control Boards. The boards in turn
will forward it to the State Ministry of Environment and Forecasts which will set up a
committee to look into the EIA report and, if found acceptable, give clearance to the
concerned project. Industries which do not come under the specified categories will have to
submit their EIA report directly to the Central Pollution Control Board or to the Ministry of
Environment and Forecasts, Government of India, for clearance.
4.3.1 Institutional structure for energy efficiency improvement

Energy conservation has been receiving considerable attention right from the first oil shock in
1973. The fuel policy committee and the working group on Energy Policy had both laid
emphasis on the need for energy conservation. The report of the inter-ministerial group on
energy conservation in 1983 examined specific areas of energy conservation in different
sectors. The Advisory Board in Energy (ABE) had recommended the setting up of a National
Energy Conservation Organization (NECO), backed by a comprehensive legislation on energy
conservation. The agencies involved in creating awareness and implementation of the energy
efficiency programs are:
− Energy Management Centre (EMC, Ministry of Power)
− Petroleum Conservation Research Association (PCRA)
− State level nodal agencies
− State Electricity Boards
− Ministry of Non-Conventional Energy Sources (MNES)
− Indian Renewable Energy Development Agency (IREDA)
− Industrial Associations like CII, PHD Chamber of Commerce
− State Level Technical Organizations
− Oil Companies
− National Productivity Council
− Private Consulting Firms
Besides the above, various Engineering/Technological Colleges and Research Institutes are
working on energy efficiency programs. The public sector units like SAIL, BHEL, NTPC and
Coal India Ltd. have their own energy conservation cells. The Railway Board has issued
comprehensive guidelines for energy conservation measures in railway stations, WCO sheds
and repair shops. Private industry sector is also keeping pace by appointing managers
exclusively in charge of the efficient utilization of energy. In order to coordinate the works of
various institutions active in this field, the Energy Management Centre (EMC) was established
by the Government of India in April 1989 to act as a focal point for exchange of experience
among energy institutes within India and as a center for information, research and training
activities in the energy field based on cooperation between India and the European
Community. Following are the activities of the EMC:
i. Develop a national energy database by collecting and analyzing data on energy supply,
demand and information on prices.
ii. Identify barriers for improving energy efficiency and propose appropriate incentives
and other measures to overcome them. These would include recommendations for
assistance with capital investment, taxes, duties and other financial incentives.
iii. Review laws and regulations that have an impact on energy consumption and propose
modifications and formulate suitable policies and actions.
iv. Suggest introduction of standards, labels and set down policies and consumption
targets.
…
v. Organize public information and promotional campaigns on an on-going basis, and

vi. Organize specific promotional campaigns for the main energy consuming sectors
(industry, transport, agriculture, commercial and Government buildings). Also
provide technical assistance in the field of energy efficiency and fuel sectors, promote
energy auditing enterprises and provide recommendations to improve energy
efficiency and fuel substitutions, monitor progress made in energy conservation and
fuel substitution and initiate follow-up actions where necessary and organize training
for energy managers and equipment operators.
Figure 4.5 shows the institutional structure for energy efficiency improvement in India. The
chart shows the inter-relation between various Government departments/agencies and other
institutions which have a major role to play in the energy efficiency improvement programs.
4.3.1 Scope of authority of local institutes

India being a union of states under a federal structure, the development of infrastructure for
industrialization comes under the purview of each of the states besides being centrally
coordinated by the federal government. Country-wide standards for industrial
energy-environment issues may be promulgated by the central government bodies, while the
local institutions have the option to regulate the standards to suit the development plans. For
example, each state has its own Pollution Control Board for monitoring and controlling
emission standards while there is one Central Pollution Control Board overseeing the
operations of the local bodies. Under the guidance of overall standards issued by the Central
Pollution Control Board, the state level bodies have the freedom to set standards suitable to
local conditions. Each of such local institutions has a counterpart at the central government
level so that any conflict between the local authorities may be sorted out on an all-India level.
The Electricity Authority, which has a major role in dealing with the State Electricity Boards, is
yet another example.
Figure 4.5. Institutional structure for energy efficiency improvement
4.3 Regulations on Industrial Development, Energy Efficiency and Pollution

Discharges
4.3.1 Regulations on industrial development
4.3.1.2 General industrial policy framework
In 1948, immediately after independence, the Government of India introduced the Industrial
Policy Resolution. This outlined the approach to industrial growth and development. It
emphasized the importance of the economy in securing a continuous increase in production
and ensuring its equitable distribution. After the adoption of the constitution and the socio-
economic goals, the Industrial Policy was comprehensively revised and adopted in 1956. To
meet new challenges, from time to time, it was modified through statements in 1973, 1977 and
1980.
The Industrial Policy Resolution of 1948 was followed by that of 1956 which aimed at
industrialization as a means of achieving a socialistic pattern of society. In 1956, capital was
scarce and the base of entrepreneurship not strong enough. Hence, the Industrial Policy
…
Resolution of 1956 emphasized on the role of the State in assuming a predominant and direct
responsibility for industrial development. The Industrial Policy Statement of 1973 identified
high priority industries where investment from large industrial houses and foreign companies
would be permitted. The Industrial Policy Statement of 1977, laid emphasis on
decentralization and on the role of small-scale and cottage industries. The Industrial Policy
Statement of 1980, focused attention on the need for promoting competition in the domestic
market, technological upgradation and modernization. The policy laid the foundation for an
increasingly competitive export base and for encouraging foreign investment in high-
technology areas.
4.3.1.2 Regulatory framework

The first major component of the regulatory framework is the system of "industrial licensing"
for private industries, introduced by the Industries (Development and Regulation) Act, 1951.
The ambit of this act extended to a comprehensive set of about 38 'schedule' industries, which
included defense industries, capital goods, metals, fuels, telecommunications, transport,
fertilizers, chemicals, cement, timber, rubber, glass, ceramics, besides a host of consumer goods
like textiles, drugs, paper, sugar, food and leather products. Within these industries, in order to
set up a new unit, to expand capacity by more than 25% of the existing levels, or manufacture
a new product, an entrepreneur would have to apply for a license from a Licensing Committee
set up by the Act.
The 1956 resolution classified industries into three categories. Schedule A included seventeen
key industries (including defense, capital goods, minerals, iron and steel, ship-building, rail and
air transport, telecommunications and electricity) in which all future investments were reserved
for the public sector. Existing private enterprises would be allowed to operate, except defense
and transport which were to be public sector monopolies. Schedule B included twelve
industries such as various intermediate goods (fertilizers, aluminum, machine tools, drugs,
plastics, synthetic rubber, etc.), and road and sea transport, which were intended to be
progressively state-owned, though private enterprises would also be allowed to expand. All
remaining industries formed the third category, in which primary reliance was placed on the
private sector. The resolution also emphasized the possibility of fruitful cooperation between
the two sectors.
The Monopolies and Restrictive Trade Practices (MRTP) Act came into effect from 1970.
Chapter III of this act regulated the expansion of large industrial houses with gross assets
exceeding Rs. 200 million, or of 'dominant' firms (defined by market shares exceeding one
third) with assets over Rs. 10 million. Such firms have to seek special approval for expanding
capacity by over 25% of the existing levels. Mergers and amalgamations that resulted in firms
satisfying the above definition would also require clearance from the commission set up by the
act.
The Post 1991 Reforms

The industrial policy approach turned full circle with the accession of a new Government in
1991. The preceding piecemeal moves towards liberalization of controls were consolidated in
a comprehensive wave of deregulation. These measures included the following: Industrial
licensing was abolished altogether, except for a select list of environmentally sensitive
industries. The entire Chapter III of the MRTP Act restricting growth or mergers of large
business houses was eliminated. The list of industries reserved for the public sector was
reduced from 17 to 6, and private investment began to be actively solicited in the infrastructure
sector. Quantitative controls on producer goods imports were virtually abolished, import
duties reduced substantially, and foreign exchange controls dismantled on most current
account transactions. The exchange rate came to be market-determined, following the
substantial devaluation of the rupee between 1989 and 1991. Many of the special export
subsidies were simultaneously dismantled. With the intention of converting the earlier policy of
restricting foreign investment into an active promotional one, the FERA Act was substantially
altered in early 1993, besides a number of other direct measures to attract foreign investors. A
process of rationalization of excise duties was initiated.
A number of reform initiatives in the financial sector accompanied these changes. New
accounting and capital adequacy norms were imposed, the statutory liquidity-ratio lowered in
order to release funds to the private sector, deposit rates deregulated subject to a ceiling,
lending rates rationalized, and the banking sector opened to expansion and entry of private
banks. New capital issues were completely deregulated. Private mutual funds and foreign
institutional investors were allowed to enter the capital market.
Nevertheless, a number of important areas have resisted the move towards encouraging the
role of market forces and private initiatives. Public sector enterprises have been subject merely
to hardening of their budget constraints, without any positive moves towards internal
reorganization. A small fraction of equity of profitable public enterprises has been sold off,
mainly with the intention of raising fiscal resources rather than bringing about a change of
control or in operating procedures. The restrictions on redeployment or retrenchment of labor
continue to remain, as do restrictions on sale of urban land.
The mode of functioning of the Bureau of Industrial and Financial Restructuring has not
undergone any serious change, so the problem of exit barriers continues to be serious. Other
problems that continue to deter private investment are the lack of corresponding deregulation
at the level of State governments, the paucity of adequate infrastructure, and the slowness of
the legal system that continues to prevent quick settlement of commercial disputes.
In particular, the philosophy of the new industrial policy is much closer to 'laissez faire' than
the activist developmental approach of the East Asian success stories of the last two decades.
There is conscious effort within the government to avoid the practice of 'picking winners' and
pushing them ahead aggressively in a selective and discretionary manner.
…
4.3.1 Environmental regulations and policies

In recognition of the need for environmental protection, various regulatory and promotional
measures have been undertaken in India over the past twenty years as mentioned below:
− Legal
− Institutions
− Prevention and Control of Pollution
− Conservation of Forests and Wildlife
− Land and Soil
− Environmental Impact Assessment
− Other activities
4.3.1.2 Legal measures

- The Wildlife (Protection) Act, 1972, amended in 1983, 1986 and 1991.
- The Water (Prevention and Control of Pollution) Act, 1974, amended in 1988.
- The Water (Prevention and Control of Pollution) Cess Act, 1977, amended in 1991.
- The Forest (Conservation) Act, 1980, amended in 1988.
- The Air (Prevention and Control of Pollution) Act, 1981, amended in 1988.
- The Environment (Protection) Act, 1986.
- The Motor Vehicle Act, 1938, amended in 1988.
- The Public Liability Insurance Act, 1991.
- A Notification on Coastal Regulation Zone, 1991.
Sector-specific environmental standards exist inasmuch as particular emissions of an industrial

sub-sector are required to conform to the overall pollution control standards.
4.3.1.2 Institutions
- Various institutions set up by the Indian government for formulating and effecting
the environmental regulatory measures have already been listed in section 2.4.
- While setting up new environmental standards, the Member Secretaries of the State
Pollution Control Boards and concerned industrial experts sit with the Central
Pollution Control Board for deliberations.
4.3.1.2 Prevention and control of pollution

- Water and air quality monitoring stations in selected areas.
- Use-based zoning and classification of major rivers.
- Notification and enforcement of standards for polluting industries through the
Central and State Pollution Control Boards.
- Rules for manufacturing, storage, transportation and disposal of hazardous
substances.
- On-site and off-site emergency plans for preparedness against chemical accidents.
- Fiscal incentives for installation of pollution control devices.
- Ganga Action Plan to prevent pollution of the river and restore its water quality. This
could be expanded to cover other major river systems subject to availability of
resources.
- Identification of critically polluted areas and of highly polluting industries.
The State Pollution Control Board takes legal samples to assess whether they conform to the
set standards. A notice of violation is issued to the industry if the samples do not conform to
the standards. A second instance of violation leads to a show cause notice to be replied
satisfactorily within seven days. Subsequently, a personal hearing of the industry may result in
the allocation of further time for the industry to comply with the standards. However, if the
industry proves to be a regular violator, the Board may issue a closure order and in some cases
a criminal suit may be filed in addition to the closure. Instances of such command and control
practice include:
- closure of a copper smelter in Bangalore based on the EIA report, and
- asking industrial units to shift out to other locations, etc.
4.3.1.2 Conservation of forests and wildlife

- Adoption of a new Forest Policy (1988) with the principal aim of ensuring ecological
balance through conservation of biological diversity, soil and water management,
increase of tree cover, meeting the requirements of the rural and tribal population,
increase in the productivity, efficient utilization of forest produce, substitution of
wood and people's involvement for achieving these objectives.
- Under the Forest (Conservation) Act, 1980 stringent provisions for preventing
diversion of forest land for any other purpose.
- Setting up of the National Wastelands Board to guide and oversee the wastelands
development program by adopting a mission approach for enlisting people's
participation, harnessing the inputs of science and technology and achieving
interdisciplinary coordination in program planning and implementation.
- Formulation of a National Wildlife Action Plan.
- An exercise for the preparation of a National Forestry Action Program.
- Establishment of National Parks and Sanctuaries covering about 4% of the country's

area.
- Eco-development plans for sanctuaries and National Parks.

…
- Identification of bio-geographical zones in the country for establishing a network of

protected areas including seven Biosphere Reserves set up so far.
- Management Plans for identified wetlands, mangrove areas and coral reefs.
- Formulation of a National River Action Plan.
4.3.1.2 Land and soil

- Survey by the All India Soil and Land-Use Survey Organization.
- Treatment of catchment in selected river valley projects and integrated watershed
management projects in catchment of flood prone rivers.
- Assistance to States to control shifting cultivation.
- Assistance for reclamation and development of ravine areas.
- Drought prone areas program.
- Desert development program.
4.3.1.2 Environmental impact assessment

- Establishment of procedures for environmental impact assessment and clearance
with regard to selected types of projects requiring approval of the Government of
India.
- Prior clearance of projects requiring diversion of forests for non-forest purposes
under the Forest (Conservation) Act, 1980.
- Formulation of Environmental guidelines for projects in various sectors.
Whenever any enterprise is to be put up, it is necessary to obtain a clearance (No Objection
Certificate) from the State Pollution Control Board. The enterprise has to provide in a
prescribed form details of the pollution levels likely to arise from the industry, which is
scrutinized and negotiated by the Board. The Board may ask for additional details and
guarantees before issuing the clearance of the project. In case of new industrial processes,
where enough experience is not available, the Board may give an approval on trial basis,
pending fulfillment of the different pollution restrictions.
For the already existing industries, it is compulsory to submit Annual Environmental

Audits/Environmental Statements to the State Pollution Control Boards before the month of
May every year.
4.3.1.2 Other activities

- Eco-Task Forces of ex-servicemen for ecological restoration through afforestation
and soil conservation.
- National Environmental Awareness Campaigns for creating environmental awareness
through non-governmental organizations.
- Surveys and research studies.
- Training programs, workshops and seminars for building up professional

competence and for creation of awareness.
4.3.1.2 Market based instruments

Market-based instruments like proportional emission or discharges are good options to
internalize the environmental externalities. But no measures or plans, including carbon tax and
polluter-pay principle, have so far been contemplated for implementation in India. However,
the industries which use water in their processes are required to pay “water cess” to the State
Pollution Control Board for the quantity of water drawn.
4.3.1 Regulatory measures for energy conservation

The National Energy Efficiency Program (NEEP) launched during the eighth plan includes
policy package, financial arrangements including creation of a revolving fund, technical
assistance, technology development, selective legislation and developing institutional
capabilities.
A draft legislation spelling out the consumption standards and requirement for trained
personnel, ensuring mandatory energy audits and including a proposal for the institutional set
up for its enforcement was prepared by the Advisory Board on Energy (ABE) and was
subsequently modified by the Department of Power. This draft legislation will be further
modified in the light of recent experiences in energy conservation efforts in the country and
abroad and a new package of selective legislation will be prepared. However, till now no
mandatory requirement has been established that stipulates the energy intensive industries to
employ energy managers.
Presently only the following acts/standards (sections 3.3.1 and 3.3.2) are serving the purpose of
Government regulations to some extent. However, no sector-specific energy efficiency
standard has been established yet.
4.3.1.2 Companies Act, 1956

Under the section 217 (i) (e) companies (Disclosure of Particulars in the Report of Board of
Directors) Rules 1988, it was made mandatory for the industrial units to give the following
information in their annual reports:
i. Energy Conservation measures taken.

ii. Additional investment & proposals, if any, being implemented for reduction of
energy consumption.
iii. Impact of 'a' & 'b' above for reduction of energy consumption and consequent
impact on the cost of production of goods.
iv. Total energy consumption and energy consumption per unit of production.
…
4.3.1.2 The Bureau of Indian Standards

In the field of energy conservation, the role of the Bureau of Indian Standards, the National
standards body is catalytic. The role basically includes dissemination of information which also
takes into account the practices followed in National and International standards organizations
in the field of energy conservation.
Throughout the world, standardization has been used as an effective tool for tackling energy
problems especially when standards stipulate limits of energy consumption, efficiency and
other related requirements. The following criteria are generally taken into account before
stipulating conservation oriented requirements in National Standards:
i. The parameters related to output of an equipment or efficiency should be easily
measurable and could be quantified.
ii. Wherever possible, it should be ensured that no stipulation on energy is made at the
cost of performance or safety.
iii. Wherever possible, relevant energy conservation should be properly weighed against
material conservation and environmental pollution.
For different types of equipment there will be different types of energy conservation
parameters applicable. Indian standards on equipment stipulate one or more of the following
aspects:
a. Maximum limit on energy consumption
b. Minimum limit on efficiency and
c. Maximum limit on losses.
Besides product specifications, there are guides for achieving energy efficiency, concerning
selection, system design and codes for installation and maintenance. It should be noted that
these cover many product groups and engineering disciplines. The formulation of these
standards is distributed over a number of Technical Divisions. The Technical Divisions of BIS,
through the Sectional Committees functioning under them, have developed standards during
the last four to five decades which have implications on energy use.
In Indian Standards specifications, norms are generally specified for various energy
conservation parameters. However, in some cases the values of such parameters are to be
declared by the manufacturers because either enough data is not available for arriving at
standard norms or test conditions cannot be standardized. Indian standards also have
provisions to enable producers declare better values than those specified in the standards,
wherever such values can be achieved.
Wherever possible, one or more of the following measures are also being undertaken:
a. Marking of energy consumption/efficiency parameters on the name plates of equipment to assist in the
selection of energy-efficient equipment by the consumer. Such a provision has been accepted for
inclusion in the relevant standards on electric motors, household electrical appliances,
electric lamps and refrigerators.
b. Periodic review/upgradation of the existing limits on efficiency with a view to promote energy
conservation measures. Dialogue has since been initiated in this respect with the
'Concerned Interests' to examine the possibility of the upgradation of limits wherever
feasible. A program for periodic upgradation of energy efficiency limits (energy
indices) is prevalent in the case of oil stoves, domestic LPG stoves and general
purpose diesel engines. This is being thought of in other areas also.
c. Preparation of system specifications and equipment selection guides to improve system efficiency. As an
example of a typical energy system standard: IS 10804:1986 covers the recommended
agricultural pumping systems consisting of various matching prime movers and
energy efficient components like pumps delivery lines, foot valves, pipe fittings, etc.
It is estimated that 30-40% energy saving would be effected if the various measures
suggested in IS 10804 are implemented. This standard has undergone revision in
which the maximum energy consumption of the system is computed on the basis of
total head, flow-rate and minimum efficiency. Similarly IS 9478: 1989 in its present
version covers biogas plants and equipment. Besides capacities, the design and
constructional details of two popular types, namely, "floating drum" and the "fixed
dome types", their comparative merits, calculation procedure for selection of
capacities, details of piping and performance tests for the biogas plants have been
covered. Such system specifications in other areas are being explored.
4.3.1.2 Fuel and energy use limitations

There is practically no regulation limiting the use of fuel. However, there are restrictions on
use of electricity whenever the State finds it difficult to meet the local requirements. So far,
four State units have taken measures for reducing their peak load by providing incentive for
usage during the off-peak period. In April 1995, one of the SEBs announced a time-of-use
tariff based on marginal cost. The success of this time-of-use tariff is yet to be studied.
4.3.1.2 Incentives for energy conservation

The Government of India and the government owned institutions have come out with many
incentive schemes to promote energy conservation in the country. The incentives available to
encourage energy saving and the use of renewable sources of energy are listed below:
• Fiscal incentives from Central government
• Subsidies from Central government
• Industrial licensing exemption
• Assistance from financial institutions
• Concessions/subsidies available at the State government level
…
• National awards for energy conservation in industrial sector

• Incentives given by State Electricity Boards
• Incentives given by Oil Companies under PCRA Scheme
In the following paragraphs, the above incentives are discussed in detail:
i. Fiscal incentives from Central Government

The Central Government had given fiscal incentives in respect of income-tax, Union Excise
duty and Custom duty. However the custom duty has recently been withdrawn due to the
restructuring of custom duties on various items.
Income-tax: The income-tax benefit includes 100% depreciation on written down value for
renewable energy devices. A detailed list of devices eligible for this benefit is given in Annex
4.A.
Union Excise Duty: Items eligible for Union Excise duty exemption are listed in Annex 4.B.
ii. Subsidies from Central Government

There are no direct subsidies from the central government for the energy efficient items using
conventional energy. However, the Central government through the Ministry of Non-
conventional Energy Sources (MNES) provides subsidies for many devices operating on new
and renewable sources of energy (NRSE).
Although the central government has withdrawn subsidies on many items, it extends soft loan
for purchase of NRSE devices through the Indian Renewable Energy Development Agency
(IREDA).
iii. Industrial licensing exemption

With a view to encourage the exploitation of alternative sources of energy, the government of
India has de-licensed from the scope of the Industrial Development and Regulation Act, 1951,
the following items:
a. Equipment up to 5000 kW for mini and micro hydel systems
b. Electric vehicles
c. Devices for harnessing wind-, biomass-, geothermal-, tidal- and ocean- energies.
iv. Assistance from financial institutions

Continuous upgradation/change in the process technology in various industries has resulted in
reduction in energy consumption per unit of product. With a view to encourage the existing
industries to introduce energy conservation equipment or change over to process/production
methods which are less energy intensive, financial institutions are offering assistance at
concessional terms under their soft loan scheme for modernization. Though under the
scheme, concessional assistance will be offered for replacement of equipment which are at least
10 years old, this restriction on age criteria is relaxed if the equipment proposed to be installed
involves energy savings. Further, the exemption from the convertibility clause which is granted
to cases of modernization without increase in capacity is also available for cases of
modernization involving energy conservation within the existing capacity.
v. Concessions/subsidies available at State Government level

Concessions: Various State Governments have formulated schemes to encourage energy
conservation. All the State governments have announced sales tax exemption for all renewable
energy equipment, while some of the State governments have also exempted conventional
energy savings devices for sales tax purposes.
Subsidies: Subsidies announced by the State Governments are in two forms: (a) Subsidy for
energy audit studies; (b) Subsidies for purchase of renewable energy devices. These subsidy
schemes are implemented through State level nodal agencies. Subsidies given by State
Governments for purchase of renewable energy devices like solar cookers, solar water heating
systems, biogas installations, etc., vary from one State to another.
vi. National awards for energy conservation in industrial sector

The Department of Power introduced a scheme in 1989 instituting "National Energy
Conservation Awards". The scheme is aimed to create an environment that would spur
industries in achieving excellence in efficient end-use of energy.
The awards are given to the first and second best industrial units in selected sub-sectors. The
industries considered are textiles, petrochemicals, refinery, pulp & paper, fertilizer, chemical,
steel, aluminum, chlor alkali, glass, foundries, ceramics and refractories. The awards to the
winners are presented on the "National Energy Conservation Day", 14th December every year.
These awards are coordinated by the Ministry of Power, Government of India.
vii. Incentives given by State Electricity Boards

The State Electricity Boards (SEBs) contribute towards energy conservation by way of offering
incentives in their tariff structure for improvement in power factor. SEBs are also contributing
funds for promotion of NRSE devices and advertisement campaigns.
viii. Incentives given by oil companies under PCRA scheme

PCRA (Petroleum Conservation Research Association) is registered as a society under the
Ministry of Petroleum & Natural Gas to promote petroleum conservation in India. PCRA has
two schemes in the area of energy conservation, energy audit subsidy scheme and boiler
modernization scheme. These schemes are discussed below:
…
• Energy Audit Subsidy Scheme: PCRA started the Energy Audit Subsidy Scheme (EAS) in 1989
with the primary objective to identify the energy saving opportunities in various industrial
units. PCRA offers subsidies up to 50% of the cost towards the conducting of energy audit at
the interested party's industrial premises limited to a maximum amount of Rs. 25,000 per
industrial unit. The subsidy is payable after satisfactory conduct of energy audit and acceptance
of energy audit reports both by the interested party and PCRA.
• Boiler Modernization Scheme (BMS): The Boilers Modernization Scheme (BMS), started in
1981-82 by PCRA in association with the oil companies, covers replacement of old and
inefficient boilers with efficient ones. This scheme is administered by PCRA along with the Oil
Industry Development Board (OIDB) through major oil companies like Indian Oil
Corporation (IOC), Hindustan Petroleum Corporation Ltd. (HPCL) and Bharat Petroleum
Corporation Ltd. (BPCL). This scheme covers the replacement of inefficient oil fired IBR
boilers (with thermal efficiency of 70% and less than or equal to 50 t/hr capacity) by modern
efficient oil/coal fired boilers (with thermal efficiency of at least 80% in case of oil fired boilers
and at least 75% in case of new coal fired boilers). These boilers have to be in operation with
the oil consumer for a period of at least two years. The interest rate for this scheme at the
inception was around 18%. It has, however, been reduced in stages to 9% plus a service charge
of 0.5 to 1% levied by oil companies. This loan is repayable in installments in three to five
years.
4.3.1 Industry-specific government regulations

4.3.1.2 Regulations for the cement industry
The cement industry is included in the first schedule of the Industries (Development and
Regulations) Act 1951. Except for a short period of time between May 1966 and February
1970, the manufacturing of cement required an industrial license. Since the cement industry is
highly capital intensive and requires large investments, the ban on investment by large houses
during 1970-73 (under the MRTP Act) also brought investment to a halt.
Another reason why the cement production capacity did not come up as per the licenses issued
was that in the interest of dispersal of ownership in the cement industry, licenses have been
issued to many novices who were not in a position to implement the licenses granted to them
(Government of India (1979), Report of the Committee on Controls and subsidies, P.280). To
address this situation, in February 1973, the Government of India added cement to the list of
“Annex I Industries” permitting large firms to invest.
In 1979, the Indian government introduced incentives to promote mini cement plants. In 1980
licensing was made less cumbersome by which even MRTP firms were liberally defined as
those with over a 30% market share. Despite some restrictions vis-à-vis large enterprises and
other policies designed to encourage small firms, it is also seen that applications from larger
houses pending clearance from the MRTP angle were recommended to be processed
expeditiously in the interests of cement production.
Barring a few years in the past, the demand for cement has always exceeded supply. As a
result, there have been phases of acute shortages leading to profiteering and various other
market anomalies in the distribution of cement. Government response to shortages of cement
has been limited to price clamp-down and distribution control. The cement industry has been
subject to price and distribution controls since 1942. During 1942-1946 cement production
came under the purview of the Defense of India Rules- for production, price and distribution
control. Major portion of cement produced then was earmarked for Defense purposes and
only around 10 per cent was released for private consumption.
In the next 10 years (1946-1956), the government exercised informal control by fixing prices
from time to time.
The five-year plans were launched from 1951-52, and cement was brought under the purview
of cement control order of 1956, both for price and distribution. The control on cement
continued till 1982, when partial decontrol policy was announced (cement was decontrolled for
a brief period during the two years 1966 and 1967). Meantime, there was "growth" in the
cement production capacity but not at the required pace; resulting in perpetual "shortage" till
1986.
In 1977, the government announced 12% post-tax return on net worth to boost cement
capacity; this was followed by "partial decontrol" in 1982. Consequently there was "quantum
jump" in capacity and production during 1982-88; cement became "surplus" from 1987
onwards. Cement was totally decontrolled with effect from 1 March 1989.
4.3.1.2 Regulations for the iron and steel industry

The production of Iron & Steel, its distribution for various uses and their pricing, imports,
exports, creation of additional capacity, etc. have been subject to government regulations. The
Industrial Policy Statement of 1956 had placed Iron and Steel in Schedule A, which meant that
all new units in the industry were to be set up only by the government. Government-owned
Joint Plant Committee was controlling licensing of facilities, prices and distribution of end
products. The Industrial Policy announced in July 1991 has opened up the Iron & Steel
Industry to private enterprises by (i) removing it from the list of industries reserved for the
public sector and (ii) exempting it from the provisions of compulsory licensing. Except for
certain location restrictions, iron and steel units can now be set up without prior government
approvals.
To enable units to respond better to the market forces, while keeping in mind the interests of
the consumers, the control over pricing and distribution of iron and steel was abolished from
January 16, 1992, though the priority for distribution of sensitive/vulnerable sectors was
retained.
…
4.3.1.2 Regulations for the pulp and paper industry

Production of paper and paper boards requires an industrial license under IDRA. However,
the licensing policy has been liberally implemented in this industry with the "letters of intent"
being easily granted and expansion of existing units easily sanctioned. The government has
control over price, production and distribution of paper. The paper industry was first put
under control in 1942 and newsprint in 1941. The statutory control imposed through the paper
price control order of 1945 was withdrawn in 1950. Between 1950 and 1958 the industry
revised prices five times. As a result, the government, based on the recommendations of the
tariff commission, imposed controls over paper prices from January 1960.
Control over prices was removed in 1968 and until 1974, no control over the price or
production or distribution of paper was exercised. In August 1974, two control orders were
issued by the government under the Essential Commodities Act. According to paper (control
of production) order, factories with an installed capacity of 25 tons or more per day would
have to devote 30% of their output to white printing paper and its price was also (through
informal agreement) fixed and another 27% to other varieties of cultural paper whose prices
were not controlled. Another order in August 1974 (i.e., Paper Conservation and Regulation of
Use Order) placed restrictions on the use of paper for making calendars, diaries and other less
essential purposes. The distribution of white printing paper is also controlled, priority being
given to government specified uses (e.g., education) and at subsidized rates.
4.4 Impact of Regulations on Sectoral Technological Development

4.3.1 Impact of general regulations
The over-restrictive and often self defeating nature of the regulatory framework began to be
evident by the late sixties and early seventies. While the lack of success in some dimensions led
to a new and more restrictive set of regulations (e.g., the attempts to reserve sectors for small
industries and to restrict the growth of large firms), they also led to some weakening of the
regulations during the seventies. For example, a number of engineering industries were
permitted to expand capacity at the rate of 5 per cent per year, starting from 1975. Following
the recommendations of the Alexander Committee in 1978, quantitative controls over imports
were relaxed and replaced by complementary increases in tariff rates.
In the recent years it has been increasingly realized that this regulatory apparatus on domestic
enterprises has led to widespread inefficiency in the economy in general and the industrial
sector in particular. The government has therefore been relaxing some of these controls in
recent years.
The thrust of the new industrial policy announced in July 1991 is on removing bureaucratic
controls that thwart industrial development and an opening up a large number of industries to
the private sector. The requirement of industrial licensing has been abolished for all but 18
product categories such as defense equipment, industrial explosives, electronic, aerospace, coal,
petroleum, alcohol, hazardous chemicals, pharmaceuticals and drugs, and certain consumer
goods such as sugar, edible oils, refrigerators, motor cars and consumer electronics. The
maximum asset limit on the size of the companies which has been enforced under the
Monopolies and Restrictive Trade Practices (MRTP) Act has been scrapped. As a result, firms
will be able to grow to optimum size and reap the benefits of economics of scale, a process
which was until now hindered by the anti-monopoly legislation. The location policy for
industries has been substantially simplified and liberalized. The government has also abolished
the pleased manufacturing program, under which domestic manufacturers were required to
increase the domestic input-content of their products in a specified time period.
In another significant step, the number of industries reserved for the public sector has been
drastically reduced, thus opening a large number of industries for the private sector. Table 4.5
provides data on the growth rate of Indian industry as a whole for different time periods.
The data suggest that there were three distinct phases; the first lasting from early fifties till
1966, when growth proceeded at a fast pace. The second lasted from 1966 till 1980, in which
the growth rate dropped appreciably. Indeed, this period is usually referred to as the period of
industrial stagnation. The third period consists of the decade of the eighties, in the first half of
which growth rates picked up again, and thereafter accelerated in the second half, back to the
levels associated with the first phase.
The explanations for fluctuations in growth rates have ranged from the demand-side effects of
public investment and public expenditure more broadly, as well as of agricultural growth and
the distribution of income, to supply-side effects of public investment (in infrastructure), of
agricultural growth (via the effect on raw material and food prices), industrial regulations, and
problems of coordination and performance within the public sector.
Table 4.5. Annual growth rates of the Indian industry

Year Growth rates
Output
1951-56 7.3
1956-61 6.6
1961-66 9.0
1966-69 2.0
1969-74 4.7
1974-79 5.9
1979-80 -1.4
1980-85 5.9
1985-90 8.5
Gross Value Added (1970-71 prices)
1960-67 6.1
1967-75 1.5
…
1975-88 6.4
Sources: Output figures, Ahluwalia, 1991, Table (4.1);

Value added figures, Annual Survey of Industries (ASI)
4.3.1 Impact of sector-wise regulations

From 1947 to 1982 the industry was subjected to excessive controls on prices and distribution.
This period was marked by periodic shortages in the demand for cement. This regulation was
temporarily relaxed in 1966 and 1967 but re-imposed in 1968 to essentially subserve five-year
plan priorities, benefit the consumer and ensure equitable regional development. However,
despite these laudable objectives, there was still widespread complaints of improper
distribution and persistent shortages, and a flourishing black market.
In 1977, the industry which was stagnating due to the lack of investment and falling profits, got
a shot-in-the-arm when the government announced a policy initiative. The government gave
an assurance to the industry of a 12% post-tax return on net-worth of new units and
substantial expansion. In 1982, the industry was again given a boost in terms of a partial
decontrol of cement prices announced by the government. Based on the recommendation of
the Committee for the Development of Cement Industry, existing units were to supply two-
thirds of their installed capacity as levy and new units commissioned after the First of January
1982 were to supply 50% of their installed capacity as levy. The rest were free from price and
distribution control. These two policy measures raised the cement capacity from 21.85 Million
Tons in April 1978 to 43 Million Tons by March 1985.
Though partial decontrol led to an increase in production, ironically it did not help in raising
the profitability of cement plants. The initial favorable rate of return seen at the beginning of
1982/83 gave way to sharply declining profits from 1984/85. The gross profit per ton of
cement after interest, came down from Rs. 120 in 1982/83 to less than Rs. 50 in 1986/87.
Some units in 1987 were not even able to cover depreciation. This when juxtaposed with the
increase in capital cost per ton of capacity created from Rs. 1000 in 1982/83 to Rs. 1400-1500
in 1987/88 acted as a deterrent to further investment.
Another policy aspect, that created imbalances in regional production and distribution of
cement, was the freight equalization and regional distribution of capacities scheme introduced
by the government in 1956. This scheme was introduced to bring about uniformity in cement
prices throughout the industry. A pooled average freight charge was built into the free-on-rail
(FOR) destination price of cement, and under this system, cement transport from a given plant
to the market was subsidized (or charged a levy) to the extent that actual freight charges
exceeded (or fell short of) the National average freight charges per ton of cement transported
from all plants. Because of this policy, planning of cement production capacities gave little
importance to location of markets. The cost of moving large volumes of cement to deficit
regions (mainly the north-east and east) and coal in the opposite direction were not adequately
taken into account when plant location decisions were made. This situation led to unwarranted
concentration of production of capacities in the western and Southern regions. The
consequences of this regional production pattern has led to sharply rising prices in deficit
regions and depressed prices in surplus regions even today.
Industrial responses to policy parameters in the past

As mentioned earlier the reaction to the 12% post tax return and partial decontrol was positive.
Apart from the rise in installed capacity from 21.85 Million Tons in 1978 to 43.5 Million Tons
in 1985, the share of dry process plants rose from 53% to 73%. The free market (non-levy)
cement prices remained below Rs. 70 per bag from 82-88. The competition in the market was
reflected in the falling market share of Pozzolana Portland Cement (PPC) from 57% in 1983 to
about 25% in 1988. This implied, consumers taking advantage of the buyers market situation
to demand higher quality Ordinary Portland Cement (OPC) at a price very close to that of
PPC. The cement industry's response to past policies is given in Table 4.6.
Production structure of the cement industry and capacity utilization

In 1990 the Indian cement industry had 94 large and medium size plants, 5 white cement
plants and 97 mini cement plants (i.e., clinker capacity of less than 200 TPD). The large and
medium size cement plants by 1988 produced 95% of the total cement output in the country.
By 1990 around 30% of the installed capacity was in plants of one million ton per year, a scale
that is considered optimal given today's technology.
Table 4.6. Cement industry's response to the past policy
Policy parameters 82/83 83/84 84/85 85/86 86/87

Levy quota (%)
Pre 1982 67.0 65.0 60.0 40.0 30.0
Post 1982 67.0 45.0 40.0 30.0 15.0
Levy price (Rs/ton)
Ex-factory 335.0 375.0 375.0 400.0 435.0
Industry response
Capacity (Mt) 34.4 37.0 41.2 44.3 57.0
Production (Mt) 23.3 27.0 30.1 33.1 39.4
Utilization (%) 68.0 73.0 73.0 79.0 70.0
Non-levy cement
Price (Rs/50 kg bag) 68.0 64.0 70.0 67.0 70.0
PPC (as % of total cement output) 57.15 58.5 55.1 45.1 25.0
…
Source: CMA
In response to the incentives given to new units under the 1979 pricing formula, investment in
the cement industry has shown significant upturn; this impetus was reinforced by the
incentives offered by the levy price system. Table 4.7 below indicates the increase in capacity in
the industry between 1981-82 and 1990-91. As can be seen from the figures, the capacity more
than doubled over the nine-year period, showing an annual rate of growth of 8.2 percent.
Over the same period, production grew at the rate of 9.1 per cent per year, from 21 million
tons in 1981-82 to 45.8 million tons in 1990-91. Imports which were 7 per cent of
consumption were non-existent from 1987-88 onwards.
Table 4.7. Incremental capacity creation
Year No. of Units Total Capacity Average Capacity

(Million Tons) (Thousand Tons)
1981-82 56 29.3 523
1990-91 97 59.6 614
Increment between 41 30.3 739
81-82 and 90-91
An interesting aspect of the incremental capacity created was that new units were, on an
average, substantially larger than the older units. The average new unit had a capacity of 0.74
million tons per year, compared with the 0.52 million tons of an old unit. According to cement
industry analysts, there are significant scale economies in cement manufacturing; the minimum
efficient scale (MES) for a plant employing modern pre-calcinator technology is of the order of
1 million tons per year. Plants below 0.7 million tons per year are considered non-competitive.
An ICICI (1992) study revealed that all new cement plants are of rated capacity of over a
million tons per year. In this respect, the post-1982 entrants to the cement industry, have a
scale advantage over firms that came up before partial decontrol in 1982.

The steel industry was producing hardly two million tons of steel in the fifties. The sixties and
seventies saw stagnation in capacity utilization and technological innovation. The eighties have
witnessed significant changes in the steel sector. Crude steel production increased from 7.14
millions ton per annum in 1974-75 to about 10.0 million tons in 1988-89. However by the early
eighties, the steel industry suffered a serious setback in terms of quality and technology and it
could survive only in a protected environment. The situation improved mainly because of the
ambitious modernization started by the Steel Authority of India Ltd.
The oil crisis of 1973 induced the steel industry abroad to opt for energy conserving
technology. India did not make much progress in this field till recently. The rising costs
crippled the industry's capacity to compete in the international market. In the eighties
therefore, stress shifted from higher capacity creation to better utilization of the capacity
available.
The liberalization has brought about a qualitative change in the Indian iron and steel sector.
With de-licensing and decontrol of the steel industry and reduction of import duties on iron
and steel items, producers have become more responsive to consumer needs.
The government has laid strong emphasis on promotion of exports, on technology upgrading
and on greater interaction between the domestic and international markets. To facilitate
attainment of these objectives, the trade policy has been progressively liberalized. Imports of
capital goods, raw material and other inputs have been made easier; similarly, exports of iron
and steel have been freely allowed. For the rapid assimilation of foreign technology in various
sectors, including the iron and steel sector, the hiring of foreign technicians has already been
freely allowed under the New Industrial Policy.
To encourage foreign investment in this core sector, iron and steel has also been included in
the list of high priority industries for foreign investment, where subject to certain conditions,
automatic approvals are given for foreign equity investment up to 51 per cent, and for foreign
technology agreements. In addition, the government has also given approval for foreign equity
investment of over Rs. 8.62 billion in different iron and steel projects, though the total inflow
would depend upon the actual implementation of the projects. This has enabled the units to
go in for some of the latest technologies available in the world, and state of the art projects are
now the order of the day. This is an area where Indian consultants and equipment suppliers are
also playing an increasingly important role.
Iron and steel is a highly capital intensive industry with long gestation time. It is, therefore,
important that entrepreneurs be well informed before embarking on such projects. With this
in view, the ministry of steel brought out in October 1992 comprehensive guidelines for
entrepreneurs in the iron and steel industry. These guidelines provide basic data on the policy
framework, raw material availability, etc., for prospective entrepreneurs, with a view to
facilitating project implementation.
The Ministry of Steel has been interacting from time to time with the apex financial institutions
to facilitate the setting up of projects. Two specific presentations have also been made to the
institutions – one on the emerging iron and steel scenario and the other on technology issues.
The Ministry of steel has set up Linkage Committees which assist the proposed units in
securing linkages of the major raw materials, and in their transportation by rail from the
producing centers to the project sites. For allocation of natural gas and grant of captive coal
mines to the iron and steel units, Inter-Ministerial Committees are functioning in the Ministry
of Petroleum and Natural Gas and the Ministry of Coal, respectively.
…
The liberalization of the Industrial Policy and other measures has given an impetus to the
private sector to test new capacities. After July 1991, over 1170 Industrial Entrepreneurs
Memoranda have been filed for the setting up of steel-based items. In the steel sector a capacity
of about 4.67 million tons of finished steel is already in various stages of implementation in
large-sized plants, involving an investment of approximately Rs. 84 billion. These projects have
already been sanctioned financial assistance by the institutions. Some other entrepreneurs are
in the process of making sure of their project parameters.
Similarly, the sponge iron capacity in the country has been growing and is presently 5.2 million
tons. The growth of the domestic sponge iron industry has reduced the country's dependence
on the imports of scrap, which is a basic raw material required by the secondary sector for
production of steel. On the pig iron side, so far, the user foundry industry, which supplies iron
castings to various other sectors of the economy, was primarily using the basic grade of pig
iron produced by the integrated steel plants. Non-availability of the required foundry grade pig
iron has also tended to inhibit full exploitation of the country’s engineering export potential.
The private sector has however now shown substantial interest in this area, and already a
capacity of 835,000 tons has been commissioned since 1992-93. Keeping in view the future
domestic demand supply position, and as a result of the various liberalization measures taken
by the government, the private sector interest in setting up further production facilities for
steel, pig iron and sponge iron continues to show an encouraging trend.

For a long time, the paper industry has been a victim of recession and non-remunerative
prices. Even large and medium units were in the red. Some small units were closed. However,
various relief and concessions have been extended in the recent years to help the industry to
improve its production and financial viability. These include liberalized facility for import of
raw materials, excise concessions for use of non-conventional raw material, broad banding of
different varieties of paper and paper board and de-licensing the manufacture of paper based
on a minimum of 75% pulp from bagasse, agricultural residues and other non-conventional
raw materials subject to local policy. As a result of decontrol, manufactures are able to obtain
satisfactory results through better returns from their products.
There are over 325 paper units in the country out of which about 33 are large integrated
companies, nearly 260 small ones, and the medium size units account for the balance. Of
course, capacity utilization is better in the case of large units. But because of shortages, the
government started encouraging small units which were even allowed to import second-hand
machinery at concessional duty. By 1989-90, the number of small units exceeded 200 and
accounted for almost half of the installed capacity of three million tons.
High capital cost of Rs. 60,000/ton for setting up a new unit is the single most important entry
barrier to the industry. One of the methods being adopted to overcome this barrier is the
procuring of second hand machinery. Some major players in the industry are exploring the
possibility of captive forest plantations to overcome raw material problems while some others
are trying to adopt the Biotechnology route for the development of raw varieties of wood.
In order to meet the ever growing demand for paper, hand made paper (HMP) is receiving due
attention. The HMP in India is a cottage industry, spread out all over the country, mostly in
small, unorganized units. HMP is being encouraged because it is environment friendly and
labor intensive. Moreover, it can also be recycled easily. For encouraging HMP units, the
government provides financial assistance in the form of soft loans at nominal rate of interest of
four percent with long term repayment schedules, and full exemption of excise duty and sales-
tax. It also provides free training to artisans and entrepreneurs. The HMP units in India have
made significant progress, In 1955-56, there were 35 units, providing 673 tons of produce and
providing employment to 2000 people. By 1986-87, the number of units rose to 261,
producing 6793 tons.
One problem facing the paper industry is that the capacity utilization has been on the decline.
It came down from about 90 per cent in 1966 to 60 percent in 1991. Obviously, the rate of
growth in installed capacity has been relatively faster in relation to the output over the last three
decades.
The pricing and distribution of paper was decontrolled by the government in 1988. However,
government policies do influence the performance of the industry. For instance, for
environmental reasons, the government has discouraged the use of wood pulp as raw material.
On the other hand, it started encouraging the use of non-conventional raw material. These
units were exempted from paying excise duty.
The paper industry is capital intensive the world over, but capital cost for modernization,
expansion and greenfield new investments in India is comparatively higher because of higher
customs duty on imported equipment. The financial status of the paper industry has to be
improved by having a larger component of equity, minimum reliance on debt and induction of
modern competitive technology.
4.3.1 General barriers to energy efficiency improvement

Despite persistent efforts over the years, energy conservation culture among varied energy
consumer groups has not spread to the desired level. A review of energy conservation
activities at the end of seventh plan indicated certain barriers to the fuller realization of energy
conservation potential in the country.
Some of these require policy level initiatives, both at the Central and State government levels,
especially in so far as fiscal and energy policy are concerned.
Others require strengthening and reinforcing of the organizational structure at the central, state
and district levels. There is also a need to develop a strategy to build institutional capabilities,
…
human resources and incentive systems to execute demand side management (DSM)
programs. Some of the barriers that have come up in the way of widespread energy
conservation activities are given below:
i . Poor Awareness: Due to lack of understanding of the problem and inadequate

information.
ii. Incorrect Attitude: Arising from the misconception that energy conservation implies
deprivation or sacrifice, and the low priority accorded to energy efficiency.
iii. Weak Institutions: Inadequacy of government as well as private sector organizations in

formulating and implementing energy management and conservation policies.
iv. Insufficient technical "Know-how": Inability to diagnose, design and implement

technical solutions to energy efficiency related problems.
v. Economic and Market Distortions: Irrational response to conservation measures

because of price and other market distortions, or socio-economic factors.
vi. Capital Shortage: Inability to finance technically and economically viable energy
conservation projects.
In addition to the general barriers cited above, sector-wise barriers are also affecting energy
efficiency which are discussed in the following sub-sections.
4.3.1.2 Barriers to energy efficiency in the cement industry

The technology of cement manufacturing has changed substantially over the past three or four
decades. Plants based on the wet process were established in the 1950's and early 1960's; those
set up later were based on the dry process. The dry process based cement plants, which are
less energy intensive, now account for over 82% of the installed capacity and those based on
the wet process account for 16%. The pre-calcinator technology has also been introduced in
India.
Although the overall energy intensity of the cement industry has declined during the past
decade or more (due largely to an increasing share of production from the dry process based
cement plants), the average energy consumption in India is significantly higher than the
International norms.
Table 4.8, showing the specific energy consumption in the cement Industry for India and the
world, reveals that Indian plants are consuming about 35.6% more of electrical energy and
21% more thermal energy for the wet process. For dry process, the respective figures are 14.7
per cent and 16.5 per cent. The dry process plants are thus operating closer to the world
standards than the plants operating with the wet process.
A further reduction in energy intensity is possible if:
i. All future plants are based on the dry process (new capacity addition during the
Eighth Five-year Plan will be based on the dry process technology, with a norm of
725 kcal of thermal energy per kg of clinker and 100 kWh of electrical energy per ton
of cement).
ii. Housekeeping at the plant level is made more efficient.
iii. Problems of power cuts, voltage fluctuations and power trippings are attended to and
the quality of coal is improved.
iv. Raw material procurement problems are solved.
v. Transportation bottlenecks are removed.
vi. The overall potential of energy conservation due to better management and control
and better technology is estimated to be from 10-20%.
Table 4.8. Specific energy consumption in the cement industry: India and the world
Process India World Averages
Thermal energy Electrical energy Thermal energy Electrical energy
(kcal/kg of clinker) (kWh/ton of cement) (kcal/kg of clinker) (kWh/ton of cement)
Wet 1510 118 1243 87
Dry 896 129 769 110
Source: Case Study Series 7, Industrial energy conservation (ACC, Madukkarai),
Tata Energy Research Institute, New Delhi.
4.3.1.2 Barriers to energy efficiency in the iron and steel industry

The specific energy consumption in the steel industry in a few selected countries from 1950 -
1983 is shown in Figure 4.6. On the same graph, the average energy consumption in India over
the last ten years is also presented. The World average energy consumption was very high in
the 50's and 60's, but since then, there has been a consistent drop in the energy consumption
over the years. The same trend is also discernible with respect to energy consumption in
developed countries like USA, UK, Germany and Japan. Among the developed countries, the
energy consumption in the steel industry is the lowest in Japan and the drop over the years has
been phenomenal.
…
Figure 4.6. Specific energy consumption in selected countries
Sources:
1. The data for USA, UK, Austria, West Germany, Japan and World Average from
various publications of IISI on energy.
2. Indian figures computed in terms of crude steel from published data on salable steel
by RDCIS, Ranchi.
Viewed against this background, the energy consumption by the steel industry in India
remained fairly stagnant till 1986-87 after which it started showing a downward trend. Figure
4.7 shows the specific energy consumption of steel plants belonging to the Steel Authority of
India (SAIL). Between 1986-87 to 1993-94, SAIL has succeeded in bringing down the average
specific energy consumption from 11.27 Gcal per ton of crude steel (Gcal/tcs) to 8.93
Gcal/tcs, a remarkable reduction of 21.8% in a span of 7 years. Although substantial energy
conservation measures have been adopted in Indian steel plants, their performance leaves a lot
to be desired when compared with their counterparts in many other countries.
Figure 4.7. Specific energy consumption data for India
* 1. Gcal/t salable steel up to 1981-82

2. Gcal/t crude steel from 1982-83 to 1988-89
Source: National Seminar on Specific Energy Consumption in Iron & Steel Industry, 10-12
December 1982, Jamshedpur, made available by RDCIS for the period 1982-83 to
1989-90
Bhilai steel plant's annual specific energy consumption of 8.14 Gcal/tcs is the best achieved so
far by any integrated steel plant in India, as against the international figure of 5-6 Gcal/tcs.
However, this will be an unfair comparison if the conditions prevailing in the Indian steel
plants are not taken into consideration. Some of the factors which influence the specific
energy consumption in Indian steel plants are:
i. Raw material quality, ore, coal and flux.
ii. Operating parameters - burden, blast temperature, slag volume.
iii. Scale of operation, level of technology, size of plant, blast furnace top pressure, coke
oven size, sinter plant bed depth, etc.
iv. Plant utilization factor.
v. Hot metal ratio and proportion of continuous casting, and
vi. Installation of energy saving and energy recovery system.
The situation in the Indian steel plants are unfavorable on these counts. There is a relationship
between operating parameters and the specific energy consumption. If due allowances were to
…
be made in respect of some of these factors (coal and coke ash, sintering practice, blast
temperature, slag volume, hot metal ratio) as in the Indian steel plants, a more realistic base for
comparison could be established. Other factors which are responsible for higher energy
consumption in the Indian steel plants are:
a. Status of the technology
b. Lack of integrated approach towards energy management and energy recovery
systems.
c. Plant operating conditions, equipment availability, maintenance, management, etc.
4.3.1.2 Barriers to energy efficiency in the pulp and paper industry

Indian paper industry uses the external fuel source to an extent of 70% compared to 30-40%
used by paper industry in developed countries. The energy component in Indian paper
industry comes to as high as 30% of the total cost of production. The Indian paper industry is
consuming about 7% of the country's coal and approximately 3% of electrical energy
requirements of the whole manufacturing sector. Unlike other industries, the paper industry
requires large quantum of low grade energy (200°C). Of the total energy requirement, about
15-25% is high grade/electrical energy) and the rest is low grade.
The second aspect of the thermodynamically low efficiency of paper production is the fact that
it is the lowest among all the energy intensive manufacturing units and is less than 1% when
compared to that of steel (22%), cement manufacturing (10%) and dynamically recoverable
energy which is currently wasted. The Indian paper industry was hard hit by the energy crisis in
the early 1970's, and it had to think of adopting energy conservation methods for future
viability. Most of the mills were installed before the energy crisis and sufficient concern was
not shown to energy conservation in its design, right from raw material handling to finished
product, including power boilers. Although energy saving intensity was identified in early 80's,
the consumption pattern remained the same due to:
i. Lack of modernization
ii. Use of obsolete technology
iii. Lack of process control system
iv. change in fibrous raw material mix
v. Installation of inferior and inadequate equipment in old and, specially, small paper
mills
vi. Interrupted and erratic power supply, and shortage of coal.
4.3.1 General barriers to environmental pollution control

There is an increasing awareness all over the world about the negative impacts of
environmental pollution. This is apparent from the stringent emission limits as stipulated by
several governments worldwide for compliance by the respective manufacturing industries.
Environmental problems in India can be classified into two broad categories:

a. those arising as negative effects of the very process of development; and
b. those arising from conditions of poverty and under-development.
The first category has to do with the impact of efforts to achieve rapid economic growth and
development and continuing pressures of demand generated by those sections of society who
are economically more advanced and impose great strains on the supply of natural resources.
Poorly planned development projects are also often environmentally destructive. The second
category has to do with the impact on the health and integrity of natural resources (land, soil,
water, forests, wildlife, etc.) as a result of poverty and the inadequacy for a large section of
population, of the means to fulfill basic human needs (food, fuel, shelter, employment, etc.).
Needless to say, the two problems are inter-related.
Lack of opportunities for gainful employment in villages and the ecological stresses is leading
to an ever increasing migration of poorer rural families to the urban areas. A large number of
industries and other development projects have been incorrectly located, leading on the one
hand to over-congestion and over-pollution in urban centers, and on the other hand, to the
diversion of population and economic resources from the rural areas.
It is difficult to delineate clearly the causes and consequences of environmental degradation

which are often interwoven in a complex web of social, technological and environmental
factors.
4.3.1.2 Barriers to environmental pollution control in the cement industry

The cement industry has the inherent characteristic of adding to the atmospheric pollution in
the form of particulates, CO, SO2, NOx, HC, etc., among which the pollution created by the
particulate matter is most prominent. In the Indian cement industry, cyclones/multi-cyclones
are presently being used in crushing and clinker cooling sections, fabric filters in raw mill, coal
mill, cement mill and packing house while ESPs are mainly used for de-dusting of the waste
gases from rotary kilns.
As the standards are going to become more and more stringent in the coming years, the
industry has to focus the attention on reducing the dust emission from kiln gases which alone
account for nearly 92% of the total dust emission in the plant. The constraints being faced by
the industry in complying with the dust emission regulations are mainly erratic power supply,
frequent voltage fluctuations, water scarcity and inconsistent quality of coal, all of which result
in discontinuous operation/tripping of ESP, causing abrupt malfunctioning of dust collecting
equipment. Also, the layouts of the old cement plants do not permit the installation of
pollution control equipment owing to high investment cost and larger space. Apart from these
constraints, the industry has to cope with problems like non-availability of spares and trained
man-power for efficient operation and maintenance of dust control equipment. As the industry
is on the threshold of setting up plants of 1.5 million tons per annum (MTPA), it is evident
that the installation of pollution control equipment alone cannot solve the air pollution
problem. Prevention at source by reducing dust generation both at the process and at transfer
points along with the control through dust collectors is an integrated approach which consists
…
of proper selection of processing equipment and optimization of process parameters and

should be adopted as future technology innovations. The investment required towards
environmental improvement in cement industry is going to pose tremendous challenge in
order to cope up with the stringent requirement.
4.3.1.2 Barriers to environmental pollution control in the iron and steel industry
The iron and steel industry is recognized to be one of the major pollution prone industries in
the world. Large integrated steel plants cause significant air pollution, water pollution, solid
waste generation and noise pollution. Unmitigated pollution from the old plants resulted in the
deterioration of ambient air quality of the surrounding areas, pollution of nearby water courses,
caused aesthetic pollution due to unplanned solid wastes dumping and led to noise related
problems arising from the workshop.
The environmental controls in the existing plants are linked with the development of
technology and attitude towards the environment at the times of their inception, and are
inadequate in the present context. Even the pollution control facilities in many cases have
become inefficient due to old age and/or negligence. The most pressing problem in the Indian
steel industry arises out of particulate emission.
Detailed environmental studies have been carried out, or are being done, in most of the Indian
steel plants. The data on emissions from the major stacks as obtained from this monitoring
show that particulate emissions in the existing installations are higher than those currently
permitted or specified in the standards. The same is the case with SO2 emissions from the
sulfuric acid plants and NOx emission from the nitric acid plant. The ground level
concentrations (GLCs) of particulates at selected locations show values on the higher side,
although for the most part, within the prescribed limits.
4.3.1.2 Barriers to environmental pollution control in the pulp and paper industry
The pulp and paper industry is essentially a chemical process industry with a distinctive impact
on the environment. It is estimated that about 41.8% of wood is recovered as bleached pulp
and of the remaining wood, roughly 4.2% ends up as solid waste, 46.5% is burnt in chemical
recovery, while 5.25% goes into waste water as dissolved organic matter and 2.25% goes as
suspended solids in waste water.
The potential pollutants from a pulp and paper mill fall into the following four categories:
− Liquid Effluents
− Air Pollutants
− Solid Wastes, and
− Noise Pollution
Segregation of waste water is seldom adopted in old mills, but in few mills colored streams are
segregated from others.
All existing mills in the country are based on chlorine bleaching. Industrialists are not
concerned with the generation of total Organic Chlorine Compounds or Adsorbable Organic
Halogens.
Recovery furnaces, steam boilers, lime kilns and digesters discharge particulate matter, gaseous
pollutants and malodorous compounds thus constitute major sources of air pollution.
4.5 Conclusions and Recommendations

4.3.1 General recommendations
Taking into account the experience and assessment of energy conservation efforts during the
seventh plan, as well as the potential and thrust areas identified in the energy consuming and
production sectors, various measures identified for overcoming the barriers to energy
efficiency improvement can be grouped as follows :
i. Educational and promotional measures.
ii. Institutional set-up and legislation.
iii. Technical assistance and energy audit training.
iv. Rational pricing and Fiscal Incentives.
v. Financial assistance and allocation of funds.
The specific constraints and the energy management and conservation strategies that would be
most appropriate to address each problem are given in Table 4.9.
Table 4.9. Constraints and resolving measures in energy management
Constraints Conservation measures
1. Awareness/Attitude Educational and promotional activities
2. Institutional Legislation and institutional set up
3. Technical Technical assistance and energy audit training
4. Economic and market Rational pricing, economic, fiscal and trade policies
5. Capital Financial assistance and allocation of funds
The different measures required to be taken for improvement of energy efficiency are
discussed in the following paragraphs.
4.3.1.2 Educational and promotional measures

These include information dissemination through awareness campaigns; training programs for
energy managers/auditors, supervisors and trainers; research and development; and
demonstration projects.
A.. Awareness Campaigns

…
The ultimate objective of an energy conservation information program is to assist users in

making choices about improving energy efficiency which are in their own economic self
interest. A pre-requisite for a government sponsored information program is therefore some
determination that existing market forces (or government policies) are not providing sufficient
information upon which to base reasonable economic judgments. The National Awareness
Campaign has been expanded to meet the need of the various users of energy.
B. Training and Education

The comparative newness of many of the techniques used to improve end-use efficiency (and
to evaluate possible efficiency measures) may require special skills - both in private companies
which offer energy services, as well as in companies that are major users of energy. To develop
such skills, the government is supporting education and training ranging from specialized
program for engineers, trainers, managers and senior executives in the various organizations.
4.3.1.2 Institutional set-up and legislation

A. Institutional set-up
The world experience indicates that, although most countries adopt an institutional
arrangement to meet their own specific needs, there are some common basic elements of
success for all the countries:
− Commitment to energy conservation from the highest possible level, and
− An unambiguous system for determination of policy and implementation: usually

two tier. The first tier is an advisory body within the administration, set-up under an
appropriate senior Minister to determine policy, design and energy management
program and ensure effective coordination between interested entities. The second
tier is an executive agency under the policy function, designed to implement and
monitor the program.
In India, the existing institutional set up includes committee of secretaries on Energy

Conservation, Energy Conservation cell in the Ministry of Power, Energy Management Centre,
Petroleum Conservation Research Association under the Ministry of Petroleum and Natural
Gas, Energy Cells in the various Ministries and Departments, Industrial and Trade
organizations and state Energy Development Agencies. However, there is not much
coordination among these institutions with the result that the resources for energy
conservation are not being utilized optimally. It is proposed that a National nodal agency to
execute energy efficiency program may be constituted under the Cabinet Committee on
Energy Conservation and Energy Management Centre be restructured and upgraded as Energy
management Council which will be an association of energy producers and users and will
include members from the government departments as well as industrial and commercial
associations. Similar arrangements may be made at the State level.
B. Legislation
As for the legislative framework, the choice is between the omnibus legislation that will cover
all aspects of efficiency or a selective approach. Global experience suggests that, if an extensive
energy efficiency infrastructure exists, then far-reaching legislation can succeed. Where the
infrastructure is absent as in India, then selective legislation is to be preferred. Various studies
in this regard have been carried out in India, the findings of which have also supported
selective legislation through modification of existing Acts to include Energy Conservation
aspects. A working Group for this purpose has been constituted by the government and its
report is awaited.
4.3.1.2 Technical assistance and energy audit training

A. Technical Assistance
Technical assistance programs include energy usage database, development of Standards for
energy labeling, demonstration of energy conservation projects, sponsoring feasibility studies,
model depot scheme for the State Road Transport Undertakings and program for rectification
of agricultural pump sets.
B. Energy Audit and Management Services

Energy audit for residences, commercial building and industrial facilities can be very useful for
providing owners with information on what measures they can take to conserve electricity and
other forms of energy, along with the anticipated costs, savings and pay-back periods. For
promoting energy practices in industry, the EMC has provided Energy Buses to seven lead
agencies in the country who are in a position to carry out energy audits in all regions of the
country. Seven new lead agencies are being developed for energy audit programs for the
medium and small scale industries.
4.3.1.2 Rational pricing and fiscal incentives

A. Pricing
Pricing policy is the key to energy conservation. Energy prices in India are administered with
the goal of pursuing certain social objectives and do not, in general, reflect costs, subsidies and
low prices provided powerful disincentives for energy conservation, for example, in the case of
agricultural pump sets. Due to lack of competition, the increase in prices for energy is being
passed on to the customers. However, with the liberalization of the economy, the energy prices
are being revised to bring them closer to the costs. It has also been decided to raise the tariff
for agricultural pump sets to at least Rs. 0.50 per unit.
B. Fiscal Incentives
Recognizing the importance of energy conservation, several fiscal incentives and concessions
have been provided to energy conservation projects by the government of India in terms of
concessions/relief in the Income Tax Act, Excise Duties and Customs Duties. Certain
…
concessions are also available from State Governments and Union Territories in keeping with
Sales Tax exemptions for various New and Renewable Sources of Energy and Energy
Conservation Equipment. A standing committee has been set up to study and revise a list of
energy saving devices and recommend the same to the Ministry of Finance for various fiscal
incentives.
4.3.1.2 Financial assistance and allocation of funds

A major constraint to the success of energy conservation efforts so far has been the lack of
adequate resources available with users to invest in energy efficiency equipment. Although the
IDBI has an ongoing scheme to provide loans for energy efficiency technologies, the scheme
has met with limited success because of the unattractive terms of repayment and interest and
other conditions, among other reasons. A revolving fund can be created to finance energy
efficiency equipment to be disbursed through financial institutions like the IDBI/ICICI and
the banking system. Besides the revolving fund, budgetary support can be considered for the
major energy consuming and user department for strengthening their conservation programs.
4.3.1 Industry specific recommendations

There is a need to promote energy efficient Greenfield cement plants. These plants should be
based on modern technology wherein the thermal and electrical energy consumption should be
of the order of 725 kcal/kg clinker and 100 kWh/ton of cement, respectively.
A time-bound program by wet process plants, which face major constraints in implementing
conversion schemes to dry process, should be drawn up. Since the conversion to dry process
plants could involve substantial investment, fiscal incentives from the government are to be
offered to these plants to make it a financially attractive proposition.
Incentives that are usually given to new industries, e.g. interest-free soft loans, sales tax
holidays, exemption from electricity duty etc., should also be extended to these units to
encourage the switching over.
As outlined earlier, the cement industry has been facing multiple problems due to erratic power
supply from the SEBs. Since big investments have to be made for the installation of
cogeneration systems and captive power plants, the government has to come forward to
provide incentives to the industry for easier implementation of these systems.
To combat the problems of high ash coal, two important options should be looked into: (a)
setting up washeries at pit heads, and (b) use of alternate fuels like natural gas and lignite.
Enhanced demand for cement may be created by supporting and implementing mass housing
schemes, laying more concrete roads, using cement in canal linings and implementing large
irrigation projects.
Suitable incentives for export of cement may be considered (like encouraging 100% export
oriented units).
Suitable incentives should be available for the adoption of indigenous technology.
Import of proven technology may be permitted wherever the same is appropriate for Indian
conditions and is not available indigenously within the time frame.
National Council for Cement and Building Materials (NCB) has already instituted the national
award on energy. However, the government may consider giving incentives to cement plants
which achieve energy consumption figures around the best international levels or which utilize
sub-grade fuels.
Government assistance may be offered for demonstration projects like cogeneration of power
from waste gases, beneficiation of coal and limestone, and other innovative technologies.

An increase of one million tons in the volume of steel production would involve an additional
movement of five million tons of raw materials and finished products. Therefore, the
transportation bottlenecks need to be removed.
The problems related to the quality and delivery schedules of coal requires attention.
The process can be modernized to involve rational use of the sensible heat of steel by
concatenation of the individual processes through such methods like continuous casting,
continuous hot direct rolling, continuous annealing etc.
The operation can be improved through minute daily care in combustion control and
adjustment in the heating pattern.
Energy saving facilities can be installed to improve energy efficiency and to recover waste heat.
New methods for treatment of coal such as stamp charging, selective crushing and screening,
partial briquetting of coal charge, dry quenching of coke, coke oven repair and production of
coke through high capacity and tall coke oven batteries must be adopted.

In order to accelerate the energy conservation efforts by the industrial units, the government
may formulate policies towards licensing/registration, financial help and infrastructure
facilities.
…
The medium and small scale units mostly do not recover or re-use such valuable sources of
energy as the black liquor and soda. Black liquor has a heating value of 3,100 kcal per kg and
if this is not utilized in recovery boilers, the wastage of energy is substantial. Similar is the case
with soda recovery process. Therefore, small and medium scale units should be properly
screened in respect of their effective use of energy before they are issued new licenses or
registrations.
Cogeneration by the units should be encouraged by the government through soft loans from
the financial institutions.
Many technological developments are being reported from all over the major paper producing
countries. To accelerate the adoption of new or improved energy-efficient technologies,
demonstration projects may be taken up in some selected units that have done well in their
efforts of energy conservation.
Annex 4.A. List of Energy Saving and Renewable Energy Devices Eligible
for 100% Depreciation under Income Tax
Specialized boilers and furnaces

(a) Ignifluid/fluidized bed boilers
(b) Flameless furnaces and continuous pusher type furnaces
(c) Fluidized bed type heat treatment furnaces
(d) High efficiency boilers (thermal efficiency higher than 75 per cent in case of coal
fired and 80 percent in case of oil/gas fired boilers)
Instrumentation and monitoring system for monitoring energy flows

(a) Automatic electrical load monitoring systems
(b) Digital heat loss meters
(c) Micro-Processor based control systems
(d) Infra red thermography
(e) Meters for measuring heat losses, furnace oil flow, steam flow, electric energy and
power factor meters
(f) Maximum demand indicator and clamp on power meters
(g) Exhaust gases analyzer
(h) Fuel oil pump test bench
Waste heat recovery equipment

(a) Economizers and feed water heaters
(b) Recuperators and air-heaters
(c) Heat pumps
(d) Thermal energy wheel for high and low temperature waste heat recovery
Cogeneration systems
(a) Back pressure pass out, controlled extraction, extraction-cum-condensing turbines
for cogeneration along with pressure boilers
(b) Vapor absorption refrigeration systems
(c) Organic Rankine cycle power systems
(d) Low inlet pressure small steam turbines
Electrical Equipment
(a) Shunt capacitors and synchronous condenser system
(b) Automatic power cut off devices (relays) mounted on individual motors
(c) Automatic voltage controller
(d) Power factor controller for A.C. motors
(e) Solid state devices for controlling motor speeds
…
(f) Thermally energy efficient stinters (which require 800 or less kilo calories of heat to
evaporate one kilogram of water)
Burners
(a) 0 to 10% excess air burners
(b) Emulsion burners
(c) Burners using air with high preheat temperatures (above 300°C)
Other Equipment
(a) Wet air oxidation equipment for recovery of chemicals and heat
(b) Mechanical vapor recompressors
(c) Thin film evaporators
(d) Automatic micro-processor based load demand controllers
(e) Coal based producer gas plants
(f) Fluid drives and Fluid couplings
(g) Turbo chargers/Super-chargers
Renewable Energy Devices

(a) Flat plate solar collectors
(b) Concentrating and pipe type solar collectors
(c) Solar cookers
(d) Solar water heaters and systems
(e) Air/gas/fluid heating systems
(f) Solar crop dryers and systems
(g) Solar refrigeration, cold storage and air-conditioning systems
(h) Solar stills and desalination systems
(i) Solar power generating systems
(j) Solar pumps based on solar thermal and solar photovoltaic conversion
(k) Solar photovoltaic modules and panels for water pumping and other applications
(l) Wind mills and any specially designed devices which run on wind mill
(m) Any special devices including electric generators and pumps running on wind
energy
(n) Biogas plant and biogas engines
(o) Electrically operated vehicles including battery powered or fuel-cell powered
vehicles
(p) Agricultural and municipal waste conversion devices producing energy
(q) Equipment for utilizing ocean waste and thermal energy
(r) Machinery and plant used in the manufacture of any of the above sub-items
Source : Direct taxes ready reckoner 1995, Taxman Publications (P.) Ltd., New Delhi, 1995.
Annex 4.B. Union Excise Duty
The manufacturing of the following items has been exempted from payment of Union Excise
Duty:
01 Flat plate solar collectors: black continuously plated solar selective coating sheets
(in cut lengths or in coils) and, fins and tubes
02 Concentrating and pipe type solar collectors
03 Solar cookers
04 Solar water heaters and systems
05 Solar air heating systems
06 Solar low pressure steam systems
07 Solar stills and desalination systems
08 Solar pumps based on solar-thermal and solar-photovoltaic conversion
09 Solar-photovoltaic modules and panels for water pumping and other applications
10 Solar crop dryers and systems
11 Wind mills and any specially designed devices which run on wind mills
12 Any special devices including electric generators and pumps running on wind
energy
13 Biogas plants and biogas engines
14 Agricultural and municipal water conversion devices producing energy
15 Equipment for utilizing ocean waves energy
16 Ocean thermal energy conservation systems
17 Parts consumed within the factory manufacturing the goods specified at Sl. Nos. 01
to 16 above.
Source: Excise Tariffs

132 Regulatory Measures and Tecnological Changes…
5. COUNTRY REPORT: PHILIPPINES

5.1 Introduction
In the Philippines, government policies and regulations which address the needs of the
industry in support of technological development from the late 1970s have created
desirable results, gradually propelling the country's economy to progress. As part of this
policy environment, the government allows fiscal incentives to priority industrial sectors to
encourage their establishment. These incentives were devised to compensate for market
imperfections, and to reward performances contributing to the economic development.
These incentives are laid down under the 1987 Omnibus Investments Code.
Addressing these concerns from the other end of the production line is the Philippine
Consumer Act. This law provides for the establishment of industrial standards and
encourages professional management and technical expertise in product quality, testing,
research and development.
The government regulation on energy conservation and efficiency took its first shape in
1979 through Republic Act No. 73, otherwise known as the Omnibus Energy
Conservation Law. The active participation of the private sector with assistance from the
government energy sector has resulted in the much needed awareness of the importance of
judicious and rational use of energy. This has not only created savings for the government
in terms of reduction in the oil import bill, but has also furthered the industry sector in
becoming more efficient in its operations, thereby cutting down considerably the energy
cost component of production.
The issue of environmental protection is a world-wide concern. In the Philippines,

environmental protection is the joint mandate of about thirty government entities led by
the Department of Environment and Natural Resources (DENR). This group enforces
strict compliance with environmental regulations to protect the environment which should
be kept as clean and as wholesome as possible for the welfare of posterity.
This chapter analyzes the impact of government regulations on technological development

for better achieving energy efficiency improvement and pollution abatement in general.
The important regulatory measures adopted by the Government of the Philippines on

energy efficiency and environmental protection are discussed, with special emphasis on
three major industrial sub-sectors: cement, iron and steel, and pulp and paper. The chapter
delves into these three major areas to analyze the impact of government regulations on
these industries. Later, an overview of the institutional structures of the cement, steel and
pulp & paper industries is provided with regard to the type of ownership, industrial
associations involved as well as the government authorities and institutions that deal with
technological development, energy efficiency and environmental pollution. Then the
Regulatory Measures in Selected Asian Countries: Country Report from the Philippines 133
regulations on industrial development, energy efficiency and pollution discharges that affect
the three industries are elaborated and finally, the last section assesses the impact of
regulations on sectoral technological development of the three industries.
5.2 Institutional Structure of the Cement, Iron and Steel and Pulp and Paper
Industries
In the institutional structure, the most important issues to be addressed are those of the
ownership, industrial associations and the roles of the government and local authorities
concerned.
5.2.1 Ownership in the target industries

Industrial companies in the Philippines could be publicly-listed corporations with shares
traded in the stock market, or they could be closely-held domestic corporations. While
some are allowed to have foreign participation, still others are only subsidiaries or divisions
of bigger more diversified companies.
Government participation in some cement companies was prominent during the 1980's.
Some companies which suffered difficulties in meeting their loan obligation with
government financial institutions (GFIs) had to be bailed out by converting said loans into
equity. In 1987, however, the GFIs transferred the cement sector financial assets to the
Asset Privatization Trust (APT). Since 1990, most of the companies have negotiated with
the APT for the settlement of their debt under the "Direct Debt Buy Out" (DBO) scheme.
The APT has so far bidden out all cement companies foreclosed by GFIs, hence bringing
back all the control and operation of the industry to the private sector.
Some firms in the pulp and paper industry have also been taken over by the APT and are
awaiting eventual sale through public bidding.
A worthwhile example of the privatization effort of the industry is the deregulation of the
downstream oil industry. This urgent economic program of the present Ramos government
is provided for by Section 5(e) of Republic Act (R.A.) No. 7638, the law that created the
Department of Energy (DOE) in 1992. At the end of four years from the effecting of this
Act, the Department shall, upon approval of the President, institute the programs and
timetables of deregulation of appropriate energy projects and activities of the energy
industry.
This policy reform is based on the belief that a truly competitive market can better achieve
the social policy objectives of fair prices and margins, and stable and sufficient supply of
clean and high quality products. Through the Task Force on Oil Industry Deregulation, the
Department of Energy is developing policy framework and transition program which will
be implemented in two phases to enable a smooth transition from regulation to
deregulation of the oil industry. Phase I, the transition phase, will involve partial
deregulation and will commence immediately after the enactment of the law. This will
prepare the public for full deregulation by acclimatizing them to frequent adjustments on
the domestic price of petroleum products. Phase II, on the other hand, will be full
deregulation and will begin not earlier than 26 December 1996 as prescribed by RA 7638. It
will be characterized by the return of the market forces working freely in the allocation and
price setting of petroleum products.
Under Phase I, the Energy Regulatory Board (ERB) shall implement an automatic pricing
scheme which will be approved after due public hearing. This formula will involve fixing
the OPSF accrued balance at Peso 2 billion and correspondingly reflect in the monthly
wholesale posted price (WPP) any changes in the Peso landed cost of the crude oil.
Complementary to the adoption of an automatic pricing scheme, the return-on-rate base

(RORB) of the oil companies and the margin of the dealers and freighters will also be set at
a reasonable level based on a formula which will be approved through the ERB and public
hearing.
While still ensuring the accomplishment of government's revenue goals, the existing tax
structure on petroleum products will be restructured. This would entail the conversion of
7% of the current 10 % ad valorem duty on crude and the P1.00 special levy on oil imports
to specific tax on refined products. Corollary to this, the tariff differential of 10 percent
between crude oil and refined product imports shall be maintained temporarily to
encourage local refining and maximize the utilization of existing refinery capacity.
To begin the establishment of a level playing field, the Department of Energy will relax the
regulations/procedures on the following activities: import/export, shipping and transport
of petroleum crude and products; and registration and licensing of downstream operations
and facilities.
Phase II will involve the liberalization of oil imports, and removal of government controls
on price setting, oil company margins and foreign exchange cover feature of the OPSF.
However, this does not imply total absence of regulations in the industry. Government
controls will still be needed to guarantee the full benefits of deregulation. As required by
national security concerns, government intervention shall concentrate on ensuring genuine
fair competition and secured supply, safeguarding public health and safety, setting and
monitoring product standards and quality, and protecting the environment. Being strategic
and indispensable in ensuring economic growth and stability, oil is too vital a commodity to
be left to be owned and controlled by foreign companies. To protect the downstream oil
industry from a possible domination of foreign oil companies through the formation of a
cartel, the DOE will support the enactment of an anti-trust law. However, this law is not a
prerequisite to full deregulation.
5.2.2 Industrial associations in the cement, iron & steel, and pulp & paper sub-
sectors
5.2.2.1 The Philippine Cement Manufacturers Corporation (PHILCEMCOR)
PHILCEMCOR serves as a medium to assist private or government initiatives in
encouraging and promoting the manufacture of cement. The association acts as the
industry's link with the government and with one another. It monitors the quality of
cement being produced and marketed by its member firms and likewise provides a forum
for setting up production ceilings when there is a glut in the market. It also determines
measures to alleviate shortage situations. Thus, the industry is protected during times of
surplus and shortages.
5.2.2.2 Philippine Iron and Steel Institute (PISI)

This institute is an organization of professional individuals, companies and associations
involved in the iron and steel industry. It is a non-stock, non-profit corporation which
caters to the basic needs of its members and assumes the task of fulfilling the following
roles and objectives:
− To work for the stabilization and rationalization of the local market
− To promote exports
− To carry out representation with government bodies on matters affecting the
iron and steel industry such as the restructuring of the tariff code
− To work for the technical assistance requirements of the industry
− To serve as an agent for organizing and disseminating information in the
industry
− To formulate a development policy for the full integration of the iron and steel
industry
− To create PISI chapters in places, including but not limited to, cities and
provinces of the Philippines, and to administer on the basis of the guidelines set
by the Board of Trustees.
Aside from individual companies, following are the associations with membership
accreditation to PISI:
Long Products Group: - Philippine Steel Makers Association
- Association of the Philippine Steel Mills Inc.
- Philippine Steel Rolling Mills Inc.
- Wire Rope Manufacturers Association
Flat Products Group: - Filipino Galvanizers Institute

- Pipes and tubes Manufacturers Association
- Philippine Institute of Steel Construction, Inc.
5.2.2.3 Pulp and Paper Manufacturers Association, Inc. (PULPAPEL)

PULPAPEL has been in existence since 1959 and presently has 20 regular member-firms
and 3 associate members, representing about 95 percent of the total paper industry capacity
of the country. The association serves as a forum for the exchange of ideas and
information among its members and other concerned institutions. This association carries
on dialogues and makes representations with government agencies concerning problems
and issues of the industry such as tariff laws, industrial development policies, power
allocation, etc.
5.2.3 Government and local authorities on technological development, energy

consumption and efficiency, and environmental pollution
There are a number of government authorities mandated to deal with technological
development, energy consumption and efficiency, and the abatement of environmental
pollution, as listed below.
5.2.3.1 Institutions concerned with technological development and standards

The Board of Investment (BOI), a branch agency of the Department of Trade and Industry, and the
Investment Coordination Committee of the National Economic Development Authority (ICC-NEDA)
review projects proposed for implementation. Enterprises registered with the BOI are
entitled to incentives such as income tax holiday for 4 years and tax and duty-free import of
capital equipment and spare parts. Such incentives could be intended for projects such as
plant expansion, process modification, rehabilitation or simply environmental pollution
control. Section 56 of the Philippine Environment Code granted incentives ranging from fifty
percent of tariff duties and compensating tax to fifty percent of expenses actually incurred
for research projects undertaken to develop technologies for the manufacture of pollution
control equipment. The ICC-NEDA decides on the feasibility of public and private sector
infrastructure projects (or, major national projects) and their contribution to overall
economic development by reviewing their techno-economic and socio-political impacts.
The Department of Trade and Industry (DTI) is responsible for the promotion and
development of domestic and foreign trade, industries and investment. The DTI's Bureau of
Product Standards (BPS) issues PS Certification Mark to manufacturers/assemblers and an
Import Commodity Clearance (ICC) for importers whose products meet the Philippines
National Standard (PNS). BPS enforces strict compliance on the quality standard of the
products manufactured and sold in the market. This has resulted in compelling the
companies to upgrade their process systems, hence, improving the quality of their products
and their competitiveness in terms of quality and cost. Adoption of modern process
technology is a requirement in meeting specified product standard quality.
Most work for the development of Standards consists in reviewing of existing standards
and adaptation of the best part of these existing standards to local conditions. Once a draft
standard has been developed and the supporting analysis considered, the next step is to
have the draft reviewed by various parties that will use it or will be affected by it. Public
hearings are held. It is important that potentially affected parties can have input before the
provisions of the standard become mandatory. Also the affected parties can claim some
ownership on the provisions of the standard. The approved standards are published in
leading newspapers as a prerequisite prior to their implementation.
Other government agencies concerned with technological development include:

− Development Bank of the Philippines (DBP) and Land Bank of the Philippines (LBP),
responsible for the expeditious processing and release of loan requirements by
private entities.
− Department of Interior and Local Government (DILG), responsible for the
strengthening of the administrative and regulatory capabilities of local
government units in the performance of their functions and that of devolved
agencies under conditions of greater autonomy, with increasing capacity to
govern and carry out social, economic, political and environmental development
programs.
5.2.3.2 Institutions in charge of energy conservation and efficiency

The Department of Energy (DOE) has jurisdiction over energy resource development and
utilization, and energy management. The Department of Science and Technology (DOST) through
its attached agencies, the Philippine Council for Industry and Energy Research and Development
(PCIERD) and Industrial Technology Development Institute (ITDI), provides for technological
research and support to the industry.
The institutions in charge of the implementation of energy conservation and efficiency in

the country are more of a collaborative or joint effort between the government and the
private sector. There is no conflict of interest nor overlapping of functions as to the nature
of their respective roles because each one has its own distinct field of specialization. They
are complementary to one another in the sharing of energy conservation/efficiency related
projects. There are existing pools of practicing energy managers, consultants and engineers
from which expertise can be readily tapped.
The following are the country's energy institutions with their respective mandated
responsibilities:
A. Department of Energy (DOE)

As a leading agency mandated to promote the judicious and efficient utilization of energy,
DOE carries out responsibilities which include, among others, creating awareness among
energy users on the importance of efficient energy utilization, assisting the public and
private sectors in identifying the most cost-effective options towards efficient use of the
country's energy resources, and developing and implementing policies to promote energy
conservation and management in all sectors of the economy. The Department provides
plant audit and assistance in the preparation of project feasibility studies. Such project
studies may then be submitted for funding under the financial assistance packages offered
under the Technology Transfer for Energy Management (TTEM) demonstration fund project.
The function DOE regarding promotion of judicious utilization of energy rests on the two
main divisions under the Energy Utilization Management Bureau (EUMB):
− Energy Efficiency Division (EED) - promoting energy efficiency at the national level,
− Fuel and Appliance Testing Laboratory (FATL) - implementing programs for labeling
and efficiency standards for appliances.
With the expiration of Batas Pambansa Blg. 73 (otherwise known as the "Omnibus Energy
Law") in June 1990, the DOE is pursuing a new legislation to enforce some of its
provisions.
B. Department of Science and Technology (DOST)

DOST is responsible for the formulation and implementation of policies, plans, programs
and projects for the development and promotion of science and technology in the country.
C. Philippines Council for Industrial Energy Research and Development, Industrial Technology
Development Institute (DOST-PCIERD/ITDI)
This is an affiliated agency of the DOST supporting the research and development of new
technologies . Proponents of these projects include other government sectors with the
participation of the private sector as well
D. Energy Managers Association of the Philippines (ENMAP)

The ENMAP is a non-stock, non-profit and private professional national organization of
practicing energy managers, energy engineers and consultants. The association serves as the
forum for "transfer of idea" and interaction on energy management practices. It
institutionalizes energy management practices in the industry sector and serves as a vehicle
through which government and private assistance in the form of technical services may be
equitably and effectively extended to ENMAP members. In coordination with the DOE, it
also provides members with latest techniques on effective energy management in their
respective establishments.
E. Energy Development and Utilization Foundation, Inc. (EDUFI)

The EDUFI is a non-stock corporation whose primary role is to promote and sustain the
economic and social well being of the Philippines through comprehensive dissemination of
information, consultation, research and development, training and education and
demonstration of appropriate technologies on energy development, utilization,

management and conservation. The DOST-PCIERD and the Department of Energy are
permanent members of the Board of Directors. This network places the EDUFI in a
position of strength in view of its direct access to energy policy makers.
F. Renewable Energy Association of the Philippines (REAP)

A non-stock, non-profit corporation, the REAP is an association of individuals (inventors)
and member companies (suppliers) involved in renewable energy technologies. The REAP
promotes and disseminates information on available alternative energy technologies in the
local market. The association also serves as an institutional and administrative arm through
which its members, and the industry in general, can effectively promote research and
development of renewable energy technologies. The research and development effort is
supported by the DOE whereby it is transferred to the private sector when ready for
commercialization.
G. University of the Philippines National Engineering Center (UP-NEC)

This is an educational institution involved in the promotion of energy conservation and
efficiency. The university arranges regular training and seminar workshops on Basic Energy
Management Course tailored for energy managers and conducted in cooperation with the
DOE and other organizations working in the field of energy conservation and efficiency.
H. Philippines Energy Conservation Center, Inc. (PECCI)

PECCI is a non-profit, non-stock, professional foundation devoted to the enhancement of
profitability and competitiveness of industrial and commercial enterprises through the
wider applications of energy conservation and energy management technologies. The
PECCI acts as a consultant to major international energy and environmental expositions
and conferences and also to several local industrial and commercial firms in the field of
energy management, energy audit/surveys, design of electro-mechanical systems, and
engineering, retrofitting and implementation of plans and programs for energy
management and productivity.
5.2.3.3 Institutions in charge of environmental protection

The Philippine Government's institutions, policies, and standards for environmental
management and protection were essentially set in place in the late 1970's. The process
began with the establishment of the National Pollution Control Commission (NPCC),
which had enforcement and regulatory powers, and an Inter-Agency Committee on
Environmental Protection (IACEP) (the predecessor of the National Environmental
Protection Council or NEPC), which had the policy, research and monitoring functions.
The Government also established at that time the Environmental Impact Statement (EIS)
system, patterned after similar requirements in the United States, for systematic study of
the relationship between a project and its surrounding environment. Following the People
Power Revolution in 1986, NPCC and NEPC were replaced by a single bureau, the
Environmental Management Bureau (EMB), which was organized under the Ministry of
Natural Resources. In 1987, the Ministry was reconstituted in its present form as the
Department of Environment and Natural Resources (DENR), with EMB as a staff bureau.
The Pollution Adjuration Board (PAB) was also formed in 1987 to serve as the judicial
body for environmental affairs. It is empowered to issue Cease and Desist Order (CDO) to
any entity found violating environmental standards and regulations.
The DENR is responsible for ensuring the sustainable use, development, management,
renewal and conservation of the country's forest, mineral lands, offshore areas and other
natural resources, including the protection and enhancement of the quality of the
environment. On the aspect of environmental pollution and protection, the leading
government authority is the Environmental Management Bureau of the Department of Environmental
and Natural Resources (EMB-DENR). An Environmental Impact Statement (EIS) is essential
in obtaining an Environmental Compliance Certificate (ECC) issued by the DENR, for
projects such as new plant construction or expansion. The ECC is needed to obtain
project-related permits and approvals, and in many cases, bank loans. However, Local
Government Units (LGUs) or the local municipal government that directly host the
proponent's project are also empowered to issue the ECC. For example, the Laguna Lake
Development Authority (LLDA) is equipped with regulatory powers for the environmental
protection of the areas surrounding Laguna Bay region in the Metro Manila. LLDA is
empowered to issue the Authority to Construct (ATC) and the Permit to Operate (PTO)
certificates in this region. The Department of Health (DOH) is also a concerned party and
authority. Its mandate is to look after the health and welfare of the people working in
industrial plants and/or living in the surrounding area.
The Department of Environment and Natural Resources has three bureaus, namely:
− Environmental and Research Office (ERO)
− Natural Resources and Management Office (NRMO)
− Field Operations Office (FOO)
Under the ERO is the EMB which is the specific agency in charge of environmental
protection in the Philippines. The EMB is responsible for (i) formulation of environmental
quality regulations and standards; (ii) administration of the EIA system; (iii) promotion of
environmental education; (iv) conducting research and development related to
environmental issues; and (v) maintenance of environmental quality data bases. It also
provides technical assistance to the Environmental Sector Units in DENR's Regional Field
offices.
The regional offices which are under the FOO are responsible for the implementation and
enforcement of environmental policies, regulations, and standards. The Environmental
Sector Units in DENR's Regional Field Offices are responsible for the implementation of
the regulatory and policy framework concerning environmental quality. As such, they are
responsible for: (i) issuing Authorities to Construct and Permits to operate facilities; (ii)
monitoring environmental quality in their respective regions; (iii) taking legally permissible
enforcement measures against violators of environmental regulations and standards; and
(iv) monitoring the compliance of the dischargers with both mandated environmental
standards and specific conditionality of their ECC. Their efforts are supplemented by the
PAB, which was created to act as a quasi-judicial body and given the power to issue CDOs
to chronic violators of environmental standards or enterprises in default of the conditions
of the ECC. The PAB issues CDOs on EMB's recommendation after EMB certifies that it
has exhausted all the prospects for remedial action, and the DENR's Regional Field offices
execute the closures.
The Local Government Units (LGUs) which handle types of project that fall under the
category of Kalakalan 20 - a countryside business enterprise scheme established through
Republic Act 6810 - are also empowered to impose environmental protection measures and
issue ECCs to existing industrial establishments inside their municipal jurisdiction. The
host municipality requires environmental clearance before any business permit can be
issued specifically to those establishments which are known to emit pollutive discharges.
Because of the complexity of the issue of environmental protection, an inter-agency

task-force was formed in 1992 through a Memorandum of Agreement (MOA) between
DENR (the primary agency responsible for environmental protection, natural resources
conservation and Environmental Impact Assessment) and thirty other agencies including
the government-owned and controlled financial institution. The agreement basically
outlines several areas of coordination whose objective is to streamline the EIS System and
resolve the conflicting or overlapping requirements of different agencies. The MOA also
created an inter-agency network to facilitate the regular exchange of information on
procedures and guidelines, and the continued review of process flowcharts, documentation
requirements, and forms for streamlining the overall environmental and government
licensing and permit structures.
The government agencies and offices signatory to the MOA and their roles and
responsibilities are listed in Annex 5.A.
5.3 Regulations on Industrial Development, Energy Efficiency and Pollution

Discharges
5.3.1 Overall environmental regulations and policies
The prevailing environmental administrative machinery had several forerunners. Foremost
of these was the National Water and Air Pollution Control Commission (NAWAPCO),
which was created in 1964 by virtue of Republic Act No. 3931 in order to maintain
reasonable standards of quality for the country's air and water. It was subsequently
transformed into the National Pollution Control Commission (NPCC) through Presidential
Decree No. 984, otherwise known as the Pollution Control Law, with more regulatory
powers than the NAWAPCO.
The mid-seventies brought on the realization that industrial pollution was not the country's
sole environmental problem. Environmental problems took on a wider perspective since
practically all aspects of the natural environment were subjected to varying degrees of abuse
and degradation. A national consensus emerged as to the need for an integrated approach
towards confronting and solving environmental problems. This led to the creation of the
Inter-Agency Committee on Environmental Protection (IACEP) under the Department of
Natural Resources (DNR) on July 6, 1976. It was assigned to assess the environmental
situation prevailing at the time, particularly government policies and programs on
environmental protection. The Committee's findings on the status of environmental
protection efforts in the country showed that there was an uncoordinated implementation
of activities by at least 22 government agencies with specific sectoral responsibilities on
environmental protection. Furthermore, the lack of adequate legislation and regulatory
powers hindered the environmental protection efforts of the various agencies. Also, there
was no mechanism to assess the environmental impacts of development projects.
Consequently, the IACEP recommended the integration of environmental programs
through inter-agency coordination and the creation of a national coordinating agency on
environmental protection.
These recommendations led to the creation of the National Environmental Protection

Council (NEPC) on April 18, 1977, under the Presidential Decree No. 1121. The Council,
which was chaired by the President, had fourteen members including the Commissioner of
the NPCC, and was assisted by a Secretariat. It was assigned, among others, with the task
of rationalizing the functions of government agencies for an effective, coordinated and
integrated system of environmental protection, research and implementation/enforcement
of laws. This was effected by the Council through the creation of inter-agency committees
to take care of specific concerns - e.g. the Environmental Officers Committee, Coastal
Zone Committee, Inter-agency Committee on the Proliferation of Toxic and Hazardous
Wastes.
The political events of the early eighties, which culminated in the formation of a new
government in February 1986, also saw the abolition and reorganization of various
government agencies, including the NEPC and NPCC. In January, 1987, Executive Order
No. 131 was promulgated, reorganizing the Department of Natural Resources (DNR) into
the Department of Environment, Energy and Natural Resources (DEENR). Executive Order
No. 192, issued later, reorganized the DEENR into what is now the Department of
Environment and Natural Resources (DENR). It was assigned to ensure the sustainable use,
development, management, renewal and conservation of the country's forest, mineral lands, offshore areas
and other natural resources, including the protection and enhancement of the quality of the environment.
Under the organizational set-up of DENR is the Environmental Management Bureau
(EMB) which is the merger of the National Environmental Protection Council and the
National Pollution Control Commission.
In line with the government's policy of decentralization, field offices for the 13 regions of
the country were also established. Section 21 of E.O. No. 192 mandates the regional offices
to implement the laws, policies, plans and programs, and promulgate the rules and
regulations of the Department. One major functions of the regional offices is to “conduct a
comprehensive inventory of the natural resources in the region and formulate regional short-term and long-
term development plans for the conservation, utilization and replenishment of natural resources”. Under
the same provision it was mandated that an Environmental and Natural Resources Office shall be
established in every province and a Community Environment Office in municipalities, whenever
necessary.
A prominent feature of the newly re-organized Department is the Pollution Adjudication

Board (PAB) which "assumed the powers and functions of the Commissioners of the National Pollution
Control Commission with respect to the adjudication of pollution cases under Republic Act No. 3932 and
P.D. No. 984".
Although the total amount of financial resources appropriated for all environmental
management efforts is difficult to determine as these are spread over a number of agencies,
the effective total budgetary allocation for pollution control, which is a vital component of
the government's environmental management program, could be easily ascertained to
reflect the government's stance toward certain sectoral concerns like environmental
protection.
Landmark environmental legislations were formulated in the late seventies and

implemented in the eighties. Among these, the most prominent are the Presidential Decree
1151, otherwise known as the Philippine Environmental Policy, and Presidential Decree No. 1152
or the Philippine Environment Code. The regulatory framework is summarized in Table 5.1.
5.3.1.1 The Philippine environmental policy

The Philippine environmental policy states the following objectives:
− to create conditions under which man and nature can thrive in productive and
enjoyable harmony with each other,
− to fulfill the social, economic and other requirements of present and future
generations of Filipinos; and
− to ensure the attainment of an environmental quality that is conducive to a life of
dignity and well being
The principal environmental permits required under Philippines law include the
Environmental Compliance Certificate (ECC), the Authority to Construct (ATC), and the
Permit to Operate (PTO). Generally, the DENR is authorized to issue these permits.
However, for the surroundings of Laguna de bay within Metro Manila, the Laguna Lake
Development Authority (LLDA) is delegated to issue the ATCs and PTOs.
The ECC refers to the document issued by the Secretary of DENR or his duly authorized
representative, certifying that the proposed project will not bring about an unacceptable
environmental impact and that the proponent has complied with the requirements of the
EIS. The issuance of ECC is, therefore, subject to the requirement of the EIS system
which requires all agencies and instrumentalities of the national government, including government-owned
and controlled corporations, as well as, private corporations, firms and entities, to prepare an environmental
impact statement (EIS) on their every action, project or undertaking which significantly affects the quality of
the environment. The environmental impact assessment (EIA) was primarily introduced by the
government to forecast the impacts of development projects on the environment and to
determine preventive or mitigatory measures for their adverse consequences. The DENR,
through the EMB or the DENR regional offices, or through the LGU, reviews the
environmental impact statement with an eye toward issuing an ECC.
Table 5.1. Legal and regulatory framework of the Philippine EIS system
Laws/Regulations Year Unique Features
Presidential Decree 1977 Requires sponsors for all government and private projects
(P.D.) 1151 - Philippine affecting the quality of the environment to prepare an
Environmental Policy environmental impact assessment (EIA) statement.
P.D. 1152 - Philippine 1977 Requires land use management regulating or enforcing agencies
Environment Code to consider significant environmental impacts, as well as other
aspects, of choosing locations for industries.
P.D. 158 - Establishing an 1978 • Centralizes the EIS System under the National
Environmental Impact Environmental Protection Council (NEPC)
Statement System • Authorizes the President and NEPC to proclaim projects and
activities to be subject to the EIS System.
Implementing Rules and 1979 • Defines parameters for EIS
Regulations of P.D. 1586 • Establishes penalty structure for non-compliance
• Creates procedures for implementing EIS system
• Provides for exemptions, and
• Establishes procedures for public hearings related to an EIS.
Proclamation 2146 1981 Proclaims certain areas and types of projects as environmentally
critical and within the scope of the EIS System.
Letter of Instruction 1981 Authorizes NEPC to issue Environmental Compliance
(L.O.I.) 1179 Certificate (ECC) and exemptions.
NEPC Office Circular No. 3 1983 Provides technical definitions and scope of environmentally
critical projects and areas.
Revised Rules and 1984 • Limits EIS for environmentally critical projects (ECPs)
Regulations Implementing • establishes requirements for environmentally critical areas
P.D. 1586 (ECAs)
• Establishes fees and compliance monitoring systems
• Calls for closure of ECPs operating without an ECC
• Authorizes NEPC to cancel an ECC for violating conditions
or other standards, rules and regulations
• Identifies lead agencies for ECPs and ECAs.
Executive Order (E.O.) 192 1987 • Establishes the central and regional structure of the DENR,
Laws/Regulations Year Unique Features

Reorganization of the including the Environmental Management Bureau (EMB)
Department of Environment • Abolishes the NEPC, and transfers NEPC powers and
and Natural Resources functions to EMB.
DENR Administrative Order 1992 • Decentralizes some EIA functions to DENR regional offices
(DAO) No. 21 - Amendments • Defines the need for public hearings
to the revised Rules and • Establishes the concept of multi-sectoral monitoring team
Regulations Implementing and Environmental Guarantee Fund.
P.D. 1586
Republic Act (R.A.) 7160 - 1991 • Transfers certain environmental management functions to
Local Government Code and and Local Government Units (LGUs)
Implementing Rules and 1992 • Provides for the positioning of environment and natural
Regulations resources officers in provinces, cities, and municipalities.
DAO 30 - Guidelines for the 1992 Lists issuance of ECCs for and adjudication of cases involving
Transfer and Implementation complaints against projects and businesses under the Kalakalan
of DENR Functions Devolved 20 (as defined by R.A. 6810) as functions to be assumed by
to the Local Government LGUs.
Units
Most banks in the Philippines make loans contingent upon the project proponent (the
sponsoring firm or organization with administrative responsibility for the project) securing
an ECC. A number of government agencies also require an ECC before issuing project-
related permits and approvals (ref. Annex 5.B for a list of permits).
Once the ECC is issued, the DENR and LGU monitor the conditions stipulated in the
certificate. Violation of any of the conditions or operating without an ECC carries fines
including temporary cessation of project operations.
An ATC is issued when the proponent has demonstrated that the project: (i) will comply
with the standards for air and water quality; and (ii) takes into account the conditions of the
ECC.
An application for a PTO may be filed upon: (i) completion of construction; and (ii)
compliance with any conditions attached to ATC. The proponent must also designate a
Pollution Control Officer. PTOs are issued by local DENR offices for a period of one
year.
The EIA Procedure

The Philippine system uses three types of Environmental Impact Assessment; namely, an
EIS, a project description, and a brief project description. An ECC and some form of
environmental assessment is required if the proposed project meets either of the following
conditions:
− The project is defined as an "environmentally critical project". An environmental

impact statement is required for this project, which is reviewed by the EMB.
− The project is located in an "environmentally critical area". A project description

(and sometimes an EIS) is required for this type of project, which is reviewed by
the DENR regional office.
− A brief project description is usually required for Kalakalan 20 projects

(countryside and barangay business enterprises). This form of environmental
impact assessment is reviewed at the provincial capital level.
Table 5.1 summarizes these three types of projects. Environmental impacts are first
considered during the conceptual design stage of a project, which allows its proponents to
determine the scope of the environmental impact assessment (EIA). In determining the
assessment's scope, the proponent seeks government and public input from representatives
of the affected communities, LGUs (province, city, municipality, barangay), non-
government organizations (NGOs), and regional offices of the national government with
jurisdiction over the proposed site and project. The environmental impacts identified
during the project design stage are then analyzed to ascertain the feasibility of the project.
The proponent communicates the findings of the assessment, including impacts and
mitigation measures to the potentially affected parties. If the project is acceptable and an
ECC is issued, the proponent can proceed with project implementation. If unacceptable,
the proponent must withdraw or modify the proposed project and make corresponding
changes to the environmental impact assessment. The ECC is used to monitor the
environmental impacts throughout the construction and operational phases of the project.
DENR has established procedures to address the environmental impact assessment

requirements for industrial development projects through DENR Administrative Order No.
11 (1994). DENR's intent is to encourage proponents of these projects (e.g. government
agencies) to consider the overall environmental impacts of existing, planned and future
industrial establishments within a specific geographic area, and to issue a single
Environmental Compliance Certificate. Annex 5.C shows the procedures for obtaining an
ECC.
5.3.1.2 The Philippine environment code

P.D. No. 1152, otherwise known as the Philippine Environment Code addressees the total
environmental issues which require the establishment of standards for air and water quality,
prescribing guidelines for land use management, natural resources management and
conservation, utilization of surface- and groundwater and waste management. The
following are the major issues of the Philippine Environment Code:
Air quality management

Air Quality and Noise Standards - National Pollution and Control Commission in
coordination with appropriate government agencies shall be responsible for the
enforcement of ambient air quality emission and noise standards, including the monitoring
and surveillance of air pollutants, licensing and permitting of air pollution control facilities,
and the promulgation of appropriate rules and regulations. Existing air quality emission and
noise standards may be revised and/or modified while keeping abreast with new
development and technology.
Water quality management
Protection and Improvement of Water Quality - The production, utilization, storage and
distribution of hazardous, toxic and other substances (such as radioactive materials, heavy
metals, pesticides, fertilizers, and oils), and disposal, discharge and dumping of untreated
wastewater, mine-tailings and other substances that may pollute any body of water of the
Philippine resulting from normal operations of industries, water-borne sources, and other
human activities, as well as those resulting from accidental spills and discharges shall be
regulated by appropriate government agencies pursuant to their respective charters and
legislation. While performing the above functions, the government agencies concerned
shall coordinate with the National Environmental Protection Council and furnish the latter
with such information as may be necessary to enable it to attain its objectives under the
Presidential Decree No. 1121.
Water Quality Monitoring and Surveillance - The various government agencies concerned with
environmental protection shall establish to the greatest extent possible a water quality
surveillance and a monitoring network with sufficient stations and sampling schedules to
meet the needs of the country. Said water quality surveillance network shall put to
maximum use the capabilities of such government agencies. Each agency involved in such
network shall report to the National Environment Protection Council the results of these
monitoring activities as the need arises.
Land use management

Location of Industries. - In the location of industries, factories, plants, depots and similar industrial
establishments, the regulating or enforcing agencies of the government shall take into
consideration the social, economic, geographic and significant environmental impact of the
said establishments.
Waste management
Waste Management Program. - Preparation and implementation of waste management
programs shall be required of all provinces, cities and municipalities. The Department of
Local Government and Community Development shall promulgate guidelines for the
formulation and establishment of waste management programs. Waste management

programs shall include:
− an orderly system of operation consistent with the needs of the parties concerned
− a provision that the operation will not create pollution of any kind or any public
nuisance
− a system for a safe and sanitary disposal of waste
− a provision that existing plans affecting the development, use and protection of
air, water or natural resources shall be considered
− schedules and methods of implementing the development, construction and
operation of the plan together with the estimated costs, and
− a provision for the periodic revision of the program to ensure its effective
implementation.
Solid Waste Disposal. - Solid waste disposal shall be by sanitary landfill, incineration,
composting, and other methods as may be approved by the competent government
authority.
Liquid Waste Disposal. - Wastewater from manufacturing plants, industries and community
or domestic sources shall be treated either physically, biologically or chemically prior to
disposal in accordance with the rules and regulations promulgated by the proper
government authority.
Toxic substances control

The industrialization of the early fifties spurred the entry of toxic chemicals into the
country and the dumping of hazardous wastes into the environment. Control and
management responsibilities over toxic chemical and hazardous wastes were and are still
dispersed among various government agencies such as the Bureau of Food and Drugs for food
and drugs; the Fertilizer and Pesticides Authority for pesticides and fertilizers, the Department of
Environment and Natural Resources for mine tailings, and the Philippine Nuclear Research Institute
(formerly PAEC) for radioactive materials, etc. No integrated system is in place to take care
of monitoring problems on toxic chemicals and hazardous wastes.
It is in response to this need that the Toxic Substances Control Act was drafted in 1988,
empowering the Department of Environment and Natural Resources to control, supervise
and regulate activities on toxic chemicals and hazardous wastes. It was introduced in
Congress as House Bill No. 18383, otherwise known as the Toxic Substances Control Act of
1989, but has not been passed up to now.
Hazardous waste management

Interim implementation guidelines for handling and management of solid and hazardous
wastes were also formulated during the latter half of the decade and were issued as DENR
Memorandum Circular No. 3, Series of 1987. The guidelines specifically prohibit hazardous
wastes import without prior notice to the DENR. They also prohibit the storage, transport,
collection, processing and disposal of hazardous wastes in a manner that would cause or
present potential risk of injury to health and the environment. Again, two bills have been
filed in Congress on this subject but have not been approved until now.
5.3.2 General Industrial Regulations

Presented in this section are the applicable rules, regulations and standards adopted and
followed by various industry sectors in the Philippines with the end-view of controlling
environmental effluents and emissions.
5.3.2.1 Wastewater Effluent Regulations

Pursuant to the provisions of Section 6(i) of the " Pollution Control Decree of 1976", the
Department of Environment and Natural Resources (DENR) in 1990 revised the effluent
regulation of 1982 as the Revised Effluent Regulation of 1990. Some of the rules and
regulations covering all industrial and municipal waste water effluents are presented in the
following subsections.
Heavy metals and toxic substances

Industrial and other effluents classified as Class A, B, C, SA, SB, SC and SD must not
contain toxic substances in levels greater than those presented in Table 5.2 when
discharged into water bodies.
Table 5.2. Effluent standards: toxic and other deleterious substances

Protected Protected
Waters Waters Inland Marine Marine
Parameter Unit Category I Category II Waters Waters Waters
(Class AA (Class A, B, Class C Class SC Class SD
& SA) & SB)
OEI NPI OEI NPI OEI NPI OEI NPI OEI NPI
Arsenic mg/L (b) (b) 0.2 0.1 0.5 0.2 1.0 0.5 1.0 0.5
Cadmium mg/L (b) (b) 0.05 0.02 0.1 0.05 0.2 0.1 0.5 0.2
Chromium mg/L (b) (b) 0.1 0.05 0.2 0.1 0.5 0.2 1.0 0.5
(Hexavalent)
Cyanide mg/L (b) (b) 0.2 0.1 0.3 0.2 0.5 0.2 - -
Lead mg/L (b) (b) 0.2 0.1 0.5 0.3 1.0 0.5 - -
Mercury mg/L (b) (b) 0.005 0.00 0.00 0.00 0.00 0.00 0.05 0.01
(Tot) mg/L (b) (b) 0.003 5 5 5 5 5 - -
PCB mg/L (b) (b) 2.0 0.00 0.00 0.00 0.00 0.00 - -
Formaldehyd 3 3 3 3 3
e 1.0 2.0 1.0 2.0 1.0
Note: (a) - all limiting values and therefore shall not be exceeded except as otherwise
indicated.
(b) - discharge of sewage and/or trade effluents are prohibited or not allowed
(c) OEI - Old Existing Industry
(d) NPI - New/Proposed Industry
Conventional and other pollutants affecting oxygen demand

Effluents from domestic sewage and industrial wastewater treatment plants, when
discharged into receiving waters, and classified as Class A, B, C, D, SA, SB, SC and SD
shall not contain the following pollutants in concentrations greater than those indicated in
Tables 3.3-A & 3.3-B.
Table 5.3-A. Effluent standards

Conventional and Other Pollutants in Inland Waters Class D,
Coastal Waters Class SC and SD and Other Coastal Waters not Classified (a)
Inland Waters Coastal Waters Class SD & Other
(Class D) (Class SC) Coastal Waters
Not Classified
Parameters Unit OEI NPI OEI NPI OEI NPI
Color PCU - - (c) (c) (c) (c)
Temperature rise (°C, 3 3 3 3 3 3

max.)
pH (range) 5-9 6-9 6-9 6-9 5-9 5-9
COD mg/L 250 200 250 200 300 200
5-day 20°C BOD mg/L 150 (d) 120 120(d) 100 150(d) 120
Total Suspd. Solids mg/L 200 150 200 150 (g) (f)
Total Dissolved Solids mg/L 2000(h) 500(h) - - - -
Surfactants (MBAS) mg/L - - 15 10 - -
Oil/Grease (Petroleum mg/L - - 15 10 15 15

Ether Extract)
Phenolic Substances mg/L - - 1(i) 0.5(i) 5 1

as Phenols
Total Coliforms MPN/ (j) (j) - - - -

100ml
Table 5.3-B. Effluent standards

Conventional and Other Pollutants in Protected Waters
Category I & II and in Inland Waters Class C (a)
Protected Waters
Category I Category II
(Class AA & SA) (Class A, B, & SB) Inland Waters Class C
Parameters Unit OEI NPI OEI NPI OEI NPI
Color PCU (b) (b) 150 100 200 (c) 150 (c)
Temperature rise, max. oC (b) (b) 3 3 3 3
pH (range) (b) (b) 6-9 6-9 6-9 6.5 - 9
COD mg/L (b) (b) 100 60 150 100
Settleable Solids (1-hr) mg/L (b) (b) 0.3 0.3 0.5 0.5
5-day 20°C BOD mg/L (b) (b) 50 30 80 50
Total Suspd. Solids mg/L (b) (b) 70 50 90 70
*Total Dissolved *mg/L *(b) *(b) *1200 *1000 *- *-

Solids
Surfactants (MBAS) mg/L (b) (b) 5 2 7 5
Oil/Grease (Petroleum mg/L (b) (b) 5 5 10 5

Ether Extract)
Phenolic Substances as mg/L (b) (b) 0.1 0.05 0.5 0.1

Phenols
Total Coliforms MPN/ (b) (b) 5000 3000 15000 10000

100ml
Notes for Tables 3-A & 3-B:
(a) - Except as otherwise indicated, all limiting values are 90th percentile values. This is
applicable only when the discharger undertakes daily monitoring of its effluent quality,
otherwise, the numerical values in the tables represent maximum values not to be
exceeded in a year.
(b) - Discharging of sewage and/or trade effluents is prohibited or not allowed.
(c) - Discharge shall not cause abnormal discoloration in the receiving waters outside the
mixing zone
(d) - For wastewater with initial BOD concentration over 1000 mg/L but less than 3000
mg/L, the limit may be exceeded up to a maximum of 200 mg/L or a treatment
reduction of 90 percent, whichever is more strict. Applicable to all new and old
industries.
(e) - The parameters TSS should not increase the TSS of the receiving water by more than
30 percent during the dry season.
(f) - Not more than 30 mg/L increase (dry season)
(g) - Not more than 60 mg/L (dry season)
(h) - If effluent is the sole source for irrigation, the maximum limits are 1500 mg/L and
1000 mg/L, respectively, for old and new industries.
(i) - Not present in concentration to affect fish flavor or taste or tainting.
(j) - If effluent is used to irrigate vegetables and fruit crops which may be eaten raw, fecal
coliform should be less than 500 MPN/100mL.
Effluent standards for BOD for strong industrial wastes

Interim requirements for old or existing industries: For strong industrial wastewater with
high BOD and where the receiving body of water is Class C, D, SC and SD, the interim
effluent requirements for old industries which will be applicable within the period are
indicated in Table 5.4.
Table 5.4. Interim effluent standards for BOD

Applicable to old or existing industries producing strong industrial wastes, 1990 -
1994
Industry Classification Maximum Allowable Limits in mg/L according
to Time period and Receiving Body of Water
Based on BOD of Effecting date-Dec. 31, 1991 Jan. 1, 1992 -Dec. 31, 1994
Raw Wastewater Produced Inland Waters Coastal Waters Inland Waters Coastal Water
(Class C & D) (Class SC & SD) (Class C & D) (Class SC & SD)
1. Industries producing 320 or 95% 650 or 90% 200 or 97% 320 or 95%
BOD within 3000 to removal removal removal removal
10000 mg/L
BOD within 10000 to removal removal removal removal
30000 mg/L
more than or 30000 mg/L removal removal removal removal
Requirements for new industries: New/proposed or old/existing industries that are yet to
construct their wastewater treatment facilities or which are producing or treating strong
wastewater shall comply with the requirements in Table 5.5. By January 1995, these
requirements shall be applicable to all industries producing strong wastes.
Mixing zone requirements

a) No mixing zone or combination of mixing zones shall be allowed to significantly
impair any of the designated uses of the receiving body of water.
b) A mixing zone shall not include an existing drinking water supply intake if such
mixing zone would significantly impair the purposes for which the supply is
utilized.
c) A mixing zone for rivers, streams, etc., shall not create a barrier to the free
migration of fish and aquatic life.
d) A mixing zone shall not include nursery area of indigenous aquatic life nor include
any area designated by the DENR for shellfish harvesting, tourist zones and
national marine parks and reserves, coral reef parks and reserves.
e) In general, the length of the mixing zone or plume in rivers or similar waterways
shall be as short as possible and its width shall be preferably not more than one-
width of the waterway.
f) In discharging hot effluents from power plants, mineral ore milling and similar
generators of large volume of liquid wastes the permissible size of the mixing
zone shall be determined through modeling taking into consideration the size and
site of the wastewater outfall.
g) For the protection of aquatic life resources, the mixing zone must not be used for,
or be considered as substitute for wastewater treatment facility.
Table 5.5. Effluent standards for new industries producing strong wastes
Applicable to all industries producing strong wastes starting January 1, 1995
Industry Classification Based on Maximum Allowable Limits in mg/L Based
BOD of Raw Wastewater Produced on Receiving Body of Water
Inland Waters Coastal Water
(Class C & D) (Class SC & SD)
1. Industries producing within 3000 130 or 98% removal 200 or 97% removal
to 10000 mg BOD/L
2. Industries producing BOD within 200 or 99% removal 600 or 97% removal
10000 to 30000 mg BOD/L
3. Industries producing more than 300 or 99% removal 900 or 97% removal
30000 mg BOD/L
Prohibition
a) No industrial or domestic sewage effluent shall be discharged into Class AA and
SA waters.
b) In order to avoid deterioration of the quality of the receiving water body, no new
industrial plant with high waste load potential shall discharge into the water body
where dilution or assimilative capacity of said water body during dry weather
condition is insufficient to maintain its prescribed water quality according to its
usage or classification.
c) No person shall discharge, wholly or partially, untreated industrial effluents
directly into bodies of water or through the use of by-pass canals and/or pumps
and other unauthorized means.
Monitoring
As a guide to dischargers and regulatory agencies the significant parameters to be
considered for monitoring purposes are indicated below:
Significant Parameters for Selected Types of Industries
Type of Industry Significant Waste Water Parameters
Cement pH, Suspended Solids, Dissolved Solids, Temperature

Pulp & Paper BOD5, COD, pH, Total Suspended Solids, E. Coli, Color, Heavy Metals,
Dissolved Solids, Oil & Grease, Phenols
Oil and Grease, pH, Cyanide, Phenol, Suspended Solids, Temperature,
Iron and Steel
Chromium
5.3.2.2 Rules and regulations on air quality standards

The rules and regulations on air quality standards adopted and promulgated by the DENR
as the Executive Order No 192, Series of 1987, are pursuant to the provisions of section 6(i)
of the Pollution Decree of 1976. Following are the applicable provisions on air quality
standards that refer to all general types of industries and other economic sectors:
Visible opacity standard for smoke

The opacity of smoke emitted from any point of visible emission in all stationary sources
shall not appear darker than Shade 1 of the Ringelmann Chart.
Maximum permissible emission limits for particulate matter

The following Table shows the maximum permissible limits for particulate emission from
stationary sources. For any source, industry or process, the maximum permissible limits for
particulate matter in the effluent gas measured at the point of emission, or after completion
of the process and before admixture with atmospheric air, shall be in accordance with
Table 5.6.
National Emission Standards for Source Specific Air Pollutants (NESSAP)

For any trade, industry, process, fuel-burning equipment or industrial plant emitting air
pollutants, the concentration at the emission point shall not exceed the limits set in Table
5.7.
Table 5.6. Maximum emission limits in mg/Ncm for particulate in stationary
sources
New Source Existing Source

Item 1993 After 1978 Before 1978
1. Fuel Burning Steam Generators
a) Urban or Industrial Areas 150 300 500
b) Other Areas 200 300 500
2. Incinerators 200 300 -
3. Cement Plants (Kilns, etc.) 150 300 500
4. Smelting Furnaces 150 300 500
5. Other Stationary Sources 200 300 500
Control of sulfur compound emissions

Sulfur content of fossil fuels for existing sources. - Initial Specification, 1993 - 1996: In order to
prevent and/or control increasing emissions of SO2 into the atmosphere, all owners or
operators of existing stationary sources shall burn in any fuel burning equipment, only
liquid or solid fuel containing sulfur not exceeding the percentages by weight in accordance
with the following schedule:
a) Liquid Fuel Metro Manila Outside Metro Manila

( i ) Fuel Oil ( all grades)

July 1, 1993 3.5 % 3.8 %
January 1, 1996 3.0 % 3.0 %
( ii ) Industrial Diesel
July 1, 1993 0.7 % 0.8 %
January 1, 1996 0.5 % 0.5 %
( b) Solid Fuel ( Coal )

July 1, 1993 2.5 % 2.5 %
January 1, 1996 1.0 % 1.0 %
Table 5.7. National emission standard for source specific air pollutants (NESSAP)
Pollutant Standard Applicable To Source Maximum
Permissible Limits
(mg/Ncm)
1. Antimony & its Compounds Any Source 10 as Sb
2. Arsenic & its Compounds. Any Source 10 as Sb
3. Cadmium & its Compounds. Any Source 10 as Cd
4. Carbon Monoxide Any Industrial Source 500 as CO
5. Copper & its Compounds. Any Industrial Source 100 as Cu
6. Hydrofluoric Acid and Fluorine Any source other than the
Compounds. manufacture of Aluminum from 50 as HF
Alumina
7. Hydrogen Sulfide* i) Geothermal Power Plants* c, d*
ii) Geothermal exploration and well e
testing
iii) Any source other than (i) and (ii) 7 as H2S
Any trade, industry or process
8. Lead Any Source 10 as Pb
9. Mercury Any Source 5 as elemental Hg
10. Nickel and its Compounds. excl. i) Manufacture of Nitric Acid 20 as Ni
any source pt Nickel Carbonyl
11. NOx ii) Fuel burning steam generators 2000 as acid and NOx
Existing Source calculated as NO2
New Source
Coal-Fired 1500 as NO2
Oil-Fired 1000 as NO2
iii) Any source other than(i) and (ii) 500 as NO2
Existing Source 1000 as NO2
New Source 500 as NO2
12. Phosphorous Pentaoxide Any Source 200 as P2O5
13. Zinc & its Compounds. Any Source 100 as Zn
Maximum Permissible Emission Limits for Sulfur Oxides in Stationary Sources:

(1) Existing Sources
i. Manufacture of Sulfuric Acid 2.0 gm/Ncm as SO3
ii. Fuel Burning Steam Generators 1.5 gm/Ncm as SO2
iii. Other Stationary Sources except (i) and (ii) 1.0 gm/Ncm as SO3
(2) New Source

i. Manufacture of Sulfuric Acid and 1.5 gm/Ncm as SO3
Sulphonation Process
ii. Fuel Burning Steam Generator
January 1, 1994 1.0 gm/Ncm as SO2
January 1, 1998 0.7 gm/Ncm as SO3
iii. Other Stationary Sources except (i) and (ii) 0.2 gm/Ncm as SO3
National ambient air quality guidelines (NAAQG) and standards

Criteria Pollutants: For the purpose of protecting the public health and welfare and reducing
damage to property as well as providing an air quality management control strategy for
limiting emission from mobile and stationary sources at locations of commercial, industrial
and residential facilities, and to assist in the promotion and use of an improved
transportation system, the National Ambient Air Quality Guidelines in Table 5.8 are hereby
established.
Table 5.8. National ambient air quality guideline criteria for pollutant
Pollutant Short Term Averagi Long Term (b) Averaging
(a) ng
µg/Nc pp Time µg/Nc ppm Time
m m m
Suspended Particulate
Matter (e)-TSP 230(f) 24 hours 90 - 1 yr.(c)
PM-10 150(g) 24 hours 60 - 1 yr. (c)
Sulfur Dioxide (e) 180 0.07 24 hours 80 0.03 1 yr. (c)
Nitrogen Dioxide 150 0.08 24 hours - -
Photo Chemical 140 0.07 1 hour - -

Oxidant 60 0.03 8 hours - -
as Ozone
35mg/ 30 1 hour - -
Carbon Monoxide Ncm 9 8 hours - -
10mg/
Ncm - 3 1.0 - 1 yr. (c)

Lead (d) months(d
1.5 )
Notes:
a. Maximum limits represented by 98% values not to exceed more than once a year.
b. Arithmetic Mean.
c. Annual Geometric Mean
d. Evaluation of this guideline is carried out for 24-hour averaging time and averaged
over three moving calendar months. The monitored average value for any month
shall not exceed the guideline value.
e. SO2 and Suspended Particulate are sampled once every six days when using the
manual methods. A minimum number of twelve sampling days per quarter or forty
eight sampling days each year, is required for these methods. Daily sampling may be
done in the future once the continuos analyzers are procured and become available.
f. Limits for Total Suspended Particulate with mass median diameter less than 25-50
µm.
g. Provisional limits for Suspended Particulate with mass median diameter less than 10
microns and below until sufficient data are gathered at the monitoring point to set a
proper guideline.
Source-specific Pollutants - National Ambient Standards: For any industrial establishment or

operation, the discharge of pollutants that results in airborne concentrations in excess of
the National Ambient Air Quality Standards shown in Table 5.9 shall not be permitted.
Sampling shall be done at an elevation of at least two meters above the ground level and
conducted either at the property line or at a downwind distance of five to twenty times the
stack height, depending on whichever is more stringent.
Source monitoring, record keeping and testing

a) The DENR may require the owner or operator of any source to install, use and
maintain the monitoring equipment, sample the emissions, and the ambient air
pollutants that are significant for a particular industry, establish and maintain the
records, and make the periodic reports as prescribed by the Department. For each
major source, it shall be the responsibility of the owner or operator to install
instruments, without waiting for any directive from the Department for (i) sampling
ambient air quality around the source and (ii) either sampling emissions from each
stack or providing equivalent determination acceptable to the Department.
b) A person responsible for the emission of air pollutants from any source shall, upon
direction of the Department, provide in connection with such sources and related
source operations, such sampling and testing facilities exclusive of treatment and
sensing devices as may be necessary for the proper determination of the nature and
quantity of air pollutants which are or may be emitted.
c) Authorized representatives of the Secretary may at reasonable time have access to

and copy records, inspect any monitoring equipment or method to determine its
accuracy, and sample emissions or ambient air quality.
d) Upon investigation, when the Department has good reasons to believe that the
provisions concerning emission of pollutants are being violated, it may, by notice in
writing, require the person responsible for the source of pollutants to conduct a test
which will identify the nature and quantity of pollutant emission from the source and
to provide the results of the said test to the Department.
Table 5.9. National ambient air quality standards for source-specific air pollutants
from industrial sources/operations
Pollutants (a) Concentration (c) Average Time
µg/Ncm ppm (Min)
1. Ammonia 200 0.28 30

2. Carbon Disulfide 30 0.01 30
3. Chlorine and Chlorine
Compound expressed as Cl2 100 0.03 5
4. Formaldehyde 50 0.04 30
5. Hydrogen Chloride 200 0.13 30
6. Hydrogen Sulfide 100 0.07 30
7. Lead 20 - 30
8. Nitrogen Dioxide 375 0.2 30
260 0.14 60
9. Phenol 100 0.03 30
10. Sulfur Dioxide 470 0.3 30
340 0.4 60
11. Suspended Particulate Matter
- TSP 300 - 60
- PM-10 200 - 60
Notes:
a. Pertinent ambient standards for Antimony, Arsenic, Cadmium, Asbestos, Nitric Acid
and Sulfuric Acid Mist in the 1978 NPCC Rules and Regulation may be considered as
guides in determining compliance.
b. Other equivalent methods approved by the Department may be used.
c. 98% of 30-min. sampling measured at 25°C and one atmosphere pressure.
5.3.2.3 Industrial regulations on energy efficiency

The oil crisis experienced by the Philippines during the early part of '70s has caught the
attention of the Philippine legislators to establish a mechanism by which users of energy are
prescribed to use the scarce energy resources judiciously and efficiently in order to enhance
the availability of energy supplies required to support economic, social and development
goals. The Republic Acts (R.A.) and Letter of Instructions (LOI) prescribed are as follows:
R.A. No. 33 (June 1979): An act defining and penalizing certain prohibited acts inimical to
the public and national security involving petroleum and/or petroleum products. It is the
declared policy of the state to institutionalize as a national way of life energy conservation
geared towards the judicious and efficient use of energy.
R.A. No. 36 (September 1979): An act imposing energy tax on electric power consumption.
This is in line with the objectives of conserving energy and promoting efficient utilization
of electricity among the residential customers of the electric utilities.
R.A. No. 73 (June 1980): "An act to further promote energy conservation and for other
purposes". Rule IV of Section 3 of the Rules and Regulations states among other matters
the energy utilization standards, prescribing the setting up of minimum requirement of
energy efficiency standards for equipment and other energy consuming machinery. Rule
VII of Section 2 requires the establishments to submit to the proper authority (erstwhile
Bureau of Energy Utilization, BEU) a quarterly energy consumption report and an annual
energy conservation report. Rule VIII requires the employment of energy manager, the
submission of energy conservation programs to BEU and prescribing energy audit as a
means for identifying areas of energy saving. R.A. No. 872 (June 1985) amended sections 10
and 14 of the R.A. 73.
LOIs Nos. 825 (March 1979), 869 (May 1979), 933 (September 1979), 1081 (May 1980), 1152
(June 1981): These LOIs were addressed to all heads of the government Ministries for
purposes of taking the necessary measures to conserve energy and promote efficient
utilization thereof.
BEU Memorandum Circular No. 82-08-165, DOE MC No. 93-03-05: Requires all industrial,
commercial and transport establishments consuming more than one million liters of oil
equivalent per annum to submit quarterly energy consumption reports. Establishments
consuming a minimum of two million liters of oil equivalent per annum are required to
submit an annual energy conservation report in addition to the quarterly report.
The expiration of R.A. No. 73, also known as the Omnibus Energy Conservation Law, in
1986 has put an end to the enforcement of energy conservation law. Since then, the
Department of Energy, the forerunner of energy agencies of the government, has restricted
its role to the enforcement of energy conservation and efficiency in the country. However,
the active participation of private associations in effecting better understanding of energy

conservation and efficiency among their members has demonstrated the independence of
the private sector in achieving its goals and objective. Currently, the DOE has drafted a
new energy conservation bill for legislation.
Commercial building energy code

Like many other ASEAN countries, the Philippines is also highly interested in establishing
a commercial building energy efficiency code. The country adopted a code that was
intended to become effective from January 1994 but that has not yet been enforced.
The Department of Energy developed what was intended to become a mandatory code
while the Department of Public Works and Highways was given the responsibility and
authority for its implementation and enforcement. Provided the Public Works Department
does move the code forward, the DOE will have an ongoing responsibility to conduct and
facilitate workshops for architects and building owners and to assist Public Works with the
technical aspects of monitoring the program. One of the main features of the commercial
building code is the OTTV, the Overall Thermal Transfer Value of commercial buildings'
outer envelope. The DOE set a goal of 48 Watts per square meter of building envelope. It
expects that, when implemented, the code will result in average energy savings of seven
percent over current construction practices and will represent approximately 25 percent
improvement over older buildings. The Philippine code, however, does not cover retrofit
activity.
Air conditioner standards and labeling program

After a Memorandum of Understanding and the Implementation Guidelines were signed
on July 15, 1992, the air conditioner standards were officially approved by the Department
of Trade and Industry and its Bureau of Product Standards. The Philippine National
Standard (PNS) 396 had been formally adopted. Shortly thereafter, actual testing of room
air conditioners began at the Fuels and Appliance Testing Laboratory of the Department of
Energy. The following schedule demonstrates the Energy Economy Ratio (EER) required
of the air conditioning units:
A/C Capacity EER

1994 1995
< 12,000 kJ/hr 7.9 8.3
> 12,000 kJ/hr 7.4 7.8
The first-tier standards required the air-conditioning units consuming less than 12,000 kJ
per hour to achieve minimum EERs of 7.9; those consuming 12,000 kJ per hour or more
needed to achieve a minimum EER of 7.4. The program design also called for second tier
standards to reach higher minimum standards. Originally, the DOE intended the standards
efficiency component to rise by five percent across the board between 1995 and 2000.
Manufacturers of small-sized AC units were prepared for this increase well before January
1995. In fact, all the units with cooling capacities less than 12,000 kJ per hour already met
the proposed standard of EER of 8.3. As regards the larger units, however, their
manufacturers requested that the proposed minimum standards of 7.8 (representing a five
percent efficiency gain) be deferred by one year until 1996, a provision that was granted by
the Technical Committee.
The second feature of the Air Con program is labeling. This component was initiated in
October 1993 when it was essentially “voluntary”. In January 1994, the labeling provision
became mandatory for window units consuming less than 12,000 kJ per hour. Window-
type air conditioners larger than 12,000 kJ per hour were required to carry labels a few
months later.
In addition to air-conditioning units, the FATL is now testing refrigerators for a fee and
plans to expand this capability in the coming years for proposed standards. Fans are already
being tested at the laboratories of the Bureau of Product Standards which plans to
introduce standards for fans in the future.
5.3.3 Sector-specific (environmental) regulations

The existing rules and regulations for environmental protection in the Philippines were first
published on June 5, 1978 by the National Pollution Control Commission. The said rules
and regulations cover air quality control, water quality control, noise level control and
procedures of application. In the regulations, the degree of pollution is classified into three
categories based on the degree of severity: the highly pollutive zone, the pollutive zone and the
nonpollutive zone. The pollution parameter values are specified by the degree of pollution. Air
pollutants are classified on the basis of a value for air likely to cause the surrounding air
around a plant (500-meter radius) to contain the amount of substances specified in the
pollution control standards. Water pollutants on the other hand, are classified on the basis
of a value not likely to contain the pollutive parameters of effluents specified in the control
standards.
The present rules and regulations regarding the environmental protection became effective
after some revision was made on several occasions. Considering the yearly increase of
pollutant emissions, the DENR is now planning to partially revise the present regulations
in order to meet the social requirement for the improvement and conservation of the
environment.
Besides the above pollution parameters, the following standards are included:
− Permissible emission standard for visible emissions and particulate matters.
− Permissible emission standard for specific air pollutants at point of emission.
− National ambient air quality standards.
− Maximum air quality standards of other specific air pollutants.
− Exhaust emission standards for registered gasoline-fueled vehicles.
− Exhaust emission standards for non-registered light-duty gasoline-fueled vehicles.
− Air quality indices.

− Water quality criteria.
− Permissible limits of industrial and other effluents.
− Permissible limits of effluents from domestic waste water treatment plants and
industrial plants.
− Permissible effluent limits for strong industrial plants.
− Noise standards in general areas.
− Maximum noise allowable during working hours in industrial area.
In the absence of a dedicated specific sectoral regulation that applies to a specific group of
industries (i.e. cement, pulp and paper, iron and steel sector), however, a common or more
general set of environmental regulation, policies and standards is otherwise being followed
by these industries. For the purpose of looking at the periphery of these sectors’
compliance to applicable specific regulations, considering their differences in emission
discharges, the following sub-sections discuss some of the applicable regulatory
specificities:

Present conditions of pollutant emission
Most of the cement plants in the Philippines have dust collectors, thus dust emissions have
been reduced to some extent. Almost all dust collecting installations, however, are too old
to be efficient. In addition, there are only a few available records concerning levels of dust
emission due to lack of measuring devices. The present dust emission levels from the kiln
exceed the permissible limit of the regulations.
Besides dust, there seems to be no other pollutant emission in the cement plants. SOx in
the exhaust gas released from the kiln can be practically absorbed by the CaO to the level
required by the regulations. NOx content in the exhaust gas is less than the maximum
permissible level. No pollution problem caused by noise and/or waste water has been
basically found in the cement plants.
The study report prepared by Onoda Engineering and Consulting Co. LTD in 1991 funded
by ADB shows that the cost required for the installation of additional environmental
protection equipment depends on the shortage of the existing equipment. Considering the
average age of the present equipment, the cost of installing dust emission control
equipment was roughly estimated in this report to be around P195 million pesos, of which
85 percent is allotted to the importation of the equipment.
Emission and effluent water standard

The environmental standards applicable to the cement industry are as follows:
Air Quality Particulate - 500 mg/SCM for existing sources

300 mg/SCM for new sources
SOx - 2 g/SCM ( equivalent to 1,587 ppm)
NOx - 2 g/SCM ( equivalent to 1,587 ppm)
Water Quality pH - 6.0 - 8.5 for class "D" water

Temperature - 40 Degrees Centigrade
Suspended Solids - 75 mg/l (equivalent to 75 ppm) for class
"D" water
With the foregoing standards, air quality requirements are considered to be mild compared
to those of other countries. In consideration of the accumulated amount of pollutants by
which the environment may be much affected in the near future, the present air quality
standards need to be reviewed by taking into consideration the national industrial
development plans, present environmental considerations and socio-economic aspects.
On the other hand, almost all waste water from a cement plant are usually discharged from
the water cooling pond which is useful for cooling the machines. The waste water
discharged substantially from the cement plant contains no special pollutants except for a
few suspension solids. Considering, the waste water conditions and the current standards,
the present quality is only adequate for the time being for environmental protection.

Present environmental situation
From the Industrial Restructuring Studies conducted for the Pulp and Paper Industry in
1992 by Jaakko Doyry Oy, it has been found that there are about thirty-three mills around
the country, mostly located in Metro Manila. Due to obsolete or aged equipment with
limited pollution management facilities, the problem of pollution is even more pronounced.
Aggravating the matter, Metro Manila has no common sewer system to ensure adequate
treatment of waste water. Authorities tend to inspect the few mills outside the metropolis
although the city is the most heavily-polluted area as far as pulp and paper manufacturing is
concerned.
The study further reveals that investment cost of installing proper pollution control
measures is beyond the present financial capability of the mills. Initially, a US$ 71.9 Million,
representing a meager 7 percent of the total investment requirement of the industry, is
needed to cope up with the environmental requirement for the installation of pollution
equipment alone up to year 2000. Given this pecuniary constraint, no existing mill can be
expected to comply with the required environmental protection standards.
Effluent water standard

Effluent water standards in the Philippines are set as ambient condition. The ambient water
concentration applied in the Philippines is, however, close to the standard set in developed
countries, particularly the USA.
A reasonable effluent water standard would be a complementary mix of maximum

permissible ambient concentration and maximum permissible pollutant discharge. The
main pollutants in this industry are the Biological Oxygen Demand (BOD) and the Total
Suspended Solid (TSS).
In-plant measures alone cannot adequately control the presence of effluents and pollutants
in water. It is necessary to undertake further treatment of effluents before final discharge is
made. This could possibly be done through the external effluent water treatment such as
Primary Treatment method - involving the use of primary clarifier; the Secondary
Treatment wherein effluents from the primary treatment undergo further treatment either
in an aerated lagoon or an activated sludge plant, after which they are subjected to a
secondary clarifier; and Sludge Treatment wherein sludge can be removed by both primary
and secondary clarifiers. The dewatered sludge may then be incinerated or may be used as
an organic fertilizer.
Emission into the Atmosphere

Practically all Philippine paper mills have power boilers using oil as fuel. The power boilers
in most paper mills are generally small and medium-sized. Reducing sulfuric emissions may
be effected by means of the following:
a) Use of sulfur-free fuel or fuel with low sulfur content, and
b) Treatment of Flue gas after combustion.
5.3.4 Implementation of the regulatory measures

5.3.4.1 Implementation of the environmental regulations
The implementation of regulations concerning environmental protection is handled by the
Environmental Management Bureau of the Department of Environment and Natural
Resources (DENR) and its DENR Regional offices, as well as by the Local Government
Units.
For instance, environmental impacts are first considered during the conceptual designing of
a project, which allows its proponents to determine the scope of the environmental impact
assessment they will carry out. In determining the scope of the assessment, the proponent
seeks government and public input from representatives of the affected communities,
LGUs, Non Government Organisations, and regional offices of the national government
with jurisdiction over the proposed site and project. The environmental impacts identified
during the design stage are then analyzed to ascertain the project's feasibility. If the project
is acceptable and an Environmental Compliance Certificate (ECC) is issued, the proponent
can proceed with project implementation. If unacceptable, the proponent must withdraw
or modify the proposed project and make corresponding changes to the environmental
assessment. The ECC is used to monitor the environmental impacts throughout the
construction and operational phases of the project.
The issuance of the ECC to a proponent does not put an end to the long and tedious
process of battling for the protection of the environment and safeguarding the health of
the people. Monitoring and reporting during pre-construction, construction and
operational phase is a requirement. Normally this activity is conducted by either the EMB
or the DENR regional offices, or in cooperation with the multi-sectoral monitoring team
which can be composed of LGUs, NGOs, local media, other agencies represented at the
regional or local level, the local community, and potentially affected parties.
For existing industrial plants which consider plant capacity expansion, the same procedures
mentioned above had to be followed before such a project could be implemented for
construction. Due to the tough government stance on its policies and regulations, LGUs
are considering the yearly assessment of the plants’ pollutive discharges or emissions prior
to the issuance of business permits. They even do not allow existing industrial plants
located in the middle or in proximity of residential zones to carry out expansion, as a
means to eventually relocate them in a designated industrial zone.
For the past decade, the government exerted efforts to implement the Philippine
Environmental Code. Such efforts were spent on concerns like waste management, air and
water quality management, environmental education, environmental research and tax
incentives, among others. While these efforts were limited, they laid down the ground work
for subsequent environmental management undertakings in the nineties.
In anticipation of the passage of the Toxic Substances Control Act, however, the
Environmental Management Bureau has started to implement certain activities such as the
Philippine Inventory of Chemicals and Chemicals Substances (PICCS). This involves the
listing of all existing manufactured and imported chemical substances in the country in
order to form the basis for implementation of the bill.
Toxic chemicals and hazardous waste surveys have been conducted by the EMB and the
Laguna Lake Development Authority to serve as bases for monitoring and control of toxic
substances and hazardous wastes. The Industrial Waste Exchange Project (IWEP) of the
EMB, which was initiated in 1987, promotes waste transfer and utilization among industrial
firms through a clearinghouse, which facilitates data sharing, technical assistance and waste
transfer among industries.
Implementation of the Code's provisions on water quality management did not register any
significant success during the last decade, except for the revision of the standards and
efforts at rehabilitating the country's most polluted river system, the Tenejeros-Tullahan.
Classification of the waters and water quality monitoring and surveillance of the Philippines
were not actively pursued, primarily due to manpower and financial constraints.
Solid waste management continued to be lack-luster during the past decade due to the usual
resources and institutional constraints. Efforts were made, however, to materialize the
intent of the Code's provisions on waste management through the implementation of the
Solid Waste Management Assistance and Development Program (SWMADP) of the NEPC
(now the EMB). The SWMADP, conceptualized to improve the collection, transport,
recovery and disposal of solid wastes, specifically provides assistance in resource recovery,
sanitary landfill establishment, biogas systems construction, acquisition of garbage
equipment and facilities, and preparation of solid waste management plans.
The compliance trends for projects granted ECC is shown in Table 5.10. The result was
based on the monitoring conducted from January 1981 to December 1989. In addition,
results of monitoring from year 1990 to 1992 are likewise included in the table. A total of
6,198 environmental impact documents were submitted to the implementing agency and
out of the total submissions, about 1,723 were granted ECCs.
Table 5.10. Environmental impact documents processed, 1981 - 1992

Year Project Granted ECC (PDs & Year Project Granted ECC (PDs &
EIAs) EIAs)
1981 100 1987 77
1982 123 1988 107
1983 116 1989 112
1984 101 1990 252

1985 68 1991 360
1986 36 1992 271
1993 120
Source: EMB, 1990 and 1993
The National Pollution Commission in its annual reports showed that from 1979 to 1985 a
total of 1,044 pollution cases have been acted upon as shown in Table 5.11.
Table 5.11. Pollution cases acted upon by the NPCC 1979 - 1989
Year Number of cases acted upon
1979 237
1980 313
1981 -*
1982 64
1983 190
1984 134
1985 106
Source: NPCC annual Report, Various Years: * Figures not available
Penalties for Violating the Pollution Control law, Presidential Decree No. 984: PD 984 states that:
Any person found violating or failing to comply with any order decision or regulation of the Commission for
the control of abatement of pollution shall pay a fine not exceeding five thousand pesos (5,000.00) per day
for every day during which such violation or default continues; and the Commission is hereby authorized and
empowered to impose the fine after due notice and hearing. The Commission refers to the National
Pollution Control Commission (now the EMB).
There were no changes in the amount of the penalty since 1978 when PD 984 was
promulgated.
5.3.4.2 Implementation of Energy Regulations
As far as regulations on energy conservation and efficiency programs of the country are
concerned, there is virtually no government law that mandatorily requires the
establishments to pursue and implement such programs. With this shortcoming, the
government programs on energy conservation and efficiency, as mandated, are being
carried out by the Department of Energy in cooperation with various industrial sub-
sectors, power utilities, other energy consuming sectors, government institutions as well as
private organizations/associations in an atmosphere of nationalism and on a voluntary
basis.
The Department's strategy to promote programs on energy conservation and efficiency for
all sectors of the industry are:
a) To pursue programs of Energy Audits for industrial and commercial
establishments.
b) To provide support for industrial/commercial enterprises in terms of financing
requirements for any conservation or efficiency improvement project that the
company may have conceived as a result of findings from the energy audit.
c) To conduct technology promotions through seminars/workshops and the like.
d) To require industrial, commercial and transport companies to submit to the
Department quarterly and annual energy consumption and energy conservation
reports (in compliance with the Department's Memorandum Circular).
e) To pursue programs on Demand Side Management.

With the policies and regulatory measures in place both for environmental protection and
for energy conservation and efficiency, technological development has been in the upswing,
affecting each and every sector of the industry. The impact of the enforcement of these
regulatory measures has contributed considerably to the industry sectors in terms of
keeping their existing installed technology updated and comparatively efficient. The cost
and benefit that could be derived from the implementation of these regulatory measures
weigh more on the benefit side because the environment is kept protected from all sorts of
pollutive discharges. Currently, the absence of laws which provide regulatory measures for
the industrial sector on energy efficiency does not discourage the sectors from undertaking
their own measures to conserve energy and keep their plants efficient. The information
campaign drive of the government has kept them abreast on the new development on the
available technology in the market.
However, one has to keep in mind the financial capability of each sectoral companies,
specially the old and small-size plants which exist in significant numbers. Most of them
may not have sufficient funds to adopt proven technological projects in their plants
without the intervention of the government in terms of giving them ample support such as
subsidy, tax incentives etc., which still remains to be one of the institutional barriers
affecting the growth of the industry. The new-plants to be set up will benefit because they
would have already incorporated in their design concepts the various government
regulations, policies and standards. This is in view of the growing world-wide concern for
protecting the environment as well as the rational use of energy in industry.
5.4.1 Cement sector

Based on the 1993 study report for the Philippine cement industry, some 24 percent of the
total number of production sections have no dust collection equipment. A few dust
collectors are installed in the crusher and raw material drier sections. Most cement plant
operators believe that these sections do not emit that much dust. Actually, a lot of fine
particles are produced in these sections and some of them are discharged into the
atmosphere. Thus, it is recommended that dust collectors with high efficiency should be
immediately be installed, especially in the drier section.
On the other hand, the grinding section of raw material and clinker as well as the kiln
burning section have electrostatic precipitators and/or bag filters which can be designed to
achieve a high collection performance. However, four plants have installed the cyclone type
dust collectors which are unable to collect fine dust particles from the kiln exhaust gas. The
cooler section also has the multi-cyclone type dust collectors which are considered
insufficient for clinker dust collection because of their theoretical limit of efficiency.
All cement plants in the Philippines have installed bag filter type dust collectors in the
packing house section. This type is able to collect fine cement dust under proper condition.
According to the survey report prepared by the Cement Association of Japan in 1981,
electrostatic precipitators are installed in the kiln section of all cement plants and in the
cooler section of the 82 percent of the plants (the remaining plants use bag filter and gravel
bed type collectors). For the other production sections, a bag filter collector is mainly used.
Table 5.12 shows the type of dust collectors installed by the Philippine cement industry in
1985, a manifestation of compliance to the government's environmental protection policy.
Table 5.12. Dust collectors installed

Production Electrostatic Bag filter Multi-cyclone Single No. of
Section Precipitator Cyclone installation
Crusher 1 4 0 2 10
Drier 4 2 0 10 -
Raw Mill 6 5 0 0 6
Kiln 10 2 1 3 1
Cooler 0 0 15 1 1
Cement Mill 2 4 0 1 -
Packing-House 0 17 0 0 0
Percent (%) 19.3 37.0 14.3 5.0 24.4

Note: The figure shows numbers of cement plants.
Source: CEMTEC Report, 1985
In addition to the existing 18 cement plants, about 14 new plants are in line for completion
before year 2000. These plants are equipped with modern technologies and are
environment compatible. Moreover, there are 8 existing plants undergoing expansion and
the same are fitted with anti-pollution devices. The completion of all these projects will
bring about an additional annual cement capacity of 32.4 million metric tons by year 2000
from the 9.5 million metric tons of 1993. New plants will not start commercial operation
until 1997.
5.4.2 Iron & steel sector

The Philippine steel industry is now working towards finding solutions to the pollution
problems, being aware of the increasing public and government pressures for
environmental protection. The implementation of environmental and safety legislation,
however, has complicated the already complex economical and technological problems for
the existing plants. The different establishments concerned are now confronted with
considerable expenditures for anti-pollution equipment, which may even exceed their total
initial capital investment and at the same time render obsolete the productive equipment
they already have.
The cost structure of environmental control, in some plants, has been already adjusted to
absorb the non-productive burden. There are now a number of plants equipped with dust
collectors. Galvanising plants, in their effort to minimize mist emission, set up neutralizing
or lime-treatment facilities. Water scrubbers were also installed to remove suspended
particles. Factories having both acid and basic wastes, store these in tanks as a form of
waste treatment and, in this way reduce the cost of neutralization.
Intended primarily to check industrial pollution and the heavy migration of workers to the
city, a policy of industry dispersal has been implemented by the government so that
industries will move away from Metro manila, where there is already a heavy concentration
of industrial establishments. As required, new industries have to locate themselves in areas
50 km. away from Manila. This strategy seeks also to develop other areas which have the
potential of becoming growth centers.
Another policy of the government to protect the environment as the country undergoes
industrial development, requires prevention and control of existing sources of pollution,
thereby requiring anti-pollution devices and structures to be incorporated into the factories.
Industrial factories and plants are encouraged by the government to install anti-pollution
devices by extending to them some assistance in the form of tax exemptions. All duties
paid on any equipment or machinery in pursuance of pollution abatement program shall be
reimbursed by the government.
5.4.3 Pulp & paper sector

As for the Philippine pulp and paper industry, the impact of regulation on the technological
development of the sector showed that one of the factors hampering the growth of the
industry was the country's stringent environmental regulation and policies. This is actually
the result of the industry's obsolete structure which has adverse effect on the environment.
Modern technologies can easily comply with environmental protection requirements which
are standard world-wide, but this may not be so for old existing plants.
While environmental control measures are really very expensive, the cost of establishing
them was treated not as an expense, but as an investment cost. However, the heavy capital
outlay required for either installation of pollution abatement/control facilities,
rehabilitation and or modernization of the industry necessitates infusion of foreign equity
investments. With the country's standing foreign debt and scarce foreign exchange, local
millers are discouraged from resorting to foreign borrowing. They are thus left with no
option but to invest in second-hand equipment. Big companies, very few in numbers, can
easily come-up with the financial requirement. Though regulatory measures and standards
to that effect are already in place and have already reached the entirety of the industry
sector, support from the government is still badly needed in terms of financing from major
government financial institutions or tax reduction, among others.
According to the study report prepared by Jaakko Poyry Oy of Finland for the
Development Bank of the Philippines (DBP) in March 1990, the Philippine mills do not
have the economies of scale to be internationally competitive. The cut-throat competition
might force the smaller and less efficient mills to cease operations. Under the
circumstances, the only small mills that can survive are those producing special grade paper
product which do not have direct foreign competition. Meanwhile, bigger and more
competitive firms are urged to start rehabilitation and operational improvements if they
wish to remain in existence.
The study further noted that congestion and environmental considerations necessitate the
expansion of mills outside Metro Manila. In the long run, most of the mills found in
suburban area are expected to be closed or relocated. In terms of process technology,
prospects appear quite bleak. The present structure is small and outmoded and naturally
non-competitive. Even mill expansions are based on second-hand machinery and old
technology. To keep millers above water under the proposed restructuring effort, a
comprehensive program on modernization should be developed, anchored on the latest
international process technologies. Based on the projected production estimates for the
year 2000, environmental protection for the entire Philippine pulp & paper industry will
involve approximately US$ 71.9 million. As shown below, primary treatment represents
only 18 percent (US$ 12.8 million) of the total cost:
Control Measures Investment Cost

( US$ million )
In-Plant Measure 2.3

Primary Treatment 12.8
Secondary Treatment 35.5
Sludge Handling 21.3
Total 71.9
5.5 Conclusion
The development of an industry has a very significant and beneficial effect on a country's
economy and on the growth of the surrounding communities. However, as is almost always
the case, these benefits are not achieved without undesirable side effects. Industrialization,
technological change and urbanization have become objects of a mounting public concern
in view of the ecological and environmental problems created by pollution.
For the Philippines, the government policies and regulatory measures concerning
environmental protection as well as the conservation and efficient utilization of energy are
already in the implementation phase. These two factors equally support the technological
development of the industries. However, these measures and policies prove to be a
deterrent for old and inefficient forms of technology in existence.
Since the country is contemplating on becoming one of the newly industrialized countries
(NIC) in the Asian region by the year 2000 with government efforts to provide room for
investors in the country, it is the policy of the state to ensure that the technology adopted
and installed in every new industry are environment-friendly and energy-efficient in nature.
Annex 5.A. Memorandum of Understanding with the DENR
Government agencies and offices signatory to the Memorandum of agreement with the
Department of Environment and Natural Resources and their respective responsibilities
for the implementation of environmental control and protection are given below:
1. Department of Agriculture - responsible for the management and development of

agricultural lands;
2. Department of Agrarian Reform - has jurisdictional authority over the management

of agricultural lands for conversion to non-agricultural uses;
3. Public Estate Authority - responsible for the determination, development and

administration of reclamation sites except those intended for port operation
purposes;
4. National Electrification Administration - responsible for the electrification of the

countryside through the creation of electric cooperatives;
5. National Housing Authority - responsible for the development of government housing

and resettlement programs;
6. Investment Coordination Committee-National Economic Development Authority - tasked to

review the technical, economic and socio-political impact on major national projects;
7. Department of Public Works and Highways - responsible for the development,

construction and maintenance of national roads, bridges and major flood control
infrastructure projects;
8. Laguna Lake Development Authority - a responsible government agency mandated by

Republic Act 4850 to implement the national policy which is to promote and
accelerate the development and balanced growth of the Laguna Bay Region with due
regard and adequate provisions for environmental management and control,
preservation of the quality of human life and ecological system, and the prevention
of undue ecological disturbances, deterioration and pollution;
9. National Irrigation Administration, National Water Resources Board, Metropolitan Water

Works and Sewerage System, and Local Waterworks and Utilities Administration - collectively
responsible for the management, development and rehabilitation of water resources;
10.Philippine Ports Authority -responsible for the development, upgrading, rehabilitation

and maintenance of ports throughout the country;
11.Department of Transportation and Communication - is the primary government entity

responsible for policy formulation, planning, programming, implementation,
administration and regulation of transportation and communication network system;
12.Department of Tourism - responsible for the development and promotion of tourism as

a major contributor to the social and economic growth of the country;
13.Government Financial Institutions (DBP, LBP) - responsible for the expeditious

processing and release of loan requirements by private entities;
14.The Department of Energy, Energy Regulatory Board, National Electrification Administration,

National Power Corp. , and Philippine National Oil Company - agencies responsible for the
development and management of the country's energy resources;
15.Department of Health - responsible for the promotion, protection, preservation, and

restoration of the health of the Filipino people;
16.Department of Trade and Industry and the Board of Investment - responsible for the
promotion and development of domestic and foreign trade, industries and
investment;
17.Department of Interior and Local Government - responsible for the strengthening of the
administrative and regulatory capabilities of local government units in the
performance of their functions and for devolved agencies under conditions of greater
autonomy, with increasing capacity to govern and carry out social, economic, political
and environmental development programs;
18.Department of Science and Technology - responsible for the formulation and

implementation of policies, plans, programs and projects for the development and
promotion of science and technology in the country;
19.National Museum - responsible for the study and preservation of the nation's rich
artistic, historic and cultural heritage; and
20. Metro Manila Development Authority - responsible for the maintenance of schools,
operation of health facilities, formulation and implementation of development plans
for Metro Manila.
Annex 5.B. Summary of Related Permits

Permit/Approval Issuing Entity Comment
Locational Clearance Housing and Land Use ECC required prior to Locational
Regulatory Board Clearance
P.D. 984 - Authority to Construct DENR Regional Office Required for the construction of a
a Wastewater Treatment Facility wastewater treatment facility or air
or Air Pollution Source and pollution source and control installations
Control Installations
P.D. 984 - Permit to Operate a DENR Regional Office Required for the operation of a
Waste-water Treatment Facility or wastewater treatment facility or air
Air Pollution Source and Control pollution source and control installations
Installations
Certificate of Eligibility for Department of Demonstrates that the proposed site is not
Conversion Agriculture prime agricultural land
Certificate for Land Conversion Department of Agrarian Required for the conversion of
Reform agricultural zoned land for other uses.
Mayor's Permit LGU Permits the establishment of an enterprise
in the LGU jurisdiction
Sanitation Permit LGU Ensures the establishment has installed a
satisfactory sanitation system
E.O. 226 Investment Incentives Department of Tourism Requires that tourism projects prepare an
environmental study with endorsement
from the EMB
LLDA Clearance Laguna Lake Required for projects wishing to be
Development Authority located in the jurisdiction of the Laguna
Lake District
MMA Locational Clearance Metropolitan Manila Requires anti-pollution clearance from
Authority Reform LLDA or DENR
Water Permit National Water Resource Requires an ECC
Board
Loan Approval Development Bank of the Requires an ECC for environmentally
Philippines critical projects
Water and Sewerage Project Metropolitan Waterworks Requires an ECC for all major water
Approval and Sewerage System source development projects
Investment Coordinating National Economic and Requires that all projects secure an ECC
Committee Clearance Development Authority before Investment Coordinating
Committee approval can be granted
PPA Clearance Philippine Port Authority Requires an ECC prior to the approval of
a lease contract or clearance to develop a
private port
PS Mark (attesting that a product Department of Trade and Requires an environmental sanitation
meets the Philippine Standard) Industry assessment of a factory; an ECC is also
required for siting
Annex 5.C. Steps to obtain an ECC
Following are the necessary steps to be undertaken for obtaining an ECC:
Kalakalan 20 Projects
1. Determination of Kalakalan 20 Eligibility
The definition of Kalakalan 20 Projects: Kalakalan 20 projects are countryside and barangay
business enterprises established through R.A. 6810 and meet all of the following criteria:
− a business entity, association or cooperative engaged in the production, processing

or manufacturing of products or commodities, or other productive services
− located anywhere in the country except:
-- four cities and thirteen municipalities or Metro Manila, or
-- other highly urbanized cities
− total of 20 employees or less
− total assets, at the time of registration, of 500,000 or less
− not an existing business that has collapsed and/or transferred from an ineligible
area to an eligible area
Meeting between the proponent and the LGU official to determine if the project meets the
criteria as Kalakalan 20.
Yes the LGU registers the project under Kalakalan 20

the LGU requires the proponent to prepare a brief project description
No the LGU official refers the proponent to the DENR regional office
2. Preparation of Brief Project Description

The brief project description is a one page summary of the proposed activity detailing the
process and raw materials the project will use.
3. Evaluation of the Brief Project Description

The LGU official reviews the brief project description to determine the project's potential
pollution discharges that may affect the environment so that appropriate measures can be
taken. The LGU can seek assistance from the DENR regional office for advice.
4. Approval, Denial or Exemption

The LGU official recommends to the Provincial Governor whether the project:
a. be issued an EC (approval)
b. does not need an EC (exemption) - granted if project discharges a minimal

amount of wastes and wastes can be managed relatively easily.
c. be denied an EC (denial)
5. Monitoring
Kalakalan 20 industries are essentially livelihood industries. A DENR-Provincial
Environment and Natural Resources Officer (PENRO) and/or an LGU official
periodically visit the Kalakalan 20 site to ensure that the project is operating as proposed.
Projects in Environmentally Critical Areas

Definition of Environmentally Critical Area - An environmentally critical area is a project
site that meets any of the following characteristics:
· all areas declared by law as national parks, watershed reserves, wildlife preserves
and sanctuaries;
· areas set aside as aesthetic potential tourist spots;
· areas that constitute the habitat of an endangered or threatened species of
indigenous Philippine wildlife (flora and fauna);
· areas of unique historic, archaeological, or scientific interest;
· areas that are traditionally occupied by cultural communities or tribes;
· areas frequently visited and/or hard-hit by natural calamities (geologic hazards,
floods, typhoons, volcanic activity);
· areas with critical slopes;
· areas classified as prime agricultural lands;
· recharged areas of aquifer
· bodies of water, coral reefs; and
· mangrove areas.
1. Determination of Project Application

Determination of whether the project is:
− an environmentally critical project (EIS must be prepared and submitted)
− located in an environmentally critical area (Project description is required)
− exempted from the EIS system
2. Project Description Scoping

The proponent meets with the DENR regional office to identify the affected parties and
other government agencies that have jurisdiction over the project. Affected parties include
representatives from the LGU and local community. Scoping includes:
− preparation of background on the proposed project;
− notification and involvement of interested parties;
− identification and selection of alternative sites to be assessed;
− identification of significant impacts, including environmental risks to be

considered
− determination of the information and analysis to be used in assessing the impacts
of the project.
3. Project Description Preparation and Submission

Project Description (PD) to be prepared should conform to the scope of work. The
DENR regional office is responsible for reviewing and evaluating the PD.
4. Inspection of Proposed Site

After the initial screening of the PD, the DENR regional office may recommend that the
proposed site be inspected to verify if the project is suitable to the site proposed. The
DENR regional offices assign a PENRO or a LGU to conduct a visual inspection and
report back in writing any findings relative to the site proposed in the PD.
5. Project Description Evaluation

The DENR regional office assesses the PD and supporting documents with respect to the
accuracy of data presented, the applicability of the mitigating measures, and the adequacy
of the monitoring program. It can recommend that a public consultation be conducted to
provide public comment on the proposed project.
6. ECC Approval, Denial, of Full EIS

Once all pertinent information has been validated, reviewed and evaluated, any of the
following recommendations will be made by the Regional Technical Director for signing of
the Regional Executive Director:
− recommends the issuance of an ECC
− recommends that the proponent prepare a full EIS for the proposed project
− recommends the denial of the ECC
Environmentally Critical Projects

An environmentally critical project is defined by any one of the following types of project,
whether it is new or is an expansion in production (output) or physical area:
− heavy industries (i.e., non-ferrous metals, iron and steel mills, petroleum and
petrochemical industries, smelting plants)
− resource extractive industries, (i.e., major mining and quarrying projects, forestry
projects, dikes and/or fishpond development projects)
− infrastructure projects (i.e., major dams, major power plants, major reclamation
projects, major roads and bridges).
All projects that meet the definition of an environmentally critical project regardless of
their location must prepare an environmental impact statement. The Environmental
Management Bureau (EMB) takes the lead in reviewing and processing EIS's with support
from the DENR regional office as needed.
1. EIS Scoping
− preparation of background for the proposed project
− notification and involvement of interested parties
− identification and selection of alternative sites to be assessed
− identification of significant impacts, including environmental risks, to be
considered
− determination of the analysis to be used in assessing the impacts of the project.
The proponent meets with the EMB to identify the affected parties and other government
agencies that have jurisdiction over the project.
2. EIS Preparation and Submission

Five steps in preparing and submitting an EIS are as follows:
a. Annotated Environmental Impact Statement Outline
b. Identifying the EIS team to prepare the document
c. Data Collection
secondary data sources such as EISs and PDs that may have been prepared for
similar or nearby projects can be considered.
d. Impact Assessment and Analyses
Evaluation of data gathered. The team then identifies the mitigating measures
that will eliminate the predicted impacts or reduce them to an acceptable level.
This would include the consideration of waste minimization (e.g. source
reduction, recycling and reuse) prior to the design of a waste treatment facility.
For each predicted impact there should be a corresponding monitoring effort.
e. EIS preparation
The EIS should conform to the annotated EIS outline provided by the EMB. It
also contains the information and analyses identified in the final scope of work.
3. Determination of EIS Sufficiency

The EMB convenes with the EIA Review Committee composed of specialists within and
outside the DENR including consultants and university faculty. The Committee evaluates
the EIS document and determines if it is acceptable as submitted.
4. Inspection of the proposed site
The EMB may recommend that the proposed site be visually inspected to verify the
suitability of the project to the proposed site. It coordinates with the DENR regional
office, the PENRO or the LGU for a visual inspection. Inspection findings are sent to the
EMB and are distributed to the EIA Review Committee.
5. EIS Evaluation
The EMB relies on the EIA Review Committee in evaluating EIS documents. The
Committee can meet up to three times, including the initial review, on a given project to
discuss and assess the sufficiency of data presented, the accuracy of assessments and
predictions, the applicability of the mitigating measures, and the adequacy of the
monitoring program proposed in the EIS document.
Based on the final EIS evaluation, the EMB may recommend that a public hearing be
conducted to provide public comment on the proposed project.
6. ECC Approval or Denial

Based on the recommendations made by the Review Committee, the EMB endorses the
ECC or submits a letter of denial to the DENR Secretary for signature to be sent to the
proponent.
Regulatory Measures in Selected Asian Countries: Country Report from Sri Lanka 181
6. COUNTRY REPORT: SRI LANKA

6.1 Introduction
Sri Lanka is a developing country, which is undergoing rapid structural transformation.
Typically agriculture based 40 years ago, the economy now has a significant industrial sector,
contributing about 22% of the country's GDP in 1994.
The country has opted for this development strategy mainly due to its increasingly scarce
irrigable land, high population density, and vulnerability of world market prices for agricultural
crops. The policy makers have explicitly chosen industrial value added sector as the growth
centre of the economy. The target is to achieve Newly industrialised country status within the
first decade of the 21st Century.
Rapid industrialisation has its externalities too, one major issue being the environmental
concern. Industrialisation will mean more and more utilisation of natural resources and
increased pressure on environment due to effluent and emission. If these externalities grow
unchecked, the benefits expected from rapid industrialisation could be drained off. Having
recognised that, Sri Lanka has launched an ambitious programme to protect environment,
particularly since early 80s.
6.1.1 Pollution patterns

Though Sri Lanka still maintains relatively acceptable air and water qualities, several elements
of concern have already surfaced, particularly in urban and industrial areas. For example,
several sample tests done at the centre of Colombo during rush hours have demonstrated the
marginality of air quality (ref. Tables A.1 and A.2, in Appendix A). Though the largest inland
water body in Colombo Metropolitan Area, namely Bolgoda lake, seems to have relatively
unpolluted water, several other water bodies (Beira Lake, Lunawa Lagoon) are highly polluted
(ref. Tables A.3 and A.4 in Appendix A).
Urban discharges seem to be the largest contributor to water pollution (Ref. 10). But, industrial
establishments have been the major cause of non-biodegradable waste discharge to water
bodies. Embilipitiya Paper Mills is an example of such a source of pollution. Emission from
urban transport modes, by and large, bears the responsibility of polluting ambient air, though
large-scale industries, particularly cement, thermal power plants and refineries cause air
pollution in localised areas.
6.1.2 Environmental management efforts

Current efforts of environmental management in Sri Lanka have two dimensions: regulations
and incentives. Use of incentive based instruments is also known as “carrot” approach. Carrot
approach is capable of handling things only up to a level determined by encouragement limits.
Other activities, which fall outside this range, are not guided by such incentives. Therefore
‘Carrot approach’ alone is not adequate for solving the problem of pollution successfully, and
“stick” (or regulatory) instruments are also needed. Regulatory measures are common and
apply to all irrespective of their purchasing powers. However, the ‘stick’ approach has
enforcement shortcomings, which is one of the major weaknesses of the tool.
Incentive based instruments are relatively new in Sri Lanka, and it is yet premature to
comparatively analyse the advantages and shortcomings of this tool in the Sri Lankan
perspective. Therefore, the discussion in this paper will be confined only to the “regulation”
aspect.
6.2 Institutional Structure

6.2.1 Institutions for industrial development
Although the process of changing from a 'controlled' economy to an 'open' economy
commenced in the mid 1970s, the bulk of the industries in Sri Lanka remained in the
management of the Government until about the early 1990s. At present, most of the
manufacturing industries including the plantation industries are either owned-and-operated by
the private sector, or are in the process of privatisation.
Infrastructural utilities such as electricity and water are still owned and managed by the state
sector.
With the private sector gradually coming up to dominating the industrial sector in the country,
the role of state institutions is to assist and guide the industries owned and operated by the
private sector.
The names and functions of some of these important institutions are described below:
(a) The Ministry of Industrial Development

This is the apex body governing the promotion of industries in the country. This ministry
works in close collaboration with other relevant ministries such as the Ministry of Finance and
Planning, Ministry of Science and Technology, Ministry of Environment and Ministry of
Labour.
(b) Industrial Development Board (IDB)

This is a statutory body functioning under the Ministry of Industrial Development. In the past,
the Board established many Industrial Estates, a cluster of small industries, in suitable locations
in the country. The establishment of such industries includes the task of providing
infrastructure facility such as adequate land, electrical power distribution system, water supply,
etc. The Board also assists prospective industrialists in the preparation of project reports,
evaluation studies, etc. In addition, it assists such industrialists in obtaining finance from
lending institutions for their ventures.
The Board carries out research and development work on selected industrial activities such as
rubber processing and alternative energy utilisation (typically biogas plants, use of agro-residues
as fuel). Findings of such research activities are propagated at subsidised costs.
(c) Sri Lanka Standards Institution

The Sri Lanka Standards Institution is responsible for the quality control of industrial products
by setting up industrial standards.
(d) Industrial Services Bureau of North Western Province

With the introduction of a Provincial form of Local Government in the country a few years
back, some enterprising provinces established institutional facilities to assist industrial
development in their respective provinces. One such very successful venture is the Industrial
Services Bureau of North Western Province. This Bureau has successfully established many
industrial parks in the North Western Province of the country with funds made available from
foreign donor agencies, particularly from Germany.
This Bureau provides all the services provided by the Industrial Development Board
mentioned earlier, but confines its activities to this province only.
Similar Bureaux have been established in many other provinces.
6.2.2 Institutions for environmental management

(a) Ministry of Environment (MoE)
Ministry of Environment is the highest authority looking after the issues of environment. Its
principal duty is to appraise development policies and programmes, to comment on
environmental implications, and to develop environmentally specific action plans. The MoE
operates on resources provided to it through the government budget.
(b) Central Environmental Authority (CEA)

The Central Environmental Authority (CEA) is the principal implementing agency under the
MoE. CEA has legal powers to act on environmental issues, particularly through
administration of Environmental Protection Licence (EPL) Scheme, and the Environmental
Impact Assessment (EIA) procedure. CEA is the central agency on environment, but
provisions exist for it to establish regional/provincial branches too. The agency receives funds
mainly through public budget, under the auspices of the MoE, but it can raise funds from
outside sources as well.
(c) PAAs, Environmental Cells and Local Authorities

Other than the above two principal environmental institutions, there are other government
agencies which are active in the field of environment. Most of the institutions linked to this
structure are those which are directly involved in implementing the EPL and EIA schemes.
These agencies are gazetted from time to time by the Minister of Environment.
EIA scheme is administered by the CEA. A set of government agencies is gazetted as “Project
Approving Agencies” (PAAs) in order to implement the scheme in respective subject areas
with the assistance of CEA. For example, in case of industrial projects, Ministry of Industrial
Development could be nominated by the CEA as the PAA. Typically, the duties of a PAA will
be discharged through the “Environmental Cell” of the Ministry, which will also act as the unit
to ensure co-ordination with CEA and MoE. The current list of PAAs is annexed to this
report (Appendix B).
The authority to issue EPLs for 15 types of “low polluting” industries (ref. Appendix C) is
delegated to Local Authorities (LAs) by the CEA since 1994. As such, all Local Authorities can
be considered linked to the environmental institutional structure. The Board of Investment
(BoI) was, until recently, empowered to issue EPLs for the industries within their jurisdiction;
but this delegated authority has now been withdrawn by the CEA.
(d) Other Institutions

Apart from these institutions, certain other agencies also have some stake in the environmental
management activities. Among them, the Department of National Planning (through their
central role played in public project appraisal and resource allocation), Ministry of Health
(through their close liaison with the LAs), and Provincial Councils (which have controlling
power on activities of the LAs in corresponding Provinces) are prominent.
Environmental management functions include financing and research as well. The institutions
involved in these aspects and their functions will be discussed separately.
6.2.3 Institutions for energy conservation

As energy conservation directly leads to environmental protection (through reduced effluents
and emissions) and productive efficiency (through improved usage of resources), most of the
institutions specifically established to conserve energy could be classified as environmentally
and industrially linked institutions as well. However, as their main focus is on energy they are
classified under energy conservation for the purpose of this paper.
A statutory body called the Energy Conservation Fund (ECF) has been established under the
Ministry of Irrigation, Power and Energy for the purpose of promoting energy conservation.
Its scope of activities include financing, promotion and initiation of activities and projects
related to improvements in energy demand management and conservation programmes.
Apart from the ECF, the DSM unit of the Ceylon Electricity Board (on matters pertaining to
the generation and utilisation of electrical energy and the demand side management), Ceylon
Petroleum Corporation (on matters pertaining to the refining of petroleum products), and the
National Engineering Research and Development Centre (on development and marketing of
appropriate technologies and devices for efficient generation and utilisation of energy) are also
operating towards the same end.
Sri Lanka Energy Manager’s Association is an NGO closely collaborating with the government
institutions for the promotion of energy conservation activities. There is also a number of
private consultant firms dealing with energy issues.
6.2.4 Financial institutions

Development Financing Corporation of Ceylon (DFCC) and the National Development Bank
(NDB) are the two major development banks established in Sri Lanka. They provide finances
necessary for investment activities in all development sectors.
These two banks, though established under state patronage, are at present either fully privatised
(with significant parts of the shares held by the government) or are in the process of
privatisation. They receive large volumes of funds at concessionary terms from donor agencies
such as the Asian Development Bank, for disbursement to local entrepreneurs. Such funds are
partly utilised as outright grants for selected activities such as acquiring new technologies,
establishment of quality control laboratories, etc. These two banks also provide venture capital
to industrial and commercial activities.
Development financing institutions also look into environmental issues pertaining to the
projects they are financing. For example, National Development Bank (NDB) has made it a
prerequisite that all financial institutions participating in the Small and Medium Industry (SMI)
financing scheme write a section on environmental issues in the project appraisal reports if they
are to obtain refinancing. As such, all development financing institutions also are indirectly
linked to the environmental institutional structure.
The National Development Bank also administers a special facility called "Pollution Abatement
and Control Fund" for industrial purposes. Being a combination of loan and grant
components, this facility offers concessionary financing to industrialists who need resources to
carry out pollution control activities in their establishments.
6.2.5 Research institutions

Ceylon Institute of Scientific and Industrial Research (CISIR), and National Engineering
Research and Development Centre (NERD) are the two main institutions which are
established to carry out industrial and scientific research. Their activities may cover energy
conservation and environmental protection also. The former institution carries out research
mostly in the scientific areas, whereas the latter in the field of engineering. These two
institutions obtain most of their funds from the central government. In the recent past, they
have been able to generate substantial part of their operating finances by selling their research
findings to prospective industrialists.
There are sector-specific research and development organisations as well. For example, Ceylon
Tea Board, Tea Research Institute, Rubber Development Department, Rubber Research
Institute, Coconut Development Authority, Coconut Research Institute and Coconut
Cultivation Board are responsible for the research and development aspects of the respective
export crop (including productivity, technological development, energy conservation and
environmental protection as well).
The institutional structure pertaining to industrial development, environmental management

and energy conservation, together with their interlinkages, is presented schematically in Figure
2.1.
6.3 Evolution of Environmental Regulations

6.3.1 Overall environmental regulations
The concern for environmental protection in Sri Lanka gained rapid popularity and strength
during the past ten years. The trend has been inspired by the developments in the West and
supported by inflows of funds from developed countries, particularly through the NGOs.
6.3.1.1 Foundations of environmental legislation

In 1980, Sri Lanka enacted its first environmental act, namely, the National Environmental Act
(NEA) no. 47 (Ref. 7), which came in force on August 12, 1981. This act was a result of the
ongoing development of environmental concerns. The initial activities could be traced back to
as early as 1973 when a joint UNDP/UN/ESCAP mission recommended the necessity of a
co-ordinated effort for environmental management in Sri Lanka. The interim report submitted
to the Government by the UNEP Advisor in 1977, and the recommendations that evolved
from the seminar on "Environmental Protection and Management" held in 1978 were the
mile-stones in the process that paved the way for legislating this NEA of 1980. The Central
Environmental Authority (CEA) was established under this act, and provisions were made for
CEA to review laws, advise the Government on environmental policy and co-ordinate with
relevant NGOs.
INDUSTRY SECTOR
MoID
IDB
EDB
Provisional Councils
Others
ENVIRONMENT ENERGY SECTOR
MoE MoIPE
CEA INDUSTRIAL ECF
PAAs ACTIVITIES CEB
PCs CPC
LAs Others
Oh
OTHER INSTITUTIONS
Apex Research Finance

MoF&P MoS&T Central B
NDC CISIR NDB
NPD NERD DFCC
ERD TRI Others
RRI
CDA
Figure 2.1. Institutional structure and interlinkages of industrial activities

Realising the need to provide for the implementation of environmental policies and
enforcement of legislation, the NEA was amended in 1988. According to this amendment, the
CEA was empowered to set discharge standards and enforce them, administer the
Environmental Protection Licensing (EPL) Scheme and implement the Environmental
Impact Assessment (EIA) procedure. The standards are gazetted from time to time and CEA
is now enforcing these standards through EIA procedure (for new activities) and through
EPL scheme (for both new and existing activities). Currently applicable effluent discharge
standards are summarised in Appendix D.
According to the prevailing law, only CEA can sue any industry for not having obtained or
renewed the EPL, or for not conforming to environmental standards, or for both. The
individual citizens or affected parties cannot go to court under the provisions of the NEA;
however, they may resort to the “Nuisance Act” to bring the polluting industries to law on the
grounds of violating their fundamental rights to have access to an environment with a
minimum acceptable quality specified by the standards, and/or on provisions made under any
specific Act covering a field related to environmental quality (ref. section 3.1.3 also).
The provision of penalties under the NEA and some instances of its application are cited
below:
(a) Water Pollution

A fine of not less than Rs. 10,000 and not exceeding Rs. 100,000 may be imposed for causing
water pollution. In addition, a fine of Rs. 500 per day is imposed for each day of continuation
of the offence [Section 23 (h) (3) of NEA, 1980]. If the offence continues for a period of 6
weeks allocated for compliance after conviction, a closure order of the facility will follow.
Additionally, the court may order the facility to pay for the cost of any steps it deems
necessary for the retribution of the damage.
(b) Air Pollution

Same penalties as for water pollution (fines / closure / retribution of damage).
(c) Soil Pollution

Same fines as for water pollution, but no closure order and no recovery of damage are
provided for.
(d) Noise Pollution

Same penalties as those for soil pollution.
(e) Instance of Penalties ordered by the Courts of Law

- Most of the punishments handed so far are limited to the lower range of fine (i.e. Rs.
10,000).
- So far, only one closure order handed out by the court, but the closure was ordered
only for that part of the factory causing the pollution.
- Most of the environment related rulings have been obtained by the citizens using the
Nuisance Act, rather than the NEA of 1980. Under the Nuisance Act, closure orders with
immediate effect may be obtained.
6.1.1.1 Attempts to Draft a New Act

Currently, efforts are being made to legislate a new Environmental Protection Act, which is to
replace the NEA of 1980. The Act is in its draft form (Ref. 8) and is expected to provide
greater rights to the public or affected parties in view of maintaining the quality of the
environment. The draft act contains the following important characteristics:
- Powers to levy fines (vested with CEA):Up till now, CEA can only go to courts, and courts
will have to decide on fines. With the proposed provisions, CEA will be able to levy fines on
the polluters
- Powers given to magistrate courts to issue "closure orders" against factories which do not conform to
regulations
- Citizen suits:Under this proposal, individuals will be able to sue industries for "violation
of environmental regulations", or to sue CEA and the Minister in charge of the portfolio
pertaining to the environment and ecology for not enforcing the legal provisions against such
industries, or both. According to provisions of the Act of 1980, individuals could only lodge a
case against such industries and/or against CEA and the Government on the grounds of
violation of fundamental rights.
Some of the significant clauses in the draft act involve Noise, Vibration, Air Quality,
Discharge Water Quality and Ambient Water Quality.
6.1.1.2 International treaties for which Sri Lanka is a signatory

The international community is increasingly becoming vigilant on environmental issues.
Particularly in Europe and the USA, the individuals and NGOs who are environmentally
active have gained considerable strength and lobbying power. The Governments in these
countries are under pressure to conform to strict in-house environmental standards and also
to take action against developing countries which, according to their standards, are following
environmentally unsound development paths.
This can be seen as the main driving force behind international treaties on environment. Sri
Lanka is a signatory for eight such international treaties:
- Biological diversity convention (Came into force in Sri Lanka on June 23, 1994)
- Basel convention on trans-boundary movements of hazardous waste and their disposal (Came into
force in Sri Lanka in November 1992)
- Convention on international trade in endangered species of wild fauna and flora (CITES) (Came
into force in Sri Lanka in August 1979)
- Ramsar convention on wetland of international importance (Came in force in Sri Lanka in
September 1990)
- Bonn convention on migratory species (Came in force in Sri Lanka in September 1990)
- Vienna convention for protection of ozone layer (Came into force in Sri Lanka in March 1989)
- Montreal protocol on substances that deplete the ozone layer
- Framework convention on climate change
The requirements imposed on the countries by such treaties are being taken care of by various
means, particularly by incorporating them into national Acts (Ref. 4 for a detailed account of
relevant Acts). Few such Acts (other than the NEA and draft EPA) are :
- Fauna and Flora Protection Act of 1937
- Forestry Ordinance of 1907
- Fisheries Ordinance of 1940
- Imports and Exports Control Act of 1969
- Industrial Promotion Act of 1990
These Acts could be amended as and when necessary. In any case, the provisions of the NEA
of 1980 are strong enough (which will be further strengthened through the draft
Environmental Protection Act) to ban any activity and/or material which are considered to be
environmentally harmful. For example, a list of materials that are considered to be causing
depletion of the Ozone Layer has been outlawed in Sri Lanka with effect from January 01,
2000 by the Gazette Notification of December 20, 1994, issued on the provisions of the
NEA, No. 47 of 1980 (ref. Table D.4 of Appendix D)
6.1.2 Regulations specific to the industrial sector

All general regulations described above are applicable to the industrial sector as well. But, in
case of industries, certain specificities also do exist.
First of all, industries are classified into three sets: “low polluting”, “medium polluting” and
“high polluting”. The authority to issue EPLs is delegated to LAs, though CEA retains the
power to issue EPLs for the other two types of industries. There are differences among
discharge standards specified for particular industries too, e.g. textile, rubber, leather tannery,
etc. (ref. Appendix D).
When it comes to EIA scheme, only those industries (or ‘activities’ in general) which are
“prescribed” as environmentally sensitive by a gazette notification are legally bound by the
EIA regulations. Others may do away with it, sometimes by simply performing an Initial
Environmental Examination (IEE), or sometimes without even being captured by any such
requirements.
The Industrial Promotion Act, Forestry Ordinance, and Imports and Exports Control Act, among others,
have direct implications on industrial and energy sector activities.
6.1.2.1 EPL procedure

Environmental Protection Licence (EPL) is obligatory for any industry discharging pollutants
to the environment if they are to be legally operable in Sri Lanka. This is applicable to both
new and existing industries. The firms established prior to July 01, 1990 are classified as
"existing industries", and firms coming into operation thereafter are classified as “new
industries”.
Any new industry discharging pollutants will have to obtain the EPL prior to commencing
operations, and for this purpose, it has to get the "Site Clearance" from the CEA. The CEA
had delegated Local Authorities the power of granting EPL for 15 types of low polluting
industries since 1994. For any other industry, EPL is issued directly by the CEA. The
delegated power vested to Board of Investment (BoI) to issue EPLs has been withdrawn
recently.
With regard to "existing industries", CEA considers that it is only fair to grant them a
reasonable period of time to conform to standards. Therefore, CEA is adopting a
"negotiating" and "consultative" approach when dealing with pollution control from existing
industries.
EPL is issued for a maximum period of 12 months, and renewal of this Licence is obligatory
for a firm to continue its operations. According to the existing National Environment Law,
1980, a maximum sentence of 2 years of imprisonment or a fine of not more than Rs. 10,000
or both may be imposed on a party for not having an EPL when it is required or for not
conforming to its terms while holding an EPL (Section 31, NEA 1980).
6.1.2.2 EIA procedure

Environmental Impact Assessment procedure is applicable to new (or, proposed) industries.
The mechanism is administered through PAAs (ref. section 2.2 also) gazetted by the Ministry of
Environment. The types of industries which are susceptible to cause significant environmental
impacts are gazetted as “environmentally prescribed” industries (Ref. 3), and EIAs are
required for these industries prior to obtaining permission for commencement of the project.
The procedure that should be followed in carrying out the EIA studies and their appraisal is
provided in the form of guidelines, issued by the CEA.
If the scoping exercise determines that a detailed EIA is necessary, then PAA issues Terms of
Reference (ToR) for the study, and the project proponent is required to carry out the EIA at
his own cost. The EIA report is then submitted to a committee which rules on the adequacy
of the EIA coverage. The report enters into EIA appraisal stage only if it successfully passes
through the adequacy testing.
PAA will appoint a Technical Evaluation Committee (TEC) to study the EIA report, its
findings and the acceptability of the recommendations. At the same time, law requires that the
PAA opens the EIA report for public comments. A public hearing also could be held if felt
necessary. The TEC will be provided with the information and observations revealed though
this process of public participation.
TEC will submit a report to the PAA, articulating its opinion on the project and the EIA
report produced by the proponent. TEC may agree or disagree with the recommendations of
the EIA report. In case of disagreement, PAA will uphold either the TEC’s view or the view
expressed in the EIA report. The EIA report, TEC’s views and the PAA’s recommendations
are then submitted to CEA for “concurrence”. Final decision on the project’s future will be
made by the CEA. It can be either “approval”, “approval with minor modifications” (such as
more detailed mitigation measures, more intensive monitoring plan, etc.), or “rejection” calling
for a revision in the project design. The act however makes provisions for the proponent of a
‘rejected’ project to appeal to the Secretary of the MoE to reconsider the decision taken by the
CEA.
The flow-diagram presented in Figure E.1 (ref. Appendix E) demonstrates the steps involved in
the EIA appraisal procedure.
An interesting demonstration of the application of EIA regulation in Sri Lanka is the Upper
Kothmale Hydropower Project (UKHP) proposed by Ceylon Electricity Board (CEB). The
EIA report endorsed the project alternative proposed by the CEB with mitigatory measures
and a monitoring plan. The TEC recommended against the design. However, the PAA (in this
case, the Ministry of Power and Energy), decided in support of the CEB proposal. Having
reviewed the EIA report, the TEC recommendations and the decision made by the PAA, the
CEA concurred against the UKHP alternative proposed by the CEB, and requested the
project proponent to examine other feasible alternatives. CEB appealed to the Secretary of
MoE, but failed to obtain a favourable decision.
EIA procedure has some characteristic shortcomings too. Most important is the time
requirement. An EIA appraisal on a large project may take 6 months to one year. This may be
seen as a drawback as far as the investment promotion is concerned in developing economies.
The EIA procedure usually intervenes at the tail end of the appraisal sequence of a project.
This is a definite disadvantage as a negative outcome of an EIA mechanism would mean a
considerable wastage of resources which may have been spent on the development of a
project up to that stage. Efforts are currently being made to re-define the appraisal sequence,
at least in public investment projects (Ref. 5), in view of making the EIA intervention as early
as possible in project development process. Selection of PAAs also has raised some concerns
as there could be conflict of interest if the ministry nominated as the PAA has a stake on the
project. For example, Ministry of Power and Energy becoming the PAA for a publicly funded
hydro electricity project could lead to biases. To overcome this, new provisions are being
discussed to make another agency the PAA for a project, when the line ministry handling the
particular subject area seems to have a stake on the proposed project. Significant resource
requirement is another concern with regard to EIAs. When the projects are of social nature, or
of marginal profitability, the expenditure on EIA may put the viability of the project in
question.
Realising these problems, the Government has taken steps to make pro-active arrangements
so that the role investors have to perform is made minimum. Industrial zoning is an example
to this effect. Under this scheme, suitable sites will be pre-selected, sectoral EIAs will be
performed, all necessary infrastructure (including environmental infrastructure) will be
provided, and the types of suitable industries to the particular sites will be identified, prior to
any promotion of investment into the area. This will not only save investors’ time, but could
also lead to reduced costs while protecting the environmental quality. The question of
obtaining the EPL also is made much simplified under this arrangement.
6.1.3 Sector-specific regulations

With regard to major pollution problems, Paper mill at Embilipitiya has an effluent called
'black liquor'. This alkaline effluent is produced as long as the mill is using rice straw based
pulp. Cement has dust emitted through stack. Steel plant has 'scale', furnace emission and
noise as pollution types.
There are no "sector specific" regulations pertaining to these activities, but provisions made in
“general” regulations circumscribe these industries as well. All the three industries covered in
this study (namely, Cement, Iron and Steel, and Pulp and Paper) are considered to be ‘highly
polluting’ and EPL is needed for them to continue operations. New industries in these areas
will have to comply with EIA regulations, depending on the size of operations, as described
above. Further, any stake-holder may use "impact specific" regulations (such as Nuisance
Ordinance) to control activities of these industries.
6.1.4 Cases of negotiation with industries in setting standards

Under the current Environmental Law (1980), a “public participation in setting up of
standards is not provided for. However, in practice, consultation takes place to a certain extent
during the implementation. An example of such negotiation is the methodology adopted in
setting up the existing water discharge standards, first set up by the Sri Lanka Standards
Institute. The process involved publication of the draft standard in newspapers for comments,
observations and objections by any interested party. The standards were finally decided upon
by committee upon review of the feedback.
Under the proposed Draft National Environmental Protection Act, a procedural requirement
for public participation in setting up of environmental standards is explicitly mentioned.
Consultation with government agencies and public and private stake-holder has been made
part of the procedure of setting standards which have to be finally endorsed by the National
Co-ordination Committee for Sustainable Development (NCCSD, a cross sectoral statutory
body).
6.1.5 Market based instruments

Market based instruments currently being considered in developed countries for
environmental management mainly encompass the following:
- Polluters pay principle
- Soft loans, and
- Taxes & duty exemptions
(a) Polluters Pay Principle

This principle is not appropriate for developing countries like Sri Lanka, since the actual Payee
is determined by the market condition which is generally monopolistic in such countries. The
producer (or polluter) pays in a competitive market, by in a monopolistic market, the charge
will effectively be passed on to the consumer. In Sri Lanka, the “EPL fees” or pollution
charges may be restructured from their flat rates to be commensurate with the amount of
effluent discharged by different polluters, giving a notion of “pay according to your pollution
scale”. However, no such measure has yet been taken in Sri Lanka.
(b) Soft Loans

The National Development Bank (NDB) administers a loan finance scheme known as
“Pollution Control and Abatement Fund (PCAF)” aided by a German financial support
facility. Under this scheme, borrowers are provided with loan finances at no real interest for
pollution control/abatement investment. (ref. section 2.4).
Environmental assessment is an obligatory requirement in considering loan finances for

development projects under SMI Scheme.
(c) Taxes & Duty Exemptions

There are various tax and duty exemption schemes aimed mainly at industrial development.
However, some of the tax/exemption schemes also encompass the environmental
management issues:
- For new and existing industries: 5-year tax holiday plus exemption of dividends
from tax which are paid out of “tax-exempt profits”; and waiver of import duty and turnover
tax if the minimum number of employment is 50, the minimum investment is Rs. 10 million,
and the investment is on machinery and equipment introducing advanced technology (the term
“advanced technology” also includes those technologies which help reduce environmental
pollution).
- For existing companies only: Waiver of Import duty and turnover tax on
investments made for machinery and equipment introducing advanced technology, even if the
investment is below Rs. 10 million but above 2.5 million.
- Removal of Import duty on timber with a view to reducing the local timber
consumption.
- A “diesel tax” on private passenger cars (Rs. 10,000 per vehicle per year)
aimed at reducing the demand for diesel cars.

Sri Lanka has already made substantial progress in incorporating environmental concerns into
her development strategies, and it may well be possible that Sri Lanka is the leader in this field
in the developing world. The country will continue to do so.
However, implementation realities cannot be forgotten. It must be understood that no policy

or strategy will be meaningful unless sufficient “tools” are provided to the “actors” in the
field. Industries, for example, must be provided with guidance and assistance to ‘play
equitably’ between the two goals, environment and development. Making the sector strained
and weak will only be counter-productive. This is why incentives, assistance, co-operation and
sufficient grace-period can be more fruitful than mere laws and regulations.
Given this comparison, it may be worthwhile to analyse the effectiveness of environmental

regulations, particularly their advantages and weaknesses, in order to better understand the
futuristic implementation strategies.
6.2.1 Successes of environmental regulations

Successes of environmental regulations are many, but the most important is the increased
concern on environmental issues among citizens. The regulations also help in reducing
pollution loads, which would otherwise have been discharged indiscriminately into the
environment by the industries. The pro-active thinking is created by the EIA mechanism,
which not only helps projects to become more environment-friendly, but also to make the
designs socio-economically optimal. The impact on technology and professional development
is also not negligible. Reduced wastage, improved resource utilisation and increased process
efficiency are win-win outcomes of environment-oriented initiatives. Reduced energy
consumption, for example, has dual benefits, on profitability and on environmental
protection.
Since EIA process was institutionalised only in 1993, it may be too early to comment on
successes and compare. However, there is no doubt that it has created an impact on
investment culture, as the mere existence of this regulation makes investors think globally.
Environmental resources are given a perceptible "value" through this process, which
discourages indiscriminate exploitation of the environment. The short history of EIA
experience in Sri Lanka, with 23 EIA studies and 56 Initial Environmental Examination (IEE)
studies practically carried out so far, has proven to the society that it can contribute towards
better investment decision making, not only on environmental grounds, but also on economic
and technical grounds.
EPL scheme is an on-going process though the EIA stops with its intervention at the point of
investment. In this sense EPL has long-term controlling effect on industrial operations. Table
4.1 summarises the enforcement record of EPL scheme as of 1995:
Table 4.1. EPL performance 1990-1995
Criteria No of cases
_____________________________________________________
I Percentage of High Polluting industries

covered by EPLs (as at mid 1995) 90%
II No. of EPLs Issued/Renewed (within 1994)

- EPLs newly issued 218
- EPLs renewed 331
---
Total 549
===
III Legal Action (as at Mid 1995)

- Submitted to Attorney General 20
- On-going in courts 15
- Operation stopped by Courts 01

- Process modified by Courts 05
- Cases lost by CEA 00
---
Total 41
===
_____________________________________________________
Source: Interviews at Central Environmental Authority (figures are provisional)
EIA and EPL regulations have promoted the interest on environmental infrastructure too.
Proposed joint waste water treatment plants in Moratuwa-Ratmalana and Ekala-Ja Ela have
no doubt been assisted by the environmental regulations. This inevitably leads to technology
transfer to Sri Lanka, and also to reduce cost burden on industries to have individual
treatment facilities. The country will soon be investing on its first ever sanitary landfill
operation, the technology transfer through which could be considerable. Proposed upgrading
of petroleum refineries to desulphurise diesel and to produce unleaded petrol will be other
examples of technology developments inspired by environmental regulations. The impact on
local human resources and technology development in the environment related fields also is
significant. This fact is demonstrated by the increase in the number of consulting firms,
registered with the CEA for operating in environment related fields, from less than 10 in 1990
to nearly 50 by 1995.
6.2.2 Negative effects and industrial implications

As described above, the industrial sector now has to cater to environmental concerns at the
stage of investment, and also during operations. The investment is screened by EIA
requirements. EPL is needed for any waste discharging industry to continue its operations
legally. EPL is issued after verification as to whether the firms do conform to prescribed
environmental standards with regard to their emissions and effluent. These requirements, in
most cases, are viewed by the investors as additional hurdles to overcome than any
constructive activities in the industrial planning and operation processes.
It is quite evident that all these will imply additional procedures to follow, more work at
operational level, and above all, added capital and operational costs for industries.
6.2.2.1 Impact on operating profits

Operating profits are affected by the effluent and/or emission treatment requirements. The
extent of impact depends on the type of industry and the scale of operations of the firm. A
study carried out by the Institute of Policy Studies on effluent charges (Steele and Hassen, Ref.
13) revealed that Milco Ltd will have an estimated cost of Rs 100 per m3 of effluent treated
(that is, a cost of Rs 300000 per month), whereas Ansell Ltd will have a cost of Rs 5.3 per m3
(Rs 410,000 per month), both for operating individual waste water treatment facilities.
Taking textile industry as an example, maximum permissible level of BOD (Biological Oxygen
Demand) discharged to inland waters is 60 mg/l, which turns out to be 0.06 kg/m3 for
Veyangoda Textile Mills. Given the fact that the Mill discharges 1500 m3 of effluent per day
with a BOD load of 0.6 kg/m3 (Ref. 13), it has to reduce approximately 810 kg of BOD per
day to conform to environmental standards, if calculated on the basis of load equivalents of
concentration standards. Based on estimates of effluent treatment costs using individual waste
water treatment plant (approx. Rs 19,000 per year for treatment of a load of 1 kg BOD/day)
made by Associated Engineers (Ref. 1), Veyangoda Mills will have to spend approximately Rs
15 million a year to conform to environmental norms. Even according to volume based
approximate effluent treatment cost estimates made by Steele and Hassen (Ref. 13), the
average annual operating cost to treat effluent at Veyangoda Mills will be about Rs 17 Million.
The implication is that the Mill will have to incur more than its average annual profits
(approximately Rs 10 Million, Ref. 13) to conform to environmental standards, with the
existing technology in operation.
The Table implies that the impact depends on the firm. The costs are quite negligible for
certain industries, whereas they can be quite prohibitive for certain others.
Technology could be an important factor preventing industries to reduce effluent generation,

which the industrialists may not be able to change within a short period of time. It is possible
also that they may not have access to environmentally friendly technologies. Moreover, in cost
terms, such technologies may not be affordable.
Table 4.2. Profitability and environmental standards
Name of Establishment Annual Profits Cost to conform to standards Percentage of profits

(Rs Million) (Rs Million)
Riverina 52 0.30 0.6%
Lankem 19 0.02 1%
Bairaha 49 1.74 4%
Keels 6 1.10 18%
Ceylon Synthetic 2 0.85 42%
Note: Ocean BOD discharge norm was used for Riverina, General BOD standard used for
other cases
Source: Estimates based on data from Ref. 1 and Ref. 13
If the objective is to promote environmental standards without driving certain industries out
of business, it is therefore important to examine the options for reducing effluent generation
by such industries and to assist them to conform to standards, particularly by providing them
with access to better technology, and resources.
6.2.2.2 Impact on investment

Effluent and/or emission treatment equipment means added capital cost for any industrial
installation. As indicated above, the weight of this component depends largely on the type and
scale of operation of a firm. For example, capital expenditure on an effluent treatment plant of
1500 kg BOD/day capacity will be about Rs 610 million, according to estimates made by
Associated Engineers in their report prepared for MEIP (Ref. 1). In a separate study,
Munasinghe R (Ref. 11) estimates that Bata Shoe Company will have to spend about Rs 85
Million on capital expenditure to install an effluent treatment plant, which represents about
40% of the shareholders' equity of the company.
Leaving aside the question of capital cost, the unavailability of suitable technology within the
country inhibits some industries to comply with environmental standards within a short
period of time. This is quite evident in Embilipitiya Paper Mills, where the technology is to use
rice straw as material for pulp. This technology generates black liquor an effluent, and the
technological know-how within the country does not offer a way of treating the effluent at a
reasonable cost. The company is now compelled to import wood based pulp at a significantly
high cost compared to domestically made rice straw based pulp because of the environmental
imposition. This can be extremely damaging to a developing economy like Sri Lanka. The
country, and in particular the industrial sector, needs assistance in terms of technology to cater
to these types of problems. Strict imposition of environmental standards, without considering
these factors, can only be damaging and counter-productive.
Investment promotion, particularly of foreign origin, is much needed for developing countries
like Sri Lanka. The investors need encouragement and less bottlenecks if they are to be
attracted to an economy where infrastructure facilities are not up to the standards of
developed countries. Environmental requirements are increasingly viewed as ‘creating’
additional barriers, and not as being a ‘constructive planning exercise’, by the industrialists.
The EIA procedure sometimes takes six months to one year. The expenditure on EIAs also
can be substantial. Though BoI is termed as ‘one stop shop’, stopping there does not solve
much of the environmental questions the investor is supposed to answer. Although it appears
to be more straight forward, the EPL scheme indeed takes considerable attention, time and
resources on part of the investor, for whom the bothering undergone could mean nothing
productive.
6.2.2.3 Conflicts and contradictions

Concerns have been raised whether the same regulations which are established to protect and
promote environment could act as barriers to environmental development activities. If these
concerns are reasonable, it may be worthwhile to re-appraise the legislative framework in
order to identify such conflicts and contradictions.
Conflict between environmental regulations and promotion of fuelwood plantations could be

cited as an example. An investor motivated to convert abandoned tea land to a commercial
tree plantation in view of making use of it as a source of fuelwood for tea drying, as a social
forestry, and as a source of pulpwood for paper mills, could be caught by a set of
environmentally oriented legislations. Firstly, if the extent harvested is greater than 50 ha, the
investment will have to satisfy the EIA requirements. This is a direct discouragement of an
environmentally beneficial project. Next, if the investor is interested in planting a "rare"
species, he will have to face more problems when he starts harvesting (Fauna and Flora
Protection Ordinance, and Forests Ordinance). This is not only conflicting, but also silly, as it
is precisely the rare varieties that ought to be encouraged for planting. Due to the provisions
of the above Acts, the investors are made to select "unrestricted" varieties, which means
"common" ones.
The above is an example where energy and bio-diversity benefits could be constrained by
"environmental regulation". There can be other conflict areas and contradictions in
environmental policies, actions and legislation. This is why adequate studies on economy-wide
implications are important in order to reach an optimum policy framework. The Government
of Sri Lanka has recognised this fact and explicitly enumerated on it in the recently issued
environmental policy letter (Ref. 9). On-going research project co-ordinated by the
Department of National Planning together with the World Bank on economy-wide policies
and environment is an example of putting this thought into practice (Ref. 10).
6.2.2.4 Drawbacks of project-based EIAs

Environment is a system, and describing or analysing parts of this system may lead to sub-
optimal outcomes. This is particularly true for project based EIAs (Ref. 12). Though EIA may
be a sound management tool, the "micro" perspective it adopts could undermine the
endeavour of integrating environmental concerns into the process of development.
6.2.3 Industrial sector viewpoint on regulations

The importance of environmental protection is understood. However, there are other aspects
which are equally or more important to regulations, such as technology, resources, and co-
operation. Indiscriminate imposition of environmental regulations, without adequately
addressing the above issues, may put the process of industrial development into jeopardy.
Further, the practicalities of implementation also must be understood. If the existing BOD
concentration discharged is 500 mg/l, it is better for the country to encourage the industries to
comply to a feasible norm of 200 mg/l of BOD, for example, than insisting on a stipulated
standard of 30 mg/l. This will be environmentally friendly and, at the same time, an affordable
starting point for the industrialists, without imposing much impact on their economics.
The objectives of development and environmental protection must be taken into

consideration such that neither one will hamper the progress of the other. Allowing
environmental concerns to override development issues would be catastrophic.
6.3 Conclusions and Recommendations

Having analysed the parameters involved, advantages and constraints in implementing
environmental regulations, following lessons could be drawn with regard to developing
economies like Sri Lanka, for a meaningful integration of environmental concerns into
development process:
(a) Recognise the dilemmas
It is important that the dilemmas faced by the developing countries are identified by these
countries, and also by the developed world. It is hard to justify priority for environmental
protection, particularly through regulation, when a considerable percentage of population in

these countries are below the poverty line. It is obvious that food, employment, shelter, health
and other very basic needs come to priority under such conditions.
Poverty is one of the primary enemies of environment. Poverty alleviation, providing people
with adequate health and sanitation facilities, and upgrading living conditions of those shanty
dwellers by providing them with satisfactory shelter, will reduce environmental pollution
pressures to a great extent. The Government of Sri Lanka has recognised this fact, and
addressed the linkage between poverty and environmental degradation in its recently issued
policy paper on environment (Ref. 11). Suppressing the development process through
stringent environmental regulations will only be adding to poverty in the developing countries
and hence will be counter-productive to the very objectives such requirements are supposed
to contribute for.
As such, the first step to any meaningful environmental protection action should be the
proper identification of the dilemmas faced by the developing countries like Sri Lanka.
Strategies should be drafted such that the environmental protection regulations are made
rational and complementary to development efforts, and not otherwise.
(b) Be pragmatic and practical

We are in the developing world. The leverage of such economies to drastic and intensive
regulations is limited. Therefore, any course of action, particularly regulation based action,
towards environmental protection must be implemented step by step so that the procedure
will become digestible to the economies.
It may be quite helpful to identify what action could be implemented almost immediately,
without much stress induced into economic activities. For example, it is always better to set
“intermediary” standards which could be easily met by the industrialists than insisting on very
stringent norms which can never be successfully implemented in the short run.
Setting up of standards must appear to be rational too. Country-wide standards may be sub-
optimal when physical assimilative capacity of a particular nature segment is considered. For
example, it is not fair to impose same strict standards applicable to urban water bodies which
are already in marginal conditions in terms of pollution to a rural lake which has a large
capacity left to assimilate. Doing so will be neglecting the natural assimilative capacity of the
absorption body (Ref. 2), and it would be economically sub-optimal. It is appreciated that
setting up of area specific standards based on ambient parameters is a difficult task, but certain
amount of flexibility can at least be granted in insisting upon implementation of general
standards into such specific areas. By this way, the environmentalists will not only be helping
the economic optimisation process, but will also be getting co-operation from the industrial
community.
Identifying economy-wide linkages before advocating restrictive measures also is an important

step. Any specific action to protect environment without properly identifying other possible
linkages can be detrimental to the development.
Moreover, the industrial community in Sri Lanka believes that “incentives” can be more
effective in reducing environmental impacts than “regulative measures”. Economic incentives
to become more environment friendly (through reduced wastage in processes and increased
efficiency by adopting appropriate technologies) are more productive than imposing
regulations. This fact is enumerated in a recently issued OECD position paper on "Trade and
Environment", quoted by ICC (Ref. 6).
(c) Extend technological support

As elaborated earlier, developing countries lack appropriate technology to cater to pollution
abatement and control requirements. Often, the countries lack know-how domestically, and if
the technology is to be imported, the cost can be beyond the reach of local investors.
In this context, it may be better to formulate strategies to facilitate and promote the
acquisition of required technologies by the industries rather than trying to control through
regulation. There are win-win strategies. Improved technology reduces effluent and/or
emission (environmental benefit), reduces end-of-the-pipe treatment costs (savings), reduces
consumption of raw material and energy (productivity gains), and enhances return on
investment (profitability gains). Regional and International co-operation can be very helpful in
this regard.
(d) Extend financial support

Inadequate financial strength is a common feature among local industries operating in
developing countries. Expecting such industries to rapidly adopt environment friendly
technologies is therefore not fair, even if such technologies are readily available. Regulations
demanding conformity will be unfair under such circumstances. A better strategy would be to
assist such industries with financial support (concessionary financing, preferential tariffs, etc.)
required for their industries to become environmentally friendly.
Developing world becoming environmentally friendly will be beneficial to the developed

world too. It is therefore just and fair that the beneficiary developed countries contribute to
the environmental efforts of poor countries. Financial assistance could be one of such
contributions.
For example, banning trade of ivory through CITES may be internationally beneficial as
tusker is a rare and endangered species. But, it is not fair if an African country where the
people who were earning their living by trading ivory now are starving, when tusker is not a
rare species as far as their country is concerned. It may be inhuman to let poor citizens of such
a country die in hunger for the international community, mostly for the developed world, to
get a satisfaction that a species rare to international standards is now protected. To avoid this
awkward situations, it is only reasonable to pay the poor country the economic benefit they
forego by protecting tuskers.
(e) Extend grace periods

Industries in developing countries need time to adjust their operations. Imposition of strict
regulations without adequate grace period offered is therefore not fair. While recognising the
need and importance of becoming environment friendly, time lag of practical adjustment by
the industries must be appreciated. This is precisely what CEA does today with regard to
"existing industries". However, empowering NGOs and individuals to sue the industries on
non-conformity to regulation and standards (proposed by the draft NEPA), could negate this
flexibility currently exercised by the CEA.
The overall objective of any "regulative measure" is to help achieve sustenance in the process
of development. Therefore, the transition must be done in such a manner that the
development is not hampered. Drastic impact on industrial activities due to strict
environmental regulation could be unbearable by the firms.
Compared to most other developing countries, Sri Lanka may be well ahead in her
environmental protection activities. But it does not seem constructive, even with the progress
achieved so far in the field of environment, to bring any more ‘regulative’ measures on
environmental grounds; better results could rather be achieved through technical co-operation
and economic incentives.
Annex 6.A. Pollutants measured, and air and water quality standards
Table 6.A.1. Range of ambient pollutant levels measured at different sites in Colombo
averaged over the periods indicated
Pollutant CEA CISIR NBRO

CO 10-15 ppm 1.0-10 ppm -
12-17 mg/m3 1.1-11 mg/m3
(1h average) (3h average)
NO2 1.1-1.8 ppm - 3.7-24 ppb
2.1-3.4 mg/m3 7.0-45 mg/m3
SO2 - 1.3-3.3 ppb 1.5-13 ppb
3.9-8.6 mg/m3 3.9-34 mg/m3
THC 8-11 ppm 2.6-3.2 ppm
Pb - 0.22-0.58 mg/m3
(8h average)
SPM - 0.2-0.5 mg/m3 0.075-0.55 mg/m3
Table 6.A.2. Ambient air quality standards recommended for adoption in Sri Lanka
Pollutant Averaging Permissible level Permissible level

Time mg/m3 ppm
CO 8 hour 10 8.7
1 hour 30 26.1
Any time 58 50.0
NO2 24 hour 0.10 0.05
8 hour 0.15 0.08
1 hour 0.25 0.13
SO2 24 hour 0.08 0.03
8 hour 0.12 0.05
1 hour 0.20 0.08
THC 1 hour 0.20 0.01
Pb Annual 0.0005 -
24 hour 0.002 -
SPM Annual 0.10 -
24 hour 0.30 -
8 hour 0.35 -
3 hour 0.45 -
1 hour 0.50 -
Table 6.A.3. Water quality of different Sri Lankan urban, semi-urban

and non-urban waterbodies
Beira Lake Parliame Kandy Bolgoda Labuga
nt Lake Lake Lake ma
Reservoi
r
Total Phosphorus 1.52 < 0.001 < 0.001b < 0.001 < 0.001
(mg “P”/l) (0.42 - 2.57) (0 - 0.001)
Total Kjeldahl 13.74 4 3.59 5 <1
Nitrogen (6.44 - 28.0) (2.5 - 5.4)
(mg “N”/l)
Chlorophyll-a 0.283 < 0.001 0.002 < 0.001 < 0.001
(mg/l) (0.220 -
0.342)
Suspended solids 90 2 5.7b 33 1
(mg/l) (17 - 215) (4 - 8)
Turbidity 208 2 13a 3 1
(NTU) (40 - 1400) (10 - 17)
BOD 46 3 3.3b 5 <1
(mg/L) (5 - 350) (2.9 - 3.7)
Transparency 12 1 112b 85 450
(cm) (3 - 21) (72 - 170)
pH 7.94 120 7.6b 7.3 7.5
(2.85 - 10.50) (7.5 - 7.7)
Ammoniacal 1.74 6.6 1.302a - -
nitrogen (0.0 - 12.0) (1.218 - 1.407)
(as “N”) (mg/L)
Orthophosphates 2.071 - 0.010a - -
(as “P”) (mg/L) (0.26 - 6.26) (0.008 - 0.015)
Source CEA NBRO NARAa NBRO NBRO
3/91 to 1/93 1/9/93 (22/7/93) 19- 19-
n = 7 stations n=1 NBROb 21/9/93 21/9/93
station (9/9/93) n= 1 n= 1
n = 3 stations station station
Annex 6.C. List of low polluting industries under the jurisdiction of local
authorities
Type of mill Capacity range

(for the industry to be considered low polluting)
Timber mills Production capacity less than 150 cubic meters per
day
Rice mills Production capacity less than 10 Metric tonnes per
day (tpd)
Metal crushers All manual crushers
Mechanical crushers of less than 50 tpd
Bakeries All
Grinding mill All
Garment factories All
Powerloom textile Having less than 5 power looms
Animal farms
- poultry farms Less than 5000 fouls
- livestock (pigs & cattle) Less than 500 animals
Lime kilns All
Brick and tile factories All
Welding workshop
Garages All
Tea factories All
Printing presses (those not producing letter press)
Lathe workshops
Annex 6.D. Current effluent discharge standards1
Table 6.D.1. General standards for discharge of effluents into inland surface waters
Determinant Unit Tolerance limit
1. Total suspended solids mg/l, 50
max
2. Particle size of total suspended to pass sieve of aperture size 850
solids µm
3. pH value at ambient temperature 6.0 to 8.5
4. Biochemical Oxygen Demand in 5 mg/l, 30
days at 20 °C (BOD5) max
5. Temperature of discharge < 40 °C in any section of the
stream within 15m downstream
from the effluent outlet
6. Oils and greases mg/l, 10.0
max
7. Phenolic compounds (as phenolic mg/l, 1.0
OH) max
8. Cyanides (as CN) mg/l, 0.2
max
9. Sulfides mg/l, 2.0
max
10. Fluorides mg/l, 2.0
max
11. Total residual chlorine mg/l, 1.0
max
12. Arsenic mg/l, 0.2
max
13. Cadmium, total mg/l, 0.1
max
14. Chromium, total mg/l, 0.1
max
15. Copper, total mg/l, 3.0
max
16. Lead, total mg/l, 0.1
max
17. Mercury, total mg/l, 0.0005
max
1
The Gazette of the Democratic Socialist Republic of Sri Lanka, No. 595/16 of 1990, National
Environment Act, No. 47 of 1980, as amended by the Act No. 56 of 1988 (Part I, Section I, Schedule I).
18. Nickel, total mg/l, 3.0

max
19. Selenium, total mg/l, 0.05
max
20. Zinc, total mg/l, 5.0
max
21. Ammoniacal nitrogen mg/l, 50.0
max
22. Pesticides undetectable
23. Radio active material
a) Alpha emitters µ 10-7
b) Beta emitters curie/ml 10-8
µ
curie/ml
24. Chemical Oxygen demand (COD) mg/l, 250
max
Notes
1: All efforts should be made to remove color and unpleasant odor as far as practicable.
2: These values are based on dilution of effluents by at least 8 volumes of clean receiving
water. If the dilution is below 8 times, the permissible limits are multiplied by 1/8 of the
actual dilution.
3: The above-mentioned General Standards shall cease to apply with regard to a particular
industry when industry specific standards are notified for that industry.
Table 6.D.2. Tolerance limits for industrial and domestic effluents

discharged into marine coastal areas
1. Total suspended solids
a) for process waste waters mg/l, max 150
b) for cooling water effluents mg/l, max total suspended matter content of
influent cooling water plus 10%
2. Particle size of
a) floatable solids 3 mm
b) settlable solids 850 micro m.
3. pH range at ambient temperature 6.0 - 8.5
4. Biochemical Oxygen Demand in 5 days at mg/l, max 100
20 °C (BOD5)
5. Temperature °C 45 °C at the point of discharge
6. Oils and greases mg/l, max 20
7. Residual chlorine mg/l, max 1.0
8. Ammoniacal nitrogen mg/l, max 50.0
9. Chemical Oxygen demand (COD) mg/l, max 250
10. Phenolic compounds (as phenolic OH) mg/l, max 5.0
11. Cyanides (as CN) mg/l, max 0.2
12. Sulfides (as S) mg/l, max 5.0
13. Fluorides (as F) mg/l, max 15
14. Arsenic (as As) mg/l, max 0.2
15. Cadmium (as Cd), total mg/l, max 2.0
16. Chromium (as Cr), total mg/l, max 1.0
17. Copper (as Cu), total mg/l, max 3.0
18. Lead (as Pb), total mg/l, max 1.0
19. Mercury (as Hg), total mg/l, max 0.01
20. Nickel (as Ni), total mg/l, max 5.0
21. Selenium (as Se), total mg/l, max 0.05
22. Zinc (as Zn), total mg/l, max 5.0
a) Alpha emitters µ curie/ml 10-8
b) Beta emitters µ curie/ml 10-7
24. Organo-phosphorus compounds 1.0
25. Chlorinated hydrocarbons (as Cl) mg/l, max 0.02
Notes
1: All efforts should be made to remove color and unpleasant odor as far as possible.
2: These values are based on dilution of effluents by at least 8 volumes of clean receiving
water. If the dilution is below 8 times, the permissible limits are multiplied by 1/8 of the
actual dilution.
Table 6.D.2. Tolerance limits for industrial and domestic effluents

discharged into marine coastal areas
1. Total suspended solids
a) for process waste waters mg/l, max 150
b) for cooling water effluents mg/l, max total suspended matter content of
influent cooling water plus 10%
2. Particle size of
a) floatable solids 3 mm
b) settlable solids 850 micro m.
3. pH range at ambient temperature 6.0 - 8.5
4. Biochemical Oxygen Demand in 5 days at mg/l, max 100
20 °C (BOD5)
5. Temperature °C 45 °C at the point of discharge
6. Oils and greases mg/l, max 20
7. Residual chlorine mg/l, max 1.0
8. Ammoniacal nitrogen mg/l, max 50.0
9. Chemical Oxygen demand (COD) mg/l, max 250
10. Phenolic compounds (as phenolic OH) mg/l, max 5.0
11. Cyanides (as CN) mg/l, max 0.2
12. Sulfides (as S) mg/l, max 5.0
13. Fluorides (as F) mg/l, max 15
15. Cadmium (as Cd), total mg/l, max 2.0
16. Chromium (as Cr), total mg/l, max 1.0
17. Copper (as Cu), total mg/l, max 3.0
18. Lead (as Pb), total mg/l, max 1.0
19. Mercury (as Hg), total mg/l, max 0.01
20. Nickel (as Ni), total mg/l, max 5.0
21. Selenium (as Se), total mg/l, max 0.05
22. Zinc (as Zn), total mg/l, max 5.0
a) Alpha emitters µ curie/ml 10-8
24. Organo-phosphorus compounds 1.0
25. Chlorinated hydrocarbons (as Cl) mg/l, max 0.02
Notes
1: All efforts should be made to remove color and unpleasant odor as far as possible.
2: These values are based on dilution of effluents by at least 8 volumes of clean
receiving water. If the dilution is below 8 times, the permissible limits are multiplied
by 1/8 of the actual dilution.
Table 6.D.3. Tolerance limits for industrial effluents discharged on land for
irrigation
1. Total dissolved solids mg/l, max 2100
2. pH value at ambient temperature 5.5 - 9.0
3. Biochemical Oxygen Demand in 5 days at 20°C (BOD5) mg/l, max 250
4. Oils and greases mg/l, max 10.0
5. Chlorides (as Cl) mg/l, max 600
6. Sulfate (as SO4) mg/l, max 1000
7. Boron (as B) mg/l, max 2.0
9. Cadmium (as Cd) mg/l, max 2.0
10. Chromium (as Cr) mg/l, max 1.0
11. Lead (as Pb) mg/l, max 1.0
12. Mercury (as Hg) mg/l, max 0.01
13. Sodium adsorption ratio (SAR) 10 - 15
14. Residual sodium carbonate mol/l, max 2.5
15. Radio active material: a) Alpha emitters µ curie/ml 10-9
Table 6.D.4. List of ozone depleting materials prohibited from use in any industry2
Code Substance Code Substance
CFC-11 (R 11) Trichlorofluoromethane CFC-112 Tetrachlorodifluoroethane
CFC-12 (R 12) Dichlorodifluoromethane CFC-211 Heptachlorofluoropropane
CFC-113 (R 113) Trichlorotrifluoroethane CFC-212 Hexachlorodifluoropropane
CFC-114 (R 114) Dichlorotetrafluoroethane CFC-213 Pentachlorotrifluoropropane
CFC-115 (R 115) Chloropentafluoroethane CFC-214 Tetrachlorotetrafluoropropane
Halon-1211 Bromochlorodifluoromethane CFC-215 Trichloropentafluoropropane
Halon-1301 Bromotrifluoromethane CFC-216 Dichlorohexafluoropropane
Halon-2402 Dibromotetrafluoroethane CFC-217 Chloroheptafluoropropane
CFC-13 Chlorotrifluoromethane Carbon Tetrachloride
CFC-111 Pentachlorofluoroethane Methyl Chloroform
Note: These ozone-depleting materials prohibited from use in any industry by the year
2000, although they may be used until 1 January 2005 for the limited purpose of
servicing equipment or industrial plants already in operation or installed prior to 1
January 2005.
2
Gazette Extraordinary of the Democratic Socialist Republic of Sri Lanka - 1994.12.20, The National
Environmental Act, No. 47 of 1980.
Figure 6.E Enviroenmental impact assessment procedure

REFERENCES
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15. O’Connor, D. and D. Turnham, 1992. Managing the Environment in Developing

Countries, Policy Brief # 2. OECD Development Center, Paris.
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Development Center, Paris.
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Management in Southeast Asia. Faculty of Science, National University of Singapore.
18. Pearce, D. and R. K. Turner, 1990. Economics of Natural Resources and the
Environment. Great Britain.
19. Perlack, R. and M. Russell, 1991. Energy and Environmental Policy in China. Annu.
Rev. Energy Environ 16: 205-33.
20. Potier, M., 1995. “The Experience of OECD Countries in their Domestic Use of
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21. Ramani, K.V., P. Hills and G. George, 1992. Burning Questions: Environmental
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22. Republic of the Philippines, 1989. Philippine Strategy for Sustainable Development.
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24. Stevens, C., 1993. Synthesis Report: Environmental Policies and Industrial
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Time for Action. TEI 1994 Annual Conference, Bangkok.
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Bangkok.
27. Tietenberg, T., 1988. Environmental and Natural Resource Economics. Scott,
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28. United Nations Industrial Development Organization (UNIDO), 1992. Thailand:

Coping with the strains of success. Alden Press, Great Britain.
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30. Villavicencio, V., 1987. “Philippines”. Environmental Management in Southeast Asia.

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32. World Energy Council, 1993. Energy for tomorrow’s world - the realities, the real
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Nations Development Program, 1992. World Resources 1992-1993. Oxford
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Chapter 2
1. Aling, Zhang., Yan, Li., Yanjia, Wang. and Dai, Gao. (1995). Regulatory Measures and
Technological Change in Cement, Iron & Steel and Pulp & Paper Industries in China,
Paper presented in 2nd Annual Review Workshop of Asian Regional Research
Programme in Energy, Environment and Climate funded by Sida, Asian Institute of
Technology, Bangkok, Thailand, 22-25 November 1995.
2. Chen, X. and Bacareza, Litita B. (1995). Application of Economic and Regulatory

Instruments for Environmental Management in Asian Industrializing Countries,
UNEP Industry and Environment , Oct-Dec (1995), 16-20.
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3. Economic Commission for Europe (ECE) (1992). East-West Energy Efficiency, The ECE
Energy Series, United Nations, New York.
4. Energy Management Centre (EMC) (1995). Regulatory Measures and Technological
Change in Cement, Iron & Steel and Pulp & Paper Industries in India, Paper presented
in 2nd Annual Review Workshop of Asian Regional Research Programme in Energy,
Environment and Climate funded by Sida, Asian Institute of Technology, Bangkok,
Thailand, 22-25 November 1995.
5. Gunaruwan, T.L. and Joseph, P.G. (1995). Regulatory Measures and Technological
Change in Cement, Iron & Steel and Pulp & Paper Industries in Sri Lanka, Paper
presented in 2nd Annual Review Workshop of Asian Regional Research Programme in
Energy, Environment and Climate funded by Sida, Asian Institute of Technology,
Bangkok, Thailand, 22-25 November 1995.
6. Habitan, A.P. and Alora, M.P. (1995). Regulatory Measures and Technological Change
in Cement, Iron & Steel and Pulp & Paper Industries in the Philippines, Paper
presented in 2nd Annual Review Workshop of Asian Regional Research Programme in
Energy, Environment and Climate funded by Sida, Asian Institute of Technology,
Bangkok, Thailand, 22-25 November 1995.
7. Hu, S. David (1985). Cogeneration, Reston Publishing Company Inc., A Prentice-Hall

Company, Reston, Virginia, USA.
8. Kim, Linsu. and Dahlman, Carl J. (1992). Technology Policy for Industrialisation: An
Integrative Framework and Korea’s Experience, Research Policy 21(1992), 437-452.
9. Long, Bill L. (1994). A Selection from Oral and Written Contributions at the Warsaw
Seminar, UNEP Industry and Environment, Oct-Dec (1994), 23-26.
10. Mohanty, B. (1995). Institutional Experience of Energy Efficiency Promotion in Asia,

Revue de l’Energie, n° 470, July-September (1995), 592-604.
11. O’Connor, D. (1994). Managing the Environment with Rapid Industrialisation: Lesson from the
East Asian Experience, OECD Development Centre, Paris.
Chapter 3
1. China Energy Annual Review, 1994, SETC.
2. Statistical Yearbook of China, 1994, China Statistical Publishing House.
3. National Response Strategy for Global Climate Change: PRC (TA 1690-PRC), 1994,
East-West Center.
Chapter 4
1. Technology Evaluation in Indian Cement Industry, DSIR, Ministry of Science and

Technology, New Delhi, October 1993.
2. Technology Evaluation in Steel Industry, DSIR, Ministry of Science and Technology,

New Delhi, March 1991.
3. Eighth Five-year plan (1992 - 97) Vol. I & Vol. II, Government of India, Planning
Commission, New Delhi
4. India 1994, Publications Division, Ministry of I & B, Government of India, May 1995.
5. Growth of firms in the Indian Manufacturing, N. Shanta, Centre for Development

Studies, Trivandrum, 1994.
6. Indian Industry, Policies & Performance, Ed. Dilip Mookherjee, Oxford University Press,
Delhi, 1995.
7. Technology Evaluation in Pulp and Paper Machinery Industry, DSIR, Ministry of Science
& Technology, New Delhi, May 1990.
8. Indian Cement Industry (From Control/Decontrol), S.M. Chakravarthy, Wadheva

Publications, Bombay, 1989.
10. Industry Overview paper, 1994
11. Draft Report on Technological Trajectories, Energy efficiency and environmental

Externalities of Cement Industry in India, Energy Management Centre, New Delhi, July
1995
12. Draft report on Technological Trajectories, Energy Efficiency and Environmental

Externalities of Iron & Steel Industry in India, Energy Management Centre, New Delhi,
July 1995.
13. Draft report on Technological Trajectories, Energy Efficiency and Environmental

Externalities of Paper Industries in India, Energy Management Centre, New Delhi, June
1995.
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15. Institutional Framework for Energy Conservation, Energy Management Centre, Delhi,
1992.
16. Facts for You, cement, paper and steel industries market survey, 1994-95.
17. Indian Paper Makers Association, 1994-95.
18. Towards Energy Conservation Law, 1989.
19. New Industrial policy and procedures, 5th Edition, Nabhi Publication, New Delhi, 1995.
20. The economic and social environment, Bibek Debroy, 1994.
21. Economic Survey 1994-95, Government of India, 1995.
22. Pulp and paper industry in India - A Perspective, DGTD, March 1987.
23. Policy Initiatives in the Cement Industry in India, TERI Report, July 1993.
24. Energy Management Bulletin, Issue 7, April-June 1991, Published by Energy Management
Centre, New Delhi, 1991.
25. Energy Management Bulletin, Issue 21, April-June 1995, Published by Energy
Management Centre, New Delhi, 1995.
26. Energy Conservation Policy Issues, R.C. Mahajan, Energy Economist, Energy
Management Centre, New Delhi.
27. Review of Different Financing Schemes for Energy Conservation, Energy Management
Centre, New Delhi, 1992.
28. Energy Scenario (Energy Magazine), Vol. 1, Issue 3, 1994.
29. 36th Annual Report on the Working and Administration of the Companies Act, 1950,
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30. Comprehensive Industry Document for Large Pulp and Paper Industry, Central Pollution
Control Board, New Delhi, 1991.
31. TERI Energy Data Directory & Handbook, 1994/95.
32. Kothari's Industrial Directory of India, 1994.

Chapter 5
1. Development Bank of the Philippines. “Industrial Restructuring Studies in the Cement

Sector”. 1991.
2. Development Bank of the Philippines. “Industrial Restructuring Studies in the Pulp

and Paper Sector”. 1992.
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Legislations”.
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Systems Inc. “Improving the implementation of the EIA in the Philippines”. 1993
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1981
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1983
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Assessment of a decade of implementation (1978-1988). March, 1989.
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Chapter 6
1. Associated Engineers, “Feasibility Study for the Establishment of a Central Waste water
Treatment Plant for Industrial Estates - Industries at Moratuwa and Ratmalana Greater
Colombo area”, Interim Report, Vol 1 & 2, Metropolitan Environmental Improvement
Programme, Colombo, Sri Lanka, February 1994.
2. Bhuwendralingam et al, "Economic Valuation of Environmental Services Provided by

Bolgoda Lake", Final Report, Appendix on National Environmental Standards, NAREPP
and MEIP, Colombo, August 1994.
3. Central Environmental Authority, "Guidelines for Implementing the Environmental

Impact Assessment (EIA) Process", No. 1, Ministry of Environment and Parliamentary
Affairs, Colombo, 1993.
4. Central Environmental Authority, "Review of Environmental Legislation in Sri Lanka",

vol. 1, CEA, Colombo, 1994
5. Gunaruwan T L, "A Procedure to integrate Environmental Concerns into the Appraisal

Procedure of PIP Projects", Paper presented at the NAREPP/NPD Workshop,
Colombo, July 1995.
6. International Chamber of Commerce, “Issue Paper on Trade and Environment”,

Discussion paper prepared by ICC joint working party, Paris, 1995.
7. Ministry of Environment and Parliamentary Affairs, "National Environmental Act No 47,

1980.
8. Ministry of Transport, Environment and Women's Affairs, "Draft Environmental

Protection Act", 1995.
9. Ministry of Finance, Planning, Ethnic Affairs and National Integration, “Environmental

Policy Letter”, Colombo, Sri Lanka, September 1995.
10. Munasinghe M et al, "Understanding Economy-Environmental Linkages: A Policy

Modelling Framework for Sri Lanka", Preliminary Draft, Environmental Department,
World Bank, Washington DC, October 1995.
11. Munasinghe R, “The Potential Effects of Environmental Regulations on Industrial

Profitability: A Case Study in Sri Lanka”, Project report submitted for International
baccalaureate, 1995.
12. Ranasoma M, "Sub-optimisation: The other side of Environment Impact Assessment",

(Draft unpublished article) Open University of Sri Lanka, Nawala, Sri Lanka, 1995.
13. Steele P and Hassen R, “Effluent Charges as a Means for Controlling Industrial Water
Pollution”, (Draft), Institute of Policy Studies, Colombo, Sri Lanka, October 1995
The Asian Institute of Technology (AIT) is an autonomous international academic institution
located in Bangkok, Thailand. It’s main mission is the promotion of technological changes
and their management for sustainable development in the Asia-Pacific region through high-
level education, research and outreach activities which integrate technology, planning and
management.
AIT carried out this Asian Regional Research Programme in Energy, Environment and Climate
(ARRPEEC), with the support of the Swedish International Development Cooperation Agency (Sida).
One of the projects under this program concerns the Development of Energy Efficient
and Environmentally Sound Industrial Technologies in Asia.
The objective of this specific project is to enhance the synergy among selected developing
countries in their efforts to adopt and propagate energy efficient and environmentally sound
technologies. The industrial sub-sectors identified for in-depth analysis are iron & steel,
cement, and pulp & paper. The project involves active participation of experts from
collaborating institutes from four Asian countries, namely China, India, the Philippines, and Sri
Lanka.
The regulatory measures and technological changes in the cement, iron & steel, and pulp &
paper industries of the four Asian countries are presented in this document (Volume IV).
Other related publications based on this research finding include:
Volume I Technology, Energy Efficiency and Environmental Externalities in the

Cement Industry
Volume II Technology, Energy Efficiency and Environmental Externalities in the

Iron & Steel Industry
Volume III Technology, Energy Efficiency and Environmental Externalities in the

Pulp & Paper Industry
An assessment of the implementation of energy efficient and environmentally sound

industrial technologies among the selected countries is presented in a separate “Cross-
Country Comparison” Report.
TE O F T E
TU
C
I
I A N IN ST
HN
O L O GY
AS
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REGULATORY MEASURES AND TECHNOLOGICAL

CHANGES IN THE CEMENT, IRON & STEEL, AND PULP

School of Environment, Resources and Development

School of Environment, Resources and Development

© Asian Institute of Technology, 1997

Edited by Brahmanand Mohanty

Published by School of Environment, Resources and Development

ISBN 974 - 8256 - 69 - 3

Printed in India by All India Press, Pondicherry.

The Asian Regional Research Programme on Energy, Environment and Climate

Industries have always played a crucial role in the socio-economic development of a

Faculty Members (Asian Institute of Technology - School of Environment,

Research Associates (Asian Institute of Technology - School of Environment,

National Research Institutes

1. REGULATORY AND ECONOMIC INSTRUMENTS FOR

2. CROSS COUNTRY COMPARISON OF IMPACTS OF ENERGY &

3. COUNTRY REPORT: CHINA ........................................................................... 49

4. COUNTRY REPORT: INDIA..............................................................................81

1. REGULATORY AND ECONOMIC INSTRUMENTS FOR

The growing industrialization in Asian countries is being accompanied by a rapid

To integrate environmental considerations into the economic development process, Action

environmental management, to complement the direct Command and Control regulations

1.2 Environmental Externalities of Industrialization in Asian Developing

Industrialization is a common driving factor of economic growth in Asian developing

1.3 The command-and-control approach and experiences of its application in

Following the environmental management approaches of the western countries, Asian

Environmental protection institutions at various levels have been established in the

Mining and Energy

1982 Basic Provisions for the Management of the

1.4 The Effectiveness of Command-and-Control in Asian Countries

In Malaysia, pollution control measures adopted by the Department of Environment have

Table 1.2 Number of cases brought to court in 1994 in Malaysia

Surveillance of environmental quality now rests on the provincial governors. Monitoring is

In the Philippines, assessment of command-and-control has also shown some failures in

1.5 An Alternative Approach: Use of Market-based (Economic) Instruments

1.5.1 Why MBIs should be used in Asian developing countries

Fourth, economic instruments generate revenues, whereas regulations require bloated

Finally, the processes of decentralization, democratization, and the emerging trend of

1.5.2 The development of MBIs in Asian developing countries

1.5.3 Conditions for successful application of MBIs in Asian developing countries

1) The application of MBIs is also dependent on its acceptability by the government

Economic instruments are designed for environmental management where regulations

2. CROSS COUNTRY COMPARISON OF IMPACTS OF ENERGY &

The dynamism of technological changes in industrialized countries has been greatly

2.2 Major Driving Forces Behind Technological Changes

Figure 2.1 Major driving forces behind technological changes

2.2.1 Market mechanism

Market forces have a considerable influence on the technologies adopted by a specific

2.2.2 Energy perspectives

2.2.3 Environmental perspectives

2.3 Important Elements of Regulatory Measures

2.3.1 Policy framework

Figure 2.2 Important elements of regulatory measures

2.3.2 Institutional interaction

2.3.3 Command-and-control approach

Enforcement of energy and environmental regulations and standards normally occurs at

2.3.4 Market-based instruments

development of energy efficient and environmentally sound technologies in a cost-effective

2.4 Comparison of Regulatory Measures in Selected Asian Countries

A comparison of regulatory measures affecting technological changes in the industries of

2.4.1 Market reforms

- Most of the industries are still state owned. No