Valuation Study

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Regulating Air Pollution


Medium: Air

Country: Philippines

Analytical Framework(s): Least Cost Concept

Unit(s): Prices

Study Date: 1997

Publication Date: 2000

Major Result(s)

Resource/Environmental Good PHP, per ton
PHP, per ton
USD, per ton
Baseline value for charging the power generation sector emission of particulate matter 1,750.86 3,266.26 73.03

About the Inflation Adjustment: Prices in Philippines (PHP) changed by 86.55% from 1997 to 2014 (aggregated from annual CPI data), so the study values were multiplied by 1.87 to express them in 2014 prices. The study values could be expressed in any desired year (for example, to 2022) by following the same inflation calculation and being sensitive to directional (forward/backward) aggregations using your own CPI/inflation data.

Study Note: It was noted that while the country's policymakers have long since recognized the need for strengthened environmental and resource conservation efforts, they tended to focus on the latter. It is only during the 1990s that several environmental problems in the Philippines have taken center stage. Among these, the reduction of emissions was diagnosed to be in the highest priority.

Study Details

Reference: Catherine Frances J. Corpuz. 2000. Pollution Tax for Controlling Emissions from the Manufacturing and Power Generation Sectors, Metro Manila. EEPSEA Research Report, No. 2000-RR.

Summary: Dasgupta and Maler in 1991 ruefully observed: "The fact that for such a long while environmental and development economics have had little to say to each other is a reflection of these academic disciplines; it does not at all reflect the world as we should know it." Fortunately for us, environmental concerns are now in the forefront of discussions on economic growth. While the manifestations of environmental abuse would differ depending on the conditions of each country, they are generally of two kinds: (i) those that arise primarily because of poverty and population growth; and, (ii) those that arise from increased industrialization and urbanization leading to the pollution of water, air and soil. The latter is the subject of the current endeavor. In the course of producing (and consuming) commodities, negative or beneficial side effects arise that are borne by the economic agents not directly involved in the production or consumption of the commodities. Broadly defined, an externality is a relevant cost or benefit that individual economic agents fail to consider when making rational decisions. Externalities drive a wedge between private and social costs or benefits and therefore, prevent the attainment of economic efficiency and Pareto efficiency. However, the collective effect of ignoring externalities is socially undesirable. Without any corrective action taken to internalize externalities, resources will not be allocated efficiently, even if the economy is otherwise competitive. Externalities may be internalized by government intervention through different avenues: i) Pigovian taxes or subsidies; ii) through voluntary agreements between individuals involved (e.g., tradable emission permits); and, iii) control of quantities of polluting inputs or outputs that would otherwise prevail in an unregulated market. Historically, environmental policies rely heavily on regulations. The approach has not solved the environmental problems (and some even contend that they have exacerbated the situation). Out of the economists' tool-kit comes the standard prescription of using market-based policies to arrive at the least cost solutions to environmental problems. Section one of this paper looks at the damage wrought by industrialization in Metro Manila's air quality and how economic instruments can be utilized to curb the problem. In particular, it aims to come up with estimates of emission loads, abatement costs and appropriate emissions tax for selected industries within the manufacturing and power generation sectors. Section two provides some background information on the study area, the pollution situation and the prevailing rules governing environmental protection. Section three explains why economic instruments such as a pollution tax may be a more effective means of regulating emissions from the industries. The conceptual framework is set forth in the fourth section while the estimates are contained in section five.

Site Characteristics: Metropolitan Manila, otherwise known as the National Capital Region (NCR) currently consists of nine cities and eight municipalities. The cities are Manila, Kalookan, Quezon, Pasay, Mandaluyong, Makati, Pasig, Muntinlupa and Parañaque. The latter five are newly created cities. It is home to over eight million people and plays host to about 69% of the country's 19,000 industrial firms -- all this in its 636 square kilometers of land. The spatial concentration of industrial activity and population in highly urbanized areas generate pollution. These industrial activities increase the adverse effects of pollution in the socio-economic development of these areas. Metro Manila, as the country's center of business and economic activities, is overcrowded with people and factories grossly exceeding nature's assimilative capabilities and affecting the health and welfare of millions of people. Needless to say, the economic cost of air and water pollution, and solid waste accumulation is rising. Environmental assessments show an increasing trend in air pollution since the mid-70s. Commuters are regularly exposed to high concentrations of 1,000 mg/cubic meter of respirable suspended particulates. Eleven monitoring stations around Metro Manila have registered a growing level of total suspended particulate matter (PM) in the air throughout the years. It is also expected that as economic activity increases in the Asia-Pacific region, notably highlighted by a huge influx of migration both within and outside the country, there will be an added pressure on resources. Pollution standards and regulations will be harder to meet, monitor and enforce. Increased energy use is expected as the Philippines tries to catch-up with its contemporaries in the region. Equally disturbing is the fact that as environmental laws overseas become more stringent, there is a tendency for "dirty" industries from developed economies to migrate to Third World countries in the form of foreign investments.

Comments: While conducting the study, the author noted that it became apparent that anchoring a tax solely on particulates is not advisable.