Tackling haze with cost sharing

Tackling haze with cost sharing

The seasonal haze in South-east Asia, caused by fires to clear land in Indonesia, has affected air quality in neighbouring Singapore and Malaysia for years. Indeed, it has become an almost annual occurrence.

Severe haze is expected again this year because of the likely drought caused by the cyclical El Nino weather pattern.

In fact, the Singapore Government has reportedly stocked a huge number of face masks as a precautionary measure.

Tradable pollution rights?

Since the haze is a case of transboundary pollution, most of the conventional tools for controlling pollution cannot be applied. The key sticking point is the sovereignty and independence of both polluted and polluting countries.

Professor Roland Coase, in an important paper that helped him win the Nobel Memorial Prize in Economic Sciences in 1991, argues that assignment of tradable pollution rights to either the polluter or the polluted can lead to optimal control of pollution.

He asserts that optimal control of pollution can be achieved irrespective of whether the polluter has the right to pollute or the polluted has the right to clean air. Since the right to pollute is a property right that has value, if the right is tradable, the result will be optimal control of pollution at least cost to society.

In the case of South-east Asian haze, however, the Coasian solution cannot be applied as there is no supranational authority to assign and enforce pollution rights. A polluting country can be pressured but not forced to reduce its pollution.

Therefore, only voluntary negotiations among the affected countries can solve the problem.

Since Singapore and Malaysia cannot enforce their right to clean air, the South-east Asian haze is a case in which the polluting country, Indonesia, has the right to pollute. A 2002 agreement to get ASEAN countries to implement measures to prevent forest fires has failed.

Of the 10 member states, Indonesia is the only country which has yet to ratify the ASEAN Agreement on Transboundary Haze Pollution.

Prerequisites for success

To be successful, a regional agreement must take into account several factors.

First, no country should be worse off after the agreement is implemented.

This can be ensured if the cost of controlling pollution is smaller than the total damage that the affected countries suffer from pollution.

The cost of controlling pollution can then be distributed in such a way that each country is better off. By this we mean that each country's share of the cost is smaller than the damage it would have had to suffer if pollution were not controlled.

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