GREENING MARKETS MARKET-BASED APPROACHES FOR ENVIRONMENTAL MANAGEMENT IN ASIA JULY 2021 ASIAN DEVELOPMENT BANK GREENING MARKETS MARKET-BASED APPROACHES FOR ENVIRONMENTAL MANAGEMENT IN ASIA JULY 2021 ASIAN DEVELOPMENT BANK Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) © 2021 Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 8632 4444; Fax +63 2 8636 2444 www.adb.org Some rights reserved. Published in 2021. ISBN 978-92-9262-934-2 (print); 978-92-9262-935-9 (electronic); 978-92-9262-936-6 (ebook) Publication Stock No. TCS210239-2 DOI: http://dx.doi.org/10.22617/TCS210239-2 The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The mention of specific companies or products of manufacturers does not imply that they are endorsed or recommended by ADB in preference to others of a similar nature that are not mentioned. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) https://creativecommons.org/licenses/by/3.0/igo/. By using the content of this publication, you agree to be bound by the terms of this license. For attribution, translations, adaptations, and permissions, please read the provisions and terms of use at https://www.adb.org/terms-use#openaccess. This CC license does not apply to non-ADB copyright materials in this publication. If the material is attributed to another source, please contact the copyright owner or publisher of that source for permission to reproduce it. ADB cannot be held liable for any claims that arise as a result of your use of the material. Please contact [email protected] if you have questions or comments with respect to content, or if you wish to obtain copyright permission for your intended use that does not fall within these terms, or for permission to use the ADB logo. Corrigenda to ADB publications may be found at http://www.adb.org/publications/corrigenda. Notes: In this publication, “$” refers to United States dollars. ADB recognizes “China” as the People’s Republic of China, “Korea” as the Republic of Korea, and “Vietnam” as Viet Nam. Cover design by Rocilyn Laccay. Printed on recycled paper Contents Tables, Figures, and Boxes v Foreword vii Acknowledgments ix Abbreviations x Executive Summary xii Market-Based Approaches to Air Quality Management in Asia xv Market-Based Approaches to Water Management in Asia xvi Market-Based Approaches to Waste Management in Asia xviii Next Steps for Policy Makers and Development Partners xix 1 Introduction 1 Background 1 Objective and Methodologies 3 Overview of Policy Instruments for Environmental Management 4 References 14 2 Market-Based Approaches to Air Pollution in Asia 16 Sources of Air Pollution in Asia 17 Review of Market-Based Instruments Addressing Air Pollution in Asia 20 Market-Based Instruments for Pollution from Energy Production and Industry 21 Market-Based Instrument Applications to Transportation 30 Market-Based Instruments to Reduce Pollution from Heating and Cooking 36 Conclusions and Lessons Learned 38 References 40 3 Market-Based Approaches to Water Management in Asia 46 Challenges to Water Management in Asia 47 Review of Market-Based Instruments for Water 51 Conclusions and Lessons Learned 63 References 66 iv Contents 4 Market-Based Approaches to Waste Management in Asia 75 Resource Use and Consumption in Asia 76 Solid Waste: Definitions, Statistics, Trends 77 Systematic Review of Market-Based Instruments for Waste Management in Asia 82 Market-Based Instruments Can Be Applied at the Upstream, Disposal and Collection, 87 and Processing Phases of Waste Management Market-Based Instruments for Converting Complex Waste Streams into Value 94 Conclusions and Lessons Learned 100 References 102 5 Comparative Analyses of Market-Based Approaches for Environmental Management in Asia 10 Market-Based Instruments Used in a Variety of Contexts in Asia 106 Key Factors Affecting the Success of Market-Based Instruments in Asia 109 Context Matters for the Implementation and Success of Market-Based Instruments 112 References 115 6 Recommendations 118 The Role of Market-Based Approaches to Environmental Management for Growth 118 and Sustainability Where are the New Opportunities for the Use of MBIs? 120 Opportunities and Potential for Upscaling of Market-Based Instruments for Air, Water, 121 and Waste Recommendations for Next Steps for Policy Makers 127 Recommendations for Development Partners 127 References 129 Appendix: Systematic Review of Market-Based Instruments for Environmental Management in Asia 130 Introduction 130 Overview of Systematic Review of Market Based Instruments for Environmental Management in Asia 131 References 135 Tables, Figures, and Boxes Tables 1 A Simplified Taxonomy of Policy Instruments 4 2 The Use of Market-Based Instruments Under Alternative Scenarios 10 3 Requirements and Strengths of Market-Based Instruments 12 4 Environmental Indicators in Asian Countries 18 5 Overview of Current Use of Market-Based Instruments for Air Pollution in Asia 20 6 Feed-in Tariffs—Selected Examples 26 7 Tradable Permits 28 8 Information Provision, Labeling, and Voluntary Agreements in the Energy and Industry Sectors 30 9 Charges Related to Transport 32 10 Subsidies for Improved Cookstoves, Insulation, Biogas, and Liquefied Petroleum Gas 36 11 Water Use Statistics in Asia 48 12 Wastewater Generation and Treatment in Asia 50 13 Biochemical Oxygen Demand Emissions in Asia 51 14 Overview of Market-Based Instruments for Water Management in Asia 52 15 Waste Streams 78 16 Overview of the Current Use of Market-Based Instruments for Solid Waste Management in Asia 86 17 Selected Examples of Pricing for Upstream Waste Reduction 88 18 Hybrid Policies and Deposit–Refund Schemes—Selected Examples 90 19 Subsidies for Waste Collection and Processing—Selected Examples 93 20 Overview of Current Use of Market-Based Instruments Across Sectors in Asia 107 21 Design Features of Some Market-Based Instruments in Asia 108 A1 Overview of Results of Systematic Review, by Sector, Application, and Market-Based Instrument 134 Figures 1 Average Annual Outdoor Fine Particulate Matter Concentrations in Selected Urban Areas 17 2 Carbon Price and Emissions Coverage of Implemented Carbon Pricing Initiatives 22 3 Domestic Material Consumption 76 4 Per Capita Domestic Material Consumption 77 5 Municipal Solid Waste Generation and Gross Domestic Product Per Capita 80 6 Action Hierarchy in the Circular Economy 82 7 Resource Decoupling 84 8 Cumulative Extended Producer Responsibility Policies Adoption Globally, 1970–2015 95 9 Regional Distribution of Extended Producer Responsibility Policies 96 vi Tables, Figures, and Boxes Boxes 1 Case Study on Feed-in Tariffs and Reverse Auctions for Solar Power in India 25 2 Case Study of the Seven Pilot Carbon Emissions Trading Schemes in the People’s Republic of China 29 3 Case Study of the Singapore Congestion Charge 34 4 Case Study on the Information Disclosure for Waste Reduction Program in Indonesia 61 5 Solid Waste Management and the Sustainable Development Goals 79 6 Case Study on the Deposit–Refund Scheme for Lead-Acid Batteries in India 91 7 Case Study on the Recycling Waste of Electrical and Electronic Equipment in the 96 People’s Republic of China Foreword Asia has seen widespread transformation and growth, which has brought many economic benefits to the region, but at the cost of its natural environment. Countries are experiencing large-scale degradation of its air and water quality and generating massive amounts of waste, while becoming vulnerable to climate change impacts. While governments are responding in various ways, traditional regulations, such as standards, bans, and penalties, are limited in their ability to stimulate actions that effectively address the region’s urgent environmental problems. Alternative policy and economic approaches may be one solution to curb business-as-usual activities and impacts on the environment. There is a growing body of evidence suggesting that market-based approaches for environmental management can induce businesses, households, and individuals to reduce pollution and use resources efficiently through incentives, behavior changes, innovation, and raised public awareness of corporate environmental performance. In the wake of the coronavirus disease (COVID-19) pandemic, we will need smart and sustainable strategies to drive action that will address the current crisis and build resilience to future shocks. While public funding and development assistance are prioritized for health care and social protection in the immediate term, the use of market-based mechanisms can generate domestic revenues and mobilize private sector investment toward a green and resilient recovery in the long term. We have an opportunity to build back better and invest in nature, not only to manage the causes of diseases like COVID-19, but also in our planet’s health and wealth. This report, Greening Markets: Market-Based Approaches for Environmental Management in Asia, looks at global and regional trends in air quality, water, and waste management and identifies opportunities where introducing and scaling up market-based policy instruments may help achieve environmental goals. The report recommends governments to work closely with the private sector and civil society and take on a long-term, well-coordinated, flexible, and iterative approach to planning, designing, and adapting market-based policy reforms. As there is no one-size-fits-all instrument or policy mix that will apply across the region, governments will need to account for their specific environmental, social, and regulatory contexts, as well as design and implement effective economic instruments that are tailored to local needs.