Why Paper Mills Clean Up: Determinants of Pollution Abatement in Four Asian Countries

Developing countries, particularly those in Asia, are fast adopting industrial pollution control standards similar to those in developed countries. However, formal regulation has been greatly hampered by the absence of clear and legally binding rules; limited institutional capacity; lack of appropriate equipment and trained personnel; and inadequate information on emissions. At present, the government-imposed 'price of pollution' is nearly zero for many manufacturing facilities in these economies. A conventional analysis would predict highly pollution-intensive production under such conditions. However, our research has uncovered strongly contradictory evidence. Despite weak or nonexistent formal regulation and enforcement, there are many clean plants in the developing countries of South and Southeast Asia. Of course, there are also many plants which are among the world's most serious polluters. What explains such extreme interplant variation? This paper reviews the evidence from a survey of pollution abatement by 26 pulp and paper plants in four countries: Bangladesh, India, Indonesia and Thailand. Our analysis incorporates three sets of factors which may affect the pollution intensity of an industrial process: Relevant plant characteristics may include choice of technology, vintage, ownership, management quality, available human resources and technical expertise. Firms' responsiveness to pressure for abatement may also vary significantly with economic considerations: input prices, profitability, market characteristics, availability of information on abatement technology, and financing possibilities. Finally, plants may adapt to external pressure from government regulators, buyers or investors, and neighboring communities which suffer damage from pollution. Our results show that all three factors play significant roles. Abatement is positively associated with scale and competitiveness; negatively associated with pubic ownership; and unaffected by foreign links (in ownership or financing). Community pressure, or informal regulation, emerges as a clear source of interplant differences. Under some circumstances, communities successfully pressure plants to abate even if little or no support is available from formal regulation. Our results suggest that local income is a powerful predictor of effective informal regulation. We also find that existing formal regulation has measurably beneficial effects, even when it is weakly-developed. The main message of our results is a hopeful one for sustainable development. Clean production is not uncommon in very poor countries such as Bangladesh. Even in the absence of formal regulation, large, efficient, domestically-owned plants operating near relatively affluent communities have proven capable of excellent environmental performance. There is clearly no ii insurmountable barrier to clean production in poor countries. Our strong results on ownership, competitiveness and …