EFFECTIVENESS OF THE AIR POLLUTION FEE STRATEGY ON AIR QUALITY IMPROVEMENT IN TAIWAN DURING

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1 J. Environ. Eng. Manage., 20(1), (2010) 19 EFFECTIVENESS OF THE AIR POLLUTION FEE STRATEGY ON AIR QUALITY IMPROVEMENT IN TAIWAN DURING Tzi-Chin Chang, 1 Jiun-Horng Tsai, 2,3, * Yung-Chen Yao 2 and Wen-Shing Chang 1 1 Environmental Protection Administration Taipei 100, Taiwan 2 Department of Environmental Engineering National Cheng Kung University Tainan 701, Taiwan 3 Sustainable Environment Research Center National Cheng Kung University Tainan 701, Taiwan Key Words: Air pollution fee, control strategy, incentive and command-and-control measures ABSTRACT This study evaluated the effectiveness of the air pollution fee strategy on air quality improvement in Taiwan during The incentive strategy is an importance part of air quality management associated with the command-and-control approach. The air pollution fee was adopted for stationary sources, mobile sources and construction operations which produce sulfur oxides, nitrogen oxides and particulate matter. Several programs have also been introduced for stationary sources, including a permit system, adoption of new emission standards for more source categories, a fugitive emission control program and a clean fuel program. Several programs have been introduced for mobile sources, such as the adoption of new exhaust emission standards for motorcycle/gasoline vehicle/diesel engines, a smoke check program, and a high-pollution vehicle retirement program. These programs are clearly effective in reducing emissions. The air quality around Taiwan has improved significantly. The air pollution fee strategy has been implemented successfully using incentive and command-and-control measures. INTRODUCTION Economic incentives are a popular air pollution control strategy that has been used worldwide since the last century. Several studies [1-3] have documented air pollution fees in Sweden, the United States, and several developing countries for industrial air pollution and motor vehicle emissions. Emission fee policies can provide a foundation for a transition to an effective economic incentive system, and can raise much needed revenue for environment projects and programs [1]. The control measures which are developed based on the environmental and institutional considerations also affect the social and economic development. The requirement for the balancing of environmental, economic and social objectives in decision-making should be considered in the air pollution control system [4]. Conventional regulations have failed to achieve environmental objectives in the least costly manner. In contrast, well-designed marketbased approaches provide an incentive for firms to equate abatement costs at the margin, thus, achieving a given level of environmental quality at least cost [5]. The emission fee strategy could also be adopted for motor vehicles and other sources. Under ideal conditions with perfect information and no subsidies, fees on emission rates perform substantially better than a regulatory policy. When more realistic modeling of available information and market conditions are included, there is little difference in the cost and effectiveness of the fee and regulatory programs [3]. Several social and demographic factors could be used to assist the design and marketing of such a program [2]. In Taiwan, the air pollution control strategy had been shifted from pollution control only to both taking into account for pollution prevention. The strategy evolved over time from a prohibition approach at the earliest to command and control later and most recently to a comprehensive air quality management strategy. The incentive strategy has become an impor- *Corresponding author jhtsai@mail.ncku.edu.tw

2 20 J. Environ. Eng. Manage., 20(1), (2010) tant part of the air quality management policy associated with the command-and-control approach since An air pollution fee has been adopted for stationary sources, mobile sources and construction operations. The fee depends on the pollutants emitted, which include sulfur oxides, nitrogen oxides, and particulate matter (PM). Taiwan Environmental Protection Administration (TEPA) applied air pollution fees to pay for programs that reduce emissions and improve the air quality. Programs for stationary sources include a permit system, the adoption of new emission standards for more source categories, a fugitive emission control program, a clean fuel program and the enhancement of inspection program. Several programs have been introduced for mobile sources, such as the adoption of new exhaust emission standards for motorcycle, gasoline vehicle and diesel engines, a smoke check program and a high-pollution vehicle retirement program. The programs have been designed to reduce emissions. Liao [6] conducted a case study on air pollution fees and tradable permits for controlling nitrogen oxide in Taiwan. The results indicated that setting a lower reservation rate for banking would help maintain environmental quality without significantly affecting the government air pollution fee revenue. Actually, the air pollutant emissions have decreased significantly and the air quality around Taiwan has improved considerably during the past decade. For example, the occurrence of unhealthy air quality, defined as having a pollutant standard index (PSI) > 100, decreased significantly. The percentage of PSI > 100 occurrence was 6.1% in 1995 and 4.2% in 2006 [7,8]. Air quality has been improved by the efforts to reduce emissions. Emission inventories indicate that the emission reductions were 24% for SOx, 6% for NOx, 11% for NMHC, 7% for CO and 21% for PM in 2006, relative to 1995 [7,8]. The air quality improvements are attributable to the implementation of several air pollution control programs for stationary and mobile sources. The budget for these programs was obtained mostly from the air pollution fee. This study evaluated the effectiveness of the air pollution fee strategy and control programs in Taiwan during the , including programs for stationary sources, mobile sources, and regional air quality management. THE EVOLUTION OF THE AIR POLLUTION FEE STRATEGY Figure 1 summarizes the evolution of the air pollution fee strategy in Taiwan. An air pollution fee has been adopted for stationary sources, mobile sources and construction operations. Air pollution fees for stationary sources are collected from factories based on the their emission rates. For mobile sources, emission fees are added into the retail price of gasoline and diesel fuel. For construction operations, the emission fees The rule of air pollution fee adopted (Phase I) Expended the rule to mobile source and construction operation Amendment to fee rates attainment area non-attainment area Adopted the air-pollution-fees rate Amendment to the rule of air pollution fee (Phase II) Amendment of the fee rates by fuel types, amount used and pollutants Fig. 1. The evolution of the air pollution fee strategy in Taiwan. are collected from the owner of the construction based on the category and the activity of the construction work. The fees for the stationary and mobile sources are collected by the TEPA, and the fees for the construction activities are collected by the local government. 60% of the fees from stationary sources go to the local government and 40% go to TEPA. All fees from mobile sources go to TEPA and all fees from construction operations go to the local government. The fees depend on the amount of pollutants emitted, which include SOx and NOx for stationary and mobile sources, and PM for construction sources. Table 1 shows the air pollution fee structure for the three source categories in Taiwan. The air pollution fees totaled 1.42 x 10 9 USD between 1996 and Mobile sources contributed 42%, stationary sources contributed 23% and construction operations contributed 35% to the total. 43% of fees were spent on expanding the greenbelt and parks at the beginning of the program (1996), and later, 44% of fees were used for mobile source control programs. Fee revenue was also used on air quality management, stationary source control programs, subsidy programs, and administration. The expenditure on mobile sources was increased by 33.6% which is mostly attributed to subsidies for clean vehicle promotion and high-pollution vehicle retirement. The results show that the focus of the air pollution control strategy was changed from stationary source control in the early phase to mobile source control. Figure 2 shows the profile of air pollution fees from various sources in 1996 and Figure 3 shows the profile of air pollution fee expenditure during the same period. THE EFFECTIVENESS OF THE AIR POLLUTION FEE STRATEGY Several air pollution control programs have conducted by TEPA with the support of air pollution fees during the past ten years. These programs can be divided into two categories based on the control approach; command-and-control programs, and economic incentive programs. Both approaches were applied to stationary sources, fugitive sources, mobile sources, and regional air quality management. Table 2 summarizes the control programs of these four source categories.

3 Chang et al.: Effectiveness of the Air Pollution Fee Strategy 21 Table 1. Air pollution fee structure in Taiwan Source category Subcategory Pollutants SOx NOx PM Stationary source Attainment area A A --- Non-attainment area or near national park area A A --- Construction operation Building engineering B Road and tunnel engineering B Pipeline engineering B Bridge engineering B Regional development engineering B Mobile source Diesel C (all pollutants) Gasoline C (all pollutants) A: fee based on actual emission B: fee based on construction activity C: fee based on fuel consumption (a) Mobile source Stationary source Construction operation USD (millions) 150 % Year (b) 0 Expanding greenbelt and park Funding (subsidy) to local government Mobile source control program Stationary source Air quality Air quality monitoring control management data system program Fig. 3. The profile of air pollution fee expenditure ( ). Others Fig. 2. The profile of air pollution fees from various sources in Taiwan (a) from ; (b) variance (%) between 1996 and Command-and-control Programs 1.1. Programs for stationary sources (1) Factory construction and operation permits A permit system for factories in Taiwan was implemented in the 1990s under the Air Pollution Control Act. Factories are built and operated under permits which specify the pollutants allowed for discharge. The large sources of pollution emissions, such as power plants, petrochemical facilities, iron and steel facilities, electric arc furnace facilities, and cement facilities, are required to file the permit in batches. Total of eight batches have been bulletined since The permit system has been expanded significantly, with the cost fully supported by the fees. A total of 9,200 factories (33,600 processes) were covered under this system, and over 95% of factories received permits by All permitted sources should comply with the emission standards. Many sources have added control devices to reduce emissions and to comply with the regulations. The reduction ratios of average pollutant concentration from stacks (based on 1995) were 48% for PM (145 to 75 ppm), 53% for SOx (280 to 133 ppm), and 53% for NOx (290 to 137 ppm) in 2006 [9]. (2) Source reporting, testing and auditing program Except for small businesses, all stationary sources, such as power plants, petrochemical processes, waste incinerators, and iron and steel smelting/sintering processes, are required to test and report emissions periodically. The target air pollutants in-

4 22 J. Environ. Eng. Manage., 20(1), (2010) Table 2. Air pollution control programs of four source categories Source category / program Command-and-control Incentive 1. Stationary source programs (1) Permit system v (2) Reporting, testing, and auditing v (3) New emission standard v (4) Clean fuel program v (5) Reward and subsidy v 2. Fugitive source (1) Gasoline vapor recovery v (2) Construction site control v (3) Reward and subsidy v 3. Mobile source programs (1) New exhaust emission standards v (2) Smoke-check v (3) Roadside inspection v (4) Remote sensing and recall v (5) Clean fuel program v (6) Motorcycle retirement program v (7) Promotion of clean motorcycles v (8) Promotion of LPG cars v 4. Regional air quality management (1) Classification of attainment/nonattainment region v (2) Emission cap program v clude PM, SOx, NOx, volatile organic compounds (VOCs) and other specific pollutants. More than 2,700 processes reported annual emissions and paid the fee in Furthermore, the major sources, including power and co-generator plants, large boilers, electric arc furnaces of iron smelting, and the cement industry, are also required to have continuous emissions monitoring systems (CEMS) for better auditing. The CEMS data need to be available online for the local government. Seven categories of industrial processes have been required to install CEMS. There are 98 plants and 303 stacks equipped with CEMS by 2006 which accounted for 70 and 77% of SOx and NOx emissions from stationary sources, respectively. (3) Adoption of new emission standards Air pollution emission standards for all stationary sources were adopted in They have been amended five times since then with stricter emission levels. There are 24 emission standards in the current amendment for various processes and source categories which regulate the emission of PM, SOx, NOx, CO, acid gases, toxics, odor substance, heavy metals and VOCs. In addition, TEPA adopted air emission standard for VOCs in The VOC standard focuses on the process/facilities related to petrochemical industry, such as flares, stacks, volatile organic liquid storage tanks, volatile organic liquid loading facilities, and equipment components. Emission reductions of VOCs are 70, 340, 500 and 3,500 t for the loading facilities, tanks, wastewater treatment, and equipment component, respectively, since the standard has been adopted [10]. For specific source categories, TEPA has adopted air pollution emission standards for 22 industries to regulate the emissions of SOx, NOx, PM, VOCs, dioxin, acid gases and heavy metals. TEPA has also established the best available control technology (BACT) standards. Total of 75 processes-based BACT standards were set up by Many stationary sources added air pollution control devices to reduce emissions in order to meet more stringent standards. The emission reductions attributed to specific source regulation were 25% (PM), 14% (SOx), 8% (NOx) and 18% (VOCs) in stacks [10]. (4) Clean fuels program The clean fuel program was designed to reduce SOx emissions from facilities due to fuel combustion. TEPA has had a limit for the sulfur content of fuel oil used in combustion processes since All combustion processes have to use low-sulfur fuel with sulfur content below 0.5% by weight. Approximate 12 x 10 3 t of SOx was eliminated. The concentration of SOx in the ambient environment was 3.9 ppb in 2006, an improvement of 39% compared to 1996 (6.4 ppb) [10] Programs for fugitive sources (1) Organic solvent recovery The program that controls fugitive emissions of organic solvents includes many operational processes of solvents and gasoline. The regulation of dry cleaner operations was adopted by TEPA in Except for small businesses, new dry cleaners should equip solvent recovery devices with an efficiency of 85%. TEPA also implemented a gasoline vapor recovery program for gas stations in All gasoline dispensers must install a vapor recovery system. There are more than 2,500 gasoline stations equipped with recovery systems, which reduced VOC emissions by

5 Chang et al.: Effectiveness of the Air Pollution Fee Strategy 23 13,100 t y -1 [11]. TEPA also adopted a regulation on organic chemical process operations, such as equipment leakage, storage tanks, loading and unloading, and wastewater treatment plants. Five processes (petrochemical, polyurethane, semiconductor, automobile surface coating, and optoelectronic material processes) were covered by the program by 2006 [11]. (2) PM control at construction sites For construction sites, TEPA enhanced the inspection and auditing program coupling with the emission fees to reduce fugitive particulate emission. Approximately 100,000 construction sites were covered by the program annually. All construction sites should take control actions to eliminate fugitive dust emissions as much as possible. The emission reduction for PM that emitted from construction sites was approximately 43% [12] Programs for mobile sources (1) Adoption of new emission standards for on-road vehicles The emission standards for automobiles were adopted for light-duty gasoline vehicles, diesel vehicles and motorcycles by TEPA in We are currently in Phase III of the standards for light-duty gasoline vehicles, which was implemented in Phase IV of the standards had been established, and became effective in For motorcycles, Phase IV of the standards were implemented in 2004, and Phase V of the standards were implemented in Moreover, TEPA has adopted more stringent emission standards for new motorcycles that have phased out two-stroke carburetor engines since (2) Smoke check program for motorcycles and diesel engines Motorcycles are used primarily as a short distance travel tool and the average travel speed is lower. The aged motorcycles increase pollutant emissions [13]. TEPA conducted a smoke check program for diesel engines and motorcycles in 1994 and 1996, respectively. Gasoline light-duty vehicles have had a smoke check program since the 1980s; however, the authority is the Ministry of Transportation and Communication. There were 26 smoke check stations equipped with a diesel dynamometer by The annual inspection coverage was 30% of diesel vehicles. Motorcycles older than three years must perform a smoke check once a year. There were more than 2,300 smoke check stations for motorcycles around Taiwan by The annual inspection program covers more than 6 million motorcycles. The coverage of smoke checked motorcycles increased from 45 to 68%, and the failure ratio has dropped from 21 to 16% from 1994 to 2006 [14]. (3) Roadside inspection program for motorcycles Since 1996, TEPA has conducted a roadside inspection program for in-use motorcycles without an annual smog-check record. Around 10-20% of motorcycles are inspected in this program annually. Approximately 10-30% of motorcycles inspected at roadsides did not meet the emission standards and had to be repaired and checked again. (4) Remote sensing and recall program A remote sensing detection (RSD) program has been conducted to screen potential high-emission gasoline vehicles on the road since However, only 3-15% of high-emission vehicles were identified by this program due to the loose standards adopted in The high-emission vehicles screened by RSD are required to do a smoke check and should be repaired so that they can pass the emission standard. 1.5 million gasoline vehicles were screened from 1996 to (5) Clean fuels program TEPA has gradually limited the lead content of gasoline since Only unleaded gasoline has been sold since January The ambient lead level has been reduced from 0.47 to 0.09 µg m -3. Specification standards for gasoline and diesel fuel were adopted in The content of benzene, sulfur, aromatics, olefins, and oxygenates, and Reid Vapor Pressure for gasoline and the content of sulfur and aromatics, and hexadecane number for diesel were regulated. The maximum sulfur content is currently 50 ppm for both regulated fuels, which is the lowest among Asian countries. 2. Economic Incentive Programs 2.1. Programs for stationary sources The economic incentive programs for stationary sources are the reward and subsidy programs. TEPA has conducted a reward program since 1997 to encourage facilities to reduce NOx and VOC emissions more than regulation requirements. Rewards for NOx emissions terminated in 1998 because the air pollution fee of NOx was levied by real emissions in In 1999, the emission reductions were over 51,000 t since conducting the reward and subsidy programs. TEPA also made an exemption for the air pollution fee for SOx. Facilities may apply for the SOx fee exemption if the efficiency of control devices has been improved or the process modified to reduce 60% of SOx emissions. Facilities that purchase air pollution control devices may also apply for a subsidy. These incentive programs have been effective at motivating facilities to reduce air pollutant emissions Programs for fugitive sources The exemption of air pollution fees is also valid for construction operations. The proprietor may apply for a fee exemption of suspended particulates if there are good control approaches at the construction site or

6 24 J. Environ. Eng. Manage., 20(1), (2010) if the construction duration is shortened. For gas stations, TEPA has conducted a subsidy program for installing the gasoline vapor recovery equipment. In the initial stage ( ), the subsidy was 300 USD for each set of recovery equipment. This incentive program was stopped in Programs for mobile sources (1) Clean vehicle programs Before 1995, over 50% of in-use motorcycles had two-stroke engines in Taiwan, which emit more pollutants than four-stroke ones, especially for those complying with the Phase I standards. In 1998, TEPA adopted an incentive program with approximately 60 USD cash-back for each retirement of an old motorcycle. However, only approximately 207,000 high-age motorcycles (less than 2%) were phased out using this incentive program. (2) Promotion for clean motorcycles Definition of clean motorcycles includes electric-powered motorcycles and fuel-injection engine motorcycles. The prices of new clean motorcycles are around 1,000-1,400 USD with a subsidy of USD per motorcycle. TEPA began to promote electric-powered motorcycles in However, due to an insufficient infrastructure of power supply and poor performance, subsidies were terminated in Approximately 27,000 electric-powered motorcycles were subsidized during Fuel-injection motorcycles are substituting electric-powered ones. Approximately 6,100 fuel-injection motorcycles were subsidized by the fee program during (3) Promotion of liquefied petroleum gas (LPG) cars TEPA has promoted the LPG program for taxis since This program gives an incentive ( USD per car) for taxi drivers who switch their fuel system to LPG. More than 25,000 taxis had changed to the use of LPG from 1996 to Effectiveness of Programs Supported by Air Pollution Fees The effectiveness of all these programs can be measured by the emission reduction of air pollutants and the improvement of air quality. Figure 4 shows the differences of emissions between the case of business as usual and the situation with control programs. The emission reductions of PM 10, SOx, NOx and NMHC were approximately 27, 53, 41 and 36%, respectively, in 2006 with the control program, relative to the uncontrolled case. Between 1995 and 2006, the emission were shown a significant reduction, the values were 20% (PM 10 ), 34% (SOx), 19% (NOx), and 21% (NMHC), respectively [15]. From the monitoring data of air pollutants, the annual average concentration of pollutants also showed a decending trend year by year. The concentrations decreased from 69 to 60 μg m -3 for PM, 7.9 to 4.6 ppb for SOx, 24 to 18 ppb for O 3, 0.45 to 0.24 ppb for NOx and 0.8 to 0.5 ppm for CO, respectively [9]. Air quality also shows a significant improvement. Figure 5a shows the trend of annual occurrence of (a) PM 10 (b) NOx (c) SOx (d) NMHC Fig. 4. Emission (kt y -1 ) scenarios for the case of business as usual and the situation with control programs ( uncontrolled case; controlled case).

7 Chang et al.: Effectiveness of the Air Pollution Fee Strategy 25 The air pollution fee strategy has been conducted in Taiwan since Several programs, which were supported by the fees, have been implemented for stationary and mobile sources. These programs include a permit system, the adoption of new emission standards for more source categories, a fugitive emission control program, a clean fuel program, the adoption of new emission standards for motorcycle/gasoline vehicles/diesel engines, a smoke check program, and a high-pollution vehicle retirement program. All these programs present a clear effectiveness in emission reduction. The emission reductions between 1995 and 2006 were 20% (PM 10 ), 34% (SOx), 19% (NOx) and 21% (NMHC). The emission reduction due to these control strategies is significant. Air quality has been improved due to these efforts. Air pollution fee strategy has being implemented successfully in Taiwan using incentive and command-and-control measures. ACKNOWLEDGMENT Fig. 5. Occurrence of poor air quality days (PSI > 100) during 1996 and This research was supported by the Taiwan Environmental Protection Administration under grant EPA-94-FA11-03-A228. REFERENCES Occurrence of PSI < 50 (%) Fig. 6. Occurrence of good air quality days (PSI < 50) during 1996 and poor air quality days (PSI > 100) between 1995 and The percentage of poor air quality occurrence improved significantly between 1995 and The values are 6.1 and 4.2% for 1995 and 2006, respectively. In terms of good air quality (PSI < 50), the occurrence also shows an improvement (Fig. 6). The occurrence was 36% in 1995 and 41% in Good air quality days had been increased by 5.4% between 1995 and 2006 [14]. According to the great improvement of air quality and tremendous emission reduction of air pollutants, the programs supported by the air pollution fee strategy in Taiwan are successful. CONCLUSIONS 1. Blackman, A. and W. Harrington, The Use of Economic Incentives in Developing Countries: Lessons from International Experience with Industrial Air Pollution. Discussion Paper 99-39, Resources for the Future, Washington, D.C. (1999). 2. Krupnick, A., W. Harrington and A. Alberini, Public support for pollution fee policies for motor vehicles with revenue recycling: survey results. Reg. Sci. Urban Econ., 31(4), (2001). 3. Ando, A.W., W. Harrington and V. McConnell, Fees in an Imperfect World: An Application to Motor Vehicle Emission. RFF DP 07-34, Resources for the Future, Washington, D.C. (2007). 4. Wu, C.T, C.H. Chen and W.L. Liu, Sustainable total quantity control framework and strategies for air quality. J. Chin. Inst. Environ. Eng., 16(2), (2006). 5. Hahn, R.W. and R.N. Stavins, Economic incentives for environmental protection: integrating theory and practice. Am. Econ. Rev., 82(2), (1992). 6. Liao, C.N., Modelling a mixed system of air pollution fee and tradable permits for controlling nitrogen oxide: A case study of Taiwan. Aust. J. Agr. Resour. Ec., 51(4), (2007). 7. Taiwan Environmental Protection Administration (TEPA), Air Quality Protection for 25 Years, TEPA, Taipei, Taiwan (2000). (in Chinese) 8. Taiwan Environmental Protection Administration (TEPA), Environmental Protection: 20 Years Review and Outlook. TEPA, Taipei, Taiwan (2007). (in Chinese) 9. TEPA, Project for Reviewing Control Strategies of Stationary Sources and Management of Database Application System. Report No. EPA-

8 26 J. Environ. Eng. Manage., 20(1), (2010) 96-FA12-03-A159, TEPA, Taipei, Taiwan (2008). (in Chinese) 10. TEPA, Effectiveness of Air Pollution Fee Program and Air Pollution Control Strategy Assessment. Report No. EPA-94-FA11-03-A228, TEPA, Taipei, Taiwan (2006). (in Chinese) 11. TEPA, The Plan for Reviewing, Developing, Proposing Volatile Organic Compounds Emissions Control Rules and Regulations. Report No. EPA-95-FA12-03-A142, TEPA, Taipei, Taiwan (2007). (in Chinese) 12. TEPA, Control Strategies for the Fugitive Particulate Emissions. Report No. EPA-95-FA12-03-A184, TEPA, Taipei, Taiwan (2007). (in Chinese) 13. Tsai, J.H., Y.Y. Liu, C.Y. Yang, H.L.Chiang and L.P. Chang, Volatile organic profiles and photochemical potentials from motorcycle engine exhaust. J. Air. Waste Manage., 53(5), (2003). 14. TEPA, The Project for the Quality Management and Data Link System Integration of Motorcycle Exhausted Emission Inspection Station. Report No. EPA-95-FA13-03-A098, TEPA, Taipei, Taiwan (2007). (in Chinese) 15. TEPA, Air Quality Annual Report of R.O.C., TEPA, Taipei, Taiwan (2008). (in Chinese) Discussions of this paper may appear in the discussion section of a future issue. All discussions should be submitted to the Editor-in-Chief within six months of publication. Manuscript Received: May 12, 2009 Revision Received: August 23, 2009 and Accepted: September 1, 2009