Impact
 Evaluation
United States Agency for International Development
PN–ACG–611
Team Leader: Donald G. McClelland
Team Members: Matthew W. Addison, Steven
Gale, Will Knowland, Joseph M. Lieberson
September 2000
CONTENTS
Summary ........................................ 1
Background ................................... 2
Program Elements ......................... 5
Impact ............................................. 7
Program Performance ................. 11
Lessons Learned ........................... 14
SUMMARY
N OCTOBER 1999, USAID’s Center for Development Information and Evaluation (CDIE) fielded
a five-person team to assess the impact of the Industrial Environmental Management Project.
Implemented in the Philippines during 1992–97, IEMP worked with the government and pri￾vate sector to introduce concepts of waste minimization and pollution prevention to small and
medium-size industrial firms located outside metropolitan Manila. The project’s principal goal:
improve human health.
More than 2,600 people participated in IEMP training seminars. Many others took part in a series
of public–private dialogs on new regulations—
some of them based on policy studies prepared with
IEMP financial support. A central feature of the
project was the pollution management appraisal
(PMA), a simple assessment of opportunities for re￾ducing industrial pollution through low- or no-cost
techniques as well as capital investments in equip￾ment that could increase production and simulta￾neously reduce waste and emissions.
During 1992–97, USAID introduced pollution-prevention strategies to 143
industrial companies in the Philippines. The immediate result: pollution
decreased, and companies increased revenues. But few firms have sustained
the benefits, and the strategies have not been institutionalized.
REDUCING URBAN AND INDUSTRIAL POLLUTION
IN THE PHILIPPINES
I
2
PMAs were done for 143 companies through￾out the country. The appraisals identified op￾portunities for the firms to reduce costs, in￾crease revenues, and reduce water pollution.
The firms invested a combined total of $27 mil￾lion to implement PMA recommendations. This
resulted in annual net benefits of $33 million.
Water pollution, gauged by biochemical oxy￾gen demand (a standard measure of organic
pollution in wastewater), decreased by 29 per￾cent on average.
Most participating companies realized reduced
production costs and increased revenues, and
the country benefited from lower pollution lev￾els. The project confirmed that industry-led
economic growth can be compatible with en￾vironmental protection in the Philippines.
Companies tended to adopt low- and no-cost
PMA recommendations with a short payback
period rather than measures requiring a large
capital outlay and a long payback period.
Though not a panacea, pollution management
appraisals can be effective tools in helping re￾duce pollution at the company level.
The prospect of cost savings was the main fac￾tor motivating companies to adopt waste-mini￾mization programs. However, command-and￾control measures were also critical. To be effec￾tive, regulations must be enforced, and penal￾ties for noncompliance must be severe. This
was often not the case in the Philippines be￾cause of resource constraints. Market-based
instruments for pollution prevention are an
important complement to command-and-con￾trol approaches. Such instruments use eco￾nomic incentives (and disincentives) to influ￾ence companies’ behavior.
But the PMA process has not been institutional￾ized in the Philippines. The benefits of waste
minimization have not been sustained at many
participating companies. And neither the PMA
process nor PMA recommendations have spread
to nonparticipating firms. Why not?
Perhaps some plant owners and business man￾agers viewed the cost savings estimated in the
PMAs with skepticism. Or firms may simply
have been buying time to avoid compliance
problems rather than seriously trying to im￾prove operations. As for replication, companies
generally did not voluntarily share information
with competitors about ways to cut costs.
Program performance, including sustainability
and replication, may be enhanced and strength￾ened by forging closer working relationships
with industry trade associations and top man￾agement of individual companies as well as by
ensuring that reliable data are available to mea￾sure costs and benefits and monitor change.
BACKGROUND
Urbanization in the Philippines has increased
dramatically in recent years. In 1993, only one
third of the country’s 73 million people lived
in urban areas; by 1995, it was more than one
half. The Philippines’ economy has also grown
substantially since 1993. The industrial and ser￾vice sectors have led that growth. Not surpris￾ingly, urban and industrial growth has led to
increased air and water pollution.
In many countries, there is a natural tension
between industrial development and environ￾mental protection. This is true in the Philip￾pines, though fortunately, the situation has be￾gun to change. USAID has contributed to that
change in part through the Industrial Environ￾mental Management Project implemented dur￾ing 1992–97. In October–November 1999, a five￾person CDIE team assessed the impact and ef￾fectiveness of USAID’s pollution-prevention and
-control programs in the Philippines.
Urban and Industrial Pollution
In the Philippines
The Philippines’ industrial sector is a major source
of water and air pollution. Given the size of the
3
Philippines and the magnitude of its pollution
problems, air- and water-quality monitoring data
are relatively limited. As of 1996, the Department
of Environment and Natural Resources (DENR* )
was monitoring air quality at 185 stations. In the
Metro Manila area, suspended particulate matter
at 200 micrograms per cubic
meter was more than double
World Health Organization
guidelines. Manila’s air is
among the most polluted in
the world.
Almost half of DENR’s 400
water-quality monitoring
stations show that pollut￾ants exceed the worst offi￾cial Philippine classification
of water bodies. DENR ranks
most rivers with a “C” or a
“D” on a scale of A to D. The
major water pollution prob￾lem is discharge of domes￾tic sewage and industrial organic wastes. Most
industrial effluent goes untreated or only par￾tially treated and is discharged into inland and
marine waterways. This results in low dis￾solved oxygen levels.
More than two thirds of the country’s indus￾trial facilities are located in Metro Manila,
where all four major river systems are biologi￾cally dead. The largest polluting industries by
volume of effluent are coconut and vegetable
oil, sugar milling, distilleries, textiles, iron and
steel, mining, and cement. The most toxic pol￾luters are smelters, petroleum refineries, pet￾rochemicals, pesticide and wood preservative
industries, gold amalgam processes, industrial
chemical industries, and fertilizer plants.
In 1989 the National Statistics Office listed
10,000 medium- and large-scale manufacturing
firms in the Philippines, of which 8,000 gener￾ated wastewater. All together, they produced
2.5 million metric tons of biochemical oxygen
demand (BOD) in 1990. BOD material uses oxy￾gen in the water, which can threaten aquatic
life. In 1992, industry accounted for 29 percent
of total BOD nationally; do￾mestic sources, 44 percent;
and surface runoff, 27 percent.
Water pollution from all three
sources cost the nation over
$86 million in 1992. Of this,
$37 million (in 1992 prices)
was from health losses, in￾cluding lost workdays, lost
earnings from premature
death, and costs of medica￾tion. The other $49 million
was in fisheries losses. Indus￾try generated $25 million of
total losses.
USAID Industrial Environmental
Management Project
Unlike many industrial pollution programs,
which stress treatment of waste, IEMP stressed
prevention. It was designed to reduce pollution
at its source by improving “industrial house￾keeping,” changing industrial production pro￾cesses, and reducing and reclaiming industrial
waste. It also encouraged adoption of cost￾effective pollution abatement technologies.
Funded by USAID at $13.2 million, the project
operated from July 1992 through June 1997. It
had three components: pollution reduction (30
percent of project funding), policy studies (28
percent), and capacity building (42 percent).
To prevent pollution at its source, industrial
corporations must be convinced that preven￾tion is financially beneficial. Companies do not
intend to harm the environment, but they are
in business to make a profit. If low-cost, envi￾ronmentally sensitive investments and changes
*
DENR is the government agency primarily responsible
for protecting and enhancing environmental quality and
for formulating environmental standards.
“The project was
designed to reduce
polution at its source by
improving ‘industrial
housekeeping’ and
reducing and reclaiming
industrial waste.”
4
in production processes will reduce costs and
increase profits, they may take action. And if
they do, the companies will reduce their costs,
the country will suffer less environmental dam￾age, and public health will improve.
IEMP used pollution management appraisals to
identify ways to realize savings, typically by
using fewer raw materials and less water and
energy in the production process. This in turn
helps reduce waste treatment and disposal
costs. There is another incentive. The govern￾ment can fine or shut down businesses that vio￾late pollution standards. Under the project,
however, companies that initiated PMAs were
given a one-year exemption from complying
with those standards—a valuable incentive to
participate.
A pollution management appraisal identifies
waste-minimization opportunities ranging
from no- or low-cost options to those that are
more capital intensive. It estimates how much
a company would save by adopting alternative
options as well as the rate of return and pay￾back period. Pollution-prevention options may
involve 1) minimizing industrial waste, 2) re￾claiming and reusing waste, and 3) using new
technology to reduce waste. To build manage￾ment support, businesses are often encouraged
to start with no- or low-cost measures. Then
they can decide whether to make more costly
investments that could yield even greater re￾turns.
An important tactical question concerns what
types of business should be selected for a PMA.
One could select the worst polluters. Though
they would seem obvious candidates, their se￾nior management may be inept or uninterested
in reducing pollution. Alternatively, one could
select the best performers. Such companies are
likely to implement and sustain PMA recom￾mendations. But they are already relatively
clean, so selecting them will have little envi￾ronmental effect. Finally, some businesses pro￾duce a unique product or have a unique pro￾duction process. Such companies, if principal
sources of toxic waste, may be good candidates
for PMAs. But they are poor candidates for rep￾lication since there are few businesses that
could adopt similar pollution measures.
Under IEMP, no selection criteria were used.
Instead, any small- or medium-size firm located
outside Metro Manila that wanted to partici￾pate could do so.
The project used education and training pro￾grams to introduce the PMA concept to more
than 400 companies and a variety of industry
trade associations, nongovernmental organiza￾tions (NGOs), and professional associations. Of
the 400 firms, 143 volunteered for PMAs. The
IEMP end-of-project report (July 1997) indicates
that over 90 percent of them implemented pol￾lution-prevention measures. A quarter of the
companies each invested less than $2,000 in
such measures; the remaining 75 percent each
invested more than $2,000. Total combined in￾vestment was reportedly $27 million. This in￾vestment generated annual net financial ben￾efits of $33.1 million. The payback period was
less than 10 months. The reduction in pollu￾tion load (BOD) averaged 29 percent at the 143
firms.
The Philippines has had a long tradition of cen￾tralized command and control. The govern￾ment sets the rules; industry is expected to fol￾low them. An exhaustive set of environmental
rules and regulations had been in place, but
enforcement was lax and uneven. To help deal
with this problem, IEMP supported 6 major
policy studies and 11 public–private dialogs on
pollution issues. It also worked with DENR to
rationalize regulations and standards. Action
programs were developed by IEMP and adopted
by DENR for environmental impact assessments,
market-based environmental instruments, air￾and water-quality management, enforcement
of fines and penalties, and management of haz￾ardous wastes and toxic chemicals.
5
Finally, IEMP trained more than 2,600 people
from both the public and private sectors in en￾vironmental management skills. By strength￾ening institutions and creating a pool of quali￾fied experts in pollution management, IEMP
tried to ensure program sustainability.
Program Elements
Many USAID-funded urban and industrial pol￾lution programs support interventions in one
or more of five areas: economic policy reform;
environmental regulations and standards; edu￾cation and awareness campaigns; institution
building; and technological change. This was
the case in the Philippines.
Economic Policies
A well-designed economic policy environment
can be a powerful tool. Key economic policy
issues include pricing, market-based instru￾ments, and financing.
Pricing
Most of the IEMP industries were relatively
water intensive (for example, agriculture pro￾cessing and textiles). Thus, any reduction in
water use would theoretically yield significant
cost savings for the company—but only with
realistic pricing policies. This is not the case in
the Philippines. Water from municipal systems
is inexpensive, and groundwater is free. Thus,
there is little incentive to conserve water. For
example, a company might decide it was finan￾cially more attractive to invest in a well for tap￾ping “free” groundwater than to pay for piped
municipal water. Yet, tapping groundwater
lowers the water table, which can deplete aqui￾fers. It can also result in saltwater intrusion.
Energy pricing policy is also important. In the
Philippines, power purchased from the electric
utility is generally a significant cost of produc￾tion. Companies tend to conserve energy by
reducing their demand for electricity. The util￾ity burns less fuel, reducing pollution. How￾ever, alternative power sources are often envi￾ronmentally less desirable. For example, firms
can “save” on electricity by investing in less
efficient (and highly polluting) diesel genera￾tors. Unless energy pricing policy encourages
use of cleaner fuels and power sources, or of
energy-efficient technology, companies will
continue to use energy sources that are least
expensive to them—irrespective of social cost.
Market-Based Instruments
The Philippines’ traditional approach to pol￾lution control has relied primarily on command
and control—creating regulations and then
enforcing them. By contrast, market-based ap￾proaches impose fees and provide incentives
to achieve the same objective. In economic
terms, pollution discharge fees imposed on the
polluter equate private and social costs of pol￾lution.
An IEMP policy study analyzed the merits of
several market-based instruments. Of these,
user fees were singled out for more study, the
results of which became the basis for establish￾ing a “polluter pays” emissions fee system for
the Laguna Lake Development Authority.
Companies are assessed fees on their effluent
discharge into the lake or tributary streams.
Companies that reduce waste generation are
rewarded with lower fees and penalties. This
was the first time a fee-based system had been
used in the Philippines, and the program ap￾pears to have succeeded. It has contributed to
measurable improvements in the quality of
Laguna Lake—a major freshwater body adja￾cent to Manila and long an important source
of fish and means of livelihood for local people.
Buoyed by the success at Laguna Lake, DENR
plans to introduce similar fees nationwide.
Financing
Investing in pollution prevention and waste
minimization is a relatively recent practice, for
6
both Philippine businesses and financial insti￾tutions. Companies are unaccustomed to mak￾ing bankable cost calculations, just as bankers
are unaccustomed to reviewing loan requests
for these purposes. However, the IEMP policy
study “Financial Resources to Fund Environ￾mental Investments” examined the major is￾sues and provides an agenda for government
and financial institutions to explore the topic.
Working in partnership with DENR, the Land
Bank of the Philippines and the Development
Bank of the Philippines now target small and
medium-size firms for concessional loans to fi￾nance pollution-prevention and waste-minimi￾zation efforts.
Government Regulations
And Standards
Environmental laws, standards, and regula￾tions—and government’s capacity and willing￾ness to enforce them—are pivotal factors in the
relative success of pollution-prevention
projects. In the Philippines, enforcement has a
poor track record, partly because of unreason￾ably strict laws, uneven enforcement, and cor￾ruption. One principal objective of IEMP was to
provide DENR with technical assistance and
advice on a range of issues concerning regula￾tions for industrial environmental manage￾ment; policy studies were an important mecha￾nism to achieve this objective. DENR already had
a five-year agenda for such studies when IEMP
began—an indication of the demand for expert
advice.
The results of some of these studies were ap￾plied quickly as departmental administrative
orders or regulations: the Standards for Repub￾lic Act concerning toxic materials, for example,
and the Guidelines for Social Acceptability.
Other studies have provided major input for
the Clean Air Act, passed in early 1999, and the
Clean Water Act, expected to be passed.
Education and Awareness
IEMP supported a significant training compo￾nent designed to build environmental aware￾ness and technical knowledge in both the pri￾vate and public sectors. The training was aimed
at environmental consultants, managers and
technical staff from industry, and government
staff at both the national and local levels. Train￾ing modules were developed in six technical
areas. In addition, the project supported a se￾ries of seminars and roundtables for private–
public sector dialog. The sessions provided a
valuable forum for public debate on proposed
reforms in environmental policy. Special work￾shops were held to respond to requests from
DENR’s Environmental Management Bureau.
The project consciously “Philippinized” the
content of the courses and trained Filipino in￾structors as rapidly as possible. This made the
courses more appropriate and effective for the
participants and had the advantage of devel￾oping a corps of Filipino technical trainers. The
project also strengthened the technical capabil￾ity of local consultants engaged by IEMP to con￾duct pollution management appraisals. Several
are known to be active in industrial environ￾mental consulting today. Pollution-control of￾ficers from factories and elsewhere in the pri￾vate sector also participated in the training. The
central and local offices of DENR employed the
largest share of trainees. Unfortunately, DENR’s
personnel office was unable or unwilling to or￾ganize follow-on programs, even though all the
materials for the training modules had been de￾veloped by the project.
Finally, various publications produced under
the project had far-reaching impact. A series of
success stories—concise write-ups reporting
PMA results for individual IEMP companies—
was bundled into a publication (“Philippines
Industry’s Response to Waste Minimization”)
for DENR and widely circulated. Many in the
government, private sector, and international
7
agencies referred to it, both in Manila and dur￾ing site visits. Another series that appears to
have received wide distribution is “Pollution
Prevention Guidelines,” prepared for several
of the industry sectors covered by the project.
Institution Building
Strong public and private institutions are in￾dispensable to ensuring clean air and water in
the Philippines. Among governmental agen￾cies, DENR has the primary mandate of setting
standards for emissions and enforcing them.
The Department of Trade and Industry has a
strong promotional role—facilitating the ex￾pansion of Philippine industry. The Depart￾ment of Science and Technology supports de￾velopment and adoption of technology. There
is duplication and conflict among these man￾dates; DENR, in particular, has a role in all these
areas. The picture of government institutions
in the Philippines is further complicated be￾cause all these agencies work at both the na￾tional and local levels, the latter through local
government units.
IEMP specifically focused on DENR, a sprawling
regulatory bureaucracy responsible for forests,
fisheries, watersheds, and protected areas as
well as industrial environmental regulation
through the Environmental Management Bu￾reau. The leadership of DENR has changed sev￾eral times since the project began, and staff
turnover has been considerable. Both within
and without DENR there is debate on its proper
role in working with industry. Should it sim￾ply wield the stick and be a hard-nosed com￾mand-and-control regulator? Or should it also
offer industry carrots? Whatever the outcome
of this debate, it should be noted that IEMP as￾sisted DENR mainly at the local level. This was
consistent with the gradual shift of responsi￾bility and authority from Manila to the prov￾inces.
Technological Change
The Industrial Environmental Management
Project, as its name suggests, emphasized man￾agement. The PMAs themselves were a new
management technique—a simple and system￾atic procedure for assessing opportunities for
minimizing waste and preventing pollution.
IEMP was concerned mainly with the process
of technological change and only indirectly
with the specific technologies used. However,
it aimed to influence decisions about which
technologies would be selected and how fac￾tory managers and workers would apply them.
PMAs usually recommended capital investments
in equipment that would be cleaner or more
modern and efficient. Those recommendations
were typically part of a package that included
low- and no-cost measures, such as sweeping
solids from the shop floor before hosing it dur￾ing cleanup. The appraisals also always recom￾mended establishing an in-plant team to identify
additional opportunities for improving manage￾ment techniques and new technologies on an
ongoing basis. However, unless the company’s
management accepted the concept of waste mini￾mization and encouraged the team to act, few
improvements were undertaken.
IMPACT
Urban and industrial pollution-prevention pro￾grams can have at least three effects: environ￾mental, health, and financial. Under IEMP,
waste-minimization efforts often involved op￾erating changes internal to the business. The
effects of these changes were almost immedi￾ate and easily measured in physical reductions
in pollution and changes in costs and revenues.
Reduced water pollution can also affect aquatic
animals and plant life. These external effects are
difficult to measure and usually are not valued.
In some cases, external effects are immediate.
In others, they take longer. It may take years,
8
for example, after a factory has stopped pol￾luting a river for aquatic life to return. Activi￾ties that involve institutional strengthening or
changes in policies, laws, and regulations take
even longer to manifest themselves in ways that
can be measured.
Environmental Impact
IEMP targeted various industries but mainly
those discharging organic wastes, especially
biochemical oxygen–demanding material. (BOD
lowers dissolved oxygen levels to the point
where, at the extreme, the water cannot sus￾tain life.) The project also helped reduce sus￾pended solids, which reduce water quality and
silt up coral reefs, reducing their productivity.
Suspended solids also have adverse effects on
agriculture, and high concentrations increase
the cost of treating water for human consump￾tion and industrial use. Reducing levels of
heavy metals and toxins is important because
they have a direct, harmful effect on human
health. In addition to reducing loads of these
and other pollutants, IEMP identified ways in￾dustries could reduce input requirements, thus
saving water and energy.
Although the PMAs for individual companies
developed data for many of these pollutants,
the data were aggregated for only one pollut￾ant (BOD) and for wastewater discharge reduc￾tions (see table 1). The CDIE team estimated re￾ductions for two other pollutants: total sus￾pended solids (TSS) and toxic metals (also re￾ported in table 1). Thus, water use was reduced
by an estimated 36.9 million cubic meters per
year; BOD material, by an estimated 43.5 mil￾lion kilograms annually; TSS, by 31.7 million
kilograms per year; and toxic metals, by 696,000
kilograms per year.* These results can probably
be attributed to the project. Of course, similar
environmental results would occur if the
company’s output declined, because less wa￾ter would be used and less total pollution
would be produced.
The table shows that a single industry, sugar
milling, accounted for the largest share of wa￾ter-use reduction (77 percent), BOD reduction
(69 percent), and TSS reduction (31 percent).
These reductions were spread rather evenly
over all 15 participating firms of the sugar in￾dustry. The second largest source of BOD reduc￾tion occurred in the starch manufacturing in￾dustry, mainly from a single firm. Over 85 per￾cent of total BOD reduction occurred in only 17
of the 143 companies. Thirty of the companies
registered no BOD reduction at all, and some of
those were in industries characterized as BOD
heavy. The veneer and plywood industry ac￾counted for most of the reduction in toxic met￾als (84 percent); however, as previously indi￾cated, data were not available for many of the
dirtier industries.
A key assumption underlying these annual re￾ductions in pollution load and input use is that
plants continue to implement PMA recommenda￾tions each year, even after the project ends. On
this score results were mixed. Some companies
no longer followed all PMA recommendations.
Others were implementing pollution reduction
measures that had not been recommended in the
PMA and therefore were not captured in the end￾of-project report. Still others appear not to have
implemented the recommendations at all, or at
least not as planned. Thus, environmental im￾pacts are reported only for the first year of adop￾tion. In addition, the companies interviewed in￾dicated they did not collect the detailed data nec￾essary to measure these results. For example, the
PMA for International Pharmaceutical, Inc., stated
that additional data would be needed to deter￾mine the pollution reduction load and that “IPI
should arrange to obtain this data.” However, IPI
*
According to interviews with former project staff, BOD
load was estimated using standard BOD coefficients for
each industry. The team used the World Bank’s Industrial
Pollution Projection System to estimate total suspended
solids for the industries. Reductions in toxic metal could
not be estimated for many of the “dirtier” industries
because of insufficient data.
9
indicated to the team that it still does not collect
such data.
Health Impact
The principal goal of IEMP was to improve hu￾man health. However, the project did not con￾centrate on those industries having the most
direct impact on health. This is not to suggest
the project had no health impact. It did. But it
was typically indirect and difficult to measure.
The project contributed to significant reduc￾tions in biochemical oxygen demand and total
suspended solids, two pollutants that damage
aquatic life. If these reductions are sustained,
and perhaps replicated, water quality is likely
to improve, aquatic life will resume, access to
marine protein will increase, and nutrition will
improve. Thus, this project would indirectly
improve human health since many Philippine
communities depend heavily on fish protein.
The project also helped reduce air pollutants.
For example, interventions at cement plants
reduced emissions of suspended particulate
matter. The effect of reduced emissions at the
local level can be substantial, depending on the
direction of the prevailing winds and the prox￾imity of the population to the plant. In addi￾tion, many PMA recommendations identified
ways to reduce the demand for energy. Re￾duced energy use in turn contributes to reduced
emissions of particulate matter, sulfur dioxide,
and other pollutants that endanger human
health. Unfortunately, the data necessary to
establish these linkages and quantify their posi￾tive effects were not available.
Financial Impact
The key hypothesis underlying waste minimi￾zation and pollution prevention is that many,
if not most, of these measures are financially
Industry
Tuna canning and seafood
Desiccated coconut
Pulp and paper milling
Vegetable and animal oils
Sugar milling
Distilled spirits
Starch manufacturing
Seaweed processing
Fruit and vegetable canning
Hog raising
Industrial chemicals
Slaughtering
Veneer and plywood
Soft drinks
Tanneries
Metal finishing
Synthetic resins
Cement manufacturing
Others
 Total
Water Use
Reduction
(millions of
m3
/yr.)
.435
 .210
 2.671
 1.022
28.320
 .471
 .623
 .322
.708
 .192
 .069
.224
 .943
.167
.004
.057
.032
 —
 .453
36.923
BOD
Reduction
(millions
of kg./yr.)
 1.010
 1.378
 .317
 .146
29.878
 1.398
 3.202
 .052
1.710
 .334
 .363
.156
 1.755
.001
.005
—
—
—
1.765
43.470
TSS
Reduction
(millions
of kg./yr.)
2.041
1.513
.511
5.239
9.908
2.513
3.800
.057
1.879
.938
 —
.178
3.129
.002
.009
—
—
 —
—
31.717
Toxic
Metal
Reduction
(kg./yr.)
—
 614
 181
 10
—
—
 6,653
—
762
 3,928
 94,638
1,836
 587,517
 —
10
—
—
—
—
696,149
% BOD
Reduction
28
15
9
25
44
6
27
8
20
22
30
27
28
12
5
—
—
—
6
29
Table 1. IEMP Environmental Results, the Philippines, 1992 97
Source: “IEMP End-of-Project Report” (1997), p. 5–3.
10
pany in each of those industries) accounted for
most of the net benefits. Cement manufactur￾ing accounted for 33 percent; starch manufac￾turing, 27 percent. A single industry, cement
manufacturing, accounted for 57 percent of
capital investment.
Net benefits are due primarily to increased rev￾enue rather than cost savings. In fact, the re￾ported contribution from increased revenue
($29.9 million) is nearly five times that of cost
savings ($6.3 million). However, revenues may
have been overestimated, thus inflating the
value of net benefits. Interviews with former
project staff indicated that revenue calculations
included “foregone” revenue to represent how
much the company would have lost had it been
shut down by a cease-and-desist order. There
beneficial to the company that adopts them.
This can occur in three ways: first, by lowering
input costs (through recovery of raw materials
or increased efficiency); second, by lowering
compliance and enforcement costs (by reduc￾ing waste and therefore treatment costs or
fines); and third, by increasing revenues
(through recovery of product or sale of what
was formerly waste).
Table 2 presents the project’s reported finan￾cial results. Increased revenue, cost savings,
and net benefit are reported on an annual ba￾sis. Total net benefit is defined as increased rev￾enue + cost savings – increased costs. Total net
benefits for the first year, when the exchange
rate was 25.5 pesos to the dollar, were estimated
at $32.4 million. Two industries (and one com￾Industry
Tuna canning and seafood
Desiccated coconut
Pulp and paper milling
Vegetable and animal oils
Sugar milling
Distilled spirits
Starch manufacturing
Seaweed processing
Fruit and vegetable canning
Hog raising
Industrial chemicals
Slaughtering
Veneer and plywood
Soft drinks
Tanneries
Metal finishing
Synthetic resins
Cement manufacturing
Others
 Total
Millions of US$a
Millions of US$b
Capital
Investment
 28.989
 4.464
 26.239
 7.328
 61.597
 82.379
 3.168
 12.713
10.442
 23.674
 .457
.541
 17.460
5.037
.674
5.383
.752
 381.948
 1.400
674.645
26.457
16.866
Increased
Revenue
 64.184
 21.150
 5.614
 14.012
 44.980
—
218.442
 22.522
.826
 .234
 4.467
1.608
 80.250
—
.003
—
.088
277.400
 6.203
761.983
29.882
19.050
Cost
Savings
 6.783
11.599
14.499
 2.706
23.376
12.654
 .966
20.482
2.867
 24.112
 5.478
1.167
11.946
6.208
.303
9.728
2.444
.090
 4.506
161.914
6.350
4.048
Total Net
Benefit
 57.832
 30.976
 16.840
 14.721
 54.707
 12.229
218.827
 42.466
2.707
 23.811
 9.917
2.566
35.496
5.959
.274
9.387
1.642
 276.190
 10.087
826.634
32.417
20.666
% of Net
Benefits
7
4
2
2
7
2
27
5
0
3
1
0
4
1
0
1
0
33
1
100
a
$1 = 25.5 pesos (1992 exchange rate).
b
$1 = 40.0 pesos (1999 exchange rate).
Sources: “IEMP End-of-Project Report” (1997), p. 5–3 (for capital investment and total net benefit data); Eighteenth
Quarterly Progress Report (1997), appendix C (for revenue and cost savings data).
Table 2. IEMP Financial Results, the Philippines, 1992 97 (millions of pesos)
11
are two problems with including foregone rev￾enue. First, both DENR and industry represen￾tatives indicated that the average plant shut￾down in response to a cease-and-desist order
lasted only a few days. By contrast, IEMP calcu￾lations assumed it lasted for a relatively long
time. Moreover, many plants under the threat
of shutdown are issued temporary lifting or￾ders so that they never shut down. Second, the
correct measure of the effect of a cease-and￾desist order on a business is forgone profit, not
forgone revenue.
Excluding the two companies in the cement
industry and the four in the starch industry, net
benefits fall from $20.7 million to $8.3 million
at the 1999 exchange rate. The net benefit to
the average business is more than halved from
$145,000 to $61,000. More telling is that only
six firms (4 percent of the total) account for 60
percent of total net benefits. Thus, aggregate
data mask what is happening in individual in￾dustries and individual plants within those in￾dustries.
Another problem with interpreting the finan￾cial impact of the project is that the financial
data, like the environmental data, appear to be
estimated rather than actual. In some cases,
data for revenue, operating costs, and cost sav￾ings are identical to PMA estimates. This sug￾gests they do not reflect actual plant level ex￾perience. In other cases, reported results are in￾consistent with information obtained during
plant interviews. For example, neither the pol￾lution management appraisal for International
Pharmaceutical, Inc., nor the interview at IPI in￾dicated increased revenue resulting from PMA
interventions. However, the IEMP performance￾monitoring matrix indicated additional rev￾enue totaling 540,000 pesos per year ($13,500
in 1999 prices)—large enough to turn a loss into
a gain. Experience has shown that PMAs con￾ducted by nonindustry experts routinely un￾dervalue costs and overvalue benefits. This fac￾tor, coupled with the use of estimated results
rather than actual results, brings into question
the reliability of the data.
Finally, economic events and factors exogenous
to the project can affect BOD load. During the
period of project implementation, there was sig￾nificant variation in industrial output in the
Philippines and, therefore, variation in water
use. These changes can be dramatic. For ex￾ample, sugarcane production decreased by 28
percent from 1994 to 1995, and export levels
fell for most commodities from 1995 to 1996. It
is impossible to determine how much of the
decline in BOD reported in table 1 was due to
lower industrial output and exports (and there￾fore lower water use) and how much was due
to IEMP interventions.
These measurement problems notwithstand￾ing, the reported data indicate that the project
has been a financial success. However, as indi￾cated in the next section, many of the compa￾nies that benefited financially from implement￾ing waste-minimization measures have
stopped using them. Moreover, these measures
have not spread to non-IEMP firms. Why should
this be the case? The answer probably lies with
1) the unreliability and poor quality of the data,
2) the disproportionate number of companies
selected for IEMP that had poor pollution-com￾pliance records, and 3) adverse macroeconomic
conditions and other external problems.
PROGRAM PERFORMANCE
Program performance is normally assessed in
terms of 1) effectiveness, 2) whether benefits
were sustained after donor funding was termi￾nated, and 3) the extent to which activities were
replicated beyond the project.
Effectiveness
Effectiveness is a measure of how appropriate
an intervention was in meeting program ob￾jectives. Were benefits significant? Were they
12
generated through a strategy that worked with
the right people? Was the approach the best
way to use USAID resources to get the job done?
The job in this case was promoting sustainable
economic growth, reducing environmental
degradation, and improving public health.
The project concentrated on small and medium￾size industrial firms. This was a good choice,
because larger companies are typically already
aware of the importance of waste minimiza￾tion and clean production. They are often con￾nected to multinational corporations and the
export market, which makes them savvier. Of￾ten they are already using modern, less-pollut￾ing technology. In addition, they are highly vis￾ible, making them easy tar￾gets for environmental con￾trols.
By contrast, smaller firms
often lack the technology,
resources, and knowledge
to deal with pollution. They
are often in “dirty indus￾tries” located outside the
major cities. The World
Bank’s Metropolitan Envi￾ronmental Improvement
Program covered compa￾nies only in Metro Manila,
and the USAID–ASEAN Environmental Improve￾ment Project covered “leader” companies from
several industries such as iron and steel. Small
and medium-size firms outside Manila were an
ideal target for IEMP. They were not receiving
assistance and could effectively use new ap￾proaches to reduce pollution.
The pollution-reduction component of the
project centered on pollution management ap￾praisals. PMAs were allocated 30 percent of to￾tal project resources, or $4 million. Assuming
the $4 million was shared equally among the
143 participating companies, each PMA cost
$28,000, on average. As noted already, finan￾cial benefits for all companies (excluding the
six in the cement and starch industries) were
high enough ($61,000 per company, on aver￾age) to justify this cost. Implementation of PMA
recommendations also generated a 29 percent
reduction in biochemical oxygen demand. That
was significant.
But one of the project objectives was to improve
health, and while high BOD levels discolor wa￾ter, give it a bad taste, and can kill fish, they do
not directly affect human health. By contrast,
heavy metals, harmful bacteria, and industrial
chemicals are a health problem, but changes in
levels of these pollutants were not measured.
High BOD levels may indicate high levels of
other pollutants, thus serving
as a proxy for pollutants affect￾ing human health. But it is not
clear if that was the case in the
Philippines.
IEMP’s capacity-building com￾ponent provided pollution￾prevention training for 2,600
people, mainly staff from gov￾ernment, industry, NGOs, and
local government units. The
training helped make it pos￾sible to complete PMAs, draft
environmental directives, and
improve environmental monitoring.
IEMP was a pilot effort to introduce pollution
management appraisals to the Philippines. A
pilot can be expensive, but if the new tech￾niques are widely adopted, sustained, and rep￾licated, then the initial investment is justified.
If a pilot does not expand and take hold be￾yond the original companies, it is often inef￾fective. Many of the businesses that volun￾teered for PMAs had environmental compliance
problems. They were among the Philippines’
“dirty dozen” or so heaviest polluters, and the
one-year waiver of pollution fines was a major
reason they were eager to join the program.
“High BOD levels may
indicate high levels of
other pollutants, thus
serving as a proxy for
pollutants affecting
human health.”
13
According to DENR and trade group represen￾tatives, these firms were often lax in maintain￾ing PMA interventions. In one region, 3 out of
14 PMA companies were out of business shortly
after IEMP ended, and half of the remaining
companies ended up in violation of pollution
regulations.
Sustainability and Replication
Sustainability concerns the extent to which a
program continues to deliver benefits after de￾velopment assistance ends. The IEMP project
paper makes a strong case for the need to curb
industrial pollution in the Philippines but does
not dwell on sustainability. The underlying as￾sumption is that businesses will continue to use
pollution management appraisals and adopt
PMA recommendations because of the financial
benefits realized.
In 1994, however, an independent evaluation
concluded that neither enhanced business prof￾itability nor the demand created by IEMP ca￾pacity building was likely to keep PMA recom￾mendations going strong. The evaluators
pointed out that because sustainability had not
been stressed in the original design, “options
for project sustainability were quite limited.”
They cited potential problems with baseline
data for the PMAs and no real increased capac￾ity within DENR to sustain project benefits—
once IEMP ended. They offered a few recom￾mendations to improve PMAs such as conduct￾ing more complete and verifiable appraisals.
In 1997 the USAID-supported consulting firm
that implemented the project identified several
indirect indicators suggesting that “the benefits
of IEMP are being sustained, or are sustainable.”
These indicators included DENR’s plan to moni￾tor PMA companies, requiring PMAs as one con￾dition for lifting a cease-and-desist order, an￾nual industrial recognition awards for compa￾nies showing significant waste-minimization
progress, pilot-testing a pollution charge sys￾tem based on user fees at the Laguna Lake De￾velopment Authority, and plans by two Phil￾ippine development banks to offer concessional
rates for loans to support clean production. But
the same IEMP implementing contractor also
raised concerns that “the limited capacity of
DENR may prevent full support of PMAs at the
regional level, delay effective utilization of IEMP
training programs, and slow [recommended]
policy reforms.”
The CDIE team examined the extent to which
pollution management appraisals continued to
be used by visiting a sample of former IEMP
companies, interviewing regional and local
DENR officials, and meeting with representa￾tives of a wide range of Philippine trade asso￾ciations, professional groups, and other key in￾dividuals. The team visited seven sites cover￾ing a mix of industries in two locations: Cebu
(Visayas) and Davao (Mindanao), two of the
five geographic locations where PMAs were
highly concentrated.
The site visits revealed a mixed picture about
the sustainability of PMA benefits following
project phasedown. Some companies simply
did not adopt the PMA recommendations. Oth￾ers adopted the recommendations initially but
later dropped them. A few companies had sus￾pended or closed plant operations, making a
determination impossible. There was little or
no evidence that any business had conducted
additional PMAs after the end of the project. In￾depth interviews uncovered a range of reasons:
a natural resistance to change plant operations
that already “seem to work well”; the time and
effort required to monitor and collect baseline
data to “sell” the PMA approach to plant own￾ers; the effort required to keep PMA recommen￾dations in force; and lack of support by com￾pany owners. Since most PMA recommenda￾tions at the seven sites were either no or low
cost (rather than capital intensive), the
sustainability of more demanding PMA recom￾mendations was considered extremely low.
14
Success was also dependent on replication by
non-IEMP companies. After all, IEMP was only
a demonstration project. With over 10,000
“brown sector” companies in the Philippines
(many of them small enterprises), it was clear
that replication of the PMA approach beyond
the 143 participating firms would be needed.
Plant interviews at all seven IEMP sites consis￾tently described replication as either nonexist￾ent or negligible. At a number of sites, plant
managers were asked directly if they would
share PMA information with others, and the
general response was “why would we?” Some
plant managers regarded the PMA as propri￾etary. Others indicated there was no real forum
where this might be discussed. At one of the
larger meat-processing plants in Davao, the
plant manager questioned why replication was
expected. He thought plant managers might
not be willing to divulge PMA results with other
plant managers—since that would signify a
major compliance shortcoming or perhaps an
impending pollution cease-and-desist order. A
low spread effect might indeed be expected if
companies participated in IEMP mainly to avoid
a cease-and-desist order.
Local DENR staff in Cebu and Davao knew of
no replication of PMA recommendations in their
regions. No replication was occurring through
word of mouth, local seminars, or other formal
or informal means. These findings were con￾sistent with the views of professional and trade
groups as well as Filipino environmental prac￾titioners. Interviews with those groups also
revealed a similar—almost uniform—judg￾ment concerning weak sustainability.
It is clear that sustainability by IEMP compa￾nies and replication by non-IEMP companies
were extremely low—much lower than ex￾pected. Weak sustainability and replication
only two years after project phasedown does
not bode well for the future.
Low sustainability and replication in the face of
high initial adoption rates casts doubt on a broad
assumption underlying the PMA approach—that
is, it appears that neither the financial benefits
resulting from PMA recommendations nor gov￾ernment and private sector demand for PMAs
generated sustainability. But why?
There is probably no single explanatory factor.
However, the most likely explanations are as fol￾lows: the cost savings estimated in the PMAs were
not convincing to plant owners and business
managers. Perhaps real costs were underesti￾mated or benefits were overestimated, or both.
Even if cost savings were estimated accurately,
the estimates failed to take into account uncer￾tainties and risks associated with future needs or
the unique business climate. Cost savings aside,
the company was not serious about changing
operations in the first place but was simply buy￾ing time to avoid compliance problems.
Other explanations include a natural resistance
among some plant operators (even when
shown real cost savings) to change their busi￾ness practices: “If it works, why change it?”
After all, there may be a strong profit incentive
for the owner, but not necessarily for the plant
manager or the shop floor workers—who will
have to implement changes on a day-to-day
basis. Alternatively, the plant manager or
owner may not know the consultants or may
doubt their credibility or industry competence.
Finally, there remains a general reluctance by
some Philippine businesses to adopt untried
measures (even potentially cost-savings ones)
as long as they are not facing compliance is￾sues or an uncertain business climate.
LESSONS LEARNED
In the Philippines 143 industrial companies re￾portedly invested a combined total of nearly
$27 million in waste minimization and other
pollution-reduction measures under the Indus￾trial Environmental Management Project.
15
These investments resulted in annual net ben￾efits of $33 million to participating companies.
At the same time, water pollution (measured
by biochemical oxygen demand) decreased by
29 percent. Most companies realized increased
profits and efficiency, and many reduced their
waste volume and improved their compliance
with government BOD pollution standards—
not to mention, their corporate image—dem￾onstrating that industry-led economic growth
and environmental protection can be compat￾ible. What lessons emerge from this assess￾ment?
1. Pollution management appraisals. PMAs can
be effective in helping reduce pollution at the com￾pany level.
Pollution management appraisals (assessments
of the production process) identify opportuni￾ties for businesses to minimize, reclaim, and
reuse industrial waste and to use cleaner tech￾nologies. Companies are motivated to adopt
PMA recommendations by the prospect of re￾duced production costs and increased rev￾enues. The country benefits from lower pollu￾tion levels and better resource allocation.
If conducted by industry specialists, rather than
by generalists, PMAs are likely to have greater
credibility with senior managers and techni￾cians. It is more cost-efficient to conduct PMAs
industry by industry rather than randomly
among industries, because industry-specific
expertise can be provided all at one time. That
approach also helps strengthen relations with
established trade associations. PMA recommen￾dations—including what they can and cannot
achieve—must be explained carefully to the
company’s managers. After all, PMAs are not a
panacea, nor can they guarantee compliance
with environmental standards.
2. Technology. Companies are likely to adopt low￾or no-cost techniques that have an immediate effect
on pollution reduction and cost savings rather than
measures that require a large capital outlay and a
long payback period.
Most companies are more likely to adopt clean
production techniques and waste-minimiza￾tion measures that are simple and that will save
resources and generate profits relatively
quickly. They will make large capital invest￾ments only when they are building a new
factory or introducing a new production tech￾nology.
3. Regulation. Cost savings may not be sufficient
to persuade companies to implement and maintain
waste-minimization and pollution-prevention pro￾grams.
Command-and-control measures—such as en￾vironmental regulations and pollution stan￾dards—are effective if strictly enforced and if
penalties are severe. Often this is not the case
in the Philippines. Monitoring and enforcement
are lax because of insufficient resources in the
Department of Environment and Natural Re￾sources. Many businesses go without routine
monitoring, so the probability of getting caught
is slim. Moreover, cease-and-desist orders are
issued only for the most egregious, obvious
offenses; and penalties and fines are relatively
low. Nonetheless, the cease-and-desist order is
an important tool. Both regulation and cost sav￾ings are important in motivating companies to
take action.
4. Market-based instruments. Market-based in￾struments for pollution prevention are an impor￾tant complement to command-and-control ap￾proaches.
Market-based instruments use economic incen￾tives to influence a company’s behavior by en￾couraging the company to act in its own self￾interest. Imposing pollution charges, for ex￾ample, on companies that discharge effluents
into the environment effectively internalizes the
costs of their pollution. IEMP concentrated on
market-based instruments.
16
5. Institutionalization. While PMAs can help a
company save money, increase revenues, and reduce
pollution, a way must be found to institutionalize
the process to provide continuity once the project
ends.
In the Philippines, continuity was weak. Do￾nors might improve it by working more closely
with trade associations, a government agency,
or private companies that have a financial in￾terest in waste minimization. If a government
regulatory agency is selected, businesses most
likely to benefit are those facing compliance
problems. Conversely, if trade associations are
selected, most beneficiary companies are likely
to be progressive and successful.
6. Sustainability. A pilot project is an excellent
way to show companies the benefits of waste mini￾mization, but the project needs to ensure that ben￾efits are sustainable.
IEMP assumed that waste-minimization tech￾niques, once adopted, would generate substan￾tial benefits and that the company would sus￾tain these techniques over time. That was not
always the case. Contrary to expectations, some
companies may not have realized the financial
benefits estimated in the pollution manage￾ment appraisal, thereby jeopardizing the cred￾ibility of the overall process. Other companies
faced shutdown orders for violating environ￾mental standards shortly after participating in
IEMP. Senior management of other companies
may not have been committed to waste mini￾mization. PMAs often were not accorded appro￾priate follow-up.
Sustainability seems to take root most often in
large international companies—where corpo￾rate image counts and managers reinforce the
goal of cleaner production and pollution pre￾vention. Constant support and vigilance from
top company management may be the key to
sustainability.
7. Replication. Replication of pollution-prevention
measures is normally not in the best interests of in￾dividual businesses that have already reduced their
costs by successfully adopting such measures.
In a dynamic private sector, firms compete to
win market share and increase profits. Gener￾ally, they will not voluntarily share informa￾tion with their competitors about ways to mini￾mize costs. That makes replication difficult.
Replication may be improved by working not
just with individual businesses (the retail ap￾proach) but also with industry trade associa￾tions (the wholesale approach). Trade associa￾tions can be neutral in sharing information
among their members.
8. Measuring results. Sustainability within the
company and replication beyond it depend on the
availability of reliable data and information.
Data collection is essential to establish a
baseline against which to monitor progress and
measure results. Involving factory staff in col￾lecting and analyzing data has advantages be￾cause management is more likely to believe,
and therefore use, its own data and analysis.
However, collecting data for inappropriate in￾dicators will yield irrelevant results. An impor￾tant goal of IEMP was to improve human health
by reducing water pollution. But the pollutant
that was measured, biochemical oxygen de￾mand, does not directly affect human health.
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