Economic instruments used by the Sydney Water Board

To cope with the heavier load of industrial waste that resulted from the Clean Waters Act and the diversion of industrial waste, or 'trade waste', from waterways to the sewers, the Sydney Water Board implemented a set of new charges and restrictions on industrial wastes going into the sewers in 1972. The board argued that the new charging system would allow individual industries to pay it to discharge high-strength wastes, and thereby avoid 'possibly expensive treatment facilities' (MSW&DB 1969). It would also have the advantage of inducing industries to try to recover their by-products where this was economical, which would keep the 'pollutional load' out of the sewers. The determination of the strength of a company's discharge was usually resolved by negotiation. If that failed, it was measured.

The board's trade waste policy did not work to protect the marine environment. But, even as evidence of bioaccumulation of heavy metals and organochlorines in fish and other marine organisms was discovered, the policy was not changed. Instead, as mentioned previously, the evidence was covered up. Also, no effort was made to monitor the amounts of heavy metals or organochlorines going through the sewers and into the ocean. When regular monitoring was done for the first time in 1989&endash;90, the results indicated that the average annual quantities of metals going out the outfall at the Malabar plant added up to hundreds of tonnes&emdash;including approximately 30 tonnes of arsenic, 6 tonnes of cadmium, 120 tonnes of lead, almost 3 tonnes of mercury and 20 tonnes of silver each year.

When the Sydney Water Board's current trade waste policy was introduced in 1988, the board was well aware of the bioaccumulation of industrial waste that was occurring in the ocean near its outfalls. For fifteen years, the board had taken no account of what was happening to marine life as a consequence of its trade waste policy; and it introduced the new policy without any attempt to correlate what was happening in the marine environment to what was being allowed down the sewers. The board had very little idea of how much toxic waste was being discharged from its outfalls.

The trade waste manager did consult with various people within the board, from the SPCC and from industry, in putting together the new policy. A draft policy had been drawn up which was circulated for comment within the board, modified, discussed with industry and other government authorities, approved by the general manager of the water board, and finally sent to State Cabinet for approval. Industry was consulted to ensure that the proposed charges were not unreasonable and not likely to put firms out of business unneccessarily. The SPCC was consulted to ensure that the new policy would conform to legislative requirements.

The revised policy, like the previous one, attempted to provide a service to industry while limiting the contamination of discharges through charges rather than through absolute limits or effluent standards:

The Policy aims to encourage industry to improve pretreatment of wastes, towards 'domestic' quality. At the same time, the Board will be providing a commercially oriented liquid waste disposal service to industry, and recovering some of the special treatment costs that the discharge of pollutants impose on the whole community. (Sydney Water Board, 1988)

The revised trade waste policy aimed to replace the emphasis on 'control' with one of 'commitment'. The trade waste manager argued that the monitoring and policing of industrial discharges was difficult, and that the installation of automatic measuring devices and the employment of large numbers of inspectors was too expensive. The revised policy aimed to achieve its ends by encouraging the co-operation of industry rather than through policing. It was hoped that businesses could be encouraged, through financial incentives, to manage their wastes as carefully as they did their production processes. Each company was required to institute its own program of sampling and testing which would be audited by the board.

Waste quality targets were negotiated with each firm. This system supposedly provides a financial incentive for a polluting company to install treatment equipment for a lower cost than it would otherwise have to pay to the water board to discharge its untreated wastes. In other words, the firm has a choice between reducing the toxicity of its waste stream or paying the board to use the environment for disposal. This is a choice that many environmentalists feel the individual firm should not have.

Charges are based on concentrations of contaminants in the effluent entering the sewerage system. The more concentrated the pollutants in a firm's discharge, the more it is charged. Charges are at higher rates for higher-strength waste. In a way, the board is providing an incentive for cheating&emdash;because it charges companies at higher rates if they are discharging higher-strength wastes, and then asks them to monitor for themselves how strong their wastes are.

The standards in the trade waste policy do not represent absolute limits on what will be allowed into the sewers. Rather, there is provision for charges for concentrations above the standards. These standards are little more than a basis for pricing; it is up to the board whether it uses them as upper limits.

The pricing system means that industries are charged less for putting a certain volume of restricted substances down the sewer if it is in a diluted form. In 1989, for example, 1 kilogram of mercury would have cost $100 to discharge at 0.1 mg/l concentration; but it would have only cost $10 to discharge the same 1 kilogram of mercury in the more dilute form of 0.01 mg/l. Moreover, charges would be based on ninety percentile concentrations, so that for 10 per cent of the time discharges could be extremely concentrated without attracting further charges. This conveniently allowed for occasional discharges of over-strength wastes&emdash;for example, when vats or rinsing tanks were washed out.

It is interesting to compare the draft trade waste policy drawn up at the end of 1986 with the final policy that emerged from the consultation process with government and industry. In the draft, the table of standards was in terms of 'maximum allowable concentrations', and charges for wastes above these maximums were termed 'penalties'. This terminology was dropped in the final policy document, and the charges for above-standard wastes were also considerably reduced in some cases.

However Camp, Dresser and McKee, a firm of engineering consultants hired by the Greiner Government to review the water board's policies, made several important criticisms of the trade waste policy. They made the observation that the standards for the concentrations of heavy metals that are allowed into the sewers in Sydney are much looser (sometimes by a factor of ten or more) than those set by the US EPA. They said that the process for setting limits on what toxic waste can go down the sewers is not clear.

Camp, Dresser and McKee also criticised the scale of charges for industrial waste.

In order to make the system of economic incentives work more effectively in reducing mass loadings, it would be necessary to increase drastically the unit rates which are now charged. Increases in the order of tenfold would appear to be necessary, if a company were to face similar charges for use of the Board's system as for the construction and operation of its own facilities. (p. 5.33)

Similarly, a study done by Nils Dreyer for Greenpeace in March 1989 surveyed nineteen companies who acted as consultants for or supplied pre-treatment and pollution control equipment to industry. Dreyer wanted to see what impact the new trade-waste policy was having on these company's sales. Far from finding that business was booming, several firms were very disappointed with the response of industry to the trade waste policy, and few had any work as a result. In particular, the electroplating industry, which is responsible for much heavy metal waste going into the sewers, was hardly responding at all. Also, Dreyer was told by a firm specialising in biological treatment and a consulting engineer that the board's charges for organic industrial waste and grease would have to be trebled before industry would be willing to install treatment plants.

Camp, Dresser and McKee (1989) claimed that the savings to smaller dischargers who reduced the concentrations of their wastes would not warrant any major changes; rather, they would only undertake obvious, good housekeeping measures. For large dischargers, major savings could be achieved merely by installing storage facilities to equalise their flow, so that the peak concentrations were averaged out by mixing with flows from other times when concentrations were lower. Such changes would not reduce the mass loadings of toxic material going out.

In December 1989, the Sydney Water Board, after the publication of the Camp, Dresser and McKee report, made some changes to its trade waste policy. But the changes did not address many of the criticisms. The main increases in charges were for the industries and commercial premises putting grease and domestic-type wastes into the sewers. There was no direct increase in charges for toxic waste. However, the standards for toxic waste going into sewers were reduced for some heavy metals, and this indirectly affected how much industry had to pay for discharging those substances. The average increase in costs to industry arising from this was estimated by the board to be 16.3 per cent This was little more than the inflation rate when spread over the two years in which the policy had been operating.

Is there a need for institutional change?

Neither the regulatory nor the economic instruments approach was successful in protecting the environment&emdash;because the social, political and institutional context did not support and give priority to environmental protection. Both approaches assumed that the environment could take a fair amount of pollution, and that environmental protection should not interfere with what was considered to be the necessary use of waterways for waste disposal. A precautionary approach was not adopted, and uncertainties were used to justify continued pollution.

The lack of public participation in policy-making allowed policies and their consequences to go without public scrutiny and accountability for many years. It was only when evidence of fish contamination that had previously been suppressed was made public that the SPCC put some limits on toxic wastes in Sydney Water Board licences and was able to get political approval for tightening WP&endash;1, the design guide criteria. It was only then that the water board began regularly monitoring its discharges to the ocean for toxic wastes.

Because measures needed to protect the environment may impose a short-term cost on some industries, even public participation cannot overcome problems with institutional structures and a lack of political will at the government level. Various studies have shown that the 'actual outcomes of environmental policies are affected more by the institutional arrangements emerging from the political process than by the technical characteristics of the instruments employed' (Rees 1988, chapter 8). Rees' study also found that:

all governments work within the prevailing political and economic system; the basic institutions&emdash;legal, governmental, social and economic&emdash;remain largely unaltered. Change is therefore always marginal and attempts to produce change have to operate within the constraints set by the system. At best, planners can 'nudge the process towards desired outcomes'. (1988, p. 176)

Significant change requires more than the adoption of new policy tools by the same institutions. It requires a change in social priorities. Policy instruments address a range of objectives: some of them conflict with each other (as in this case study), and they will meet some objectives better than others. This will depend in small measure on the instrument. But it will depend far more on the social context in which the instrument is implemented.

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