Problem overview:

     Awareness and visions: The Philippines has recognized that to sustain economic development without sacrificing the environment, new measures and policy instruments has to be designed to complement existing command and control approaches which have been proven ineffective because of budget inadequacy. The successful pilot testing of Environmental User Fee System in Laguna lake and its integration in the Laguna Lake Development Authority's environmental management program serves as a precedent and catalyst for other local government units, to implement similar or improved system based on the lessons learned.

     Policies and measures: The use of environmental user fee system (EUFS) in the management of Laguna lake resulted to reductions in pollution loads and to expansion of cooperation of major industries, through requests for issuance of discharge permits. The successful complementation of EUFS with the existing command and control approach, however, required the decentralization of decision-making, provision of legal power to levy and retain other than fines and permit fees, and intensified involvement of stakeholders.

Background:

     The first indication of any attention being given to environmental problems in the Philippines came in the late 70s, however it was only in 1987, when the country first recognized the need to integrate environmental considerations into economic decision-making process after it found that the activities aimed at achieving economic and social gains resulted to further degradation and depletion of environment in many parts of the country.

     Since then, numerous measures and policy instruments have been designed to ensure the environmental considerations' integration. However, based on the Asian Development Bank report, adoption of market-based approaches in the Philippines has been relatively slow because of the: (1) moral and political objections against creating a "right to pollute"; (2) perception of a loss of control or greater unpredictability of environmental outcomes by the government regulator in cases where an emission/effluent charge is contemplated; (3) preference for an administrative status quo; (4) legislative restrictions placed on the regulator (e.g. Department of Environment and Natural Resources) to tax pollution, inhibiting a search for suitable tax-based approaches; (5) resistance by certain groups that feel they would be worse-off as a result of the introduction of a particular economic instrument; and (6) limited body of empirical evidence concerning the pattern of abatement costs and scope for cost-savings that MBIs truly offer in local conditions.

     In search of answers or solutions to the identified causes of slowness in adopting the market-based approaches, the Philippines practical approach, was the introduction of the Environmental User Fee System, an effluent taxes based on presumptive discharges, by pilot testing it in the Laguna Lake. Why Laguna de Bay Region?

     Firstly, Laguna de Bay is strategically located within the Philippines' center of urban and industrial development, the Metropolitan Manila and the Cavite-Laguna-Batangas-Rizal-Quezon (Calabarzon) area. It is the largest lake in the Philippines covering 900 km2 with an average depth of 2.5 meters. It is almost half of the total area of lakes in the country and ranks as one of the largest inland bodies of water in Southeast Asia.

     Secondly, because of the lakes' social and economic uses, which include fish productions, irrigation, transportation, reservoir, power generation, recreation, waste sink, industrial cooling, water supply, recreation and other industrial activities, which poses a big risk of becoming the sink for the waste generated by the industries located along the periphery. The lake as a natural resource is also vulnerable by the pressure of an increasing population and increased economic activity in the immediate future.

     And thirdly, because of the presence of operational local institution, the Laguna Lake Development Authority, which was created in 1966 under Republic Act 4850 and which main roles include drafting of comprehensive and detailed plan; provide support to prospective and existing investors; review of proposed plans, programs, and projects of Local Government Units, public corporations, and private persons/enterprises; coordinate with other government agencies in the establishment and enforcement of water quality standards, pursue compensation for damages to water and aquatic resources resulting from failure to meet established water and effluent quality standards; and to collect annual fees for the use of the lake and its tributaries.

     The introduction of Environmental User Fee System (1996) has made environmental protection efforts become more effective. The EUFS complements the existing regulatory system and has been aimed at reducing the pollution loading into the lake by encouraging all liquid waste dischargers to account the cost of environmental degradation and enhancement in the business decisions or actions.

     Charges of user fees comprise of a fixed fee based on the volumetric rate of discharge, and the variable fee, which will be based on the unit load of pollution. The fixed fee will be based on the following table:

     Meanwhile, for the variable fees, the following schedule applies:

     Said rates are being adjusted from time to time but not within the year of latest adjustment to reflect desired environmental objectives and updated targets in the reduction of pollution loadings. Moreover, in case other water quality parameters will eventually be covered by the system, LLDA will have to determine its user fee rates.

     During the first year (1997) of implementation, the EUFS was able to reduce by 88 percent the biochemical-oxygen demand (BOD) loading and LLDA was able to cover the following top five polluters: (i) food processing, (ii) piggeries/slaughterhouses, (iii) beverages, (iv) dyes and textiles, and (vi) paper and pulp.

     In 1998, the system was expanded to include 100 percent of industries and wastewater discharges through the issuance of 211 discharge permits, which resulted to a BOD reduction of 3,014.83 tons. The following year, coverage was expanded to food chains and restaurants and 307 discharge permits were issued.

     Subsequently, the EUFS became an integral part of LLDA's Environmental Management Program in 2000 after it had successfully completed the initial stage of pilot testing the pioneer MBI in the Philippines.

     Last year, the system was able to cover 728 industrial, commercial establishments, housing subdivisions and condominiums. Of which 651 applications were received, and 411 were processed. There were also 356 discharge permits issued.

     Among the major factors which contributed to the successful integration of EUFS in LLDA's environmental management program are (i) the decentralization of decision-making process; (ii) its legal power to levy and retain other than fines and permit fees; (iii) the degree of involvement or participation of stakeholders was intensified through multi-stakeholder consultations; and (iv) more important are the revenues generated, which provide a long-term internal financing for environmental improvement.

     The Philippines, specifically the LLDA, has successfully combined a market-based instrument with existing command and control measures to achieve the desired goal. Using LLDA's experience, the government may now be able to mainstream the system throughout the country, and across sectors and media.