Promotion of cleaner production investments: international experience

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<ul><li><p>Journal of Cleaner Production 11 (2003)</p><p>Promotion of cleaner production investments: internationalexperience</p><p>J.K. Staniskis , Z. StasiskieneThe Institute of Environmental Engineering, Kaunas University of Technology, K. Donelaicio 20, LT-3000 Kaunas, Lithuania</p><p>Received 27 August 2001; accepted 7 July 2002</p><p>Abstract</p><p>Cleaner Production (CP) should be an essential part of any comprehensive environmental management system at an enterpriseor national level. In many cases the adoption of CP improvements can reduce or even eliminate the need for end-of-pipe investmentsand therefore can have both environmental and economic benefits. Experience shows, that often companies having identified cost-effective and technically-feasible CP options, may still not be able to make necessary CP investment to realise the financial benefitsand environmental advantages. Financing of CP projects varies among countries and types of the projects. Domestic and internationalefforts to strengthen environmental financing still face a number of serious obstacles, many of which are related to profoundeconomic, political and social problems. The detailed evaluation of revolving fund establishment possibilities based on personalexperience of the authors in Lithuania, Zimbabwe and Vietnam is presented in the paper. 2002 Elsevier Science Ltd. All rights reserved.</p><p>1. Introduction</p><p>Over the last two decades, the environmental issueshave exerted an increasing influence on economic valuesand protection of environment has become an importantgoal for governments, industries, social groups and indi-viduals.</p><p>Cleaner Production (CP) is recognised and provenstrategy for improving efficient use of natural resourcesand minimising waste, pollution and risks at the sourcewhere they are generated. CP is an essential part of anycomprehensive environmental management system at anenterprise or national level. Significant reductions in pol-lution loads can often be obtained at a little cost andefficient use of resources and reduction of pollution inindustrial production are clearly preferable to reliance onend-of-pipe treatment. In many cases, adoption of CPimprovements can reduce or even eliminate need forend-of-pipe investments. Therefore can CP is associatedwith both environmental and economic benefits. Despiteits conceptual simplicity it took until late 1980, for CP</p><p> Corresponding author. Tel.: +370-7-300760/300763; fax: +370-7-209372.</p><p>E-mail addresses: (J.K. Staniskis); (Z. Stasiskiene).</p><p>0959-6526/03/$ - see front matter 2002 Elsevier Science Ltd. All rights reserved.doi:10.1016/S0959-6526(02)00104-X</p><p>to become recognised as a valuable approach for achiev-ing dual objectives of environmental improvement andindustrial development. Cleaner Production is beingincreasingly recognised as an essential route towardssustainable development.</p><p>In 1993, the Task Force of Environmental Action Pro-gramme (EAP) was established by the EnvironmentalMinisters to facilitate implementation of EAP in Centraland Eastern Europe. Potential CP opportunities andbenefits seemed particularly large in this region. There-fore, in 1995, EAP Task Force established the objectiveof achieving a basic capacity level (BCL) in CleanerProduction in Central and Eastern European countries by1998. BCL was defined as follows:</p><p>an active core of CP advisors and trainers;a set of demonstration projects;one or more functioning CP centres;training materials available in local language; andCP principles included in university curricula.</p><p>A very important assumption of the BCL concept isthat economic approach for CP cannot be effective untilthe basic capacity level is achieved, because of the fol-lowing reasons:</p></li><li><p>620 J.K. Staniskis, Z. Stasiskiene / Journal of Cleaner Production 11 (2003) 619628</p><p>little demand from industry for CP implementation;andvery little assistance available from national CPexperts.</p><p>Experience shows, that often companies having ident-ified costeffective and technically feasible CP options,may still not be able to make necessary CP investment torealise financial benefits and environmental advantages.Financing of CP projects varies among countries andtype of the projects. In some countries they have beenfinanced by enterprises with support from environmentalfunds, in othercompanies invest their own sources,which varied from 20 to 100%, depending on the specificproject, at the thirdCP developed projects are usuallyfinanced by industry or other sources available to com-panies.</p><p>Investments in CP can have attractive economic bene-fits due to reduction of input costs for materials, energyand water and reduced expenditures related to wastetreatment and disposal. Several international organis-ations, banks and donors have initiated and implementedprojects to facilitate introduction of CP investments. Butthese domestic and international efforts to strengthenenvironmental financing still face a number of seriousobstacles, many of which are related to profound econ-omic, political and social problems. The obstacles tofinance CP investments could be described under twomajor groups:</p><p> On the demand side, enterprises have insufficientexperience in preparing real CP project, which is sys-tematically evaluated from environmental, economi-cal and technical point of view and to prepare motiv-ating applications for the project financing. Lack ofknowledge in CP auditing and assessment, evaluatingfinancial aspects of the project efficiency and invest-ments often blocks implementation of CP projects.Even when capital exists, CP is one among a rangeof investment options.</p><p> On the supply side, there are obstacles in capital mar-kets: banks are weak in environmental due diligence,there is a lack of systematic environmental expertiseand risk assessment and loan rates are unattractive toenterprises. Additionally, costly administrativerequirements result in international financial insti-tutions establishing loan thresholds, which are some-times significantly higher than costs of CP invest-ments; it is difficult to receive financing for smallprojects. Generally, there is little experience withimplementation of economically viable CP projects.</p><p>Furthermore, an effective financing system requiresenvironmental strategies with clear goals and priorities.There is a need for training and education in preventiveenvironmental management and financing, especially at</p><p>local level. In many countries, capacity for preparingfinancially and environmentally sound projects shouldbe increased.</p><p>2. Evaluation of cleaner production financingpossibilities</p><p>A detailed evaluation of revolving fund establishmentpossibilities based on personal experience of the authorsin Lithuania, Zimbabwe and Vietnam is presented inthis section.</p><p>2.1. Lithuania</p><p>Until 1998, environmental progress in Lithuania hasmostly relied on a philosophy of pollution control.Efforts to reduce industrial pollution mostly werefocused on developing environmental institutions andlegal frameworks largely by establishing command andcontrol regulations. However, formal regulation by itselfhas not proven to be very effective in reducing industrialpollution. Therefore, there was a need to focus on tools,which could make industry to take action and stimulatesimproving environmental performance.</p><p>In Lithuania, CP methodology was introduced in1993. Twelve CP programmes (three CP programmeswere integrated with implementation of EnvironmentalManagement Systems (EMS)) have been implementedin different economic sectors. 119 companies, rep-resenting 15 branches of industry, participated there(Fig. 1). The projects developed in CP programmes,covered all main environmental areas: reduction of waterpollution, emissions to the atmosphere, solid waste, andeffective use of water and energy resources [2].</p><p>The most successful programme was LithuanianNorwegian CP training programme, where NorwegianCP methodology developed in collaboration with WorldCleaner Production Society [12] was efficiently adaptedto the needs of Lithuanian industry. The programme</p><p>Fig. 1. Participation of Lithuanian industrial companies in CP pro-grammes by industrial branches.</p></li><li><p>621J.K. Staniskis, Z. Stasiskiene / Journal of Cleaner Production 11 (2003) 619628</p><p>started in 1996. Until 2001, five schools were perfor-med. 56 Lithuanian industrial companies participated inthe programme and 626 Cleaner Production proposals(269 of them good housekeeping measures with noor minor investments) have been generated. Companiesimplemented 126 of the proposals during the programmeusing their own funds. Economical results show thataverage pay-back period of all CP projects developedduring the programme is shorter than 2 years.</p><p>Summaries of the projects developed during the pro-gramme presented to Lithuanian Ministry of Environ-ment as case studies and to promote wider applicationof CP concept in the country. In 1998, the Pollution Pre-vention Centre (PPC) at the Institute of EnvironmentalEngineering (APINI) and Association of EngineeringEcology of Confederation of Lithuanian Industrialistsdeveloped National Action programme for the Develop-ment of Cleaner Production and Ecological Industry.</p><p>Experience shows that use of CP must be promotedin different levels: company, region, national, etc. At theregional level this means conducting more strategicenvironmental assessments: analysis of CP policyenvironmental implication and programme impact forthe given region. Therefore the Fifth LithuanianNorwegian school were conducted using regional prin-ciples with an attempt to evaluate impact of CP conceptimplementation on improvement of environmental situ-ation and Industrial Environmental Compliance culturedevelopment in Klaipeda region. Regional CP develop-ment created incentives for development of industrialmetabolism in Lithuania helping minimize negativeimpact on environment and improving competitivenessof Lithuanian companies; also effectively and in econ-omic profitable way mitigates or even eliminates actuallocal environmental problems [9,10].</p><p>Training on financial engineering was performed dur-ing the LithuanianNorwegian CP programme. The maingoals of this activity were the following:</p><p>to develop a sense for distributional implications ofdifferent financing choices,observe ways in which cleaner production can providealternatives and supplements to financing,to develop a greater appreciation for benefits ofregional and other inter-local approaches,to make economic analysis of CP investments usinga range of techniques, including investment appraisal,investment analysis (pay-back period, present value,internal rate of return), records of past economic per-formance (balance sheet, loss and profit account, manu-facturing accounts) and ratio analysis (Du Pont economi-cal model) [8].</p><p>Environmental costs have been rising steadily inLithuania in the last decade. Initially, these costs did notseem to have a major impact on activities of companies.</p><p>Therefore, most companies ignored many of the direct,indirect or less tangible environmental costs in theirinvestment decisions.</p><p>Additionally, project developers were trained in busi-ness planning and how to develop economically feasibleCP investment projects. 117 experienced CP expertshave been awarded with International CP Expert Cer-tificates [1].</p><p>Financing constrains are often mentioned as majorbarrier for wider application of CP in Lithuania andexperience shows that in small, traditional business orinflexible state owned enterprises it is fundamental prob-lem for CP project implementation [2].</p><p>To solve this problem Nordic Environment FinanceCorporation (NEFCO) established a special RevolvingFund to finance CP investments. The fund has consider-able catalytic effects for promotion of CP financing.NEFCO revolving facility for cleaner production invest-ments started activities in Lithuania at the beginning of1998. The main objective to the facility is to finance onfavourable terms implementation of high-priority cle-aner production investments with rapid payback thatyield environmental and economical benefits (winwinprojects). The investments should be commerciallyviable with an identifiable and secure stream of earningsthat is to be used to repay the loan. The basis for provid-ing a loan is the cash flow of CP investment and abilityof the enterprise to repay the loan over agreed period.</p><p>It is commonly accepted that establishment of suchtype of special purpose funds for CP investmentsencompass most of the activities currently undertaken byor with the support of, international community toenhance CP investments in developing countries.Although these strategies are commonly accepted, itshould be also pointed out that effectiveness of thesestrategies still need to be improved, in particular on thebasis of evaluation of their practical application in vari-ous projects in different developing countries. It shouldbe stressed that NEFCO revolving facility is a uniqueand very successfully operating credit line in Lithuania,which already approved investments for 30 CP projectsin 26 Lithuanian companies.</p><p>Environmental appraisal of CP project is focussed onthe following considerations:</p><p>location of the project with respect to populationcentres, sensitive local land uses, and existing levels andsources of pollution;pollution category (air, surface water, groundwater,hazardous waste, and other);scale of the pollution impact;effect associated with the pollution including possibletoxicity to human health, possible impact on climatechange, and damage to natural ecosystems and habitat.</p><p>Technical appraisal of the project is focused on inter-</p></li><li><p>622 J.K. Staniskis, Z. Stasiskiene / Journal of Cleaner Production 11 (2003) 619628</p><p>alia, ensuring that the project is technically feasible,technical solution is cost effective, and that no experi-mental technologies are being applied; confirming thatenvironmental and economic benefits are achievable;establishing that time scales are reasonable; and con-firming that procurement approach is acceptable and thatprice estimates are realistic [6,7].</p><p>The Pollution Prevention Centre at (APINI) plays acrucial role in CP projects identification, evaluation,implementation and reporting:</p><p>prepares a loan application on behalf of the applicant,including assistance in calculation of costs savings andenvironmental benefits;assists NEFCO in communication with the applicantand preparation of loan documentation, project descrip-tion and reporting requirements;prepares of project progress and completion reports tobe presented as a part of borrowers disbursementrequest;assists in project monitoring and supervision includingsupervision of procurement and project implementationprogress as compare to budgets and implementation planas well as project objectives.</p><p>In May 1998March 2001, CP projects from 29 Lithu-anian companies have been presented for NEFCO evalu-ation. The project covered the following sectors:</p><p>Electronic-electromecha...</p></li></ul>


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