The Informal Sector:

In many East Asian countries, there is a close relationship between poverty, the informal sector, and environmental problems / degradation. Because the informal sector is, by definition, not subject to income tax or most other formal regulatory or incentive mechanisms, environmental programming targeted to the informal sector usually takes the form of consumption taxes on inputs that people in this sector use, public awareness campaigns, and support to community development activities. The latter two activities are best delivered at the local level, thus the main role of the national government vis a vis environmental change in the informal community is the levying of taxes on inputs used significantly by these groups, and encouraging a supportive environment for community development activities. Since many of the environmentally negative products purchased in the informal sector are purchased by the population at large (often in larger quantities), the effect is not a purely targeted one. For example, raising gasoline taxes will act as an incentive for taxis operators to shift to propane (as has recently happened in Bangkok) while reducing fertilizer subsidies will result in less use of chemically based fertilizers.

The assessment role of the national government in regard to the informal sector is to ensure that such measures are not causing undue hardship; if so, compensatory or mitigational mechanisms may be needed. Often, substitute products will be available, e.g., organic fertilizers, liquefied gas, resulting not only in environmental improvements, but a minimum of negative financial impacts (or even gains) to people working in the informal sector. Secondly, the national government should ascertain the incidence and livelihood (income) effect of price changes (through environmental taxes or removal of subsidies) on products consumed heavily by the informal sector population in their lives and work.

Reference: Synthesis study on Modalities for Environmental Assessment for Integrating Environmental Considerations into Economic Policy Making Processes: East and Southeast Asia, ESCAP, 1998, unpublished.