western support for cleaner production in central and eastern european industry

Business Sfrafegy and the Environment, Vol. 4, 173-179 (1995)

WESTERN SUPPORT FOR CLEANER PRODUCTION IN CENTRAL AND EASTERN EUROPEAN INDUSTRY Hikan Rodhe and Joseph Strahl’, International Institute for Industrial Environmental Economics, Lund University, Sweden

This paper advocates a greater emphasis on preventive environmental measures when supporting CEE industry. Experi- ence from projects carried out so far show that cleaner production deserves a high priority. The implementation of good housekeeping measures, at no or low cost, have brought about reductions of pollution and resource use in the order of 15- 25%, thereby also improving production efficiency. Despite the cost effectiveness and other apparent advantages of a cleaner production strategy the Western actors are slow to grasp this opportunity. CEE industry, on the other hand, has unrealistic hopes for direct financial support for new technology and are less interested in gradual improvements of their process efficiency by a combination of technical and managerial measures. The introduction of preventive environmental strategies at an early stage of the reconstruction of CEE industry could be seen as a competitive advantage in the long run.

CCC 0964-4733/95/0401734)7 0 1995 by John Wiley & Sons, Ltd and ERP Environment.

DEFINING SOME TERMS

n this paper we discuss issues concerning the support for waste minimisation in Central and I Eastern Europe (CEE). The terms ’waste mini-

misation’ or ’cleaner production’ are used, depend- ing on the circumstances.

The UNEP Cleaner Production Programme defi- nition of cleaner production is ’. . .the continuous application of an integrated preventive environmental strategy to processes and products to reduce risks to humans and the environment.’ This includes ’. . . conserving raw materials and energy, eliminating toxic raw materials, and reducing the quantity and toxicity of all emissions and wastes before they leave the production process’, and a strategy which ‘. . . focuses on reducing impacts along the entire life cycle of the product, from raw material extraction to the ultimate disposal of the product’. According to UNEP, ’Cleaner production is achieved by applying know-how, by improving technology, and/ or by changing attitudes.’

Waste minimisation can be considered to be a subset of cleaner production, since the concept usually only refers to changes in the production process and not, for example, green product design. However, in this paper, which covers the situation in CEE, we will consider the terms to be essentially identical.

COMPARISON OF THREE DIFFERENT STRATEGIES FOR GREENING OF INDUSTRY IN CEE

There are a number of viewpoints as to how best to

The International Institute for Industrial Environmental Eco- nomics, Lund University, Sweden, Box 196, S-221 00 Lund, Sweden. Taken from an untitled brochure issued by the UNEP Cleaner

Production Prgramme.

BUSINESS STRATEGY AND THE ENVIRONMENT

CLEANER PRODUCTION IN CEE INDUSTRY

reindustrialise CEE industry and societies along more market-oriented and greener lines. Such views reflect the outlook and background of the actors in this process as well as various vested interests. The actors involved include 'local' companies (either owned locally or by the state), large Western companies with interests in CEE, university entrepreneurs and consultants in the West as well as university people in CEE, local (environmental) authorities, and national governments (both Western and Eastern). Below we will discuss different perspectives.

The Multinationals' View

and is often mentioned with regard to how industry can limit its liability for industrial and environmental protection mistakes made during the Soviet era. The ideas of waste minimisation and cleaner production as forming part of the leitmotiv of how to green CEE industry are essentially absent.

The BCSD prescription of enhancing trade between countries and changing the legal structures in the economies in transition, as sketched out in the report, will not necessarily lead to greening. The BCSD recommendations do not describe the socie- tal, economic and regulatory framework which should be in place to exert pressure for industry to adopt cleaner production.

The perspectives advanced by the Business Council for Sustainable Development (BCSD) are indicative of the general point of view of many multinationals. The BCSD finds, in 'Accelerating Sustainable Development in Central and Eastern Europe' ('draft document', 1993) that foreign direct investment (FDI) has a crucial role in the development of CEE. FDI provides capital, technology, management skills, improved efficiency and environmental protection standards which are otherwise unavail- able or difficult to generate.

The BCSD report considers a number of struc- tural and attitudinal problems or general deficien- cies which arise when Western firms seek to operate in CEE. Inexperienced, indifferent, or poor management and lack of knowledge of market-oriented business methods, together with overstaffing were found. In addition, the report points to a general unwillingness to adapt, improvise and initiate remedial action when unforeseen problems arise, or to take responsibility. The report reaches the following conclusions:

0 Western businesses need to develop more ways of training managers in the region.

0 CEE governments need to protect investors against pollution liability originating during the Soviet era.

0 Western governments need to grant CEE expor- ters greater access to Western markets.

The report drew primarily on the experiences and views of BCSD members, examined the difficulties of doing business in CEE, and identified how the Western business community could help CEE transformation. Therefore, the document is actually part of the discussions within the Western business community about how to proceed with investment in CEE, and secondarily is an instrument to lobby for certain changes in Western government policy as well as legislation in CEE. The environment is, at best, a tertiary issue for the BCSD in this document

The Views of Those on the Receiving End

A different viewpoint is typically that advanced by many plant managers and other staff in local companies and often by other actors in the receiving country. The view is that the problems can be solved best through the direct introduction of Western technology and financing. There is some sort of technology fetish which does not see that the existing shortcomings of the technology in place are the result of choices made during the past decades, conditioned by central planning and, by Western standards, inefficient management. Those holding this view tend to see housekeeping measures as not very important and consequently do not consider these worthy of consideration or as 'real' solutions to 'real' problems (Chodak, 1994). Box 1 provides a concrete example of this technical fix mentality.

When asked where the financial resources are to come from to cover the costs of the perceived 'real' technical solutions, the answer is invariably and obviously that long-term soft loans and outright 'gifts' from the west are the solution. Why do these social actors have these views?

The individual company during Soviet rule or influence relied on the state for the sources of major new investments. The struggle was to meet quotas and lobby for new equipment. The role of the equivalent to 'in-house' R&D in the Soviet era was downplayed at the national level or not understood in the company. Thus the tradition of an in-house development department within CEE firms was non-existent or weak.

A third difficulty is identical to that found in any production facility being exposed to new ideas: such as ideas about waste minimisation and cleaner production. With the pressure for change, some managers and experts in the firm may adopt a new technology approach as the solution, which does not call into question how production is organised or managed. Asking deeper questions about production organisation, housekeeping and mainte-

174 BUSINESS STRATEGY AND THE ENVIRONMENT

H. RODHE AND J. STRAHL

nance routines may question the competence of senior and mid-level production management to varying degrees. The newly acquired technology may become the domain of the management and conservative experts and, if it fits well enough within the existing routines, may reinforce the power base and organisation of the past. One can imagine cases where the expensive new machine will be run purposely inefficiently, but perhaps more efficiently than the old equipment, to accom- modate existing routines. (This reasoning is inspired by, among others, a number of articles in MacKenzie et al., 1985, and Bijker et al., 1987.)

Common Shortcomings

There is not enough money or political will for a repeat of a Marshall Plan. Additionally, for so much money to become available would require that the money is well spent and currently the receiving countries’ infrastructure is usually not strong enough to provide such a guarantee. Society in CEE has inherited a weak entrepreneurial spirit. Recognising the often poorly - and not seldom undemocratically - functioning systems for evaluation of foreign aid in the Eastern European countries, it is surprising to find that donor countries place such heavy reliance on the priorities set by the receiving countries.

Despite the suggestion by multinationals that, with the right regulations, they can carry out much of the transformation, even if as much as one-third of industry were improved or otherwise resusci- tated, enormous problems would remain. While the BCSD is probably correct with regard to the crucial role that FDI could play, it is unclear what the long- term effect will be. For FDI to have an important role in the greening of CEE industry, small and medium sized firms must become suppliers to the multinationals and their subsidiaries and these same multinationals must begin to make the same sorts of environmental demands on their CEE suppliers as they do in the various countries of the OECD. Otherwise, much of the economy will be neither market-oriented nor environmentally aware.

Experience suggests that, when investments are made or technology is transferred, the outcome seldom permits the local facility even to compete with Western facilities (Kruszewska, 1993). The multinationals invest in only certain types of facilities and are often unwilling to transfer com- plete modern technological packages until somewhat later, after the facility has proved itself. Therefore, the hope of local companies that gifts of the most modern technology will arrive are likely to be unfulfilled, even if the money were available.

Another shortcoming is the insdequacy associated with the traditional end-of-pipe and clean-up approach to the management of environmental issues and pollution. Most Western consultants and engineering firms, as well as many of those on the receiving end in CEE, often seek to use the clean-up and traditional environmental protection ways of solving pollution in the hope of managing environmental burdens. Neither of the approaches advanced by the multinationals or the receivers contains elements which make use of the greater freedom of action which CEE countries possess with regard to environmental protection and physical and human resource infrastructure - probably one of the very few advantages these countries have when compared with Western countries. Consequently, with substantial Western government support out of the question, and multinationals only transforming select portions of the CEE economies, it is clear that alternative methods must be sought to complement multinational purchases and joint ventures, as well as the limited funds made available for direct support for equipment purchase.

An Alternative: Change Agents Activating Good Housekeeping Potential

An alternative focus is a bottom-up approach based on the widespread introduction of material and energy housekeeping measures in CEE industry. This will require efforts to raise awareness and motivation among those who work in production. Good housekeeping involves both managerial and technical issues.

Implementation of good housekeeping measures will have at least three important impacts. First, production efficiency is raised, resulting in both environmental and economical benefits. The environmental benefits stem from reduced raw material and energy consumption, reduced emissions to air and water and less solid waste. Economic savings will correspond to these environmental benefits, but may lead to lower costs when installing or improving treatment facilities. There- fore, good housekeeping is profitable.

Second, the adoption of a good housekeeping strategy to improve production efficiency, together with the subsequent realisation of practical measures, demonstrates that the company is capable of acting in a rational way - out of a market economy perspective - making the most out of available resources. The practice of good housekeeping may impress development organisations or companies looking for joint ventures.

Third, it introduces the company to an approach

BUSINESS STRATEGY AND THE ENVIRONMENT 175


towards managing environmental and production problems by taking action at the source, as opposed to utilising end-of-pipe, add-on technology. This strategy is preferable from both an environmental and an economical point of view when tackling environmental problems. The difficulties of changing policies, institutions and physical infrastructure obstruct the understanding and practice of preventive environmental strategies in OECD countries. Helping to put CEE industry and society on the right track from the start is the beginning of a market advantage compared to Western industry. An example of this potential competitive advantage appears in Box 1.

Box 1. Tannery industry example

An illustrative example presented itself when, together with representatives from a Lithuanian tannery, we visited tanneries in Sweden. The Swedish tanneries were con- nected to a relatively advanced wastewater treatment plant, which made a strong and lasting impression on the Eastern European representatives. Because of the high treatment cost (as high as $7 US/m2), one of the tanneries was seeking to implement a process-integrated solution, with internal recycling of water streams, in order to greatly reduce the amounts of wastewater generated during the tanning processes. The representatives of the Swedish tanneries commented that if Lithuanian tanneries could be reconstructed today with such an approach, the competition from them would be overwhelming. However, the Eastern European company representatives clearly focused their interest on the treatment plant and not on the potential for enhanced process efficiency through internal water reuse.

WASTE MINIMISATION IN CEE: A REVIEW OF PROJECTS AND PROGRAMMES

The experience gained from a number of waste minimisation programmes conducted in CEE during the past 3 4 years points to the presence of a large potential for improving production - and thereby environmental - efficiency (Lindqvist and Rohde, 1994). Generally, implementation of good housekeeping measures, at no or very low cost, have brought about reductions of pollution and resource use on the order of 1525%. These

reductions can reach 30-50% when combined with relatively low cost investments having a payback period of 1-2 years (Nedenes, 1994). Consequently, a substantial part of the environmental impact from industry can be reduced by implementing no- and low-cost measures which are justifiable in companies operating in a market economy (i.e. the measures provide a good rate of return).

The question is how to turn this good housekeeping potential into practice. To date the approaches used vary somewhat in focus and methodology. Some of the most important initiatives are the Norwegian Cleaner Production Pro- gramme, coordinated by the Norwegian Society of Chartered Engineers in cooperation with local counterparts in CEE, and the Waste Minimisation Programme run by the American-based World Environment Center (WEC) which has demonstration projects in nine CEE countries.

The first national programme coordinated from Norway began in Poland in 1991. Later national programmes started in the Czech and Slovak Republics, and recently a programme has begun in Russia. The Norwegian approach has a clear focus on training. The first training programme is led by Norwegian lecturers and advisors. Local experts who have been trained in earlier programmes increasingly take over the responsibility for running the training programmes and after three to four iterations the entire training and learning process is carried out by local experts in the local language.

The programme run by WEC initially seeks to demonstrate the benefits of waste minimisation by starting two demonstration projects in each country. Some funds are made available for the purchase of process or monitoring equipment ($10,000- 25,000 US) for each company. WEC personnel and experts visit several times during the project. The WEC waste minimisation programme continues with a second phase with additional enterprises of the same industrial sector. This phase is intended to primarily be an effort by the companies, with less assistance from WEC advisors.

The Norwegian and WEC programmes are by far those with the greatest geographical spread in CEE. A difference between the WEC and Norwegan programmes is the greater degree of involvement and responsibility of the company management in the Norwegian programme. In the WEC case, the management only oversees the waste minimisation work and participates in the implementation in the company, whereas the Norwegians leave project implementation entirely in the hands of the company (Chodak, 1994).

There are also a number of waste minimisation projects and smaller programmes scattered



throughout CEE, managed either by university departments or environmental consultants but most are comparatively small and will not be considered f ~ r t h e r . ~

THE EXPERIENCES OF THE CHANGE AGENTS

It has been demonstrated that it is possible to achieve good results in raising competence among individuals, in part by conducting case studies in industry which often reveal impressive pollution prevention potentials. The next step, realising continuous work by the individual or the company, is not as easy.

A major problem facing authorities, companies and individuals is the general pressure from a number of actors to solve environmental problems with 'traditional' end-of-pipe and waste-management techniques. This pressure comes from normal contacts inside the country, short-sighted company culture and the related perceived need for quick solutions, and from many of the consultants and others from OECD countries who seek to sell end- of-pipe techniques. An additional pressure results from a number of Western companies which are attempting to make even greater profits on their initial machine investments in the West by selling now-outdated technology to industry in CEE (Kruszewska, 1994). Alternatively, this technology is installed in the production facilities of the joint ventures. To get cleaner production operational in CEE, a more comprehensive approach is needed, and a permanent actor or change agent advocating cleaner production is needed.

Good housekeeping measures deserve further attention. They are, in Western eyes, especially interesting since, as discussed above, they provide a very cost-effective way of dealing with environmental and production efficiency issues in CEE industry. Tebodin Consultants concluded from their waste minimisation efforts in the Ukraine that good housekeeping measures are of highest priority in the short term when managing environmental issues in industry. For mid- and long-term measures the importance of good housekeeping is also emphasised as most important, since failing to implement such measures will deter foreign investors (Tebodin Consultants & Engineers, 1994). In other words, carrying out housekeeping measures is a start for what might be a positive development

Denmark and The Netherlands have programmes and methodology of interest. For an overview of the various programmes see Lindhqvist and Rodhe (1994). A more in-depth discussion concerning a number of these programmes and projects can be found in several articles in UNEP (1994).

for a CEE company: it will attract capital and introduce a new way of thinking.

However, for many actors in CEE countries but especially the industries themselves, housekeeping measures are much less attractive. This attitude, as previously discussed, will probably have several underlying reasons, including a fixation on technical solutions by production managers, low status associated with such measures, difficulties in motivating the staff (crucial for good housekeeping), an embarrassment that these rather simple measures had not been thought of earlier, and a general failure to recognise their importance (Rodhe and Lindhqvist, 1993; Lindhqvist and Rodhe, 1994).

Financing investments is troublesome in companies where money for investments used to come from the state. Housekeeping measures generally cost nothing or only small sums of money, for example for monitoring equipment. If the loan procedure could allow for reinvestments, the cash flow generated by the options first implemented might be used for the implementation of the next batch of waste minimisation options. In this way, a small loan could trigger the implementation of a series of waste minimisation options (van Berkel, 1994).

Box 2. Local authority involvement in cleaner production in Tarnowskie G6ry, Poland

In the city of Tarnowskie Gory in Poland, a cleaner production training school was set up in the framework of the Norwegian Cleaner Production Programme. Local environmental authorities took part in the training together with most companies. Results indicate reductions in pollution and financial savings in both industry and the community. A steering group has been set up in the town to stimulate the use of cleaner production measures in industry. Activities include gathering industry twice a year to report on progress with cleaner production work in the companies and to share information. This work is very much appreciated by industry and authorities and has led to something of a partnership between the two. Furthermore, there is growing interest in this sort of arrangement in this part of Poland

Local authorities have an important role to play in the introduction of waste minimisation practices in CEE. They represent a force that can exert pressure on companies for continuous efforts for better eco-efficiency. There are examples (see Box 2)



where working together with industry on a common goal - waste minimisation - has helped create a constructive dialogue between the local environmental authorities and industry, something which was absent in the past.

A problem with a change-agent approach as often practised thus far is the emphasis on Western experts. In general in the largest efforts, the change agent primarily interacts with a local partner and industry in a city of a particular small region. In the future a greater role of additional actors should be sought. Local environmental authorities could keep up pressure for cleaner production during the periods of time between the visits by the Western consultants and after the formal project conclusion. Branch organisations could also play a role in information gathering and dissemination.

PRIORITIES FOR FURTHER ACTION: A CONCLUDING DISCUSSION

The recommendations in Box 3 should form the basis of what could be done in the future. They were adopted by 30 participants from 14 countries, both Eastern and Western, representing international organisations, national ministries, industry, con- sultancies, environmental organisations and universities, at a seminar on the introduction of waste minimisation in Eastern Europe.

The recommendation of raising additional funds is based on the observation that to date at most $10 million US have been used by Western donor countries for waste minimisation projects in CEE. Efforts in the field of waste minimisation are, despite the large needs and good results, still carried out on a small scale in a scattered number of instances.

Of course the help to self-help and primarily housekeeping approach promoted by change agents is not a panacea. Instead the role of change agents is an important element in the transforma- tional process toward the greening of industry in CEE together with changes in environmental and industrial legislation, as well as the business environment and management skills in industry. Potentially, change agents can supply the seed of a new preventive business ethic in CEE and inform managers (and local environmental authorities) of alternatives to end-of-pipe pollution and waste treatment methods. The goal of such programmes and projects should be to make local industry more competitive and less burdensome to the environment through a series of changes in production methods and equipment. The introduction of good housekeeping and a preventive environmental protection strategy on the part of change agents

therefore compliments the greater role which a number of multinationals now have in the region through their subsidiaries and participation in joint ventures.

Box 3. Recommendations adopted at the UNEP seminar in Kaunas, Lithuania, September 1994

1. Governments should raise more funds to establish waste minimisation programmes in CEE countries.

2. Programmes training industrialists and local experts in performing systematic waste minimisation opportunity assess- ments should be supported.

3. Investments in high-cost, end-of-pipe cleaning facilities in companies and municipalities should not be supported without prior waste minimisation programmes being performed.

4. Governmental authorities in CEE should stop subsidising energy, raw materials and waste disposal and instead support waste minimisation activities.

5. Funds must be made available for financing low-cost waste-minimising investments by industry.

6 . Establish waste-minimisation centres to disseminate information and establish examples.

7. Development of industry-specific cleaner production indicators to enable bench- marking.

8. Cooperation and improved exchange of experiences between programmes.

Building local competence is crucial, whether looking at the issue from an international aid perspective or from a local point of view. The subject should be incorporated into university curricula. Tasks for trained experts could include auditing to guarantee that relevant waste minimisation measures have been implemented before further financing is granted. This relates to another important matter, not to go forward with end-of-pipe investments before ensuring that resource use and production processes are managed as efficiently as possible. By analogy, new energy production units should not be supported prior to ensuring that energy is used as efficiently as possible.

One way to promote such continuous improvements is to establish centres for active dissemination of information, coordination of efforts, arranging training courses, technical support, etc. Both the WEC and Norwegian programmes, as well



established or improved to facilitate and ensure that industry in CEE can take positive steps toward cleaner production.

References

as the UNEP/UNIDO efforts to establish and support national centres, are moving in this direc- tion (Luken, UNIDO, 1994); but long-term experience is lacking. Nevertheless, these centres could play an important role in the promotion of cleaner production strategies in CEE industry.

Increased cooperation and coordination between waste minimisation efforts between countries in CEE and, perhaps even more importantly, donor programmes should be beneficial for all actors if the financial resources made available increase and the programmes grow in scope. An important issue is the focusing of efforts to a specific region in order to more effectively manage barriers and thereby achieve more substantial results. In this regard, after an initial period of capacity building and learning, the role of the various centres for waste minimisation and cleaner production in CEE should become more independent vis-h-vis the donors. If this were to be realised then the donor agencies, Western consultants, or university researchers from OECD countries could have more of the role of invited experts and advisors for particular aspects of the activities of the centres, who would then assume the dominant change- agent function in CEE. The building of local competence together with examples of success stories could be taken as measures of success.

In sum then, we find the movement of Western multinationals into CEE a necessary but insufficient component of the greening of industry in CEE. The wishful thinking concerning large soft loans and technology transfer on the part of many individuals in CEE, which forms part of some sort of depen- dency mentality, reveals a number of inadequacies in business management inherited from the Soviet era.

We advocate a greater emphasis on waste minimisation from all actors involved, including aid donors, banks, national and local authorities in CEE, universities, industry associations, etc, since it is a very cost-effective way to protect the environment and can help CEE industry to become more competitive. The delivery and receiving mechan- isms for small industrial efficiency improvement loans and waste minimisation investments must be

Personal communication from Gretchen Mkeska, WEC and Olav Nedenes, Norwegian Cleaner Production Programme, Luken (UNIDO) (1994). The Norwegian Programme already has centres in Poland and the Czech Republic whereas WEC has a number of centres established and others under consideration. The UNEP/ UNIDO NCPC programme has the goal of comparatively large centres, albeit primarily in Third World settings.

van Berkel, RenC (1994). Issues in initiating cleaner production in CEE. In: lntroducing Cleaner Production in Eastern Europe, UNEP Invitational Expert Seminar, Kaunas, Lithuania, September .

Business Council for Sustainable Development (BCSD) (1993). Accelerating Sustainable Development in Cen- tral and Eastern Europe, draft document issued in November.

Bijker, W., Hughes, T. and Pinch, T. (eds.) The Social Construction of Technological Systems, MIT Press, Cam- bridge, Massachusetts.

Chelstowski, B. (1994). Cleaner production in Tarnowskie Gory. In: Introducing Cleaner Production in Eastern Europe, UNEP Invitational Expert Seminar, Kaunas, Lithuania, September.

Chodak, M. (1994). Present experience with introducing cleaner production in the Slovak Republic. In: lntroducing Cleaner Production in Eastern Europe, UNEP Invita- tional Expert Seminar, Kaunas, Lithuania, September.

Kowalczyj, J. (1994). Cleaner production and local authorities. In: lntroducing Cleaner Production in Eastern Europe, UNEP Invitational Expert Seminar, Kaunas, Lithuania, September.

Kruszewska, I. (1993). Open Borders, Broken Promises. Greenpeace.

Kruszewska, I. (1994). Poland - the Green Tiger of Europe? Greenpeace, October.

Lindhqvist, T. and Rodhe, H. (1994). Evaluation of Industrial Waste Minimisation Initiatives in Central and Eastern Europe. Report to OECD Task Force for the Implementation of the Environmental Action Programme for Central and Eastern Europe, Paris, March.

Luken, R. (UNIDO) (1994). UNDO Activities in the Field of Cleaner Production. Presentation for the European Roundtable on CP Programs, Graz, Austria, October.

MacKenzie, D. and Wajcman, J. (eds.) (1985). The Social Shaping of Technology, Open University Press, Milton Keynes.

Nedenes, 0. (1994). The Norwegian industrial transfer of know-how programmes on waste minimisation/cleaner production to Central and Eastern European countries. In: lntroducing Cleaner Production in Eastern Europe, UNEP Invitational Expert Seminar, Kaunas, Lithuania, September.

Rodhe, H. and Lindhqvist, T. (1993). Towards a Preventive Environmental Strategy for the Baltic Sea, Department of Industrial Environmental Economics, Lund University.

Tebodin Consultants & Engineers (1994). Energy and Environmental Audits of lndustrial Enterprises in Ukraine.

UNEP IE/ PAC Working Group on Policies, Strategies and Instruments to Promote Cleaner Production (1994) In: lntroducing Cleaner Production in Eastern Europe, UNEP Invitational Expert Seminar, Kaunas, Lithuania, September.


western support for cleaner production in central and eastern european industry

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