Topic Area: Pollution
Geographic Area: Indonesia
Focal Question: What is the most successful way of putting pressure on polluters in developing countries?
Source: http://www.worldbank.org.NIPR/work_paper/vincent/index.htm
Reviewer: Christina Einstein, Colby College '99
Review:

Indonesia, over the last twenty years, has emerged as one of Asia's fastest growing economies. Beginning as a primarily agricultural based economy, Indonesia now produces a plethora of industrial products. Since 1980, with the growing economy, more jobs have become available, income has doubled, and poverty has fallen. Unfortunately with all the positive effects of economic growth, the country now faces several environmental consequences specifically with air and water quality.

In the 1980's, the Ministry of Population and Environment attempted to monitor environmental performance of industries with "command and control," a Western concept. After this failed attempt, in 1989 the Ministry established a semi-voluntary program for controlling the release of pollution in waterways, PROKASIH&emdash;"Clean River Program." A task force was assembled to identify the areas of most concern on the rivers and locate the primary polluters. Data was collected on the pollution concentrations and pollution-reduction agreements were established. BAPEDAL, the new Environmental Impact Management Agency, accepted responsibility for the program. High polluting facilities were pinpointed and participation in pollution reduction agreements was mandatory for these facilities. Although, participation was considered mandatory the agreements were not legally binding. Furthermore, the information was not made public; the program in essence was voluntary.

Improvements in pollution levels were immediately recognized. The discharge of pollutants in 24 river basins had decreased by a median of 59%. With rising pollution control and without a fall in output, the number of industrial facilities under the program more than tripled. Early findings indicated that a small number of polluters were emitting most of the pollution, while the majority of facilities were discharging negligible amounts. The potential regulatory influence of the communities where the heavy polluting facilities were located had been overlooked. The desire to enlist these communities lead to BEPEDAL's Program for Pollution Control, Evaluation and Rating, (PROPER), a regulatory mechanism based on public disclosure of pollution records and environmental performance.

Initially, the facilities were grouped (inefficiently in retrospect) into two categories: compliance and non-compliance. In 1993, a superior color-coded rating system was proposed to indicate the facilities' pollution levels: black- no effort; red- some effort, but not meeting requirements; blue-satisfying the requirements; green- above the requirements; and gold- exceptionally good. Ratings were publicized to promote reputation-based incentives for facilities to improve their environmental performance. Communities were empowered to direct pressure on the exact facility releasing harmful pollution.

Many challenges delayed the implementation of the color rating system. The first challenge was in assigning facilities with the appropriate color code such that the program was viewed as credible. A technical team of environmental experts from around the world gathered to help decipher and initiate the color rating. The procedures for assigning colors caused conflict. If the wrong ratings were made public, then the credibility of the system could be questioned.? Multiple data sources were used to gather and analyze information. All of the information from PROKASIH was transferred to the PROPER program. Also, data was compiled from existing environmental agencies in Indonesia. Short surveys, consisting of yes/no questions dealing with the variables were used to determine the color rating of a specific sight, were mailed to the individual facilities. (Intensive inspections of the new facilities proved quite reliable. Monthly progress was monitored by an easy to use computer program that could compare results from all available sources thereby targeting the heavy polluters immediately. To ensure proper collection of the data, ratings of gold, green or black were reanalyzed. Ratings were not released until they were approved by an advisory board, the State Minister of Environment, and the President. One last guarantee of accurate information dissemination was the assignment of a specific consultant to visit media offices explaining the processes of data collecting and rating.

BAPEDAL feared the reaction of the international companies who would receive the ratings of red or black. Indonesia needed these multinational companies for both economic and political reasons. This new, vulnerable program did not need any enemies. To avoid any initial conflict and to present a positive aura, initially only the facilities of green and gold were commended. Numbers indicating the amount of facilities in each of the remaining categories were released with out specific names. A six month grace period was granted to these unnamed facilities to clean up their act before a public release. In order to keep interest in the media, the names of the industries were released separately on a continuing basis. This helped to ensure the pressure from the communities.

In June 1995, the Minister of Environment announced the exceptionally high ratings with the majority of the facilities in the blue and red regions. People were shocked that with low enforcement and the semi-voluntary nature of the agreement so many companies complied. Over the next six months, several companies in the red or black region improved their performance and raised the compliance from 36 percent to 41 percent. The program started on the right note, without any argument on the ratings and the doubling of volunteers in the program.

By compiling the data on each industry, PROPER was able to release new insight for trends of a particular industry. With the adjustment from a compliance/ non-compliance system to an individual color rating, many industries' performance changed. The Indonesian owned companies released the highest amount of pollutants (almost 70% of their ratings in the red or back). On the other hand, multinational companies were the best performers (almost 80% of their ratings blue or green). The multinational companies have two reasons that enhance their environmental performance. First, they have to report to stockholders in developed countries where there is a greater concern for environmentally safe production. Also, with large economies of scale, the larger companies can obtain more environmental improvement per unit of expenditure.

As seen from the ratings of the multinational companies, performance is largely based on size. PROPER, once know as PROKASIH, needs to expand to encompass the small and medium size companies in Indonesia in order to have full effect. Is this economically feasible to impose these high costs on small companies? Next, will the initial impact of PROPER wear off in the media, causing community interest and pressure to decline? Do the affluent communities have a greater effect on the system? Finally, with even regulations throughout the country does that properly capture the entire market?

These questions and many more will help influence the future of the PROPER program. According to the latest statistics, over a quarter of the facilities producing in the red or back rating in December of 1995 improved to the blue or green by September of 1996. The experience with this program certainly suggests that pollution control measures can be implemented to an industrializing third world country through community based pressure stimulating action.