POLICY BRIEF

POLICY RECOMMENDATIONS ON THE REDUCTION OF ENVIRONMENTAL IMPACTS OF WOOD PROCESSING BY SMALL AND MEDIUM ENTERPRISES

The Research Institute of Sustainable Forest Management and Forest Certification

1          Introduction

A research project assessment “Environmental and social issues of timber processing enterprises toward the provisions of the Chapter 13 under the European Union – Vietnam Free Trade Agreement (EVFTA)” was conducted in three provinces; Phu Tho, Thua Thien Hue and Binh Dinh. The assessment found that environmental pollution caused by wood processing activities was a major issue that required immediate consideration and action.

Environmental pollution involves the release or deposition of contaminants into the environment. Environmental pollution can be natural, such as in the instance of a volcanic eruption; or human induced, such as by the release of industrial waste. All pollution negatively impacts human health and the functioning of natural ecosystems. This study considers the pollution caused by the release into the environment of waste products of wood processing by small and medium enterprises.

This paper concludes with policy recommendation to minimise the negative impact of small and medium wood processing enterprises on environment. These recommendations may be summarised as follows:

(1)  Main findings: the status and the reasons of environmental pollution caused by wood processing activities.

(2)  Recommendations are made for state administrative agencies to consider and issue new policies to facilitate the implementation of measures to combat adverse environmental impacts.

2          Main findings

2.1         Background

The research project consulted with 22 small and medium wood processing enterprises in addition to workers, residential communities and People’s Committees of communes located near the aforementioned enterprises in the provinces of Phu Tho (10 enterprises), Thua Thien – Hue (eight enterprises) and Binh Dinh (four enterprises). This consultation identified many issues related to or originating from wood processing activities having adverse impact on environment.

On November 17 2020, the National Assembly issuedthe Law on Environmental Protection, becoming effective from January 1, 2022[1]. An implication of this Law is that prior to commencing operations, wood processing projects must submit a report on the environmental impact of their proposed operation including an environmental protection plan approved by state administrative agencies. Therefore, based on the validity of the 2014 Law on Environmental Protection, before putting wood processing projects into operation, enterprises shall provide Report on environmental impact assessment[2] or environmental protection plan[3] approved by state administrative agencies.

2.2         Environmental Pollution from Wood Processing

Consultation showed that the current level of environmental impact assessment by wood processing operations varied between the three provinces surveyed. In Phu Tho province, only 55.5% of enterprises have documented assessment of their environmental impact whereas the proportion was higher in Binh Dinh and Thua Thien – 75% and 100% respectively. These figures are shown in Table 1. 

Table 1: Percentage of enterprises with Environmental Impact Assessment Report or Environmental Protection Plan[4]

 All of the pollution caused by wood processing enterprises originated from waste left over from production. Mostly it takes the form of dust and noise, though smoke, paint and varnish smell is significant also. 100% of enterprises in Binh Dinh Province generated some level of pollution to the environment, however this proportion was much lower in Phu Tho and Thua Thien provinces at 7.5% and 15% respectively. This assessment is illustrated in Table 2.

Table 2: Percentage of enterprises with waste in production causing environmental pollution[5]

 Environmental pollution caused by waste from wood processing appears strongly linked to whether enterprises have wastewater treatment systems installed. In Binh Dinh province where all enterprises were found to cause some level of environmental pollution, none had installed systems to treat wastewater. In contrast, wastewater treatment systems had been installed by a significant proportion of enterprises in Phu Tho and Thua Thien provinces where significantly less pollution was identified. A common assertion by enterprises in all three provinces is that it is not always possible to install wastewater treatment systems or measures to combat the negative impacts on environment. Moreover, a majority of enterprises and their employees advised that measures more broadly are taken in all provinces to mitigate negative environmental impact from production with the lowest. This proportion is lowest in Phu Tho than the other two provinces. Table 3 represents the views of enterprises and employees in regard to measures taken to mitigate environmental pollution from wood processing.

Table 3: Percentage of enterprises with wastewater treatment systems and measures to reduce environmental impacts[6]

2.3         Causative factors

Consultation with enterprises, workers, residential communities and the relevant People’s Committees of communes allowed conclusions to be drawn of factors that cause pollution to occur, or that compromise measures to mitigate. These are given as follows:

(1)    Outdated factory, production lines, machinery and equipment.

Production innovation through the adoption of advanced equipment and technology not only boosts productivity, quality and the efficiency of raw material utilization, but typically also assists in minimizing negative environmental impacts of production. However, acquisition of advanced equipment and technology often entails a major capital outlay, and returns the greatest gains when applied across a large enterprise. Small and medium wood processing enterprises are characterised by limited resources to invest in new equipment and technology. Subsequently, the percentage of small and medium enterprises innovating with machinery, equipment, and production lines is low. This shortcoming is most apparent in Binh Dinh Province where only 22.5% of enterprises have advanced machinery and equipment. 

Table 4: Percentage of enterprises with advanced machinery and equipment[7]

 Interviews with workers of enterprises and residential communities near these enterprises suggested that the main cause of environmental pollution (wood dust, noise, etc.) is the usage of outdated machinery, equipment or production lines.

(2)    Limited capital and difficulty in accessing loans

The availability of capital to invest in production, for expansion or productivity, remains a major impediment for small and medium-sized enterprises. It is most acute for micro-enterprises, start-ups, home businesses and enterprises that do not have property to put as collateral.

Whilst investment capital to expand production can come from many sources, most enterprises depend on bank loans. However, for a range of reasons many enterprises find it difficult or impossible to access loans, particularly concessional loans but also long-term loans and loans from commercial banks. To make capital more accessible, banks have implemented a variety of measures including:

• simplified credit procedures and processes,
• enhanced transparency related to credit information,
• publicized the process, procedures, time of service delivery, interest rates and service fees,
• negotiated and exchanged information with enterprises to solve difficulties related to credit relations, and
• generally sought to create favourable conditions for small and medium enterprises to access credit in accordance with the law.

The Law on Support Small and Medium-sized Enterprises has identified funding sources for supporting small and medium-sized enterprises to include:

i) Credit supported and guaranteed by the State,

ii) State budget funds,

iii) Exemption from and reduction of taxes, charges, fees, land rental, land use levy and other amounts payable to the state budget in accordance with law, and

iv) Lawful funds of domestic and foreign organizations and individuals[8].

Although provinces have also issued policies to support enterprises in accordance with the Law on Support Small- and Medium-sized Enterprises[9], specific information of the impact of these policies has not been provided.

Consultation across the three provinces showed that the capital sources used by enterprises include equity capital, loans and other sources. As shown in Table 5, it was found that equity capital comprised no more than 50% of the total investment capital of enterprises across all three provinces. Additionally, a large number of enterprises could not access concessional loans at all. The proportion was particularly high in Phu Tho province at 80%. 

Table 5: Enterprises sources of capital (%)[10]

 Limited capital discourages investment in equipment and technology that might lessen the negative environmental impacts of enterprises. During consultation, 100% of enterprises expressed that they were committed to environmental protection, while many could not access sufficient funds to fulfil their commitments. This included funding from within enterprises as well as from the State and other sources. In Phu Tho province only 43% of enterprises were able to fund their environmental protection commitments. In Binh Dinh and Thua Thien – Hue provinces these proportions were 50% and 100% respectively[11].

(3)    Location of wood processing enterprises in residential areas directly affects communities’ living environment.

Wood processing enterprises are generally located in residential areas meaning the waste generated by production has a direct impact on the living environment of the communities. Moreover, if production expansion is not accompanied by reduction in pollution caused by waste then the impact on places of high population density (towns or urban areas) is amplified.

That situation has been continue happening if there is no effective solition. It is difficult for small and medium enterprises with limited capital to obtain or rent land/industrial parks for production. Therefore, the most efficient and expedient solution available to them is to simply build their requisite factories on the land they already have.

However, this situation often gives rise to tension between enterprises and residents. In the first instance, residents have a strong preference enterprises work within a strict band of hours – typically nine to five[12], which enterprises often find constrictive. Moreover, residents expect that enterprises will contain emissions of noise, odour or pollution, or apply compensation. However, this is beyond the means of many small to medium-sized enterprises[13]. This complex mix of factors upholds that locating factories in residential areas is not sustainable in the longer term.

3          Recommendations

The adverse impacts of wood processing activities on the environment and communities are significant. They require comprehensive solutions and policies to minimise and mitigate. Within the framework of this policy brief, three recommendations are proposed, as described below.

3. 1. Policy and regulation to support access to investment capital including concessional loans

The Government and the State Bank of Vietnam to formulate policy, and adapt regulations and lending requirements to create conditions conducive for small and medium-sized wood processing enterprises to access investment capital. Particular emphasis be extended to small and start-up enterprises having limited collateral gaining access to investment capital including concessional loans.  

Policy, regulations and lending requirements to explicitly favour capital investment in wastewater treatment systems, renewed production lines, and advanced production equipment and technology where that equipment can be shown to reduce environmental emissions, lessen the impact of production on the environment or incorporate environmentally benign materials.

3.2. Policy to encourage the adoption of materials, equipment, advanced and environmentally friendly technologies

Government to develop policies that encourage the adoption of materials, equipment, and advanced and environmentally friendly technologies. Specific elements of policies that would give effect to this are proposed:

• 100% import tax exemption for materials, machinery and equipment, purchased for wood production and processing where those items will reduce or mitigate the negative environmental impacts of wood production and processing
• Subsidise domestically produced materials, machinery and equipment to an amount equivalent to the import taxes that would ordinarily have applied to imported items where these items will reduce or mitigate the negative environmental impacts of wood production and processing. The tax exemption is to be deducted from the profit tax of enterprises.
• Exempt or reduce tax for enterprises investing in procurement and wastewater treatment system, renewal of productions lines, advanced equipment, and the usage of environmentally friendly materials.
• Regulations on time limit for technology and equipment renewal of small and medium enterprises to comat environmental pollution shall be promulgated.

3.3. Policy to eliminate factories of enterprises located in residential areas

Government policy governing the location of factories of wood processing enterprises to incorporate an overarching principle that establishment or expansion of wood processing in residential areas is not permitted.  

State plans are to segregate areas separate from residential communities for wood producing establishments in general and for wood processing establishments in particular. These areas could be at commune, district and provincial levels, and developed in a similar manner to industrial parks or processing zones.

Government is to prohibit State administrative agencies from approving projects, allocating land, leasing land or granting business licenses to wood processing enterprises where those enterprises undertake to locate their establishments outside the aforementioned wood processing areas areas.

Develop a roadmap for the relocation of all wood processing establishments. Widely disseminate policies favourable to the relocation of wood processing factories to aforementioned wood processing areas. Include a time-bound provision that enterprises that fail to comply with these policies and regulations would ultimately be suspended and required to relocate.