Economic Policies and the Environment

The Government in 1994 articulated and circulated for public discussion a National Industrial Policy which has set priorities to guide the selection of acceptable economic activities and the economic use of resources. Some priorities in the Industrial Policy are the use of cleaner production technologies and the recycling of wastes. It recognizes well that industrialization has economic, environmental and social trade-offs. In the past, where as emphasis was mainly on the economic benefits of development, now there is also a major emphasis on the environment. Economic policies and instruments will therefore be formulated to promote and support environmental protection and conservation while encouraging environmentally friendly industrialization. This will ensure that Jamaican industry continues to develop on a globally competitive basis taking into account the emerging global concern for environmentally quality as a factor in trade.

The mining sector which develops the rich mineral resources of the country is one example of a major trade-off between economic development and the damage to the environment. Where there must be trade-offs between environmental preservation and economic development, several alternatives are employed to mitigate those harmful effects. Such actions are required under the existing and currently proposed environmental laws, regulations and economic incentives. The Government recognizes that guiding the economy towards sustainable development will require the use of appropriate economic tools and incentives. These instruments are needed to encourage environmentally responsible decision making by investors, consumers, and other economic actors. This approach is based on the "polluters pay" and "users pay" principles, and is meant to encourage better and more efficient management of natural resources, recover the full costs of pollution control, discourage use of environmentally damaging products, and encourage recycling and reuse of materials. Economic instruments can also mobilize the financing needed for monitoring, enforcement of and investment in environmental management.

The "polluters pay" principle makes economic actors aware of the full costs, including the environmental costs, of their decisions by making them pay for the cost of avoiding, abating or cleaning up pollution. This principle is often used elsewhere to recover the full costs of cleanup services such as sewage treatment and the disposal of wastes. In regard to the use or depletion of natural resources, the "user's pay" principle attempts to charge fees which reflect the value of the resources being used and therefore ensure that they are not overused or destroyed.

Because these principles have not been adequately applied to managing Jamaica's environment, in many areas the current economic incentives are for overuse of resources and underuse of pollution controls. The case of sewage treatment provides an example. In Jamaica, only about 25% of households are served by sewerage and the rest rely on soak away pits and pit latrines. Due to inadequate treatment plants, wastes from the sewerage system and collections from cesspits are disposed of largely untreated. As a result, high concentrations of nutrients including nitrates have been detected in coastal waters and the stress on coral reefs has increased. The recreational and ecosystem value of various marine sites has been diminished (or lost in the case of Kingston Harbour)

To remedy this situation, the National Water Commission has included a number of sewage collection and treatment projects in its investment program, including projects in Kingston, Montego Bay, Ocho Rios and Negril. To finance the operating costs and a share of the capital costs of these projects, the Government is planning to increase its tariffs by about 80%. However, even with this increase, the revenue from sewerage fees, which are now calculated as a 45% surcharge of water bills, will only account for about 10% of NWC's total revenues. Yet the total operating and capital costs for sewerage are much greater than those for water supply. Thus, NWC may need to make further changes in the tariff structure to fully recover costs from sewerage users, making the polluters pay and reducing the cross-subsidy which water users presently pay to sewerage customers.

The same policy of making the polluters pay can be applied to the producers of industrial wastes which exceed the handling capabilities of sewage treatment plants. The Water Quality Sub-Committee of the NRCA is currently establishing standards for effluent discharge. Any discharges which exceed these allowable standards will be subject to a discharge fee that is set at a high enough level to motivate industries to treat their wastes and bring them into compliance with the NRCA standards. The existing system of low fees will be replaced with a schedule of fees reflecting the full costs of treatment.

The Government will also implement the "polluter pays" principle to improve solid waste collection and disposal. At present, the Parks and Markets Companies, which are responsible for about 80% of waste collection and operate the official dump sites, receive an annual budget from the Ministry of Local Government and Works and charge no fees for their services. Due to a chronic shortage of funds, there is a serious lack of necessary equipment particularly at the dump sites and there are no resources available to establish and operate sanitary landfills. A better approach will be to introduce household refuse disposal fees and tipping fees for disposal of commercial and industrial refuse at dump sites. Based on some preliminary analyses (Cointreau-Levine, Sandra and Robert Donovan, Greater Montego Solid Waste Management Study, Briefing Paper of USAID, 1993, and Niessen, Walter R., Solid Waste Management Practices in Jamaica, West Indies, Report to the Inter-American Development Bank, (1993?)), solid waste disposal costs are currently estimated at about US$50/tonne ($30 for collection and $20 for sanitary landfill). These costs provide a guideline to the annual fees which would be required to fully cover the costs of refuse disposal, as an average household can be expected to generate about one tonne of solid waste per year. The introduction of tipping fees (of about $20/tonne) would have to be complemented by measures to control illegal dumping so as not to further encourage that practice.

Economic incentives can be used to respond to Jamaica's hazardous waste disposal problems. It is estimated that there are over 122 companies which generate hazardous wastes in Jamaica and, in the absence of an adequate disposal site, are expected to store it or export it. As this situation is not sustainable, the Government proposes to carry out a feasibility study to determine the technical and financial requirements for creating a hazardous waste disposal site. The results of the study will be used to define an incentive framework which encourages a private firm to design, build and operate such a facility. The major feature of the incentive framework will probably be a tipping fee structure based on the disposal costs of each specific type of hazardous waste. Here again, realistic tipping fees will have to be implemented in conjunction with appropriate measures, in terms of enhanced monitoring, fines, and criminal penalties, to control illegal dumping of hazardous wastes.

Tax incentives should also be considered for encouraging recycling and the use of environmentally friendly technologies. Economic incentives will be used to promote recycling and reduce the amount of solid waste for disposal. In Jamaica, soda bottles are already recycled under a deposit-refund scheme operated by bottlers. There is also a secondary market for certain types of glass, plastics and scrap metal. Additional recycling and recovery activities will be promoted through use of deposit fees charged to buyers of goods such as automobiles, tires, plastic bags, batteries and cans. Improper disposal of these items threatens the beauty and health of Jamaica's fragile environment and poses a health hazard to its citizens. Deposits would therefore be refunded at the time of proper disposal, which could be at a recycling facility or official landfill.

Use of deposit-refund schemes could have another important economic effect -- encouraging the otherwise unemployed to collect litter and lay the basis for development of new recycling industries such as the processing of tires into tire derived fuel for boilers, asphalt road additive, or roof tiles and fabrication of recycled plastics and metals. Such a scheme should be operated on a self-financing basis, for example by covering costs from interest earned on the deposit fund. A possible institutional mechanism would be to license these operations to a suitable NGO.

Based on the same polluters pay principle, Government will also consider the possibility of levying specific taxes on environmentally damaging products. These taxes would be aimed at reducing application of products whose environmental effects are difficult to monitor and control, such as pesticides, fertilizers, ozone depleting substances (e.g., chloroflurocarbons - CFCs), batteries, fuels, and hazardous substances such as dry cleaning fluids. While the environmental effects of such products are difficult to establish with accuracy, there is already evidence in Jamaica of pesticide residues in the soil, waters, fauna and food, and fertilizer runoff in some rivers and coastal areas. The Government will study the application of an environmental fee which limits the use of environmentally damaging products to their most essential applications.

The principle of making users pay for resources has historically been used with Jamaica's mineral resources. The Mining Act (1947) dictates that royalties of US$0.50/tonne of bauxite, J$0.50/tonne of marble, and J$0.90/tonne of silica sand must be paid. For other minerals, a profit tax is applied on a sliding scale from 5% to 8%. The Quarries Act (1983) requires a royalty of 3.5% of sales on gypsum and limestone. In addition, bauxite, Jamaica's most important mineral product, is subject to a production levy currently set at US$5/tonne.

Other than for bauxite this approach has not resulted in any significant revenues for the Government, but the Mines and Quarries Division plans to introduce a new regime for capturing resource rents, based on a set percentage of sales prices (to keep up with inflation), and major increases in penalties for unlicensed users (such as illegal sand quarries). These increases in royalties, fees and fines should make a major contribution to covering the costs of increased monitoring and regulation, as well as yield a reasonable share of the cost to Jamaica of resource depletion.

Underground water resources account for about 84% of total available water in Jamaica. While total water consumption per year is lower than the country's total available resources, a shortage is already developing in certain irrigated areas along the South coast and in the Kingston Metropolitan Area. In recognition of the growing scarcity value of this hitherto free resource, the Underground Water Authority is planning to introduce a volume-based water extraction charge of J$0.20-0.50/100 m3. This fee should encourage the more efficient use of water, particularly among major users, such as irrigated agriculture and the National Water Commission (where water losses amount to about 70% of total consumption). The revenue gained from these charges will be used to improve monitoring of water quality and availability.

Recovery of resource costs also needs to be extended to stumpage fees for forest resources. While timber production levels have been greatly reduced due to Hurricane Gilbert, the Forestry and Soil Conservation Department still extracted about 7100 cu. metres (250,000 cu.ft) of timber (including tropical hardwoods and pines) in 1993. However, it only collected about J$436,000 in sales revenues, equivalent to J$61.4/cu. metre (J$1.76/cu.ft.). This represents only a fraction of the market value of timber which is currently J$882-1059/cu. metre (J$25-30/cu.ft). In view of the major budgetary requirements for forest resource management, the Government will seek to increase stumpage fees levels in line with market rates and in doing so will cover a greater share of this budget.

The fisheries of Jamaica are another resource to which these economic incentives should be applied. There has been substantial decline in the quantity of fish being caught while the number of fishermen has increased over the past two decades. At present, insubstantial fees are collected for licensing fishermen and boats, and the penalties for violation of the Fishing Industry Act are at insignificant levels. Increasing efforts at regulation and enforcement, and a pricing policy that reflect the growing scarcity value are the only practical ways to reduce the pressure on this resource.

In addition, now that tourism represents a major development sector, a realistic approach will be taken to determining the value and recovering the cost of use of the country's resource. A recent initiative in this direction is the Government's adjustment of fees (for beach licences, dredging etc under the Beach Control Act) to a level that realized about J$1.5 million in 1994 and which if effective pursued should yield approx. J$2.5 million in 1995. However, this level is still low in relation to management costs, and the value of the beach to tourism and other industries (for example, the highest fee, for hotels with 100 rooms and over, is currently only J$5,000/year). A more realistic schedule, which has been proposed, would be to charge a fee of about US$0.10/overnight stay to be phased in over three installments equivalent to about J$50,000/year for a 100 room hotel based on a estimated 50% occupancy. The revenue generated from these fees will be used to enhanced the coastal zone management services within the NRCA and the refurburishing of public beaches.

In regard to national parks and protected areas, user fees will be charged at the recently established Montego Bay Marine Park and the Blue and John Crow Mountains National Parks and applied to the maintenance of these facilities and other protected areas. Access and permit fees for visitors, tour operators and users of the parks are expected to cover about 3% of the management budget of about US$1 million annually. The Jamaica Conservation and Development Trust (JCDT) and Montego Bay Marine Park Trust, which are being delegated responsibility for management of these parks, are planning to fund the remainder from Government funds (6%) and from the National Park Trust Fund (NPTF) based on contributions from national and international donors (91%). While the share of user fees is small to start with, this represents a major change from the present situation in which no access fees are charged.

To a great extent, the Government already has in place the legal and administrative framework required to implement economic instruments for environmental management. The implementation of these instruments has fallen behind in part because the departments responsible for collecting these royalties, fees and fines have had little incentive to do so, as revenues in the past were consolidated into the central budget, and because the real value of the payments has been undermined by inflation. To remedy this situation, the environmental incentives will have to be adjusted to reflect the true value of the environmental services and resources being provided. In addition, their collection and enforcement must be improved. An important incentive in this regard would be returning the incremental revenue to be collected to the departments responsible for management of that resource so as to finance the collection effort as well as the improved management and regulation of the specific environmental resources (fisheries, forestry, reefs, beaches, etc).

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