Industrial waste water treatment: regulation v. cleaner production - the stick and the carrot

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The under-use of existing municipal waste water treatment facilities due to high operating costs is a common problem. Sometimes incentives seem stronger to make a large up-front investment in infrastructure than to actually run that infrastructure and really reap the benefits.

There are similarities in the private sector. After IFC's engineers visit the facilities of prospective industrial clients they sometimes return with stories of well designed waste water treatment plants sitting idle. Maybe the plants fulfilled a permitting requirement when the plant was built? Maybe the plants are turned on a couple of times a year to celebrate the visit of regulatory authorities?

Whilst the optimal solution is stronger regulatory enforcement by the government...

for a long time IFC has reinforced regulatory compliance, and in some cases established minimum environmental standards, through covenants in Investment Agreements. But IFC is also trying something new: promoting cleaner production - saving water, energy and raw materials to increase a plant's profitability, and reducing a projects environmental footprint at the same time. This new role is supported by two developments.

First, in April 2006 IFC introduced Performance Standards on Social and Environmental Sustainability (which now require IFC clients to examine and incorporate resource conservation measures and incorporate them in their projects, thus going well beyond the traditional “do no harm” compliance-based approach.

Second, IFC has brought together a group of supportive bilateral donors (such as the Netherlands, Norway, Austria, Denmark, Japan, Italy and Bavaria) who want to accelerate the adoption of cleaner production practices.

IFC is trying to identify win-win situations where environmental footprint minimization and profit maximization go hand in hand to create some carrots to complement the regulatory stick.

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