Philippines - Environmental sector study toward improved environmental policies and management

Report No. 11852-PH Philippines Environmental Sector Study Toward Improved Environmental Policies and Management December 8, 1993 Industry and Energy Division Country Department 1 East Asia and Pacific Region FOR OFFICIAL USE ONLY osam . Wod Bank rs docuni has a restricted distribution and may be used byrecipientontly - i n the pxfonaef their official dutis. Its content may not o be -- wed without World Bank authorization  ADB Asian Development Bank ATC Authority to Construct BFAR Bureau of Fisheries and Aquatic Resources BPM Best Practical Means BOD Biochemical Oxygen Demand BOI Bureau of Investment CDO Cease and Desist Order CO Carbon Monoxide COD Chemical Oxygen Demand CRG Conservation and Regulatory Group of DENR CSD Council for Sustainable Development CTG Cradle to Grave DA Department of Agriculture DENR Department of Environment and Natural Resources DILG Department of Interior and Local Government DOE Department of Energy DOST Department of Science and Technology DOTC Department of Transportation and Communications DPWH Department of Public Works and Highways DTI Department of Trade and Industry EA Environmental Assessment EIA Environmental Impact Assessment ECA Environmentally Critical Areas ECC Environmental Clearance Certificate ECP Environmentally Critical Products EDC Environmental Development Corporation EEC European Economic Community EIA Environmental Impact Assessment EIA-EMB EIA Section of EMB EIARC Environmental Impact Assessment Review Committee EIS Environmental Impact Statement EMB Environmental Management Bureau EOC Environmental Officers Committee ERB Energy Regulatory Board ESP Electrostatic Precipitator EU Environmental Unit FGD Flue Gas Desulfurization GDP Gross Domestic Product GJ Gigajoule (billion joules) GNP Gross National Product GOP Government of the Philippines GW Gigawatt (million kW) GWh Gigawatt-hour (million kWh) H2S Hydrogen Sulfide HTS Hazardous and Toxic Substances IAC Inter-Agency Committee IACEP Inter-Agency Committee on Environmental Protection IEPC Industrial Efficiency and Pollution Control Study IESAM Institute for Environmental Science and Management ITDI Industry and Technology Development Institute kW Kilo-Watt (1,000 Watt) KWh Kilo-Watt hour LA Lead Agency LPG Liquid Petroleum Gas LLDA Laguna Lake Development Authority  FOR OFFICIAL USE ONLY MBBLs Thousand Barrels Mi Megajoule MMA Metro Manila Area MMBFOE Millions of Barrels of Fuel Oil Equivalent MPN Most Probable Number MTOE Thousands of Tons of Oil Equivalent MW Megawatt NCG Non-condensable Gases Ncm Normal cubic meter NCR National Capital Region NEDA National Economic Development Authority NEPC National Environmental Protection Council NGO Non-Governmental Organization NHA National Housing Authority NIA National Irrigation Administration NO2 Nitrogen Dioxide NOx Nitrogen Oxides NPC National Power Corporation NPCB National Pollution Control Board NRDC Natural Resources Development Corporation OEA Office of Energy Affairs. OECD Organization for Economic Cooperation and Development OPSF Oil Price Stabilization Fund PAB Pollution Adjudication Board PCG Philippines Coast Guard PCO Pollution Control Officer PCG Philippine Coast Guard PD Project Description Phil2l. Philippines' Response to Agenda 21 PM Particulate Matter PM1O Particulate Matter less than 10 microns in diameter PNOC Philippine National Oil Company ppm parts per million PO Peoples' Organizations PSSD Philippine Strategy for Sustainable Development PTO Permit to Operate RDC Resource Development Group of DENR scm standard cubic meter SEC Securities and Exchange Commission SO, Sulfur Dioxide TCF Trillion Cubic Feet TDS Total Dissolved Solids TFP Total Factor Productivity THS Toxic and Hazardous Substances TSP Total Suspended Particulates TSS Total Suspended Solids UPLB University of the Philippines at Los Banos VOC Volatile Organic Compound WDR World Development Report WHO World Health Organization WRI World Resources Institute Currency Equivalents Currency Unit = Philippines Pesos (R) Average 1992 -- USS1.0 = P25.50 This document has a restricted distribution and may be used by recipients only in the Performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   PHILIPPINES ENVIRONMENTAL SECTOR STUDY TOWARD IMPROVED ENVIRONMENTAL POLICIES AND MANAGEMENT Table of Contents Page No. VOLUME I EXECUTIVE SUMMARY ........................................... i A. Background ...............................................i B. General Findings ............................................ C. Policy Priorities for Environmental Control ............................ v D. Recommended Strategy . ...................................... vi E. Next Steps ............................................. xi 1. ENVIRONMENTAL ISSUES . ...................................... 1 A. Introduction ............................................... 1 B. The Environmental Bureaucracy ........... ....................... 1 C. Environmental Management Functions .............................. 4 D. Industry Structure and Trends ............. ...................... 7 E. Key Environmental Issues . ..................................... 8 F. Summary ............................................... 15 2. ENVIRONMENTAL STATUS AND TRENDS ....... .................... 18 A. Introduction .............................................. 18 B. Pollution Trends ........................................... 19 C. Pollution Sources .......................................... 22 D. Summary ............................................. 34 3. EFFECTIVENESS OF CURRENT SYSTEM ....... .................. ... 37 A. Introduction .............................................. 37 B. Review of Current Regulatory Framework ........................... 37 C. Cost-Effectiveness of Current Regulatory Structure ..................... 44 D. Setting Policy Priorities . ..................................... 48 E. Summary ................................................ 9 4. RECOMMENDED POLICY STRATEGY FOR ENVIRONMENTAL PROTECTION . 61 A. Introduction ............................................. 61 B. Policy Objectives ........................................... 61 C. Energy Production and Use ..................................... 62 D. Industry .......................................... 69 E. Transport .......................................... 76 F. Summary of Policy Reforms: Phasing and Cost Implications ..... ........... 80  - ii - 5. PROPOSED INSTITUTIONAL FRAMIEWORK .......... .. .............. 87 A. Introduction .............................................. 87 B. Effectiveness of Existing Institutional Framework ...................... 87 C. Recommended Organizational Changes ............................. 91 D. Resource Requirements ...................................... 100 E. Summary ............................................... 103 ANNEXES CHAPTER 1 1-1 Organizational Chart, Department of Environment and Natural Resources ... .. 107 1-2 EMB Organizational Chart .................................. 108 1-3 The Industry Sector in the Philippines ........................... 109 1-4 The Energy Sector in the Philippines ............................ 114 CHAPTER 2 2-1 Ambient Air Quality Summary - Philippines ....................... 120 2-2 Ambient Water Quality Summary - Philippines ..................... 121 2-3 Selected Water Quality Parametes for Worst Quality Stations ............. 122 2-4 Air Pollution from Manufacturing ............................. 123 2-5 Summary of Pollution Control Equipment by Generating Plant ............ 124 CHAPTER 3 3-1 Ambient Air Quality Standards ............................... 125 3-2 Emission Standards from Stationary Sources ....................... 126 CHAPTER 4 4-1 Outline of Presumptive Charge System for Water Pollution .............. 127 4-2 Fuels Reformulation ...................................... 129 CHAPTER 5 5-1 Recommended Organization Chart ............................. 131 5-2 Environmental Development Corporation ......................... 132 BIBLIOGRAPHY  - iii - Acknowledgements This report was prepared by a team comprising: Darayes Mehta (Task Manager); Jamil Sopher (Joint Task Manager); Sudhir Shetty (Coordinator - Environmental Economics); and consultants - Jack Ruitenbeek (Environmental Economics); Geoffrey Waite (Institutions); Jay Nagendran (Industrial Pollution); and Theresa Gamulo (Secretarial Assistance). Important contributions on individual sectors were made by: Kariyawasam Wijetilleke (Transport); Konrad von Ritter (Industry); William Lane (Geothermal/Marine); and consultants - Serafin Talisayon (Social); Tony Oposa (Legal). Peer Reviewers for the study were: Alan Krupnick (Consultant); Jack Fritz; and Anil Somani. The writers would like to acknowledge the excellent cooperation and assistance of various Philippine Government and non-Government institutions during the field missions to the Philippines; in particular the Department of Environmental and Natural Resources (DENR) and the Environmental Management Bureau (EMB), the host agencies for the study. The team received valuable guidance and useful information during discussions with Delfin Ganapin (former Assistant Secretary, DENR), Rod Fuentes (Director, EMB), Robert Jara (Director of Foreign Assisted Projects), Cecile Mercado (Sr. Environmental Management Officer) and Bebet Gozun (Program Coordinator, MEIP). The writers would also wish to acknowledge the cooperation offered by the environmental specialists of the Asian Development Bank; and the Office of Natural Resources of the United States Agency for International Development office in Manila.   EXECUTIVE SUMIMARY A. Background 1. The Government of the Philippines has for some time recognized the economic importance of managing its air, water and terrestrial resources. It has proposed ambitious initiatives through the Philippine Strategy for Sustainable Development (PSSD) and with its response to Agenda 21 (Phil21). Moreover, its activities in environmental management have been attracting an increased interest from the international community; and the Philippines boasts a strong movement of Non-Governmental Organizations (NGOs) which has been instrumental in developing increased awareness of environmental issues, and in promoting an agenda of sound environmental management. To date, however, the Philippines has focused most of its environmental management efforts on issues of natural resource conservation, such as forest management, to which some 80 percent of the budget of the Department of Environment and Natural Resources (DENR) is dedicated. Much less effort has been directed towards mitigating pollution impacts. The strong links between economic growth, industrial growth, energy use, and environmental quality have now underscored the need to focus on ways of addressing pollution from the industrial, energy and transport sectors. 2. Since the late 1970s, the Philippines has developed a range of policies and institutions for environmental management. The process began with the establishment of the National Pollution Control Commission (NPCC), which had enforcement and regulatory powers, and an Inter-Agency Committee on Environmental Protection (IACEP) (the predecessor of the National Environmental Protection Council [NEPC]), which had policy, research and monitoring functions. The Government also established at that time the Environmental Impact Statement (EIS) system, patterned after similar requirements in the United States. In 1987, the Ministry of Natural Resources was reconstituted in its present form as the Department of Environment and Natural Resources (DENR), with EMB as a staff bureau replacing NPCC and NEPC. The Pollution Adjudication Board (PAB) was also formed in 1987 to serve as the judicial body for environmental affairs. 3. The economic costs of air and water pollution and solid wastes are rising, particularly in the Metropolitan Manila Area (MMA). Moreover, concern about environmental deterioration is greater because a large share of these costs is being borne by lower income groups that cannot defend themselves adequately against the impacts of pollution. The Philippines now faces the challenge of achieving environmentally-sound development without disrupting economic growth. A key objective of this study is to provide guidance as to which pollution problems should receive the highest policy priority. This prioritization procedure is itself an important first step to identifying potentially effective policy interventions and control measures, and the institutional reforms that might be necessary to support such interventions and measures. Implicit in such prioritization is the notion that because of limited financial or administrative resources, some lower priority efforts will need to be deferred or phased in over longer periods of time. A general theme that recurs throughout this study is that less pollution is likely to be best realized with more effective regulation. In some cases this actually means less regulation to ensure that market forces can produce environmentally beneficial outcomes; in other cases it means that different policies that produce the desired environmental improvements at lower cost are required.  - 11 - B. General Findings Ambient Conditions 4. Monitoring data are available only for the Metropolitan Manila Area (MMA), and even these are limited for many pollutants. However, they establish clearly that the two pollutants of greatest concern in the MMA are suspended particulate matter (SPM) and lead. The levels of both these pollutants exceed local air quality standards and World Health Organization (WHO) guidelines by substantial margins. For other air pollutants, the monitoring data are too sporadic to draw firm conclusions. But peak levels of nitrogen dioxide (NO2), which contribute to ground-level ozone formation, have at times approached WHO guidelines. Carbon monoxide (CO) concentrations in some locations are high but vary substantially. And sulfur dioxide (SO2) levels are generally low. Although no ambient monitoring network exists in other urban locations, it- is likely that cities such as Cebu that have seen substantial increases in road traffic and industrial activity will be increasingly vulnerable to pollutant concentrations that are already observed in the MMA. 5. Many of the important rivers and coastal areas in the Philippines are already polluted to a stage that is of concern. Almost half of all water quality monitoring stations--river and coastal--show deterioration beyond even the worst possible official classification of surface waters. The pollution of these rivers is of concern because they supply water to major industries and are the main sources of drinking water. The worst water quality is observed for rivers in the MMA, some of which in the dry season have the same characteristics as raw sewage. The major problem is low dissolved oxygen (DO) levels due to untreated discharges of domestic sewage and industrial organic waste. Limited sampling data indicate that heavy metals in these rivers are still within acceptable limits. Other regions where rivers and coastal reaches are of especially poor quality are Regions VI (Iliolo) and VII (Cebu). Of particular concern in areas such as Mindanao that have experienced "gold rushes" in recent years is the discharge of mercury and cyanide into rivers and eventually to coastal areas. These substances, which are used by small-scale miners to leach gold from finely-ground ores, eventually find their way into fish and human tissues. Finally, the generation of hazardous and toxic wastes by industry is an emerging problem especially in the MMA with these wastes being discharged both as wastewater and on land as solid wastes. Benefits of Pollution Reduction 6. These emissions of air and water pollutants and hazardous waste from energy production, transport and industry already impose significant costs. The most important of these costs (or correspondingly the benefits of reducing pollution) take the form of health impacts due to air and water pollution, amenity gains from reduced pollution, and risks of renewable resource productivity loss. It is estimated, for example, that the value of potential human health improvements would be at least $20 million annually from improvements in air quality, and at least $100 million annually from improvements in water quality. These estimates are lower bounds, as they are based solely on the productivity gains that can be realized from decreased sickness alone. People would normally be willing to pay even more than this amount to reflect the improvements in the quality of life. Furthermore, the value of agricultural, forestry and fishery resources currently at risk from air and water pollution is in the range of $200-$300 million annually.  - 111 - Assessment of Current Regulatory System 7. The general goal of any system of environmental management should be to reduce pollution as cheaply (or as cost-effectively) as possible. In the Philippines, however, an assessment of the current structures indicates that three general problems hamper the system's overall effectiveness (see Table 1): (i) inadequate priority-setting; (ii) inappropriate policies; and, (iii) weak institutions. In short, although there is an overwhelmingly large amount of regulation, the effectiveness of these regulations in reducing pollution has been limited. 8. The first reason for the system's ineffectiveness is that many of its features are at variance with environmental priorities. The regulations in place are often a consequence more of bureaucratic or political factors, than a result of a rational planning process that explicitly identifies the highest priority areas for pollution reduction. There are a number of consequences of this lack of priority setting. In some instances, pollutants are strictly regulated, even when the costs of regulation are high and the pollutants are not significant problems for either human health or productivity. More seriously, other pollutants that do pose significant health hazards are not addressed, even though cost-effective technical means and policies are available to reduce their ambient levels. What is necessary, therefore, is to establish clear priorities that allow control measures to target the most environmentally critical pollutants; such priorities must also reflect the costs and benefits associated with controlling these pollutants, so that scarce resources can be allocated to those of highest priority. TABLE 1: EFFECTIVENESS OF CURRENT SYSTEM IN THE PIULIPPINES l Issues Current System Requirement There are no clear priorities established for Priorities should be established which are environmental management; existing structures sensitive to the environmental significance Priorities often send conflicting signals or do not of a problem, while also reflecting the address environmental problems in proportion economic benefits and costs involved in to the environmental significance of the addressing any given problem. problem. Policy and regulatory instruments currently in Policy instruments should focus more on place are not enforceable and would not be cost-effective market-based instruments Policies cost-effective even if greater enforcement that encourage compliance in high priority occurred. areas; selected regulatory efforts should be phased in more slowly in areas of low l _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _________________________________________ p rio rity. The current institutional framework is Structures should be reformed and hampered by numerous constraints and itself stream-lined to coincide with a targeted Institutions poses a threat to economic growth and policy focus. sustainable development in the Philippines. - 9. Since many of the regulations currently in place do not target high priority areas, one strategy for rectifying the problem of non-compliance would be simply to increase enforcement efforts in priority areas. But such efforts by themselves would be hampered because many of the regulations and policies currently in place are not cost-effective in reducing pollution. This lack of cost- effectiveness arise from three main features of the current regulatory system: (i) policies that ignore the nature of the pollution problems at which they are addressed; (ii) conflicting signals between pricing  - iv - policies and pollution control regulations; and, (iii) the use of regulatory methods that are costly to administer or ignore differences in compliance costs across different sources of pollution. 10. Current regulations for pollution control fail to recognize, and take advantage of, the different numbers of sources that must be targeted for diverse pollution problems. For example, policies directed to different types of air pollution should, for cost-effectiveness, be quite different from those directed at water pollution because of the number of point sources that need to be targeted. Tackling lead and SPM emissions from the transport sector will require, for instance, policies capable of affecting over a million sources of emissions by the turn of the century. By contrast, policies to tackle emissions of most air pollutants from industrial sources can be effectively directed at just a handful of firms. For instance, 90 percent of SPM and S02 emissions in MMA can be controlled by targeting just 3 power plants and 10 other industrial polluters. Between these extremes, policies directed at controlling waterborne wastes will need to be sensitive to the different types of waste generated -- and the different costs faced -- by the major polluters; these must contend with more than 100 sources to achieve a degree of effective pollution control. 11. Many of the policies currently in place provide conflicting signals to potential polluters. Although energy inputs and electric power are not subsidized on average, the current pricing system favors the use of relatively dirty fuels that are significant contributors to sulfur and particulate emissions. Another example involves the implicit subsidy to domestic coal use that requires purchasers to use at least as much domestic as imported coal; the higher sulfur and ash content of domestic coal, in addition to its lower heat content, results in a significantly higher level of emissions per unit of output. Along with such regulations on input use, emissions of manufacturing firms are also regulated; the result is that one set of regulations (import rules or subsidies) encourage pollution whereas emission regulations attempt to discourage pollution. These contradictions between pricing and pollution control policies also point to important "win-win" opportunities where pricing reform can enhance both economic efficiency (narrowly defined) and environmental quality. 12. The structure of current regulations is insensitive to the control costs that various polluters face. For example, diesel reformulation would reduce S02 emissions in the MMA by about 15 percent and cost some $35 million annually; achieving the same reductions by installing flue gas desulfurization in the power stations in the area would cost about three times as much. Similarly, the costs of meeting water treatment guidelines vary significantly among the top 100 polluters in the MMA: the lowest BOD treatment costs apply to slaughterhouses (less than 5 pesos per kg); the highest apply to pulp and paper industries (23 pesos per kg). This large variation suggests that policies that are more sensitive to compliance costs could achieve targeted levels of pollution reduction more effectively. 13. Finally, even if policies and regulations are targeted more effectively to high priority areas, one of the most persistent constraints to effective environmental management in the Philippines is the existing institutional framework. In addition to its being hampered by severe resource constraints, the regulatory framework itself poses an institutional drag that threatens both economic growth and effective environmental management. For example, the energy sector has been subject to numerous process delays, to the extent that the regulatory system has itself been partially blamed for the recent power shortages. The Philippines most urgently requires a number of institutional reforms that will streamline the regulatory process to enable implementation of policies targeted to high priority areas, and to ensure that these reforms enjoy long-term sustainability with adequate human and financial resources.  - v - 14. To overcome the current constraints in these three areas, analyses were undertaken to identify: (i) the relative environmental priorities; (ii) the most cost-effective policies for addressing these priority areas; and, (iii) an effective institutional framework, which can ensure that the overall goal of cost-effective pollution reductions is achieved. C. Policy Priorities for Envirommental Control 15. The range of pollution problems that affect the Philippines underscores the need to set meaningful policy priorities. The approach used in this study in setting priorities is to assess both the economic benefits and costs of addressing various pollution problems. But although this priority-setting exercise takes account of the costs of mitigating pollution, its main aim is to rank pollution problems rather than to select policy interventions. In general, pollution problems with a high policy priority are those where mitigation would bring significant benefits and could be dealt with at relatively low cost. On the other hand, problems of low policy priority are either not intrinsically significant in terms of the benefits of control, or have few available cost-effective interventions. These policy priorities should be regarded as a "screening" for selecting areas where policy interventions are best directed given limited resources and institutional capacity available in the Philippines. After such a "screening" has been done, the design of cost-effective policies and institutional responses can be analyzed. BOX 1: SUMMARY OF KEY ENVIRONMENTAL POLICY PRIORITIE High Policv Priority Stationary Sources of SPM Mobile Sources of SPM Mobile Sources of Lead Selected Industrial Sources of BOD & TSS BOD & TSS from Domestic Waste Heavy Metals from Gold Mining Moderate Policy Priority Mobile Sources of S02 Selected Industrial Sources of Heavy Metals Selected Industrial Sources of Multiple Wastes Interim Management of Toxic and Hazardous Wastes Low Policy Priority Stationary Sources of SO2 All Sources of NOx All Sources of HC and CO Comprehensive Management of Toxic and Hazardous Wastes 16. The highest policy priorities are reducing emissions of SPM and lead. Ambient levels of particulates and lead have consistently exceeded both the Philippines' standards, as well as typical international standards and guidelines for these pollutants. Technologies for addressing these problems can be implemented cost-effectively, with substantial benefits resulting from health improvements. A high policy priority is also assigned to domestic waste and to selected industrial sources of Biochemical Oxygen Demand (BOD) and suspended solids: major industrial contributors include food processing (especially sugar refining), piggeries and slaughterhouses, pulp and paper mills, beverage production,  - Vi - and textiles. Although BOD discharges are not by themselves always a problem, they are a useful proxy for a host of other less easily monitored pollutants of surface water. 17. The lowest policy priorities include stationary sources of SO2, mobile sources of hydrocarbons (HC) and CO, and all sources of NO2. This is especially significant because many of the current regulations in the Philippines are explicitly targeted towards controlling some of these pollutants. For example, the country has one of the strictest SO2 emission standards in the world, even though these emissions are not a major health concern and the costs of controlling them from stationary sources are onerous. 18. Between these extremes, a moderate relative policy priority is assigned to a number of other pollutants. These include mobile sources of SO2, and selected industrial sources of heavy metals (including metal finishing, tanneries, electronics, and mining) and multiple organic and inorganic wastes from chemical plants, petrochemical plants, pulp and paper mills, and pharmaceutical industries. 19. Toxic and hazardous substances (THS) present a somewhat special case. Because of the high costs involved, attempts to tackle all steps (generation, storage, disposal and destruction) of dealing with these wastes are regarded as a low priority at present. On the other hand, most of the feasible cost-effective interventions would involve a less ambitious approach of concentrating on waste reduction, monitoring and separation of wastes, and temporary storage measures. Such an approach is regarded as being of moderate priority in the Philippines to prevent future THS proliferation and to assist in the eventual design and implementation of a comprehensive scheme. D. Recommended Strategy 20. The primary recommendations of this study consist of two related components. First, a number of key policy recommendations relate to policy and regulatory reforms that are intended to reduce discharges of pollutants in priority areas at lower cost. Second, complementary institutional reforms are proposed that are intended to streamline existing processes and provide a viable structure for implementing the indicated policy and regulatory reforms. Policies 21. Reform of pollution control policies in the Philippines to improve their cost effectiveness would include three key components. They should first be targeted to the high policy priorities for air pollution (such as SPM and lead) and water pollution (industrial discharges of BOD and Total Suspended Solids [TSS]). Second, reforms of economic policies such as the removal of price distortions should take precedence over further environmental regulation because these measures can simultaneously further both economic efficiency (narrowly defined) and environmental goals. Finally, where such "win-win" policies are not sufficient, and additional targeted policies are required, policies such as presumptive pollution charges, which encourage cost-effective pollution abatement, should be implemented.  - vii - 22. The key elements of the recommended policy and regulatory reforms are: (a) Attainment Targets. The study specifies long-term attainment targets in ambient conditions for air and water for the year 2005, with interim targets specified for 1998 to allow the phase-in and monitoring of control programs. Specific targets reflect the environmental priority attached to the given pollutants and, in some cases, involve temporarily relaxing current standards to allow a rational phase-in period. Fuel reformulation targets are also specified for reducing sulfur content in diesel fuels and lead in gasoline. (b) Elimination of Price Distortions. During the phase-in period to 1998, the study calls for elininating a number of price distortions that hamper current regulatory efforts. These involve removal of selected cross-subsidies in the fuel pricing system, reform of cost-recovery calculations for refiners, and deregulation of coal use quotas. Many of these initiatives are already underway with increased deregulation, and these should also be encouraged on environmental grounds. (c) Phase-in of Air Emission Regulations. The study specifies a relaxed set of emission standards from stationary sources during the phase-in period up to 1998; this is to allow certain structural reforms to be introduced and economic policy reforms to take effect. Structural reforms involve designing concentration-based standards on a sliding scale basis that distinguishes between age of source, scale of facility, fuel, and location. Threshold levels are specified to exempt small- polluters so that regulatory efforts concentrate on the few sources responsible for 80 to 90 percent of the pollution. (d) Presumptive Charge on Water Pollution. To control water pollution from multiple sources, the study recommends design and implementation of a presumptive charge system. The system must be sensitive to location, and would provide for rebates in the event that audits demonstrate that polluters discharge less than the amount presumed by the charge. Benefits and Costs 23. Program Benefits. The environmental benefits from implementing these reforms would be significant. Improved health and labor productivity, higher amenity from lower pollution, and decreased risk of losses of forests and other renewable resources are some of these benefits. In addition, there will be gains due to fewer project implementation delays and overall efficiency gains from the removal of existing price distortions. For instance, potential efficiency improvements resulting from high quality coal use in the power sector alone are of the order of $40-$55 million annually by 1998. Rough estimates of these and other benefits are shown in Table 2 below. 24. Program Costs. The main components of the system, however, contain a number of implicit costs to achieve these reforms. For example, a fuel reformulation program is expected to result in an equivalent annual cost of approximately $35 million. Costs of decreasing the BOD loads for the top 100 polluters in the MMA will depend to some extent on the type of systems that are eventually adopted, but are estimated to be about $20 million. The impacts on electricity generation prices through the power sector are estimated to be relatively small: NO2 controls using low-NOx burners are  - viii - estimated to have an incremental cost impact of less than USIC/kWh, and the costs of measures to reduce SPM levels are expected to approach at most US1C/kWh. Given forecast incremental power demand, these two control measures would translate to an incremental cost of about $15 million annually by 1998. However, such costs are more than offset by efficiency gains in the power sector so that average tariffs to end-users could actually fall in real terms to what they would otherwise be. Finally, the annual costs of the administrative program to implement the institutional reforms are estimated to be of the order of $15 million annually. These key components of the program therefore translate to a total estimated cost of approximately $85 million annually. TABLE 2: SUMMARY OF SELECTED BENEFITS AND COSTS OF POLLUTION CONTROL Estimated Benefits of Pollution Control (US$/year) l Health Impacts (Air) Reduced incidence of illnesses. $20 million Health Impacts (Water) Reduced incidence of illnesses. $100 million Renewable Resource Impacts Reduced risk on agricultural, forestry and fisheries $215-$290 million resources in MMA. Efficiency Gains Improved power sector efficiency from use of higher $40-$55 million quality (low sulfur and ash) coal. Estimated Costs of Pollution Control (US$/year) Energy & Transport Sectors Fuel reformulation to reduce lead and sulfur. $35 million Industry Sector Decrease BOD loads from top 100 polluters in $20 million MMA. Power Generation NO2 and SPM reduction. $16 million Administrative Costs Incremental costs of institutional reforms. $15 million Institutional Requirements 25. The Government's existing environmental management structure has not been effective. Pollution from industrial establishments, energy production and use and transport sources continues to degrade the environment. The main causes of this institutional ineffectiveness are: (i) the lack of a clear constituency for pollution control; (ii) resource and capacity constraints within the environmental establishment; and, (iii) the lack of a workable arrangement for resolving conflicts in instances where the Environmental Impact Statement (EIS) system has led to problems regarding the technical or social acceptability of projects. Even if policies are reformed and targeted to priority areas, these institutional characteristics will continue to undermine the effectiveness of any environmental management strategy. 26. Constituency. While Non-Governmental Organizations, the People's Organizations, environmental academicians, investigative reporters, and activists within the Government have developed public awareness of environmental degradation resulting from pollution, this has not yet translated into a broad constituency for pollution control. Progress with implementing environmental management policies generally, and pollution control policies specifically, depends more on the biases of the Administration than on the perceived political strength of supporters of these issues. One indication that a constituency has not coalesced for pollution control is that neither PSSD nor Phil21, which were adopted by the Cabinet as the framework for environmental policy, have yet received legislative endorsement. Without such an endorsement, the Government cannot ensure that the precepts of PSSD and the Phil21 will be incorporated into legislative initiatives. This lack of constituency is  - ix - evidenced by the limited compliance of large manufacturing enterprises with permitting regulations. Moreover, monitoring for compliance with the separate conditions attached to Environmental Compliance Certificates (ECC) is very weak. The Government's weak enforcement of permitting regulations, and its reliance on community complaints as the basis for initiating enforcement actions, indicates that the Government is reticent to test its political strength against large industrialists with regard to pollution control issues. An important byproduct of the lack of constituency is that other line agencies in the Government view pollution control as a problem that concerns only DENR and EMB. 27. Resource Constraints. Currently the availability of staff and financial resources constraints for pollution control are so significant and pervasive that changes to the institutional framework would be ineffective unless additional resources are provided. Less than 5 percent of the DENR employees are assigned to the environmental management sector; most of these are not available to DENR's regional offices. Even if more staff could be made available, persons with the necessary qualifications would be difficult to mobilize at the locations where they are required. Funding is also severely constrained. The relative share of EMB's direct allocations has declined progressively, and given the current economic situation, the potential for increasing budgetary support for environmental management is limited. Also, under existing budgetary and legal regimes, the environmental establishment has limited ability to pass the cost to the polluters. Permit application fees and fines were fixed in the mid-1970s when the current environmental rules and regulations were established. The low levels of fines can only be changed by legislation, which would take an inordinately long time to achieve in the Philippines. Moreover, all fees and fines collected-must revert back to the General Fund and cannot be used to cover the cost of environmental management activities. 28. Conflict Resolution Mechanism. Perhaps the biggest issue facing the sector is that, even when the EIS System does function properly, projects of nationwide significance can be stalled for years because no mechanisms are available to resolve conflicts between the project's proponent and opponents. Significant attention was drawn to this issue when, in the face of severe power shortages in Luzon in early-1992, DENR would not issue ECCs for three major coal-fired power stations because affected persons in communities close to the sites would not withdraw their opposition to the projects. Moreover, despite the issuance of an ECC for the Mt. Apo Project in Mindanao, the continued opposition of local groups has resulted in PNOC encountering difficulty in bringing construction equipment and crews to the site, and in financing the project. 29. An effective strategy must overcome these three constraints, and a number of options are available. These include: (i) restructuring DENR and EMB roughly within existing staff and budgetary allocations but creating new, quasi-commercial organization structures within the current institutional framework; (ii) infusing additional resources directly into an expanded DENR and EMB; supplementing available funding for recurrent expenses with the creation of an Environmental Trust Fund; and (iii) creating a new parastatal for enviromnental management; and devolving environmental management responsibility to the private sector. Of these options, only the first would be able to address the weaknesses that have been identified in the existing institutional framework, given political and economic realities in the Philippines. Persistent resource consiraints throughout the economy would hinder prospects for substantial expansions in DENR's and EMB's mandates, while special Trust Funds cannot under existing legislation be used to finance recurrent expenses. Creating a new institution is not regarded as feasible as long as other mechanisms, working within existing institutions, are available. And, complete devolution to the private sector would not be advisable without the Government first establishing a framework for environmental management.  - x - Recommended Restructuring of Environmental Institutions 30. Therefore, the option that is recommended here as being the most feasible and effective one involves the restructuring of existing institutions along with the establishment of a new quasi- commercial structure within the existing institutional framework. Highlights of the proposed restructuring include: (a) Subdivision of DENR into Two Groups. DENR's environmental regulatory efforts should be separated from its natural resource management efforts, and should concentrate its resources on establishing environmental policy, administering the permitting system, and enforcing the regulatory framework. This mandate should be pursued through its two line functions through two separate Groups: (i) a Conservation and Regulatory Group (CRG) responsible for implementation and enforcement of regulations; and, (ii) a Resources Development Group (RDG) responsible for activities such as reforestation and mineral development. (b) Establishment of an Environmental Development Corporation (EDC). EDC would be established on a quasi-commercial basis to provide ancillary environmental management activities such as monitoring, sampling, or independent technical review. EDC could be established without great difficulty as a wholly-owned subsidiary of the existing Natural Resources Development Corporation (NRDC). The NRDC would report to the Undersecretary of the RDG; and the EDC would report to the Undersecretary of the CRG. (c) Reorientation of EMB. EMB would become a staff bureau to CRG, and would implement an EIS System modified to focus on technical issues. ECCs, in turn, would attest only to the technical acceptability of projects. (d) Dispute Resolution. The cabinet level Council for Sustainable Development (CSD) was originally created to ensure that environmental concerns are reflected in the Government's economic development strategy. An important aspect of streamlining EMB's mandate is to establish a dispute resolution mechanism that is independent of the current technical permitting procedures. One way to achieve this is to give the CSD the mandate to resolve difficult political issues and to adjudicate issues of public acceptability, based on a process to be implemented jointly by EMB and the National Economic Development Authority (NEDA). 31. Financing. A key linkage between the policy initiatives and the activities of the restructured DENR would be the earmarking of the presumptive charge on pollutants. EDC and reorganized DENR are projected to require an initial capital injection of almost $7 million, and about $15 million to cover incremental recurrent expenditures. A user charge on water effluents alone is expected to provide cash inflows sufficient to meet EDC's recurrent funding requirements; such fees would provide a good basis for ensuring the long-term financial viability of the institution. In the event that revenues exceed requirements, EDC could remit the surplus to the Philippines General Fund. 32. Decentralization of Government Responsibility. The proposed restructuring of environmental management will effectively broaden the Government's activities in this sector. Although  - xi - the rise in administrative costs would be moderated through increased reliance on self-regulation, devolution of many of the remaining regulatory tasks and functions to regional environmental management structures (as opposed to central units) will ensure that the process will be responsive to local environmental conditions and development requirements. Moreover, implementing systems that provide financial and other resources to the regional authorities would ensure that they are capable of executing their mandates. 33. Private Sector Role. While the proposed structure was chosen because of the way it would address current institutional constraints, one advantage is that these incremental resources would be recovered from those being regulated. In several ways, this step will place an increased onus and responsibility on the private sector for ensuring that environmental standards are met. First, the requirement for third-party assessment of projects will provide additional opportunities for private sector as an objective evaluator of projects and as a monitor of pollution levels. Second, individual firms will have a regulatory requirement and a financial incentive to monitor their own activities and pollutant levels more closely if they plan to obtain a partial refund of fees paid for presumptive charges on emissions or effluents. Finally, and most significantly, such a system provides private industry with the freedom and incentive to choose the least-cost way of reducing pollution. 34. Academia and NGOs. These initiatives also imply expanded roles for NGOs and academia in research, monitoring, and training. The NGOs have already staked out their role as advocates for affected populations. This role can, however, be expanded to include other activities such as: (i) monitoring of quality standards; (ii) training; (iii) consensus building; and, (iv) monitoring the effectiveness of environmental management. If the NGOs are to become involved in a formal way, they will need to accept training from the Government and agree to abide by a consensus decision to which they were party. Academia also has a number of important roles to play as an objective ombudsman in training, in the conduct of research relevant to monitoring, in participating in assessments of projects, and in monitoring the impacts of pollutants. E. Next Steps 35. The proposals contained in this Study are unique in that they are based on a comprehensive look at the key environmental issues faced by the Philippines from the industry, energy and transport sectors. The Government should immediately start rationalizing and streamlining its many environmental policies and institutions. The recommendations in this report reflect the appropriateness of concentrating at this time on a small number of key interventions to ensure that the high priority problems and institutional constraints are addressed effectively. It also highlights the key role that economic policies play in contributing to the effectiveness of any environmental regulation system. In short, a general theme of this study is that less pollution is likely to be best achieved with more effective regulation; in some cases this in fact means less command-and-control regulation, whereas in other cases it means the use of different types of policies. In most cases, it requires changes in institutional mandates and structures as well. 36. A number of the principles advocated in this study will require broad-based support if they are to be implemented effectively. Acceptance of the idea of setting priorities is fundamental to designing effective targeted programs and policies. Also, support must be solicited for the idea that  - xii - cost-effective policies will generally require a different approach to environmental management than has been followed through historical command-and-control regulations. Finally, from an institutional perspective, the issue of resource availability will persist as a constraint to effective institutional reforms. To some degree this constraint is being ameliorated by a recent Memorandum of Agreement to tap resources elsewhere throughout the Government, and by proposed mechanisms such as the Tribal Welfare Fund and an Environmental Guarantee Fund. However, agreeing on an acceptable approach to earmarking that is suited to the Philippines would enable the rapid mobilization of significant financial and human resources and may be the single most important consideration of any proposal to strengthen the institutional capacity of the environmental bureaucracy.  1. Environmental Issues A. Introduction 1.1 This chapter provides a review of existing institutional structures, and of activities in the industrial and energy sectors in the Philippines, with a view to identifying some of the key trends and their potential environmental implications. The following sections therefore provide: (a) a description of the institutional setting in the Philippines, highlighting the environmental bureaucracy and its environmental management functions; (b) a brief description of the industry and energv sectors, highlighting future trends and outlook for the sector; and, (c) identification of the key environmental impacts and issues associated with industrial production and energy use in the Philippines. B. The Environmental Bureaucracy History 1.2 The Philippine Government's institutions, policies, and standards for environmental management and protection were essentially set in place in the late- 1970s. At that time, the Government founded: (i) the National Pollution Control Commission (NPCC), with police and regulatory powers; and (ii) an Inter-Agency Committee on Environmental Protection (IACEP), the predecessor of the National Environmental Protection Council (NEPC), with policy, research and monitoring functions. These two agencies were assigned to the Ministry of Human Settlements. The Government also established at that time the Environmental Impact Statement (EIS) system, which was patterned after the U.S. Environmental Protection Act. 1.3 Despite this framework of institutions, rules and processes, environmental considerations enjoyed very low priority during the Marcos administration, and a number of EIS exemptions were granted to major, highly-polluting projects sponsored by politically-favored firms. In 1987, the Ministry of National Resources was reconstituted in its present form as the Department of Environment and Natural Resources (DENR); and EMB, in turn, became a staff bureau to the Secretary of DENR replacing NEPC and NPCC. The Pollution Adjudication Board (PAB) was also formed in 1987 to serve as the judicial body for environmental affairs. It is empowered to issue Cease and Desist Orders (CDO) to any entity found violating environmental quality standards and regulations. 1.4 Currently, DENR is the country's leading environmental institution; within it, EMB, PAB and DENR's Regional Offices share responsibility for development, implementation and enforcement of  - 2 - environmental regulations. In addition to the DENR, various other line agencies of the Government share responsibility for environmental planning and management within their sectors.'/ The Department of Environment and Natural Resources 1.5 DENR is responsible for ensuring the sustainable use, development, management, renewal and conservation of the country's forest, mineral lands, offshore areas and other natural resources, including the protection and enhancement of the quality of the environment. DENR includes the Department proper, its staff offices, its staff bureaus (including EMB) and field offices established within each administrative Region of the country. Environmental policy-making responsibilities rest with the Secretary of DENR, who is currently assisted by Undersecretary for Policy and Planning. The police and regulatory powers that belonged to NPCC are now also -exercised by the DENR Secretary. Organization charts for DENR and EMB are given in Annexes 1-1 and 1-2. 2/ 1.6 Since its formation, much of the intellectual and financial resources of DENR have been devoted to addressing issues related to natural resource management, with particular regard to reforestation. Thus, environmental management is being afforded a lesser role in DENR. The emphasis on improving environmental quality through the active enforcement of the existing standards and regulations essentially began in 1989; since then, DENR has relied on an increasing number of non- Govermnental organizations (NGO) that are particularly concerned with issues of environmnental protection and management to develop public awareness and thereby provide support for the Governmental focus. However, despite the recent increased emphasis on environmental protection, environmental management is still a fledgling activity for the Government. 1.7 In its primary function as staff advisor to the Secretary of DENR on matters of environmental policy, EMB is responsible for (i) formulation of environmental quality regulations and standards; (ii) administration of the EIA system; (iii) promotion of environmental education; (iv) conduct of research and development related to environmental issues; and (v) maintenance of environmental quality data bases. It also provides technical assistance to the Environmental Sector Units in DENR's Regional field offices. 1.8 Responsibility for managing the EIA system function is vested in EMB's EIA group (EIA- EMB), which currently consists of only nine staff. This group is responsible for determining the process that a project's proponent must follow to obtain an Environmental Clearance Certificate (ECC). An EIA is required for an environmentally critical project whereas a Project Description (PD) suffices for projects that are environmentally non-critical. Where an EIA is required, EIA-EMB manages the process, including holding public hearings for projects that are either contentious or have aroused public opposition. EIA-EMB entrusts the review of ETAs to the Enviromnental Impact Assessment Review Committee (EIARC). EIARC currently consists of 18 external experts, most of whom are drawn from academic institutions. EIA-EMB is also currently responsible for monitoring compliance with conditionality attached to ECCs. Where ECCs are granted based on Project Description (PD) documents, I/ See Study Background Papers for a comprehensive description of Environmental Institutions and Environmental Management Functions. 2/In August 1993, DENR advised the Bank that the Department, itself, has been reorganized in a manner that takes account of the structural recommendations included in this report.  - 3 - the actual monitoring is delegated to DENR's field offices. Where a full EIA is required: (i) the proponent certifies compliance with the conditions of the ECC and submits periodic monitoring reports; and (ii) EIA-EMB ensures that these reports are correct and spot checks for compliance. 1.9 The Environmental Sector Units in DENR's Regional field offices are responsible for the implementation of the regulatory and policy framework concerning environmental quality. As such, they are responsible for: (i) issuing Authorities to Construct and Permits to Operate facilities; (ii) monitoring environmental quality in their respective Regions; (iii) taking legally permissible enforcement measures against violators of environmental regulations and standards; and (iv) monitoring the compliance of dischargers with both mandated environmental standards and specific conditionality of their ECC. 1.10 PAB is a judicial body empowered to adjudicate cases brought by DENR's Regional field offices against violators of environmental standards or the conditions of their permits. PAB has the authority to issue CDOs; as such, it can order the closure of facilities that violate environmental laws and regulations. The Regional field offices are then responsible for implementing PAB's orders. Other Government Agencies 1.11 Other Government entities with environmental responsibilities include: (i) line agencies such as the Department of Energy (DOE), Departments of Trade and Industry (DTI), Health (DOH), Public Works and Highways (DPWH), Tourism (DOT), Science and Technology (DOST), Transportation and Communications (DOTC), and Interior and Local Government (DILG); the Board of Investments (BOI); the Housing and Land Use Regulatory Board (HLURB); the National Housing Authority (NHA); the National Irrigation Authority (NIA); the National Water Resources Board (NWRB); the National Economic and Development Administration (NEDA); (ii) local government units such as the Metro Manila Authority, and specialized agencies such as the Laguna Lake Development Authority (LLDA); and (iii) corporations such as the National Power Corporation (NPC) and the Philippine National Oil Company (PNOC). These agencies participate in environmental management through three arrangements: (a) Lead Agencies fLAs): these Government agencies have the expertise and/or responsibility for directing the development of particular sectors of the economy, or for developing particular types of projects. LAs are charged with advising project proponents regarding the environmental clearances they must obtain, and provide them guidance in the preparation of the EIS. Because it was ineffective, the LA approach fell into disuse, and its legal basis was abolished in the mid-1980s,; (b) Environmental Units (EUs): these consist of staff from LAs specially designated: (i) to assist project proponents in the review and processing of EISs; and (ii) to coordinate with EMB to ensure a balanced and integrated environmental program; and (c) Environmental Oficers Committee fEOC): this is composed of senior officials from LAs who are involved in environmental protection and management. The committee is charged with: (i) commenting on proposed policies and programs concerning the EIS system; (ii) serving as a central committee for implementing the EIS system; and (iii) providing technical assistance concerning the EIS system to its member agencies. The EOC meets once a month.  - 4 - Other Environmentally Concerned Organizations 1.12 As of February 1992, some 1,142 NGOs had been accredited with DENR's NGO Desk. The majority are located in Regions IV, V, VI, VII and the NCR. Most NGOs are small organizations with extremely limited capabilities that are confined to and represent primarily the interests of their localities. To supplement their capacity and outreach, many combine to form a network of NGOs that share similar concerns. Green Forum-Philippines, the largest network of NGOs with interests or concerns in the environment and sustainable development, now claims more than 700 member organizations nationwide and is linked to international environmental groups. Several other local networks are concerned primarily with environment or sustainable development. A "network of networks" of NGOs was organized among the biggest NGO networks in May 1990, which covers more than 1,300 NGOs among its participating networks. While NGOs are widely involved in DENR's reforestation programs, their role in "brown issues" has been more adversarial than participatory. NGOs often represent opposition interests in public hearings in connection with controversial projects requiring ECCs. 1.13 Environmental education in the country is oriented toward "green" issues, mirroring DENR's own resource policy bias. Only about 30 academic units in 19 of the 25 leading colleges and universities offer degree programs in environmental science and management. Most of these are established within Metro Manila academic institutions. Of these, only Philippine Women's University and Miriam College, both located in Metro Manila, offer degree programs slanted towards "brown" issues. The University of the Philippines at Los Bafios (UPLB) is the strongest institutional complex in applied life sciences. Its Institute for Environmental Science and Management (IESAM) undertakes environmental research and provides graduate education programs. Some basic environmental education is offered by a network of tertiary-level institutions, the Environmental Education Network of the Philippines, with members located in every administrative Region. IESAM-UPLB serves as its secretariat. 1.14 An ADB-funded study recently concluded that about 15,000 additional environmental specialists will be needed over the next 15 years, merely to meet the additional demands arising from: (i) stricter enforcement of environmental laws; (ii) implementation of the Philippine Strategy for Sustainable Development (PSSD); and (iii) operationalization of the Local Government Code. Demand for additional pollution control officers are expected to account for only 19% of this total; 13% will be for public health officers, and 1 % for landfill engineers. C. Environmental Management Functions Policy and Planning 1.15 This responsibility is vested in the Secretary of DENR, and is largely exercised through EMB. In 1989, EMB developed the Philippine Strategy for Sustainable Development (PSSD), which provides the Government's policy covering environmental protection and management. Because environmental issues affect almost all aspects of economic development, EMB must coordinate with a number of Government agencies to ensure their development policies and programs are consistent with PSSD. In that role, EMB chairs several inter-agency committees (1ACs) including those on Toxic and Hazardous Substances, Soil Erosion, and Coastal Zone; and, also related to policy coordination, EMB  chairs the Environmental Officers' Committee. More recently, EMB has developed the Philippine response to Agenda 21 (Phil21). This latter action has underscored the importance the Administration is now giving to environmental management, and the need to integrate economic development strategies with environmental concerns. Permitting and Accreditation 1.16 The principal environmental permits required under Philippine law include the Environmental Compliance Certificate (ECC), the Authority to Construct (ATC), and the Permit to Operate (PTO). Generally, DENR is authorized to issue these permits; however, in those areas within Metro Manila and surrounding the Laguna de Bay that fall under the jurisdiction of the Laguna Lake Development Authority (LLDA), LLDA is the agency empowered to issue ATCs and PTOs. 1.17 The issuance of ECCs is driven by the requirements of the EIS System (described in detail in Annex 1.3). EMB issues ECCs for projects deemed to be of national significance and those that require an EIA. These include Environmentally Critical Projects (ECP) or projects that are located in Environmentally Critical Areas (ECA). For projects that can be approved on the basis of a PD, the authority for the review of project documents and issuance of ECCs has been delegated to the DENR field office for the Region where the project is located. 1.18 Where a full EIA is involved, the process starts with the proponent submitting documents (generally including the EIS) to EMB, where these are reviewed by an ad hoc Technical Review Committee that is responsible for determining the accuracy and adequacy of the technical details presented. This leads to an assessment of the technical acceptability of the project. The EIA process is also supposed to establish the project's public (or social) acceptance. Generally, in the absence of community opposition, this may be determined through the endorsement of the project by community leaders. For major projects that generate significant public interest, EMB and the relevant DENR's Regional field office hold public hearings to air and resolve issues. Where such issues are not settled amicably among the participants, the ECC cannot be issued; thus, the lack of a higher level medium for conflict resolution can result in significant delays to projects of nationwide importance. To resolve issues of technical or public acceptability, the proponent may be asked to implement mitigatory measures; these would become conditions of the ECC. 1.19 An ATC is issued when the proponent has demonstrated that the project: (i) will comply with the standards for air and water quality; and (ii) takes account of conditions to the ECC. The application, which is filed with the local DENR Regional field office, includes: (i) a description of plant operations processes and of the wastes that are expected to be generated; (ii) details of the waste control facilities; (iii) the waste treatment objectives; (iv) the design criteria for those facilities; and (v) the specifications for the installation of the control facilities. Applications for an ATC are to be acted upon within a reasonable (but unspecified) period. Proponents may petition for reconsideration when their application for an ATC has been denied. 1.20 An application for a PTO may be filed upon: (i) completion of construction; and (ii) compliance with any conditions attached to the ATC. The proponent must also designate a Pollution Control Officer (PCO). PTOs are issued by the local DENR field office for a period of one year. Any interested party may contest an application for a PTO; in such instances, the DENR Regional field office  - 6 - may hold a public hearing to air and resolve issues. Where mitigative measures may be required, the DENR Regional field office has the option to issue a Temporary PTO. Monitoring and Enforcement 1.21 The project or enterprise owner is responsible for monitoring the discharges of point sources into the air and water. In turn, DENR is responsible for monitoring ambient environmental conditions nationwide to determine the quality of air and water resources. DENR is charged with preparing a regular inventory of air emissions; however, the last air emission inventory was performed in 1989 and covered Metro Manila only. It has conducted more frequent inventories of water quality; however, very few parameters are tested as the Regional field offices possess neither the capacity nor the budget to analyze more than such simple parameters as pH, dissolved oxygen, and temperature. In addition, EMB has recently become responsible for compiling an inventory of all chemicals used in the Philippines. Despite the recently promulgated order that all firms should report the chemicals they use, compiling this inventory should be extremely difficult because of the wide variations in nomenclature and the sheer multitude of chemicals in standard use. 1.22 DENR has responsibility for the enforcement of environmental regulations, except in areas under LLDA's jurisdiction. The Regional field offices are responsible for enforcing conditionality related to ECCs, ATCs and PTOs, with some assistance from EMB. Their efforts are supplemented by PAB, which was created to act as a quasi-judicial body and given the power to issue CDOs to chronic violators of environmental standards or enterprises in default of the conditions of their ECC. PAB issues CDOs on EMB's recommendation after EMB certifies that it has exhausted all other prospects for remedial action. DENR's Regional field offices execute the closures authorized by a CDO. However, this is a time consuming process. Frequent delays are encountered in; (i) Regional field office issuing notifications to violators, especially outside Metro Manila; (ii) EMB's analysis of the violation for purposes of the PAB proceeding; (iii) EMB's and/or the Regional field office's exploration of possible compromise approaches; and (iv) the Regional field office's serving and implementing the CDO on the offending firm. Other Functions 1.23 Currently, research related to environmental management covers: (i) pollution control and treatment measures; (ii) methodologies for environmental impact assessment; (iii) industrial processes, particularly those involving clean production technologies and waste minimization; and (iv) environmental processes and conditions. The organizations involved in this research are the EMB, the Ecosystems Research and Development Bureau (ERDB) of DENR, and the Industry and Technology Development Institute (ITDI) of DOST. The resources available for environmental research activities are very limited, and little has been accomplished with regard to the commercialization of research so far completed.  - 7 - D. Industry Structure and Trends Industry Sector 1.24 Structure. Industry, including manufacturing, mining, petroleum, and utilities, has not been an engine of growth for the Philippines' economy (see Annex 1-3, The Industrial Sector in the Philippines). Industry's share in GDP decreased from about 37% in the seventies to about 35% over the past five years. Manufacturing is by far the largest component of the industrial sector; construction is second followed by electricity, gas and water, and mining and quarrying. The manufacturing sector is predominantly consumer goods oriented and it has reacted to increased international competition by moving from capital intensive and largely inefficient industries towards labor intensive production where the Philippines has competitive advantages in terms of cost and skills. Exports are one area where industry has gained a major role in the economy. Industry's share of exports increased from 28% in 1970 to 80% in 1990, largely driven by manufactured exports of garments, electronic components, and food. Except for food, export production has been highly import intensive and contributed to an increase in raw materials and intermediate goods imports. As a result, in comparison to its competitors, Philippines' net export performance has been disappointing. 1.25 Trends. The Medium-Term Development Plan (1987-92) has set the goal of attaining the status of a "newly-industrializing economy" by the beginning of the next century, matching the growth of Thailand, Malaysia and Indonesia. Industry, trade and tourism are considered key economic sectors in achieving this goal. Growth would be driven by substantial increases in investment and accelerated growth of manufactured exports. Industrial growth will most likely be led by four subsectors: food processing (especially seafood exports, fish and meat processing, fruit juices, and beer); clothing industries (especially textiles and leather); electronics; and, chemical/petrochemical industries (including those based on domestic coconut and sugar products). 1.26 A key attribute of the current industry structure is its concentration both in terms of size and location. Manufacturing is dominated by large firms; and 60% of output is in the Manila Metropolitan Area (MMA). Although there are noticeable trends towards gradual de-concentration, domination of industrial production by few large firms is still high by international comparison. There is also a trend of industry to invest less in the National Capital Region itself but rather to settle in the adjacent southbound Region IV with the dynamically growing CALABARZON development zone. There are also fast growing secondary industrial centers in Cebu and Mindanao. These centers, however, have had little impact on actually shifting industry away from Metro Manila. All industrial estates are expanding fast, and although most of the currently operating industrial zones are located in MMA and adjacent regions, the majority of 30 proposed zones will be located in other provinces. Energy Sector 1.27 Structure. The general supply and demand structure for energy in the Philippines indicates the potential nature of environmental problems associated with the energy sector (see Annex 14, The Energy Sector in the Philippines). Total energy shares have been slowly shifting to a greater reliance on imports in the Philippines; the most marked decreases in indigenous supplies arise from declines in hydroelectric output. These declines have to some degree been made up with increased importance given  - 8 - to domestic coal and from geothermal resources; the Philippines is one of the largest producers of geothermal energy in the world (second only in absolute output to the United States). 1.28 The industrial sector accounts for 44% of final energy demand; most of this is explicitly accounted for through on-site generation from bagasse or agro-industry wastes by the sugar, coconut and vegetable oil, logging, and food processing industries. Refined products represent 31 % of the sector's energy demand, and coal represents about 15%. It is notable that coal demand by industry exceeds that by the power sector by more than 50%, and that most of this demand is concentrated in the cement industry. The power sector in the Philippines is dominated by the public-sector National Power Corporation (NPC) which owns some 94% of the installed generation capacity in the country; almost one-half is fueled by diesel and fuel oil. Finally, about one-third of total domestic consumption is accounted for in the transport sector; 90% of transport sector demand is for refined products for road transport; diesel fuel is the most prominent fuel in the transport sector. 1.29 Trends. The most dramatic trend in the Philippines is a shift away from oil and refined products towards increased reliance on coal for power generation. Conventional coal production from domestic sources is expected to grow at an annual average rate of almost 12%, while imported coal demand would increase by almost 25%; the concomitant contribution of oil to power generation is, however, expected to decline substantially. This is especially significant from an environmental perspective because domestic coal is high in sulfur and ash (adjusted for calorific value). Oil imports over the next decade, however, are still expected to rise substantially to meet demand for refined products throughout the economy. Demand for premium and regular gasoline grades is expected to increase by 70% over the next 10 years; diesel demand is expected to increase by 45 %. 1.30 An important fact that is driving current energy sector developments in the Philippines is that reliable power generation capacity has been inadequate to meet demand; the economic cost of recurrent power outages and brown-outs in 1992 alone is about $600 million. This situation has prompted strong government resolve to ensure that future demand growth is met through tariff reforms, increased private sector participation, and high priority expensive "fast-track" investments in oil-fired capacity. E. Key Environmental Issues 1.31 In the Philippines, as elsewhere, the environmental issues arising from industrial activity, energy production and consumption are manifold. A key concern everywhere, for both environmental and economic reasons, is to improve overall energy and material efficiency for any given level of output. This section introduces a number of key issues that relate to the environmental impact of the industry and energy sectors. In addition to the direct environmental impacts, the section will also highlight how policies and regulations impact on the environment in the context of the five characteristics of the regulatory environment in the Philippines: (i) economic policy distortions; (ii) inefficient regulatory structures; (iii) inappropriate levels of regulation; (iv) regulatory drag; and, (v) financing bottlenecks.  -9 - Industry Sector Impacts 1.32 Industrial activity in the Philippines has a number of potential impacts (Box 1.1). First, water pollution, primarily arises from discharge of wastes that are high in biochemical oxygen demand (BOD) and total suspended solids. Food industries and other agriculture- based industries are the major contributors to this type of pollution, such as the processing of coconut, sugar cane, rice, corn, pineapple, tobacco, piggeries, beverage and slaughter houses. There are other industrial sectors that have discharges containing varied chemical compositions such as, pulp mills, chemical plants, pharmaceuticals, refineries, metal finishing and textile manufacturing. However, these industries are scattered around the country and are not large in numbers. Second, air pollution arises from emissions of gases and particulates. Third, toxic and hazardous waste (THW) arise from discharge of waste water containing heavy metals, solvents, and acid/alkali wastes. THW will require special attention because of the rapid growth of electronic and metal finishing industries which are the major source of THW in the Philippines. Finally, non-toxic solid waste arises from disposal of materials such as packaging. Industry contributes to but is not the major cause of the growing solid waste disposal problem in urban centers, especially in Metro Manila and Cebu. [ BOX 1.1: SELECTED ENV_I ONMENTAL IMPACTS IN THE PHILIPPINES INDUSTRY Nature of Impact Source of Impact Technical Interventions Water Pollution Organic Pollution Food Processing (esp. Sugar refining) Enhanced Industrial Efficiency Piggeries, incl. slaughterhouses Waste Minimization/Clean Technology (mcl. Recycling and Reuse) Pulp and Paper Mills Waste Treatment Beverage Production Textiles and Dyes Petrochemicals/Chemicals Toxic and Hazardous Wastes Metal Finishing On-site Waste Water Treatment Tanneries (Precipitation, Sedimentation, Filtration) Central Treatment Facility for Residual Electronics Sludge (incl. Incineration) Mining Acid/Alkali Wastes Electronics On-site Neutralization Metal Finishing Solvent Wastes Electronics Waste Minimization (Recovery, Substitution) Metal Finishing Waste Treatment Air Pollution Particulate Emissions Cement Plants Emission Control Gas Emissions (hydrocarbons, Oil Refineries Improved Operating Practice CFCs, boiler stack gases) Electrostatic Precipitatorsl Chemical Plants I Energy Sector Impacts 1.33 The structure of energy demand and supply is often the first indicator of the nature of the environmental impacts that might be expected. There are very few energy-related activities that are  - 10 - without some environmental impact (Box 1.2), and switching between energy sources usually involves making tradeoffs among various different types and degrees of impacts. Air pollutants contribute to global environmental problems (such as potential global warming from carbon dioxide and methane emissions), to regional problems such as acid rain from sulphur and NOx emissions, or to more localized ground-level ozone problems (from NOx and VOCs) or public health hazards (from lead or particulates). A wide array of technical solutions is available for addressing air pollution, ranging from switching to cleaner fuels to removing the pollutants from the emissions. Land-use impacts are associated either with localized disruptions from plant siting or more widespread disruptions from activities such as hydroelectric or geothermal power development. In these cases, regulatory procedures such as EIA processes, or construction and reclamation guidelines, are often used to minimize environmental impacts. Impacts on water supply are normally of two types: quantitative impacts which arise from massive drawdowns of available water supplies to the extent that other users do not have access to water; and, qualitative impacts which threaten the quality of marine resources, surface waters, or groundwater. Water treatment and recycling often play key roles in mitigating these impacts. Finally, toxic and hazardous wastes are an issue, primarily to the extent that they are generated by production operations, or as a by-product of some final end-use. Prioritization of Issues 1.34 Given the wide range of potential impacts, the first key issue for the sector is to determine the extent to which the indicated environmental impacts are indeed important problems which can be effectively tackled within the sector. Some problems warrant receiving higher priority than others, either because the impacts are significant, or because the remedial measures are low cost. Other problems, due to their high remedial costs or their low significance, will receive lower priority. For example, although the Philippines is on record as supporting international initiatives to limit global warming, specifically targeting the energy sector would be inappropriate given that it is not the most significant contributor to greenhouse gas emissions in the country. The Philippines has a relatively low level of emissions from industrial processes: 0.66 tons of C02 per capita. This can be contrasted to Singapore (13.34), Indonesia (0.77), Thailand (1.43), Japan (8.46), or the U.S.A. (19.68). Furthermore, the majority of the greenhouse gas emissions in the Philippines is not due to energy use or production, but from deforestation and conversion of land to agricultural purposes. In 1989, total industrial C02 emissions were 41 million metric tons whereas total emissions from land conversion were 190 million metric tons.3/ 1.35 Similarly, an important general issue is the extent to which the industry or energy sector as a whole - or any single activity within the sector - contributes to environmental degradation. Because the energy sector is often heavily regulated, and because data on the sector are often reasonably well-documented as a result, there is a tendency for the sector to attract a greater and disproportionate share of environmental regulation. Economic Policy Linkages and Distortions 1.36 In some cases in the Philippines, sectoral economic policies will influence the use of environmentally appropriate technology or will work directly against any sector-specific or activity-specific pollution regulations. The first set of linkages is directly related to macro-economic 3/ See World Resources Institute (1992).  - 11 - policies associated with promoting certain types of industrial activities. Examples of such linkages include: (a) export growth into markets that demand products complying with high environmental standards at point of manufacture; (b) increased flows of foreign investment facilitate the transfer of state-of-the-art technologies which embody recent developments in the field of energy efficiency and pollution abatement; and, (c) exclusion of firms in the Metro Manila area from BOI incentives for pollution abatement.  - 12 - BOX 1.2: SELECTED ENVIRONMENTAL IMPACTS IN THE PHILIPPINES ENERGY SECTOR Nature of Impact Source of Impacts Direct Technical Alternatives Air Pollutants Carbon Dioxide Emissions All Carbon-based Fuels Switch to Low Carbon Fuels Energy Conservation Methane Emissions Natural Gas Flaring Recover or Reinject Gas Sulphur Oxide Emissions Thermal Power Sector Low-S Fuels Fuel Gas Desulphurization Sulphur Oxide Emissions Diesel Motor Vehicles Low-S Fuels Hydrogen Sulphide Emissions Geothermal Power Production Dilution NOx Emissions Thermal Power Sector Low-NOx Burners Switch to Gas Selective Catalytic Reduction NOx Emissions Motor Vehicles Catalytic Converters Gas Electric Vehicles VOC Emissions Fuel Combustion Good Operating Practice Fuel Storage Catalytic Converters Gasoline Pumping Motor Vehicles Lead Emissions Motor Vehicles Low Lead Fuels Particulate Emissions Power Plants Electrostatic Precipitators Diesel Motor Vehicles Low Smoke Diesel Land-use Impacts On-site Impacts Thermal Power Site Proper Siting based on EA Refinery Sites Reclamation Plans Mining sites Oil/Gas Development Infrastructure Siting Off-site Impacts Geothermal Power Production Proper Design based on EA Hydroelectric Development Water Impacts Water Supply Drawdown Coal Washing, Refineries, Power Plants Water Recycling Surface Water Pollution Refineries, Power Plants Water Treatment Ground Water Pollution Geothermal Power Production Water Treatment Marine Pollution Oil and Gas Development Good Operating Practice Marine Transport Water Treatment Toxic and Hazardous Wastes Radioactive Contamination Nuclear Power Plant Proper Treatment and Disposal Petroleum Product Wastes End-users Product Recovery and Recycling Process Chemicals Refineries, Power Plants Proper Treatment and Disposal  - 13 - 1.37 A second set of policy distortions deals with explicit or implicit interventions in the pricing of energy products or environmental technologies. Examples of this include: (a) energy pricing for refined products which effectively encourages consumption of high-sulphur fuels; (b) the system used by the Energy Regulatory Board (ERB) to allocate costs across all refined products does not provide incentives to consumers to switch to environmentally sound fuels; and (c) import quotas on coal which effectively support an artificially high domestic coal price, encouraging uneconomic mining of high-ash domestic coal. 1.38 A third set of policy distortions is associated with the extent to which production or consumption decisions are made by private or public agents. Studies in other countries typically reveal that managers of public facilities are held less accountable for environmental standards than are their counterparts in the private sector. Public ownership of much of the energy production facilities in the Philippines may imply similar risks there unless regulations can be effectively enforced: the Philippine National Oil Corporation (PNOC) sells all of the steam for geothermal production; even by the year 2000, NPC is likely to own in excess of 70% of the country's generating capacity; by 2000, only one-third of the coal production will be from private areas. In addition, to the extent that public enterprises do comply, their lack of financial accountability implies that the means by which regulatory compliance is achieved is not necessarily cost-effective. Economically Inefficient Regulatory Structures 1.39 The environmental regulatory structures themselves, in many instances, provide a basis for compliance difficulties or for ineffective regulation. In such cases, even if appropriate regulatory levels can be determined, the structure of the regulations is inappropriate. Examples of this in the Philippines include: (a) use of conflicting or overlapping emissions standards and ambient quality standards for stationary sources such as power plants; (b) reliance on concentration based emission standards (for both air and water quality) as opposed to pollutant loading; and (c) use of emission standards for mobile sources (e.g., anti-smoke belching) in lieu of fuel specification controls. Inappropriate Levels of Regulation 1.40 A key concern within the energy sector is that a number of existing or proposed regulations for stationary sources and fuel specifications are imposing unrealistic and unnecessary burdens on producers or consumers. The problems may be either with the level of regulation, or the proposed timing of the implementation program. Specific examples in the Philippines include:  - 14 - (a) emission standards on stationary sources for sulphur, particulate and NOx emissions are regarded as unnecessarily high given that these emissions do not necessarily pose an immediate environmental risk and that, in any event, contributions from stationary sources are small relative to mobile sources. These emissions standards pose onerous costs on operators; and (b) ambient air quality standards are too strict and therefore not enforceable. Regulatory Drag 1.41 In an economy such as the Philippines, the environmental regulatory system is itself creating a potential drag on the economy because it hampers critical investments. Although it is not suggested that these investments should proceed if they cause unacceptable environmental degradation, the current state is that there is inadequate regulatory capacity to process all of the required permit applications in a timely fashion. One example of this is the general time lag for reviews of EIAs for geothermal projects: applications for ECCs submitted in 1989 and 1990 had an average review period of 4-5 months, those submitted in 1991 took 8-9 months. The energy sector has been subject to many such process delays, to the extent that the regulatory system has itself been partially blamed for a number of the power outages which have occurred recently. No new power plants have received environmental approvals over the past three years through the normal permitting process; some of the recently proposed "fast track" projects received approval directly through Presidential order. 1.42 A second element of regulatory drag arises from a proliferation of potential institutions and regulatory bodies involved with the environmental monitoring and enforcement process. In such circumstances, operators have multiple points of contact for regulatory compliance, which delays implementation of environmental programs. An example of this involves the Philippines' marine pollution legislation. Although DENR and EMB a the primary environmental authorities in the country, oil spill mitigation and clean-up is the responsibility of the Philippines Coast Guard (PCG); the PCG also has the responsibility for fining any violators. Further, overall management of marine resources falls under the mandate of the Bureau of Fisheries and Aquatic Resources (BFAR) in the Department of Agriculture (DA). As such, any offshore activity requires that an operator interact with at least 3 national level offices, in addition to the local authorities. Financing Bottlenecks 1.43 Funding is often cited as a constraint to the timely adoption of environmentally sound technologies. In addition, regulatory bodies often cite the lack of administrative and financial resources as a bottleneck to effective monitoring and enforcement. Examples from the Philippines energy sector include: (a) institutions responsible for monitoring and enforcement can not retain the receipts from charges or fines levied by them (e.g., the oil spill violations levied by the PCG); (b) public enterprises required to meet strict pollution abatement standards lack funds to do so;  - 15 - (c) mining operators are regulated such that they must contribute a fixed proportion of their annual receipts to environmental programs, but may not capitalize these for future reclamation plans; and (d) there are few financial incentives to private operators to accelerate potentially environmentally beneficial offshore natural gas development. F. Summary The Environmental Establishment 1.44 Currently, DENR is the country's leading environmental institution; within it, EMB, PAB and DENR's Regional Offices share responsibility for development and implementation of environmental regulations. In addition to DENR, various other line agencies share responsibility for environmental planning within their sectors. Since its formation in 1987, most of DENR's human and financial resources have been allocated to natural resource development, particularly reforestation; the emphasis on improving environmental quality through active enforcement of standards essentially began in 1989. Despite the recent increase in emphasis, environmental management is still a fledgling activity for the Government. 1.45 EMB's primary responsibilities include (i) formulation of environmental quality regulations and standards; (ii) administration of the EIA system; (iii) promotion of environmental education; (iv) conduct of research and development related to environmental issues; and (v) maintenance of environmental quality data bases. In addition to establishing a project's technical viability, the EIA process is supposed to establish the project's social acceptability. Unless outstanding issues are settled among the participants, the ECC cannot be issued. The lack of a medium for resolving the resultant conflicts has resulted in significant delays to projects of nationwide importance. Frequently, ECCs include conditions that have a bearing on the design and implementation of a project. 1.46 DENR's Regional field offices are responsible for (i) issuing ATCs and PTOs; (ii) monitoring environmental quality; and (iii) monitoring the compliance of individual enterprises with environmental standards and specific conditionality of their ECC. The project owner is responsible for monitoring the discharges from point sources, while DENR's Regional field offices are responsible for monitoring ambient environmental conditions and spot checking the compliance of individual enterprises. PAB is empowered to adjudicate issues of compliance with environmental regulations, and has the authority to issue CDOs. The Regional field offices are responsible for implementing PAB's orders. The enforcement process is fraught with delays, as proponents adeptly use the country's difficult logistics and the cumbersome provisions of due process to their advantage. 1.47 Other Government agencies participate in environmental management through three arrangements: (a) by acting as LAs, responsible for ensuring that projects under their jurisdiction comply with environmental regulations (the LA system fell into disuse in the mid-1980s); (b) by staffing EUs to guide proponents through the EIS process and assist EMB's efforts to develop a balanced environmental program; and (c) by assigning senior environmental officials to the EOC, which serves as a central committee for the EIS system and provides technical assistance concerning the EIS system to its member agencies.  - 16 - The Industrial Sector 1.48 Industry, including manufacturing, mining, petroleum, and utilities, has not been an engine of growth for the Philippines' economy. Industry's share in GDP has decreased from 37 % in the 1970s to about 35% recently. Manufacturing is the largest component of the industrial sector; construction is second followed by electricity, gas and water, and mining. Future industrial growth will most likely be led by four subsectors: food processing; garments; electronics; and, chemicals and petrochemicals. Most industries are dominated by a few large companies, many of which are concentrated in Metro Manila. considerable recent industrial investment has been recorded in the CALABARZON (south of Manila) and in smaller industrial centers in Cebu and Mindanao. The Energy Sector 1.49 The economy is inching toward a greater use of imported oil and coal. Among indigenous sources, the use of hydropower has declined, while reliance on domestic coal and geothermal steam has increased. The industrial sector accounts for 44% of total energy demand. The power sector is dominated by NPC, which owns 94% of the country's installed generation capacity, of which half is fueled by diesel and fuel oil. The current shift away from oil and refined products toward coal for power generation is significant in that regulations and the pricing structure both provide incentives for the use of domestic coal, which is high in sulfur and ash. The transport sector accounts for about one-third of domestic consumption; 90% of transport sector demand is for refined products for road transport, principally diesel fuel. Demand for premium and regular gasoline is expected to increase by 70%, and diesel by 45%, over the next 10 years. Direct Environmental Impacts 1.50 Industrial activity in the Philippines has a number of direct environmental impacts: (i) Water pollution arises from the discharge of wastes that are high in BOD and total suspended solids. The few major water polluting industrial outfits are scattered about the country. (ii) Air pollution arises from emissions of gases and particulates. (iii) Toxic and hazardous waste arises from the discharge of waste water containing heavy metals, solvents, and acid/alkali wastes, primarily from the growing electronic and metal finishing industries. (iv) Non-toxic solid waste arises from disposal of materials such as packaging. 1.51 All energy activities have some environmental impacts, and the constituents of demand and supply provide a good indicator of those expected impacts. (i) Air pollutants can result in accelerating global warming, acid rain or ground-level ozone problems, or public health hazards from lead or particulates. (ii) Land-use impacts from coal plant sites may cause local disruptions, while hydroelectric or geothermal power developments may cause broader disruptions. (iii) Water pollutants can result in massive drawdowns of available supplies, or threaten the quality of marine resources, surface waters, or groundwater. (iv) Toxic and hazardous wastes are often the result of production operations, or a by-product of end-use.  - 17 - Policy and Regulatory Linkages 1.52 Five types of linkages are especially important: (a) Ranking of Environmental Problems. some impacts need to be assigned a high priority either because they are environmentally significant, or the remedies are low cost. Conversely, other problems with high remedial costs or low local environmental significance can be assigned a lower priority. (b) Economic PoliUy Linkages. Some macroeconomic policies that promote specific industrial activities may influence the choice of environmentally appropriate technology or encourage activities that are wasteful. Pricing of energy products or environmental technologies may encourage conservation or wasteful behavior. The identity of production or consumption decision-makers can be environmentally significant, in that private agencies are often held more accountable for compliance with standards than public agencies. (c) Economicalla Inefficient or Inappropriate Regulation. Environmental regulatory structures themselves can cause compliance difficulties. In such cases, even if regulatory levels are appropriate, the structure of the regulations may be inappropriate. In the energy sector, a number of existing or proposed regulations for stationary sources and fuels impose unrealistic burdens on producers or consumers. (e) Regulatorv Drag. An environmental regulatory system can itself create a drag on the economy because it hampers critical investments. Often, this drag is related to a regulatory capacity that is inadequate to process all of the required permit applications in a timely fashion. (f) Financing Bottlenecks. Often, the lack of adequate funding is cited as a constraint to the timely adoption of environmentally sound technologies. In addition, regulatory bodies often cite the lack of administrative and financial resources as a bottleneck to effective monitoring and enforcement.  2. Environmental Status and Trends A. Introduction 2.1 Through a review of the environmental status of various industry and energy sector activities, this chapter focuses on the relative contributions of various types and sources of pollution. The chapter generally establishes that: (i) a few sources and subsectors are accountable for a majority of the emissions; and (ii) with anticipated growth and structural changes occurring in the Philippines, environmental problems would become damaging and very costly to remedy unless they are controlled. 2.2 The following sections therefore provide: (a) a description of the historical and current pollution trends relating to air and water; and, (b) an identification of key pollution sources in the industry and energy subsectors, of key pollutants including air pollution, water pollution and toxic and hazardous substances (THS), focusing on the relative importance of various sources. 2.3 In analyzing the pollution "trends" and "sources", monitoring typically takes one of two forms: (i) ambient condition monitoring; or, (ii) source monitoring. Ambient conditions specify the state of environmental quality at a given point in time, whereas source monitoring refers to the emissions or depositions arising from specific identifiable sources (anthropogenic or otherwise) over some time interval. From the point of view of ecosystem or human health, ambient conditions are actually the relevant indicator of environmental quality. These ambient conditions are governed by a host of local conditions, including weather, geographic and biophysical circumstances. The emissions from any given source, on the other hand, are typically dictated by the type and level of economic or natural activity. 2.4 These two types of parameters are often represented in a "stress-response" framework: emissions are the stresses; impacts on ambient conditions are the response. This distinction underlines that the stresses are usually what can be controlled through various policy or other interventions, even though the ambient conditions are of primary health or economic interest. The actual connections between the stress and the response are typically quite complex and it is generally difficult to describe how ambient pollution levels will be affected by any given emission. Connections can only be drawn with confidence if one has a long history of both emission and ambient level monitoring on which to draw. As such monitoring is not available for the Philippines, any assessment of impacts must be based on a comparative assessment of various pollution sources to determine which are the most significant contributors to the actual levels of stress. It is then largely a matter of judgment as to the final impact on ambient conditions. 2.5 As such, the identification of the key pollution trends in this chapter focuses on ambient conditions, where possible, while the identification of pollution sources focuses on emission levels and stresses. These analyses in turn provide an initial screening of the relative significance of a vast array of potential pollutants and impacts. Annexes 2-1, 2-2 and 2-3 indicate the ambient air and water quality data for the Philippines.  - 19 - B. Pollution Trends Air Quality 2.6 Pollutant Monitoring. The National Capital Region (NCR), also called the Metro Manila Area (MMA), comprises the four cities of Caloocan, Manila, Quezon City and Pasay City and 13 municipalities (Mandaluyong, Makati, San Juan, Las Pinas, Malabon, Navotas, Pasig, Pateros, Paranaque, Marikina, Muntinlupa, Taguig and Valenzuela). The most populous areas in the NCR are Manila, Quezon City, Caloocan City and Makati, which in 1990 accounted for nearly 40% of the estimated 1990 population of the NCR of 8 million people. Continuous monitoring of ambient air pollutant levels throughout the NCR is an essential prerequisite to define the dimensions, extent and likely health impacts of air pollution. Philippines recognized these requirements and some initial steps were taken to monitor air quality. The facilities for air quality monitoring were first established in 1971. Six monitoring stations were established, using mechanized sampling procedures. In 1974, the mechanized samplers were replaced by automatic analyzers. However, by 1978 due to poor maintenance and lack of spare parts, there was apparently a major failure and air quality monitoring was largely discontinued. Some monitoring was, however, conducted recently for total suspended particulates (SPM), sulfur dioxide (SO2), carbon monoxide (CO), nitrogen dioxide (NO2), ozone, and various metals. ' BOX 2.1: AMBIENT AIR QUALITY IN THE PHILIPPINES The following shows 1990 levels of major pollutants in the Metro Manila Area. The levels are shown as a percentage of the Philippines proposed ambient quality standards, as well as the WHO guidelines. Lead levels and particulate levels are of key concern, whereas sulfur dioxide levels are within acceptable bounds. Although ozone levels are also apparently within acceptable bounds, sample sizes have often been inadequate to draw definitive conclusions. Pollutant Philippines WHO Standard Guideline Particulates (PM1O) 170% 110%-170% Sulfur Dioxide 2%-53% 2%-27% Carbon Monoxide 140% 46% Nitrogen Dioxide 42%-250% 20%-120% Ozone <1% <1% Lead 17%-260% 26%-780% 1/ Information in this section for 1991/1992 is based on a report for "Vehicular Emissions Control Planning in Metro Manila" prepared under an Asian Development Board supported project in 1992. Findings of the Vehicular Emissions Control Report were reviewed to assess the extent of the air pollution problem in the NCA.  - 20 - 2.7 Significance. Although the monitoring data are sporadic, and focus entirely on the Metro Manila area, they do show that the general level of pollutants often exceeds local air quality standards and World Health Organization (WHO) guidelines (Box 2.1). The pollutants of primary concern include lead and particulates, especially particulate matter less than 10 microns in diameter (PM 10), as maximum levels often exceed recommended levels by factors of 2 to 4. Peak levels for NO2 have also at times approached maximum WHO guidelines. Air quality data for ozone (and NOx and VOCs that contribute to its formation) are too sporadic to provide any definite conclusions; where data do exist they are often contradictory (showing high levels of CO but low levels of oxidants) or are spread over a wide range because of variations in sampling methods. Sulfur dioxide levels, although again limited to a small number of samples, are below indicated standards and guidelines. 2.8 Distribution. Although Manila's air is regarded as the most polluted area of the Philippines, other centers with heavy traffic growth could well experience similar trends if rapid urban growth occurs; Cebu, for example, is also potentially vulnerable to increased concentrations of PM1O and lead. In addition, "hot spots" close to industrial concentrations may also develop. A current constraint to monitoring these trends, however, is that there is no monitoring network in place, due primarily to capacity and financing constraints within the institutions responsible for such monitoring. Water Quality 2.9 Pollutant Monitoring. The Philippines has approximately 400 rivers of which over 200 have been classified by DENR. Fresh water, as well as coastal and marine waters, are classified based on their designated beneficial uses (Box 2.2). Such beneficial uses generally try to describe the types of uses which are appropriate for a given set of water quality parameters: high quality can be used for drinking; low quality may only be appropriate for industrial coolants. Ambient water quality is documented sporadically in most regions with somewhat more documentation in the Metro Manila Region. There are no permanent ambient water quality stations, even though there are permanent locations designated for monitoring. It should be noted that ambient water quality in the Philippines can vary significantly from season to season, and place to place. The seasonal variation is due to the monsoon season with torrential rain and the dry season which can be extremely severe. The monsoon season provides some benefit to the polluted rivers and lakes by flushing them and replenishing them with fresh water with oxygen content near saturation levels. Heavy rainfall and run-off will increase the level of turbidity and suspended solids in the rivers. However, in general the high water flow periods pose less problems (unless flood conditions occur) from a water quality point of view than the dry season. During the dry season water levels in rivers and lakes can drop significantly; in some coastal rivers and in Laguna de Bay, back flow from the ocean has also been observed. The industrial and domestic discharges impact the waterways much more during the dry season due to the limited water availability for dilution and the relatively slow and non-turbulent flow providing less opportunity for recovery and reaeration. 2.10 Significance of Trends. Many of the country's more important river reaches and coastal areas are polluted to a stage which is of critical concern (Box 2.3). Of 74 designated monitoring stations, 65% showed water quality that has already deteriorated beyond the official beneficial use classification at that station. At the extreme, 47% of the river stations and 60% of the coastal stations showed lower water quality than even the worst possible official classification. Based on the limited information available on the various river systems, between 30 and 40 rivers are impacted to a degree that is of critical concern. Even though these rivers represent approximately 10% of the total number of rivers in  - 21 - the country, they represent the more important river basins and their pollution is of concern because they are major supply sources for industries and large population centers. Rivers flowing through industrialized and populated areas generally receive untreated waste water discharges from both industrial and human activities. Box 2.2: PHILIPPINES WATER CLASSIFICATIONS AND BENEFICIAL USES Fresh Water | Coastal and Marine Waters Class Beneficial Use Class I Beneficial Use AA Public water supply only requiring disinfection. A Public water supply following complete SA Commercial shellfish harvesting. treatment. Tourist zones, marine parks and reserves. Coral reef parks and reserves. B Contact recreation. SB Contact recreation. Fish spawning. C Propagation and growth of fish. SC Non-contact recreation. Non-contact recreation. Conmmercial and sustenance fishing. Industrial water supply following treatment. Fish and wildlife sanctuaries. D Irrigation and livestock watering. SD Industrial water supply. Industrial cooling and water. NC Not classified. NC Not classified. 2.11 Distribution. The nature of the degrading pollutants differs among regions and river reaches. Rivers in the NCR and in adjacent regions tend to be in the worst condition and, during the dry season, many exhibit water quality similar to that of sewage. In this area, the major problem is associated with indiscriminate dumping of organic wastes; sporadic sampling indicates that metal pollution in these rivers is still within acceptable levels for their current beneficial use classifications. Other regions exhibiting a concentration of pollution problems include Region VI (Iloilo) and Region VII (Cebu). 2.12 Groundwater. Groundwater supplies are generally less vulnerable to pollution, but abstraction of groundwater for industrial processes and public water supply is a concern in the Metro Manila Area (MMA). Although no formal monitoring has been conducted on a consistent basis, salinity profiles suggest that abstraction has been at rates which exceed natural replenishment. This implies that inland water supplies are at increased risk to saline or brackish water intrusion, making the water unsuitable for drinking and for many industrial applications requiring freshwater. Such intrusion has already been observed within four kilometers of Manila Bay. 2 2/ See World Bank/UNDP (1992).  - 22 - BOX 2.3: WATER QUALITY IN THE PHILIPPINES Water quality in the Philippines is based on a beneficial use classification that describes the acceptable uses of a given river or marine system. Many of the country's water bodies, however, have water quality that is worse than their beneficial use. In some regions, water quality has been worse than the lowest possible classification in the beneficial use system. In the NCR, the Pasig River is an example of a river that, technically, has a water quality that is worse than any potential designated use. Its official use is Category "C", implying that it should be appropriate for "propagation and growth of fish; non-contact recreation; and industrial water supply following treatment." Such a classification would require BOD levels to be no greater than 7 mg/liter, whereas actual BOD levels typically fall in the range of 20-120 mg per liter. At these levels of contamination, the river is not even suitable for industrial cooling which, under the Philippines' standards, requires BOD levels to be no greater than 10 mg/liter. Many beach areas are similarly fouled. The Iloilo coast has registered coliform counts of the order of 12,500 MPN/dl, whereas safe levels for non-contact recreation, commercial and sustenance fishing would require that levels not exceed 1000 MPN/dl. Yasay Beach in region X has registered among the highest levels of contamination in the country: coliform counts regularly exceed 300,000 MPN/dl. Worse than Any Potential Use 48% .....9.''. ..l - .. . t.......... _ I z .X|: - :::::: ..............._I_ I Worse than * * Better than Designated Use,Betrha Okay for Industrial At Designated Use Designated Use Use 1 49 2299 C. Pollution Sources 2.13 Although the previous section showed that both ambient air and water quality were reaching critical levels in some parts of the Philippines, it is not always possible to attribute particular pollution problems to any single source of pollutant. Synergistic effects often enhance the impacts of single pollutants (eg., NOx and VOCs in ozone production). At times, pollutants having deleterious effects in isolation may be less harmful when combined with other pollutants (eg., alkaline and acidic wastes). In short, ambient conditions are determined by numerous factors. Nonetheless, an assessment of the relative levels of emissions from various sources can provide some guidance to identifying those sources which are the most significant contributors to ambient pollution levels. This section therefore assesses the contributions of various pollutants from: (i) the transport sector; (iii) the industry sector; (iii) other energy generation and uses; and, (iv) other selected pollution sources.  - 23 - Air Pollution due to the Transport Sector 2.14 Composition of the Transport Sector. The increases in population and commercial activities in the Philippines were accompanied by a rapid increase in the vehicle population. Between 1981 and 1987 the number of vehicles increased at an average annual rate of 4%; between 1987 and 1990 the rate of motor-vehicle increase doubled to 8% per annum. While the number of vehicles increased, the corresponding improvement to the road infrastructure, particularly in the NCR, was inadequate. Traffic congestion has progressively worsened over the past 10 years. 2.15 The increase in vehicle population and traffic congestion resulted in a doubling of the consumption of transportation fuels over the same period. About 50% of all transportation fuels in the Philippines (gasoline and diesel oil) are sold in the NCR. The vehicles in the NCR comprise jeepneys, buses, taxis and utility vehicles, which are mostly diesel powered, and automobiles, motorcycles and three-wheelers, which run on gasoline. Most vehicles, both public and private, are in poor mechanical condition. 2.16 Transport Sector Trends. Recent studies project a steep increase in the number of vehicles in the NCR (in all categories) over the period 1991-2005 (Table 2.1). The number of cars is expected to double over this period, representing an increase of over 5% per year. The number of commercial vehicles, such as utility vehicles and trucks, is expected to grow at an even higher rate of more than 7% per year. A similar increase is reflected in the trends for increased refined product demands of various fuels for the Philippines economy as a whole (Table 2.2). It is important to note that most of the demand growth for fuels will be for premium grade gasoline, which is expected to grow to over 8 % per year due primarily to the relative growth in importance of private cars and gasoline powered utility vehicles. Currently, two grades of gasoline are produced, although premium gasoline accounts for the majority of demand and, by 2000, regular grade is expected to have only about 22 % of the market share, barring any other policy interventions. TABLE 2.1: METRO MANILA VEHICLE PROJECTIONS ('000) l rCanS Taxis Jeepneys_UV(D) UV(G) Trucks M 1991 289 14.5 50.5 63.2 136.6 5.2 53.1 65.1 2005 603 16.7 58.0 167.4 357.7 6.1 141.5 172.6 Ratio a/ 2.09 1.15 1.15 2.65 2.62 1.17 2.66 2.65 Growth b/ 5.4% 1.0% 1.0% 7.2% 7.1% 1.1% 7.3% 7.2% a/ Year 2005/year 1991. bl Annual coverage. Source: Based on ADB 1992. Notes: UV=Utility Vehicles; MC/TC=Motorcycles/Tricycles; G=Gas; D=Diesel  - 24 - TABLE 2.2: PROJECTED TRANSPORT SECTOR FUEL DEMANDS (MBBLS) 1992 1993 1995 2000 Growth Gasoline - Premium Grade 8,402 8,852 10,397 15,758 +8.18% Gasoline - Regular Grade 3,051 3,219 3,549 4,380 +4.62% Diesel 20,630 22,262 23,563 29,838 +4.72% Aviation Turbo 4,154 4,398 5,142 7,624 +7.89% * Average annual increase. Source: Based on OEA 1992 (Forecast Total Product Demand); OEA 1991 (Subsector Demand). 2.17 Emission Sources. Emission levels associated with the transport sector are strongly correlated to fuels used and vehicle types (Table 2.3). For example, cars and utility vehicles running on gasoline cause 97% of the lead emissions and 87% of CO emissions, while diesel-powered jeepneys, trucks and buses generate 65 % of the particulate pollution. The major source of lead in the NCA is a combination of lead anti-knock compounds in gasoline. Sulfur dioxide emissions from vehicles in the metropolitan area generally arise from the combustion of sulfur containing fuels, primarily diesel oil. 31 Although the previous section showed that ambient sulfur concentrations were well within acceptable levels, sulfur in diesel fuel is itself an important contributor to particulate levels. TABLE 2.3: POLLUTANT EMISSIONS BY VEHICLE CATEGORY (1990) ll i_Partculates Lead | CO HC | NOx Tons () Tons () Ton %) Tons () Tons (% Cars 387 3.2 280 39.0 191,399 35.7 23,200 26.0 10,440 14.3 UV 2,456 20.3 417 58.1 277,603 51.7 37,792 42.4 16,588 22.7 Jeepneys 2,857 23.6 8,047 1.5 2,309 2.6 4,952 6.8 Trucks/Buses 4,923 40.8 40,701 7.6 12,145 13.6 41,029 56.2 Motorcycles 1,466 12.1 21.0 2.9 19,064 3.6 13,638 15.3 147 0.2 Total 12,089 100.0 718 100.0 536,814 100.0 89,084 100.0 73,156 100.0 Source: ADB 1992. 2.18 Emission Level Trends. The ADB study has projected pollutant emissions based on the projected vehicle population. The study anticipates that critical pollutants will more than double in the NCA over the 1990-2005 period (Box 2.4). Although it is not possible to predict conclusively the impact of this increase on ambient conditions, concentrations of many of the pollutants are likely to exceed safe limits by the year 2005 without action. 31 An emission inventory in 1987 showed SOx emissions from mobile sources to be about 33.70 tons annually, or 27% of total SOx emissions.  - 25 - BOX 2.4: POLLUTION FROM VEHICLES 1990-2005 The high level of emissions from the transport sector in the Philippines has arisen from a number of causes. There are an increasing number of road vehicles in use, vehicles are poorly maintained, exhaust emission standards can not be enforced, inferior fuels are used, and traffic congestion has exacerbated the general pollution problem. Even if one assumes that traffic congestion gets no worse than it currently is over the next decade, the growing size of the vehicle fleet alone implies that there will be a more than doubling of emissions of pollutants by the year 2005. 3IX96 2009 - - 1009S9-. ^'': S0x=2239 TSP=2199 Lead=2329 C0=22999 HC=201% NOx=23595 c3 i990 E2005 Source: ADB (1992). Pollution due to Industry 2.19 Air Pollution. For the most part, point source emissions in the Philippines as a whole are not a major pollution concern because of the nature of the industries, the relatively scattered industrial locations, and the fact that coastal breezes generally disperse most industrial pollution. Exceptions to this include some select industrial sectors such as power generation, cement manufacture, refineries and chemical plants. In the Metro Manila Area, where air pollution problems are most acute, the primary contributors to air pollution are further concentrated in a handful of sources. An emission inventory conducted in 1987 by the EMB concluded that food products manufacturing, textile mills, lumber and wood products, and glass products represent the major polluting manufacturing sub-sectors in the region (Annex 2-4). Excluding contributions from the power sector, lumber and wood products produced about 75 % of manufacturing sector particulate emissions. The food products and textiles industries were the primary contributors to sulfur dioxide; together they represented almost one-half of the total SOx emissions. 2.20 Particulate emissions, and especially PM10, are the most significant source-specific air pollution concern. Most industries requiring air pollution control equipment tend to have cyclones, bag houses or electrostatic precipitators. There are no wet systems such as spray towers or venturi scrubbers in place; such systems are capable or removing up to 90% of the particulates, as well as PM1O. 2.21 A more recent survey of 162 point sources in the MMA also shows that the majority of pollutants are attributable to a select few number of sources (Box 2.5). Including the three power plants at Sucat, Manila and Rockwell in the MMA, 90% of the major pollutant loads originate from about 20 point sources. If one excludes the power plants, 80% of non-power plant emissions are concentrated in 30-50 firms for any single type of pollutant. NOx pollution is actually the most dispersed and particulates are the most concentrated. Based on the survey, one can assign a cut-off level to the annual loading; firms producing more than this amount are among the larger firms that contribute to 80% of the total  - 26 - pollution loads. For example, in the case of particulates, 28 sources producing more than 15/t yr account for 80% of the pollution. This also illustrates that the Philippines is characterized by a very large number of small polluters who do not account for much of the pollution in aggregate. Policies intended to monitor or control activities must be sensitive to this reality. It implies, for example, that policies targeted specifically at the large polluters can have a significant impact on pollution levels. BOX 2.5: CONCENTRATION OF STATIONARY AIR POLLUTION SOURCES A 1992 survey in the MMA shows that a few point sources are responsible for most of the pollution; the top 4 polluters of particulate accounting for over 80% of pollution, include the Sucat, Manila and Rockwell power stations, plus a wood-fired Procter & Gamble plant. l TSP SOx NOx Including Power Generation: Sources responsible for 100% of emissions 162 162 162 Sources responsible for 90% of emissions 13 3 12 Sources responsible for 80% of emissions 4 2 3 Ercluding Power Generation: Sources responsible for 80% of emissions 28 33 48 Cut-off Emission Level (t/yr) * 15 50 9 Note: * Individual sources producing less than this level do not fall in the group of sources responsible for 80% of emissions. Source: Based on LLDA survey, 1992. 2.22 Water Pollution. Industrial waste water discharges can have varying chemical compositions and hence diverse impacts on the receiving stream. For example, mercury and cyanides can be concerns from a mining operation while sulfides and phenolics are significant pollutants from petroleum refineries. Chlorinated organics are in the effluents from pulp mills, while heavy metals come from electronic industries, tanneries and electroplating; suspended solids and biochemical oxygen demand (BOD) arise from food processing, beverage producing, and pulp and paper. However, when industrial pollution and river conditions are assessed, it is mainly measured in terms of BOD and suspended solids. With resource and monitoring equipment constraints such surrogate parameters are appropriate for the Philippines so long as it is recognized that a parameter such as BOD is only an indicator of the impact of an industrial or domestic sewage discharge and that it may not be the most appropriate indicator for some industrial sectors. 2.23 When the major industrial sectors of the Philippines are considered, the majority of the larger industries are high in water use and tend to discharge wastes that are high in BOD and TSS, rather than highly toxic substances. This assessment is based on the large number of food and agriculture based industries such as coconut processing, sugar cane, rice, corn, pineapple, tobacco, piggeries, beverage and slaughter houses. There are other industrial sectors that have discharges containing varied chemical compositions such as pulp mills, chemical plants, pharmaceuticals, refineries, metal finishing and textile manufacturing. However, these industries are scattered around the country and are not large in numbers. 2.24 A survey of the 100 most polluting firms in the MMA reveals the level of treatment and relative magnitude of the water pollution problems (Table 2.4). Many firms have some level of waste water treatment equipment, even though many facilities are neglected and in a state of disrepair. On  - 27 - average, the 100 most polluting industries are achieving less than 50% treatment efficiency. The highest efficiency is achieved by pharmaceutical firms, which treat 88% of their waste; laundries achieve the lowest treatment efficiency of only 25 %. In terms of the absolute volumes of waste for individual plants, 11 slaughterhouses produce the greatest amount of BOD both before and after treatment. TABLE 2.4: TOP 100 POLLUTING FIRMS Discharge per Plant Industial Number of E reTreatment Sector I Plants Emuent Flow Untreate Treated BOD5 Achieved(%) Beverage 8 2,410 6,617 2,503 62 Laundries 2 227 2,257 1,640 27.4 Textiles 13 2,290 2,773 1,348 51.4 Electronics 1 240 751 564 25 Food Processing 44 1,076 3,040 1,477 51.4 Tanneries 2 1,402 5,789 4,123 27.2 Metal Finishing 4 270 932 507 45.5 Chemicals 9 1,494 2,033 1,363 33 Pharmaceuticals 3 660 2,675 311 88.4 Pulp & paper 3 3,488 798 450 43.6 Slaughterhouses 11 921 6,894 4,435 35.7 Note: The effluent loadings and BOD discharges shown are a single plant average for each sector. Source: Based on World Bank IEPC Study, August 1992. 2.25 Hazardous and Toxic Wastes. Hazardous wastes at plant sites are poorly handled (exception: see Box 2.6) and they are generally either dumped on land within the plant area or discharged with the waste water (Table 2.5). In the MMA, it is estimated that about 25 million cubic meters of acid and alkaline liquid waste is disposed of annually, primarily from the electronics industry. In addition, almost 2000 cubic meters of solvent wastes are generated annually, and approximately 22,000 tons of other heavy metals, infectious wastes, biological sludges, lubricants, and intractable wastes are disposed of on land or in the water courses. BOX 2.6: HAZARDOUS WASTE TREATMENT Although most hazardous wastes in the Philippines are not treated, the exception to this situation is being initiated in Region 7 (Cebu area), in a cooperative effort called The Philippine-German Project Industrial Pollution Control Cebu (GTZ Project). This project recognized that even though there are regulations concerning toxic wastes, there are very few specialized devices to handle toxic wastes. The GTZ Project identified areas where solutions were required, such as toxic wastewaters and sludges from electroplating operations, hot dip galvanizing which usually has chromium solutions and battery shops that may discharge strong acids containing lead. A treatment facility is planned for either destroying the toxic components (eg. sodium hypochlorite treatment for cyanides) or for converting toxic substances into an insoluble stable state for storage in drums and landfills. Such joint venture projects with the cooperation of donor agencies are some of the most beneficial projects that the Philippines can pursue for the betterment of their environment.  - 28 - TABLE 2.5: ESTIMATED HAZARDOUS AND TOXIC WASTES IN MMA (1992) Sector Addik & Heavy Solvents Infectious Oils & Biological Other Alkaline Metals (mi3/yr) Wastes Greases Wastes Wasts" l ~~~~~~~~(rn3/yr) (V/yr) (V/yr) (V/yr) |(Vlyr) (V/yr) | Automotive 951 950 100 Battery Manufacture 780 3 17,500 Dyes & Textiles 700 10 Electronics 22 x 106 440 100 Hospitals 100 40 Leather Tanning 1 550 210 10 Metal Finishing 2.5 x 106 125 600 30 Paints & Solvents 20 160 100 Petrochem. & Chem. 0.11 x 106 10 90 500 40 Pharmaceuticals 150 Pulp & Paper 580 Total 24.6 x 106 1,550 1,810 100 18,140 2,180 390 Source: Based on IEPC Study 1992. Pollution due to Energy Generation and Use 2.26 Air Polluion from Stationaa Sources. The major pollution concem from energy generation relates to the pollutants produced by fuel oil and coal in thermal power generation. As noted in the previous sections, most of the pollutants from stationary sources in the Metro Manila Area originate from one of three point source power stations. These three sources account for 77% of the particulates and 29% of the SOx generated by stationary sources. The actual level of emissions is strongly correlated to the type of fuel used and the nature of treatment or dispersal of the pollutants. In the Philippines, high sulfur fuel oil and coal use is an important contributor to the overall emissions problem; given the trends to increase the overall share of coal in power generation, higher priority should be placed on the potential problems associated with coal. The government currently explicitly protects its domestic coal industry through a " 1:1 rule" that requires coal users to purchase one unit of domestic coal for every unit of coal that is imported. Even though coal prices are not regulated, the result is that the mine-mouth price for domestic coal is little different from the cost of imported coal, even though they are of significantly different qualities. In general, domestic coal is environmentally inferior to imported coal; it is of lower heating value and has higher ash and sulfur content (Table 2.6). Compared to typical coal from China or Indonesia, a unit of coal from domestic reserves at Semirara or Cebu would produce 20% to 40% less power; when adjusted for this lower heat content, particulate emissions from these domestic sources are 2.5 times that of imported coal; sulfur emissions can be as much as 4 times higher for domestic coal.  - 29 - TABLE 2.6: TYPICAL COAL RESERVES AND QUALITY Source Minable Reserves Heating Value Ash (%) Sulfhr(*) l____ _ (million t) (BTU/lb) l l Domesfic Seniirara 100 7,000 19.0 1.0 Cagayan 88 4,600 13.8 0.9 Surigao 34 7,100 17.8 2.0 Zamboanga 24 11,100 12.1 0.8 Samar 7 7,000-7,600 10.0-24.9 1.8-3.2 P.B.C. 4 8,000-12,000 6.9-18.5 1.8-2.2 Cebu 3 9,000-9,300 14.4-19.9 1.1-3.3 Imported China 12,100 13.3 0.8 Indonesia 11,900 11.5 0.7 Environcoal (Ind) 10,000 1.0 0.1 Source: OEA 1992. NPC 1992. 2.27 Most generating plants use simple inexpensive procedures for controlling particulate emissions and undertake fairly rudimentary treatment of waste water (Annex 2-5). All of the current coal-fired stations (the 100 MW Naga plant at Cebu and the 300 MW Calaca plant in Batangas) also have electrostatic precipitators (ESPs) which are capable of removing essentially all of the particulates from the flue gas. None of the plants have any sulfur recovery potential, and the geothermal plants simply vent all non-condensable gases (NCG) either directly or via the cooling tower exhausts. Sulfur emission, in the smoke of thermal plants or in hydrogen sulfide from geothermal stations, are therefore, generally not removed. 2.28 Water Pollution and THS. Water treatment at power generation sites is typically handled via a simple separator and, at the Malaya, Sucat and Batangas plants via secondary settling and neutralization. The power plant's more serious pollution problems are actually water related. Oils, lubricants, and chemicals regularly get dumped into the circulating water streams and end up in the rivers, and slag from the boilers and ESP also finds its way into surface water. Many of the plants on the Visayas Grid, including those at Naga, Bohol and Panay, lack even rudimentary separators, although the Naga facility does have electrostatic precipitators for air pollution control. One potential concern is that, in cases where particulates are removed through soot collectors, dust collectors, or an ESP, the residue from this collection may enter the waste water stream unless completely dry systems are used. In essence, what was originally a potential air pollution problem becomes a potential water pollution problem. This transferred impact also applies to water treatment and THS; improving water treatment may in itself generate a THS problem if no facilities exist to store or destroy the substances extracted from the waste water stream. 2.29 Pollution from Commercial and Residential Enera Use. Because of the multitude of small point sources which precludes developing a representative inventory, no estimates have to date been done of pollution from commercial and residential energy consumption. In addition, because of the wide variety of applications and use efficiencies in this sector, it is difficult to assess precisely the contribution  - 30 - these sectors make to pollution. It is possible, however, to obtain some order of magnitude estimate of the potential contribution of this sector to the industrial and energy generation sectors. The primary fuels used in the commercial sector are diesel, fuel oil, and LPGs, whereas the principal fuels used in the residential sector are kerosene and LPGs. As LPGs are generally very clean burning fuels and, compared to others, also low in NOx production, the primary concern is the relative contribution of pollutants from kerosene, diesel, and fuel oils. In 1991, consumption of kerosene and fuel oil by the commercial and residential sector was about 594 MTOE compared to a 3,497 MTOE consumption by other industries and power generation (about 17%); diesel consumption of the commercial sector was about 3.8% that of all other sectors combined (including the transport sector). These ratios suggest that the overall contribution from this sector to pollution is relatively minor. Given that point-source emissions are too scattered to be effectively monitored or controlled, any attempt to reduce these emissions would require improvements in fuel efficiency, changes in fuel specifications (diesel fuel in particular), or encouraging through taxes or other pricing mechanisms the increased use of LPGs. Other Selected Pollution Sources -1 2.30 Mineral Extraction. Most large mining operations in the Philippines involve extraction and concentration of gold and copper. There are also several lateritic nickel mines that are operating or planned, and an underground chromite mine is operating in Zambales Province. There are also a large number of legal and illegal small mines operating in the country. Included in these are the destructive alluvial/hydraulic mining practiced by individuals and small groups of miners involved in "gold rushes". One of the most recent of the gold rushes was in Mindanao, and considerable environmental impact, including loss of life, was associated with soil erosion and land slides resulting from the activities of these miners 51. The type of environmental problems associated with underground, open-cut, heap leaching, and concentration of minerals extracted by mining operations in the country include: (a) siltation-related water quality problems, and aggradation of stream beds and coastal areas caused by river and marine disposal of mine tailings, overburden and interburden; (b) toxicity and bioaccumulation of heavy metals in fresh and salty waters, sediments and biological organisms caused by discharge of mine tailings, effluents from tailings disposal facilities and heap leaching pits, effluents from mineral separation and concentration operations; (c) toxicity to human and aquatic life resulting from effluent discharge containing arsenic and cyanide used in leaching gold from finely ground ore; and, (d) soil and slope stability problems related to hydraulic mining. 4/ See Study Background Papers for details on Geothermal, Oil and Gas, Mining, Public Works and Power Sector. 5/ Other 'traditional" gold rush areas include Camarines Norte, Catanduanes and Masbate in Bicol; Zamboanga del Norte, Zamboanga del Sur, Bukidnon, Surigao del Norte, Surigao del Sur, Agusan del Sur, Agusan del Norte, Davao del Norte in Mindanao; and Benguet in the Cordillera Administrative District of Northern Luzon.  - 31 - BOX 2.7: ECONOMIC INCENTIVE FOR MINE REHABILITATION Although various mining acts and regulations require rehabilitation planning and afforestation of mined areas, no provision exists for ensuring that the money required for rehabilitation will actually be available after mine closure. This is particularly critical in the case of insolvency of the mine operator which would cause the abandonment of a mine before all useful mineral reserves had been extracted. Few large mines have actually been closed, although several are old and nearing the end of economic viability. There are also examples, such as an early attempt to produce nickel from lateritic deposits, of mines closing for extended periods of time because of poor economics. The potential environmental damage to soil erosion, slope stability, ground and surface water quality is very high in mines that have not been rehabilitated in a thoroughly planned and managed manner. The Mines Administration Order No. 20, 1977, requires mine operators to spend annually an amount equivalent to at least one-half of one percent of the total budgeted operating costs for said year in order to ensure compliance with the provisions of the Order. A "Performance Guarantee" of 1,000 pesos per hectare of active mining area is also required to ensure faithful performance of environmental obligations. More recently, use of 'environmental guarantee funds' have been used by DENR to supplement the money available for environmental management and mitigation activities in a mine area. However, the total sum of money involved is only a fraction of the cost likely to be needed to return the mine area to a land use approximating its use before mining operations started. One way to ensure that sufficient resources are available to rehabilitate after the end of economic extraction from the mine, or in case bankruptcy results in long-term abandonment of the mine is to require a "performance bond". This has the benefit of ensuring money is available while minimizing "up-front" costs to the developer at a stage in which construction costs are very much greater than revenue. The rehabilitation guarantee could be in the form of an insurance bond that would be forfeited if rehabilitation was not completed to the satisfaction of DENR. 2.31 There are few large, new mines planned. The large mining projects generally involve rehabilitation or expansion of existing mines, and there are only a few of these that require a full EA each year. Small scale mining, defined as a mine 80 ha or smaller or a quarry less than 1 ha, would only require preparation of a Project Description to satisfy environmental assessment requirements. Many more illegal small mines and alluvial operations operate in the Philippines outside the environmental assessment process. Although large operations are regulated (Box 2.7), smaller operations tend to be poorly designed and operated, and are essentially uncontrolled by the DENR. These operations are also potentially the most damaging to the environment, and to public health and safety. 2.32 Coal Minino. The most significant environmental impact associated with domestic coal production, as noted earlier, is that it is of inferior combustion grade and it tends to produce significantly higher levels of particulate and sulfur emissions than imported coal when used for thermal power generation. At the mine mouth, however, the types of land-use disruptions associated with mineral mining also potentially apply to coal mining. The problem is exacerbated in the Philippines because of the large number of small coal producers. In 1991, 79% of domestic production came from four producers (PNOC, Semirara, Bislig, and Luvimin); the remaining 21% of production originated from 32 operations producing less than 8,000 t/yr each. 2.33 Geothermal Enera Generation. Geothermal energy production is expected to have the greatest growth of any single domestic energy source in the Philippines, growing at more than 12% per year over the next decade. Environmental pollution issues most often associated with geothermal development in the Philippines relate to disposal of liquid and gaseous wastes generated when flashing superheated reservoir fluids to provide steam for supply to NPC. Land disturbance is also a potential concern during civil construction activities required for the development of a steam gathering system, and arising from an increased likelihood of induced development and non-sustainable use of natural resources resulting from improved access to environmentally sensitive areas provided as a by-product of geothermal exploration and development. Electrical energy produced from geothermal sources in the Philippines  - 32 - comes from "two-phase", liquid dominated reservoirs. The productive zones of these reservoirs tend to be relatively deep and of high temperature by world standards (about 2 km at > 240