Report No. 16570-MOR CONFIDENTIAL 16570-MOR VOL. 1 Kingdom of Morocco Environment Review (In Two Volumes) Volume I Main Report May 23, 1997 Natural Resources & Environment Division Maghreb and Iran Department Middle East and North Africa Region Document of the World BankF LE C P This decument has a restricted distribution and may be used by recipients only in the performante of their OffitiAl dUties. Us contentU may -not otherwise be disclosed witheut World Bank authorization. CURRENCY AND EXCHANGE RATE Currency Unit = Dirham (DH) 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 DH per US$ 8.71 7.80 8.21 8.12 8.04 8.15 9.05 9.65 8.96 8.47 8.80 end of period DH per US$ 9.10 8.36 8.21 8.49 8.24 8.71 8.54 9.30 9.20 8.54 8.72 period average FISCAL YEAR July 1 - June 30 This report was prepared, following a Bank mission that visited Morocco in November 1996, by a team coordinated by Y. Eguchi, Team Leader (MN1NE), consisting of B. Larsen (EMTEN), M. Bekhechi (LEGEN), D. Roland-Holst (Consultant trade and environment), and T.S. Nayar (IENOG). Other key contributors were D Hanrahan (ENVPE) on environmental management system; H.R Lindgren (EMTEN) on environmental standards, S A. Blomberg (EMTIE) on social cost of traffic accidents. A Ferroukhi (MNIPI) provided guidance on the energy sector policy. E. Mayorga-Alba and M. Kojima (IENOG) provided extensive comments on issues of cleaner fuels and health impacts S Streifel (IECCP) provided background information on the petroleum sector, Y Maamar (MN1PI) on energy demand, and A. Rawa (consultant) on environmental health in Morocco Advice and support was provided by A Seth, A. Bouzaher, E. Hadj-Mabrouk (EMTEN), T. Sinha (MININE), Luc de Wulf, R Vaurs, K. Soman (MNICO), M. Pierre-Louis (MNSHD) During the nussion, substantial information and support was provided by the Ministry of "Incitation de l'Economie" (Messrs Hilah, Debzat, Mouline, and Guedira); the Ministry of Finance (Messrs Bougroum, Chabli and Kilito); the Minstry of Environment (Mrs. Layachi, Messrs. Benyalua, Alaoui, Abdellaoui, Abouljouyouch, Lahababi, Mrs. Bouaza, Ms. Chafil and Miss El- M'ssari); the Ministry of Energy (Messrs. Es-Sdiqui, Bardai, Belrluti, El Aoufir, Hatim, El Orf, and Mrs. Habibi), the Ministry of Public Works (Mr Dioun); the Mimstry of "Privatisation" (Mr. Benjilali); the Muustry of "Commerce et de l'Industre et de I'Artisanat" (Messrs. Chhoul, Morchadi, Benayada, Chakour); the Minustry of Health (Messrs Azelmat, Bennouna, Lamram, Jadid and Kadhaf); the Minstry of "Commerce Ext6rneur" (Mr. Benayad); the "Laboratoire Public d'Essais et d'Etudes" (Messrs. Hakini and Jabry); ADER-Fes (Messrs. Hajjami and Serhim), OCP (Messrs. Youzalen and Hakim). Peer reviewers are J. Dixon (ENVPE) and C. Brandon (ASTEN) N. Wautiez-de Blaye translated the report into French M Pradel desktopped the report. M. D Wilson is the Division Chief J Underwood was the Lead Econoust and Luc de Wulf is the Acting Lead Economist D Ritchie is the Department Director GLOSSARY OF ABBREVIATIONS AfDB African Development Bank BOD Biological Oxygen Demand CAC Command-and-Control COD Chemical Oxygen Demand DGH Hydraulic Administration EA Environmental Assessment EIA Environmental Impact Assessment EMP Environment Management Project EMS Environmental Management System EU European Union EU-MED Euro-Mediterranean Agreement FTA Free Trade Agreement GDP Gross Domestic Product GHG Green House Gases GNP Gross National Product GOM Government of Morocco GTZ German Technical Cooperation Agency ISO The International Organization for Standardization JICA Japanese International Cooperation Agency LPEE Laboratoire Public d'Essais et d'Etudes LPG Liquefied Petroleum Gas MAMVA Ministry of Agriculture METAP Mediterranean Environmental Technical Assistance Program MOE Ministry of Environment MPH Ministry of Public Health MPW Ministry of Public Works NCE National Council for the Environment NEAP National Environmental Action Plan NES National Environmental Strategy NO2 Nitrogen Dioxide NO,, Nitrogen Oxides OCP Office Ch6r7fien de Phosphate ODS Ozone Depleting Substances OECD Organization for Economic Cooperation and Development ONEM National Observatory of the Moroccan Environment ONEP Water Utility Company PE Public Enterprise RCE Regional Council for the Environment SAM Social Accounting Matrix SAMIR National Petroleum Refinery SDNAL National Sewerage Plan SGG Secretary General of the Government SIDE Environment Information System SO2 Sulfur Dioxide TOE Ton Oil Equivalent UNDP United Nations Development Program UNEP United Nations Environment Program USAID United States Agency for International Development USE Under-Secretariat of State for the Environment VAT Value Added Tax Morocco: Environment Review (in two volumes) Table of Contents VOLUME I - Main Report E X E C U TIV E SU M M A RY............................................ .................................... ............. CH APTER 1: BACK GROU ND . ........ ............. ............................................. .... 1 In tro d u ction................................................................... . ..... ... . .. . .... Econom y and the Environm ent................ .. . .................... ....... ... ...... ... 2 Environm ental M anagem ent ........... .................................... .. . ... . . ..... .. ..6 World Bank and donor involvement in environmental management.... .... ........... 13 CHAPTER 2: HIGH ECONOMIC GROWTH AND THE ENVIRONMENT.... .. ... ........ 16 High Economic Growth and the Environment............................... ......... . .... 16 Dynamic evolution of the links between economic growth, trade liberalization,... 16 and environm ental pollution ................................................ ........................ ..... 16 Requirements and opportunities under EU-MED FTA........ .......... ... .. .......... 19 Potential Trade Benefits of Environmental Management Systems . ... .... .... 20 CHAPTER 3- MITIGATING AIR POLLUTION.................................................................. ..22 B ack g ro u n d .................................................................................. ................. ..2 2 A p p ro ach ...................................................................... ......... ........ .. . . . .... 2 3 F u el u se and quality ................................................. .............................. ... ...... 23 E stim ated H ealth Im pacts............................. .......... ...................... .. ................ 24 Estimated Emissions in the Casablanca - Mohammedia area... ................. ....... . 25 Emissions Projections for Casablanca-Mohammedia... .......................................26 N atural G as P enetration ........................................................ .......... ................. 27 Cost-Benefit Analysis of Cleaner Petroleum Products.... ...... ......... .............. .27 Cost-Benefit Analysis of Emission Control Investments...... ............................ 30 Cost-Benefit Analysis of Vehicle Emission Control............. .... ....... ....... ..........31 U se of E conom ic Instrum ents.............................................................................33 Summary and Effectiveness of Pollution Mitigation Actions ...............................38 CHAPTER 4: ELEMENTS OF THE NEAP IMPLEMENTATION STRATEGY ....................42 Targeted interventions to meet quality objectives effectively............. ...... .. ..42 Box 1.1 Cost of Dirty Water, Pollution costs in the Sebou Basin, World Bank Box 1.2 National Environmental Strategy (NES) for Sustainable Development, 1995 Box 1.3 NEAP Proposals in Industry and Energy, 1996 Box 1.4 Privatization of Energy Plant in Jorf Lasfar and EIA Box 1.5 Environmental Management Systems and Certification Agency in Morocco Box 1.6 Environment Management Project (1995-1998) Box 2.1 General Equilibrium Trade and Environment Model Box 2.2 Future Adoption of ISO-14000 as Cost-effective Practices Box 3.1 International Comparison of Fuel Quality Standards Box 4.1 Relotation of Polluting Activities Table 1.1 Estimated level of water pollutants, 1992 Table 2.1 Estimated Shares of Total Pollution, 1995 Table 2.2 Estimated Increase in Pollution 1995-2005 Table 2.3 Summary of Trade and Environment Policy Recommendations Table 3.1 Air Pollution Estimates and Projections, 1995 NES Table 3 2 Estimated Annual Social Cost of Air Pollution in Casablanca-Mohammedia Table 3.3 Estimated Total Annual Emissions from Fossil Fuel use in Morocco at the National Level and in Casablanca-Mohammedia, 1994 Table 3.4 Projected Emissions in the Casablanca-Mohammedia Area Table 3.5 Benefits of Investments in SAMIR Refinery Table 3.6 Investments in Emission Control Technology Table 3.7 Particulate Emissions Control for Diesel Vehicles in Casablanca-Mohammedia Table 3.8 Energy Taxation and Estimated Social Costs Table 3.9 Taxation at Social Cost Table 3.10 Fuel Tax and Price Differentials in Western Europe Table 3.11 a Priority Pollution Mitigation Actions for Casablanca-Mohammedia Table 3.11 b Priority Pollution Mitigation Action for Casablanca-Mohammedia, 2010 VOLUME II- Appendices I. Coordinated Trade and Environment Policies for Morocco David Roland-Holst April 1997 H. Air Pollution, Health and Cleaner Fuels Bjorn Larsen Working Paper, May 1997 EXECUTIVE SUMMARY 1 Morocco prepared a National Environmental Strategy (NES) in 1995, which provided a broad assessment and quantification of the economic and social costs associated with environmental degradation. Major areas identified, in order of priority, were water pollution and contamination, solid waste management, air pollution, and soil degradation. 2. On the basis of the NES, Morocco proceeded to develop a National Environmental Action Plan (NEAP) through an inter-ministerial and participatory process to identify and reach consensus on priority actions and implementation responsibility. This process is currently taking place through a series of background reports and workshops, and cross- evaluating sectoral recommendations. 3. Dealing with water pollution and scarcity issues continues to be an urgent priority, especially in terms of provision of safe water and sanitation to protect human health and managing scarce water resources for efficient and sustainable use in agriculture. While the Bank is providing significant assistance in these areas, the contribution of this report is to provide perspectives and recommendations on other less well-documented priority issues in order to substantiate and support the NEAP process. 4. In discussions with the Government of Morocco, it was agreed that the Bank report would concentrate on the following critical areas: (i) an initial assessment of the potential environmental implications of economic growth and trade liberalization, including the free trade agreement (FTA) with the European Union (EU); and (ii) developing a better understanding of the health consequences of air pollution and opportunities for change. The report also provides a glance at the current practices of environmental management. High Economic Growth and the Environment 5. The Government aims to sustain and accelerate improvements in economic and social development with an annual economic growth rate of 6 percent through the end of the millennium. This is to be achieved primarily with continued macroeconomic reforms, higher industrial sector growth and rapid growth of exports to the EU with whom Morocco has recently signed an FTA, to be implemented over the coming decade. 6. While the FTA is expected to provide considerable impetus to the growth of the Moroccan economy, little or no analysis has previously been undertaken to assess its environmental implications. A general equilibrium (GE) analysis was carried out for this report, tracing the dynamic evolution of the links between economic growth, trade liberalization and environmental pollution. 7. The analysis indicates that a high growth scenario under the macroeconomic reform and stabilization program currently under way in Morocco and the FTA could contribute to higher pollution levels in the medium-term, due to reasons of both structural economic changes and income growth. First, the impact of increased volumes of output resulting from the macroeconomic reforms would increase the scale of domestic pollution. Second, the FTA is likely to stimulate growth in sectors where Morocco traditionally has a comparative advantage. Those sectors are currently relatively high polluters. Finally, income growth induced by the FTA would increase demand for transportation services and energy. The model results indicate that the largest share of increased pollution could come from the manufacturing of chemical fertilizers and construction materials (including cement plants), and road transport. In agriculture, the largest increase in pollution is likely to come from the production of agricultural exportables, which are more intensive in their use of chemicals than other agricultural activities. 8. However, there is significant scope for pollution reduction as Moroccan reforms will likely stimulate foreign direct investment, significant technology transfer, and greater private sector efficiency. Moreover, Moroccan environmental standards and policies might eventually be harmonized with those of its largest trading partner. Both these trends could do much to moderate or even attenuate pollution growth. Explicitly adding the environment as a new concern among the critical issues for sustainable development in the Euro-Med region, the FTA provides pressures to implement stronger environmental policies in Morocco, but also makes training, technical assistance and investment related to environmental conservation eligible for EU regional assistance. 9. The value added of the GE analysis is to project pollution loads relative to economic growth, the underlying structural change associated with macro reforms, trade liberalization, and increases in aggregate demand; and to help quantify the macroeconomic benefits of reform while illustrating the simultaneous need to improve environmental regulation and natural resource management. Pollution-intensive expanding sectors should be more closely monitored and targeted with pollution mitigating policies, including emission taxes, and investment, innovation, and abatement incentives. Further analysis within the GE framework could provide valuable insights to the integration of economic and environmental policies to minimize growth-environment trade-offs. Mitigating Air Pollution 10. Reports of elevated respiratory illnesses in areas with high concentrations of vehicular traffic and major pollution point sources suggest that air pollution is a health problem in major urban areas in Morocco. This is especially the case in Casablanca/Mohammedia with a population of 3 million, half of Morocco's industrial activity, two power plants, the largest refinery, and more than 400,000 vehicles. 11. Using even the most conservative scenarios to calculate cost implications of deteriorated public health', the analysis in this report estimates that the cost of the health impacts of air pollution in Casablanca/Mohammedia is in the range of US $185-190 million per year. The most significant health impacts are premature mortality and chronic bronchitis associated with particulate (PM10) emissions, and reduced intelligence in children from impairment of neurophysiological development associated with lead pollution from leaded gasoline. While the estimation does not account for increased prevalence of asthma, which may in part be related to air pollution, Moroccan studies report a very high share of the population with asthma. To make the effects of air pollution on public health clearer, systematic air quality monitoring data is required for Casablanca/Moliammedia as well as other growing urban centers. 12 Government authorities have already initiated a number of actions, such as auditing major industrial plants in Casablanca/Mohammedia and drafting an air pollution law. Despite an impressive level of energy efficiency achieved in comparison to most other countries in North Africa and the Middle East, Morocco is vulnerable to rapidly increasing air pollution from the current consumption patterns of relatively dirty energy the extensive use of fuel oil and diesel with about 3 and 1 percent sulfur content respectively, leaded gasoline, and coal, combined with a poorly maintained vehicle fleet without emission control technology 13. The report analyzes options to supply cleaner petroleum products, and options to control emissions from the two power plants, SAMIR oil refinery, and vehicle traffic in Casablanca/Mohammedia. Attempting to correct local pollution externalities, it presents specific recommendations to change the taxation scheme of energy products to reflect social damage cost associated with the use of these products. 14. The recommended mitigating actions, whose primary beneficiaries would be the population of Mohammedia/Casablanca, offer a cost-effective road map to meeting the environmental quality objectives of the 1995 NES. The actions in the table below show very high rates of return, when the costs of abatement are compared with the benefits obtained in improved public health. Implementation of these actions will reduce particulate (PM10) emissions by more than 60 percent, but sulfur dioxide emissions would only be reduced by 15 percent. With introduction of natural gas in power plants and industry, sulfur dioxide emissions could be reduced by more than 80 percent by the year 2010. The estimates are based on the following hypothetical air concentration levels: 30 ug/m for PMlO, 50 ug/m3 for sulfur dioxide, and 0.5 ug/m3 for lead, although fragmented air quality monitoring data indicate substantially higher levels of these pollutants. iii Priority Air Pollution Mitigation Actions for Casablanca-Mohammedia Based on 1994 emissions Benefit-cost PM1O reductions S02 reductions ratio (tons per year) (tons per year) Industry and Power Sector ESP in Casablanca power plant 3.5-3.9 * 600 - 1% sulfur fuel oil for industry 3-3.3 590 10800 ESP in SAMIR refinery 2-7 800 - Improved PM1O abatement efficiency in Mohammedia power plant 2-6 ** 600 * Road Transport Unleaded gasoline 2.5-3.5 0.05% sulfur diesel 2.5-3 205 4400 Alignment of diesel and gasoline taxes 200 - Particulate traps for buses 2-3 110 IM program for buses 2-3 ] IM program for trucks 1-2 ] 210 - TOTAL 3315 (62%) 15200 (15%) Definitions ESP is electrostatic precipitators to control particulate emissions, IM program is inspection and maintenance program * The preferred option would be 1 0 percent sulfur fuel oil (instead of high sulfur fuel oil currently used) if the health mpacts of sulfur dioxide emssions are underestimated **An assessment of the particulate control technology, and its operation, is required to determine the scope for abatement efficiency improvement and associated cost. It is here assumed that the efficiency can be improved from 95 to 97 5 percent, and that the cost would be 1/2 of a new ESP. * To meet the recommended sulfur content limits of 0.05 percent in diesel for road transport and about 1.0 percent in fuel oil for industry, the lowest cost option is estimated to be investments in the largest refinery, SAMIR. Most of these investments would also improve the economic viability of the refinery, and would be of lower cost than importing low sulfur crude oil or petroleum products. * The cost of low sulfur fuel oil and sulfur dioxide control technology (such as fluegas desulfurization (FGD)) for the Mohammedia power plant and SAMIR refinery was found to exceed estimated health benefits. These costs and benefits should be reexamined, however, if systematic air quality monitoring confirms sulfur dioxide concentrations in the air of more than 100 ug/m' in most of Casablanca/Mohammedia. * To reduce particulate (PM1O) emissions from in-use diesel vehicles, an inspection and maintenance program is recommended for buses and trucks, and installation of particulate traps on urban buses. Further assessment is required to evaluate the benefits and costs of an inspection and maintenance program for light vehicles. * Due to a significant price differential between diesel and gasoline, purposely kept to provide incentives to the agriculture and commercial fisheries sectors, road transport consumes a very large amount of diesel. Diesel prices at 35 percent below gasoline prices have contributed to rapid dieselization and increased pollution from road iv transport. To remove this distortion and to internalize the health cost of pollution and other costs (i.e., traffic accidents, road infrastructure) associated with their use, a number of taxation instruments are discussed in the report: taxing diesel at about the same level as gasoline; annual tax based on vehicle axle weight and/or engine size; and annual vehicle tax based on vehicle age. * Unleaded gasoline has been introduced a couple of years ago but represents a small share of the market. Its price is higher than the price of leaded gasoline. The recommended investments in SAMIR would enable the refinery to supply sufficient quantities of unleaded gasoline. To reflect the cost of health impacts of lead pollution and to provide an incentive to substitute to unleaded gasoline, leaded gasoline should be taxed at a higher level than unleaded gasoline. The lead content of leaded gasoline should be reduced to no higher than 0.15 g/ltr, with a time-bound plan to completely phase out lead. In western Europe, the price of unleaded gasoline is on average US $0.06 per liter lower than the price of leaded gasoline. * In the medium to longer term, the use of natural gas in industry and in the planned partial or full replacement of the Mohammedia plant would also contribute significantly to sulfur dioxide and particulate (PM10) emissions reductions in Casablanca/Mohammedia. It is recommended that natural gas be taxed at a lower level than fuel oil and coal because of the significant environmental advantages of gas. The tax on natural gas in western Europe is about US $22 per ton oil equivalent (TOE) lower than the tax on fuel oil for industry. Key Elements in implementing the NEAP 15. The challenges of economic growth represent also opportunities for Morocco's environment, particularly in terms of including environmental concerns routinely in industrial sector development and planning. National budget constraints are foreseen to remain such that many of the needed changes in operations and planning will have to rely on fundamental changes in behavior - not only in the private and public sectors, but also among Moroccans at large. This will require establishment of a coherent framework of laws with supporting regulations and enforcement mechanisms, but also of incentives, information, and on financing of much needed industrial upgrading for improved environmental performance through charging systems - establishing both polluter and user fees. The most cost-effective options should be selected, achieving the greatest return on limited public intervention. 16. Participation of various authorities as well as NGOs is being mobilized. Coordination among these stakeholders is being enhanced through the NEAP formulation, a consultative process. This is laying a crucial foundation for the future NEAP implementation. While Morocco needs to sustain this process, specific time-bound targets need to be defined with clear milestones to meeting the environmental quality objectives of the 1995 NES. v 17 With its economic policy focused on private sector development, Morocco would particularly benefit from a timely implementation of market-based instruments to protect the environment. The approach proposed in air pollution mitigation is to use taxes that reflect the damage associated with various fuels used in the power, transport, and industry sectors. Differential petroleum product taxes related to levels of environmental hazard may indeed direct consumer behavior and consumption decisions to more environmentally friendly options, and subsequently to air pollution reduction. 18. The planned privatization of Moroccan state enterprises provides an opportunity to clarify applicable environmental regulations, and to allocate the burden of environmental compliance between the state and the private sector. Across the entire industrial sector, it is vital to encourage strengthened environmental impact assessments, environmental audits, and environmental management systems. 19. To avoid any further delays in internalizing environmental damages, polluter-pays- principles should not be overlooked when designing the National Environmental Fund and the Depollution Fund. For the transitional phase of introducing pollution controls, tax benefits and special credit facilities can be used to speed up the adjustment in the private sector and assist especially small companies in meeting their increased financial needs for improving their environmental performance. 20. Despite recent achievements and impressive expansion of the central administration for the environment, the institutional framework for environmental management still requires substantial strengthening, streamlining of the complex relations between various agencies with fragmented and overlapping jurisdictions, empowering local authorities, and inter-disciplinary staffing. 21. The cost to society of water pollution and lack of proper sanitation is likely to be higher than the cost of air pollution at this time as brought out in the NES. Action to cleaning-up the most polluted river basin, the Sebou, should no longer be delayed. It is important to review the most critical effluents and cost-effective measures that could result in immediate emission reductions. Failure to address air pollution, however, could result in a more than 50% increase in health impacts in the next 15 years with continued urbanization and increase in pollution. vi KINGDOM OF MOROCCO ENVIRONMENT REVIEW CHAPTER 1: BACKGROUND Introduction 1.1 Objectives. The National Environmental Action Plan (NEAP) being prepared by the Moroccan authorities is intended to provide a policy framework for environmental protection. It should be based on a clear understanding of the costs and benefits of possible improvements in environmental management, and account for the new economic situation faced by Morocco under the EU-Mediterranean Free Trade Agreement (EU- MED FTA). The primary objective underlying this World Bank Environment Review is to assist the Government of Morocco (GOM) in developing its own NEAP by providing an analysis of selective issues which may help stimulate implementation of the NEAP 1.2 Process. In discussions with the Government of Morocco, it was agreed that the Bank report would concentrate on the following critical areas. (i) an initial assessment of the potential environmental implications of economic growth and trade liberalization, including the free trade agreement (FTA) with the European Union (EU); and (ii) developing a better understanding of the health consequences of air pollution and opportunities for change. The report also provides a glance at the current practices of environmental management'. 1.3 The report is organized in four chapters. The first one presents Moroccan context of environmental challenges faced by Morocco, the current status of environmental management practices, and specific World Bank and donor interventions and participation. The second chapter addresses the environmental impacts of high economic growth and trade liberalization under EU-MED FTA. An analysis of the link between air pollution and health, and possible mitigating actions based on an assessment of benefits and costs are The NEAP consultations, supported by "UNDP/Capacity 21 Assistance Program - Action 30", have involved primarily national thematic workshops in which sector ministries and public agencies are given the opportunity to present relevant projects to be included in the NEAP. In 1996, three national workshops were held on population, industry and energy. In early 1997, the themes of soil, agriculture, water, and health will be addressed. Two national forums will follow to discuss cross- sector issues, i.e. communications and education; legislation, regulation and financing. The key objective of these national consultations is to mobilize potential actors who could implement the NEAP. The process is to culminate in a high-level conference, to be organized as an independent event that will lead to official approval of the NEAP by mid 1997. 1 summarized in the third chapter. The final chapter synthesizes elements that could help translate the Government strategy for environmental protection, embodied in the 1995 National Environmental Strategy (NES), into concrete and specific actions. Economy and the Environment 1 4 Economic Growth. Morocco emerged from an economic and financial crisis in the early 1980s to a relatively stable macroeconomic environment in the early 1990s. Despite the achievements in stabilization and structural reforms, economic growth slowed down mainly when the vulnerable agricultural sector was hit by three severe consecutive droughts and as a result of stagnation of the European Union economy, representing Morocco's single largest trade partner. A shift from Government-administered to market- determined pricing in finance and trade areas is currently underway. Although GDP grew at an average of only 1.2 percent per year between 1991 and 1995, Morocco aims to sustain improvements in economic and social performance with an annual growth rate of 6 percent for the coming years. This is to be achieved mainly through private industrial growth and a rapid growth of exports to the EU, with whom Morocco has signed a Free Trade Agreement (FTA) to be implemented over the next decade. 1.5 With a territory of 711,000 kn2, of which about two-thirds is arid or semi-arid, Morocco is populated by about 27 million people concentrated primarily along the Atlantic Coast and in the Northern part of the country. Population growth is about 2.1 percent per year and is not expected to decline significantly before the year 2000. In 2014, Morocco's population is expected to reach 35 million. Given the current natural resource use and consumption patterns, this population pressure may impose a heavy burden on the country's fragile ecosystems and on its economic growth. 1.6 Urban Population Trends. The rural-urban migration has increased from an average of 67,000 migrants per year in 1960-71 to 193,000 per year in 1982-94, accounting for 50 percent of urban growth. There are 20 towns with more than 100,000 inhabitants. The urban population, currently at 51 percent, is expected to reach 62 percent by 2010. As a consequence, a number of rural communes will turn into medium-size towns (in-land towns such as Beni Mellal and Ifrane; Atlantic coastal towns such as Larache, Kenitra and Safi), while other urban communes such as Oujda, Tanger, Tetouan will be entirely urbanized. The large cities will continue to grow. The most populated, Casablanca with three million habitants in 1994, will achieve four million in 2010. The second, Rabat-Sale, will grow from 1.4 million in 1994 to 2.3 million in 2010. 1.7 Natural Resources. Morocco enjoys the world's most accessible phosphate reserves, vast areas of arable land, extensive coast lines (3,500 Km on the Mediterranean and Atlantic seaboards) and an extensive range of maritime resources. In 1995, agriculture contributed only 14.3 percent to Morocco's GDP, but provided employment to 40 percent of the labor force and generated 30 percent of total export earnings, notably through fisheries (12 percent of total exports) and horticultural products. The economy is, however, dominated by the industrial (33 percent of GDP) and service sectors. The export of phosphates and its derivatives (e.g., phosphoric acid and fertilizers), represents 2 over a quarter of total Moroccan exports, and has increased in relation to growing global demand. Morocco controls as much as 50 percent of the world market in phosphoric acid. Other mineral resources include copper, fluorine, lead, barite, and iron. Morocco is also a significant producer and exporter, primarily to Europe, of industrial minerals and is a regional producer of basic metals. 1.8 Biodiversity and Natural Heritage. Morocco is the second most biologically diverse country in the Mediterranean basin, outpaced in species and habitat diversity only by Turkey. 4,000 species of vascular plants, of which two-thirds are found in forest ecosystems and 20% endemic species; 550 vertebrates, of which 6 endemic mammals and 22 endemic reptiles and amphibians. This rich biologically diverse resource is found in country's 39 major ecosystems types, ranging from various forms of mountain and lowland forests, grasslands and wetlands to coastal lagoons, beaches and marine environments. Only less than 1% of Morocco's surface area currently has some form of active protection status. About 41% of total identified plant species and 30% of total identified vertebrates are rare or endangered. The principal threats to biodiversity losses are habitat transformation, fragmentation and degradation. Specifically, terrestrial and coastal wetland habitats have been transformed for agriculture and other human uses, such as dams for hydropower and irrigation; forests have been degraded by conversion for agriculture, urban expansion and industrial or tourism development; wetland areas have been disturbed by agricultural run-off, eutrophication, pesticides and industrial pollution; and coastal development is a major threat to coastal and marine biodiversity. 1.9 The Main Environmental Issues recognized as seriously affecting the country's economy and human health are: (a) water scarcity and deteriorating quality, (b) lack of safe drinking water supply and sanitation in rural areas, (c) rising urban and industrial pollution of air and water, compounded by a lack of urban environmental infrastructure and waste management services; and (d) the intensive use of natural resources, including land resources in semi-arid areas and fisheries in coastal areas. 1.10 Water scarcity and deteriorating quality. The annual renewable volume of water is about 30 billion m3, of which 11 billion m3 are accessible. Irrigated agriculture uses 85 percent of the available resource. Urban and industrial water consumption is growing at 8 percent annually. The water balance deficit is expected to reach several regions by the year 2000 and to spread countrywide by 2020. Key produce of the agricultural sector, specifically sugar and oilseeds, rely heavily on some of the scarcest resources in Morocco. irrigated and high rainfall land. Furthermore, water pollution from agro-industries is the most significant element contributing to the environmental degradation of the Sebou River and the Oum Rbia Basins. NES underlined the excessive water quality degradation of these Basins, aquifer contamination in Tadla as a result of pesticide and fertilizer run-off, salinization along the Atlantic coastal zone because of excessive groundwater pumping, and aquifer contamination through solid waste dumping Estimated water pollution loads are presented in Table 1.1. 3 Table 1.1: Estimated Levels of Water Pollutants, 1992 Pollutant Level (share by source: industry, household, agriculture) '000 tons a year Biological oxygen demand (BOD5)* 288 (industry 20%, household 80%) Chemical Oxygen demand (COD)* 699 (industry 14%, household 86%) Nitrogen 82 (industry 4%, household 62%, agriculture 34%) Phosphorus 21 (industry 0.09%, household 61%, agriculture 38%) Chromate 0.4 (100% industrial source) Source: Ministry of Environment (1995 NES) * BOD5 and COD are measures to indicate level of organic pollutants. 1.11 Lack of water supply and sanitation in rural area. Providing safe water and sanitation to reduce morbidity and mortality in rural area constitutes a challenge for the coming years. More than 80 percent of the rural population lacks safe water as well as sanitation. In rural areas, only 2 percent of solid waste is collected. It is generally perceived that irrigation of vegetables by raw waste water2 and the low level of available health services both contribute to the high incidence of waterborne illnesses in rural areas3 1.12 Water pollution in urban areas is mainly caused by the discharge of untreated sewage and industrial effluent. Though a relatively high proportion of urban population is connected to sewage systems, 76 percent in large cities, 67 percent in medium size towns and 40 percent in small urban centers, treatment of collected liquid waste remains inadequate4. Therefore, biological pollution of water is common in Morocco. Box 1.1: Cost of Dirty Water: Pollution costs in the Sebou Basin, World Bank The World Bank carried out a research study as part of the economic analysis of a proposed river basin clean-up program involving the rehabilitation and improvement of sewerage and waste water treatment facilities, actions to minimize and prevent industrial pollution, fertilizer and pesticide impacts on the nver-basin, and improved natural resource management, information collection and environmental monitoring of the waterway. The project is calculated to cost $240 million. This study estimates that between 1995 and 2020 the direct economic losses associated with water treatment costs, health costs, and fisheries losses directly attributable to the particularly lugh level of water pollution in the Sebou River Basin will be in excess of US$ 455 million using even the most conservative scenarios to calculate cost-unplications of inaction. 1.13 Industrial pollution sources are the power plants, petroleum refineries, leather production, phosphate refineries and fertilizer plants, and metal-plating shops. They lead 2 According to the report of the National Water and Climate Council in 1995, over 7,000 ha is cultivated in Morocco, using low waste water for market-gardens, cereal. 3 The child mortality rate is almost twice as high as in urban areas. Between 7,000 to 8,000 cluldren are estimated to die from diarrheal diseases each year, predominantly in rural areas. Morbidity is also high. For example, in the Sebou and Oum Rbia Basins alone, 250,000 cases of diarrheal disease have been reported each year. 4 There are 54 waste water treatment plants (WWTP), of which 8 are privately owned in recreational towns. 15 WWTPs are public, of which five are owned by the public phosphate enterprise, OCP. The towns of Nador and Khouribga are serviced by public WW`TPs that function satisfactorily (SDNAL, 1996). 4 to contamination of air, water and soil with particulates, heavy metals, volatile organic and other toxic substances. About a half of the total 6,200 industrial plants in Morocco, including the largest coal-fired power plant and petroleum refinery, are located in the industrial area of Casablanca-Mohammedia. The phosphate trafsformation industry is also concentrated along the Atlantic coast, in Safi and El-Jadida. In addition, agro-industries and mining activities cause pollution. For example, the olive oil and sugar industries cause water pollution through particularly high biological oxygen demand (BOD), although there are seasonal fluctuations' in pollution loads. No regulatory measures exist to govern industrial waste. 1.14 Based on the nature of the industries and the available information, it is evident that a substantial risk exists that hazardous wastes could have an adverse impact on agriculture and human health. Of immediate concern are toxic substances including chromate from the leather industry, chlorhydric acid from the steel industry, mercury from caustic soda, cadmium discharged from fertilizer plants; sulfate and arsenic from the phosphate transformation, and other industrial waste. In 1995, at 0.9 million tons, these pollutants represented 13 percent of the total solid waste volume. Only 5 percent of this industrial solid waste is disposed of at municipal discharge sites. Given the current rate of urbanization and assuming annual GDP growth of 4 percent, simple projections indicate that in 2020 municipal solid waste will grow to 11.8 million tons and industrial waste to 10.3 million tons or 47 percent of the total solid waste'. 1.15 In addition, infectious waste from hospitals, estimated at 50 tons per day, is most likely mixed in randomly at the municipal disposal sites. 1.16 Municipal solid waste is estimated at 5.6 million tons per year country-wide Urban collection rates vary from 40 percent to 90 percent of the urban population. Real costs for solid waste disposal is estimated to be 100-140 DH/person/year. Expenditure for local government is estimated at 130 to 400 DH in the 1994 budget. However, municipal disposal sites are almost always uncontrolled. A recent report from the Hydraulic Administration points out that risk of contamination of the aquifer is arising and increasing as a result of some 40 percent of these disposal sites'. 1.17 As indicated in a World Bank study, improvement of urban environment infrastructure and services would be difficult without a fundamental reform of municipal finance. Despite increasing interest on the part of both the private and public sectors, promoting private sector participation in waste management is constrained by a number of Olive oil from November to February and sugar in August MOE/JICA, Directives pour la Politique et les Actions Nationales de la Gestion des D9chets sohdes, Draft September 1996 7Report prepared by DGH/MPW for the 1996 NCE Banque mondiale, Rapport No. 15059-MOR Participation du secteur prv6 dans les infrastructures, December 1995. 5 institutional problems, such as: (i) lack of a legal and regulatory framework; (ii) absence of service performance criteria; and (iii) a municipal budget system not permitting a multi- year contract. Environmental Management Government Strategy and Environmental Planning 1.18 National Environmental Strategy. Since the establishment of the Under-Secretary of State for the Environment in 1992, the Government of Morocco (GOM) has sought to address a whole range of economic-environmental linkages. Specifically, and in order to better understand the environment and natural resource component of the short and long- term development process, the Undersecretariat of State for the Environment/MOE prepared in 1995 a National Environmental Strategy (NES). It sets goals to first stabilize environmental damage by 2005 at 1992 levels, and to subsequently substantially reduce the impact of damage by 2020. The cost of necessary actions to achieve the goals was estimated at 4.6 billion dirhams or 1.9 percent of GDP. Given the current low levels of environmental investment, attainment of these environmental goals represents a formidable challenge to Moroccan society, both in the private and public sectors. Box 1.2 National Environmental Strategy (NES) for Sustainable Development, 1995 With assistance from UNDP/UNESCO, using available figures for Morocco and extrapolating from current international knowledge, the NES estimated environmental damage in Morocco as being equivalent to 8 percent of 1992 GDP. This figure represents water pollution and contamination which caused damage of $1 7 b - 5.7 percent of GDP; air pollution, $0.5 b -1.9 percent of GDP; lack of adequate solid waste management, equivalent to an income loss of $70 m; and soil degradation reflecting the loss of $85 m - 0.3 percent GDP. The national strategy aims at leveling damage costs at the 1992 levels by 2005 and at reducing them gradually until 2020. Proposed action requires investment of about 1.9 percent of 1992 GDP annually. The GOM declares that this proposal is well justified in that the environmental improvements perceived should represent a gain of 5.9 percent of GDP. Identified as the most serious environmental problems were: (a) water scarcity and deteriorating quality caused by excessive pumping, the weakness of urban sewerage systems, the lack of industrial effluent treatment and agricultural pollution by pesticides; (b) air pollution caused by transportation and industrial emissions, (c) solid waste as a result of insufficient collection and recycling of household waste and lack of controlled discharge sites; (d) deteriorating urban environment due to rapid and uncontrolled urbanization; (e) soil and natural resource degradation due to overgrazing, soil erosion, salinization, deforestation and species loss and (t) coastal resource degradation of marine water pollution, coastal erosion and diminishing fisheries resources, Prionty actions were identified to be: (a) water resource protection, (b) waste management; (c) air quality improvement; and (d) soil degradation Recommended implementation poliev includes: (a) economic and financial incentives; (b) integrated environmental management (c) private sector investment particularly for industrial pollution, (d) public investment and public. pnvate partnerslup for sewerage and household waste management; and (e) increased participation of local government MOE's role was defined as coordinator for follow-up in (a) formulation of the NEAP and identification of actors for implementation; and (b) monitoring environmental quality objectives set out in the NES. To supplement the NES, regional (Center North, Center) and urban environmental profiles (Rabat, Marrakech, Safi, Essaouira, FPs, Meknes, Taza, Sale, Oujda, Agadir, Tetouan) are being prepared. 9 This estimate, expressed as percentage of GDP, indicates rather high environmental damages, though not exactly comparable because of different methodologies used, relative to those estimates made in other developing and transitional countries, such as 2.6 to 6.4% in India, 3.8% in Pakistan, 3.3% in Mexico, even 5 % in Eastern Europe; I to 2% in OECD countries. 6 1.19 The NEAP process, launched since April 1996, has generated two sector proposals as summarized in Box 1.3. The GOM clearly indicates that emphasis shall be placed on environmental policies using market-based instruments together with direct regulations Also stressed are the needs to develop environmental management capabilities at the various levels of Moroccan society. Prevention of environmental problems clearly is recognized as more cost-effective than remediation. Broader institutional development and a wide public education are key components of the government's strategy. Box 1.3: Proposal at National Workshop on Industry and Environment It includes technical assistance activities focused on environmental assessment of pollution hot spots, such as the Casablanca industrial zone, the Sebou River Basin, the Oum Rbia River Basin; institutional strengthening for information collection to promote cleaner production technologies in the industrial sector, and training programs. * legislation on environmental management which includes aligning the Water Law, the Draft Air pollution Law, the Draft Classified Installations Law, and the Draft Marine Environment Law in a coherent manner with the Draft Basic Environment Law. * regulatory norms definition, especially for solid and industrial wastes. * self-regulation of industries using environmental audits and clear labeling conventions. * certification of laboratories for environmental quality analysis and consulting firms for environmental audits. * industrial waste disposal in Casablanca (feasibility study). * environmental impact assessment of the phosphate sector m Jorf Lazfar and Safi (USAID), the Casablanca industrial zone, the Sebou River Basin, the Oum Er Rbia (Swedish bilateral cooperation). * GHG emissions reduction program with industries * training program for sugar, seed-oil, construction material, textiles,, leathers, chemucal and para-chemical industries. * pilot project for mining site environmental management. * creation of an information center on cleaner technologies. Proposal at National Workshop on Energy and Environment It recognizes Morocco's energy situation, characterized by a strong inequality in end-users, especially between the "modern" sector (wealthy residences, modem tertiary, industry, transport) that uses energy inefficiently and a rural sector which has little access to commercial energies and depends on wood and charcoal. Both have a direct impact on urban and rural health. The Energy/Environment Action Plan contains six elements, and includes distinct actions to be undertaken in order to conserve energy and to improve air quality and protect human health. These are: * energy demand management/mitigatig environmental impact of energy use (energy saving in road transport and industrial sector, cleaner technologies promotion, reduction of electricity loss on the national transmission network; and energy savings in public administration buildings) * incentives for cleaner fuels and fuel substitutions (quality improvement of petroleum products at refineries; S02 emissions reduction from the power plant in Mohamnmedia; reforestation for fuel woods, recycling of ash from the coal-fired power plants; demand management of fuel woods and promotion of LPG and biomass gas in rural area), * large scale use of renewable energy and cleaner technologies (general use of solar heated water by households and services; marketing of photo-voltaic batteries); * financial mechanisms for energy savings, cleaner technologies and renewable energies (pricing cleaner fuels, establishing funds for energy demand management and pollution prevention activities, private sector provisions in the rural electrification program - PERG, new mechanisms, such as third-party investors and guarantee funds, to finance energy savings projects and pollution prevention); * legislation to promote energy savings and renewable energy use; * training and awareness building activities for energy savings and environmental protection 7 Environmental legislation and regulatory framework 1.20 Legislation. The current legislative framework for environmental protection does not address today's environmental challenges. There are about 356 laws and decrees related to environmental management and other environment-related matters. Mostly enacted during the French Protectorate at the beginning of the twentieth century, these laws and decrees are based on an out-dated concept of the environment. Therefore, they are difficult to apply to modem problems such as air pollution, hazardous waste, toxic chemicals and noise control, which are often transboundary and cross-sectoral from an administrative point of view. In addition, the concept of linking environmental problems to development activities is generally weak or missing. The notion of environmental assessment is therefore not prescribed. 1.21 Recognizing these shortcomings, the GOM launched the development of a series of new laws and regulation. First, a Basic Law on the Environment was drafted and submitted to the Government Council in May 1993. This draft embodies environmental principles such as a clear definition of the field of environment in relation to the environmental administration; the relationship of the environmental administration with other line ministries; the polluter-pays principle; and the use of financial incentives as environmental policy instruments. Other drafts prepared include specific legislative and regulatory measures to deal with air pollution; environmental protection from mining activities; protection of the marine environment and fisheries stock; coastal zone management; commercialization and use of pesticides; forest management and conservation, national parks, soil protection, hunting rules; potential hazardous facilities such as petroleum deposits, storage of flammable substances; and rules for classified installations. A new law on the safety of nuclear plants and nuclear radiation was also drafted. However, an apparent lack of cross-sector coordination and conflict as a result of competing interests from various sector authorities continues to hamper passage of these drafts. 1.22 Only the Water Law was passed in 1995. The severity of three consecutive droughts, which hit Morocco in the early 1990's, pushed for a very rapid consensus building enabling introduction of a legal foundation for an integrated water resources management strategy. If enforced, it will secure efficient water use and sound conservation. However, implementation rules and regulations remain to be enacted. 1.23 Environment Quality Norms and Emissions Standards. To support the new environmental legislation and regulations under preparation, MOE developed various environment quality norms and emissions standards, to be viewed as legally binding instruments. These were developed in consultation with the main sector ministries and public authorities as well as with industrial associations. The air quality and emission standards currently proposed are, however, higher than WHO guidelines and will not serve to fully protect the health of the population. 1.24 Morocco's responsibility towards protecting the natural environment, as a member of the international community, requires increased and concerted effort to fulfill the basic 8 principles incorporated in international environmental conventions to which GOM is signatory. Despite the recent progress in ratifying major international conventions for the environmental protection"o, Morocco's domestic laws and regulations are not consistent with the basic principles outlined, such as environmental impact assessment (EIA) principles or the precautionary principle. 1.25 The MOE has subsequently drafted detailed legislation on the EIA process, which reflects the cross-sectoral nature of MOE's authority as well as its shared responsibilities with sector authorities and local authorities. After a numerous consultations under NCE with line ministries and with some industrial associations over the past two years, the draft law and decree are now submitted to the Government Council for its review. Environmental Management Practices by Industries 1.26 Although this formal EIA procedure and related requirements are not yet in place, a number of pilot EIAs have been carried out under MOE's initiative, supported by the international donor community. Voluntary practice of EIAs is also emerging, using accepted industry or international standards for guidance. For example, the national phosphate company (OCP), which is a major state-owed enterprise covering phosphate mining, fertilizer production and port facilities for export of product, has been developing its environmental practices over the past four years, having recognized at the time of the Rio Conference that the issues had to be taken seriously. The current Department for the Environment, under the Director for Quality, oversees OCP's environmental performance by collecting data on the performance of each of the major operating units and by drawing up Action Plans for remediation of major problems. In the absence of national regulation, they have collected various "benchmark" information on relevant regulations and industry performance in other countries. OCP also is taking a strong role in discussions between the government and the mining industry on regulations to refine requirements under a national law to be enacted. OCP has commissioned two "environmental impact studies" to examine the impacts of their current operations in mining and fertilizer manufacturing. The reviews will be carried out by independent international consultants and will include site monitoring and testing, which will be made publicly available. 1.27 The EIA process for the expansion project of the power plant in Jorf Lazfar illustrates a clearly positive dialogue between environmental regulators and polluters. It highlighted the critical elements that make use of EIAs a practical and effective tool of environmental management, requiring: the coordinating role played by MOE; consultations with sector ministries and local authorities, organized under the ad-hoc committee of NCE; and NGO and local consultations held to inform the public about project activities and the proposed environmental mitigation plan (See Box 1.4). 10 Morocco has ratified the 1976 Barcelona Convention on the Protection of the Mediterranean Sea against Pollution and its related protocols (MALPOL), the 1972 London Dumping Convention and Basel Convention, the 1986 Vienna Convention on the Protection of Ozone Layer and its Montreal Protocol on Substances that Deplete the Ozone Layer, the Framework Convention on Climate Change, the Convention on Biological Diversity, CITES, RAMSAR. 9 1.28 Most public and private sector investment projects currently require not only a construction permit from the local government but also approvals from several line ministries, such as industry, public works, agriculture, tourism, etc., depending on the nature and purpose of the investments. Despite the absence of a regulatory framework for a formal environmental assessment process, a number of line ministries and public agencies have created environmental departments to deal with environmental management. Also, some public sector enterprises, including the national phosphate company (OCP) and the sugar refineries, have established internal departments responsible for environmental affairs, so as to promote environmental practices for their enterprises. 1.29 There is no single pollution control agency in Morocco. Based on the 1976 Municipal Charter, locally elected municipal administrations have primary responsibility for environmental infrastructure and provision of services. The environmental responsibility of the municipalities also includes the granting of building permits. Creation of Regional Councils for the Environment (RCE) is stipulated in the 1994 Decree on the National Council for the Environment". During 1996, MOE inaugurated RCE in each of the seven Economic Regions. But the advisory status of the RCEs vis-A-vis local governments and local communes, which are elected bodies, is unclear at this stage, especially since Morocco has embarked on a major decentralization program, with the strengthening of regional administrations. 1.30 Adoption of Environmental Quality Standards and Environmental Management Systems by Industries. In Morocco, as in many other countries, there has been much discussion of the possible role that environmental management systems, such as ISO 14000, could play in improving both industrial competitiveness and environmental performance. Currently Moroccan industry has not taken steps towards ISO 14000 certification, but a few of the domestic manufacturing industries who face competition with imported goods in the domestic market recently have obtained the ISO-9000 certification, for apparently purely marketing objectives. The Public Works Laboratory (LPEE) is currently certifying under ISO 9000, in association with a French certification agency. Decree No. 2-93-1011 of January 20, 1995 10 Box 1.4: Privatization of Energy Plant in Jorf Lasfar and EIA The existing coal-fired power plant (330 MW) will be managed by the private operator This power plant will be supplemented by two new coal-fired plants (348 MW). With over 300 employees, the plants will use 3 3 million tons of coal annually, with less than 1 25 percent sulfur content on an annual average Main eventual environmental hazards are: air emissions of SO2, NOx, CO, COV, particulates, and waste water potentially affecting the marine environment Because of EJA requirements of financing institutions, including the World Bank, the environmental management plan has been prepared by an independent consulting firm on the basis of emission standards used by these financial institutions. Local consultant (LPEE) participated in measuring the pollution emissions. The mitigation plan includes the following actions. Main environmental management instnnents: pre-treatment of waste water prior to disposal in the marine environment. This will reduce the risk of contamination of 6-meter deep water aquifer. No ground water pumping is envisaged. Ash disposal at sea will be eliminated and replaced with land disposal or reuse once an acceptable option is established Public consultation was held to disclose information about the project and explain the mitigation plan at the both local and central level. The MOE regards this case as a good example in terms of not only successful inter-agency coordination including participation by local government but also of effective public participation in decision- making. It must be noted, however, that public participation only took place at the end of the process, after analysis of project alternatives was completed. To monitor the environmental performance of the power plant, the MOE and the local government agreed to establish a pollution monitoring station in El-Jadida, a town m the vicinity of the plant. For the MOE, this case was timely because the Moroccan EIA procedures have yet to be promulgated after approval by the Parliament. Box 1.5: Environmental Management Systems and Certification Agency in Morocco The Public Works Laboratory (LPEE) is a service of the MPW, with central research and testing facilities, as well as regional laboratories which carry out routine testing. Its environmental department (CEREP) includes sophisticated chemical and biological laboratory facilities as well as mobile ambient air and emissions laboratories and equipment for field testing of water quality. The laboratories are certified by French and Canadian authorities for a wide range of environmental tests. Another function of LPEE is to establish national technical standards, under the supervision of a Direction of Normalization in the Ministry of Commerce and Industry. LPEE has a mandate for information and education in science and technology which includes quality control and environmental issues. It has, for example, trained a group of technicians in the textile industry in quality control in their sector. The approach adopted by LPEE includes the development of simplified QC systems for small industries, m preparation for their possible future adoption oflSO-9000. LPEE at present does complete certification of industries to ISO 9000 but accepts that there are problems with international recognition of their Moroccan certification process. In order to address this, LPEE has established an agreement with the French certifier AFAQ. - At present, AFAQ works with LPEE, where appropriate, to ensure that the procedures of certification are adequate and it is AFAQ which provides the formal certification where international recognition is an issue. LPEE is working to have formal recognition of their certification capabilities by AFAQ and will then approach certifiers in other countries to obtain mutual recognition of certificates. This is a long and costly process for LPEE Environmental Institutional Framework 1.31 The creation of the Under-Secretariat for the Environment in August 1992 represented a political turning point in the treatment of environmental issues by GOM, giving voice to the environmental aspects of a multitude of deliberations by the government. Although still under the supervision of the Minister of the Interior, the Under-Secretary for the Environment was appointed by the King as a member of the Government Council. This commitment since has resulted in the creation of the Ministry 11 of Environment as a full-fledged administration in March 199512. The MOE has the main mandate to define and coordinate environmental policy, and to monitor environmental performance to ensure environmentally sound economic and social development. In parallel, the National Council for the Environment (NCE), established in 1972, was restructured twice in 1980 and 1995. It became the highest policy coordination body for environmental protection, chaired by the Minister of Environment, with a universal participation by government ministries. In addition, NGOs and experts may be invited to participate in deliberations of the NCE as appropriate. 1.32 MOE has launched many environment-related activities. In addition to its primary concern with the review of existing legislative texts and its mandate to build environmental awareness generally, MOE is committed to providing local governments, line ministries and sector authorities with environmental service functions such as the collection of environmental data, formulation of local environmental policy, secretarial services for the NCE, and training in EIA requirements. It also is responsible for coordinating substantial bilateral and multilateral assistance programs in the field of environmental management as well as international activities related to the global environment. 1.33 Environmental quality monitoring. A National Observatory of the Environment (ONEM) and a National Environment Pollution Laboratory have been established since 1994 under MOE to acquire a scientific understanding and knowledge of the state of the environment. To collect baseline information on environmental quality, MOE is collaborating with other public sector institutions, e.g., those responsible for water quality and water resource planning and mobilization (DGH/MPW); distribution (ONEP, Rggies); and for public health (MPH). With respect to air quality, collaboration has just been initiated with the National Meteorological Service and MPH. Ambient quality measurement, to be cost-effective, requires a good coordination among these institutions. Although this issue has been brought up in the NCE in 1995, progress seems to have been slow and less than optimal. 1.34 NGO involvement. Over the last few years, several industrial and professional associations have played an important role in the negotiation of acceptable environmental standards and norms for their economic activities with the environmental administration. These associations include the cement, sugar, olive oil production and leather industries. Other non-governmental organizations, which are involved in environmental management, may be divided into three groups according to their structure: (a) large regional environmental associations created under the auspices of the government, such as Fes-Sais in Fes, or Ribat-Al-Fath in Rabat; (b) popular associations often specialized in scientific or research themes, such as the Moroccan Lawyers Association, Association marocaine pour la protection de l'environnement (ASMAP), Groupe d'9tudes et de recherches sur les gnergies renouvelables (GERER); and (c) internationally affiliated associations linked to world-wide environmental NGOs, such as IUCN. 12MOE has expanded its staff substantially, from 20 regular staff positions in 1993 to 61 in 1996. It is entirely centralized in the capital city, Rabat. 12 World Bank and donor involvement in environmental management 1.35 The World Bank emphasis on environmental management comes from the assumption that economic development can neither be effective nor sustainable unless the economic growth objectives established at policy, planning and management levels are compatible with existing economic, social and environmental factors. Sound environmental protection and natural resource management have become key areas of concern for the Bank over the last decade, especially when designing lending projects in the infrastructure and productive sectors, i.e. agriculture and industry. The three basic goals for Morocco are: (1) mitigating adverse environmental impact on human health; (2) preventing irreversible ecological changes; and, (3) balancing costs and benefits whenever resources are scarce and basic human needs have yet to be met. Further, the World Bank supports the GOM's efforts to establish clear and transparent environmental rules and regulations as positive steps towards improving the business climate in Morocco, since the private sector favors and flourishes with predictable conditions governing environmental regulations. 1.36 In support of these goals, the Bank approved in 1993 a six million dollar loan to assist GOM to implement the Environment Management Project (EMP). It was designed to strengthen the country's institutional framework for environmental management through a series of pilot activities. Thus, the comprehensive review of institutional and legal framework could be accomplished and could result in global legislation for the medium-term. 13 Box 1.6: Environment Management Project (1995-1998) Objective. to strengthen government institutional and regulatory capacity in environmental management by addressing cross-sector environmental issues Context and Government strategy as described in the policy development letter: only four of 14 ministries had an environmental unit, laws and regulations were inadequate and not enforced. Since the 1992 Rio Earth Summit, the GOM strongly supported environmental initiatives. When launching the project, the NCE was restructured to encourage and allow broader participation in environmental policy formulation 'Te budget of USE was increased to $0.5 million (ten times that of the previous year); and the draft Basic Law on the Environment was submitted to SGG in May 1993. USE's mandates broadened to include coordination activities for the formulation of environmental policy, enforcement of regulations and dissemination of tiformation. Line ministries made responsible for supervising EA efforts, environmental audits and promoting cost-effective pollution reduction technologies at the sectoral level. Local governments are responsible for momtoring pollution on behalf of USE. Recognizing that development of the legal and institutional framework for environmental management requires a concerted and long term effort over many years, Bank assistance was requested to help the government take the first steps in this process.. Proposed project duration: 4.5 years (January 1994- June 1998) Input six million dollars loan to hire consultants (272 person-months), to carry out training for central and local government officials, industries, NGOs (600 to 800 beneficiaries) and to purchase equipment ($1 7 million). Expected Outputs strengthened technical and administrative capacity of MOE, ministries of Agriculture and Public Works and Wilaya of Fes for environmental management; legal and regulatory framework strengthened with EIA procedures, Permit Law for Integrated Pollution Control and Chemicals and Toxic Wastes Control Law, policy studies encompassing financial and economic incentives for improved environmental management (environmental audits, market-based instruments, environmental lending fumds, pollution prevention instruments), establshment of the National Information Data System - SIDE and an Information Document Center; tramed government officials and increased public awareness. Execution. MOE. The inter-ministerial committee provides (a) policy guidance, and (b) review of the project work program Implementation status: World Bank Board Approved in September 1993; Loan Effectiveness in October 1994, Project activities started in February 1996. 1.37 Specific World Bank support that specifically addresses natural resources issues and problems in Morocco includes: * the Water Resources Management Project to assist GOM launch an integrated approach to the water sector; * the Watershed Management Project to address land management through popular participation by preserving water resources and controlling erosion as well as dam sedimentation; * the Agricultural Sector Investment Loan to help GOM's efforts in promoting reforestation and improving range-land quality and management, as well as irrigation; * the Fifth Water Supply Project and the Second Sewerage and Water Re-use Project to improve the urban environment through water supply and sewerage investments. 1.38 Under the jurisdiction of the 1995 Water Law, the recently appraised Water Resource Management Project will be instrumental in establishing the first River Basin Agency in the Oum Rubia Basin. In addition, the Sebou Basin Environmental Protection Project is being prepared to introduce integrated environmental management at the river basin level. The Mediterranean Environmental Technical Assistance Program (METAP) covers development of a management plan for the Al-Hoceima National Park, the establishment of an Geo-referenced Information Management System for coastal zone environmental monitoring (MEDGEOBASE), environmental audits of the Mohammedia- 14 Casablanca industrial zone, as well as capacity building to carry out environmental assessment and economic analysis. Finally, the World Bank is administering two projects financed by the Global Environment Facility: a Marine Oil Pollution Project to establish a contingency response capability for accidental oil spills in the Mediterranean, and a repowering energy plant project in Kenitra. 1.39 Many bilateral and multilateral agencies and donors also support environmental activities. France supports in areas of environmental training, sanitation and solid waste management. The German Technical Cooperation Agency (GTZ) supports an environmental management project with MOE focused on the definition of norms and standards for chemical use and point source pollution, development of MOE's laboratory capacity, and environmental education program development. USAID is providing assistance to MOE to carry out a number of site-specific pilot projects to promote integrated water resource management; and to the Irrigation Authority to monitor agricultural pollution in the irrigation area of Tadla. The Japanese International Cooperation Agency (JICA) is providing MOE with a substantial assistance to formulate National Guidelines for Solid Waste Management. Swedish cooperation is focusing on industrial sector environment assessment. UTNDP support has been crucial to MOE in formulating the 1995 National Environment Strategy and the current NEAP and in establishing National Environmental Observatory (ONEM). With respect to the global environmental issues, UNEP has assisted GOM in formulating a National Strategy for the Elimination of Ozone Depleting Substances and a National Strategy for Biodiversity Protection. 15 CHAPTER 2: HIGH ECONOMIC GROWTH AND THE ENVIRONMENT High Economic Growth and the Environment 2.1 The Government aims to sustain and accelerate improvements in economic and social development with an annual economic growth rate of 6 percent through the end of the millennium. This is to be achieved primarily with continued macroeconomic reforms, higher industrial sector growth and rapid growth of exports to the EU with whom Morocco has recently signed an FTA, to be implemented over the coming decade. Dynamic evolution of the links between economic growth, trade liberalization, and environmental pollution 2.2 Dynamic simulation. While the FTA with the European Union is expected to provide considerable impetus to the growth of the Moroccan economy, little or no analysis has previously been undertaken to assess its potential environmental implications for Morocco. For this report, these implications have been analyzed with a general equilibrium (GE) model which traces the dynamic evolution of the links between economic growth, trade liberalization, and environmental pollution. Box 2.1 provides a brief overview of the model and framework. The complete text can be found in Appendix I, Volume II. 2.3 The GE analysis was carried out in three steps: (i) assessment of the current pollution intensities (i.e., amount of pollution per unit of produced or consumed goods and services) and pollution loads for various production and consumption sectors in the economy; (ii) projections of future pollution intensities and loads under continued macroeconomic reforms13 but in the absence of the FTA; and (iii) projections of future pollution with macroeconomic reforms and the implementation of the FTA. 13 These reforms are targeted to four main objectives: * To promote a higher level of growth, there is a need to achieve substantially higher levels of investment. * The core of the Government's fiscal policy will aim at reducing the budgetary deficit (excluding privatization revenue and grants) to achieve a balance by the turn of the decade and perhaps a small surplus by the year 2005; the following policies will be important in achieving that objective. * Monetary Policy will aim at reducing inflation gradually to reach the average level of key partner countries at around 2-3 percent, and maintaining reserves at a level equivalent to 4- 5 months of imports. * Exchange rate poliev will be geared to restoring and maintaining the competitiveness of the Moroccan economy, while safeguarding the credibility of the anti-inflationary stance. 16 2 4 Pollution intensities and loads by economic sector are derived on the basis of the use of intermediate goods (energy, material substances, etc), and production processes. Although detailed environmental audits would improve the accuracy of estimated pollution intensities and loads, the analysis with the general equilibrium model does provide a broad perspective across economic sectors, and on direction of change in the pollution intensity of the Moroccan economy with the implementation of the FTA. Box 2.1: General Equilibrium Trade and Environment Model For this Environment Review, the linkages between economic and environmental policies in Morocco were evaluated with an empirical general equilibrium simulation model This model has been developed directly from a prototype model built for the OECD Development Center's research program on sustainable development, environment, resource use, trade and technology and another model built for the Moroccan Ministry of Trade. It is calibrated on the data contained in a Social Accounting Matrix (SAM) estimated for the year 1995. The version of the SAM used here includes 10 household categories (5 urban and 5 rural), 48 sectors, 3 labor types, 3 separated trading partners (EU, Non-EU Europe, and ROW) and 13 different polluting emissions. The model is dynamic and solved recursively for the years 1995, 1997, 1999, 2001, 2003, and 2005. It includes approximately 100 generic equations, describing agent behavior, market clearing and other accounting relationships. The main advantage of using such a model lies in combining detailed and consistent real world databases with a sound framework of economic theory Following the same line of investigation, a quantitative analysis of linkages between economic activity and the environment in Morocco has been done, specifically evaluating the impact of independent and coordinated trade and environmental policies This model has three features of particular relevance to the present Environment Review. * It embodies alugh level of disaggregation for pollutants, products, sectors and types of households. For example in an integrated approach, it can be used to simulate abatement policies targeted to specific air emissions, measuring, at the same time, the effect on related water and soil pollutants. * Trade policy reform, and its related structural adjustment resource reallocation, do not have uniform outcomes across sectors Likewise, expansion or contraction of individual activities does not have uniform environmental consequences. * The product disaggregation of this model yields detailed information on a range of economy-environment linkages. Like every model, it has limitations. Not taking into account the relationship between factor productivity and environmental degradation, the introduction of new technologies, and households preferences towards the environment, it probably understates the potential gains of well-conceived abatement policies. Even with these limitations, however, the present findings strongly support the implementation of economic instruments in an outward-onented economy. For more and detailed information see The Moroccan Trade And Environment Model in Appendix I, Volume II 2.5 An evaluation of the current production and consumption patterns in Morocco indicates that pollution intensities vary widely across the economy. Highly polluting manufacturing4 and highly polluting services" are often more than 10 times more polluting than food processing, textiles and other manufacturing and services sectors. Estimated pollution shares from highly polluting manufacturing and services are presented in Table 2.1. 14 Highly polluting manufacturing is the aggregate of pulp and paper, chemicals, petroleum refining, iron and steel, and construction materials industries. is Highly polluting services is the aggregate of transport, electric power, and construction. 17 Table 2.1: Estimated Shares of Total Pollution (1995) Highly polluting manufacturing and services Toxic substances 85% Bio-accumulative substances 98% Sulfur dioxide 80% Air particulates 85% 2.6 To simulate macroeconomic implications of the Medium-term Economic and Financial Strategy, the GE model was calibrated to selected macroeconomic aggregates including real GDP, growth in government expenditure, productivity growth, foreign capital inflows, and world market price trends. Specifically, significant reductions in government expenditure on current and capital account, sharply rising foreign capital inflows, and GDP growth targets for the period from 1995 to 2005 were taken into consideration. 2.7 Assumptions concerning trade liberalization were then defined according to the FTA with the European Union and with explicit provision of an increase in the VAT to offset declining trade taxes. The removal of import protection under the FTA is likely to induce significant adjustments in the economic structure of production and consumption. Since pollution intensity vary widely across economic sectors, these adjustments could therefore substantially affect the pollution intensity and loads in the Moroccan economy 2.8 Estimated changes in pollution loads from 1995 to 2005 are presented in Table 2.2 for both the macroeconomic reform and FTA scenario. Under the macroeconomic reform scenario, cumulative economic growth is about 50 percent. The increase in pollution is slightly higher than economic growth for toxic and bio-accumulative substances Sulfur dioxide and particulates emissions increase at a rate slightly lower than economic growth. Although economic growth rates are somewhat higher in the FTA scenario, estimated increases in pollution (except for sulfur dioxide) by far exceeds economic growth This is because most of the economic growth is likely to arise from sectors in which Morocco traditionally has comparative advantage. These sectors are more pollution intensive than the rest of the economy. Moreover, higher economic growth will also affect the structure and level of consumption, including increased motorization and energy consumption. 2.9 The model results indicate that the largest share of increased pollution could come from the manufacturing of chemical fertilizers and construction materials (including cement plants), and road transport In agriculture, the largest increase in pollution is likely to come from the production of agricultural exportables, which are more chemical intensive than other agricultural sectors. Table 2.2: Estimated Increase in Pollution 1995-2005 Macro reform FTA with EU Toxic substances 50-55% 60-75% Bio-accumulative substances 55-60% 80-100% Sulfur dioxide 40% 40% Air particulates 45% 65% 18 2.10 The GE modeling for this report should be viewed only as a first step towards a better understanding of the linkages between trade liberalization and environmental implications. The estimated increase in pollution presented in Table 2.2 does at this time only indicate orders of magnitude and direction of change. Nevertheless, the modeling results do suggest that focused attention for improved environmental performance is particularly warranted on sectors with a high share of current pollution loads, and on sectors, be they the same or different ones, that may be major sources of future pollution. Requirements and opportunities under EU-MED FTA 2.11 The estimated increases in pollution provided by the GE modeling is based on very limited technological change. In reality, particularly industry and transport are likely to adopt cleaner technology and vehicles in tandem with economic expansion and turnover of old capital stock. Thus, emission estimates are likely to be overstated. However, the rate of adoption of cleaner technology and vehicles will be affected by policies such as taxation, availability of financing to industry, and environmental regulations. 2.12 Economic cooperation under EU-MED FTA. Morocco is gradually establishing a free trade area with the European Union, its main export market and its main supplier A 12-year transition period is planned, in accordance with the Euro-Mediterranean Association Agreement and its Free Trade Articles (FTA). The FTA include a number of Economic Cooperation Articles, especially Articles 42 to 62, which establish clear links between trade and environmental management. For example, Article 43.4 specifies that "preservation of the environment and ecological balances shall constitute a central component of the various fields of economic cooperation" in conjunction with the free trade provisions. More specifically, the Agreement states that "the Parties shall foster all activities which have a regional impact or involve third countries, notably, environmental matters, inter alia"(Article 45.b). 2.13 In the Environment Article, the FTA states that "the aim of the cooperation shall be to prevent deterioration of the environment, to improve the quality of the environment, to protect human health and to achieve rational use of natural resources for sustainable development. The Parties undertake to cooperate in areas including (a) soil and water quality, (b) the consequences of development, particularly industrial development (especially safety of installations and waste), and (c) monitoring and preventing pollution of the sea"(Article 48). 2.14 The FTA may have significant impacts in terms of regional harmonization of environmental standards. European firms must comply with high environmental standards at home, which increase their production costs and render them less competitive than their Moroccan counterparts. Consequently, the FTA will not only affect economic variables, but will also begin to harmonize environmental policies, which in turn will have further consequences for the Moroccan economy and land use planning. While Morocco has made considerable progress in negotiating improved access to export markets, progressive tightening of European and national rules as regards environmental issues, and the 19 harmonization of EU arrangements for industrial standards, all have the potential to become significant non-tariff barriers to trade. 2.15 Article 40 of the FTA states that: "The parties shall take appropriate steps to promote the use by Morocco of Community technical rules and European standards for industrial and agri-food products and certification procedures". Of particular concern is eco-labeling and packaging requirements. Other new environmental measures such as standards for environmental management, extended producer responsibility, particularly in the form of the take-back obligations; recycled content obligations and voluntary industry agreements regarding environmental practices have also been identified as possibly posing difficulty to Morocco in the framework of the FTA implementation. Among the reasons for these difficulties are: (a) a lack of timely and accurate information on requirements, (b) inadequate influence over setting and implementing standards; (c) additional costs to obtain information and adapt products to EU market; (d) inability to pass on increased costs to consumers because of higher prices; (e) insufficient technical capacity to conduct environmental impact assessments, testing and certification, or to contribute in standard- setting proceedings; and (f) insufficient capital to invest in new technologies and production methods or conduct research into substitutes. These problems may be exacerbated among Moroccan small- and medium-size enterprises who have only little resources and poor access to environmental information. 2.16 However, as discussed earlier in paragraph 2.13, the FTA might also provide Morocco with opportunities to obtain increased technology transfer and financial assistance to overcome these difficulties. A wide range of actions could be undertaken in order to assist Morocco to bring its legislation, regulations and standards closer to that of the EU in environmental matters. More specifically, EU and Morocco agreed, under a joint declaration relating to Article 49 of the FTA, to implement a support program in the industrial sectors to mitigate difficulties which may arise from the implementation of the FTA. Potential Trade Benefits of Environmental Management Systems 2.17 Introducing sound environmental management at the enterprise level would not only benefit Moroccan environment but also avoid potential export barriers to the European market. Enterprises that would face increased competition in the domestic market, as a result of trade liberalization, are likely to seek upgrading and modernization to improve cost-effectiveness and product quality. The case of a battery manufacturing company who has just obtained ISO 9000 certification for an apparent domestic marketing strategy, as mentioned in the previous chapter, paragraph 1.30, illustrates this potential trend In the other case, exporting industries seeking competitive advantage in international markets and /or firms in the supply chain including contractors and sub- contractors, value-added re-sellers and suppliers would also seek upgrading modernization. For example, an olive-oil producer "Huilerie de Meknes" is preparing to obtain a ISO 9000 certification because of an apparent pressure from its European partner. This kind of "supplier chain " could also be a positive force in improving environmental performance of Moroccan firms as requirements for environmental management system 20 (EMS) accreditation between importing and exporting enterprises is likely to increase in the future. 2.18 However, the lack of a credible infrastructure for the certification of companies under the ISO series could be a potential barrier for exporters in developing countries, if ISO compliance is an important factor in their markets. Therefore, the public sector could have a role to play to help small- and medium- industries, the LPEE's approach (see Box 2.2) could be a good model. An EMS is not, however, a substitute for a regulatory framework, but the monitoring and reporting systems of a well managed enterprise might substitute for some of the statutory inspections, audits and reports that could be required under governmeht regulations, now in draft form (see paragraph 1.21). As a first step for successful implementation of EMS, the national regulatory framework should be strengthened. Box 2.2: Future Adoption of ISO14000 as Cost-effective Practices The model of LPEE's development of capacity to provide ISO-9002 certification seems to be readily applicable to similar efforts for ISO-14001, if appropriate or necessary. Under this model, LPEE would initially develop an information/training program for its clients, using a simplified approach based on the key elements of the standard. Companies who chose to seek certification would then have to develop the necessary internal systems, a task where LPEE (with its overseas partners) or any other agency or consultant could assist. When it came to formal certification, LPEE would work with AFAQ (or another partner) to examine the systems m place and - for the first few cases - certification would be by AFAQ to French requirements, to ensure mutual international recognitionof the certification. Once LPEE had developed a track record, with the assistance of its overseas partner, it could then begin to seek agreements on recognition of certificates issued under its own seaL This is a pragmatic and realistic approach to building the credibility necessary to ensure that the certificates issued in Morocco are acceptable internationally and may offer a model which could be followed in other countries. Table 2.3: Summary of Trade and Environment Policy Recommendations Issues Analysis Recommendations FTA The FTA could contribute Pollution-intensive expanding sectors consequences on significantly to domestic should be more closely monitored and the Moroccan pollution loads. targeted with mitigating environmental Environment Comparative advantages in policies, including effluent taxes, dirty activities are investment and innovation incentives, and intensified abatement incentives. Environmental When properly targeted, Implement emission taxes targeted very Policies economic instruments, such narrowly to effluent types. Exploit as emission taxes, can linkages between different emission achieve significant groups to minimize administration and abatement with relatively monitoring costs. low cost in terms of economic growth. Complementarities are also apparent across groups of effluents. 16 There are several environmental management systems: the European Union EMAS, the ISO 14000 senes, and the British BS7750. Discussions are underway to harmonize some of these systems. 21 CHAPTER 3: MITIGATING AIR POLLUTION Background 3.1 Air pollution as a health threat. Reports of elevated respiratory illnesses in areas with high concentrations of vehicular traffic and pollution point sources, suggest that air pollution is a health problem in larger urban areas of Morocco. Pollutants of major concern are particulates (PM), sulfur dioxide (SO2) and lead (Pb). 3.2 Achievements and Challenges. Air quality objectives were established in the 1995 NES. While systematic air quality monitoring data are not available, localized data indicates that levels of particulate, SO2 and lead in Rabat and the metropolitan area of Casablanca - Mohammedia are substantially higher than WHO guidelines 3.3 Projections presented in the 1995 NES suggest that emissions of particulate, SO2 and NOx could increase by 55-65 percent from 1992 to 2005 at an annual GDP growth rate of 4 percent, unless measures are taken to control emissions The projected increase in lead emissions is "only" ten percent if dieselization in transport continues (Table 3.1). Dieselization however increases the levels of particulate and SO2 emissions. The 1995 NES attributes the main sources of air pollution to industrial plants, thermal power plants, and road transport. Table 3.1: Air Pollution Estimates and Projections (in thousand tons per year) Year SO2 NOx Particulate Lead 1982 142 208 15 0.26 1992 201 323 23 0.30 2005 335 506 37 0.33 2020 586 693 56 0.35 Source. Ministry of Environment (1995 NES) 3 4 Building on the 1995 NES, the 1996 NEAP Workshops discussed specific actions to conserve energy, improve air quality and protect human health, and designate government institutions responsible for each action. This is a major step forward to integrating environmental management into energy and industry sector policy. Furthermore, several steps have been taken in Morocco towards mitigating air pollution. For example, environmental audits for ten industrial plants in the Casablanca-Mohammedia area have been completed, and MOE is engaged in a process towards improved environmental performance in the cement industry. The envisioned supply of natural gas 22 from Algeria would also provide an opportunity to reduce air emissions of particulate and SO2 from power plants and to some extent industry. Approach 3.5 Targeted issues. Taking into account the accomplishments discussed above, the following key issues are studied in this chapter to support and substantiate the NEAP process: improved quality of fuels, selected emission control investments in major pollution point sources, selected measures to control emissions from vehicles, and energy taxation that better reflect the social cost associated with the use of fuels. Supplementary text of the analysis can be found in Appendix II, Volume H. The analysis is carried out for the Casablanca-Mohammedia area being the largest urban and industrial center of Morocco: 3 million inhabitants, the location of half of the Moroccan industries including two power plants and the largest refinery, and the home of more than 400,000 vehicles accounting for 40 percent of the vehicle fleet. 3.6 Estimates of the health impacts of particulate, SO2, and lead pollution are presented as a benchmark for assessing the benefits of improved fuel quality, point source emission control investments, and vehicle emission control measures. Cost of these measures is then estimated, and estimated benefits and costs are used to provide guidance on priorities to mitigate emissions. Finally, the social cost associated with the use of fuels is estimated and implications for end-user prices, energy taxation and fiscal revenues are assessed. Fuel use and quality 3.7 Consumption patterns. Primary energy consumption increased at an average annual rate of 4.2 percent during 1980-96. Diesel consumption (mainly road transport) increased at an annual rate of 5.4 percent, while gasoline only increased at 0.3 percent per year. Particularly, diesel consumption increased sharply in recent years, with an annual increase of 7.75 percent from 1989-96. For major fuels consumed in industry and power plants, coal increased by 11.1 percent per year and heavy fuel oil by 0.4 percent a year. The share of coal in primary energy almost tripled to 24 percent from 1980 to 1996, while the share of heavy fuel oil declined from 40 percent in 1980 to 22.2 percent in 1996. 3.8 Dirty quality of fuels. Energy intensity in Morocco (about 0.3 koe/US$ of GDP) is relatively low compared to many other countries in the region, but the poor quality of fuel supplied by the domestic refineries is a dominant cause of air pollution. The lead content in gasoline is as high as 0.5 g/lt., and sulfur content in heavy fuel oil and diesel averages about 3 percent and 1 percent, respectively. The sulfur content of coal, which is largely imported, is averaging about 1.2-1.5 percent per ton, or 1.8-2.2 percent per toe. Although the sulfur content in coal on an oil equivalent basis is lower than in heavy fuel oil, particulate emissions from coal would be substantially higher if arrestment technology is operated at less than maximum efficiency. 2. 3.9 International trends to improve fuel quality. A number of countries regulate the maximum sulfur content allowable in diesel and fuel oil and the maximum lead content in gasoline. Unleaded gasoline have been introduced, and leaded gasoline is often taxed at a higher rate to encourage substitution to unleaded gasoline (Box 3.1). 3.10 The quality of fuels need to be addressed for two primary reasons. First, the combustion of dirty fuel oil, diesel, coal, and leaded gasoline is directly responsible for the predominant share of air emissions in the major urban areas. Second, cleaner diesel and unleaded gasoline are prerequisites to apply measures such as catalytic converters on gasoline vehicles, and to increase efficiency of many arrestment technologies and engine modifications oi diesel vehicles to reduce particulate emissions. Box 3.1: International Comparison of Fuel Quality Standards OECD countries and many developing countries have adjusted their fuel quality standards m light of increasing evidence of the health damages of dirty fuels The maximum sulfur content in fuel oil and diesel, and lead content in gasoline has been regulated, and unleaded gasoline has been introduced The maximum allowable sulfur content in diesel in the United States has been 0.05 percent for some years This standard was also adopted by the European Union (EU) in October 1996, down from 0 2-0.3 percent in most EU countries in the 1980's. In Sweden, an environmental diesel practically sulfur free is available in larger cities. Many developing countries have also implemented stricter sulfur standards on diesel. India reduced maximum allowable content from I percent to 0.5 percent in 1996 The snaximum allowable content in Poland, Thailand, Malaysia, Hong Kong, and Singapore is 0.2-0 3 percent, Leaded gasoline has been completely phased out in the United States and in about 10 Latin American countries The maximum allowable lead content in most East Asian and Eastern European countries is 0.15 g/lt., and the market share of unleaded gasoline has reached more than 50 percent in several of these countries. Estimated Health Impacts 3.11 As indicated in Table 3.2, the total social cost of particulate, sulfur-dioxide, and lead pollution in the Mohammedia - Casablanca area is estimated at US$ 185-190 million per year for a hypothetical annual average concentration of 30 gig/m3 for particulates (PMI10), 50 jg/m3 for sulfur dioxide (SO2), and 0.5 gg/m3 for leadl7. The most significant estimated health impact associated with PM10 is increased premature mortality from respiratory disorders and an increase in the number of individuals with chronic bronchitis. The most significant estimated health impact of lead pollution is impairment of neurophysiological development in children detrimental to the development of their intelligence, measured in terms of IQ losses. The estimated morbidity and premature mortality from lead pollution is associated with hypertension, non-fatal heart attacks, and increased blood pressure that may lead to early death. However, the evidence is relatively weak, and the estimates are therefore presented as a range. 17 Limited monitoring data suggests that air concentration levels of total particulates, SO2, and lead could exceed 150ug/m3, 10Oug/m3, and 1.0 ug/m3, respectively. However, more conservative figures are used here in the absence of systematic monitoring data. 24 Table 3.2: Estimated Annual Social Cost of Air Pollution in Casablanca/Mohammedia Pollutant Total social cost (US $ million) Particulates (PM1O) Per 30 ug/m3 Premature mortality ') 65 Morbidity 97 Sulfur dioxide (SO2) Per 50 ug/m3 Premature mortality 16 Morbidity 1 Lead Per 0.5 u/m, IQ points lost 6 Morbidity 0-1 Premature mortality 0-4 Total b) 185-190 a) PMIO related mortality is based on extrapolation of the average of estimates in Dockery et al (1993) and Pope et at (1995) All other estimated health impacts are based on extrapolation from Ostro (1994), b) Health impacts of ozone are not estimated here, although they may represent a considerable concern. Estimated Emissions in the Casablanca - Mohammedia area 3.12 Table 3.3 provides annual emissions from fossil fuels, estimated for the national level" and in the Casablanca-Mohammedia area. These estimations are based on emissions coefficients from Europe and the United States for fossil fuel use in petroleum refineries and combustion in industrial boilers, power plants, and vehicles, and adjusted to the extent possible for the quality of fuels used in Morocco, conditions of vehicles, and particulate control technology in the power plant in Mohammedia. Due to non-availability of comprehensive data on industrial process related emissions, these estimations do not include all industrial pollution sources. Therefore, the figures are somewhat understated. 18 These estimations, except NOx, are very close to the estimates presented in the 1995 NES. Using a substantially higher coefficient for vehicles, the 1995 NES indicates much higher emissions of NOx. 25 Table 3.3: Estimated Total Annual Emissions (000 tons) from Fossil Fuel use in Morocco at the National Level and in Casablanca - Mohammedia (1994) Area NOX SO2 Lead Particulates* (PM1O)* National 127 212 0.27 20.5 Casablanca/ 27 95 0.08 6.6 (5.3) Mohammedia of which Road transport 10 5 0.08 1.8 (1.6) Industry 5 31 2.4(1.9) Power 12 59 2.4(1.8) * Industry includes SAMIR refinery. Emissions from the power sector is based on 10 percent ash content in the coal used in the Mohannedia power plant, and a 95 percent abatement efficiency ofthe particulate control technology. Emissions Projections for Casablanca-Mohammedia 3.13 Projections of particulate (PM10) and sulfur dioxide emissions in the Casablanca- Mohammedia area to year 2010 are presented in Table 3.4. These projections are based on: (i) no changes in fuel quality; (ii) the planned close down of the Casablanca power plant; and (iii) industrial and transport growth. Particulate (PM10) and sulfur dioxide emissions from all sectors combined are estimated to increase by 40 percent and 12 percent, respectively. Table 3.4: Projected Emissions in the Casablanca-Mohamnedia Area (tons per year) Emission source (annual percentage 1994 2010 1994 2010 growth) PM10 PM10 S02 S02 Road Transport (5% per year) 1600 3500 5000 11000 Industry (4% per year) 1100 2000 17000 33000 SAMIR refinery (0% per year) 800 800 14000 14000 Casablanca power plant 600 - 10000 - Mohammedia power plant 1200 1200 49000 49000 TOTAL 5300 7500 95000 107000 3.14 A partial or entire replacement of the capacity of the Mohammedia power plant is expected by the year 2010. With the exclusive use of coal with one percent sulfur and ten percent ash content, and particulate control technology with 99.5 percent abatement efficiency, particulate (PM10) and sulfur dioxide emissions would respectively be 900 and 20,000 tons lower than current emissions from the existing Mohammedia power plant. With the exclusive use of natural gas, particulate (PM10) and sulfur dioxide emissions would be practically eliminated. 26 Natural Gas Penetration 3.15 While the use of gas is seriously considered by Morocco for new thermal power plants and conversion in some existing power plants on economic grounds, the use of natural gas in industry would largely depend on end-user prices. Economic analysis indicates that natural gas would be a lower cost alternative to fuel oil for possibly as much as 30 percent of industry in the next 10-15 years. However, natural gas is clearly preferred to fuel oil for a larger share of industry if considerations are given to the health impacts of particulate and sulfur dioxide pollution. 3.16 In order to induce natural gas penetration in industry, up to the point where the incremental economic cost equals the health benefits of switching from fuel oil, the current energy taxation structure would need a reevaluation. This issue is discussed in the section on the use of economic instruments. 3.17 In addition to the use of cleaner coal and/or natural gas in the power sector and natural gas in industry in Casablanca-Mohammedia, consorted actions are required to effectively mitigate air pollution in the area. Moreover, pollution from the power sector would continue at high levels as long as the Casablanca power plant is in operation and no actions are taken to reduce pollution from this plant and the Mohammedia power plant. The following sections discuss the costs and benefits of cleaner petroleum products, selected emission control investments in major pollution point sources, vehicle emissions controls, and the use of economic instruments. Cost-Benefit Analysis of Cleaner Petroleum Products 3.18 Two domestic oil refineries supply most of the petroleum products for the domestic market in Morocco. Currently imported crude oil has an average sulfur content of about 1.6 percent. To establish the least cost alternative to provide cleaner petroleum products (low sulfur diesel and fuel oil, and unleaded gasoline) for the domestic market, three options were identified: (a) import of low-sulfur crude oil, (b) import of low-sulfur diesel and fuel oil, while exporting domestically produced products, and (c) upgrading the largest refinery, SAMIR. The results of the analysis indicate that upgrading SAMIR refinery would be the lowest-cost alternative. 3.19 SAMIR's configuration yields a large share of low value heavy fuel oil, which limits its economic viability. Considering a range of upgrading options, an initial evaluation of five alternatives was undertaken to improve the economic viability of the refinery: investments in (1) hydrocracker; (2) fluid catalytic cracker (FCC); (3) mild hydrocracking (MHC); (4) mild hydrocracking with 50 percent high sulfur crude and 50 percent low sulfur crude; and (5) vacuum gas oil (VGO) desulfurization. The initial evaluation indicates that alternative (3) with investments in MHC would best satisfy a combination of economic return on investment, anticipated future domestic product demand, and modesty in terms of total investment cost. 27 3.20 The analysis of alternative (3) was conducted in two stages: First, investments were evaluated to improve the economic viability of the refinery, without including investments for which the primary objective is to provide cleaner fuels Second, investments were evaluated for which motivation is predominantly environmental improvements, i.e., to provide cleaner fuels 3.21 Economic Viability Investments. The investments under alternative (3) to improve the economic viability of SAMIR include a mild hydrocracker, increased vacuum distillation capacity, visbreaker, hydrogen plant, sulfur plant, and off-site facilities. Total investment cost is roughly estimated at US $285 million.9 These investments would increase the supply of higher value diesel for which there is a domestic deficit and reduce the supply of low value fuel oil for which there is a domestic surplus. 3.22 The economic viability investments would also contribute to improved fuel quality. With the crude oils currently used, the sulfur content in diesel would on average be reduced from about 1 percent to about 0.75 percent. In fuel oil, the sulfur content would be reduced from about 3 percent to about 1 percent if the refinery uses the heavy bottom residue oil in its own furnaces (discussed in the next section). 3.23 Sulfur reductions in the fuels should also reduce particulate (PM1O) emissions. Based on empirical estimates by US EPA, particulate (PM1O) emissions per ton of fuel oil would on average be reduced by about 1.1 kg for each percentage point reduction of sulfur in the fuel oil. For diesel fuel, particulate (PM10) emissions reductions per ton of diesel are estimated at about 0.1 kg for each 0.1 percentage point reduction of sulfur. This relationship is based on that about 2 percent of the sulfur in diesel forms into sulfates and combines with water and hydrocarbons, resulting in an increase in particulate emissions 3.24 The estimated monetized health benefits, benefit-cost ratios, and emissions reductions from the fuel quality improvements associated with the economically viable investments are presented in Table 3.5 for Casablanca-Mohammedia The benefits are based on estimated health benefits of reducing PM1O and SO2 at US$ 16,000 and US$ 175 respectively per ton of emissions. The costs of using higher quality fuels are based on international spot price differentials of high and low sulfur fuels over the last several years. 3.25 The estimated benefits are found to exceed costs (i.e., the benefit-cost ratios > 1) for the use of the cleaner fuels in industry, the Casablanca power plant, and in road transport. However, it appears that the use of low sulfur fuel oil in the Mohammedia power plant would involve costs that are higher than the estimated benefits. This is because the Mohammedia power plant is already equipped with particulate control technology, at 95 percent abatement efficiency according to a recently conducted audit 19 Investment costs include 25 percent off-site facilities and 20 percent price contingencies 28 3.26 Environmental Investments Investments in SAMIR to improve fuel quality predominantly for environmental improvements could include a diesel hydrodesulfurization (HDS) unit, and an isomerization unit. Estimated cost would be roughly US $90 million.20 3.27 The diesel HDS would further reduce the sulfur content in diesel from about 0.75 to no more than 0.05 percent, at a cost of about US $5 per ton of diesel. The isomerization unit, necessary for only a portion of the gasoline output, would allow the refinery to supply high octane unleaded gasoline, meeting all domestic gasoline demand at an incremental cost of less than US $0.015 per liter. The estimated benefits of these investments, benefit-cost ratios, and emissions reductions for Casablanca-Mohammedia are presented in Table 3.5. The estimates indicate that benefits exceed the costs of supplying cleaner fuels for the transport sector. Table 3.5: Benefits of Investments in SAMIR Refinery (estimated emissions reductions in Casablanca-Mohammedia (1994)) Health benefits of Benefit-cost PM10 S02 cleaner fuels (US $) ratio reductions reductions (tons per year) (tons per year) Economically viable investments: Fuel oil Industry 35-40 per ton 3-3.3 590 10800 Casablanca power plant 35-40 " 3-3.3 370 6600 Mohammedia power plant 2-8 <1 65* 22500* Diesel Road transport 5-7 per ton 2-2.5 55 1200 Environmental investments: Diesel 15-17 per ton 3-3.5 150 3200 Road transport Unleaded gasoline 0.035-0.05 per It. 2.5-3.5 Road transport 1065* 21800* TOTAL 20% 23% Reductions relative to 1994 emissions NB Economically viable investments Estimated emissions reductions are based on reduction of the sulfur content from about 3 to about 1 percent in fuel oil, from about 1 to about 0 75 percent in diesel, and a 95 percent abatement efficiency of the particulate control technology in Mohammedia power plant Environmental investments. Estimated enissions reductions are based on a reduction of the sulfur content in diesel from 0 75 to 0.05 percent, and elimmation of lead in gasoline. * Emissions reductions from the Mohanmedia power plant are not included in total reductions since the benefit-cost ratio < 1 20 Investment costs include 25 percent off-site facilities and 20 percent price contingencies. 29 3.28 While lead can be eliminated from gasoline, the sulfur reduction from 1 to 0.05 percent in diesel is estimated to reduce particulate (PM1O) emissions from diesel vehicles by "only" about 13 percent. However, the low sulfur diesel will allow particulate control measures on new and in-use vehicles to be more effective 3.29 Most in-use vehicles can use unleaded gasoline without impairment of engine performance. If, however, the use of unleaded gasoline is a concern for vehicles with soft valves, then there are unleaded gasoline formulas available that provide substitutes for the lubricating effects of lead. While the supply of unleaded gasoline would take some time to increase substantially, the lead content in leaded gasoline could at this time be reduced almost immediately from a maximum of 0.5 g/lt. to no higher than 0.15 g/lt 3.30 The benefit-cost analysis of cleaner fuel oil and diesel, and unleaded gasoline is for the Casablanca-Mohammedia urban area only. The health impacts of dirty fuels used outside of urban areas can be expected to be minimal, and an available option is therefore to concentrate the use of cleaner fuels to the urban areas Cost-Benefit Analysis of Emission Control Investments 3.31 The use of cleaner fuel oil and diesel would be part of an appropriate strategy to mitigate air pollution from relatively small and numerous emission sources, such as most industrial plants and vehicles. For large point sources, it is necessary to consider the use of end-of pipe control technology to reduce pollution from the use of fossil fuels. An initial evaluation is presented here for the Casablanca and Mohammedia power plants and SAMIR refinery. 3.32 Investments in flue gas desulfurization (FGD) units in the power plants and the refinery to remove sulfur dioxide emissions are estimated to cost two-five times more than the estimated health benefits, because of the very large investment costs. However, investments in electrostatic precipitators (ESP) to remove particulate emissions appear to be an attractive option. Estimated benefits, costs and emissions reductions are presented in Table 3.6. 3.33 The Casablanca power plant is expected to be closed down within the next 5 to 10 years. However, during its remaining life it will continue to contribute substantially to air pollution in the area unless the plant makes a substitution to cleaner fuel oil (discussed in the previous section) or investments in emission control technology. The benefit-cost ratio of investment in ESP presented in Table 3.6 is based on a 5 year remaining life of the power plant, and would be higher if remaining life is longer. The benefit-cost ratio is found to be somewhat higher than for the use of low sulfur fuel oil (see Table 3.5). However, a comparison is difficult because the ESP investment option will not reduce sulfur dioxide emissions. If damages associated with sulfur dioxide are higher than estimated in this report, then the benefit-cost ratio of low sulfur fuel oil could be higher than for ESP. This could be the case if sulfur dioxide emissions are causing significant corrosion to buildings and other structures, or is contributing to particulates through formation of sulfate particulates affecting the Casablanca-Mohammedia area 30 Table 3.6: Investments in Emission Control Technology Health benefits Benefit-cost Investment cost PM1O reductions (US $) ratio (mill US $) (tons per year) Casablanca power plant ESP 50-55/ton fuel 3.5-3.9 5-6 600 oil Mohammedia power plant New ESP* 1-3 30-35 1200 5-20/ton coal SAMIR refinery ESP 2-7 6-7 800 10-35/ton fuel TOTAL oil 2600 Reductions relative to 49% 1994 emissions N.B. The costs applied in the benefit-cost ratios include incremental operating costs of ESP * Estunates are based on incremental enissions reductions relative to existing particulate control technology in the power plant Options to unprove the efficiency of the existing technology should be explored before considering an investment in a new ESP. It is presented here to illustrate the upper bound of costs to further reduce particulate emissions. 3.34 The Mohammedia power plant is already equipped with particulate control technology. However, if the effective abatement efficiency is only 95 percent as indicated in a recently completed audit, actions should first be taken to significantly improve the abatement efficiency. Then, if this is not technically feasible, a more in-depth analysis could be undertaken to consider an investment in a new high efficiency ESP at this time, even if the power plant will be partially or completely replaced by the year 2010. The preliminary estimate presented in Table 3.6 indicates that the health benefits of further particulate emissions reductions by an investment in a new ESP could exceed the costs. 3.35 SAMIR refinery uses large amounts of high sulfur fuel oil to produce petroleum products, resulting in very high sulfur dioxide and particulate emissions. While the health benefits of an investment in FGD appear to be much lower than the cost of the FGD, the benefit-cost ratio of an investment in ESP, presented in Table 3.6, indicates that the health benefits would be substantially higher than the cost. Moreover, an investment in ESP would cost less than the use of clean fuel oil for the refinery furnaces. Cost-Benefit Analysis of Vehicle Emission Control 3.36 Imposing stricter emission standards on new vehicles is necessary in order to control emissions in the longer term. Reducing emissions in the short to medium term, especially particulate (PM10) emissions, from the in-use vehicle fleet has become an urgent and important issue because of the large share of particulate (PM10) emissions from road transport, largely due to recent extensive dieselization. Two major available 31 options are discussed to reduce particulate emissions from the in-use fleet. (a) inspection and maintenance (IM) programs; and (ii) particulate arrestment technology on diesel vehicles. 3.37 Inspection and maintenance program. Generally, poorly maintained gasoline vehicles can emit 50 percent more CO and VOC than well maintained vehicles. Diesel vehicles, if maintained poorly, can emit twice as much particulate than well maintained vehicles. In the EU, where diesel vehicles are generally better maintained, a tune-up program for light-duty diesel vehicles achieved a particulate reduction of about 30 percent. 3.38 Table 3.7 presents the estimated break-even cost, benefit-cost ratios, and emissions reductions of an IM program. Net benefits of an IM program are positive, i.e, annualized health benefits exceed the cost of the program, if the cost is below the break-even cost An IM program for buses and trucks is most likely to yield significant net benefits A program for diesel taxis may also yield net benefits. But benefits for light trucks, vans and passenger cars are likely to be only marginal and need a closer assessment. This is because particulate emissions per km of vehicle use, and annual use, is much lower for light trucks, vans and passenger cars. 3.39 Technologies available to reduce particulate emissions. A common feature to reduce particulate emissions from in-use diesel vehicles is often a filter mechanism, but the technologies differ in how they clean or burn the trapped particulate matter The result of a benefit-cost analysis, based on the estimated health benefits of PM10 reductions and the lowest cost technology available, albeit 85 percent abatement efficiency, is presented for buses in Table 3.7. For trucks, benefits may not exceed the cost if they are used largely outside of urban areas, because of the substantially lower health impact of pollution from such driving Thus, such technologies could be targeted at trucks being used at least 40 percent within urban areas. Benefits of the technologies are estimated to be lower than the costs for passenger cars and light vehicles. Table 3.7: Particulate Emissions Control for Diesel Vehicles in Casablanca/Mohammedia Break-even Cost Benefit-Cost Ratio PM1O Reductions (US $/vehiclelyear) (tons per year) IM program Buses 540 2-3 65 Trucks 250 1-2 145 Taxis 110 Light trucks and vans 70 Passenger cars 40 Particulate abatement technology Buses 2-3 110 * Based on 1/3 particulate (PM10) emission reductions and 2 percent fuel savings Benefits of particulate (PM10) reductions is based on the share of vehicle use in Casablanca/Mohammedia. 3.40 Even if the emission control strategies discussed earlier are implemented, in-use diesel passenger cars, light trucks and vans, and heavy trucks would remain major sources of PM1O emissions in the Casablanca-Mohammedia area. The number of diesel passenger 32 cars has doubled every 3-4 years and now accounts for more than 30 percent of the passenger car fleet, compared to an average of about 10 percent in European countries. 3.41 The extensive dieselization in road transport is probably linked to the substantially lower end-user price of diesel, about 65 percent, relative to gasoline. If diesel and gasoline should both be taxed at a level reflecting the social cost associated with their use, end-user prices would be much closer to each other. Raising diesel taxes to the level of gasoline taxes could reduce diesel consumption in the road transport sector by 20 percent. This would reduce PM1O emissions in the Casablanca-Mohammedia area by more than 200 tons, or equivalent to the estimated reductions from an IM program for buses and trucks. Thus, a well-designed taxation policy for diesel fuel and diesel vehicle usage would be important to curb the growth in dieselization and transport particulate emissions. Fuel and vehicle taxation is discussed in the next section. Use of Economic Instruments 3.42 Social Cost and Energy Taxation. The use of energy is often associated with substantial social costs that are not reflected in end-user prices, and thus may not be born by users. Table 3.8 presents current energy taxes (not including VAT), estimates of the social costs of leaded gasoline and high sulfur fuels ("dirty fuels") currently used in Morocco, as well as social costs of unleaded gasoline, low sulfur fuels and natural gas ("cleaner fuels") that could be used in Morocco through an upgrading of the SAMIR refinery and import of gas from Algeria. 3.43 The social cost associated with the use of gasoline and diesel in road transport are based on estimated health impacts of pollution (PM10, S02, and lead), traffic accident fatalities, and road infrastructure wear-and-tear and rehabilitation. The largest share of the estimated cost is associated with traffic accident fatalities. For fuel oil and coal, the social cost is based on estimated health impacts of particulates (PM1O) and sulfur dioxide. 3.44 Table 3.8 indicates that current road transport diesel taxes are 65-80 percent below estimated social cost while gasoline taxes are 15-50 percent below the cost. Current taxes on fuel oil and coal used in the Mohammedia power plant are substantially higher than the estimated social cost, and would be even more so if the abatement efficiency of the ESP in the plant is improved or a new high efficiency ESP (>=99.5% abatement) is installed. For the industrial sector and the Casablanca power plant, current taxes on fuel oil are about 30-35% below the estimated social cost. However, current taxes would be twice as high as estimated social cost if the sulfur content in fuel oil is reduced to about 1 percent, and more than ten times higher if an ESP is installed in the Casablanca power plant. The largest divergence between taxes and social cost would be for natural gas, if gas is to be taxed at the same rate as fuel oil and coal when gas from Algeria becomes available to industry and power plants. 33 Table 3.8: Ener!M Taxation and Estimated Social Costs (US S per unit of fuel).-. Current taxes' Social cost - Social cost- "dirty fuels"2 "cleaner fuels"3 Gasoline (per liter) Leaded passenger cars 0.55 0.65-0.95 heavy trucks 0.55 0.80-1.15 Unleaded passenger cars >=0.55* 0.60-0.90 heavy trucks >-0.55* 0.75-1.10 Diesel (per liter) Road transport passenger cars 0.26 0.72-1.02 0.70-1.00 heavy trucks 0.26 0.97-1.32 0 95-1.30 Fuel oil (per toe) Industry 47 60-65 20-25 Mohanmedia power plant w/ ESP (95%) 47 3-13 <5 w/ ESP 47 2-10 <3 (>=99.5%) 47 60-65 20-25 Casablanca power plant w/o ESP 47 10-11 3-4 w/ ESP (>=99.5%) Coal (per toe) 47 10-35 9-33 Mohanmedia power plant w/ ESP (95%) 47 <5 <3 w/ ESP (>=99.5) Natural gas (per toe) 47** *4) All sectors 1Current taxes are all taxes on energy products except VAT, as of November 1996. 2 Dirty fuels are diesel with 1 0% sulfur content, fuel oil with 3.0% sulfur content, and coal with 1.25% sulfur and 10% ash content Cleaner fuels are 0.05% and 1 0% sulfur in diesel and fuel oil, respectively, and 1 0% sulfur and 10% ash content in coal * The exact taxes are to be verified **The figure in the table represents the tax on natural gas if gas is to be taxed on the same basis as fuel oil and coal when gas becomes available to industry and power plants 3.45 Taxation at Social Cost. Taxation of energy products that reflects their estimated social costs would provide strong market based incentives to consumers and producers to take into account both economic and social costs when making their energy consumption decision, and to use energy products that are less polluting. 3.46 Table 3.9 presents a level and structure of energy taxes that reflect the range of estimated social costs associated with the use of energy products in Casablanca/Mohammedia. The taxes are only indicative, and only intended as a point of departure for further assessment of an appropriate level and structure of energy product taxes based on social costs in different sectors. Also, these taxes would not be additional to existing taxes, but would rather serve to replace all energy taxes with the exception of value added taxes (VAT). 3.47 The level and structure of the taxes presented are for estimated social costs associated with the fuel qualities reported in the table, as well as for leaded versus unleaded gasoline. The fuel quality specifications are levels of sulfur content that could be 34 recommended, based on the cost-benefit analysis in the previous sections, i.e, 0.05 percent sulfur in diesel and about 1 percent sulfur in fuel oil. The tax on natural gas is zero because of negligible emissions of particulates and sulfur dioxide. 3.48 The table also presents estimated changes in end-user prices if these fuel quality specifications and taxes were to be adopted. Taxes and end-user prices of gasoline and diesel would increase, while end-user prices for fuel oil, coal, and natural gas would decline. 3.49 The reduction in end-user prices of fuel oil would be only modest for industry, but on the order of 15 percent for the power plants, including the Casablanca power plant if an ESP is installed in the plant. The different tax levels on fuel oil for industry versus power plants equipped with control technology should not pose a significant problem in terms of implementation, because the number of power plants using fuel oil are relatively few and would involve relatively simple fuel monitoring requirements. 3.50 The largest reduction in end-user prices would be for coal in the Mohammedia power plant, and the power sector in general, if ESPs are operated at high efficiency (>=99 5%). Coal is also used by the cement industry in large quantities. If these plants are equipped with high efficiency ESPs that are operated properly, taxation of coal for the cement industry to reflect social cost would be no higher than for a power plant with the same emission control technology. 3.51 The end-user price of natural gas would also be substantially lower than the level of end-user prices that would prevail if gas were to be taxed at the same rate of taxation as currently applied to fuel oil and coal. A lower end-user gas price, by social cost taxation, would provide an opportunity to improve cost competitiveness in industry, which is increasingly important as Morocco is integrating with the global economy. 3 52 If the choice is to tax natural gas, for instance motivated by fiscal revenues, it is important to establish a differential tax between gas and fuel oil/coal that reflects the cost of health impacts of emissions from fuel oil and coal Such a differential tax would imply that the taxes indicated in Table 3.9 for fuel oil and coal would all be adjusted upwards by an amount on the order of the tax on natural gas. This would increase the extent of natural gas penetration, and therefore mitigate harmful air pollution. 35 Table 3.9: Taxation at Social Cost (US S per unit of fuel) Fuel quality Social cost taxes Change in End-user prices w/ social cost % sulfur content Dh (US$) taxes ( % ) * Gasoline (per liter) Leaded 5.50 (0.65) +10% Unleaded 5.10 (0.60) +5% Diesel (per liter) For road transport 0.05 % 5.95 (0.70) +75% Fuel oil (per toe) Industry 1.0% 210 (25) -5% Mohannedia power plant w/ ESP (95%) 3.0% 85 (10) -15% w/ ESP (>=99.5%) 3.0% 40 (4.7) -17% Casablanca power plant w/o ESP 1.0% 210 (25) -5% w/ ESP (>=99.5%) 3.0 % 85 (10) -15% Coal (per toe) Mohanumedia power plant w/ ESP (95%) 1 0-1.25% 170 (20) -25% w/ ESP (>=99.5) 1.0-1.25% 40 (4.7) -40% Natural gas (per toe) All sectors ~0% 0 (0) -25% ** * Based on November 1996 prices. ** Reduction relative to the end-user price of natural gas if gas, when beconung available from Algeria, is to be taxed at the current rate of fuel oil and coal taxation. 3.53 International trends in differential taxation. Differential taxation of natural gas and fuel oil for industry is observed in most gas consuming western European countries. Data presented in Table 3.10 shows that fuel oil was taxed by US $22 more than natural gas per toe in 1996. This is very close to the social cost differential between natural gas and one percent sulfur content fuel oil estimated for the Casablanca-Mohammedia area. Table 3.10: Fuel Tax and Price Differentials in Western Europe Average differentials in 1996 (US $) Heavy fuel oil (per toe) less: Natural gas (per toe) 22 (tax differential) * Premium leaded gasoline (per liter) less: Premium unleaded gasoline (per liter) 0.06 (price differential) ** * For the industrial sector in 11 natural gas consuming countries in western Europe. ** In 15 countries in western Europe Source OECD Energy Prices and Taxes, 4/96. 36 3.54 Differential taxation - heavy vehicles versus light vehicles. For road transport fuels, the social cost taxes presented in Table 3.9 represent the lower bound of estimated social costs. Nevertheless, the taxes would imply a substantial increase in diesel prices. However, social cost taxation for road transport fuels is more complex to structure and implement than for industrial and power sector fuels. The social cost associated with heavy vehicles is estimated at about 25-35 percent higher than for light vehicles (passenger cars). Since it would be very cumbersome and costly to separate the diesel market with different tax levels for diesel used by heavy and light vehicles, other taxation instruments could be applied for heavy vehicles above and beyond fuel taxes. One such tax instrument could be an annual tax based on vehicle axle weight and/or engine size. 3.55 Special taxation for export agriculture sector. Diesel is not only used for road transport, but also extensively in the important sectors of agriculture and commercial fishing where the social cost is relatively insignificant compared to the cost in road transport. Thus, the agriculture and fishing sectors would bear an unfair burden if diesel users in these sectors were to pay the high tax reflecting the social cost in road transport. Moreover, it is likely to be difficult to effectively separate the diesel market with different tax levels for each sector without leakages. If therefore diesel taxes are maintained at a lower level than for gasoline, an annual tax on diesel vehicles could complement the diesel taxes 3.56 Differential taxation based on vehicle age. Road transport is substantially taxed through vehicle acquisition taxes, especially vehicle import taxes. However, vehicle acquisition taxes are poorly correlated with actual vehicle usage, and therefore social costs, over the lifetime of the vehicle. These taxes tend also to reduce the turnover rate of the vehicle fleet with the result that highly polluting and unsafe vehicles remain on the roads for a longer time, and maintenance cost and inefficiency of the vehicle fleet (including commercial transport vehicles) is higher than necessary. In addition to annual taxes based on vehicle axle weight and/or engine size, as suggested above, annual vehicle taxes could also be based on vehicle age, with taxes increasing with age. 3.57 Differential taxation - leaded gasoline versus unleaded gasoline. Despite the complex issues related to an appropriate level of diesel and gasoline taxes, it is highly desirable that leaded gasoline is taxed at a higher level than unleaded gasoline when sufficient supply of unleaded gasoline is available. The health impact of lead is estimated to be as much as US $0.05 per liter of leaded gasoline, suggesting that the tax on unleaded gasoline should be of that magnitude lower than the tax on leaded gasoline. This would bring the end-user price of unleaded gasoline to a level somewhat lower than the end-user price of leaded gasoline. The contrary is the situation in Morocco today In western Europe, the end-user price per liter of unleaded gasoline was on average about US $0.06 lower than the price of leaded gasoline in 1996 (see Table 3.10). 3.58 Tax Revenue Implications of Social Cost Taxation. Currently accounting for about 12 percent of central government revenues, energy taxes are an important source of the government revenues. To assess the revenue implications of the proposed energy tax reforms in Table 3.9, scenario analyses have been carried out as follows: 37 * The baseline scenario is a projection of energy demand and tax revenues based on current tax levels to the year 2010 * The first scenario is a change to social cost taxation of fuel oil, coal and gas in the power sector and industry but no changes in diesel and gasoline taxation. In this case annual tax revenues would be 14-15 percent lower than in the baseline scenario. * In the second scenario, diesel and gasoline are also taxed at social cost If the taxes on road transport diesel and gasoline are raised to the levels presented in Table 3.9 (and taxes on diesel used in agriculture and fishery sectors are eliminated), tax revenues would be 40 percent higher in the first year and 11- 12 percent higher in year 2010, relative to baseline revenues. * An intermediate case was also assessed, in which taxes on road transport diesel are "only" raised to the level of current gasoline taxes (and taxes on diesel for agriculture and fishery sectors are eliminated). Tax revenues would then be 25 percent higher in the first year and 5-6 percent higher in year 2010, relative to baseline revenues.2' These scenarios illustrate the range of revenue implications of energy tax reforms towards social cost taxation. For reasons discussed in the previous section, transport diesel taxes at the level presented in Table 3.9 may be difficult to implement. Annual vehicle taxation at the social cost of vehicle use would have similar revenue implications as estimated in the preceding paragraphs. Summary and Effectiveness of Pollution Mitigation Actions 3.59 A summary of the actions for which estimated health benefits exceed the costs of the actions are presented in Table 3.1 1a. If these actions were to be implemented now, particulate (PMIO) emissions would be reduced by an estimated 62 percent Particulate (PM1O) emissions reductions would be 68 percent if the particulate abatement efficiency at the Mohammedia power plant could be raised to 99.5%, rather than an efficiency improvement of the existing ESP to 97.5% as stipulated in the table Sulfur dioxide emissions would only be reduced by 15 percent. If sulfur dioxide emissions are of greater concern than estimated in this report, low sulfur fuel oil would be the recommended option instead of an ESP for the Casablanca power plant. In this case, sulfur dioxide emissions reductions would be 22 percent instead of 15 percent. Careful considerations should also be given to reducing sulfur dioxide from SAMIR refinery, which would be the 21 The upper bounds for year 2010 represent 40 percent natural gas use in the power sector, and 50 percent gas use in industry by the year 2010. The lower bounds represent 40 percent natural gas use in the power sector, but no gas use in industry. A constant own price elasticity of -0.5 has been applied for diesel and gasoline, with full adjustments in demand by year 2010. Tax revenue implications of demand effects in industry and power would be positive but small because the share of tax revenues from these sectors is only about 15-16 percent. 38 largest source of sulfur dioxide emissions in Casablanca-Mohammedia subsequent to fuel oil being more or less phased out in the power sector. 3.60 Table 3.11a also includes estimated emissions reductions from an alignment of diesel and gasoline taxes that would slow the rate of dieselization in road transport and make users economize on fuel use. The complexity of this issue was discussed in the section on economic instruments. A similar reduction may be achieved through a combination of fuel tax and vehicle tax policies. A detailed study should be undertaken to assess and design appropriate tax policy recommendations for the Moroccan context to address the road transport tax distortions which are exacerbating air pollution. 3.61 Most of the actions presented in Table 3.11 a would take some time to implement. Thus it is more realistic to compare emissions reductions from these actions, relative to future projected emissions if no actions are taken. This is presented in Table 3.1 lb for the year 2010. Particulate (PM10) emissions reductions are estimated at 66-70 percent and sulfur dioxide reductions at 54-81%. The lower bound represents the case in which expected replacement capacity of the Mohammedia power plant uses coal with 1 percent sulfur and 10 percent ash content, and an ESP with at least 99.5% abatement efficiency is installed and operated properly. The higher bound represents the case in which the plant exclusively uses natural gas. Table 3.11a: Priority Pollution Mitigation Actions for Casablanca-Mohammedia Based on 1994 emissions Benefit-cost PM10 reductions S02 reductions ratio (tons per year) (tons per year) Industry and Power Sector ESP in Casablanca power plant 3.5-3.9 600 - 1% sulfur fuel oil for industry 3-3.3 590 10800 ESP in SAMIR refinery 2-7 800 - Improved PM10 abatement efficiency in Mohammedia power plant 2-6 * 600 * Road Transport Unleaded gasoline 2.5-3.5 0.05% sulfur diesel 2.5-3 205 4400 Alignment of diesel and gasoline taxes 200 - Particulate traps for buses 2-3 110 IM program for buses 2-3 1 IM program for trucks 1-2 1210 - TOTAL 3315 (62%) 15200 (15%) * An assessment of the particulate control technology, and its operation, is required to determine the scope for abatement efficiency improvement and associated cost It is here assumed that the efficiency can be improved from 95 to 97 5 percent, and that the cost would be 1/2 of a new ESP 3.62 Table 3.11b includes a 50 percent natural gas penetration in industry. This is a higher level of penetration than may be expected if natural gas is taxed at the same rate as fuel oil. A 50 percent gas penetration could be achieved if a differential taxation is 39 adopted that reflects the higher health damages of fuel oil as discussed in the section on economic instruments. 3.63 To ensure that low sulfur fuel oil and diesel are supplied to the domestic market, the maximum allowable sulfur content in these fuels have to be regulated. The benefit- cost analyses in the preceding sections indicate that a maximum sulfur content of 0.05 percent in diesel and about 1 percent in fuel oil is both technically feasible, and desirable in order to protect human health. To legislate such regulations would not put SAMIR refinery at a disadvantage in relation to imported petroleum products, although significant investments would have to be undertaken. Table 3.11b: Priority Pollution Mitigation Actions for Casablanca-Mohammedia (year 2010 For year 2010 PM10 reductions S02 reductions (tons per year) (tons per year) Natural gas penetration in industry (50%) 1000 16500 1 % sulfur fuel oil for industry 610 11000 Close down of the Casablanca power plant - - ESP in SAMIR refinery 800 Capacity replacement of the Mohanmedia power plant 900-1200 * 20000-49000 * 0.05% sulfur diesel 450 10000 Alignment of gasoline and diesel taxes 470 IM program for buses and trucks 460 Particulate traps for buses 240 TOTAL 4930 - 5230 57500 - 86500 Reductions relative to projected emissions 66-70% 54-81% * The lower bound represents emissions reductions if coal with 1 percent sulfur and 10 percent ash content is used in the power plant, and the plant is equipped with an ESP with at least 99 5% particulate abatement efficiency The upper bound represents emissions reductions if the plant exclusively uses natural gas. 3.64 The phase-out of leaded gasoline could be achieved both by regulations and incentives. The maximum lead content could be stepwise reduced according to specified time intervals, while differential taxation favoring the use of unleaded could provide incentives to substitute away from leaded gasoline as the refineries' capacity to supply unleaded gasoline is increased. At an agreed upon date, leaded gasoline could be completely abolished as in many Latin American countries. A more detailed study to develop a time-bound phase-out plan should be undertaken. 3.65 Based on projected emissions and estimated emissions reductions for the year 2010, remaining particulate (PM10) emissions would be about 50 percent and sulfur dioxide emissions 50-80 percent below emissions in 1994 in Casablanca-Mohammedia. These reductions would represent a major accomplishment towards the air emission quality objectives of the National Environmental Strategy (NES) of 1995. Nevertheless, particulate (PM10) emissions from road transport would remain significant For further emissions reductions, particulate emission standards would have to be established for 40 vehicles imported to Morocco. If a large share of imported vehicles are used vehicles, it will be difficult to enforce tight standards. As discussed in the section on economic instruments, a lowering of import taxes which could be replaced by annual vehicle taxes and possibly higher diesel fuel taxes, would reduce the cost of importing new or newer vehicles with lower particulate emissions. 3.66 The estimated benefits of particulate (PM1O), sulfur dioxide, and lead emissions reductions in this report have been based on hypothetical ambient air concentration levels of these pollutants in Casablanca-Mohammedia. Limited and fragmented air quality monitoring indicates that concentration levels could be substantially higher than the levels applied in this report to estimate health impacts. Establishing a comprehensive and systematic air quality monitoring system for all major urban areas is a high priority. 41 CHAPTER 4: ELEMENTS OF THE NEAP IMPLEMENTATION STRATEGY Targeted interventions to meet quality objectives effectively 4.1 GOM recognizes that the 1995 NES should be implemented with no further delay to avoid higher cost of remediation in the future. While a great deal is being accomplished, notably in the area of building awareness of environmental risks, priority actions need to be implemented without delay. Because the government has only scarce resources, the most cost-effective options should be selected, achieving the greatest return for limited public intervention. Environmental protection policies could be prescribed on a balanced basis of the following criteria: (a) environmental effectiveness, (b) cost effectiveness, (c) administrative feasibility, and (d) equity. Government role is also to assist the private sector in understanding and adopting rigorous standards for public health and environmental protection, and in providing consumer information Strengthening the public sector and greater involvement of the private sector and NGOs would be the key issues. The government attention could be focused on the following elements of the proposed NEAP to act in the short- and medium terms. 4.2 The most important and urgent priority for action remains in the domain of water and sanitation, particularly in rural areas, and in cleaning-up the most polluted river basin, the Sebou. A closer examination of the feasibility of setting pollution charges is about to start because the River Basin Agencies (RBA) are now defined as water pollution control agencies under the 1995 Water Law. In the short-term, because the full institutional development of RBA will take sometime, it is important to review the most critical effluents and cost-effective measures that could result in an immediate emission reduction. 4 3 Increasing urbanization, industrialization, and demand for energy in general and for road transport vehicles in particular are all factors that combine to expose an increasing share of the population to rising air pollution. Moroccan income growth stimulates consumption in pollution-intensive product groups, especially polluting services such as transportation and power generation. Therefore, urban air pollution could be the most significant pollution problem within the coming years unless effective actions are taken today. 4.4 Use of market-based instruments to abate pollution. With its economic policy focused on private sector development, Morocco would benefit from a timely implementation of market-based instruments to protect the environment. The approach proposed in air pollution mitigation is to use market forces more specifically. It proposes to use taxes to reflect the damage associated with various fuels used in the power, 42 transport, and industry sectors. Differential petroleum product taxes related to levels of environmental hazard may indeed direct consumer behavior and consumption decisions to more environmentally friendly options, and subsequently to air pollution reduction. 4.5 Industrial pollution control policy. Since its creation in 1995, MOE has played a catalytic role in introducing environmental audits to carefully selected industrial groups22. Some environmental assessments have been carried out to design new industrial development projects. Such efforts are resulting in current negotiations of MOE with polluting industries to set effluent and emission standards acceptable to the industries. By jointly identifying feasible pollution control technologies and financing issues, MOE aims to agree on a negotiated environmental covenant with each of the industrial associations, such as cement producers, sugar processing industries, tannery and olive-oil industries. In case of Casablanca/Mohammedia where industrial activities are highly concentrated, MOE has developed locally-defined action plans for industrial pollution reductions. Across the entire industrial sector, it is vital to encourage strengthened environmental impact assessment, environmental audits and environmental management systems. 4.6 Regulation and monitoring. Moroccan authorities need to enact regulatory environmental standards and norms without delay. This is a high priority to enable application of permitting procedures that are stipulated in the 1995 Water law and the Draft Air Pollution Law. At the same time, proper monitoring system needs to be established in industry and power plants to assess environmental performance and compliance to the regulatory scheme. This is an essential infrastructure to implement any industrial pollution control policies proposed in the NEAP workshops, such as self- regulation of industries using environmental audits and management systems or direct emission charges under consideration in the various new environmental laws and decrees. Priority should be given to establishing regular pollution monitoring systems in major point sources already identified by MOE or in special zones, where pilot pollution control activities are envisaged to build common treatment plants. 4.7 Some pilot activities are promising. The relocation of polluting activities from Fes historic city illustrates that initiatives of local authorities are essential for driving results (see Box 4.1). As it has been done for defining national effluent and emission standards with industrial associations, more initiatives for collaboration with NGOs could be engaged upon in various sectors of the economy. 22For the last four years, MOE experimented ten environmental audits in Mohammedia/Casablanca and 16 audits in the Sebou Basin. 43 Box 4.1: Relocation of Polluting Activities Ain-Nokbi, Fes: Challenge and Opportunity to implement a mixture of Commend-and-Control (CAC) and incentives for more growth for leather and metal plating industries with improved environmental performance Diagnosis Historic city Fes (150,000 population), World Heritage Site of Human Kind, became an important pollution source with over 500 small-scale industrial production units. Pollution causes irreversible damage to the historical assets, historic buildings, but also there are substantial risks that hazardous waste affect human health e g. tanneries effluent discharge 200 ton of heavy metal yearly in the surface water, which represents 50 % of the total chromate pollution of Morocco; tanneries are also the most important source of solid waste in the city, some 20 ton daily and its disposal is inadequate. ADER-Fes, the Fes Historic City Rehabilitation Agency, is developing a new industrial site to relocate these polluting industries, equipped with an effluent treatment facility, a larger space for business expansion and information access to cleaner process and management. Despite the absence of environmental regulations at the national level, the local authorities ordered to shut-down polluting production uuts for the reason to protect public health, but offered financial aid scheme for the initial land acquisition for a determined time period. Despite strong demands from other competitors in the leather production sector, particularly from Casablanca, only targeted polluters from the historic city are eligible to the proposed financial aid. Since this approach is giving an impetus to the relocation process, no production unit has been effectively closed. For the past years, polluting units benefited from environmental audits to improve business management. The City Rehabilitation Agency attributes the successful factors to: * participation of the local community in the decision-making * cost-sharing between polluters and the local community * locally defined quality objectives (waste water quality norms defined by sewerage management institution, RADEEF, and environmental assessment carried out by ADER-Fes). Sustainabiity of this clean-up operation will depend on the future actions such as. * environmental awareness building through actions by the local chamber of commerce and industrial associations * concerted monitoring by the local institutions, ADER-Fes, RADEEF, ONEP (water utility) and the local branch of DGH/PW. * technical and financial assistance of the Ministry of Commerce and Industry to the polluting semi-industrial traditional artisans * the Rehabilitation Agency's continuous ability to monitor socio-economic behavior of the polluting industries, and ambient quality of the city, in close cooperation with the Ministry of Environment.. Based on the Report of ADER-Fes, February 1997 4.8 Minimizing growth-environmental trade-offs. If pollution abatement policies are to be implemented in the interest of more sustainable development, dynamic evolution of economic and environmental variables should be analyzed and monitored. The simulation model used for this report is designed to support more concrete Moroccan policy analysis, including evaluation of the NEAP and negotiated policies such as harmonization with European environmental standards. The next step is to identify what cleaner production/ecoefficiency gains might be introduced as these areas grow in economic importance. In this context, it is essential to get the EIA, audit and licensing procedures institutionalized because modernizing the current production systems and/or establishing new plants offer opportunities to invest in cost effective pollution abatement. 4.9 State-owned pollution sources. The privatization would provide an opportunity to clarify applicable environmental regulations, and to allocate the burden of environmental compliance between the state and the private sector. Incentives for new private investors to abate pollution can be promoted more realistically if, for example, privatization of oil refineries and sugar companies is implemented with a set of environmental quality objectives. 44 4.10 Polluter-pays-principle should not be overlooked when designing the National Environmental Fund and the Depollution Fund. Failure to consider this approach will delay internalization of environmental damage in the long-term. There is a need to clearly assess short-run liquidity constraints which may justify government support to environmental control investments that should be made by polluters for regulatory compliance, e.g., small polluting industries have only limited access to commercial banking products with high discount rates. For the transitional phase of introducing pollution controls, tax benefits and special credit facilities can be used to speed up the adjustment in the private sector and assist especially small companies in meeting their increased financial needs for upgrading their environmental performance. 4.11 Resolving institutional fragmentation is an urgent need. Despite the recent achievement in the central government's administrative structure and an impressive expansion of MOE in the last four years, the institutional framework for environmental management still requires substantial strengthening. For example, EIA procedures to effectively support sustainable development decisions, require close cooperation among local governments, line ministries and sector authorities. Streamlining the complex relations between different agencies with fragmented and overlapping jurisdictions is necessary. 4.12 Environmental problems are complex issues which require inter-disciplinary staffing of the environmental administration. Proposed government-wide administrative reform may be the opportunity to examine whether an innovative and more flexible structure of civil servants could strengthen the current MOE staff. For example, inter- exchange of staff with sectoral and local authorities who are concerned with environmental regulation and management might enhance operational skills necessary to ensure enforcement. 4.13 Role of external assistance Given significant interests of external assistance in the field of environmental management capacity building, the role of official aid, particularly EU cooperation expected under EU-FTA Environmental articles, should be integrated in the NEAP. Assistance objectives should include supporting Morocco's environmental protection policies and helping industries understand and respond to environmental requirements in their export markets. As discussed in paragraph 1.21, the Government is preparing to develop a wide range of new legal instruments to deal with the various environmental challenges. Continuous efforts to reinforce the legal and regulatory framework is an essential tool to enhance environmental performance of Moroccan industries and to develop the overall capacity for environmental management. They should be coupled with an effort to train existing and new environmental staff and strengthening the enforcement and implementation capacity in the both public and private sectors. 45 BIBLIOGRAPHY (Selective List) Afsah, S., Laplante, B. and Wheeler, D. "Controlling Industrial Pollution". The World Bank Policy Research Department, Working Paper No. 1672, October 1996. Brandon, C. 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Ministire de l'Int6rieur "Schima Directeur National d'Assamnissement Liquide ". 1996. Ostro 'Estimating the Health Effects of Air Pollutants". Policy Research Working Paper No. 1301. World Bank. 1994. Page, J. and Underwood J. "Growth, the Maghreb and the European Union - Assessing the Impact of the Free Trade Agreements on Tunisia and Morocco". December 1995. Pope et al "Particulate Air Pollution as a Predictor of Mortality in a Prospective Study of U.S. Adults." American Journal of Respiratory and Critical Care Medicine, Vo. 151(3): 669-74. 1995. Radian International 'Environmental Assessment of Power Plant Project in Jorf Lazfar" August 1996. Roland-Holst, D. "Coordinated Trade and Environment Policies for Morocco". April 1997. Sadoff, C. W., World Bank Environment Department, Paper No. 038 "Cost of Dirty Water: Pollution Costs in the Sebou Basin". June 1996. The World Bank "Country Assistance Strategy for the Kingdom of Morocco". Report No. 16219-MOR January 1997. The World Bank "Effectiveness of Environmental Assessments and National Environmental Action Plans: Process Study". OED Report No. 15835. June 1996. The World Bank 'ISO14000 and Environmental Performance" Draft Dissemination Note. May 1997. The World Bank "Kingdom of Morocco - Country Economic Memorandum Towards Higher Growth and Employment", Report No. 14155-MOR. September 1995. The World Bank "Kingdom of Morocco - Poverty, Adjustment, and Growth". Report No. 11918-MOR. January 1994 The World Bank "Kingdom of Morocco - Rural Development Strategy: Integrating the Two Moroccos (1997-2010)". Synthesis Report No. 16303-MOR March 1997 The World Bank "Middle East and North Africa Environmental Strategy - Towards Sustainable Development". Report No. 13601. February 1995. The World Bank "MOP Environment Management Project". Project Report P-6109-MOR August 1993. . � . , � та�• Mediterranean Seo Теlоиап �� ок в А1 ы �го� Choouen , Кюг Kefvr ь �' моRоссо � 5ouk е1 а �в Ои�да Machm - W Taounete 5ake , 1orf Е1 1 д� Тога Т оипм Rqgp • NnAouda NОПт+"' "'°'"°'"`"°�° CENTRAL Sdi ИWитеп �� Сотб � п 1б�етi 1 Е� � оитКапд°г ORIENTAL Douar На�е6 1 в 5еlтиЛа Аbд�опгю • вои�епюпе �Е� WEST 1� ladida 1Qiou а е р��(�у T( T /� • 5еtЮ1 А 1 L А N 1� l. рΡ�� Ои - т �д� CENTlV1L ААiдев воиогfа ппоиг � F1uh Веп 5afi 5a1ah О С Е А N вепдивпг , вет �д, Freu�e rмвш д��� �по SOUTH С TRAL f� `' -- Э2• � Аа1а1 1 TENJ�FI ОDетгиде Goulnuma •Ermгhidio ' � � Еsюои°° Moпokech ' Erfoud Гпвhп � 1тт TonoW � Е1 Ке1ао 1 Оио des Мдоипо � � в� �oRROA05 � � � SECONDARY ROADS иlад Т��1 ' - LOGц ROADS ��г е Та�то л а�� wvEaonos 6y3The� WorM BonYs -slof( Твгоидо (+ О�� и 2авога ' cL0 а,мвиоиi J rl �, р гкоиисесrи'пиs eadimrey� for f!ю соп.епгеr� о! reoders апд п Гаг rhe ' ® NqT10NAL САР1Тц пгвпаl ию о! 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Группа Всемирного банка · Pre-2003 Economic or Sector Report
Morocco - Environment Review (Vol. 1 of 2) : The Main Report
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