World Bank

Implementing Cleaner Production

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Courtesy of World Bank

' Cleaner production (CP) should be an essential part of any comprehensive pollution management system, at an enterprise or national level. Significant reductions in pollution loads can often be obtained at little cost, and efficient use of resources and reduction in wastage in industrial production are clearly preferable to reliance on end-of-pipe treatment (EoP). Some firms -- the 'dynamic' ones which are responsive to external changes -- will adopt CP readily in order to gain competitive advantage. On the other hand, static firms (often small, traditional businesses or inflexible state owned enterprises) require targeted intervention to persuade them to take advantage of the benefits of CP. In many cases, it may be worthwhile to combine promotion of CP with the adoption of environmental management system (EMS).'

Cleaner Production is promoted because it minimizes the use of resources and reduces the wastes discharged to the environment. In many cases the adoption of CP improvements can reduce or even eliminate the need for end of pipe investments and therefore can have both financial and economic net benefits (See BOX). As a rough guide, 20-30% reductions in pollution can often be achieved with no capital investment required and a further 20% or more reduction can be obtained with investments which have a payback time of only months.

CP is also attractive because of concerns about the lack of effectiveness of EoP solutions: there are numerous examples of the poor operation and maintenance of treatment plants with resulting failure of the system to achieve its objectives.

CP and related approaches will have an increasing importance in environmental management in the future. However, changes will require effort and will be gradual and therefore CP should not be seen as part of an overall approach and not as a 'costless' alternative to a comprehensive set of environmental polices and regulations.

The introduction of CP is an ongoing process -- as resource prices and disposal costs continue to rise, new opportunities arise for pollution prevention and reductions in treatment costs. For this reason, CP can be linked closely with environmental management systems.

Definitions

The term 'Cleaner Production' has came into general use through the efforts of the UNEP Cleaner Production Program which was established in 1989. A number of related terms are also used, including: low- or no-waste technologies; waste minimization (India); waste and emissions prevention (Netherlands); source reduction (USA); eco-efficiency (WBCSD) and environmentally sound technology (UN CSD). All of them essentially refer to the same concepts of integrating pollution reduction into the production process and even the design of the product.

Examples Of Cleaner Production
China: At the request of the National EPA (NEPA), a $6m. cleaner production component was included in the World Bank’s Environmental Technical Assistance Project (approved in 1993). UNEP’s Cleaner Production Programme assisted in the design and implementation of the component, which included not only studies in eighteen companies but also the training of a cadre of local experts and the preparation of a Chinese Cleaner Production Manual. A large distillery was one of the plants involved: a first assessment of the bottling plant identified good housekeeping options which cost lest than $2,000 and which resulted in savings of over $70,000. Encouraged by this initial success, detailed studies of the alcohol plant were carried out which resulted in a number of equipment optimizations (carried out during a maintenance shutdown) producing nearly $700,000 in savings. Three technology replacement options were also identified, costing up to $500,000 and with paybacks of one and a half to four and a half years.

Tunisia. A study of a battery manufacturer (employing 200 people) identified nineteen actions of which the first seven changes alone could save nearly three-quarters of a million dollars in the first year, with no capital investment required.

Chile: An assessment of a large textile mill (employing nearly 300 people) identified potential for water and energy use reductions and for improvements in the control of suspended solids. Three specific investments were recommended, at a total cost of $11m but with payback periods of 14-24 months.

India: In 1993 a CP demonstration project targeting SMEs was initiated by UNIDO, in cooperation with the Indian National Productivity Council and other industry associations. This DESIRE project focused on three sectors: agro-based pulp and paper; textile dying and printing; and pesticides formulation. Results for one of the pulp and paper plants demonstrate the types of savings possible. In a plant producing 36 tons of paper per day, a combination of process and equipment modifications and some new technology was identified which improved the product and the operating conditions, for a capital investment of $25,000 with a payback period of less than three months. 
 
Reluctant Implementation

Despite the increasing and often very focused promotional efforts, there is anecdotal evidence that the actual level of practical implementation of Cleaner Production recommendations was lower than anticipated in the early years of promotion, although it is believed that the situation is improving. There is no accepted way to measure the overall impact of CP programs but typical figures suggested by people in the field have been that 15-20% of identified measures have been put into practice within a reasonable time after the completion of the audits or investigations. This figure is increasing as experience is gained in designing programs and overcoming barriers to implementation. For example, in focused, sustained programs it appears to be possible to obtain implementation of 30-50% of recommended measures, representing more or less the full set of no/low cost improvements.

Promotion of CP

Pollution prevention has been around a long time (the Dow Chemical 3P program in the USA is now twenty years old). Over this period there have been various industry and governmental efforts in USA and Europe. The emphasis in efforts in developing countries has been in providing access to the necessary technical expertise to identify CP opportunities, principally through the establishment of Cleaner Production Centers. Several major initiatives are underway, supported by UNEP, UNIDO and bilateral agencies.

Poland: A Polish CP Program has now developed from an NGO training program organized by engineering federations and supported by the Norwegian Government in 1991 to a national Government-sponsored movement, with a formal charter, which has produced 400 trained, certified experts. The CP improvements implemented are now in the hundreds and formalization of the CP center and its funding are in progress. Over a similar period, WECs Industrial Waste Minimization Program (funded by USAID) has implemented 52 projects in 18 companies, producing over $8m in savings for a total investment of about $1.5m, with a payback period typically less than six months.

Bank Experience

Experience within the Bank has been increasing with the focus on assisting country governments to promote and develop the use of CP in industry. Industrial pollution prevention was included in the Metropolitan Environmental Improvement Program (MEIP) in the cities of Manila, Beijing and Bombay. The first major project was in China and a significant program has been completed in the Philippines. CP elements are now increasingly being included in a number of Bank industrial and environmental projects (in India, Mexico, Bolivia, Tunisia, for example).

Critical Success Factors

There are two major issues to be addressed in developing an effective CP program.

External incentives: An appropriate government policy and regulatory framework must be in place to provide effective incentives for firms to adopt cleaner production.

Response of the firms: In many cases, firms are slow or incapable in responding to the incentives and in such cases it may be appropriate to assist the firms to adjust. The approaches adopted for this purpose will vary considerably depending on the characteristics of the sector and of the firms involved.

It must also be emphasized that CP is only one of a number of possible components of a government industry and environment strategy and is also only one of the approaches that an enterprise can adopt to improve its environmental and financial performance.

Appropriate Government Framework

A number of key characteristics of the government framework required for the promotion of CP have been identified:

  • a broad macroeconomic context that sets real resources prices, encourages investment in new technology and supports an orientation toward export markets, thus providing strong incentives:
  • a predictable and flexible regulatory regime where predictability will encourage investment in pollution management and flexibility will allow enterprises to adopt the most cost effective solutions;
  • a credible enforcement system to provide backbone to the regulations; and
  • targeted measures to assist enterprises to adopt cleaner production.

Enterprise Characteristics

Firms respond in different ways to the incentives provided by the government and by the market. It is possible to suggest two extreme types of firm which have different characteristics and which require different approaches.

At one end of the spectrum are enterprises which are operating in a highly differentiated market where the quality dimension of the product is important. Such firms have a focus on quality, on product improvement and on brand and company image. They typically have high quality management, are responsive to external changes and focus on revenue enhancement. The firms can be characterized as dynamic, in a literal sense, because their processes and methods have to be continually evolving if they are to maintain their position in competitive markets.

At the other end of the spectrum are firms which can be characterized as static because their processes and markets change very slowly. Included here are small firms which are price takers in a mature industry. They use traditional and relatively simple production methods, focus on cost minimization, are often under-capitalized and lack depth in management. This group includes many of the traditional polluting sectors such as electroplating and tanning.

Large State Owned Enterprises (SOEs), especially in heavy industry, can also often be characterized as static. They typically operate in monopolistic markets and management is frequently extremely bureaucratic. A classic example of failure to take advantage of CP opportunities is provided by a major state owned chemical plant in sub-Saharan Africa (see Box).

Sub-Saharan Africa: An audit at a large state-owned chemical plant, a possible candidate for privatization, identified a number of cost-effective options including one which involved recovery of incompletely processed raw material which had been dumped as waste. This one option was estimated to generate $60m in savings for an investment of about $4m -- a startling figure. However, due to a lack of internal incentives for management, the option was never taken up. It was later discovered that the same plant had a track record of poor management and that previous attempts to upgrade the operations had ended in a shambles. 


The importance of the distinction between dynamic and static firms is that the approaches required to introduce and disseminate new processes are very different. Providing information and incentives will be most effective with the first type. The second group will require a blunter approach because the management is typically much less responsive to incentives.

Encouraging The Dynamic Firms

The dynamic firms are keen to introduce environmentally sound technology where this gives them a competitive edge, either because of reduced regulatory costs or because of positioning in the marketplace. They typically have an aggressive management seeking to improve production performance and will have both the motivation and the skills to take advantage of new techniques. They will respond to opportunities for technology transfer and for management upgrading using approaches such as Total Quality Management and environmental management systems. The requirement on the government’s side is to provide incentives, information and examples (such as demonstration projects or centers of excellence).

State Owned Enterprises

Many -- though by no means all -- SOEs are static, in the sense used here. These are quite inefficient due to lack of competition and of hard budget constraints and because management priorities rarely include efficient use of resources. Such enterprises are typically significant polluters, with large opportunities for CP gains.

Restructuring or privatization of such SOEs should include audits to identify CP opportunities but experience demonstrates that new management attitudes are essential if advantage is to be taken of the potential savings.

Sector Based Approach For Other Static Industries

There are a number of (sub) sectors of industry dominated by small static firms which are highly polluting but where regulation is difficult, because of the informal nature of the firms and/or the social consequences of enforcing pollution control. CP methods have obvious attractions in dealing with such firms but the firms are very slow to respond to the apparent benefits.

The reasons for this poor response include:

  • pollution being a low priority for over-stretched management;
  • crowding out of CP opportunities by other projects with more immediate returns;
  • lack of adequately skilled and motivated personnel;
  • difficulty in obtaining finance, from internal or external sources.

In such cases, a focused intervention is required by the government, normally with the objective of solving a particular pollution problem. A number of steps in designing and implementing the intervention can be set out as follows.

Select the Sector Carefully:

The sector should be economically important (especially in terms of future development) and presenting a serious environmental problem. There must be a sufficient level of existing public concern and/or political will to make changes.

Build Consensus and Support:

Involve all the players: environment and industry ministries, industrial associations (including suppliers and sub-contractors); union or labor organizations; relevant civic and environmental groups. The attached table lists key players and what could be their roles.

It is crucial to have the private sector involved in the process in the early stages. This is necessary because of the direct impacts on industry but also because of the potential role that the private sector can play in initiating and developing process and operational changes to achieve the CP goals. It is important to aim for high level commitment from industry: it is quite clear that well-intentioned operatives at the bottom of the management system have limited influence.

It is also essential to involve the work force in the program. The distinction between the working environment and the general environment is becoming less relevant and improvement in one often bring benefits to both.

Set Clear Objectives:

In order to concentrate the efforts and also to pave the way for the important short term successes that can establish the credibility of a program, there should be a focus on a small number of specific technical objectives which are relevant, feasible and measurable.

Establish Incentives:

Appropriate external incentives must be established. It may be necessary to raise resource prices and to ensure that there is a credible threat of enforcement of disposal requirements.

Design Interventions to Assist Industry to Adjust:

The following is an initial set of interventions which have potential to achieve results.

  • research, analyze and publicize the options: in this way provide a menu of choices which can be adopted according to specific enterprise or local requirements.
  • provide technical assistance to assist enterprises in evaluating their situation: while technical information may not be sufficient for change to occur, it is a necessary condition and continued support should be given to programs aimed at improving technical capabilities and identifying opportunities.
  • establish appropriate training opportunities for management, workers and regulators. Experience with training courses which bring regulators and industry together has demonstrated major benefits.
  • improve access to financing: much more attention needs to be paid to issues of financing when examining technical options, either at the enterprise level or at the sector level. This may require training of both industry staff and financiers in the preparation and analysis of project proposals.
  • where appropriate, provide start-up funds to overcome the reluctance of traditional sources to finance CP. This would be a good example of the possibilities for a narrowly defined, limited life revolving fund which had a specific objective of achieving commercial mainstreaming of this type of finance.
  • combine CP with the introduction of EMS.

Monitor, Report and Follow-Up

The project should establish and publicize an agreed timetable for achieving measurable improvement, together with mechanisms for monitoring and reporting progress. A few simple numbers should be used as indicators of the success of the CP program and of the consequent environmental improvements

Financing Issues

Financing constraints are often mentioned as a major barrier to adopting CP, although in practice this is rarely the fundamental problem. In many cases, major reductions in pollution can be achieved with little or no cost. To implement further improvements, some investment is required.

For those projects requiring investment, the first source considered should be internal funds. If a comprehensive CP program has been prepared, it may be possible to use the cash flow from initial low cost, quick return, measures to fund later more expensive investments.

Philippines: The Metro Manila Clean Technology Initiative, funded by USTDA and implemented by the World Bank through the local MEIP office, involved Pollution Management Assessments in six sectors and Technology Matching Missions in the same sectors. These missions brought small groups of industry representatives and local regulators to the US where they met companies, regulators and university centers to discuss regulatory approaches, technology choices and management issues. This exposure to all sides of the difficult issues was very productive for the visitors and the experience was disseminated through industry seminars following return to Manila. Investment opportunities identified in the sectors are being implemented through financing from a number of sources.


Where external funding is required, the best approach is for the firm to use its normal bankers or financiers and this is usually the case for the more sophisticated and advanced firms. As with any other financing proposal, there will be a need for a thorough business plan for the introduction of cleaner production, together with a realistic forecast of the benefit stream.

In countries where the banking system is not as sophisticated or where credit is restricted, the use of environmental funds or lines of credits is frequently suggested as a mechanism for encouraging the introduction of CP. The issue of the appropriate design and functional criteria for such finance is a difficult one but some broad comments can be made:

  • establishment of a successful fund is complex, time-consuming and requires high level involvement from environmental and industry authorities;
  • any subsidy or grant component is best used to assist in identification of opportunities and preparation of detailed proposals: finance for the actual investments should be as close to commercial rates as possible to avoid distorting investment decisions;
  • the routine operation of the finance facilities can be contracted to commercial banks but experience to date has been poor, with the rate spread available and the volumes of business often insufficient to ensure serious involvement from the banks;
  • the major obstacle in finance appears not to be the lack of funds but rather the difficulty in turning engineering reports into financial proposals. This will require both assistance to enterprises in learning how to prepare proposals and also training of bankers to be more receptive to requests for environmental funding.
  • care must be taken to avoid availability of finance attracting relatively high cost CP proposals and distracting the enterprise management from more mundane but more cost-effective housekeeping and management changes;
    in many cases, the initial sums required are often very small, perhaps of the order of a few thousand dollars

Very simple procedures must apply to such loans or else the transaction costs become prohibitive. There is a need to develop mechanisms which will allow the financiers to accept greater risk with such small loans, perhaps by unusual endorsement procedures or by developing a portfolio approach which will absorb the inevitable non-performing loans.

Broader Context

It has already been noted that CP is only one element of improving industrial environmental performance. On the other hand, developing and implementing a CP program can be used very effectively to develop environmental awareness and to build the necessary skills to undertake a wider range of environmental improvements. For this reason, a government strategy for CP should be more ambitious than simply achieving a minimum number of CP projects. At the very least, a CP campaign can be used as a starting point for identifying and monitoring environmental problems, for developing the technical analysis and the business plans required, and for building confidence between government, enterprises and the bankers.

Governments’ Role in Promotion

The development of capability in industrial management at a national level should be supported, together with the capacity of the government to influence the direction of technology cooperation. CP is essentially a sub-set of good management practice and perhaps is best supported under this broader context.

Bank Involvement

The Bank can support the objectives of cleaner production in a number of ways:

  • It is essential to continue to stress the need to achieve real economic levels of resource prices, including fees and charges;
  • good practices in ecoefficiency, in its many aspects, should be required in projects funded directly by the Bank;
    the development of capability in industrial management at a national level should be supported, together with the capacity of the government to influence the direction of technology cooperation;
  • assistance might be provided to specific local or national CP initiatives and organizations, through their use as specialist consultants or by assisting such organizations to become self-supporting;
  • the Bank may have a particular role in assisting in the increased productivity and environmental performance of the small scale and informal sectors, where adoption of improved methods is often very uneven and where the social issues are especially important;
  • the Bank can provide funding for CP projects but its greatest contribution might be in the design of such funds and environmental awareness raising and training for the commercial banks and other financial intermediaries;
    information exchange and networking is critical -- the Bank may help but it is not obvious that the Bank should take the lead.

Contacts

There are a wide range of activities underway and it is not possible to provide a comprehensive. However, much of the basic work has been carried out by international and bilateral agencies and these should be the first point of reference for further information.

Some of the main programs underway include:

A joint UNEP/UNIDO program is setting up National Cleaner Production Centers (NCPC) to provide a focal point for CP efforts. Centers are being established in Mexico, Zimbabwe, Tanzania, India, Indonesia, China and the Czech and Slovak Republics, with several others under negotiation.
The EP3 Program, funded by USAID, has set up local operations providing technical assistance and carrying out audits in Chile, Egypt, Tunisia with other initiatives proposed (for example, in Bolivia).
Bilateral donors are financing a range of CP efforts including waste minimization audits and provision of TA. For example the Norwegian and US Government are supporting a major program in Central Europe.
Efforts under the Basel Convention on Control of Transboundary Movement of Hazardous Wastes include establishing regional centers in Central America which would provide advice, particularly related to waste minimization.
The UNEP Industry and Environment office in Paris has been the leader in the promotion of CP and publishes a Cleaner Production newsletter and a range of related documents. The address is:
UNEP IE,
Tour Mirabeau,

39-43 quai Andre Citroen,

75739 Paris CEDEX 15, France.

The World Bank work on CP in Asia has been coordinated through the CP unit in the Asia Technical Department (ASTEN). General advice on the implementation of CP can be obtained from the Environment Department through the Technology and Pollution Policy Unit (ENVPE).

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