Industrial water pollution had significantly degraded a large watershed near Manila. Following the “polluter pays principle,” an industrial wastewater effluent fee program was developed to create economic incentives for industry to reduce wastewater discharges and raise revenues to finance local government management of the program. The effluent fee system was developed for the Laguna de Bay watershed, which includes Laguna de Bay and over 20 feeder rivers.
The Laguna Lake Development Authority (LLDA) is a government agency that is responsible for protecting and managing the largest freshwater body in the country. It was the pilot district for the program, covering more than 500 industrial dischargers within 45 industry sectors.
The effluent fee system was designed to reflect the quantity of discharges, the costs of environmental externalities created by industrial discharges, and the budget requirements to administer the program. Following hands-on training of personnel, the program was implemented by the LLDA, with portions handled by surrounding municipalities.
After LLDA implemented the effluent fee in 1997, industries responded by changing production processes and implementing other measures to reduce the volume of effluent and pollutants in discharges to Laguna de Bay. The pilot test of this effluent fee program resulted in reduction of 88 percent of BOD from direct discharges between 1997 and 1999.
In addition, during the first two years the government collected over P28,000,000 from Metro Manila firms discharging wastewater into the Laguna de Bay watershed. The regulatory monitoring and enforcement components of the program led to closure of around 50 companies by LLDA between 1998 - 1999 for significant violations.
Water pollution charges provided incentives for industrial polluters to reduce the impacts of wastewater discharges to a large freshwater watershed and raised revenues for program management.
Institutional design was important to ensure that the government had the most appropriate organizational structure, personnel qualifications, training, and budget requirements to administer the program. It was also important to integrate the pollution charges with the regulatory and enforcement program.
Importance of the case for IWRM
Until recently, most governments relied primarily on direct regulation in waterresources management. This case demonstrates that economic instruments offerseveral advantages such as providing incentives to change behavior and raisingrevenue to contribute to the financial sustainability of water authorities.
Photo credit: Albert Lozada