POLICY ANALYSIS METHODOLOGIES. Peter King Senior Policy Adviser, IGES March 2006

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1 POLICY ANALYSIS METHODOLOGIES Peter King Senior Policy Adviser, IGES March 2006

2 Purpose of Policy Analysis The overall objective is to provide policy-makers with economy-wide environmental policy packages for promoting sustainable development (which requires poverty reduction while maintaining environmental sustainability) in the context of regional economic integration in East Asia.

3 Regional Economic Integration in East Asia Three Scenarios Shallow Integration A freeze on further liberalization of trade Moderate Integration Extend AFTA to China, Korea and Japan Deep Integration Zero tariff, zero quotas in most areas of trade across ASEAN+3

4 RISPO II will focus on Trade & Environment Substantial Agreement Substantial Agreement Substantial Agreement (in force) In East Asia, partial economic integration has already taken place. The need for environmental impact assessment has also been widely recognized internationally this is not the first attempt. (MOFA Diplomatic blue book 2004, modified by MOE)

5 Modelling Input Deep REI Scenario Identify Environ. Impacts C Shallow REI Moderate REI Analysis Sequence Causal Chain Analysis Estimate extent of impacts Strategic Environmental Assessment (Cumulative IA) List possible policy responses Country Reports, Literature, Data bases Assess policy effectiveness Benefit-Cost Analysis, Multi-Criteria Analysis Assess institutional capacity Social Capacity Assessment INTEGRATED POLICY ASSESSMENT

6 Environmental Impacts of Each Scenario Shallow integration business as usual no significant change in environmental impacts, but many outstanding environmental problems Deep integration major increases in trade, structural changes, increased production, increased pollution and shifts in regional distribution of pollution and natural resource use. Use Causal C Chain Analysis to link REI scenarios and environmental impacts CAUSE CHANGE IMPACT RESPONSE

7 Example Agroforestry Sector/Indonesia/Deep REI CAUSE CHANGE IMPACT RESPONSE Regional demand for paper increases Plantation forest investment inc. Logged over forests are cleared. Concession holders must lodge fee. Plantation forest investment inc. Marginal land removed from agriculture. Plantation owners must restore land. Demand for recycled paper increases Recycling rate can t meet demand. Landfill tax imposed. Demand for recycled paper increases Recycling rate can t meet demand. Scavengers assisted to separate paper. Genetically modified tree species grown. Loss of genetic diversity. Ex situ gene banks funded by forest firms.

8 Example - Agriculture Thailand/DEI CAUSE CHANGE IMPACT RESPONSE Japan market for tropical fruits and veg.. opens Southern Thai farmers shift from rubber to orchards Loss of tree cover on steep slopes Soil conservation plans required. Southern Thai farmers shift from rubber to orchards Increased road density to access farms Roads over 10 degrees not permitted Increased pesticide use to meet Japan s appearance standards Pesticide runoff into streams increases. Certain pesticides banned from import. Increased pesticide use to meet Japan s appearance standards Pesticide residues on crops increases Certification scheme introduced. Genetically modified species grown illegally. Loss of genetic diversity and landraces. Ex situ gene banks funded by importers for contract farms.

9 Selecting Policies for Scenario-Specific Specific Policy Packages Current policies and policy trends from country report cards (e.g. SEF project in Greater Mekong Subregion); Best practice from policy data bases (such as RISPO 1); Innovative policies from policy literature (e.g. NIPR); and Completely new policies.

10 Policy Analysis Which policies work best in which situations; Which policies result in the least residual environmental problems; Which policies are the most cost-effective; Which policies are best suited to existing institutions; Which policies can we offer to decision makers?

11 Policy Analysis Tools Cumulative and residual impacts use strategic environmental assessment Policy effectiveness use cost-benefit analysis and multi-criteria analysis Institutional capacity use social capacity assessment Finally - combine into an integrated impact assessment

12 Example Forest Sector/Indonesia/Deep REI CAUSE CHANGE IMPACT RESPONSE Regional demand for paper increases Plantation forest investment inc. Logged over forests are cleared. Concession holders must lodge fee. Plantation forest investment inc. Marginal land removed from agriculture. Plantation owners must restore land. Demand for recycled paper increases Recycling rate can t meet demand. Landfill tax imposed. Demand for recycled paper increases Recycling rate can t meet demand. Scavengers assisted to separate paper. Genetically modified tree species grown. Loss of genetic diversity. Ex situ gene banks funded by forest firms. Strategic Environmental Assessment

13 Cumulative Impact Type Time Crowding Time Lags Space Crowding Cross-boundary Movement Fragmentation Compounding Effects Indirect Effects Triggers and Thresholds Characteristics Frequent, repetitive effects Delayed effects High spatial density of effects Effects occur away from source Change in landscape pattern Effects from multiple sources/pathways Secondary effects Changes in system behaviour or structure Example Forest harvesting exceeds regrowth Exposure to carcinogens Pesticides in streams from non-point sources Acid rain deposition Fragmentation of wetlands Synergism among pesticides Release of methyl mercury in reservoirs Global climate change

14 Example Forest Sector/Indonesia/Deep REI CAUSE CHANGE IMPACT RESPONSE Regional demand for paper increases Plantation forest investment inc. Logged over forests are cleared. Marginal land removed from agriculture. Demand for recycled paper increases Recycling rate can t meet demand. Concession holders must lodge fee. Plantation owners must restore land. Landfill tax imposed. Scavengers assisted to separate paper. Genetically modified tree species grown. Loss of genetic diversity. Ex situ gene banks funded by forest firms. Cost-benefit Analysis Multi-criteria analysis

15 Cost-benefit analysis Quantifies in monetary terms as many of the costs and benefits of implementing a policy proposal as feasible, including items for which the market does not provide a satisfactory measure of economic value

16 Cost-Benefit Analysis for Environmental Improvements in a Cement Plant

17 Multi-criteria Analysis Establishes preferences between policy options by reference to an explicit set of objectives for which criteria have been developed for assessing the extent to which the policy objectives may be achieved. May involve scoring, weighting and ranking, using a matrix.

18 Multi-criteria Analysis E-wastes/China/Deep REI Response Options Cost- effectiveness Efficiency Transparency Recycling premium added to cost price Moderate (5.0) Low (2.0) Low (2.0) 2.9 Retailer required to take back Low (2.0) Low (1.0) High (8.0) 2.0 Export to ASEAN LDC for recycling High (9.0) Low (3.0) Low (1.0) 4.6 WEIGHT 30% 60% 10%

19 Social capacity assessment Examines the capacity of government, firms, and citizens and the interrelationships between them. Posits three stages of institutional capacity development system-making making stage; system- working stage; and self-management stage. Uses benchmarks and indicators for each stage.

20 Example Forest Sector/Indonesia/Deep REI RESPONSE GOVT. FIRMS CITIZENS Concession holders must lodge fee. Ability to extract and manage fees Firms willing to pay new fees. Plantation owners must restore land. Able to supervise restoration Ability to restore land. Landfill tax imposed. Waste firms don t dump illegally. Willingness to pay for a new tax. Scavengers assisted to separate paper. Willingness to assist the poor. Scavengers can identify improvement Ex situ gene banks funded by forest firms. Firms able to associate voluntarily. SOCIAL CAPACITY ASSESSMENT

21 System-making 1st-6th Plan System-working 7th-8th Plan Self-management 9th Plan Enviromental Management Initial Pollution Control period (Environmental standards and regulation) Environmental Awareness Period Environmental Improvement Period Amend NEQA/92 FAC/92 HAS/92 PHA/92 Environmental Compliance Period Economic Instrument Public participation Decentralization Factory Establishment Solid Waste Quantity Forest Area Industrial Development Period End-of-pipe Treatment Self Regulation Voluntary Approach Trade and Environment year Factory Act 69 Environmental Act 75 Environmental Constitution 97 Act 92 Factory Act 92 Polluters-Pay- Government Principle NGOs Source: TEI Public Private

22 Example Forest Sector/Indonesia/Deep REI Modelling Input CAUSE CHANGE IMPACT RESPONSE Regional demand for paper increases SEA BCA MCA SCA Plantation forest investment inc. Logged over forests are cleared. 80,000 incremental ha cleared illegally 6 endemic species threatened with extinction Water quality declines by 2% on average Concession holders must lodge fee. $20 per ha security fee cost to firms $1.6 million Administration cost covered by interest payment Restocked forests valued at $8 million Benefit-cost ratio 5:1 Efficiency high (weight 6.0) Effectiveness moderate (weight 5.0) Transparency low (weight 9.0) Sustainability high (weight 8.0) Forest Department unable to extract fee Firms find it cheaper to pay farmers to clear land Citizens frightened of powerful logging firms Integrated Policy Assessment Security fee not recommended

23 Conclusion There are hundreds of policy options and they should not be randomly chosen. There are also many policy appraisal and assessment tools. Use the recommended tools that cover screening environmental effects (CCA); environmental impacts of policies (SEA), policy effectiveness (BCA & MCA); and institutional capacity SCA). But also need to cover poverty alleviation impacts. Combine results of several analytical tools in an economy-wide policy assessment, without relying on any one of them, and integrate with model outputs.