Traditionally, international aid agencies have taken a bifurcated approach to environmental protection in developing countries. Their primary concern has been on protecting natural resources and conserving biodiversity. These ‘green ‘projects have received the majority of development resources designated for environmental projects, while ‘brown’ investments –those that focus on improving environmental conditions in urban areas, reducing industrial pollution – have claimed a much smaller share of aid resources.
a d v e r t i s e m e n t
However, there has been increased recognition that relatively small investments in ‘brown’ projects can yield significant benefits, particularly for the protection of downstream ecosystems. As a result, the US Agency for International Development ( USAID) has made a conscious effort in recent years to l ink green and brown approaches and to increase the emphasis placed on urban and industrial projects generally.
As the international donor community searches for appropriate approaches to address its poverty alleviation goal, it has shifted additional resources to address urban pollution issues. The number of people living in urban areas is expected to double to more than 5 billion between 1990 and 2025. Ninety percent of this growth will occur in developing countries, placing tremendous burden on urban institutions and infrastructure, such as water and wastewater treatment plants, roads, and electric utilities. Figure 1 shows regional trends in urbanization from 1970 to 2025.
As more and more people migrate from rural areas to cities to find work, the plight of the urban poor is more visible, and the environmental and health problems associated with these population shifts become increasingly intractable. Greater industrial growth is key to improving the economic well-being of urban populations. But, far from being an agent of growth, the private sector in many developing countries is generally weak and lacks the resources to grow. The challenge of achieving the desired growth in industrial production is even more difficult, due to the need to reduce pollution from industry and other municipal sources because of the adverse effects on public health and the environment.
Industrial enterprises in the developing world differ significantly from those in the US. Most companies are small by US standards and lack trained managers and workers. Many are family businesses, so manufacturing procedures are passed down through generations rather than devised as a result of research and study. Most plants are marginal operators that manufacture inexpensive, low-quality goods for local consumption rather than high-value products for export. They lack the resources to invest in modern, efficient equipment and high-quality raw materials, let alone pollution control equipment. While this picture seems bleak, it offers significant opportunity for introducing an array of measures to improve productivity and competitiveness, while also reducing the adverse environmental effects associated with industrial production. Under a series of USAID contracts, PA Consulting Group (PA) has tested a number of models for improving industrial efficiency while reducing industry’s impact on the environment, and we continue to experiment and pursue new approaches to meet the specific needs of different countries. All of our models are based on the principles of cleaner production (CP), outlined opposite, which is a widely recognized environmental management method for both the manufacturing and service sectors. It focuses on techniques and technologies for preventing pollution before it occurs rather than managing it after the fact. The term CP has been used interchangeably with other terms –
such as source reduction, pollution prevention, and clean technology – and the concept is synonymous with best practice environmental management, as embodied in internationally recognized standards such as ISO 14000.
CP becomes a tool for improving the environment in developing countries
Following the Rio Earth Summit in 1992, the international donor community was eager for ways to support efforts by developing countries to implement Agenda 21 (see box) and undertake environmental improvement programs.
Cleaner production means the continuous application of an integrated preventive environmental strategy to processes and products to reduce risks to humans and the environment. For production processes, cleaner production includes conserving raw materials, water and energy, eliminating toxic raw materials, and reducing the quantity and toxicity of all emissions and wastes before they leave a process. For products, the strategy focuses on reducing impacts along the entire life cycle of the product, from raw material extraction to the ultimate disposal of the product. Organizations achieve cleaner production by applying know-how, improving technology, and changing attitudes. (United Nations Environment Program, Industry and Environment Program, Paris, France, 1995.)
Agenda 21 is a comprehensive plan of action to be taken globally, nationally, and locally by organizations
of the United Nations’ system, governments, and major groups in every area in which humans affect the
environment. It was adopted by more than 178 governments at the United Nations Conference on
Environment and Development (UNCED) held in Rio de Janeiro, Brazil, June 3–14, 1992. (United Nations,
Division for Sustainable Development, October 23, 2002.)
Obviously, low-cost methods were particularly attractive, and cleaner production was heralded as a win-win
approach for both governments and industry. In these early stages, the focus was on CP as a low-cost way to address the difficult, expensive industrial pollution problems in developing countries. It was not looked at as a means of helping industries to become more efficient and profitable. Only recently has the development community embraced CP and related efficiency improvements as important components in a strategy to improve economic growth in developing countries by strengthening industrial competitiveness. This recognition is critical to achieving the full benefits of CP, as companies will resist this approach if it is presented solely as an environmental improvement measure. It is much more palatable as a tool for improving efficiency.
Barriers to success
As indicated above, the tendency to view CP strictly as an environmental improvement approach limited its effectiveness. Despite the proliferation of programs and approaches, industries in developing countries greeted CP with skepticism and did not rush to adopt CP methods as the donor community had hoped. In general, industries suspected that anything related to the environment would increase their costs and adversely affect their market position. As a result, they dismissed pollution prevention and CP without taking the time to evaluate these approaches and fully understand their potential benefits, particularly from a competitiveness standpoint.
Also, initial efforts focused almost exclusively on providing technical services to industry. Little effort was made to improve the larger policy framework, or to strengthen key government entities tasked with setting and overseeing policies and programs for industrial growth and environmental management. Only later did the development community realize the need to take an approach that integrated efforts to improve the macro framework with those aimed at strengthening the industrial base.
Another constraint that limited early success was the general lack of awareness in most countries of environmental issues generally, and the relationship of industrial pollution and environmental degradation. A tremendous education effort was needed to increase understanding of the linkages between industrial production and environmental pollution before companies could be expected to change their operating practices. Significant time is needed to build this awareness and understanding, and in countries like Bolivia, where PA has been working since 1995, our awareness-building efforts are beginning to bear fruit.
The other barrier to early success has been a lack of resources – both human and financial. Most countries had very few technical specialists with the training needed to implement CP approaches. Trained process or chemical engineers are rare, and we found few individuals trained in analyzing the relationship between the manufacturing process, waste generation and disposal, and environmental quality. Technical specialists are principally university professors with more expertise in theoretical concepts than in practical applications.
As mentioned above, most industries are very small, simple operations. They lack the financial resources to modernize and do not have access to capital markets because they are not considered creditworthy. Providing these marginal operators with access to financing has been an important piece in the puzzle, and PA has tested loan guarantees, energy services companies (ESCOs), and revolving funds as possible approaches to solve this problem.
PA’s framework for success
Current PA projects in Mexico, Central and South America, and the People’s Republic of China are based on an
approach that PA has developed over the years to overcome these barriers and create sustainable CP programs. Figure 2 illustrates this approach, which recognizes four sets of factors that drive industrial performance. PA’s approach influences or uses these sets of factors to improve industrial efficiency and environmental performance.
Strong institutional framework. This relates to the context of organizations and support networks that are available to promote the change process. This framework consists of technology centers, industry associations, financial organizations, and other groups that can provide ongoing support to industry beyond the life of any one development project.
Building on and strengthening the capabilities of these groups is more likely to yield results than creating an entirely new entity that operates independently from the existing framework. For example, developing a market for services such as CP is better done by joining forces with industry associations and chambers of commerce whose members are the types of industries that have the most to gain from implementing CP approaches. The association typically takes the lead for outreach and awareness building and helps to identify and line up initial ‘clients.’ Technical resources are then provided through the entity to these clients. Over time, technical staff are added and trained to enhance the institution’s ability to provide technical services to its members on an ongoing basis.
Financial institutions, too, need to be engaged in the change process. Banks, investment funds, and other lending organizations can play an important role in financing investments in cleaner, more efficient technologies, but often require resources and training before they can fulfill this role. Money and financing are hard to come by in most developing countries. Interest rates are extremely high and banks are reluctant to finance projects that are perceived as risky or of questionable value.
PA is pilot testing a loan guarantee fund in Peru and has assisted companies in other countries to obtain grants, soft loans, and subsidies to support CP investments. The guarantee fund in Peru is a unique mechanism since it offers a local commercial bank a 50 per cent risk sharing arrangement with the US Treasury for cleaner technology loans. The expectation is that in the medium term, banks will recognize the profitability of CP investments and continue lending without the benefit of the guarantee.
Economic conditions and market trends. These influence industry behavior in ways that can work for
or against efforts to improve industrial performance and must be taken into account when designing and
implementing project activities. The economies of many of these countries are undergoing profound changes,
as governments pursue initiatives to open markets, attract foreign investment, privatize industry, and shift
away from large, highly polluting state-owned enterprises. For example, water and energy have typically been highly subsidized in many developing countries.
As these services are privatized, or as utilities strive to operate more efficiently, these subsidies disappear, and
industries suddenly have an incentive to reduce consumption and operate more efficiently. CP can provide the means to reduce consumption in a way that minimizes adverse effects of the price increases.
As another example, new trade agreements are exposing industries that were once protected from foreign competition.
Also, consumers in developed countries often want assurances that imported products have been manufactured
in a manner that does not harm the environment. The bottom line is that goods for export must meet higher
standards than was previously the case. And domestic markets that were once protected are now open to
competition, so manufacturers are looking for opportunities to improve their competitive position in the face of these realities. An effective CP program needs to capitalize on these changes and use them to strengthen the case that change can be beneficial.
Technical assistance and information. PA’s programs in Bolivia and Mexico have devoted considerable resources to educating relevant stakeholders at all levels, including plant personnel, prospective consultants, and staff in CP centers and industry associations. Educating plant personnel is essential for building demand for CP services. Unless plant managers understand the benefits of the service being offered, they will not buy. Demonstrations, hands-on training, and other interactive approaches can all increase understanding, generate interest, and build demand for CP techniques and technologies.
At the same time, we employ engineers in CP centers and train them on how to audit plant operations and identify opportunities for environmental and energy efficiency improvements. As these individuals become more experienced, they assume more responsibility for working directly with plants and training others, including prospective consultants and university students. The Bolivia CP program is currently providing grants to graduate engineering students to support them in conducting CP research projects with industrial enterprises.
As industry awareness increases and interest in CP and related efficiency improvements grows, companies request comprehensive information and advice on how they can become more profitable and competitive. This broader approach, commonly referred to as an environmental management system (EMS), combines CP with related advice on how to most efficiently manage residual wastes, improve product quality, meet ISO 14000 standards, improve energy efficiency, and reduce input costs. Companies are more willing to pay for this type of advice, particularly if it is provided by a professional with specific expertise in their production process.
Supportive government framework. It is not sufficient to work exclusively with industry. To produce the desired changes over the long term, it is necessary to engage government institutions – both at the national and local levels – in the improvement process. Governments must develop and enforce policies and regulations that promote voluntary actions on the part of industries to improve their environmental performance and overall efficiency. We have supported the design and implementation of alternative market-based approaches to encourage CP in several countries, including the People’s Republic of China, the Philippines, and Egypt. These programs have incorporated financing options, training, and public outreach (depending on the priorities of the different host governments).
Where to from here?
Developing markets for environmental services – and CP services specifically – requires time, particularly given the low awareness levels that prevailed less than ten years ago. As companies and government institutions become more sophisticated, the approach can be broader in scope – several projects are being initiated that expand the use of CP approaches to develop an EMS for a municipality or a specific geographic area. These programs apply the same principles to improve a regional government’s approach to environmental planning and management, assist all industries and other public and private entities in the region to improve performance, and strengthen all relevant government and non-governmental institutions to achieve an overall improvement in the region’s environmental quality.
PA led one of the first projects that attempted such an integrated approach. This was the Asian Development Bank’ CP cluster project in the People’s Republic of China. This project engages six central government agencies in a process to improve the overall policy framework governing the promotion and adoption of cleaner technologies. At the same time, the project provides technical guidance and assistance to selected industry sectors, examines financing strategies as a first step in setting up a lending facility for CP projects, and tests incentive-based compliance programs. Another PA project – the ‘10th of Ramadan Environmental Management System’ in Egypt – took the same comprehensive approach, but at a local rather than national level. Both projects have served as models for later projects that established CP- based environmental management systems at the municipal level.
Another approach that we are testing in Mexico engages the private sector in a lead role. Industry leaders are sought out and encouraged to lead efforts to improve the environmental performance and efficiency of their suppliers (very often these are multi-nationals working in the host country). This ‘greening of the supply chain’ is achieved by providing training, technical assistance, demonstrations and information. This model is also being considered as a way to engage multi-nationals and other firms more directly in providing assistance.
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