ENVIRONMENT AND ECONOMIC DEVELOPMENT ;
in
THE INDUSTRY SUMMIT
Organized by MIT and The World Economic Forum
in collaboration with
Harvard University
September, 1 993
Rahardi Ramelan
Vice Chairman
National Development Planning Agency (BAPPENAS), Indonesia
I. The Significance of The Physical Environment
The importance of environmental quality at the national and local level has long been recognized, and neglected even longer. The most practical and obvious concerns are:
A. Its importance for health.
B. Its impact on the rate of accidental injuries and deaths.
C. Less obvious concern is the imagery and aesthetic quality of the local environment.
D. Developing nations cannot yet afford to care for environmental quality because of their needs for "survival action".
E. Developing countries can and should give higher priority to environmental quality does not depend upon rich resource endowments.
F. Evidence shows that resource consumption and energy use are extravagant in highly industrialized countries.
G. Additionally, we should be concerned with the fundamental economic-importance of the proper environmental management and natural resource husbandry.
H. The spatial structure of development and the quality of the local environment have clear implications on the production efficiency.
I. The proper husbandry of non-renewable resources has obvious implications for the sustainability of economic growth.
II. The Environmental Impact of Economic Development
A. Many environmental problems, at global and local scale result from "structural features" of economic development and industrialization.
B. Some are results from excessive individual and governmental haste of development, or sirnply a neglect of negative environmental impacts. These are avoidable.
Examples of structural features: The increasing share of manufacturing and services in total output; urbanization; expansions of national infrastructure systems; increases in energy use; rising incomes and changes in consumption patterns; the generation of more non-organic waste.
C. Excessive haste is associated with short planning horizons, high discount rates, and negligence of negative externalities by individual entrepreneurs.
Examples of the consequences of this haste include: Forest depletion; coastal mangrove depletion; over-fishing of coastal waters; poorly-managed tourism, damaging marine resources such as coral, and onshore environments of high quality; water source depletion; water pollution; air pollution; land degradation
D. The consequences of excessive haste by individual entrepreneurs, by households, and by governmental agencies, are compounded in urban areas where their activities all take place in the same territory.
E. Poverty and environmental degradation are interrelated.
F. There are positive environmental chanqes potentially associated with economic growth and industrialization:
1. Economic development tends to be associated with lower rates of population growth.
2. Increases in GDP and household incomes make it possible to achieve major improvements in water supply and environmental sanitation, access to electricpower, improvements in housing standards, and improvements in telecommunications.
3. Energy use will increase, particularly in urban areas, positive opportunities for improvements in public services and private consumption .
4. Some environmental problems become more severe initially as economic growth proceeds, then diminish air and water pollution.
III. The Urgency of the Issues
A. The urgency of dealing effectively with environmental issues is clear in problems that exist already:
1. Inadequate water and sanitation are major contributors to the 900 million cases of diarrheal diseases every year, which cause the deaths of 3 million children.
2. Excessive levels of urbarl particulate matter are responsible for 300,000 - 700,000 premature deaths annually and for half of childhood chronic coughing.
3. There are, perhaps, 300,000 additional cases of skin cancer and 1.7 million cases of cataracts a year attributable to ozone depletion.
B. This urgency is amplified by the prospects for population growth and growth in output.
1. Approximately 100 million people are being added to the global population every year. Ninety percent of an expected increase of 3.7 billion between 1990 and 2030 will be in developing countries
2. During the same period, developing country output is expected to rise by 4 to 5 percent per year and industrial country output is expected to triple.
3. By the first quarter of the next century a majority of the World's population -- over 5 billion people -- will live in urban settlements. Even by the year 2000, only seven years from now, two thirds of the World's urban population will be living in the developing countries of Africa, Asia, Latin America, the Caribbean and Oceania.
IV. The Action Needed and The Role of Government
A. The Task
A1.The task is to find ways to deal with structural features of economic growth that cannot be avoided, and avoid the haste and neglect that are not necessary features of growth.
A2.A large part of this task has to do with encouraging individual, communal, entrepreneurial and governmental behavior that will make use the most of the available resources.
A3.There must be an adequate planning horizon, recognizing the time required for environmental change and, in some cases, environmental rehabilitation, the long-run costs of some short-term gains, and the long-term gains of some short-term costs.
A4.There is a need for carefully-crafted partnerships between communities, the private sector and governments -- to foster "ownership" of environmental improvements, responsiveness to local priorities and capacities, and efficiency.
A5.There is a need for international partnerships -- in specific regions, where there are common environmental interests, and globally, where the threat is global and its sources are worldwide.
B. The Role of Government
B1. There is a need for government, at all levels, to become more effective in at least three roles -- as a facilitator, as a regulator, and as a leader.
B2. There is a need for governmental action at several scales. At the local and provincial level, in partnership with communities and the private sector for specific purposes. At the national level, also in partnership with the private sector. Regionally, in partnerships with other governments, where there are environmental concerns in which collaborative action is called for. And in a global partnership, to take action that requires the global community.
B3. Government as a facilitator can encourage trade that promotes exchanges of information and technologies needed for better environmental management. It can avoid subsidies which encourage choices of inefficient technologies, resource waste and environmental damage. It can minimize the regulation of private economic activity in order to promote efficient competition. It can establish and maintain a framework in which resource ownership and use rights are clear and conducive to sound environmental management.
B4. Government as a regulator can establish and enforce minimal essential controls over private activity which will eliminate or alleviate undesirable resource depletion or environmental damage. It can regulate private pricing, or set public pricing, for public services, to reduce the risk of excessive resource use at the same time as it seeks to achieve equity objectives. It can price negative externalities of private action, such as air or water pollution, to eliminate pollution (or maintain it at acceptable levels where it is not economically rational to eliminate it entirely).
B5. Government as a leader can provide, operate and maintain costeffective public infrastructure that will support private investment and innovation, and help to structure land use in patterns that are efficient and environmentally sound. It can adopt environmentally friendly designs and technologies for all of its own facilities and services. It can initiate and enter into partnerships for environmental research and environmental management at the local, national and international levels. And it can promote environmental education and the development of heightened environmental consciousness and responsibility.
C. The Efforts Being Made in Indonesia
C1. Environmental programs are being undertaken in Indonesia now in a context in which there is rapid industrialization and urbanization. GNP growth rates have been maintained at between 5% and 7% for the last 15 years, while inflation has been held to less than 10%. The share of industry in GNP rose from 9.2% in 1969 to 20.7% in 1992.
C2. The urban population grew at 5.4% between 1980 and 1990. In 1980 it was approximately 32.8 million, 22% of the total. By 1990 it had reached approximately 55.4 million, 31 % of the total. Approximately 3.5 million people are being added to the urban population every year. The largest metropolitan area (Jabotabek, with Jakarta as its core) already has an urban population of approximately 15 million. A majority of the population is expected to be urban by the end of the next twenty-five-year plan, in 2018/19. This demographic shift is expected to be accompanied by something like a fourfold increase in GDP per capita.
C3. The major environmental problems being faced include deforestation, land degradation, water shortages (on Java in particular), water pollution, and urban environmental degradation in the larger cities.
C4. The concern with the environment that has evolved in Indonesia is reflected in part in the changes in emphasis in successive five-year plans. The first plan (1969/70-1973/74) was focussed on economic recovery. Attention to the environment has increased as that recovery has proceeded. Now, almost at the end of the fifth plan (1989/90-1993/94) it may be said that environmental concerns are integrated in national and regional (provincial and local) programs.
C5. Early in 1991 Indonesia added a new dimension to its spatial planning by differentiating a protection zone classification (in which there are conservation areas and protected areas), and a development zone classification, throughout the Archipelago (Presidential Regulation No. 32, 1991).
C6. The specific steps taken to improve environmental quality directly or indirectly include the following:
C6i. Institutional
a. The incorporation of a comprehensive approach to environmental management in the Guidelines of the State Policy (GBHN) in 1974; the environment is a major theme also in the 1993 GBHN for the Sixth Five-Year Plan (1994/95-1998/99).
b. The establishment of a Ministry of the Environment in 1978.
c. The setting up of the National Environmental Impact Management Board (Bapedal) in 1990; with regional agencies now being established in strategic regions such as Jakarta, Java, North Sumatera, South Sumatera, South Sulawesi, East Kalimantan and Bali.
C6ii.Programs and Projects
a. The family planning program, which has helped to bring about a reduction in the national population annual growth rate from 2.32% in 1969 to approximately 1.7% in 1992. It is expected to drop to just under 1 % by the end of the second twenty-five-year plan in 2018/19.
b. A variety of economic and social programs which have helped to reduce the percentage of the population living at or below the poverty line from 70% in 1970 to approximately 15 % in 1990.
c. Marine resource protection measures.
d. The regulation of oil and gas extraction, coupled with extraction rents.
e. Forest protection and enhanced regulation of the forestry industry, with logging rents for which increases are now under consideration (but improvements in forest protection and management still are far below desirable levels)
f. The management of conservation areas and the protection of endangered species; in some cases with the collaboration of agencies such as the World Wildlife Foundation (in Kalimantan)
g. The Clean River Program (Prokasih) launched for 20 major rivers in 8 provinces
h. Pilot projects with alternative energy sources, including solar energy (villages in South Sulawesi, North Sulawesi and Maluku, West Java, Central Java and East Java), wind power (in West Java, Central Java and West Nusa Tenggara), biomass and biogas.
i. Industrial pollution abatement.
j. Project environmental assessments are required for all projects expected to have a significant environmental impact.
k. Environmental improvements, linked with economic development and diversification, in urban areas; the Integrated Urban Infrastructure Development program (IUIDP); the Metropolitan Environmental Improvement Program in Jakarta, as part of an international effort to improve environmental management in major urban areas.
l. Fundamental improvements being sought in urban planning and management; at the same time as the management of individual sectoral services such as water supply, sanitation and transportation, is being improved; building on to experience with the Integrated Urban Infrastructure Development Program and earlier urban programs.
* Surabaya received an award in the international meeting held in Curitiba, in association with the Earth Summit in Rio de Janeiro.
m. A national spatial strategy (SNPPTR) is being prepared for the guidance of land use and infrastructure development throughout the Archipelago, integrating programs for urban and rural development
n. The implementation of some of these initiatives still is in its early phases, but the existence of such programs is indicative of the seriousness of the Government's concern with sound environmental management.
V. The Potential of the Present Conference, and Points to be Considered in the Panel on the Environment
A. Ms. Maria Livanos Cattaui, Co-Chairperson of the panel, has suggested that, in the course of exchanging views and expertise, there should be a focus on the following theme:
"Countries that need rapid and sustained economic growth are discovering that environmental pressures create new markets for environmental technologies and services and attract foreign investment. At the same time, environmental issues and liability concerns can become an impediment to foreign investment flows. How can this dilemma be resolved? How can investment be assured and allocated? What is the most appropriate regulatory framework?"
B. In addressing this theme it might be useful to consider opportunities
for action in two categories:
1) Actions likely to have a fairly direct impact on markets for environmental technologies and foreign investment flows.
2) Actions linked less directly with trade and foreign investment, but having an important impact on the general climate for both domestic and foreign investment.
C. Actions in category 1) need largely to be taken by central governments. Those in category 2) call for collaborative efforts by local, provincial and central agencies, often in partnership with communities and the private sector.
1. Opportunities for Action Likely to have a Direct Impact on Markets for Environmental Technologies and Foreign Investment Flows.
a. The elimination of trade restrictions which discourage exchanges of environmentally-friendly technologies.
b. The removal of energy subsidies which encourage energyinefficient technologies and/or bias energy use to sources whose use is environmentally damaging -- possibly coupled with energy taxation.
c. Clarification of property rights to encourage an enhanced sense of responsibility for local environmental quality and natural resources. There should be provision for reasonable longevity of property rights, including the rights of foreign investors .
With freehold rights where this is judged appropriate, or with secure leasehold rights for a minimum of, say, 50 - 75 years in urban areas (99 years is the practice in some countries), and renewable under stipulated conditions. Periods need to be longer in forestry or other natural resource areas where the life cycles of assets are longer.
d. The development and firm enforcement of environmental regulations which are economically feasible, fair, and easily understood .
e. The use of tradeable pollution rights -- which should be incentives for environmentally-conscious investment by both domestic and foreign investors
f. The introduction of modern waste recycling in major cities - and trading in the technologies needed for this.
g. Awards and other incentives for the upgrading of the management of the tourist industry, to encourage both producers and users to be more environmentally consciousin all tourism, not only specialized "eco-tourism".
h. International collaboration in research for improved environmental management.
2. Opportunities for Environmental Action Which are Likely to Improve the General Climate for both Domestic and Foreign I nvestment .
a. The development of alternative energy sources, both rural and urban, that are cost-effective and environmentally sound
b. Economic pricing of infrastructure services in both rural and urban areas -- to reduce wastage and to make it possible to finance environmentally-adequate infrastructure systems
c. Waste recycling with low-capital-cost technologies, including the upgrading of traditional scavenger systems and deposit-refund systems for such things as bottles, cans, plastic containers and batteries
d. Increased efficiency in the design and construction of buildings.
e. The development and enforcement of guidelines and regulations for urban design affecting the construction, form and placement of buildings and open spaces -- important for health and safety as well as aesthetics.
f. Improvements in urban transport systems to achieve greater efficiency, convenience and environmental quality -- with an emphasis on more efficient land use patterns, public mass transit and traffic management
g. Affordable options for low-income urban housing, with minimal subsidies targeted on the lowest-income groups. It is important to keep in mind that low-income households who cannot afford conventional housing often constitute 40% to 60% of the population of major cities in the developing countries.
h. The provision of adequate and efficient infrastructure services in the strategic cities in which investment for growth should be focussed.
i. Promotion of alternative forms of urbanization that are resource-efficient, financially viable and environmentally sound .
For example, by integrating urban development and intensive agricultural development in the larger metropolitan areas and in corridors between cities. This already is happening in Java. It helps to reduce economic risks for rural (or semi-rural) households. It helps to reduce transport costs on a regional scale. And it helps to maintain open areas in productive use in and around cities, enhancing both the urban and regional environments.
j. Improved environmental education and participation -beginning at the kindergarten level.
Hopefully the Panel will provide an incentive for an exploration and, where appropriate, adoption, of these and other possibilities.