Use of Effluent Charges in Malaysia's Palm Oil Industry

Date posted: 
Dec 12 2009

Malaysia is one of the countries to first introduce effluent charge system, specifically for palm oil and rubber mills. In 1977, the country’s Department of Environment (DOE) announced discharge standards for BOD on palm oil effluent. Prior to the introduction of the regulation, crude palm oil was the single worst pollution source in the country. Daily discharge alone increased by more than 300% from 1965 to 1977. The aim of the regulation was to reduce pollution created by the sector without hampering its growth.

Responsible Party: 
Compliance
I. Objectives or Impact: 

Malaysia is one of the countries to first introduce effluent charge system, specifically for palm oil and rubber mills. In 1977, the country’s Department of Environment (DOE) announced discharge standards for BOD on palm oil effluent. Prior to the introduction of the regulation, crude palm oil was the single worst pollution source in the country. Daily discharge alone increased by more than 300% from 1965 to 1977. The aim of the regulation was to reduce pollution created by the sector without hampering its growth. Sector/subsector: The policy specifically targets the crude palm oil industry of the country. Specifically, it aims to reduce pollution in 42 rives in the country that were greatly affected by pollution due to disposal of untreated effluents.

II. Description of the Good Practice (Outputs): 

The action combined two measures: the use of market-based instruments and command-and-control approaches. The annual license fee of a mill was linked with its projected BOD load. A two-tiered effluent charge was applied to the licensing fee. The licensing fee was based on (1) location and class of premises, (2) quality of water discharged, (3) pollutants and quality of pollutants discharged, (4) existing level of pollution, To monitor the accuracy of the projections, the rule specified that quarterly reports on actual discharge and the average BOD concentrations. The licensing fee system utilized a progressive reduction program due to the lack of proven technology on effluent treatment. Overtime, the standards of the government became stringent. This gave time for the industry to learn and explore schemes of improving and reducing discharge. Firms conducting research on reducing effluent treatment were given partial or full waiver on licensing fee. The licensing fee system was also complemented by an effective command and control scheme. One of which is that compliance with the BOD standard became mandatory after the first year. The DOE showed its commitment by suspending the operating licenses of violators. This was showed by the high profile case of one mill in 1979. The regulation also announced in advance that more stringent measures will be adopted in the coming years. This prompted the mills to prepare their capacity to meet, not only the existing standards, but the more stringent rules in the coming periods.

III. Outcomes or Results: 

A year after the imposition of the regulation, the pollution load fell more than half. Reduction in the pollution load decreased as well in the succeeding years. From 1977 to 1994, organic pollution load in the rivers decreased significantly by about 91%. As of date, only 13% of 936 stations monitored in the river systems are categorized as very polluted. Interestingly, the number of crude palm oil mills in the country increased significantly as well around the same period. On the side of the firms, the progressive approach taken by the regulation allowed them to adjust on the more stringent rules that followed. They were also given enough time to invest on technologies on treatment facilities. Interestingly, a number of firms were able to develop commercial byproducts form the effluent, thus avoiding the cost of treatment as well as the pollution charges. The byproducts include animal feed, fertilizers, and biogas.

IV. Essential Elements for Success: 

Policy Framework: Enabling Policy, Regulation, Inter-agency/Multiparty Agreements

The success of the effluent charging system in Malaysia was due to the proper combination of market-based incentives and command and control scheme.  The country recognized, as early as 1974, that command and control mechanisms alone is not sufficient to address pollution concerns.  The 1974 Environmental Quality Act of Malaysia contains punitive and economic measures to control pollution.  The 3rd Malaysian Plan (1976-1980) laid down the principles for pollution control to achieve environmental objectives.  In the succeeding Malaysian Plans, the role of licenses, fines and charges, and other economic instruments in the control of effluent disposal was identified. 

Human Resources and Skills

The scheme followed by Malaysia requires a regulatory body that can both handle command and control schemes and economic instruments.  Also, it requires the regulator to have skills in determining the fee given a particular level of discharge.  On the other hand, the cost of monitoring this scheme may not be too high since monitoring of the licenses can be easy.  Also, random checks can be conducted anytime.  The only concern for Malaysia is that the growth of the sector resulted to an increase in monitoring costs since the number of firms also increased. 

For this type of schemes, the monitoring costs might also be high if the charge is based on the concentration rather than the load of emission.  The regulator should be able to ensure that there is no incentive for mills and firms to high the total discharge.

   
Material and Resources

The scheme followed by Malaysia can be information-intensive since necessary data needs to be analyzed to ascertain that reports given by the mills are accurate.  The entire program requires a tight data collection, monitoring, and analysis.  It requires the availability of testing laboratories, monitoring system, and reliable database.

Institutional Support

The system requires a regulatory body that is dedicated to the policy it is pursuing.  Also, one of the key in the success of the projects is the transparency of the rules and the phasing of standards.