Impact of emission charge on palm oil mill industry with special reference to economic performance

Abstract

Economic instrument (EI) implementation in industrial environmental management has been developed in many countries including Thailand. Department of Industrial Works (DIW), especially, has conducted a series of study and the implementation plan has been formulated. EI is based on the polluter-pays-principle and employed to encourage pollution reduction rather than command-and-control approach. The developed EI for Thailand is Emission Charge (EC) system. EC is the charge that levied on BOD load discharged to environment. The determined EC rate for Thailand is of 35 Baht/kgBOD. This study focused on the palm oil mill industry because it is an agriculture-based industry with high BOD load generation and associated to many industries. The implementation of emission charge (EC) expect to affect to the economic performance of palm oil mills and also affect to affiliated industries. The study was emphasized on the influence of AFTA obligation because palm oil is included in the tariff “Temporary Exclusion List” that has to reduce import tax from 20% to 0-5% within year 2003. This commitment significantly affects the economic performance of palm oil mill industry. The implementation of EC would not be a burden to the economic performance of palm oil mill industry, if AFTA obligation is not enforced. The EC that not be a burden to economic performance and is acceptable by factories is not more than 5% of their profits. The factories which land application is not available would be affected from the EC application. Nevertheless, the EC implementation would severely affect to the palm oil mill industry if the AFTA obligation is enforced. Without tax barrier, Thai palm oil mill industry cannot compete in world market due to higher production cost as comparing to Malaysia and Indonesia. According to this study, all factories would take a loss and the EC scheme is not feasible to implement. The effect of AFTA obligation may cause all palm oil mill factories to shutdown their plants or the oil palm farmers have to quit their plantation due to low FFB cost. The impact study of EC on the emission level of palm oil mill industry indicated that EC, a market based instrument, could encourage factories to abate BOD load. The EC system provides the palm oil industry incentive to abate BOD load to 100% reduction for land application case and 99.5% reduction for wastewater treatment system. Land application could be the best available solution for palm oil mill wastewater management, but it has to treat primarily by anaerobic ponds. The recommended coefficient “{u1D453}” (in the EC equation) for land application is of 0.1 to provide the incentives on wastewater utilization.