Paying for environmental abuse

  • 14/02/1994

Paying for environmental abuse THOUGH more than 200 Union and state laws can be interpreted one way or the other to protect the environment, they prove to be inadequate. An example is the Water (Prevention and Control of Pollution) Act, 1974, which was once acclaimed as the harbinger of a new environmental era because of its sweeping ambit. Besides defining water pollution comprehensively, it provided for the establishment of Union and state water pollution control boards.

But enforcement of the act became a problem because though the act conferred administrative powers on the boards, it was silent on their funding, leaving it to the whims of state governments. The Union government then enacted the Water (Prevention and Pollution Control) Cess Act in 1977 to finance the water pollution control boards.

However, the cess attracted a lot of litigation from industries not wanting to pay it and has been inadequate to cover even the basic, routine administrative expenses of the boards.

The water cess act has spawned several avoidable legal cases. There is no industrial unit in the country that is not covered under the act. Yet, the act's schedule creates a number of avoidable doubts and excuses (See box).

The act has clearly created more complications than clarifications because many industries argue they are not covered by it. If the government intends to keep select industries (nuclear industry, for example) free from a water-cess liability for administrative reasons, then it would have done better to specify clearly which industries are excluded rather than prepare a schedule of categories that are included.

Probably not more than 25 large water-consuming industrial establishments in any state actually pay the water cess and they end up contributing upto 90 per cent of the total cess collected in each state. Thermal power stations are the largest cess-payers and the others are steel and fertiliser plants, petroleum refineries, paper mills and coal mines. Though well-known for their environmental pollution, cement, textiles, sugar, petrochemicals, chemicals, pharmaceuticals, engineering and some other industrial units do not contribute much to total cess collections.

Uttar Pradesh, Madhya Pradesh, Punjab, Haryana and Maharashtra collect large cess amounts not only because they have a number of thermal power, steel and fertiliser plants, refineries, paper mills and other large water-consuming units, but also because they place more stress on cess collection than other states. Thus, industrial cess assessments were the largest for UP (more than Rs 3 crore), followed by MP, which is surprising because both states are not the nation's most industrial states.

Data on cess collection is not available for Andhra Pradesh and West Bengal among the larger states, and for Arunachal Pradesh, Nagaland, Manipur, Tripura, Meghalaya, Sikkim and many Union Territories, among the smaller ones. If we assume the total cess assessments in these states were Rs 1.38 crore for industries and Rs 1 crore for local bodies and total actual cess collection was Rs 1.87 crore, then on the basis of available data, the probable total for 1991-92 can be estimated as Rs 21 crore of total assessments issued -- Rs 11 crore from industries and Rs 10 crore from local bodies -- and total water cess collection in the entire country at about Rs 9.5 crore.

An indicator of the shortcomings in cess assessments and collections is that Maharashtra, despite its high level of industrialisation, is only third, with a poor revenue realisation of just Rs 1 crore. Gujarat, Tamil Nadu, Karnataka and Bihar, which have industrialised considerably in the past two decades, have cess assessments hovering around only Rs 60 lakh. These total annual assessments indicate that something is seriously wrong in the way the water cess act is implemented.

When we compare cess collection with cess assessment, we find the realisation of the cess in Assam, Haryana and Karnataka in 1991-92 was higher than the total assessments because of realisation of arrears.

Except in Haryana and Punjab, only a few of the local authorities supplying water for domestic purposes pay water cess. In Gujarat, Kerala, Madhya Pradesh, Maharashtra and Uttar Pradesh, no municipal body or local body is willing to pay the cess. And, aware of its futility, no assessment order is even issued for local authorities in Assam, Bihar and Orissa.

In Madhya Pradesh, Rajasthan, Tamil Nadu and some other states, assessment orders are issued to only those local authorities that are likely to pay. In all these states, the entire cess collection is essentially from industries. Of the total estimated water cess collection of Rs 9.5 crore in 1991-92, industries paid Rs 8 crore, with only Rs 1.5 crore collected from local authorities, primarily in Haryana and Punjab and a few from other states.

Water cess liabilities of local authorities, if levied realistically, are very large (See table). For example, 1991-92 assessment orders on local authorities in Punjab, Uttar Pradesh, Kerala and Maharashtra were considerably larger (double in Maharashtra and four-fold in Kerala) than for industrial units. However, most local bodies simply claim they have no resources to pay the cess. Because the finances of local bodies are controlled by the Union and state governments, this issue needs to be resolved at the Union government level once and for all.

Procedural problems
Assessment authorities in various states have set up specific teams consisting of pollution control board staff to help in cess assessment and collection. Several of these units are led by senior scientists or engineers. And, in most states, there is only one assessment cell, which is located at the state board headquarters.

However, in Tamil Nadu, water cess responsibilities have been decentralised and entrusted to regional offices. Unfortunately, reliable water cess assessments are still not possible because, even 15 years after the passage of the water cess act, less than 5 per cent of the industrial units have installed water meters and even then, finding a working water meter is a rarity. As a result, chemical industries discharging toxic and non-biodegradable pollutants pay very little cess because their water consumption is low compared to paper mills, steel mills or power plants, which may not discharge toxic or refractory pollutants.

Environmental cess
Today, experts say a complete overhaul of the water cess is necessary to convert it from a purely water consumption-based levy to one based on resource consumption and environmental impact caused by an industry.

Even if the cess were to be based on consumption of water alone, it should be limited natural resource. The water cess is liked to water pollution and thermal power stations contend they are not liable to pay it because they do not cause any water pollution. Such units much be convinced that the cess is levied on the use of a valuable environmental resource- not just on the discharge of pollution effluents. This needs to be clarified by amending the act so that natural resource are not regarded as divine gifts available to anyone who can grab them.

The country's natural resources are in a critical state and are becoming seriously degrade in many areas. Many today emphasise the need for the systematic management of natural resources and also the need to inculcate a willingness to pay a cess in their use to finance such management. But such a need must also be considered rational by all, including industries and local authorities.

For this, there is a proposal to replace water cess with an environmental cess. Unfortunately, there are problem with basing as environmental cess on the extent of environmental degradation caused. Such a levy would demand reliable quantification, which may be difficult, especially in the case of air.

Unlike the present water cess, the proposed environmental cess will have to take into consideration such natural resources as land, minerals, water, air and biomass. Quantifying the use of each of these will need a significant and conscious effort by the units consuming them and fixing rates for categories of abstraction, use or degradation will also not be easy or routine.

The proposed environmental cess is therefore, at least at this stage, not designed to be a realistic compensation or reimbursement of the intrinsic value of the resource consumed or the resource degradation caused. It is merely intended to be a means of raising resources to finance the task of planning resource conservation and the activities of the pollution control boards. The environmental cess is intended to cover not merely measured or reported use or degradation but also the likely or potential use or degradation of resources.

The minimum cess rate for an environment friendly industry is proposed to be a meagre 0.01 per cent of the gross value of a company's financial turnover and, in case of an environment affecting industry, it can go up to 0.20 per cent. A cess on this basis could yield Rs 60-100 crore per annum from industries alone. And, it can be expected to serve substantially the basic objective of inculcating a sense of value and concern for the quantity and quality of our natural resources.

However, leaving the disbursement or use of an environmental cess entirely at the disposal of the Union ministry or even the central pollution control board (CPCB) is considered neither rational not desirable. Under the original water cess rules, 92.5 per cent of the cess collected in a state is to be channeled back to the state pollution control board.

Amendments brought about in late 1991 allowed for as much as 50 per cent of the cess collected to be used for various extraneous purposes such as grants to the CPCB; state pollution control boards where there is little or no cess collection; states meeting cess collection targets; to encourage industrial units to install pollution control equipment, and for purposes the Union ministry of environment and forests may consider fit. The water cess rates were also revised recently to augment resources made available by the water cess.

Local decisions
The environment, or even water, is not the property of the government of India and decisions concerning the environment are best made at the local level. Rationally, the bulk of the cess collected in a state should be placed at the disposal of the state's environmental authority, deducting only small amounts for collection costs.

With cess rates recently revised and enhanced or as proposed for the new environmental cess, the elimination of several small cess payers -- a larger number of small and medium scale units do not bring in much in cess revenue -- shall reduce collection costs to a figure well below the 7.5 per cent provided in the initial cess rules.

If the cess levied on local bodies stays unchanged, the total net collection would add up to more than Rs 100 crore annually, which may be sufficient to cover the financial needs of pollution control boards, as also an intensive and effective effort to scientifically monitor and plan resource conservation.

The proposed environmental cess would still have Uttar Pradesh, Madhya Pradesh and Maharashtra as the leading contributors, followed by Tamil Nadu, Bihar and West Bengal. This again will be entirely logical and indicative of the greater need for environment conservation in these specific states.

G D Agrawal is former member secretary of the Central Pollution Control Board and an environmnentalist.

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