Problem overview:

     In pursuing its objective to attain a developed country status, Malaysia embarked on rapid industralisation programmes. However, with industrialisation came the problem of pollution. In this regard, the effluent discharges from palm oil industry contributed to the pollution problem. To ensure that industrialisation process does not progress at the expense of the environment, Malaysia has put in place a fee structure to control the level of the palm oil industries effluent discharge and to enhance the development of environmentally sound technology in the disposal of the effluents discharge of the industry.

     Awareness and visions: The Environmental Quality Act, 1974 is the principal regulation in Malaysia to prevent, abate, and control pollution. Malaysia is aware from the onset that the command and control mechanism alone is insufficient to address pollution problem in the country. Hence, the Act incorporate provisions containing punitive as well as economic measures for the control of effluents discharge into the environment.

     Policies and Measures: The 3rd Malaysia Plan (1976-1980) within the chapter on development and environment has laid down the machinery for pollution control in order to achieve the environmental objectives. In the 6th Malaysia Plan, it was envisaged that the Department of Environment would examine the use of licenses, fines and charges for the control of effluent disposal.

     The policies and measures as laid down in he 3rd Malaysia Plan, continue to be reflected in the recent Malaysia Development Plan. One of the policy thrusts in the 8th Malaysia Plan (2001-2005) is to promote the use of market-based instruments and self-regulatory measures among industries.

Background:

     Problem overview:

     In pursuing its objective to attain a developed country status, Malaysia embarked on rapid industralisation programmes. However, with industrialisation came the problem of pollution. In this regard, the effluent discharges from palm oil industry contributed to the pollution problem. To ensure that industrialisation process does not progress at the expense of the environment, Malaysia has put in place a fee structure to control the level of the palm oil industries effluent discharge and to enhance the development of environmentally sound technology in the disposal of the effluents discharge of the industry.

     Awareness and visions:

     The Environmental Quality Act, 1974 is the principal regulation in Malaysia to prevent, abate, and control pollution. Malaysia is aware from the onset that the command and control mechanism alone is insufficient to address pollution problem in the country. Hence, the Act incorporate provisions containing punitive as well as economic measures for the control of effluents discharge into the environment.

     Policies and Measures:

     The 3rd Malaysia Plan (1976-1980) within the chapter on development and environment has laid down the machinery for pollution control in order to achieve the environmental objectives. In the 6th Malaysia Plan, it was envisaged that the Department of Environment would examine the use of licenses, fines and charges for the control of effluent disposal.

     The policies and measures as laid down in he 3rd Malaysia Plan, continue to be reflected in the recent Malaysia Development Plan. One of the policy thrusts in the 8th Malaysia Plan (2001-2005) is to promote the use of market-based instruments and self-regulatory measures among industries.

     In the early 70s, Malaysia's economic development was based on the agricultural sector. Large areas of forest were converted into oil palm estates. In 1989, the oil palm estate covered 1.95 million hectares i.e. one third of the country's cultivated area. Simultaneously, the industrial expansion pursued then was focused on the utilisation on palm oil products. As a result, oil palm based industries mushroomed. During 1975-1985, crude palm oil production rose from 1.3 million tones to 4.1 million tones making it the country second largest earner of foreign exchange by 1984.

     The oil palm related industries became a major pollution problem, polluting many of the main rivers in the countries. The main pollutant index to measure the level of pollution in the oil palm industry is the concentration of Biochemical Oxygen Demand (BOD) of the effluent discharge. It was estimated that in 1975, the pollution generated from the organic wastes from the palm oil mills was equivalent to pollution generated by a population of more than 10 million people.

     Land use under oil palm will continue to dominate the agricultural sector with 3.1 million hectares compared to the total agricultural land use of 6.3 million hectares by the year 2005. Crude palm oil production in 1995 was 7.8 million tones and increased to 10.8 million tones in 2000.

Economic Instruments in Pollution Control of the Palm Oil Industry

     Since the early seventies, Malaysia had employed a number of economic instruments in environmental management to complement regulatory requirements under the Environmental Quality Act, 1974. The most successful example of the use of such instruments was for the control of pollution from the agro-based industries i.e. rubber and palm oil.

     As agro based industries developed, the level of pollution from effluent discharge continued to become a major problem in the 1970s. By mid-1977, 42 rivers in Malaysia were severely an aerobically polluted (oxygen depleted), primarily due to the impact of the disposal of untreated effluents into the rivers. Consequently, this situation led to significant impacts on coastal areas and coastal resources, which in turn affected the socio-economy of the local communities which depended on these resources for their livelihood and economic activities.

     The government's efforts to alleviate poverty and at the same time to protect river systems for various beneficial uses saw the following measures being implemented towards the second half of the decade of 1970s:

1. License Fee:
   
        A licensing system was introduced to control the pollution load being discharged into rivers and onto land. Due to the lack of a proven technology for the treatment of effluents from agro-based industries, a progressive reduction programme was allowed under the Environmental Quality (Prescribed Premises) (Crude Palm Oil) Regulations, 1977 and the Environmental Quality (Prescribed Premises) (Raw Natural Rubber) Regulations, 1978. The licence had conditions attached according to:
   
   
   1. Class of premises
      
      
   2. Location of premise
      
      
   3. Quality of waste discharged
      
      
   4. Pollutants or class of pollutants discharged
      
      
   5. The existing level of pollution
      
      
2. Phasing in the Standards:
   
        Since the agro-based industries were recently developed, new technology in the disposal of effluents were very much lacking. In order to give time to the industry to use technology to dispose off their effluents, a mechanism in the progressive phasing in of the standards were adopted. The phasing of standards for BOD over four years gave the industry time to construct treatment facilities and to gain experience operating them in order to conform to the increasingly stringent standards set by the Government.
   
   
3. Effluent-Related Fee:
   
        The "polluter pays principle" was used to assess the amount of fee to operate the premises. The amount of effluent-related fee payable to the Government was linked to the BOD load of the effluent discharged either onto land, watercourse or both. The fee for discharge into a watercourse is RM10/tonne of BOD load discharged and RM0.05/tonne (RM50 per thousand metric tone) of waste disposed onto land. In 1978 the amount of fees collected was RM 2.8 Million and subsequently dropped sharply to RM714,000 in 1979. It further dropped to RM40,000 in 1981. The amount collected gradually increase again from RM219,000 in 1982 to RM360,000 in 1991.
   
   
4. Research and Development:
   
        The government provided a provision in the regulations authorizing it to grant a partial or full waiver of effluent-related licence fees to industries conducting research on effluent treatment as an incentive for the industries to use new technology in their effluents disposal.
   
        As a result between 1979 and 1994, the palm oil and rubber industries' contribution to organic pollution load into the rivers was reduced significantly by about 91 per cent although the total number of mills increased by 26 per cent during that period. Today, the Department Of Environment's monitoring results indicate that in terms of BOD, only 13 per cent of the 936 stations monitored at 116 river systems are categorised as 'very polluted' because of organic load from agro-based and other manufacturing industries. In comparison, 37 per cent are categorised as 'very polluted' due to organic loading from sewage and animal husbandry.
   
   

ASSESSMENT OF THE IMPLEMENTATION OF THE ECONOMIC INSTRUMENT (Effluent Fee)

     The imposition of the effluents fee has in general reduced the discharge of effluents from the palm oil industry into the water system due to factors as follows:

1. progressive phasing out of standards has allowed the industries to adapt to the more stringent standards;
   
   
2. the reduction of effluence fees over time due to the more stringent standards has allowed the industries to invest into more technology improved treatment facility;
   
   
3. despite the increase in the number of Crude Palm Oil Mills, the level of pollution in the river system remain low;
   
   
4. the tremendous reduction in the amount of fees collected indicates compliance on the part of the industry;
   
   
5. the manner the effluence fee was structured serve as an incentive for the industry to improve their technological capability to reduce pollution arising from their production activities.