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Economic instruments for managing industrial waste in malaysia

Presentation In the past Malaysia emphasized the economic benefits of development. Now there is an emphasis on the environment. The Malaysian government should consider as many developed countries the use of appropriate economic instruments and incentives to achieve water development flexibility. These tools are needed to encourage the environment to be responsible for the decision-making of investors, consumers and other economies,... Invite you to consult the documentation



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Malaysian Journal of Environmental Management 6 (2005): 87 - 106

Economic Instruments for Managing Industrial Waste in
Malaysia
MOHD NASIR HASSAN, RAFIA AFROZ, AHMAD FARIZ MOHAMED &
MUHAMAD AWANG

ABSTRACT
Rapid development process of manufacturing industry in Malaysia has resulted
to increasing amount of industrial and hazardous waste generation. It is
recognized that industrialization has economic, environmental and social tradeoffs. Where there are trade-offs between environmental preservation and
economic development, several alternatives are employed to mitigate those
harmful effects. Such actions are required under the existing and currently
reviewed environmental laws and regulations and proposed economic
incentives. In the past Malaysia emphasized the economic benefits of
development. Now there is an emphasis on the environment. The Government of
Malaysia should consider that like many developed countries, the use of
appropriate economic tools and incentives in order to achieve a resilient
developed country. These instruments are needed to encourage environmentally
responsible decision-making by investors, consumers and other economic
actors.
ABSTRAK
Proses pembangunan industri pembuatan yang begitu pesat di Malaysia telah
menyebabkan peningkatan penghasilan bahan buangan industri dan berbahaya.
Sememangnya diketahui bahawa perindustrian mempunyai keseimbangan
daripada segi ekonomi, alam sekitar dan sosial. Apabila wujud keseimbangan
diantara pengekalan alam sekitar dengan pembangunan ekonomi, beberapa
alternatif diambil untuk menangani akibat buruknya. Langkah sedemikian
adalah diperlukan di bawah undang-undang dan peraturan alam sekitar sedia
ada dan yang sedang dikaji semula serta galakan ekonomi yang dicadangkan.
Pada masa lalu Malaysia menekankan kepada keuntungan ekonomi sesuatu
pembangunan. Kini telah wujud penekanan terhadap alam sekitar. Seperti
banyak negara membangun yang lain, Malaysia sepatutnya memikirkan tentang
penggunaan alat ekonomi dan galakan untuk menjadi sebuah negara maju yang
amat bingkas. Alat-alat tersebut diperlukan untuk menggalakkan pembuatan
keputusan yang bertanggung jawab alam sekitar oleh pelabur, pengguna dan
peserta ekonomi lainnya.

88 Mohd Nasir Hassan, Rafia Afroz, Ahmad Fariz Mohamed & Muhammad Awang

INTRODUCTION
Malaysia is aiming to be an industrialized country by the year 2020. To
achieve this vision, the government has identified industrial sector as the
key sector. Therefore, manufacturing industry plays a vital role in
enhancing Malaysian economic growth. This sector has performed very
well, and in 1996, it has contributed RM 45.2 billion to the GDP, about
34.6 percent from overall GDP, with 13.3 percent growth over the
previous year value (Malaysia 1996, 1997). However, during the
economic recession from 1997 to 1998, manufacturing growth reduced
by 13.4 percent. The performance of manufacturing industry has been
geared up and its growth increased 13.5 percent in 1999 and 21 percent in
2000. This has lead to GDP contribution of 33.4 percent in year 2000
(Malaysia 2001). Manufacturing industry will continue as a key sector in
economic growth for Malaysia with target growth of 8.9 percent per
annum from 2001 to 2005, and expected to contribute 35.8 percent to
GDP by 2005 (Malaysia 2001).
Rapid development process of the manufacturing industry in
Malaysia has resulted to increasing amount of industrial and hazardous
waste generation volume annually.

6000
5000
4000
3000
2000
1000
0

5185

4878

3698
2675
1124

1997

1998

1999

2000

2001

Year

Quantity of Toxic and
Hazardous Waste
Export ( Metric Ton)

Figure 1. Quantity of scheduled waste exported from 1997 to 2001
Source: Department of Environment 2001a

Toxic and hazardous waste generation increased from 378,610.74
metric ton in 1999 to 420,198 metric ton in 2001 as shown in Figure 1
(Department of Environment 1999, 2001a). Manufacturing industry in
Malaysian Journal of Environmental Management 6 (2005): 87 - 106

Mohd Nasir Hassan, Rafia Afroz, Ahmad Fariz Mohamed & Muhammad Awang 89

Malaysia also export and import toxic and hazardous waste, where in
2001 Malaysian industries exported 2,675 metric tons and imported
69,942 metric ton of scheduled waste (Department of Environment
2001b). A study conducted by Nasir et al. (1998), found that industries in
Malaysia produce about 59.39 metric tons of industrial solid wastes per
day with increment rate of 4 percent per year. The Department of
Environment Malaysia has conducted enforcement visits to 3,314
manufacturing industries in 2001, and recorded that only 79 percent of
factories comply with the relevant law.
The objective of this study is to discuss about the economic
instruments such as, property rights, market creation, fiscal instruments,
charge systems, financial instruments, liability instruments, performance
bonds and deposit refund systems and its impact on industrial waste
management in Malaysia.
INDUSTRIAL WASTE MANAGEMENT IN MALAYSIA
Industrial waste management in Malaysia has become an important
activity that goes along with industrialization process. It falls under the
jurisdiction of Local Government Act, 1976, Street, Drainage and
Building Act, 1974 and Town and Country Planning Act, 1976. Specific
definition of industrial solid waste is not available under Local
Government Act, 1976. However under the Local Government by-laws,
Rahmah (2001) stated that solid wastes were categorized as follows:






Waste materials include any valuable or non-valuable byproducts, reject or spoilt products produced in manufacturing
process.
Trade waste includes any waste materials generated by trade
activity.
Industrial waste includes any waste materials generated from
industrial activity.
Park waste includes leaves, grass, tree branches or soil from
parks or from house building compound or from land.
Household waste includes all types of waste generated from
household.

Solid wastes generated by industries thus fall under these categories
hence the Local Government Act, 1976 and local governments by-laws
were able to manage industrial solid wastes.
Similar to industrial solid waste management, managing industrial
toxic and hazardous wastes were also done through specific legislative
structure. At the moment the Environmental Quality Act (EQA), 1974,
Malaysian Journal of Environmental Management 6 (2005): 87 - 106

90 Mohd Nasir Hassan, Rafia Afroz, Ahmad Fariz Mohamed & Muhammad Awang

the Local Government Act, 1976 and the Customs and Excise Act are the
three laws that are playing a major role in helping better management of
industrial toxic and hazardous waste. The Environmental Quality Act,
1974 specifically addresses the toxic and hazardous wastes under its
subsidiary legislation as follows:
 Environmental Quality (Prescribed Premises) (Crude Palm Oil)
Regulations, 1977
 Environmental Quality (Prescribed Premises) (Raw Natural
Rubber) Regulations, 1978.
 Environmental Quality (Sewage and Industrial Effluent)
Regulations, 1979.
 Environmental Quality (Scheduled Wastes), Regulations, 1989
 Environmental Quality (Prescribed Premises) (Scheduled Wastes
Treatment and Disposals Facilities) Order 1989.
These regulations fall under the jurisdiction of the Department of
Environment. Specifically toxic and hazardous waste are directly
managed under the Environmental Quality (Scheduled Wastes),
Regulations, 1989. Others have a significant role in managing toxic and
hazardous waste through its activities and characteristics.
The current practice in managing industrial wastes in Malaysia was
found applying “end of pipe” approach. Wastes generated by the
industries were disposed in the open dumpsite or landfill. There are cases
where small volume of industrial wastes were disposed by burning in soil
within factory compound or dumped into bushes, plantation or stored in
warehouses. Little emphasis has been given by industries to recover their
wastes because of the low values being given by current market system.
Moreover the Environmental Quality (Scheduled Wastes) Regulations,
1989 did not promote recovery or recycling of toxic and hazardous waste.
The law only stated how to manage the wastes at the end of its production
and consumption. However, issues pertaining to industrial toxic and
hazardous wastes management are related to many factors.
ECONOMIC POLICY AND INSTRUMENTS
It is well recognized that industrialization has economic, environmental
and social trade-offs. Where there must be trade-offs between
environmental preservation and economic development, several
alternatives are employed to mitigate harmful effects. Such actions are
required under the existing and currently proposed environmental laws,
regulations and economic incentives.
In the past, Malaysia emphasized the economic benefits of
development, now there is also a major emphasis on the environment.
Malaysian Journal of Environmental Management 6 (2005): 87 - 106

Mohd Nasir Hassan, Rafia Afroz, Ahmad Fariz Mohamed & Muhammad Awang 91

The Government in Malaysia should recognize that guiding the economy
towards sustainable development would require the use of appropriate
economic tools and incentives. These instruments are needed to
encourage environmentally responsible decision-making by investors,
consumers and other economic actors. Economic instruments aim to
bridge the gap between the private and social costs by internalizing all
external costs to their sources, namely the producers and consumers of
resource depleting and polluting commodities.
Economic instruments are "instruments that affect costs and benefits
of alternative actions open to economic agents, with the effect of
influencing behavior in a way that is favourable to the environment".
There is a wide range of economic instruments or incentives, which can
be used to internalize externalities of economic activities. Every incentive
that aims to induce a change of behavior of economic agents by
internalizing environmental or depletion cost qualifies as an economic
instrument.
A very general classification of economic instruments is, to divide
them into two groups. The first group is the so called market-based
instruments (MBI). This covers all instruments and incentives that work
by a change of either product or factor prices, e.g. taxes or pollution
charges. Such instruments generate in one or the other way income for
the governments. The second group is the non market-based instruments,
such as command and control activities or land reclamation bonds.
A better and more accurate typology of economic instruments was
proposed by Panayotou (1994). He classified economic instruments into
the following categories:
 property rights
 market creation
 fiscal instruments
 charge systems
 financial instruments
 liability instruments
 performance bonds and deposit refund systems
Property Rights
As already stated, inadequately defined and insecure property rights can
be one of the reasons for environmental depletion and pollution.
Therefore, the establishment of secure (and tradable) property rights will
lead to more appropriate pricing of the use of natural resources.
Establishing secure and transferable property rights will ensure that cost
of depletion is internal to the user and that will ensure the sustainable use
of his property. In case of somebody polluting or using natural resources
from somebody else in a specific area, secured and tradable property
Malaysian Journal of Environmental Management 6 (2005): 87 - 106

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