Multilateral approach to tackling haze still apt

ASK: NUS ECONOMISTS
By Alberto Salvo And Denis Tan, Published The Straits Times, 5 Jun 2014

HOW does the haze affect Singaporeans, and what policies should Singapore pursue?

It has been a year since Singapore's Pollutant Standards Index (PSI) peaked at 401. At the time, satellite images indicated hundreds of "hot spots" in Sumatra, Indonesia. Our nation and our neighbours were caught in the toxic smoke plume's path.

With the dry season upon us, haze may again blanket the region. An honours thesis just submitted to the National University of Singapore's Economics Department considers a timely research question: How did the mid-2013 haze affect Singaporeans?

In his thesis, Mr Denis Tan relied on surveys conducted by 100 fellow NUS students of Environmental Economics, who interviewed 421 households across Singapore. The survey showed that the haze impacted households in profound ways.

A common mitigating behaviour was to remain indoors, shut the windows, and increase the use of air-conditioning. When outside, Singaporeans tended to wear masks. They were also five times less likely to visit parks compared to regular-air days.

Mr Tan obtained "observational" data, including polyclinic visits, energy consumption and tourist arrivals. He estimated that households' out-of-pocket expenses and indirect loss, such as reduced business activity, totalled $300 million nationwide.

The costs of measures taken in response to negative external events are called "averting expenditures". They are a key ingredient to welfare analysis of public policy aimed at reducing pollution. In theory, the more health, social and economic loss incurred from haze, the more businesses that gain from land and forest fires should be restricted in their ability to cause them.

A pioneering estimate of damage during another severe haze episode in 1997, by Nanyang Technological University Professor Euston Quah, was $430 million.

So what policies should Singapore pursue?

The key challenge is that air is a shared resource: Singapore does not own the "property rights" to air that blows over our neighbours, picking up contaminants along the way before reaching us.

Imagine that Sumatra had no environment protection laws and no significant population to suffer from smoke originating there. Since burning clears land for agriculture, it is likely that certain businesses, particularly oil palm plantations, gain from the fires. In such a situation, one can argue that these firms should be compensated if they are prevented from continuing the practice.

And because the cost of curbing the fires would be high (from plantation profits forfeited and monitoring efforts) and the local health benefits small (because of the small population), it would be natural to expect minimal air pollution control.

This situation illustrates why effective policies must shift the benefit-cost balance for those fuelling the fires.

In a creative bid to tackle the "extraterritoriality" issue, NUS Professor Ivan Png has suggested, in this newspaper, that the perpetrators of fires be barred from using Singapore's world-class services, giving them "a clear financial incentive to clean up their act". Prof Png wrote: "We should legislate that palm oil and other agricultural products may be imported or trans-shipped through Singapore only if the product is certified as not produced on land cleared by open burning."

Fortunately for Singapore, and contrary to the above hypothetical case, Sumatra has a large population. It also has environmental laws granting citizens the right to non-hazardous air. Haze afflicts Sumatrans substantially, possibly more than Singaporeans. Sumatrans reside closer to the source, are more numerous, and have less access to health protection.

It therefore makes sense for Singapore to continue working with Indonesia and neighbouring nations to improve enforcement of Indonesia's own environmental protection laws. Promoting awareness of health hazards will raise the perceived cost of burning to the local community and shift a culture of burning waste.

The first writer is an associate professor at the Department of Economics, National University of Singapore. The second writer has just completed his undergraduate studies (Economics and Engineering) at NUS.