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Philippine Environmental Updates

By: Jocelyn J. Gregorio-Reyes Quisumbing Torres Manila, Philippines June 2006
I. Introduction

The Philippines has one of the more voluminous sets of environmental laws in Asia, although the laws have not prevented environmental degradation throughout the Philippines. This is due principally to (1) the insufficiency of technical, human and financial resources at the national, regional and local government levels, often coupled with resistance to change, and (2) ineffective environmental governance due to weak institutional capacity, particularly with regard to enforcement of laws and regulation. Poor understanding and education on the part of the Philippine population are also barriers to environmental progress. With environmental problems seeming to abound in the Philippines, the government has recently begun to step up its legislative action. Major environmental legislation has been enacted over the past couple of years, specifically legislation addressing the worsening air pollution and irresponsible dumping of solid waste, particularly in urban centers. Recently, to prevent, abate and control water pollution for the effective utilization of the water resources, the Philippines Department of Environment and Natural Resources (DENR) adopted the National Environmental Users Fee (NEUF) through its wastewater permitting system by issuing DENR Administrative Order (DAO) No. 2002-16 and its implementing rules, DAO 2003-39. To address the lack of enforcement and infrastructure required to improve environmental management, the DENR also issued DAO 2003-14. DAO 2003-14, signed by the DENR Secretary on June 2, 2003, created the Philippine Environment Partnership Program (PEPP). DAO 2003-14 is a product of multi-sectoral policy dialogue in response to the need and demand of industry for government assistance and incentives to encourage industries to implement and sustain proactive environmental management tools and improve environmental compliance. On March 22, 2004, the Clean Water Act was enacted and signed into law by President Gloria Macapagal-Arroyo. The Clean Water Act mandates the DENR to implement a comprehensive water quality management program to guarantee effective water utilization and conservation. On May 16, 2005, the DENR adopted DAO No. 10-05 as the

Quisumbing Torres is a member of Baker & McKenzie International, a Swiss Verein.

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implementing rules and regulations of the Clean Water Act. Other administrative orders and issuances have been passed as awareness of environmental problems grows among the various stakeholders. This paper will discuss recent developments in legislation, regulation and enforcement of Philippine environmental laws. II. A. 1. Recent Developments Environmental Impact Assessment (EIA) Overview of the Philippine Environmental Impact Statement (EIS) System

The EIA implements Presidential Decree (PD) No. 1586, which established the Philippine EIS System Law, to facilitate the attainment and maintenance of a rational and orderly balance between socio-economic growth and environmental protection. EIAs are part of project planning and are conducted to identify and evaluate important environmental consequences including social factors that may occur if a project is undertaken. Measures to eliminate or minimize impacts are incorporated into project design and operations. PD 1586 requires proponents of environmentally critical projects (ECP) and projects within environmentally critical areas (ECA) to obtain an environmental compliance certificate (ECC) prior to the commencement of the project. An ECA is an area delineated as environmentally sensitive because significant environmental impacts are expected if certain types of proposed projects or programs are located, developed or implemented in it. An ECP is a project or program that has high potential for significant negative environmental impact. The ECC is a document certifying that the proposed project or undertaking will not cause significant negative environmental impact. The ECC also certifies that the proponent has complied with all the requirements of the EIS System and has committed to implement its approved Environmental Management Plan. The ECC requires the project proponent to undertake certain measures before and during the operation of a project and, in some cases, during the projects abandonment phase, to mitigate identified environmental impacts. 2. Administrative Order No. 42 (AO 42)

AO 42 was signed by the President on 2 November 2002 and streamlined the ECC application processing and approval procedures by specifying the endorsing official, approving authority and processing timeframe for ECPs, projects within ECAs and projects not covered by the EIS System. AO 42 also provides that if no decision is made within the specified processing timeframe, the ECC application is deemed automatically approved and

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the approving authority is required to issue the ECC within five working days after the prescribed processing timeframe. 3. Department Administrative Order No. 2003-30 (DAO 2003-30)

Pursuant to AO 42, the DENR issued DAO 2003-30 as implementing rules and regulations for the EIS System. DAO 2003-30 took effect on 4 August 2003. DAO 2003-30 clarified the coverage of the EIS System. It provides two criteria to be considered in determining the scope of the EIS System, namely: (i) the nature of the project and its potential to cause significant negative environmental impacts, and (ii) the sensitivity or vulnerability of environmental resources in the project area. The specific criteria for determining projects or undertakings to be covered by the EIS System are the characteristics of the project or undertaking, the location of the project, and nature of the potential impact. DAO 2003-30 expanded the classification of projects under the EIS System. Under previous laws, projects were classified as ECPs, those that were located in ECAs, and those that did not fall under either of the two. Under DAO 2003-30, the following are the categories of projects/undertakings under the EIS System: Category A - ECPs with significant potential to cause negative environmental impacts; Category B - Projects that are not categorized as ECPs, but which may cause negative environmental impacts because they are located in ECAs; Category C - Projects intended to directly enhance environmental quality or address existing environmental problems not falling under Category A or B; and Category D - Projects unlikely to cause adverse environmental impacts.

DAO 2003-30 specifies the applicable requirements for each project category. It provides that proponents of projects that fall under Category A and B are required to secure an ECC. Proponents of projects under Category C are required to submit a Project Description. Projects classified under Category D may secure a Certificate of Non-Coverage (CNC). A CNC is a certification issued by the EMB that the project is not covered by the EIS System and is not required to secure an ECC. Projects introducing new technologies or construction techniques but which may cause significant negative environmental impacts shall be required to submit a Project Description which will be used as the basis by EMB for screening the project and determining its category.

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DAO 2003-30 also establishes an Environmental Guarantee Fund (EGF) for all co-located or single projects that have been determined by DENR to pose a significant public risk or where the project requires rehabilitation or restoration. B. 1. Solid Waste Overview of Solid Waste Management

The most significant legislation on solid waste management, Republic Act (RA) No. 9003, or the Ecological Solid Waste Management Act of 2000 (Solid Waste Act) and its implementing rules, was signed into law on January 26, 2001. The Solid Waste Act calls for the institutionalization of a national program to manage the transfer, transport, processing, and disposal of solid waste in the country. There have been no recent significant legislative or regulatory updates regarding the management of solid waste. Under the Solid Waste Act, the DENR sets guidelines and targets to reduce the volume of solid waste through various waste reduction measures. These measures include the proper segregation, collection, transport, storage, treatment, and disposal of solid waste, as well as composting, recycling and re-using of solid waste. In coordination with local government units (LGUs), self-regulating waste generators and other private sector groups, the DENR was designated to be the primary enforcer of the Solid Waste Act. The Solid Waste Act prohibits the following acts: Dumping waste materials in public places such as roads, canals or sidewalks; Open burning of solid waste; Permitting the collection of non-segregated waste; Squatting in open dumps and landfills; Open dumping in flood-prone areas; Mixing of source-separated recyclable material with other solid waste in any container for solid waste collection; Operating open dumps outside the provisions of the law; Manufacturing or distributing non-environmentally acceptable packaging materials; Importing consumer products in non-environmentally acceptable packaging materials;

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Importing toxic wastes misrepresented as recyclable; Transporting and dumping in bulk of collected domestic, commercial, industrial, and institutional wastes outside of designated centers or facilities; Preparing, expanding, constructing or operating waste management facilities without an Environmental Compliance Certificate and without conforming to the land use plan of the LGU; Constructing any establishment within 200 meters from open or controlled dumpsites or sanitary landfills; and Constructing or operating any landfills or waste disposal facility on any area or portion of an aquifer, water reservoir or watershed. Developments in Enforcement

2.

The National Solid Waste Management Commission (NSWMC) of the DENR, the major agency tasked to implement the Solid Waste Act, aims to intensify its campaign on waste reduction, reuse, recycling, and conversion of open dumpsites into controlled disposal facilities to further strengthen the gains made under the law. LGUs will continue to head and supervise all efforts on solid waste management. In addition, the NSWMC will expand recycling activities with tire manufacturers and intensify its buying of polyethelyne terapthalate (PET). Paper recycling will be intensified, with used papers from government offices as the main sources. Likewise, the NSWMC will set up more redemption centers for recyclables like aluminum cans, bottles, tetra packs, polypropylene, batteries, and others. C. 1. Hazardous Waste Overview of Toxic and Hazardous Waste Management

RA 6969 refers to the Toxic Substances and Hazardous and Nuclear Wastes Control Act. RA 6969 provides the legal framework for the countrys program to control and manage the importation, manufacture, processing, distribution, use, transport, treatment, and disposal of toxic substances and hazardous and nuclear wastes. The DENR issued DAO 1992-29 as the implementing rules and regulations of RA 6969. On August 31, 2004, the DENR amended DAO 1992-29 to further strengthen the implementation of RA 6969. A Procedural Manual was published prescribing the procedures for the proper handling of hazardous waste as mandated under DAO 2004-36.

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RA 6969 requires all manufacturers and importers of a new chemical to submit a premanufacture and pre-importation notification (PMPIN) to the DENR. A new chemical substance is defined as any chemical that is not included in the Philippine Inventory of Chemicals and Chemical Substances (PICCS). The purpose of the PMPIN is to screen harmful substances before they enter the Philippines. As the name implies, the PICCS is a list of existing industrial chemicals and chemical substances used, sold, distributed, imported, processed, manufactured, stored, exported, treated, or transported in the Philippines. Manufacturers and importers of new chemicals are required to notify the DENR of their intent to manufacture or import the new chemical within 90-180 days before commencing the manufacture or importation of the new chemical. Together with this notification, the proponent must submit the appropriate PMPIN forms. Once a chemical is listed in PICCS, it may be manufactured or imported with no control, provided it is not included in the Priority Chemicals List (PCL) or subject to a Chemical Control Order (CCO). The PCL is a short list of chemicals that potentially pose unreasonable risks to public health, workplace and the environment. At present, there are 45 toxic chemicals enumerated in the revised PCL (DAO 2005-27). Their inclusion in the PCL is based on the selection criteria used by industrialized countries, such as persistence, toxicity and bioaccumulation. Users, importers and manufacturers of chemicals listed in the PCL are required to comply with various registration and reporting requirements. A CCO is a policy instrument used by the DENR to prohibit, limit or regulate the use, manufacture, import, export, transport, processing, storage, possession, and sale of priority chemicals that are determined to be regulated, phased-out or banned because of the serious risks they pose to public health, the workplace and the environment. The objective of a CCO is to ensure the proper management of the chemicals so that danger to human health and the environment is reduced. A CCO specifies requirements for the importation, manufacturing, use, transport, and disposal of these chemicals. A CCO also requires the subsequent phase-out of the chemical and its substitution with less harmful chemicals. Four chemicals have been covered by CCOs in the form of DENR administrative orders. These CCOs are for: mercury (DAO 97-38), cyanide (DAO 97-39), asbestos (DAO 200002), and ozone-depleting substances (DAO 2000-18). Recently, the DENR added six chemicals to be covered by CCOs, namely: cadmium compounds, lead compounds, arsenic compounds, vinyl chloride, benzene, and chromium (DAO 2005-05). The list of ozone-depleting substance specified under DAO 2000-18 has also been subsequently modified by the revised CCO for ozone-depleting substances (DAO-2004-08). The new rule (R502) totally bans the importation of CFC-11, CFC-12 and CFC-115 by

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2010. In 2007, the importation of ozone-depleting substances will be limited to 15% of the average annual amount imported during calendar years 1995-1997. Importers of ozonedepleting substances regardless of the source as allowed under the Montreal Protocol are required to register with the DENR. The Certificate of Registration is only valid for one year. 2. Regulatory Developments

The DENR Secretary recently issued DAO 2004-01, promulgating the CCO for polychlorinated biphenyls (PCBs). The CCO aims to reduce and eliminate importation, manufacture sale, transfer, distribution, and use of PCBs and PCB-containing equipment. It also aims to reduce the hazards and unreasonable risks posed to human health and the environment from the improper use and management of PCBs, including the transport, treatment and disposal of PCB wastes. 3. Importation of Materials Containing Hazardous Substances

As a general rule, the importation of hazardous wastes as defined in RA 6969 is not allowed. However, the importation of hazardous substances for recovery, recycling and reprocessing is allowed only upon prior written approval from the Secretary of the DENR. Importation of recyclable hazardous materials is governed by DAO 1994-28 and said administrative order contains a list of recyclable materials containing hazardous substances which may be imported upon prior registration. The exporter is liable to retrieve the waste when denied entry by the Philippine government. The applicants are also responsible for clean-up operations in case of spills and emergencies and damages to human health and property arising out of such waste management activities. As of November 26, 2004, Coal-Fired Power Plant Fly-Ash in concentrations specified under Annex III of DAO 1994-28 can no longer be imported. Any residual fly ash which could no longer be used in cement production as of that date was mandated to be shipped back to the country of origin. (DAO 2004-66). 4. Disposal of Health Care Wastes

Health Care Wastes are among the hazardous wastes being closely monitored by the Philippine Government. Pursuant to RA 6969 and other applicable laws, such as the RA 9003, PD 856 (Refuse Disposal of the Sanitation Code of the Philippines) and RA 4226 (Hospital Licensure Act), the DENR and the Department of Health (DOH) issued a joint administrative order establishing the proper guidelines and policies for the treatment, storage and disposal (TSD) of health care wastes. (Joint DENR-DOH Administrative Order 2005-02). The administrative order, issued in 2005, recommends the following treatment methods for Health Care Wastes: (1) thermal, (2) chemical, (3) irradiation, (4) biological processes, (5) encapsulation, and (6) inertization, as outlined in the DOH Health Care Waste Management

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Manual. Health Care Waste generators and TSD facilities are required to meet specified treatment standards. Treated wastes and inert residues from TSD facilities can only be disposed in controlled disposal or sanitary landfill facilities duly licensed by the DENR. D. 1. Air Overview of Air Quality Management

On June 23, 1999, the Philippine Clean Air Act of 1999 (the Clean Air Act) or RA 8749 was signed into law. The Clean Air Act took effect on July 19, 1999. Under the Clean Air Act, the DENR is mandated to (1) formulate a national program on how to prevent, manage, control, and reverse air pollution using regulatory and market based instruments, and (2) set-up a mechanism for the proper identification and indemnification of victims of any damage or injury resulting from the adverse environmental impact of any project, activity or undertaking. The implementing rules and regulations of the Clean Air Act (DAO 2000-18) took effect on November 25, 2000. The Clean Air Act was enacted to address the problem of air pollution. Under the Clean Air Act and its implementing rules, the DENR has divided the Philippines into geopolitical regions known as airsheds, which are designated areas designed to assist policymakers in establishing effective air quality management programs. Emissions trading is allowed among pollution sources within an airshed. Facilities located in different airsheds may conduct emissions trading if approved by the Environmental Management Bureau (EMB) of the DENR. Currently, there are 16 administrative orders related to the establishment of airsheds 2. a. Developments in Enforcement Mobile Sources

The Clean Air Act was mainly envisioned to fight air pollution from mobile sources which account for eighty percent (80%) of the countrys air pollution. The DENRs EMB started its evaluation of newly manufactured, assembled or imported vehicles for conformity with emission standards in 2000. By 2002, it had already issued 300 Certificates of Conformity (COC) to manufacturers, assemblers, or importers of new motor vehicles. As vehicles are registered, they are required to undergo annual emission testing to monitor compliance with emission standards. The EMB also issues certificates to emission test equipment for vehicles that Private Emission Testing Centers (PETC) use. The certificate for the operation and maintenance of Opacimeters and Gas Analyzers may be automatically revoked if the PETC improperly uses the equipment, issues test results without actually

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conducting the vehicle test, or tampers with the test result. (DAO 2005-03). This certification process was developed after widespread complaints and irregularities in PETC operation were discovered and became the subject of congressional inquiries. There are currently 76 accredited PETCs in the whole country. The Department of Transportation and Communication (DOTC) now requires a valid certificate of emission compliance with emission standards before the registration of a vehicle can be renewed. Originally, motor vehicles were not to exceed 0.5% carbon dioxide emission to pass the emission test. This passing mark is based on Euro 1 Levels of 1991. This is also considered as the globally accepted emission standards that are based on the fuel injection catalytic converter systems of new cars. Euro 1 is now being implemented in Europe and most countries in the world, including Asian countries like Malaysia, Singapore, Thailand, Vietnam, and Hong Kong (China). While the initial implementation of the Clean Air Act mandated Euro 1 standards for vehicles registered for the first time, the DENR issued DAO 2003-51 which lowered the allowable carbon monoxide emission from the Euro 1 Standard of 0.35 percent to 0.50 percent by volume. This new standard is the same level prescribed under the old Presidential Decree 1081 of 1972 and, as referenced above, is substantially below the commonly accepted standards of most countries. b. The Renewable Energy Program

The Philippines is developing its renewable energy program, primarily as a reaction to financial pressures arising out of the recent rapid increase in demand for petroleum products. The renewable energy program is also a result of a recognized concern for the care of the environment. As of May 2006, the Philippine Congress had developed a Renewable Energy Bill which is currently the subject of Congressional review and deliberation. In addition to these legislative efforts, steps have also been taken by the government to mandate the use of alternative energy sources and cleaner fuels. Memorandum Circular 55 directs all departments, bureaus and instrumentalities of the government, including government-owned and controlled corporations, to incorporate the use of one percent (1%) by volume coconut methyl ester (CME) in their diesel fuel requirements. The DOE issued Department Circular 2004-04-003 as implementing rules and regulations for MC 55. Resorting to CME will not only decrease the emission of carbon dioxide, which is a greenhouse gas, but will also benefit millions of Filipino coconut farmers. The Philippines is considered one of the worlds top exporters (ranks second) of coconut products and, thus, has vast coconut resources. Currently, there are already three major corporations engaged in the production and export of CME - Senbel Fine Chemicals, Inc., Chemrez, Inc., and R.I. Chemicals.

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c.

Phase Out or Lowering of Pollutant Contents

Leaded gasoline has been phased out nationwide. The lowering of aromatics in unleaded gasoline to 35 percent took effect in January 2003. The lowering of benzene in unleaded gasoline from 4 percent to 2 percent also took effect in January 2003. The introduction of pure diesel (with 0.05 percent S) as the first Clean Air Act compliant diesel fuel was initially made available by five new oil companies (City Oil, Eastern Petroleum, Jetty, Seaoil and Unioil) starting in September 2003. The current sulfur content of industrial and automotive diesel has already been lowered from 0.5 percent to 0.3 percent and from 0.2 percent to 0.05 percent, respectively. While progress has been made on fuel standards for automobiles and trucks, the government has yet to implement an emission standard for motorized tricycles. In the Philippines, 2.8 million tricycles produce a serious threat to the quality of the air. Tricycles produce a highly polluting hydrocarbon that can be seen as white smoke, a product of inefficient burning. This problem could be reduced with the proper use of 2 cycle transmission (2T) oil. Another setback in the implementation of the Clean Air Act is the tolerance of the government for unleaded gasoline to contain 1000 ppm of sulfur, which is even higher than the 500 ppm of sulfur in diesel. It is reported that catalytic converters do not function with 1000 ppm of sulfur. The Clean Air Act originally envisioned a reduction of sulfur content to 500 ppm by 2004 the standard adopted by most countries today. d. Stationary Sources

It has been reported that almost 20% of the countrys air pollution comes from stationary sources. The DENR has recently allowed stationary or source emission tests to be conducted by third parties. DAO 2006-03 was issued as guidelines for the accreditation of third parties applying to conduct source emission tests. The accreditation of third party source emission testing aims to provide assurance to stakeholders, regulators, and the general public on the reliability of source emission test results. It ensures that the accredited firms are fully capable of conducting source emission tests in accordance with the Clean Air Act. DAO 2004-26 requires companies to obtain a Permit to Operate for sources that emit various air pollutants. In order to obtain such a permit, an applicant must complete an engineering report that provides a description of plant operations, the types and quantities of waste materials generated, and the design of any air pollution control equipment to be utilized at the facility. Proponents are encouraged to consult with the EMB regarding their plans and specifications for their pollution control equipment before construction or installation. According to the EMB, permits are valid for a period of five years, unless suspended or revoked.

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The EMB has institutionalized a system for submitting self-monitoring reports. The reports monitor compliance with emission standards and are submitted quarterly to the regional offices of the EMB. The self-monitoring reports initially covered major industries, such as power and cement plants. Continuous Emission Monitoring Systems (CEMS) for particulates, sulfur and nitrogen oxide emissions are required to be installed in industrial plants in compliance with DAO 2000-81. As of September 2003, eight power plants, two petroleum/petrochemical and two cement plans had installed CEMS. Unfortunately, there does not appear to be wide-scale compliance with the CEMS on the part of most industry sectors. A 2006 figure indicated that there are only six (6) industries of more than 700 factories which have stacks fitted with CEMS. Incinerators were banned effective as of July 2003. In the health sector, the focus of the DOH is the promotion of alternative (non-burn) technologies such as microwave disinfection facilities and autoclave systems. The DOH has ordered conversion of DOH incinerators to crematoria, subject to EMB evaluation. The DOH has also been successful in reducing hospital incinerators by limiting their use to limbs and tissues only under strict monitoring. Currently, about 36 hospitals have been instructed to use non-burn microwave technologies. This practice may however result in additional problems since microwave technology does not reduce the wastes to ashes. Microwave treated hospital wastes are still disposed in municipal waste landfills, thus potentially posing different environmental hazards and public health risks. e. Tax Incentives Under the Clean Air Act.

The Clean Air Act includes a tax incentive provision for industries which install pollution control devices or retrofit their existing facilities with mechanisms that reduce pollution to comply with the air quality standards set forth in the Clean Air Act and its implementing rules and regulations. The DENR issued DAO 2004-53 for the implementation of these tax incentives. Qualified industries may claim accelerated depreciation, deductibility of research and development expenditures to reduce air pollution, tax credits, exemptions from real property taxes, and additional tax incentives for qualified enterprises operating within Special Economic and Freeport Zones. f. Other Monitoring Programs

Other government monitoring programs include lead monitoring, Persistent Organic Pollutants (POPS) monitoring, and acid rain monitoring. The lead monitoring program was carried out in parallel with the phaseout of leaded gasoline and showed that ambient levels of lead have dropped since 2000. POPS monitoring is being carried out in connection with the Philippine commitments to the Stockholm Convention of 2001.

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POPS are chemical substances that persist in the environment, bioaccumulate through the food web, and pose a risk to human health and the environment. They are classified as pesticides (e.g., aldrin, chlordane, dieldrin), industrial chemicals (e.g., PCBs), and unintended by-products (e.g., dioxins and furans). The Philippines is a participant in the Acid Deposition Monitoring Network in East Asia (EANET). Acid deposition monitoring covers four environmental items: wet deposition, dry deposition, soil and vegetation, and inland aquatic environment. The first two monitor the land surface and the last two assess the adverse impacts on terrestrial and aquatic ecosystems. E. 1. Water Overview of Water Quality Management

Former President Ferdinand E. Marcos promulgated the Pollution Control Law (PD 984). PD 984 makes it unlawful for a person to dispose any organic or inorganic matter or any substance in gaseous or liquid form which may cause water pollution in any Philippine water resource. The Water Code (PD 1067) prohibits any person from building any treatment works that may produce dangerous or noxious substances, or from performing any actions, which may result in the introduction of sewage, industrial waste or any pollutant into any source of water supply without prior permission from the EMB. In 1990, the DENR also issued DAO 34 and 35. DAO 35 regulates the discharge of industrial wastewater effluents, while DAO 34 classifies bodies of water according to their beneficial uses. Together, DAOs 34 and 35 regulate the discharge of wastewater effluents into varying water bodies. 2. The Clean Water Act

As mentioned, on March 22, 2004, the Clean Water Act was enacted and signed into law by President Gloria Macapagal-Arroyo. The Clean Water Act mandates the DENR to implement a comprehensive water quality management program to guarantee effective water utilization and conservation. The Clean Water Act (RA 9275) applies to water quality management in all water bodies, focusing on the abatement and control of pollution from land based sources. Notwithstanding this regulatory focus, the water quality standards and regulations and the applicable civil liability and penal provisions of the Clean Water Act are enforced irrespective of the actual sources of pollution. The DENR issued DAO 2005-10 as the implementing rules and regulations for the Clean Water Act.

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Under the Clean Water Act, the DENR, in coordination with the National Water Resources Board (NWRB), will designate certain areas as water quality management areas. Each management area will be governed by a governing board composed of various stakeholders and is tasked to formulate strategies to coordinate policies necessary for the effective implementation of the Clean Water Act. a. (i) Water Pollution Permits and Charges Wastewater Charge System

Under the Clean Water Act, the DENR implements a wastewater charge system in all water management areas, including the Laguna Lake Region and Regional Industrial Centers, through the collection of wastewater charges/fees. The system is established on the basis of payment to the government for discharging wastewater into the water bodies. The fee is based on the net waste load depending on the wastewater charge formula established after public consultation. The wastewater charge system does not apply to wastewater from geothermal exploration. (ii) Discharge Permits

The DENR requires owners or operators of facilities that discharge regulated effluents pursuant to the Clean Water Act to secure a permit to discharge (DAO 2004-25). The discharge permit specifies the quantity and quality of effluent that said facilities are allowed to discharge into a particular water body, compliance schedules and monitoring requirements. A self-monitoring report of the company should also be submitted to the EMB. As part of the permitting procedure, the DENR encourages the adoption of waste minimization and waste treatment technologies when such technologies are cost effective. Effluent trading may be allowed per management area. b. (i) Financial Liability Mechanism Financial Liability for Environmental Rehabilitation

Under the Clean Water Act, the DENR requires program and project proponents to set up an environmental guarantee fund (EGF) as part of the environmental management plan attached to the environmental compliance certificate. The EGF will finance the maintenance of the health of the ecosystems, the conservation of watersheds and aquifers affected by the development, and the needs of emergency response, clean-up or rehabilitation of areas that may be damaged during the programs or projects actual implementation. Liability for damages will continue after the termination of a program or project for a prescribed period of time as indicated in the environmental compliance certificate.

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(ii)

Clean-Up Operations

Any person who pollutes water bodies in excess of the applicable standards will be responsible for containing, removing and cleaning up any pollution at his or her own expense, to the extent the water bodies have been rendered unfit for use. In the event emergency clean-up operations are necessary and the polluter fails to immediately undertake them, the DENR, in coordination with other government agencies, may conduct containment, removal and clean-up operations at the expense of the persons found to have caused the pollution. (iii) Programmatic Environmental Impact Assessment

Programmatic compliance with the environmental impact assessment system is required by the DENR where (a) development consists of a series of similar projects, or a project subdivided into several phases and/or stages whether situated in a contiguous area or geographically dispersed, and (b) development consists of several components or a cluster of projects co-located in an area such as an industrial estate, an export processing zone, or a development zone identified in a local land use plan. c. Rewards and Incentives

Rewards, monetary or otherwise, will be provided to individuals, private organization and entities that have undertaken outstanding and innovative projects, technologies, processes, and techniques or activities in water quality management. Rewards will be provided out of the Water Quality Management Fund. An incentive scheme is also provided for the purpose of encouraging LGUs, water districts (WDs), enterprises, private entities, and individuals to develop or undertake an effective water quality management and to actively participate in programs geared towards the promotion thereof. Subject to the rules and regulations of the Philippines Board of Investments (BOI), industrial wastewater treatment, water pollution control technology, cleaner production, and waste minimization technologies will be classified as preferred areas of investment under its annual priority plan and will enjoy the applicable fiscal and non-fiscal incentives provided under law. Fiscal incentives include tax and duty exemptions on imported capital equipment and spare parts used for industrial wastewater treatment/collection and treatment facilities subject to certain conditions and a tax credit equivalent to one hundred percent (100%) of the value of the national internal revenue taxes and customs duties on the machinery, equipment, and spare parts, had these items been imported, subject to certain conditions and prohibitions. All legacies, gifts and donations to LGUs, WDs, enterprises, or private entities and individuals for the support and maintenance of the program for effective water quality

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management will be exempt from donor taxes and will be deductible from the gross income of the donor for income tax purposes. Imported articles donated to or for the account of any LGUs, WDs, local water utilities, enterprises, or private entities and individuals to be exclusively used for water quality management programs will be exempted from the payment of customs duties and applicable internal revenue taxes. d. Civil Liability / Penal Provisions

The Clean Water Act provides for a number of prohibited acts. Under its implementing rules and regulations, the following elements constitute prohibited acts as provided in the Clean Water Act: Facility discharge without permit; Disposal of infectious waste from vessel; Unauthorized transport or dumping of sewage sludge or solid waste into sea waters; Chemical dumping; Illegal facility operations resulting in discharges to water bodies; Sewerage development/expansion in violation of EIA; and Illegal discharges without valid permits.

Any person who commits any of the prohibited acts above or violates any of the provision of the Clean Water Act or its implementing rules and regulations will be fined by the DENR Secretary upon the recommendation of the Pollution Adjudication Board (PAB) for every day of violation. The fines prescribed will be increased by ten percent (10%) every two (2) years to compensate for inflation and to maintain the deterrent function of such fines. The DENR Secretary, upon recommendation of the PAB, may order the closure, suspension of development or construction, cessation of operations, disconnection of water supplies, until such time that proper environmental safeguards are put in place and/or compliance is undertaken. Penalties will be without prejudice to the issuance of an ex parte order for such closure, suspension of development or construction, or cessation of operations during the pendency of the case. Failure to undertake clean-up operations willfully or through gross negligence can be punished by imprisonment and a fine computed per day for each day of violation. Failure

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which results in serious injury or loss of life and/or irreversible water contamination of surface, ground, coastal, and marine water is subject to a greater term of imprisonment and a higher fine computed per day for each day during which the omission and/or contamination continues. In case of gross violations of the Clean Water Act, the PAB will issue a resolution recommending that the proper government agencies file criminal charges against the violators. Gross violations are: deliberate discharge of toxic pollutants identified pursuant to RA 6969 in toxic amounts; five (5) or more violations within a period of two (2) years; or blatant disregard of the orders of the PAB, such as the non-payment of fines, breaking of seals, or operating despite the existence of an order for closure, discontinuance or cessation of operation.

Offenders are punished with a fine computed per day for each day of violation, imprisonment, or both, at the discretion of the court. The president, manager, pollution control officer, or the official in charge of the operations may be criminally liable. For violations of PD 979, or the Marine Pollution Decree of 1976, or any of its regulations, persons may be liable for a fine or imprisonment, or both, for each offense, without limiting the civil liability of the offender. Officers, directors, agents, or any person primarily responsible for a company or operations may be held liable. Any vessel that discharges oil or other harmful substances will invoke a fine. The Philippines may withhold clearance of the vessel from the port of the Philippines until the fine is paid, and the penalty will constitute a lien on the vessel. The owner or operator of a vessel or facility which discharged the oil or other harmful substances will be liable to pay for any clean-up costs. Local government officials also may be subject to administrative sanctions for failure to comply with their action plan. 3. National Environmental Users Fee of 2002

To prevent, abate and control water pollution and encourage efficient use of water resources, the DENR adopted the National Environmental Users Fee (NEUF) through its wastewater permitting system by issuing DAO 2002-16 and its implementing rules, DAO 2003-39. NEUF was adopted to reduce water pollution and improve the ambient quality of water bodies, encourage firms to pursue the least-cost means of pollution reduction, encourage self-regulation, and implement the Environmental User Fee nationwide. The NEUF applies

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to all establishments and installations that discharge industrial and commercial wastewater into water bodies and/or land resources. Under DAO 2003-39, any person who discharges industrial or commercial wastewater into Philippine water and/or land resources must secure a Wastewater Discharge Permit (WDP) from the relevant Regional Office of the EMB. DAO 2003-39 provides that no person shall dispose or cause to be disposed into any of the water and/or land resources of the country, any organic or inorganic matter or any substance in liquid form without an approved WDP from the Regional Office. Likewise, no person shall perform, cause or undertake any of the following activities without first securing the WDP from the Regional Office: Increase volume or strength of wastes in excess of the permitted discharge; or Construct or use any outlet or unauthorized by-pass channels for the discharge of any untreated wastes, liquid or solid, directly into the water and/or land resources of the Philippines.

If the applicant continues to discharge despite disapproval of its application or other suspension /revocation of a WDP, the DENR Secretary or his duly authorized representative will immediately issue a Cease and Desist Order directing the discharger to discontinue discharging its wastewater or stop its operations. The Order will typically also include the levying of fines and penalties, without prejudice to criminal prosecution under PD 984 and other applicable laws. WDPs are transferable if there is a sale or transfer of ownership. However, in the case of sale or transfer of ownership or control of the establishment and/or facilities, the transferee must notify the Regional Office of the fact of transfer of ownership or control and must also file an application for transfer of the permit in his name provided that there is no change in the nature of the business. The WDP will expire according to the original expiry date. Any person found violating or failing to comply with DAO 2003-39 and/or conditions embodied in the permits issued by the Regional Office will be liable for administrative fines in addition to such other sanctions. The imposition of the said fines does not preclude the DENR from instituting, before the appropriate courts, the proper criminal or civil action as the case may warrant. III. A. Other Developments The Clean Development Mechanism

The Philippines has signed and ratified the Kyoto Protocol to the United Nations Framework Convention on Climate Change (Kyoto Protocol) under the belief that the reduction of harmful gas emissions in the atmosphere like carbon dioxide and methane is the concern of

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everyone. The Country is also looking to take advantage of investment opportunities under the Clean Development Mechanism (CDM) of the Kyoto Protocol. Signatory countries to the Kyoto Protocol engage themselves to reduce their emission of methane and other greenhouse gases or to otherwise address these issues through emissions trading. Under the CDM, industrialized countries with greenhouse gas reduction commitments may invest in emission reducing projects in developing countries as an alternative to the actual reduction of emissions in their own countries. In 2004, the President issued Executive Order (EO) No. 320 designating the DENR as the National Authority for CDM and the Department has been granted the following powers and functions: Formulate and develop a national Clean Development Mechanism policy; Develop the criteria, indicators, standards, systems and procedures, and evaluation tools for the review of CDM projects; Undertake the assessment and approval of CDM projects that will be submitted to the UNFCCC and Kyoto Protocol; Monitor the implementation of CDM projects; and Perform other functions that are related to and in furtherance of the development of CDM.

The National Authority is authorized to create Technical Evaluation Committees necessary for the efficient and effective implementation of its functions while the Department of Energy is the lead agency in the evaluation of energy-related projects. As mandated, the DENR promulgated DAO No. 2005-17, or the Rules and Regulations Governing the Implementation of Executive Order No. 320 Series of 2004. Designating the DENR as the National Authority for Clean Development Mechanism. With DAO No. 200517, the Philippines can now formally host CDM projects, which is expected to improve the countrys capability to bring about sustainable development. Under DAO No. 2005-17, the proponent of a proposed CDM project activity can be any natural or juridical person intending to develop and implement a proposed CDM project activity within the Philippines. In the case of a natural person, the project proponent must possess Philippine citizenship. In the case of a juridical person, the project proponent must be constituted as a legal entity under Philippines laws and authorized to engage in the proposed CDM project activity in accordance with the Philippine Constitution and relevant laws. Under DAO No. 2005-17, it is essential that any CDM project activity assist the

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Philippines in achieving sustainable development. The sustainable development criteria and indicators are provided under the rules. B. CDM and Direct Foreign Investment Laws

Philippine foreign investment laws may affect a CDM project if a foreign corporation provides financing to, or equity investments in, a CDM project. The Philippines Foreign Investment Act of 1991, as amended (FIA), regulates foreign investments in corporations engaged in business in the Philippines. Under the FIA, a foreign national or foreign corporation may engage in business in the Philippines or invest in up to 100% of the capital stock of a domestic corporation as long as the proposed activity is not included in the Negative List. The Negative List enumerates the business activities in which foreign ownership or participation in a domestic corporation is limited or prohibited. The Negative List is updated every two years. If the CDM project qualifies as an activity within the Negative List, foreign investment in the project may be limited or prohibited. Under E.O. No. 389 promulgating the sixth and latest Negative List for instance, and further to the Build, Operate and Transfer Law or BOT Law (RA 6957 as amended by RA 7718) up to 40% foreign equity is allowed in a project proponent and facility operator of a BOT Project requiring a public utilities franchise (e.g. projects involving the distribution of electricity). Projects involving the generation or transmission, but not distribution, of electricity may be 100% foreign-owned. Under the BOT Law, project proponents are eligible for fiscal incentives as provided under the Omnibus Investments Code. Local government units may also provide for additional tax incentives, exemptions or relief. The Government may also provide any form of direct or indirect support or contribution, such as, but not limited to, cost sharing, credit enhancements, direct government subsidy, or government equity. Projects registered with the Board of Investments (BOI) may qualify for incentives granted under the Omnibus Investments Code. An investor may enjoy certain benefits and incentives provided he invests in preferred areas of investments found in the current Investments Priority Plan (IPP). Under the 2006 IPP, the exploration, development, and/or utilization of energy sources, including new and renewable energy resource development (e.g. solar, biomass, wind, forestry resources, animal wastes, municipal solid wastes, etc.) and activities using energy technologies leading to energy efficiency and conservation in accordance with the program of the Department of Energy (DOE) are preferred areas of investment. Infrastructure projects, including projects under the BOT law and toxic and hazardous waste management, are also preferred areas of investment. Activities and projects pursuant to the Ecological Solid Waste Management Act (RA 9003) and Clean Water Act (RA 9275) are likewise included in the 2006 IPP as provided under the law.

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Fiscal incentives to BOI-registered enterprises include the following: Income tax holiday of 6 years for new projects with pioneer status and 4 years for non-pioneer status; Exemption from taxes and duties on imported spare parts for consigned equipment or those imported with incentives; Exemption from wharfage dues and export tax, duty, impost and fees on its nontraditional export products for 10 years from date of registration; Exemption for agricultural producers from the payment of all taxes and duties on their importation of breeding stocks and genetic materials within ten (10) years from the date of registration or commercial operation; Tax credits; and Additional deductions from taxable income, such as for labor expense, and necessary and major infrastructure works.

Non-fiscal incentives include the following: Employment of foreign nationals in supervisory, technical or advisory positions for five (5) years from the date of registration; Simplification of customs procedures for the importation of equipment, spare parts, raw materials and supplies, and exports of processed products. Importation of consigned equipment for a period of 10 years from date of registration, subject to posting of a re-export bond; and The privilege to operate a bonded manufacturing/trading warehouse subject to customs rules and regulations.

In addition to incentives granted by the BOI, incentives may likewise be given to a geothermal service contractor under PD 1442 or an Act to Promote the Exploration and Development of Geothermal Resources. Under PD 1442, the Philippine government may undertake the exploration and development of geothermal resources through service contracts for financial, technical, management, or other forms of assistance with qualified domestic and foreign entities. Geothermal energy is among the renewable energy sources currently preferred to be developed to displace fossil fuels and it may be possible for CDM projects in this area of activity to enjoy incentives such as:

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Exemption from payment of tariff duties and compensating tax on the importation of machinery and equipment, spare parts, and all materials required for geothermal operations; Entry of alien technical and specialized personnel (including the immediate members of their families); Subject to the regulations of Bangko Sentral Pilipinas (BSP), repatriation of capital investment and remittance of earnings derived from its service contract operations, as well as such sums as may be necessary to cover principal and interest of foreign obligations incurred for the geothermal operations; Other privileges provided in Section 12 of Presidential Decree No. 87 as may be applied to the geothermal operation; Recovery of operating expenses not exceeding 90% of the gross value in any year with carry forward of unrecovered cost; and Service fee of up to 40% of net proceeds.

RA 7156, or the Mini-hydroelectric Power Incentive Act, also provides for specific incentives for mini-hydroelectric power development, including the following tax incentives or privileges: Special privilege tax rates The tax payable by grantees to develop potential sites for hydroelectric power and to generate, transmit and sell electric power shall be two percent (2%) of their gross receipts from the sale of electric power and from transactions incident to the generation, transmission and sale of electric power; Tax and duty-free importation of machinery, equipment and materials within seven (7) years from the date of award, subject to certain conditions; Tax credit on domestic capital equipment equivalent to one hundred percent (100%) of the value of the value-added tax and customs duties that would have been paid on the machinery, equipment, materials, and parts had these items been imported if the awardee-developer purchases machinery, equipment, materials, and parts from a domestic manufacturer subject to certain conditions; Special realty tax rates on equipment and machinery; Value-added tax exemption on the gross receipts derived from the sale of electric power; and Income tax holiday for seven (7) years from the start of commercial operation.

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EO 462 also provides incentives for exploration, development and utilization of ocean, solar and wind energy resources. C. CDM Projects in the Philippines

In December 2004, the Philippines took a major and innovative step into a new renewable energy era with the signing of the first greenhouse gas emission reductions purchase agreement (ERPA). The NorthWind Bangui Bay Project, located in the foreshore of Bangui Bay in Ilocos Norte Province at the northern tip of Luzon, consists of 15 state-of-the-art wind turbines with an estimated annual energy production of about 74.48 gigawatt hours. The project sponsor is a local private company, NorthWind Power Development Corporation. The Philippines 2001 Electric Power Industry Reform Act (EPIRA) stressed the development and utilization of indigenous and renewable energy resources to tackle the countrys dependence on imported oil and coal for power generation. All power produced by the project will be sold to the Ilocos Norte Electric Cooperative (INEC) which has the exclusive franchise to distribute electricity in the area. The certified emission reductions generated by the project will be purchased by the Prototype Carbon Fund and is targeted at 356,000 tons of carbon dioxide equivalent (CO2e). Wind power is one of the most mature renewable energy technologies of relevance to the Philippines where the wind resource is estimated to have a generation potential of 70,000 megawatts. Considering only those areas of good-to-excellent wind resource, there are 47 provinces in the Philippines with at least 500 megawatts of wind potential and 25 provinces with at least 1,000 megawatts of wind potential. In addition to the North Wind Bangui Bay Project, there is another wind power project being developed in the Municipality of Burgos and a geothermal power plant project in the Province of Negros Oriental that are in the process of validation. There are also a number of methane recovery and electric generation projects in the Philippines. These are small-scale CDM projects which are anaerobic digestion swine wastewater treatment projects in various farms. The farms currently manage waste with a series of concrete lagoons (oxidation ponds). Development of the projects will directly reduce greenhouse gas emissions produced by the release of methane from the concrete lagoons. Other project developers intend to implement a turnkey covered in-ground anaerobic reactor (CIGAR) that will utilize organic material currently treated in the wastewater ponds to produce biogas. The CIGAR system will treat organically laden wastewater to reduce its Chemical Oxygen Demand prior to the wastewater reaching the main pond system. Currently, these farms rely on electricity from a local distributed power grid.

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Another project activity that will establish an installation to recover, destroy and utilize landfill gas (LFG) generated within the Payatas dumpsite in Quezon City (Metro Manila, Philippines) is also in the process of validation. The electricity generated from this project (1 megawatt) will be sold to the Luzon grid. Excess recovered LFG will be flared.

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