Case Study 5: Portugal

Source: Contrato Programa (1988)
Measures on average daily concentrations based on 24-hour monitoring

The Portuguese Government wanted to use the pulp paper EA as a signal to other industry sectors and to small companies. The government view was that the pulp paper sector:

• was an economically strong sector and could afford to invest to meet the environmental objectives;
• was a coherent sector which facilitated monitoring and negotiation;
• contained some companies which had international contacts and could, therefore, have access to environmental expertise from abroad;
• had both large, medium and small companies so that the large company SOPORCEL could be used as the EA `champion`, which would encourage the smaller companies to follow, and this, in turn, would be a useful signal to SMEs in other sectors;
• had significant environmental impact and significant potential to improve its performance and would, therefore, be useful as a successful case, which would encourage other sectors to follow.

The standards achieved are significantly better than the ‘business as usual’ scenario, and do represent real investment beyond a ‘no regrets’ strategy, particularly because a plausible alternative scenario would have been the continued non-compliance with the laws. The targets eventually became part of national law for the sector and in two cases are tighter than the new EU legislation which is based on the PARCOM.

Meeting the target was the company’s responsibility. While CELPA was a key player in the negotiation of the EA with DGA, DGI and AIP, and therefore had the responsibility of encouraging action, all the explicit measures (excluding awareness issues) to reduce emissions were the responsibility of the company. This included monitoring, investments and progress reports. DGA had responsibility for the inspection of water effluents, while the Institute of Meteorology was responsible for the inspection of air emissions.

Each mill was required to meet the targets. The route that they took was their own decision, with (in contrast to the new EAs) no need to produce a year by year environmental improvement plan for the government demonstrating how the targets were to be met. There was, however, a plan on the estimated expenditure required to meet the targets.

The measures taken by different mills to meet the same standards were not the same. STORA did not need to install secondary treatment equipment to meet the standards, while PORTUCEL did. This installation took longer than expected and PORTUCEL did not initially meet the standards. This partly reflects the fact that PORTUCEL is a state-owned company, and so it takes longer to push decisions through.

5.5.3.1 Monitoring and Reporting

Each mill had to provide DGA and DGI with monthly environmental data and a yearly report. In addition, when the EA came into force in 1991, government inspectors had the right to enter company premises whenever they wanted. Two to three inspections of the SOPORCEL mill, were carried out, with special attention paid to water quality, in the first year. Air was more difficult given the lack of appropriated equipment and expertise. The responsibility for monitoring was therefore split between the DGA (water) and the Meteorological Department (air). DGI did not carry out investigations.

5.5.3.2 Target Revision

The targets were not revised within the period of the EA, though the target date was allowed to slip from 1991 to 1995.

5.5.3.3 Stages

In this EA, unlike the new EAs, there was no staging of the targets that had to be reached. There was a single set of targets that had to be complied with, by each mill (three years following signature, or by the second half of 1991). As only two of the eight mills met the standards at this time, the timescale for meeting the standards was extended until 1995 through the publication of parallel pieces of legislation (regulations for water and air) detailing the standards that would be binding for the pulp paper sector from 1995 on.

5.5.4.1 Level of Participation and Free-Riders

All four companies – SOPORCEL, PORTUCEL, STORA, and CAIMA – agreed to take part in the EA, given the perceived benefits. There was, therefore, no issue of companies acting as free-riders by not signing the agreement. The only possibility of free-riding was if signatories did not comply with the standards.

This was the case during the period 1988 to 1992 when only some of the mills made the necessary investments to meet the standards.

5.5.4.2 Penalties for Non-Compliance of Signatories

Companies that did not comply with the standards faced fines/penalties. Indeed, as some of the companies did not meet the targets in 1991, they were taken to court and fined though two of the three companies then took the government to court and won. This was followed, however, by real investments by those mills which were still below the standards. This was an indication that they realised that they would face serious sanctions if improvements were not made.

5.5.4.3 Level of Public Participation

There was no involvement of NGOs or consumer/public representatives. However, the government did use television to discuss the EA – sometimes positively and sometimes negatively. Some of the companies noticed that, after the positive press coverage (which included an explanation of what was being attempted), the number of complaints dropped considerably.

The overall view of most parties to the EA was that the pulp paper EA was a success overall, despite the delay in meeting the targets.

Of the four companies (eight mills), only SOPORCEL had met the standards by the 1991 deadline. One mill closed in 1992/93, because, mainly, of a lack of economic viability and available markets though it was also clear that the mill could not meet the environmental standards required. The closure gave rise to a large number of complaints from the public.

By 1993, nearly all mills had met all the standards and, in many cases, far surpassed them. Mill by mill data for each of the pollutants exist, as required by the EA. Seven of the eight mills showed real environmental improvements over the period 1988 to 1993 and further improvements by 1995. The greatest improvements were on water and on air emissions. Improvements in the area of waste were more modest.

Table 5.3a: Pulp Paper Environmental Performance — Water Quality (1987 & 1993)
 

Source: DGA

Table 5.3b: Pulp Paper Environmental Performance — Air Emissions (1987 & 1993)

Source: DGA

Table 5.4a Performance in 1993 versus the Standards Required Performance of pulp paper sector as a whole

Source: DGA

Table.5.4b: Performance in 1993 versus Standards Required Performance of pulp paper sector as a whole

Source: DGA

Table 5.5: Investment in Environmental Measures (in PTE)

Source: DGA

Accelerated progress to existing targets. The EA is now over. Seven of the eight mills met the standards by 1995. The other mill closed on economic grounds. There was no evidence of accelerated progress towards the targets although it should perhaps be noted that two mills were in effect EA ‘champions’ and, with their new investment programme and international support, were able to meet the target more quickly than the others.

5.6.2.1 Companies

To meet the environmental targets set in the EA, companies had to invest on average an extra 2.5% over the normal investment sum. Exact figures for the industry as a whole are given in Table 5.5. These are environmental domain specific costs. The management of the process and the monitoring and reporting requirements involved additional costs. These have not been quantified, and are likely to be far less significant than those noted in Table 5.5.

5.6.2.2 Government

Government costs have not been estimated but would include the time taken in negotiation, inspection, the training of local environmental experts and the provision of specific funds to support investment.

The use of EAs can encourage industry, by focusing first on the large industries which can afford the costs, such as pulp paper, petrochemicals, cement. The AIP worried about the medium and small companies, though making something work with large companies can encourage SMEs. EAs give companies more time to meet the targets and, therefore, make it more likely that industry will meet them.

The main benefit is the opportunity EAs provide for increasing the level of discussion within and between industries, and between industry and government. In this context, ISO14001 is likely to be of increasing interest. There will probably be a clear benefit from complementing EAs with EMAS or ISO14001. These build on the monitoring, environmental improvement plan and reporting process already instigated by the EA, and would encourage further improvement.

5.6.3.1 Companies

Companies benefited from the pulp paper EA in the following ways:

• improved trust both between companies and between the sector and government: without EAs the industry would be encouraged to play cat-and-mouse with the government;
• companies understood that they could meet together and could agree on some points on how to improve performance, sharing solutions;
• financial support for investment, at the time, through the PEDIP programme (to meet the air and effluent standards, SOPORCEL got around 300,000,000 PTE for investment programmes);
• internal/staff motivation improved;
• improved the eco-management, both internally and externally;
• enhanced public image and relations with neighbours; the government used the EA as a positive example of the new approach –and this led to greater understanding by the local population and fewer complaints;
• the EA allowed a timescale in which to meet the law and was, therefore, less restrictive than the law itself;
• allowed companies to meet standards following their own investment cycle and may have led to a minimal cost route of meeting the standards;
• an EA is not an imposition and companies therefore had a more positive attitude to meeting the standards;
• companies could develop their own motivation for environmental improvement;
• companies became more public orientated;
• improved the technical teams’ ability to tackle environmental issues at the right time;
• has put the companies in the position to go for EMAS.

5.6.3.2 Government

The pulp paper EA was of benefit to the government in that it:

• helped ensure that the pulp paper sector complied with environmental legislation;
• helped increase understanding of the actual environmental impact of the sector, and its ability to improve performance, - effectively, demystifying the process;
• increased understanding of real impact, thus helping the government in the drafting of legislation;
• helped prioritise environmental funds allocation to ensure optimal environmental improvement;
• provided an example and encouragement to other sectors;
• encouraged a more positive approach to meeting environmental requirements, rather than the traditional approach of taxes, fines, jail, etc.;
• helped develop greater confidence and trust between government and industry.

Three of the big mills, which already had ISO9000, decided to go for EMAS. The view is that EMAS is a natural step to take after the EA (with its monitoring requirements etc.) However, EMAS is not yet very well understood in Portugal. It is a new idea, but its benefits are becoming apparent (e.g. in that EMAS could lead to a reduction in licensing).

Foreign competition was considered a real danger. If the system were one of regulation, fines and closure, foreign competitors could take Portuguese companies to the European Court of Justice and claim unfair competition on the grounds that Portuguese companies were not complying with EC law. The EAs helped avoid that.

Criticisms:

• The targets were not reached by all mills in 1991, the date when the EA was to become binding. With the exception of two mills, serious progress was made only following fines and public pressure;
• Some people hold the view that the EA gives companies the opportunity to delay before investing in environmental measures;
• Some experts regard EAs as appropriate only as a temporary measure, while new legislation is being implemented.

5.7.1.1 The Reference Situation

Prior to the agreement, the environmental situation was as stated in Tables 5.3 and 5.4 (1987 figures).

5.7.1.2 The Baseline

Business as Usual

The baseline for the EA was taken to be the level of environmental performance at the time of negotiation and signature of the EA. Had there been no EA, it is likely that little would have been invested in environmental measures beyond those improvements linked to required investments in changes of capital stock. If the path chosen had been regulation rather than agreement, some companies would probably not have complied with the regulations, would have gone through a period of fines, negotiation and eventual investment. The most appropriate baseline for this assessment is, therefore, the environmental performance of the reference year 1987/88.

5.7.2.1 Environmental Improvement

The EA started with only two of the eight mills making significant investments in environmental improvements. Only two mills and one company, SOPORCEL, met the standards at the deadline of 1991. Following pressure through fines, court cases and negotiation, a further five mills made serious efforts to improve performance. Consequently, seven of the eight mills (the other one closed) showed marked environmental impact improvements over the period from 1987 to 1993, and further improvements by 1995. By 1993, nearly all mills had met all the standards laid down in the EA, and, in many cases, far surpassed them.

The greatest improvements were in water quality. Reductions in specific air emissions were also very significant. There were more modest improvements on waste reduction.

5.7.2.2 Environmental Effectiveness

Assuming that no significant emissions reductions would have occurred if no EA had been agreed, the baseline is thus close to the environmental situation in the reference scenario – although great uncertainty exists as regards the impact of fines and possible closures. Still, given the absence of a discussion of alternative instruments and the poor data available, no conclusions can be drawn on environmental effectiveness.

5.7.3.1 Economic Efficiency

The timescale of the EA allowed investments to be made more in line with the investment cycle of each company than probably would have been the case had mills been suddenly required to meet new legislation. Furthermore, it is likely that there would have been greater costs to the companies through fines and (possibly) closures, had no EA been in place. In addition, there has been some exchange of experience between companies which may have led to some cost reductions. The EA can therefore be regarded as being more cost-effective than the alternative of regulation supported by fines and potential closure. Still, no quantitative data are available to support this.

5.7.3.2 Technical Change

To meet the water and air emissions targets, many of the mills had to make technical changes to their plants. For example, one mill needed to invest in secondary treatment to meet the BOD targets, while another improved process efficiency to meet the same targets. To meet air emissions targets, low sulphur fuels were used and burn efficiencies increased. Insufficient information was available to draw conclusions on whether there was any real innovation in the area of technical change.

5.8.1.1 Past Improvements

Initially, an EA required a global environmental plan. Now it requires a list of all companies and each company has to put forward a year-by-year environmental improvement plan that must be met. These plans cannot be changed except in exceptional circumstances or if new agreements or Community laws have come into force.

5.8.1.2 Possible Future Improvements

Suggested improvements of the EA could include:

• greater emphasis on the idea that EAs are there to solve problems and not to enforce the law;
• EA is an instrument for bringing people together. The increased dialogue role and value of EAs should be further developed;
• greater reliance on phased EAs, as having a firm end-date is of limited value;
• the inclusion of a more forward looking element, at least warning of future developments, as some EAs do not talk of IPPC;
• modest monitoring requirements – e.g. a report every six months or even every year (instead of every month);
• public access to the results of an EA through the publication of documents containing precise and detailed information on: participating companies/sectors and relevant data on them, standards, company specific water quality, emissions etc., to enable the public to see the real importance of the EA.

5.8.1.3 General Requirements for New EAs (Government View)

• initial diagnosis required;
• need for technical or expert advise (environmental consultancy companies);
• list of companies involved in EA;
• EA adoption plan for each plant;
• integrated approach – but with priorities depending on sector environmental impacts;
• focus on clean measures/processes, prevention rather than clean-up;
• no discussion on number of standards that have to be reached (as in this EA);
• no finite end-date to the EA, which should be seen more as a step in an ongoing process.

5.8.1.4 Other EAs

Other EAs are discussed in Section 3 on negotiation and context. A new EA for the pulp paper sector is not yet foreseen. More recent EAs have annual quantified targets, tied to specific agreed measures. These targets are staged, and, tightening year by year, comply with EU legislation, by the end point.

• Following the pulp paper EA (1988), three more were signed in 1989 and 1990 (though these were more protocols than EAs).
• These were followed by the signature of a Framework Agreement on EAs (1994) with the subsequent signature of around 10 further EAs.
• The new government, however, prefers more traditional instruments (regulation, standards etc), and is freezing the current EAs (possibly as a further negotiation tactic which has been used before, even in the pulp paper EA).
• The use of Portuguese style EAs should be of great interest in countries where there is some difficulty in compliance with legislation, notably when the amount of new legislation being passed is too great to be assimilated by the, often under-staffed (sometimes non-existent), environmental teams in companies. They have a clear potential for other Cohesion Fund countries and new member states.
• More public involvement could ensure greater public pressure, though this may still be relatively insignificant given the embryonic NGO infrastructure and the low level of environmental awareness among the public, and, therefore, less delaying in meeting the targets. More participation could foster greater environmental awareness and further participation in future.

The Portuguese Pulp Paper EA, the first EA in Portugal, is generally regarded as a successful application of the EA instrument, despite the fact the many of the mills failed to meet the targets within the agreed timescale. It is regarded as a success because the environmental performance in 1993 was improved significantly beyond the targets set, and the EA has been influential in the development of a whole series of other EAs across a range of other sectors.

DGA (1988), Contrato-Programa Entre As Secretarias De Estado Do Ambiente E Dos Recursos Naturais E Da Industria E O Sector Da Pasta De Papel (DGA, 1988), Portugal.

Jose Faria e Santos (1996), Acordos Ambientais como Processo de Desenvolvimento Sustentavel. CAIPA – personnal communication, Portugal.

AIP (1995), Ambiente No 7, 1995, AIP, Portugal.