IV. MEASURES FOR INTEGRATING ENVIRONMENTAL CONSIDERATIONS
B. Measures used to achieve stated environmental policies and an evaluation of effectiveness
2. Economic incentives and self-regulation
Insufficient attention has been given to the economic aspects of environmental management. It is widely believed that the two do not mix. However, experience has shown that major improvements in the state of the environment can be made at the policy level by various government agencies, through the use of economic incentives and disincentives.
One of the most accepted policy prescriptions is making polluters pay for the costs they impose on other people. In general, that policy is not applied in Fiji. For example, in the case of soil erosion, the increased sedimentation in rivers and land degradation is a form of pollution which contributes to financial losses for landowners because of the reduction in productivity and expected returns in the future. The rest of the nation pays for the additional costs of off-site environmental damage related to increased sedimentation in the rivers and near-shore coastal waters. Under the polluter pays concept the principal agent for soil erosion (the sugar cane industry) should bear the financial costs.
Fiji policy makers need to look very closely at economic incentives. First, because other approaches have failed to curtail the unsustainable exploitation of natural resources and, second, as pointed out by the National Environmental Strategy, an EPA-style command and control approach is likely to be too expensive for Fiji. In the drafting of the Sustainable Development Bill it became evident that most people consulted by the Department of the Environment were in favour of economic incentives for a self-regulation system. The system offers a choice for industries to either self-regulate or to be regulated by the government. The ones that choose to self-regulate will receive some kind of incentive and they will develop their own industrial code of environmental practice. All codes of environmental practice will have to comply with the International Organization for Standardization ISO-14000 series, and they will also need to be approved by the government together with an implementation plan. Industries will send regular (annual) audit reports, prepared by an external accredited environmental auditor, to the appropriate regulatory agencies to prove compliance.
(a) Providing incentives for industries that self-regulate
Since economic incentives to achieve environmental objectives are not being used in Fiji, this report only discusses their potential use and makes recommendations on their adoption. At this stage, only a description of the advantages of such measures can be given. It is recommended that a more detailed analysis on the precise approach to be adopted needs to be undertaken. A limited effort to do so was made for the Sustainable Development Bill. Unfortunately, the Ministry of Finance has shown little interest in establishing more tangible provisions for economic incentives in the Act, a fact that does not augur well for is future success.
In order to motivate industries to follow the self-regulation system, certain incentives will have to be provided to complement the ISO 14000 certification. There are several types of incentives that could be investigated.
Direct incentives can either be in cash or in kind. They should be conditional on changed behaviour, favouring self-regulation. In-kind direct incentives include material goods given to institutions, communities or individuals in return for efforts that contribute to improving their environmental performance. These are applied to achieve specific objectives (e.g., to a reduction in levels of industrial waste or a decrease in the use and clearance of mangrove swamps). Sometimes direct incentives may be given in return for refraining from activities that damage or deplete natural resources. Other in-kind incentives might include equipment donated to authorities and communities in charge of a protected area. Governments may also consider providing special services (such as social services and infrastructure) in conjunction with local NGOs for communities that have shown restraint in exploiting certain depleted natural resources that are communally owned.
Cash incentives (such as fees, royalties, rewards, grants, income support, subsidies, loans and daily wages) are often used. Care must be taken to ensure that such incentives are linked to improvements in environmental management. The advantage of cash incentives is their flexibility. However, excessive use of that type of incentive can develop into a dependency among the recipients.
Indirect incentives could also encourage self-regulation. They involve applying fiscal, social and natural resources policies to specific environmental problems, and may involve providing preferential treatment in trade agreements, price support or land tenure.
Fiscal incentives are a legal and statutory means of channelling funds towards conservation activities, and involve such indirect measures as tax exemptions or allowances, insurance, guarantees, tariffs and price support. They are also concerned with gathering income to meet public expenditure that supports conservation programmes. Such policies may include the promotion of investment, production and employment related to sustainable use of natural resources. McGregor, A. and McGregor, I. (1997) recommended a fiscal “carrot” as part of an overall package to discourage land degradation by the Fiji ginger industry. They proposed that farmers who meet the good husbandry provision of their lease would qualify for a cash subsidy to be paid towards each farmer’s own labour (75 per cent of costs) used in planting vegetative strips and leucaena hedgerows, and in the construction of simple drains. The rationale for such a subsidy is to offset the preference of farmers for immediate cash earnings, as opposed to investment in longer-term conservation measures.
The National Environment Strategy suggests that economic incentives in the form of financial inducements for soil conservation practices need to be examined by NLTB. While direct grants are the simplest to administer and generally produce the quickest results, they are rarely sustainable. A promising incentive would be a rent rebate scheme. For example, farmers who undertook soil conservation measures would be eligible for a lower rental rate or would not have their rent increased after the periodic rental assessment.
Fiji's Country Programme for the reduction and phase-out of ozone depleting substances controlled under the Montreal Protocol advises import duty exemption for imported retrofitting and recycling equipment for ozone depleting substances. Other incentives which have been suggested for Fiji include:
Publicity incentives, by publishing green and red lists of industries, have become popular in a number of developed countries. They have proved to be quite effective in situations where there is a high level of environmental consciousness among consumers. Combined with environmental awareness programmes that system could be effective in Fiji.
(b) Economic incentives that can harm the environment
Economic incentives have not yet been used in Fiji to achieve environmental objectives. It is important that any attempt to introduce incentives be undertaken with caution. Certain incentives have had adverse environmental impacts. Warford (1987) points to the fact that adverse environmental impacts of economic incentives are common in developing countries:“In developing countries, the relevant decisions are frequently made by a small, politically influential group with interests in commercial logging, ranching, plantation cropping and large-scale farming operations. As a result, the prevailing systems of investment incentives, tax provisions, credit and land concessions, and agricultural pricing policies tend to favour those in power, causing losses for the economy as a whole, and at the same time damaging the environmental and natural resource base.”
The Fiji cement industry, and the consequent pollution it creates, provides an excellent example of the problem to which Warford was referring. The cement factory, which operates under an attractive array of incentives, pollutes the air and degrades a nearby bay with impunity. Without incentives, provided under the guise of promoting import substitution industries and indigenous Fijian business ownership, it is unlikely that the cement factory would exist. Although previously very profitable, the operations are now running at a loss.
(c) International incentives and dependency on international funding
Over the past century, much of the depletion and degradation of natural resources which occurred was driven primarily by market forces in the colonial, and then industrial, countries. Moreover, conserving indigenous flora gene pools, especially in the forests of the tropics is in the interest of wealthy nations who wish to sustain own living standards. Industrial nations should share the burden of conserving those resources. Provisions already exist for economic incentives to be provided by the temperate nations to the tropical countries. They incentives can include direct incentives such as grants, loans, subsidies, debt swaps and food, while indirect incentives can include commodity agreements, technical assistance, equipment and information.
The prominent role played by foreign assistance in the environmental programmes of developing countries creates problems of non-sustainability. In recent years, aid donors and international agencies have had a strong preference for environmentally-orientated programmes and projects. Thus, in a situation of static or declining government budgetary resources, conservation programmes and projects have tended to be left to donors to fund. That is certainly the case in Fiji and other Pacific islands. In Fiji’s Department of the Environment only the salaries of established staff are currently met from central government funds. All the programmes and projects are funded by donors or international agencies, and consequently tend to be donor driven. Thus those programme can be precarious and often non-sustainable, as they have to depend on the changing preferences and funding position of the donors.
Stanley (1996) suggested a number of standard measures that could be considered for minimizing the negative impact of economic incentives from international sources, as well as from domestic government sources, including: