Abstract
This paper identifies inadequate effort to use market-based and private sector-led approaches, among others, as a main reason for limited progress in arresting continuing environmental degradation in the Asia and Pacific region. Citing examples, the paper shows that markets can be created for ecosystem protection and provision of ecosystem services under innovative regulatory mechanisms and that the use of market-based approaches can reduce the dependence on unsustainable financing for environmental management. The paper also briefly discusses the role of governments, other stakeholders, and development assistance in creating the policy and institutional framework conducive for introducing private sector-led approaches to environmental management.
Notes
An earlier version of this paper was published as an Economics and Research Department working paper at the Asian Development Bank (ADB). The opinions reflected in this paper do not represent the views or policies of the ADB.
The Millennium Declaration committed countries across the globe to meet eight Millennium Development Goals. Goal 7 aims to ensure ‘environmental sustainability’.
Other initiatives include the Ministerial Conference on Environment and Development in Asia and the Pacific and the consequent Regional Action Program for Environmentally Sound Sustainable Development; the Kitakyushu Initiative for Clean Development; and the Regional Platform for Sustainable Development in Asia and the Pacific in Phnom Penh.
Safeguard policies are aimed at preventing, minimizing or mitigating the environmental impacts of development projects financed by the international development agencies.
Market failure refers to all the situations where private decisions result in outcomes that fail to maximize the welfare that society could derive from its resources. The conventional market failures that cause environmental problems include externalities, public goods, and lack of (or poorly-defined) property rights. The information failures and new-generation market failures such as cost discovery and coordination failures also contribute to environmental degradation.
For instance, Pakistan has relied mostly on command-and-control environmental policies but these have often failed, as pointed out by Faruqee (1997), because the regulatory institutions lack the resources to monitor compliance. General disenchantment with regulation and government intervention in the protection of the environment is not limited to Asia and the Pacific. Collier (1998) notes that the European Union's regulatory activity in this field and the effectiveness of command-and-control environmental measures have come under scrutiny and increasing criticism.
Regional GDP figures from the World Bank's World Development Indicators database, together with the Stern estimates of % GDP losses, were used to estimate the figures.
This research has been subjected to some criticism. Despite the shortcomings in the methodology, the figures are roughly indicative of the services provided by nature.
These numbers should be read with caution because the estimates were saddled with a large number of assumptions. Although the absolute values may change if they are further refined, the general policy directions suggested by these numbers will not change.
Cleaner production and environmental goods and services can be overlapping and the market size of these two should be viewed with caution.
Annex 1 Parties include the industrialized countries that were members of the OECD in 1992 plus countries with economies in transition (the EIT Parties), including the Russian Federation, the Baltic States, and several Central and Eastern European States.
CDM benefits sometimes make non-viable projects economically viable. This leads to attracting additional investment to implement these projects. Without CDM benefits, these investments would not be realized.
