PRICING FOR MUNICIPAL SOLID WASTE DISPOSAL IN KOREA BY HOE-SEOG CHEONG CSERGE Working Paper WM 95-04 PRICING FOR MUNICIPAL SOLID WASTE DISPOSAL IN KOREA BY HOE-SEOG CHEONG The Centre for Global and Economic Research on the Global Environment

The development strategy in Korea, which expedited industrialisation and urbanisation, achieved rapid economic development at the cost of the environment. As the economy grew, demands for cleaner environments increased rapidly and the rehabilitation of the environment became one of the most urgent tasks of the government. In dealing with the environmental challenge, the Government of Korea (GoK) introduced several market-based instruments (MBIs) in order to redress market failures in environmental management. Among them, those relating to waste management are explored and evaluated in this paper. The economics of waste disposal services in Korea suggest that traditional methods of 'collection and landfill' are no longer an efficient way to accommodate rapidly increasing municipal solid waste (MSW). MBIs for waste management have been introduced by the GoK from 1992 to achieve more efficient waste disposal services. It was assumed that efficiency can be enhanced by reduction and recycling. The structure of the MBIs in Korea can be regarded as an example of a Pigovian solution being applied to waste disposal. The waste generator is penalised by a product charge, a depositrefund system and a by-volume waste collection charge. The victims of detrimental externalities are compensated by refunds in the deposit-refund system, supports to the recycling industry and compensation to residents near waste disposal sites. Although there have been some improvements in the efficiency of waste management, the effects have been reduced due to the lack of adequate market information, low charge rates and indirect compensation schemes. The MBIs, however, have contributed to the environment by the built-in 'side effect' of their revenue-raising property. The revenue raised by the MBIs is ear-marked for projects concerning waste reduction and recycling. In developing countries, it is not easy for the MBIs to satisfy efficiency criteria, due not only to the poorly working market but also to the low administrative capacity. Furthermore, the environment sector usually suffers budget constraints because of the low priority placed on environmental quality. If these conditions prevail, the revenue-raising property in the MBIs, if earmarked for environmental projects, can be regarded as a 'second best' property for environmental management.