Environmental Policy, Legislation, and Institutions

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The Philippines:
Country Environmental Analysis

October 2009

East Asia & Pacific Region

World Bank

Table of Contents

Executive Summary

  1. Environmental Policy, Legislation, and Institutions

    1. Policy Framework for Environmental Management

    2. Environmental Legislation

    3. Institutions for Environment and Natural Resources Management

    4. Indicators of Environmental Management

    5. Challenges and Issues

    6. Recommendations

  1. Outdoor Air Pollution

    1. The Growing Problem of Outdoor Air Pollution

    2. Economic Costs of OAP-related Morbidity

    3. Economic Costs of Premature Mortality due to OAP

    4. Suggested Interventions

  1. Indoor Air Pollution

    1. Household Solid Fuels and Indoor Air Pollution

    2. Economic Costs of IAP-related Morbidity

    3. Economic Costs of Premature Mortality due to IAP

    4. Suggested Interventions

  1. Water Pollution, Sanitation, and Hygiene

    1. Water, Sanitation, and Hygiene Problems

    2. Economic Costs of WSH-related Morbidity

    3. Economic Cost of Premature Mortality due to Poor WSH

    4. Suggested Interventions

  1. Coastal and Marine Resources

    1. The Resource Base

    2. Economic Values of CMR in the Philippines

    3. Costs of Environmental Degradation of CMR

    4. Conclusions on Costs and Benefits

    5. Suggested Interventions

  1. Forestry

    1. Forests in the Philippines

    2. Estimating Economic Values of Forestlands

    3. Estimating the Economic Contribution of Forests

    4. The Costs of Resource Degradation

    5. Summary and Conclusions

  1. Land Management

    1. Extent of Land Degradation in the Philippines

    2. Impacts of Land Degradation on Agricultural Productivity

    3. Costs of Land Degradation

    4. Potential Policy Responses

  1. Climate Change

    1. Climate Change Vulnerabilities and Impacts

    2. Philippine Response to Climate Change

    3. The Way Forward


  1. Environmental Health: Methodology and Assumptions

  2. Natural Resource Data

  3. References

List of Figures
2.1 Annual Average PM10 Levels in Metro Manila and Antipolo City

2.2 Annual Average PM2.5 Levels in Metro Manila

2.3 Components of Morbidity Costs

2.4 Annual Cost of OAP-related Health Effects

3.1 Household Use of Solid Fuel by Income Level, 2004

3.2 Primary Cooking Fuel in Households in the Philippines, 2004

3.3 Households Exposed to Indoor Air Pollution from Solid Fuels

3.4 Annual IAP-related Morbidity Costs

3.5 Annual Cost of IAP-related Health Effects

4.1 Household Access to Improved Water Supply and Sanitation, 2003

4.2 Components of Morbidity Costs

4.3 Annual Cost of WSH-related Health Effects

4.4 Percent Reduction in Diarrhea from Water and Sanitation Interventions

4.5 Median Per Capita Construction Cost of Water Supply in Selected Regions

4.6 Median Per Capita Construction Cost of Sanitation in Selected Regions

5.1 Net Benefits from Coastal and Marine Resources

5.2 Percentage Distribution of CMR Net Benefits by Type of Service, 2006

5.3 Cost of Environmental Degradation

5.4 Share of Environmental Costs Across Ecosystems

6.1 Philippine Forest Cover, 1934–2003

6.2 Valuation Framework

7.1 Fertilizer Application, All Types, the Philippines, 1961–2002

List of Tables
1.1 The State of the Philippine Environment

2.1 Attributable Fractions for OAP-related Morbidity, 2003

2.2 Incidence of OAP-related Illnesses by Age Group, 2003

2.3 Annual Cost of Morbidity from OAP

2.4 Relative Risk Ratios and Corresponding Attributable Fractions for Specific Causes of Mortality from OAP

2.5 Mortality Incidence due to OAP by Specific Age Group, 2003

2.6 Annual Cost of OAP-related Premature Mortality

2.7 Benefit-Cost Ratios of Low-sulfur Diesel and Diesel Vehicle Conrol

2.8 Proposed Railway Projects and Costs

3.1 Attributable Fractions of Morbidity from IAP

3.2 Morbidity Cases Attributable to IAP, by Age, 2003

3.3 Annual IAP-related Morbidity Costs

3.4 Mortality Incidence due to IAP by Specific Age Group, 2003

3.5 Annual Cost of IAP-related Premature Mortality

3.6 Benefit-Cost Ratios of Converting to Improved Wood Stoves and LPG to Control IAP in the Philippines

4.1 Responses to the Demographic and Health Survey 2003

4.2 Attributable Fractions for WSH-related Illnesses, 2003

4.3 Estimated Annual Cases of Illness from WHS, by Age, 2003

4.4 Annual Cost of Morbidity from WSH

4.5 Annual Cost of Mortality in Children under 5 from WSH

4.6 Annual Cost of Mortality in Population Age 5 or Older from WSH

4.7 Benefit-Cost Ratios for Children under 5 Years of Age

4.8 Benefit-Cost Ratios for Rural Household Improved Water Supply and Sanitation

5.1 Categories of Ecosystem Services and Benefits

5.2 Philippine Coastal and Marine Ecosystems

5.3 Net Benefits from CMR per Unit Area, 2006

5.4 Target MPAs in the Philippines

5.5 Major Species Produced in Aquaculture Fisheries, 2006

6.1 Selected Use and Non-use Values of Forests

6.2 Reported Production of Forest Products and Estimated/Actual Production, 1995–2006

6.3 Summary of Forest Depletion, 1992–2003

7.1 Area Harvested by Crop, the Philippines, 1999–2007

7.2 Yield of Major Crops, the Philippines, 1970–2006

A.1 Per Capita Diarrheal Cases, 2003

A.2 COPD Incidence Rate for Each Age Group

A.3 Adjustment Factor Used to Adjust for Published Mortality Figures from PHS

A.4 Health Outcomes and Relative Risks

A.5 Relative Risks for OAP-related Illnesses, 2003

A.6 Attributable Fractions Used to Calculate the OAP-related Illnesses

A.7 Relative Risk Ratios Used to Calculate the Number of Cases of IAP-related Illnesses

A.8 Attributable Fractions for WSH-Related Diseases (Excluding Diarrhea)

A.9 Relative Risks and Population Proportions Used to Compute Attributable Fraction for Diarrhea

A.10 Attributable Fractions for WSH-related Illnesses, 2003

A.11 Relevant Particular Matter and β Coefficient of RR Formula for OAP-related Health Outcomes

A.12 Relative Risk and Attributable Fraction for OAP-related Health Outcomes

A.13 Current and Estimated Counterfactual Underweight Prevalence Rates in Children under 5 in the Philippines

A.14 Relative Risk of Mortality from Mild, Moderate, and Severe Underweight in Children Under 5

A.15 Estimated Cause-specific Annual Deaths in Children Under 5 in 2003

A.16 Estimated Annual Malnutrition-related Mortality in Children under 5 from Poor WSH, 2003

A.17 Percentage Share of Illnesses per Health-Seeking Behavior

A.18 Average Number of Days of Treatment/Confinement

A.19 Associated Costs per Health-Seeking Behavior, 2003

A.20 Employment in Age Group 20–64

A.21 Days of Illness Used for Estimating Indirect Cost of Morbidity

A.22 Unit Valuation of Mortality

B.1 Summary of Net Benefits from Coastal and Marine Resources, 2006

B.2 Summary of Net Benefits from Coastal and Marine Ecosystems per Unit Area, 2006

B.3 Summary of Environmental Costs to Coastal and Marine Resources, 2006

B.4 Cost Comparison: Open Field and Hedgerow Intercropping

B.5 Approximate Net Present Value for Alternative Farming Methods

List of Boxes
1.1 Major Legal Instruments in the ENR Sector

1.2 Environment and Natural Resources Functions Devolved to LGUs

1.3 Successful LGU Implementation of Devolved Functions

1.4 Philippine Environmental Impact Statement System: Framework, Implementation, Performance, and Challenges

1.5 A Long Road to Justice

1.6 Using Market-based Instruments to Save Laguna Lake, Philippines

1.7 Government Agencies Ordered to Clean Up Manila Bay

2.1 Improving Air Quality

5.1 Protecting Fishery Resources

6.1 Valuing Non-timber Forest Benefits

6.2 Managing Forests

7.1 Introducing Sustainable Upland Development

7.2 Payments for Ecosystem Services

8.1 Preparing for Natural Disasters

Abbreviations and Acronyms

ADB Asian Development Bank

AF attributable fraction

ALRI acute lower respiratory infection

BCA benefit-cost analysis

BCR benefit-cost ratio

BOD biochemical oxygen demand

CAS Country Assistance Strategy

CBA cost-benefit analysis

CBFM Community-based Forest Management

CDM Clean Development Mechanism

CEA Country Environmental Analysis; also cost-effectiveness analysis

CMR coastal and marine resources

CO carbon monoxide

CO2 carbon dioxide

COI cost-of-illness

COPD chronic obstructive pulmonary disease

CRU Climate Research Unit, World Wildlife Fund

DA Department of Agriculture

DALY disability-adjusted life year

DBM Department of Budget and Management

DENR Department of Environment and Natural Resources

DHS Demographic and Health Survey

DILG Department of Interior and Local Government

DOC diesel oxidation catalyst

DOH Department of Health

DOLE Department of Labor and Employment

DOST Department of Science and Technology

DPF diesel particulate filter

DTI Department of Trade and Industry

EA environmental assessment

EIA environmental impact assessment

EMB Environmental Management Bureau

ENR environment and natural resources

EO Executive Order

EUFS Environmental User Fee System

FHSIS Field Health Surveillance Information System

FMB Forest Management Bureau

GDP gross domestic product

GFDRR Global Facility for Disaster Reduction and Recovery

GHG greenhouse gas

GNI gross national income

GNP gross national product

GOCC government-owned and controlled corporations

GS Good Shepherd

HCA human capital approach

HCV human capital value

HECS Household Energy Consumption Survey

IACCC Inter-Agency Committee on Climate Change

IAP indoor air pollution

I/M inspection and maintenance

IRA internal revenue allocation

ISDR U.N. International Strategy for Disaster Reduction

KCCC Klima Climate Change Center

LGC Local Government Code

LGU local government unit

LISCOP Laguna de Bay Institutional Strengthening and Community Participation

LPG liquefied petroleum gas

LTO Land Transportation Office

MDGs Millennium Development Goals

MPA marine protected area

MTPDP Medium Term Philippine Development Plan

MVIS Motor Vehicle Inspection System

NAMRIA National Mapping and Resource Information Authority

NSCC Nueva Segovia Consortium of Cooperatives

NDCC National Disaster Coordinating Council

NEDA National Economic and Development Authority

NIPAS National Integrated Protected Areas System

NG national government

NGO nongovernmental organization

NO nitrogen oxide

NP net price

NPV net present value

NRE new and renewable energy

NTFP non-timber forest products

OAP outdoor air pollution

OCD Office of Civil Defense

PA21 Philippine Agenda 21

PAB Pollution Adjudication Board

PACC Presidential Adviser on Climate Change

PAFASA Philippine Atmospheric, Geophysical, and Astronomical Services Agency

PAWB Protected Areas and Wildlife Bureau

PCSD Philippine Council for Sustainable Development

PEP Philippine Environmental Policy

PES payments for ecosystem services

PETC private emission testing center

PHS Philippine Health Statistics

PM particulate matter

PTFCC Presidential Task Force on Climate Change

RR relative risk

SD standard deviation

SOx sulfur oxide

TEV total economic value

TFH tricycles for hire

TSS total suspended solids

UNFCCC United Nations Framework Convention on Climate Change

VF ventilation factor

VSL value of statistical life

WA weight-for-age

WAZ weight-for-age z-score

WHO World Health Organization

WSH water, sanitation, and hygiene

WTP willingness to pay

The World Bank Country Environmental Analysis (CEA) for the Philippines consists of a wide-ranging process and a set of documents. It was task-managed by Jan Bojö (Sector Leader, Environment) and co-TTL Maya Villaluz (Senior Operations Officer, ), both in the Sustainable Development Department of the East Asia and Pacific Region of the World Bank.
The main “building blocks” in the process, and the chapters or text they formed the basis of, were the following papers commissioned for the CEA:

  • Antonio La Viña: Re-thinking Philippine Environmental Institutions: Do We Need to Reallocate Mandates, Powers, and Functions? (Chapter 1)

  • Agustin Arcenas: Environmental Health: Economic Costs of Environmental Damage and Suggested Priority Interventions (Chapters 2–4)

  • Bjørn Larsen: Cost-Benefit Analysis of Selected Environmental Health Interventions International Evidence and Applications to the Philippines and The Philippines Malnutrition Related Mortality from Water, Sanitation and Hygiene Accounting for the Effect of Diarrheal Infections on Child Malnutrition (Chapters 2–4)

  • Jose Padilla: Analysis of Coastal and Marine Resources (Chapter 5)

  • Roehlano Briones: The Philippines Country Environmental Analysis: Land Degradation and Rehabilitation (Chapter 6)

  • Antonio Carandang: The Forestry Sector: Costs of Environmental Damage and Net Benefits of Priority Interventions (Chapter 7)

  • Maria-Fernanda Garcia-Rincon and Felizardo Virtucio: Climate Change in the Philippines (Chapter 8)

  • Elmer Mercado: Preserving Cultural Heritage through Good Environmental Management in Vigan City, Ilocos Sur; A Case Study of Ubay, Bohol on Sustainable Coastal and Fishery Resource Management; A Case Study of Bayawan City, Negros Oriental on Controlling the Effects of Lowland Flooding and Siltation through Sustainable Forest Land Use Planning and Management; A Case Study of the Municipality of Infanta, Quezon Province Community-based Disaster Preparedness and Management (CBDPM): Surviving and Recovering from a Natural Catastrophe; Using Market-based Instruments to Save Laguna de Bay; and A Case Study of Nabunturan, Compostela Valley on the Rehabilitation of its Degraded Uplands through Sustainable Management (six case studies underpinning boxes throughout the CEA)

With minor exceptions, these papers were processed through two broad-based consultative workshops in the Philippines: June 16–17, 2008, and November 18–19, 2008. About 100 participants from government, academia, donors, and nongovernmental organizations contributed to the first workshop, while about half that number contributed to the second. The second workshop was arranged in collaboration with the Asian Development Bank. The draft CEA was presented to the World Bank’s Decision Meeting in April 2009. After revisions, it was officially conveyed to the Government of the Philippines in May 2009. This version—which is final—reflects adjustments made in response to comments received from the Government since then. It should be recognized that it was not possible to accommodate all comments that came in at this late stage, as some suggested major restructuring of the document and the launch of new analysis. The CEA does not aim to completely cover all environmental issues but instead selects a few that are judged to be of most significance.

Consultants Bjorn Larsen and Maureen Cropper actively supported the work on environmental health spearheaded by consultant Arcenas. Similarly, consultant John Dixon actively supported the work on natural resources management by consultants Briones, Carandang, and Padilla at several stages of the process.
A large World Bank team provided comments and suggestions. In addition to the members already mentioned, this team consisted of Fabrizio Bresciani (Rural Development Economist, EASR); Maria Fernanda Garcia Rincon (Consultant, ENV); William Magrath (Lead Natural Resources Economist, EASOP); John Morton (Environmental Specialist, EASRE); Josefo Tuyor (Senior Operations Officer, EASPS); Fernanda Ruiz Nunez (Young Professional, EASOP); and Felizardo Virtucio (Operations Officer, EASRE). Throughout, the team was supported by Maria Consuelo Sy (Team Assistant, EACPF) and Inneke Ross-Herawati (Program Assistant, EASOP).
The current document was written by a core team of Jan Bojö, John Dixon, Bjorn Larsen, Josefo Tuyor, Maya Villaluz, and Felizardo Virtucio. Linda Starke (consultant) edited the document. Many other team members contributed comments on draft versions of this CEA. The core team based most of the text on the contributing building blocks, but it is responsible for considerable simplifications, adjustments, and additions. Although individual authorship is assigned to the underlying building blocks, available at http://go.worldbank.org/U0HV2M5UI0, we do not assign individual authorship to this CEA, which is an institutional product of the World Bank.
Peer reviewers of the CEA document were Kulsum Ahmed (Lead Environmental Specialist), Marian delos Angeles (Sr. Environmental Economist), and Ben Eijbergen (Sr. Infrastructure Specialist), all World Bank staff members.
In addition to the World Bank’s own resources, the financial support from the Finish-Norwegian Trust Fund for Environmentally and Socially Sustainable Development and the Danish Country Environmental Analysis Trust Fund is gratefully acknowledged.
All mentioned, and other participants in the process who are too numerous to mention, are sincerely thanked for their contributions.

TTL Jan Bojö

Co-TTL Maya Villaluz

Sector Manager/Leader Rahul Raturi/Mark Woodward

Country Director Bert Hofman

Executive Summary
The objectives of this Country Environmental Analysis (CEA) were to assess the environmental quality in the Philippines with a focus on how this affects human welfare and sustainability, measure and analyze the biophysical significance and monetary cost of environmental degradation and derive priority areas of action, assess the Philippines government’s capacity to manage the environmental challenges identified, and identify opportunities for reform and interventions.
The selection of issues for inclusion in the CEA was determined on the basis of literature review, expert judgment, and an existing public perception survey. On that basis, the following topics were chosen: environmental policy, legislation, and institutions; environmental health (including water pollution, sanitation, and hygiene (WSH) and outdoor and indoor air pollution); and natural resources (coastal and marine resources (CMR), land, forestry, and climate change).
The CEA has been written in a very consultative process. The foundation is a large number of reports produced by local consultants, as identified in the acknowledgments. These have been processed through two major consultative workshops with wide stakeholder representation, additional peer review, and public access on the World Bank’s Web site. On that basis, this document has been distilled and refined through a team vetting process, also involving international peer reviewers. The CEA team has also been actively involved in contributing to the World Bank Group’s Country Assistance Strategy (CAS), which evolved in parallel with the current document.
The methodology applied gives great weight to economic analysis, including sectoral contributions to national income, damage costs inflicted by environmental degradation, and cost-effectiveness and net benefits of proposed interventions. The database for such calculations has been quite uneven across sectors, which inevitably will strike the reader as a lack of comparability. Nevertheless, a certain panorama can be sketched, and top priorities emerge. The broad sectoral analyses are complemented by six case studies of successful environmental management, reflected as boxes in the main text. Unless otherwise noted, costs are stated in 2007 prices, and using the annual average exchange rate of PhP46 per U.S. dollar. Biophysical and health impacts refer to different years, as stated in the respective chapters and consultant reports. More detailed recommendations beyond the following general summary are given in the main text.
Environmental legislation, regulation, and institutions: The Philippines has sound and comprehensive environmental laws and policies. However, it suffers from weak implementation because of inadequate capacity and financial constraints both at the national and local levels. A shift in strategy toward more devolution to local levels of government, enhanced resource mobilization for environmental management, better prioritization, and retooling of human resources are urgently needed to accommodate new priorities. The CEA also recommends improvements in environmental information systems and public access to such information.


The Philippine environmental impact assessment system has all the elements of a sound system, such as the presence of screening, scoping, independent review, public participation, disclosure, and monitoring. However, it has limited use as a planning tool because in most cases it is applied downstream of key feasibility decisions. Its implementation suffers from a highly regulatory and control-oriented approach that emphasizes compliance with rigid bureaucratic procedures, from overlap with many laws, from more attention being given to procedural compliance rather than technical contents, and from a complex and poor system of follow-up and monitoring.

Outdoor air pollution (OAP): We estimate that more than 1 million people get sick every year due to outdoor air pollution in urban areas. About 15,000 people die prematurely due to OAP. As explained in the main text and in detail in Annex A, the economic costs of this depend very much on what method is being used but are in all cases significant.
The cost of disease linked to OAP is estimated at more than $20 million per year. When only the income loss from mortality is valued (the human capital approach, or HCA), the cost is more than $120 million per year. However, valuing mortality in terms of the willingness to pay for risk reductions of premature mortality (the value of statistical life, or VSL), the cost is more than $1.6 billion per year. This is more than 1% of the gross national product (GNP) in the Philippines. Although international comparisons are difficult because of differences in methodology, similar results from 11 other countries are available. These show a span of about 0.2–2.5% of gross domestic product (GDP) (Guatemala and China respectively).
In view of these costs, the CEA discusses several options for cost-effective interventions. A well-functioning inspection and maintenance program is one of the most cost-effective interventions in abating outdoor air pollution. Switching from two-stroke to four-stroke tricycles will reduce PM emissions from these vehicles by 80%. The successful engine conversion program in Vigan City is an inspiring example. A cost-benefit analysis (CBA) of low-sulfur diesel and vehicle emissions control technology also shows promising results. Investments in mass rapid transit systems are also important.
Indoor air pollution (IAP): About half the population of the Philippines uses fuelwood or charcoal for cooking. Indoor air pollution is conclusively linked to several types of respiratory disease and premature death. Our estimates show that almost half a million annual cases of illness are caused by IAP, which is also linked to almost 6,000 deaths per year.

The economic cost of illness in terms of income losses and health care costs amount to more than $30 million per year. We estimate that premature deaths from IAP cost about $100 million, using the HCA approach. Using the VSL approach, the figure becomes more than $600 million per year. The relationship between the two cost estimates is not the same as in the case of OAP. IAP causes many premature deaths at a younger age, so people’s remaining life-time income is higher, which increases the HCA estimate relative to the VSL. Adding both morbidity and mortality costs, the total IAP-related costs are equivalent to about 0.1–0.4% of GNP in 2007. This is less than the costs associated with OAP, but because poor people use polluting fuel to cook, the impacts of IAP on the poorest households are much higher. The international comparison shows a span of costs related to OAP of 0.1–1.7% of GDP across 11 countries (Tunisia and Nigeria, respectively).

The CEA also analyzes promising interventions to cost-effectively mitigate this burden of disease, such as improved ventilation, better stoves, and switching to cleaner fuels. Our CBA shows that the introduction of improved stoves has high economic returns in a range of household cooking environments. Likewise, switching to liquefied petroleum gas is also found to provide higher benefits than costs in households cooking indoors in poorly ventilated conditions.
Water pollution, sanitation, and hygiene: Our calculations show that a total of about 34 million cases of WSH-related illnesses occurred nationally in 2003. While we consider seven relevant diseases, diarrhea is by far the most important factor. It is estimated that more than 14,000 Filipinos died directly from WSH-related illnesses in 2003, most of them from diarrhea in children under 5 years old. This CEA adds a novel element by estimating the indirect mortality caused by diarrhea-induced malnutrition in young children. These indirect costs are shown to be quite significant and are borne primarily by the very poor.
Our calculations indicate that total annual cost of WSH-related morbidity and direct and indirect mortality is about $1.4–2.8 billion, depending on the use of HCA or VSL for valuing premature mortality. In either case, these costs are quite significant and disproportionately borne by the poor. This is in the order of nearly 1–2% of national income per annum. In contrast to the cost of IAP and OAP health effects, the cost of WSH-related morbidity is quite significant in comparison to the cost of mortality. The international comparison shows a span of costs related to WSH of 0.1–2.2% of GDP (China and Iran respectively).
The CEA analyzes priority interventions to mitigate this damage. A CBA was undertaken for the Philippines of the two interventions that international evidence indicates provides the largest reduction in diarrheal disease, namely hand washing with soap and household point-of-use drinking water treatment. A CBA was also done for improved water supply and toilet facilities to rural households. The results show very high returns to boiling of water and hand washing, but also encouraging returns for improved water supply and toilets.

Coastal and marine resources: A rich and interlinked set of ecosystems, CMR include coastal lands, mangrove forests, seagrass beds, coral reefs, and fish stocks. These resources are an important part of the Philippine economy, generating net economic benefits of more than $500 million per year both directly through marketed goods and services as well as indirectly through the flow of ecosystem services. The annual cost from degradation of CMR is estimated at more than $120 million in 2006 prices. By far the largest source of this is overfishing, which means that potential rents from more sustainable fisheries management are being lost.

From an international perspective, the Philippines harbors coastal and marine resources of major international significance. Well managed, they could also contribute much more to sustainable income through nature-based tourism. The results presented in the CMR chapter highlight the large and diverse potential economic benefits provided by marine protected areas (MPAs). It is proposed that 10% of each major ecosystem be included in MPAs. Registration and licensing of national and local fisheries is another priority intervention, although it was not possible to do a CBA on this. The case study from Ubay shows that progress can be made toward sustainable CMR management. One way of addressing overfishing is to provide fishers with alternative sources of income that reduce their dependence on capture fishing. An attractive option is the development of environmentally sensitive aquaculture. Collectively, the three interventions proposed here are mutually reinforcing by protecting and conserving habitats through MPAs, providing real alternatives through pro-poor aquaculture, and instituting a licensing scheme with the long-term objective of limiting entry to the open access fishery.

Forests: Forests have seen a long-term decline in the Philippines. Changes in definitions over time obscure the trend, but the overall loss in forest area has probably been reversed. The volume of secondary forests is recovering, while old-growth forests are still losing ground. Forests are estimated to produce net benefits of more than $100 million per year, almost equally divided between timber and non-timber benefits. This underlines the value of forests not only for timber but also for biodiversity. Future agreements on payments for carbon sequestration could potentially alter this calculation considerably.
When overall extraction exceeds the growth of forests, the forest capital is depleted and costs can be calculated. This measure of depletion is not directly comparable to, for example, the cost of air pollution; rather it is a measure of the liquidation of forest capital. Our analysis focuses on the latest phase of forest management (from 1992) and ends in 2003 due to the limitation of statistics. For this period, overextraction of forestry products and conversion to other uses—which lead to losses of non-timber forest products—are estimated to have cost the Philippines about $60 million a year.
Selected interventions to remedy this situation show promise in helping to maintain the sustainable flow of goods and services from forests. Several concrete actions are proposed, including the following: improvement of forest statistics and consistent application of definitions over time; long-term tenure arrangements to give forest users the proper incentives to make long-term investments; stepped up enforcement of logging regulations, including both logging techniques and reforestation and land management; and promotion of community forestry.
Land management: The major crops in the Philippines are rice, maize, and coconuts. All have shown a healthy annual growth in productivity of 1–5% per annum in the 1970–2006 period. The main drivers are more fertilizers, new seeds, and better management. These have masked the influence of land degradation.
The cost of land degradation is highly site-specific. Extrapolating to nationwide figures is therefore a highly uncertain exercise. Nevertheless, our results point to an annual cost of approximately $150 million per year in lost productivity due to soil erosion. This is equivalent to about 0.6% of gross value added in agriculture. The best “guesstimates” of the off-site costs of soil erosion are considerably larger: almost $600 million per year. This number is not firmly based in empirical measurements, but it does highlight that the off-site costs of land degradation may well be considerably larger than the on-site costs.
The results from CBAs of soil conservation measures reported in this CEA confirm the intuition that farmers would have an incentive to invest in such technologies only if they have long planning horizons and a low discount rate. Security of land tenure is not believed to be important in influencing the planning horizon, but high private interest rates imply that less soil conservation is undertaken than economically optimal. Added to this is the fact that off-site impacts will not be included in land managers’ decisions. Correction of this major market failure can be achieved by a system of payments for ecological services. These have high transactions cost but could be used selectively in watersheds that show major downstream impacts from upland land degradation.

Climate change: The Philippines makes a very minor contribution to global greenhouse gases (GHGs). But the country is significantly at risk due to extreme weather events that are expected to be exacerbated by climate change. About half of its total area and more than 80% of its population are considered vulnerable to natural disasters. Disaster risk management is therefore a natural point of entry in extending the planning horizon and incorporating gradually improved understanding of the impacts that climate change will bring to the Philippines.
There has been an active legislative and institutional response to climate change from the government. However, there is a lack of clear strategic guidance on the management of climate change, and the existing government strategy is not operational. The institutional mandates have changed drastically with recent Executive Orders, but implementation rules and regulations are still to be worked out. There is a need to further mainstream climate change risk management in national, local, and sector decision-making processes. The enabling environment for climate risk management would benefit from improvements in awareness raising and advocacy, financing, technology transfer, and coordination. Although the Philippines is a minor GHG emitter, it should nevertheless fully exploit the available technical and financial global facilities that address mitigation. New financial instruments, including the Clean Technology Fund and the Carbon Partnership Facility have recently become available and should be pursued. The recently approved World Bank Group CAS gives significant attention to the topic of climate change and provides a mandate for strengthening work in both mitigation and adaptation.
In summary, much of the cost of environmental degradation is due to lack of development, particularly IAP and WSH-related diseases. However, standard economic development will not be enough to cure all problems, as other costs tend to rise: OAP and overexploitation of fisheries, land, and forests being prime national examples, and climate change being the major global one. Prudent stewardship of natural resources and pollution control must be brought together in an efficient environmental management regime. By giving the environment its true economic value and putting a price on degradation and its human impacts, the road to sustainable development becomes clearer.

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