Valuation Study

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Trade Liberalization and Pollution


Medium: Air

Country: Philippines

Analytical Framework(s): Other

Study Date: 2001

Publication Date: 2002

Major Result(s)

Study Note: This paper aims to assess the environmental impact of trade liberalization in the Philippines, which was carried out with much vigor in the 1990s. In particular, the study will focus on the manufacturing industry and its effects on pollution. Section II discusses the trade policy changes between the 1980s and the 1990s. Section III presents a review of selected literature, Section IV assesses the impact of trade liberalization on industrial pollution using a computable general equilibrium model, and section V presents a qualitative analysis of the environmental effects of trade liberalization on sugar milling refining and cement industries. Apart from food processing, oil refineries and chemical plants, sugar milling and cement manufacturing are among the major industrial sources of water and air pollution in the Philippines. The final section summarizes the findings and presents the policy recommendations of the paper.

Study Details

Reference: Rafaelita M. Aldaba and Caesar B. Cororaton. 2002. Trade Liberalization and Pollution. EEPSEA Research Report, No. 2002-RR.

Summary: The paper assesses the impact of trade reforms in the Philippines on pollution using computable general equilibrium (CGE) model simulations. It focuses on the manufacturing industry and its pollution effects and examines whether trade liberalization is compatible with efforts to promote environmental protection. Generally, the results of the CGE simulations showed that trade reform is output augmenting and income improving. The overall impact on pollution is very little. The overall change in the level of emission for all pollutants is very small relative to the case where there is no tariff reform program. The results of the sensitivity analysis indicate that a change in production technology is a major factor that can check the problems of pollution in the process of industrialization.

Site Characteristics: The Philippine Environment and Natural Resources Accounting Project's (ENRAP) estimation indicated that in 1992, the household sector was the major source of air pollutants such as fine particulates that are less than 10 micron in diameter (PM10), volatile organic compounds (VOC), and carbon monoxide (CO). Households accounted for 59% of fine particulates (PM), 66% of PM10, 85% of VOC, and 86% of CO. Electricity generation and manufacturing industries were the primary sources of sulphur dioxide (SO2), with electricity generation accounting for the bulk of the emission. In 1992, electricity generation accounted for 53% of the total SO2 emission while manufacturing industries accounted for 32%. The household sector was the largest source of BOD5 with a share of 44% of the total BOD5 discharges in 1992. Industries accounted for 29% of BOD5, the bulk of which could be attributed to livestock production and services sector. Manufacturing accounted for about 2% of the total BOD5. The manufacturing sector was the primary source of total dissolved solids (TDS) with food, beverages, and tobacco contributing around 93% of the total TDS discharges in 1992. Manufacturing also accounted for 32% of oil and grease.

Comments: The impact of tariff reforms in the 1990s on pollution is analyzed through simulation exercises using a CGE model. This model is calibrated to Philippine data and pollution intensities based on ENRAP and World Bank Industrial Pollution Projection System (WB-IPPS). The impact of the reforms on industry output, resource allocation, income levels and income distribution are also examined. Lastly, the impact of an improvement in production technology is assessed through simulation experiments.