INDONESIAN THEMATIC RESEARCH
ON UTILIZATION OF ECONOMIC
INSTRUMENTS:
Case Study on Pulp and Paper Industry
Ministry of Environment
Indonesia
Objectives

To support the development of cost effective
solutions to achieve the sustainable use of
natural and environmental resources

To institute a multi-stakeholder process in
identifying and implementing economic
instruments.

To stimulate decision-makers to take a
proactive role in formulating country and sector
specific’ economic instruments

To enhance coordination among institutions in
the use of economic instruments
Why Industry sector?

Industrial development significantly contributes
to the national income

The need to solve environmental pollutions and
degradations caused by the industrial activities.

Utilization of economic instruments to encourage
the sustainability of natural resources and to
control the pollution
Why Pulp and Paper industry?

related to other activities such as forestry
management & policies, air & water
pollution control, and the use of energy
efficiency

an interrelation from upstream to
downstream industry
What’s Scope of the Study?
Trade Liberalization
to identify, analysis, and
Select appropriate economic
instruments to encourage
the sustainable use of
natural resources and to
Internalize environmental
Impact of pulp and paper
industry resulting from
trade liberalization and
increasing export growth
Export Growth
Increased used of natural resources
Economic Instruments
Promoting better
practice
Sustainable natural
Resources and
environment
Increase Pollution
Review
Pulp and Paper in
trade liberalization
Identify Process of
Production
Methodology
Assess Impacts on
the Environment
Analysis
Policy Instruments
Identify Policy
Recommendations
Review
Pulp and Paper in
trade liberalization
How’s Pulp & Paper Industry
in Indonesia?
Statistics of Paper & Paperboard 1995-2000
(Million tones)
Year
Capacity
Production
Import
Export
1995
4.472.500
3.425.800
140.110
924.520
2.641.390
1996
5.595.280
4.120.490
197.700
1.198.220
3.119.970
1997
7.168.290
4.821.600
261.000
1.800.000
3.282.600
1998
7.479.530
5.487.260
130.130
2.833.960
2.783.430
1999
9.097.180
6.720.560
143.800
2.950.800
3.913.560
2000
9.116.180
6.849.000
212.630
2.837.210
4.224.420
Source: Indonesian Pulp & Paper Industry Directory 2001
Apparent
Consumption
Performance of Pulp & Paper Industries 1997 2000
Commodities
1997
1998
1999
2000
Installed Capacity (tones per 4.266.600
annual)
7.168.290
Pulp
3.282.600
Paper
Waste Paper (WP)
4.323.600
7.479.530
2.783.430
4.543.600
9.097.180
3.913.560
5.228.100
9.116.180
4.224.420
Production (Metric tones)
Pulp
Paper
Waste Paper Recovery
3.058.450
4.821.600
1.224.000
3.430.000
5.487.260
1.355.000
3.694.630
6.720.560
1.917.650
4.089.550
6.849.000
1.679.265
Utilization (%)
Pulp
Paper
Waste Paper
Recovery Rate of WP
71,70
67,30
54,10
37,30
79,30
61,80
48,70
81,32
73,13
58,80
49,00
77,34
75,13
60,00
39,00
Source: Indonesian Pulp & Paper Industry Association (2001)
Export Growth of Pulp and Paper (1996-2000)
3000000
2500000
2000000
PULP
1500000
PAPER
1000000
500000
0
1996
1997
1998
Source: Indonesian Pulp & Paper Association, 2001
1999
2000
Review
Pulp and Paper in
trade liberalization
Identify Process of
Production
How to make pulp and paper?
MAIN POINT
Raw Material
Chemical Energy
PROCESS STEP
HANDLING RAW
MATERIAL
PULPING (RECOVERY)
POTENTIAL
ENVIRONMENTAL
IMPACT
Solid Waste, Forest
Degradation &
Biodiversity
Gaseous Material,
Water Vapor, Energy
use
WASHING
Dissolved Material,
Residual Chemical,
Water use
Energy
SCREENING
Solid Waste, Energy
use
Chemical Energy
BLEACHING
Dissolved Material,
Residual Chemical
Water
Energy
Energy, Water,
Chemical
DRYING
Energy Use Efficiency
PAPER MACHINE
Solid Waste, Dissolved
Material, Residual
Chemical Water use,
Energy Use
Review
Pulp and Paper in
trade liberalization
Identify Process of
Production
Assess Impacts on
the Environment
Any Impacts on the
Environment?
Preliminary Assessment of the Environmental
Impact
Impact on
Forest
Degradation
Impacts
on Biodiversity
Impact
on
water
use
Impact on
Energy
Use
Impact
on
Aquatic
Impact on
Surface &
Ground
Water
Impact
on Acid
Rain
Impact
on
Health &
Safety
Product
effects
(0)
(0)
(0)
(0)
(-)
(-)
(-)
(-)
Technology
effects
(-)
(-)
(+)
(+)
(+)
(+)
(+)
(+)
Scale
effects
(-)
(-)
(-)
(-)
(-)
(-)
(-)
(-)
Structural
effects
(-)
(-)
(-)
(-)
(-)
(-)
(-)
(-)
Regulatory
effects
(+)
(+)
(0)
(0)
(+)
(+)
(+)
(+)
Traderelated
Effects
Review
Pulp and Paper in
trade liberalization
Identify Process of
Production
Assess Impacts on
the Environment
Analysis
Policy Instruments
How about the policy
instruments?
Matrix Economic Instruments Analysis
LIFE CYCLE
STAGES
EXISTING POLICY
FREE TAXATION
on wood from land
clearing
(Fiscal Instrument)
REFORESTATION
FUND
(Dana Reboisasi)
INSTITUTION
Ministry of Forestry
STUMPAGE FEES
(wood from natural
forest)
(Forest
Taxation/Fiscal
Instrument)
ASSUMPTION
To keep on this
instrument but
increase control on
IPK implementation
Law Enforcement
consistency
REMARKS
PERFORMANCE
BOND
To encourage P&P
for developing HTI
to fulfill Raw
Material supply for
P & P that is not
from natural forest.
To attract people to
apply the HTI
With little realization
To push conversion
a natural forest to
HTI
To continue use this
EI, but Govt. should
give more attention
to P&P industry to
proceed HTI
immediately
HTI Policy should
be concerned on
political & social
issues, regulation
consistency
Ministry of Forestry
-There is a
guarantee on
reforestation
Complicated
Bureaucratic& fund
administration
To use reforestation
fund is only for
reforestation
programs
-Long experience
now exist with its
use; effective use
requires close field
monitoring
Not all of the fund
was used for
correct allocation
Need
Governmental
Political will to
use reforestation
fund only for
improving
forestry program
Ministry of Forestry
and LEI (Indonesia
Ecolabelling
Institute)
Voluntary Market
driven
Local People
demand on
ecolabel product
Ministry of Forestry
-To encourage
sustainable forest
management
-Significant
revenues and profit
redistribution effect
& Environmental.
Effect less clear-cut
-Relative easy to
administer once
stumpage fee
assessed.
Each level of local
Simplified the
government
charge mechanism
collected fee (cause
distortion)
PERFORMANCE
BOND
2.Reforestations
Fund Disbursement
(Fiscal Instrument)
E ECOLABELLING
(Certificate Hutan
Lestari)
RAW MATERIAL
To push P&P
To attract people to
industries utilized
apply the HTI
waste from IPK
With a little
(land clearing)
realization
To push conversion
a natural forest to
HTI
POSSIBLE
IMPROVEMENT
Ministry of Forestry
1. Free Interest
Loan
Dana Reboisasi
(Fiscal Instrument)
Raw material
wood fiber
POLICY ANALYSIS
STRENGTH
WEAKNESSES
To simplify
bureaucratic
disbursement to be
on time
Mandatory for
timber tracking
Need Consumer
Pressure &
campaign to
boost
consumption on
ecolabel end
product
To simplify or
shortcut in
collecting forestry
fee
Raw material
would be an
essential
problems in
developing Pulp
& Paper, so it
has to take into
account now.
Matrix Economic Instruments Analysis
LIFE CYCLE
STAGES
EXISTING
POLICY
INSTITUTION
POLICY ANALYSIS
STRENGTH
WEAKNESSES
POSSIBLE
IMPROVEMENT
ASSU MPTION
COMMENT
Almost all of
P&P machine &
equipment can
process non
wood fiber raw
material
Ad vantages
of Nonwood Fiber:
RAW MATERIAL
Non wood Fiber
Raw Material
None
-to establish a
polic y incentive
in order to
encourage the
industry using
non wood fiber
To establish
polic y to support
development of
non-wood fiber
supply
Market pushes
the use nonwood fiber
To Utilize the
side
products
from rice
field harvest;
sugar cane
To save
wood fiber
used
To save
forest
destruction
Waste paper as
Raw Material
Soft loan on
Recycle
equipment
Ministry of
Environment
Ministry of
Finance
To reduce a
volume of solid
waste
To decrease
dependency on
wood fiber from
natural forest
There is not yet
supported polic y
on utilizing waste
paper
Supply not
continue
To de velop policy
for developing
refund system
To increase soft
loan
The use of waste
paper is still
having any
possibilities to be
development as
raw material
PULP MANUFACTURING
Pulp Production
Process
Soft Loan on CP
technology (IEPC
& PAE)
Ministry of Finance
Ministry of
Environment
Soft loan available
Limited fund
Increase fund
Limited handling
Bank
Simplified
procedure
Bureaucracy was
relatively not
simple as
commercial loan
Increased handling
bank
No bad debt from
debtor
Matrix Economic Instruments Analysis
LIFE CYCLE
STAGES
EXISTING
POLICY
National Policy
cleaner
Production
INSTITUTION
Ministry of
Environment
Ministry of
Finance
Ministry of
Industry & Trade
Ministry of
Forestry
Chemical
Ratification of
Basel
Convention
MoIT
MoE
Government
Regulation
18/1999 on
Management of
Hazardous waste
jo PP 85/1999
MoIT, MoE
(as facilitator in
cooperation
with
Responsible
Care)
Ministerial
Decree (SK
Menperindag)
No.
231/MPP/KP/07
/1997 on Waste
Import Procedure
MoIT
MoE
POLICY ANALYSIS
STRENGTH
WEAKNESS
PULP MANUFACTURING
To push the
Need more fund
used of CP
for change
equipment &
equipment &
concept
technology
Technical
guidance
provided
CP technology
not easy to
implement
There is no
Technical
Assistance
PRODUCTION PROCESS
There is strong
regulation to
manage
Hazardous waste
traffic
Voluntary
To be in effect
Self regulation
on specific
industries
POSSIBLE
IMPROVEMENT
CP is widely accepted
Increase soft
loan
Provide
Technical
assistance
-
All of the countries
ratified Basel
Convention
Tax
differentiation
There is an institution
that have responsible
to execute the
regulation
Liability
insurance
Existing
regulation on
waste import
procedure
Lack of
knowledge of
custom and
cease officer on
hazardous
waste
ASSUMPTION
Deposit refund
system
-
COMMENT
Matrix Economic Instruments Analysis
LIFE CYCLE
STAGES
EXISTING
POLICY
Paper Production
Process
Soft Loan on CP
technology (IEPC
& PAE)
National Policy
cleaner
Production
INSTITUTION
Ministry of
Finance
Ministry of
Environment
Ministry of
Environment
Ministry of
Finance
Ministry of
Industry & Trade
Ministry of
Forestry
Water Used
(surface and
ground water
Mining Agency
- surface water
tax
- Deep well tax
Dispenda,(Regio
nal Income
Agency)
POLICY ANALYSIS
STRENGTH
WEAKNESSES
PAPER MANUFACTURING
Soft loan
Limited fund
available
Limited handling
Bank
To push the used
of CP equipment
& concept
Technical
guidance
provided
Bureaucracy was
relatively
complicated
compare with
commercial loan
Need more fund
for change
equipment &
technology
CP technology
not easy to
implement
Limited technical
Assistance
UTILITY AND SUPPORTING PROCESS
There was
The price / fee
income
too low
(revenue) from
water resource
Not yet
use
considered
sustainability
water supply
POSSIBLE
IMPROVEMENT
Increase fund
ASSUMPTION
COMMENT
No bad debt from
debtor
Simplified
procedure
Increased
handling bank
Increase soft
loan
CP is widely
accepted
Provide
Technical
assistance
Determine Water
Value
considering
catchments
protection factor
Implement
Progressive
Water Tariff on
the Use of
Surface &
Ground Water
Enable to
control ground
water & surface
water use
- Water right
-Increase Water
Tariff
- Catchments
area protection
charge
Establish
National Water
Management
Board
Matrix Economic Instruments Analysis
LIFE CYCLE
STAGES
Pollution
Discharge
EXISTING
POLICY
Waste water
retribution
INSTITUTION
Dispenda,(Regio
nal Income
Agency)
POLICY ANALYSIS
STRENGTH
WEAKNESSES
PROCESS WASTE
There is Revenue
Revenue is not
from pollution
use to manage
discharge
environment
Bapedalda
(Regional
Environmental
Impact
Management
Agency)
Pulp & Paper
Trade
Tariff is still too
low
To push right to
pollute
PULP AND PAPER TRADING
To strengthen
There is any
Indonesia in
pressure from
penetrating
any country that
international
have a surplus of
market
pulp production
Regulation on
establishing Anti
Dumping
Committee to
manage trade
(PP No.3, tahun
1996: Bea Masuk
Anti Dumping
dan Bea Masuk
Imbalan)
Ministry of
Industry & Trade
Free Import Duty
on Pulp
Ministry of
Finance
To reduce the
use of wood fiber
raw material from
natural forest in
Indonesia
Indonesia will be
flooded by pulp
import as raw
material
Free import Duty
on paper from
AFTA countries
Ministry of
Finance
To ease export
paper
Indonesia will be
flooded paper
product from
ASEAN
countries,
Ministry of
Finance
To optimize
competitive
advantage
domestic P & P
industry
POSSIBLE
IMPROVEMENT
Use progressive
tariff
Use the pollution
discharge fund
only for
environmental
management
Indonesia Anti
Dumping
Committee
should have
more power to
regulate &
produce policy
that controls any
possibilities
export & import
dumping
activities
It should be
similar polic y on
import duty exist
among pulp
producer
countries
ASSU MPTION
Don’t collect
Pollution
Discharge
Revenue into
general pot
No dumping
practice
Mutual
agreement
endorsed
AFTA commenced
COMMENT
Review
Pulp and Paper in
trade liberalization
Identify Process of
Production
Analysis
Policy Instruments
Assess Impacts on
the Environment
Identify Policy
Recommendations
What instrument
for what purpose?
Identification Potential Recommendation of Economic Instruments
No
1
2
Instrument
Forest
Degradation
Biodiversity
Deterioration
Deposit Refund &
Bond
a) Deposit-refund
b) Performance
Bond
Charge Systems
a) Effluent Charges
X
X
XX
XX
b)
User Charges
c)
Product
Charges
d)
Water
Catchments
Area Protection
Charge
Water Right
e)
3
Potential Environmental Impact Could Be Reduced
Economic
Fiscal Instruments
a) Input Taxes
b)
Tax
Differentiation
c)
Import Tariffs
Note: X = suitable applied
Energy
Use
X
Aquatic
Pollution
Surface &
Ground
Water
Pollution
Acid
Rain
Health
&
Safety
(Characteri stic/Purpose s)
X
X
X
XX
X
X
X
X
To arrange safe disposal of hazardous
material and encourage recycling or reuse
of waste paper products
Used on HTI operation to maintain forest
sustainability;
Used on Pulp & Paper Production
process, Waste treatment
X
X
X
X
Used on value & number of the raw
material, surface & ground water
X
XX
XX
X
X
X
X
d)
4
Financial aid in
Installing New
Technology
Financial
Instruments
a) Financial
Subsidies
b) Soft Loan &
Grant
X
Water
Use
Remark
X
X
XX
X
X
X
X
X
X
X
X
X
X
X
X
X
To protect the effic iency of water use and
its sustainability
Reduce Taxes to push the use of non
wood fiber & and also the use of non
hazardous material
To push the use of non hazardous
materials and; to control surface & ground
water Use
Free import tariff/duty on waste treatment
equipment; w aste paper; imported pulp.
Installing New Tech. on each step of
process production
Non-w ood fiber should be more
encouraged to be developed as a raw
material alternative
X
X
XX= most suitable applied
To charge harmful product in production
process & disposed of in order to be able
to reduce/substitute hazardous material
etc.
To protect the sustainability of water
X
X
XX
Incentive
system
to
push
the
implementation of CP system & Pollution
Control Technology

each of EIs has a specific best practice  each
of EIs has its nature to cope with the potential
environmental impacts

to choose the most appropriate of EIs requires
further study, to assess:





Effectiveness
Economic Efficiency
Equity Principle
The Administrative Cost-Effectiveness Principle
Institutional Concordance