2008 AECEN Regional Forum:
Decentralization in Environmental Compliance
and Enforcement in Asia
Assessing Natural Resources Damages in Asia
Economic Valuation
In
Environmental Impact Assessment
by
Halimah Hassan
Director, Assessment Division
Ministry of Natural Resources and Environment Malaysia
24-26 November 2008
Bali, Indonesia
Outline Of Presentation
•Introduction
- Environmental Management in Malaysia
•EIA Process in Malaysia
•Economic Valuation in the EIA process
•Way Forward in Environmental
Management
NATIONAL POLICY ON THE ENVIRONMENT
POLICY STATEMENT
FOR CONTINOUS ECONOMIC, SOCIAL AND
CULTURAL PROGRESS AND ENHANCEMENT OF
THE QUALITY OF LIFE OF MALAYSIANS,
THROUGH ENVIRONMENTALLY SOUND AND
SUSTAINABLE DEVELOPMENT
21 October 2002
Ministry of Natural
Resources and
Environment
Department of
Environment
Department of Irrigation
and Drainage
Department of Wildlife
and National Park
Forest Research
Institute
National Institute of
Land and Survey
Department of Survey
and Mapping
Land and Mines
Department
Forestry Department
National Hydraulic
Research
Institute
Minerals and
Geosciences
Department
MISSION
To promote, ensure
& sustain sound
environmental
management in the
process of nation
building
FUNCTION
To administer and enforce the
Environmental Quality Act, 1974
(Amendments 1985, 1996)
and Section IV of the Exclusive
Economic Zone Act, 1984
ENVIRONMENTAL QUALITY ACT, 1974
– Prevention, abatement,
control of pollution and
enhancement of the
environment in Malaysia.
– Restricts the discharge of
wastes into the environment
in contravention of the
acceptable conditions.
ENVIRONMENTAL MANAGEMENT
STRATEGIES
• Pollution Control and Prevention
• Sustainable Development through
Conservation of Resources
• Integration of Environmental Factors in
Development Planning
• Promotion of Environmental Education and
Awareness
• Public Participation
• Inter-Agency and Federal-State Cooperation
• Bilateral, Regional and International
Cooperation
ENVIRONMENTAL MANAGEMENT
STRATEGIES
REMEDIAL APPROACH
- ENFORCEMENT OF THE EQA
PREVENTIVE APPROACH
- LANDUSE PLANNINGENVIRONMENTAL INPUT TO
RESOURCE & REGIONAL
PLANNING
-EIA
Aim and objectives of the EIA process
In the Handbook of Environmental Impact Assessment Guidelines
(first prepared in 1987, latest edition October 2007), one reads:
The aim of environmental impact assessment in
Malaysia is to assess the overall impact on the
environment of development projects proposed by the
public and private sectors (Section 1.3.2)
In order to implement this overall aim, the Handbook lists clearly
the following 5 objectives:
Aim and objectives of the EIA process
5 objectives of EIA:
To examine and select the best from the project options
available;
To identify and incorporate into the project plan
appropriate abatement and mitigating measures;
To predict residual environmental impacts;
To determine the significance of the residual
environmental impacts predicted; and
To identify the environmental costs and benefits of the
project to the community.
Aim and objectives of the EIA process
In order to implement these objectives, the Department of
Environment has developed and put in place a rigorous set of
steps and procedures. Legislations and guidelines were
formulated:
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Section 34A of the EQA, 1974
EIA Order 1987
A Handbook of EIA Guidelines
Specific Guidelines
Guidance Documents
Registration of EIA Consultants
Checklists
WHAT IS EIA?
EIA IS A STUDY TO IDENTIFY,
PREDICT, EVALUATE AND
COMMUNICATE INFORMATION
ABOUT THE IMPACTS ON THE
ENVIRONMENT OF A PROPOSED
PROJECT AND TO DETAIL OUT
THE MITIGATING MEASURES
PRIOR TO PROJECT APPROVAL
AND IMPLEMENTATION
EIA PRINCIPLES AND PROCESSMain Points
• Does the Project needs an EIA?
• What do we need to concentrate during the
study?
• What does the environment look like without
the project?
• What will happen if the project is built?
• If anything happens, is it important?
• What can we do about it?
• How do we make sure it gets done?
• How do we know what we predicted was
correct?
LEGAL REQUIREMENTS
• SECTION 34A, ENVIRONMENTAL
QUALITY ACT 1974 (Amendments
1985)
• ENVIRONMENTAL QUALITY
(PRESCRIBED ACTIVITIES)(EIA)
ORDER 1987
SECTION 34A EQA AMENDMENTS 1985
1. PROVISION TO PRESCRIBE ACTIVITIES
2. SUBMIT EIA REPORT, IN ACCORDANCE TO
GUIDELINES…CONTAIN AN ASSESSMENT
OF THE IMPACT…PROPOSED MITIGATING
MEASURES….
3. APPROVAL OF REPORT WITH/ WITHOUT
CONDITIONS AND INFORM PROJECT
PROPONENT AND RELEVANT AUTHORITY.
4. MAY NOT APPROVE WITH REASONS
SECTION 34A EQA AMENDMENTS 1985
5. DG MAY REQUIRE MORE THAN
ONE REPORTS
6. NOT TO CARRY OUT ACTIVITY
UNTIL THE REPORT HAS BEEN
APPROVED.
7. POST-EIA MONITORINGSHOULD PROVIDE PROOF THAT
THE CONDITIONS ATTACHED ARE
BEING COMPLIED
Environmental Quality
(Prescribed Activities)
(Environmental Impact
Assessment) Order 1987
19 Activities
EIA Order 1987
19 Activities
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•
•
•
•
•
•
•
•
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Agriculture
Airport
Drainage & Irrigation
Land Reclamation
Fisheries
Forestry
Housing
Industry
Infrastructure
Ports
•
•
•
•
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•
•
Mining
Petroleum
Power Generation
Quarries
Railways
Transport
Resort &
Recreational
• Waste Treatment &
Disposal
• Water Supply
19 Prescribed Activities
• Activities are define in terms of:
–Project size ( hectares,
meters/km, height )
–Capacity (e.g. tons/day, MW )
–Not defined by any unit
The EIA Process
• Project Screening
• Project Scoping
• Project Description
& Alternatives
• Description of
Baseline
• Evaluation of
Impacts
• Mitigating Measures
• Stake Holder/Public
Participation
• The EIA Report
• EIA Review
• Decision Making
• Environmental
Management Plan
• Monitoring and Auditing
EIA PROCEDURE
 Preliminary Assessment
 Detailed Assessment
EIA PROCEDURE IN MALAYSIA
FOR DETAILED EIA
• TOR to be approved by DOE
• DEIA Report to be advertised and
publicly displayed
• Greater public participation
• Reviewed also by independent expert
panel
No difference in scope of study between
PEIA and DEIA, focus on critical
issues, must satisfy Section 34A(2)
Steps and procedures of the EIA process
Procedures
Section 34A (2)
“…The report shall be in accordance with the
guidelines prescribed by the Director General
and shall contain an assessment of the impact
such activity will have or is likely to have on
the environment and proposed measures that
shall be undertaken to prevent, reduce or
control the adverse impact on the
environment”
List of Activities Requiring Detailed
•
•
•
•
•
•
•
•
EIA
Iron and Steel Industry
Pulp and Paper Mill
Cement Plant
Coal Fired power plant
Dams for water supply and hydroelectric
power
Land reclamation
Incineration plant (schedule and municipal
solid waste)
Municipal solid waste landfill facility
(including municipal solid waste transfer
station)
List of Activities Requiring Detailed
EIA
• Project involving land clearing where 50%
of land area or more with slope exceeding
25 degrees (except quarry)
• Logging 500 hectares or more
• Development of tourist or recreational
facilities on islands in surrounding waters
gazetted as marine parks
List of Activities Requiring Detailed
EIA
• Construction of recovery plant (off-site) for leadacid battery wastes
• Schedule wastes recovery or treatment facility
generating significant amount of wastewater
which is located upstream of public water supply
intake
• Non-ferrous primary smelting
• Others, as required by the Director General of
Environment
ENVIRONMENTAL IMPACTS
• SOIL EROSION
• SEDIMENTATION
• SURFACE AND
MARINE WATER
QUALITY
• ALTERATION OF
NATURAL
DRAINAGE
• FLOODING
• DEGRADATION IN
BIODIVERSITY
• DESTRUCTION OF
ECOSYSTEMS
• PUBLIC HEALTH &
SOCIO-ECONOMIC
• RISK
• AESTHETIC
• AIR POLLUTION
• NOISE
• ODOUR
EIA REPORT FORMAT
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Executive summary
Title of Project
Project Initiator
Statement of Need
Project Description
Project Options
Description of
Existing
Environment
• Potential Significant
Impact
• Mitigating and
Abatement
Measures
• Residual Impacts
• Summary of
Conclusion
EIA and EMP- illustrated
Environmental
Management Plan
Environmental Impact
Assessment
Actions to be taken
What can be done
What might happen
Project planning
Construction and implementation
To be followed by Environmental Audit
EIA Consultant Registration Scheme
Objectives:
• Improve professionalism
• EIA Study to be conducted by
competent person
• Assists in fast and informed decision
making
Only Registered EIA
Consultants
• As of 1 October 2007, DOE will only
accept EIA reports prepared by
registered EIA consultants. The list of
EIA Consultants can be downloaded
at www.doe.gov.my
Roles & Responsibilities of
EIA Consultant
• Brief Project Proponent on final report
• Ensure project proponent
• understands and acknowledges the
report content
• agrees with mitigating measures
proposed
Accountability and
Responsibility
• EIA Consultants will be accountable and
responsible for EIA study, findings and its
recommendations
• Project Proponent responsible to carry out
mitigating measures (as proposed) and
future monitoring and compliance auditing
Economic Valuation in the EIA process
5 objectives of EIA:
To examine and select the best from the project options
available;
To identify and incorporate into the project plan
appropriate abatement and mitigating measures;
To predict residual environmental impacts;
To determine the significance of the residual
environmental impacts predicted; and
To identify the environmental costs and benefits of the
project to the community.
Economic Valuation in the EIA process
Questions:
Has this objective been achieved?
If the answer is mostly yes:
 Then: Can it be further improved?
If the answer is mostly no:
 Then: Why not?
What can be done to achieve the objective?
Economic Valuation in the EIA process
• Thirty-five (35) Detailed EIA reports were reviewed,
covering the period 1999 to 2004.
• Of the 35 reports, only 2 (a waste incinerator project and a
landfill project) provided some form of monetization of the
environmental impacts of the project on the environment.
• In almost all cases, the environmental impacts of the project
are not quantified, and therefore not translated into
environmental costs and benefits.
Economic Valuation in the EIA process
Questions:
Has this objective been achieved?
The answer is mostly no.
 Then: Why not?
What can be done to achieve the objective?
Economic Valuation in the EIA process
To identify the environmental costs and benefits of
the project to the community.
Note:
The objective refers to environmental costs and benefits of
the project;
It does NOT refer to the economic cost and benefits of the
project;
It does NOT refer to the development costs and benefits of
the project;
It does NOT refer to the undertaking of a cost-benefit
analysis of the project.
Economic Valuation in the EIA process
However:
Section 3.4.5 of Handbook:
The evaluation of environmental and development benefits and
costs arising from a development project is made by the Review
Panel following Detailed Assessment. The evaluation is an
essential aid to decision making by the project approving
authority. The information that the assessor must provide in
Detailed Assessment is an annotated list of economic costs and
benefits to community …
Economic Valuation in the EIA process
However:
Chapter 12 of Handbook:
In this section, the assessor should seek to quantify the
environmental and development trade offs anticipated from the
project plan. The cost–benefit approach to this evaluation is
discussed in Section 3.4.5.
Economic Valuation in the EIA process
Hence:
While the objective clearly specifies that the focus must be on
environmental costs and benefits, the Handbook then refers to
other types of costs and benefits (development and economic).
Moreover, while the monetization of the environmental impacts of
the project into environmental costs and benefits does not
constitute a cost-benefit analysis, the Handbook refers to the
undertaking of cost-benefit analysis.
To this extent, the Handbook has created confusion.
Economic Valuation in the EIA process
What have project assessors done?
In many Detailed EIA reports, there is a statement like this:
“The environmental cost and benefit analysis has shown that
most of the environmental components are non-quantifiable.”
And as a result, the environmental impacts of the project are not
quantified nor monetized.
Economic Valuation in the EIA process
What have project assessors done?
Sometimes, there is a table like this:
Summary of the non-quantifiable environmental
economic gains and losses
Impact on Local Communities
Gains
1. Appreciation in land values / real estate
2. Employment opportunities
3. More hygienic waste disposal
4. Opportunity to start small business
5. Harmonization of physical and environmental development
6. Induce more infrastructure
7. Increase in aesthetic values with landscaping
X
X
X
X
X
X
X
8. Loss of greenery
X
9. Increased incidence of occupational / traffic accidents
Total
Losses
X
6
3
Economic Valuation in the EIA process
Followed by this sort of conclusion:
Since six out of the nine non-quantifiable environmental
components are ‘gains’ and three are ‘losses’, the environmental
cost–benefit analysis has indicated that the proposed project will
induce positive gains to the nearby communities.
This is not quite appropriate.
Economic Valuation in the EIA process
Section 3.4.5 of Handbook also says:
If the assessor is unable to quantify any of the environmental or
economic changes that will result from the project, the assessor
should list them as losses or gains.
The above statement gives too much flexibility to the assessor.
Instead, Section 3.4.5 should say:
The project initiator has the duty to ensure that the assessor is
capable of undertaking in an appropriate manner the
assessment of the environmental costs and benefits of the
project.
Economic Valuation in the EIA process
One of the 5 objectives:
To identify the environmental costs and benefits of
the project to the community.
Outcome 1:
Given DOE’s functions and overall responsibility as a custodian
of environmental quality in Malaysia, it is not DOE’s task to
request and assess a cost–benefit analysis of development
projects.
While the creation of jobs by the project and the creation of
business opportunities are certainly of interest to the
Government and the people of Malaysia, DOE’s focus is on the
environmental impacts of development projects.
Economic Valuation in the EIA process
One of the 5 objectives:
To identify the environmental costs and benefits of
the project to the community.
Outcome 2:
DOE will request and focus on the economic assessment of the
environmental impacts of development projects.
In order to implement this objective, what is needed is an
economic valuation of the environmental impacts of the project.
Economic Valuation in the EIA process
Three-step process:
Identification of the
environmental impacts
Quantification of the
environmental impacts
Monetization of the
environmental impacts
Economic Valuation in the EIA process
One of the 5 objectives:
To identify the environmental costs and benefits of
the project to the community.
Outcome 3:
Review the EIA guidelines to provide clearer, more
comprehensive and more specific directions pertaining to the
assessment of environmental costs and benefits of
development projects.
Economic Valuation in the EIA process
Achievements:

Registered list of EIA consultants along with field of
expertise;
 A new Guidelines on the Economic
Valuation of the Environmental Impacts for Prescribed
Activities .
Economic Valuation in the EIA process
Objectives of the Guidelines:
The overall objective of these Guidelines is to provide clear
guidance as to the framework and methodologies allowing the
monetization of the environmental impacts of the project into
costs and benefits.
It aims to provide practical advice to project initiators and project
assessors undertaking the economic valuation of environmental
impacts of projects.
General Premises
1. The environment and the ecosystem produce goods and
services that are useful to humans i.e. that contribute to the
well-being of humans or that are ‘valued’ by humans.
2. Human actions which impact the environment and ecosystem
will then impact the flow of goods and services produced by
the environment and ecosystem.
General Premises
ECOSYSTEM
Projects which
impact ecosystem
Structure
Processes
Change the flow of
goods and services
Goods and Services
It is this change in the flow of goods and services which
we attempt to identify, quantify, and monetize.
The concept of total economic value
Different types of use…
Environmental goods and services
Use
Indirect
Consumptive
Non-use
and
Direct
For others
Non-consumptive
Existence
The concept of total economic value
… different types of economic values
Total economic value
Use
value
Indirect
use
value
+
Consumptive
direct use value
Non-use
value
+
Direct
use
value
+
Bequest
value
Non-consumptive
direct use value
Among use value, we also add:
Option value
+
Existence
value
Identify, quantify, monetize
Three-step process:
Identification of the
environmental impacts
Task of technical
experts
Quantification of the
environmental impacts
Task of technical
experts and economist
Monetization of the
environmental impacts
Task of economist
Identify, quantify, monetize
Two important messages:
1. Transforming environmental impacts into
environmental costs and benefits is not the task of
solely the economist. It must start with information
about the nature and extent of these environmental
impacts. This is best provided by technical experts.
2. However, the economist must be part of the EIA team
from the very beginning to ensure that the information
necessary to monetize the environmental impacts is
indeed collected and available. If the economist comes
only at the very end, it is very likely that the necessary
information will not be collected.
Overview of methodologies
3 groups of methodologies:
Group 1: ‘Change of productivity’ methodology;
Group 2: Revealed preferences:
These methodologies aim to provide an economic
assessment of environmental impacts by observing actual
behavior of individuals, and what this behavior reveals
about their preferences for changes in environmental
quality.
Group 3: Stated preferences:
These methodologies aim to provide an economic
assessment of environmental impacts using data on
hypothetical choices made by individuals responding to a
survey and stating their preferences.
Overview of methodologies
Use value
Direct use
value
Consumptive
direct use value
Non-consumptive
direct use value
Indirect use
value
Group 1: Change of
productivity
methodology
Group 2 (Revealed
preferences) and
Group 3 (Stated
preferences)
Non-use
value
Bequest
value
Existence
value
Group 3 (Stated
preferences)
Overview of methodologies
Environmental
effects
Air pollution
Examples of
environmental impacts
Health impact
Infrastructure damages
Water pollution
Water resources
depletion
Soil erosion / degradation
Noise pollution
Loss of forested areas
Loss of coastal
ecosystems
Amenity impacts
Health impact
Agricultural losses
Agricultural losses
Increase vulnerability to
disasters
Health impacts and
discomfort
Degraded forests
Degraded ecosystems
Economic valuation
methodologies
Cost of illness
Averting behavior
Contingent valuation
Cost of replacement
Hedonic prices
Contingent valuation
Cost of illness
Averting behavior
Contingent valuation
Change of productivity
Cost of replacement
Change of productivity
Cost of replacement
Averting behavior
Hedonic prices
Hedonic prices
Averting behavior
Change of productivity
Replacement costs
Travel cost
Contingent valuation
Change of productivity
Travel cost
Contingent valuation
Overview of methodologies
Message:
• It is the nature of the environmental impact which determines
which methodology to use.
• For each type of environmental impact there is one or two
methodologies to use. The choice will often depend on data
availability as well as time and resource constraints.
Economic Valuation in the EIA process
Contents of the Guidelines:
Part A
Introduction to the Economic Valuation of Environmental Impacts
-The Concept of total Economic Value
-Approaching the Economic Valuation of Environmental Impacts
Part B
Methodologies for the Economic Valuation of Environmental
Impacts
-Change of productivity methodology
-Revealed preferences methodologies
-Stated preferences methodologies
-Benefits transfer methodology
Economic Valuation in the EIA process
Applicability of the Guidelines:
For all prescribed activities, any of the project’s expected impacts
on the productivity of land (such as agricultural productivity) and
water (such as fisheries productivity) have to be clearly identified,
quantified, and transformed into environmental costs or benefits
following the procedures described in the Guidelines. As for the
other environmental impacts of the project, the precise nature
and extent of the economic valuation is to be established at the
time of the EIA scoping.
Economic Valuation in the EIA process
DOE had organized workshops to facilitate the
introduction and the usage of the Guidelines:
 Training
 Training
Workshop for DOE officers;
Workshop for EIA Consultants
and Subject Consultants
Introductory Workshop for Government
Agencies
2008 AECEN Regional Forum:
Decentralization in Environmental Compliance
and Enforcement in Asia
Assessing Natural Resources Damages in Asia
Thank you