Valuation Study

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Fee Levy for Biological Oxygen Demand Reduction


Medium: Water

Country: Cambodia

Analytical Framework(s): Least Cost Concept

Study Date: 2000

Publication Date: 2006

Major Result(s)

Resource/Environmental Good KHR
BOD reduction target 25%3 149,760.00 262,424.45 64.50
BOD reduction target 40% 399,360.00 699,798.53 172.01
BOD reduction target 65% 998,400.00 1,749,496.32 430.02
BOD reduction target 85% 2,000,640.00 3,505,721.47 861.70

About the Inflation Adjustment: Prices in Cambodia (KHR) changed by 75.23% from 2000 to 2014 (aggregated from annual CPI data), so the study values were multiplied by 1.75 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: This paper focuses on the country's industrial sectors that are responsible for large-scale pollution. Such sectors include: garment manufacturing, pulp and paper, food and beverage, metal treatment and chemical and plastic products. From 1990 to 2001, the average annual growth rate for Cambodia's industrial and manufacturing sectors was 10.2% and 8.2% respectively. The corresponding value for the agricultural sector was only 1.8%. This sector made up 28% to country's gross domestic product in 2004.

Study Details

Reference: Sideth Muong. 2006. The Implementation of Effluent Taxes for Cambodian Industry: An Assessment of Pollutant Levies. EEPSEA Research Report, No. 2006-RR1.

Summary: This research explored the implementation of effluent taxes for Cambodian industry. There is a general consensus amongst economists that market-based pollution control instruments have cost advantages over command and control strategies. The study's objective was therefore to identify the most cost-efficient fee levies that would meet different BOD reduction targets. Data from polluting industries was compiled from various sources and completed using a survey of polluting firms (in 2004). As Cambodian abatement costs are unreliable, MAC from China and Vietnam were used to assess fee levies. This project targeted 250 large-scale firms. Of these, 247 were textile plants that discharged at least 10 m 3 /day of effluent. The other three were large beverage firms. The BOD emissions from these targeted plants were 1,384 tons per year. Four BOD reduction targets were selected. These ranged from 25% to 85%. Given these targets, and the two sets of MAC estimates from China and Vietnam, the study's calculations produced eight different fee levies. The fee levies calculated using MAC estimates from China were between USD 1 to USD 13 per ton of BOD. Those for MAC estimations from Vietnam were between USD 29 and USD 521 per ton of BOD. Fee levies from USD 104 to USD 521 per ton of BOD were selected as the best option as these were shown to be sufficient to achieve at least a 40% BOD reduction target. Given the wide range of MAC used, a sensitivity analysis was conducted using three different scenarios. In Scenario 1 it was assumed that BOD emissions increased by between 16% and 45%. The result of this simulation showed that the selected fee levies would still be sufficient to meet the 40% of BOD reduction target. In Scenarios 2 and 3, the MAC values were converted into their Cambodia equivalent costs by using the purchasing power parity and per capita income methods. The result showed that to meet at least a 40% BOD reduction target, the fee levies should be USD 234 and USD 182 per ton of BOD for Scenarios 2 and 3 respectively. In order to minimize costs, this paper recommends the following pollution abatement strategy: The application of a pollution fee levy of USD 104 per ton of BOD for an initial year of operation. This fee would then be raised to USD 260 in the second year. This would help to reduce BOD emissions by between 40% and 65%. It would generate between USD 10,093 and USD 68,463 per year in revenue. Some amendments of existing laws and regulations would be necessary to ensure the effective monitoring and inspection of such a strategy. For example, the fine for non-payment of assigned fees or penalties should be higher than it currently is. This paper also suggests the establishment of an Agency for the management of the effluent fee. This would have three operational units (Monitoring & Enforcement, Program & Revenue Distribution and Finance & Fee Collection). This new Agency could be under the control of the Ministry of Environment, or the Ministry of Finance or it could be an independent agency. For the first two years of the operation of this strategy, 80% of revenues should be dedicated to building the capacity of the agency and training its staff. However, this amount should be reduced gradually in order that, eventually, 80% of revenue could be used to subsidize pollution reduction efforts by firms.

Site Characteristics: Cambodia has a population of over 13 million inhabitants and is one of the poorest countries in the world. Subsistence farming employs 70% of the workforce, while tourism is of growing economic importance. Over half of Cambodia is forested, but illegal logging is robbing the country of millions of dollars of badly needed revenue. After 28 years of war, Cambodia has started a reconstruction program, financed largely by foreign aid. Economic development in recent years has brought more industrial firms to Cambodia. These have established themselves especially on riverbanks, wetlands, and coastal zones. Political stability has allowed national efforts to concentrate on the environmental issues associated with this development, in particular water pollution control. The results of the World Bank funded "Water Supply and Sanitation" project, show that, in 2003, about 60% of Cambodia's population had access to safe water. However, according to the 2004 inter-census of population, only 44% of household in Cambodia have access to safe water sources 1 (NIS 2004). Those with safe water supplies are mostly urban people and wealthy households in rural areas. All main sources of water take water from rivers. Therefore, pollutant discharges to rivers lead to additional water treatment expenses that, in turn, lead to increased water prices. The remaining households (the rural and urban poor) get their water without any treatment from often unsafe sources such as rivers (34%) and wells (43%). Water pollution affects them directly. Therefore, the protection of fresh water sources through the regulation of effluent discharges is a very urgent task, from both an economic and a public health perspective.

Comments: The general objective of this research project was to find out the most costefficient fee levies and options for their implementation. This was done using a simulation study to observe the impact of different fee levies on industrial firms and their pollution emissions. The study also investigated the revenue that such fees could generate.