Malaysian-Danish Country Programme for Cooperation in Environment and Development (2002-2006)

3. Environmental Management and Sustainable Development in Malaysia

3.1 Environmental Challenges and Opportunities – Regional and National
3.2 The Policy and Institutional Framework
3.3 Funding
3.4 Donor Activities

Development policies in Malaysia had initially focused on the basic parameters of natural resource exploitation, infrastructure development and poverty alleviation to cater for social and economic growth objectives. During the 1970s a broader and more cross-sectoral approach to environment and sustainable development was adopted in Malaysia. The concept of protecting the environment, as part of the development planning process, was first given prominence by the Government in the 3rd Malaysia Plan (1976-1980) where it was emphasised that the objectives of development and environmental conservation should be kept in balance, so that the benefits of development were not negated by the costs of environmental damage. However, it was not until the 6th Malaysia Plan (1991-1995) that serious efforts to balance environmental with economic goals in the national development planning process were undertaken. The 6th Malaysia Plan adopted specific environmental and sustainable development goals. The approach was taken further by the 7th Malaysia Plan (1996-2000), which promulgated the policy objective of integrating environmental considerations within the economic and development planning process.

Significantly, the 7th Plan linked these considerations to the continued sustainability of the economic growth of the country. Economic growth remains paramount as a development objective, but it is also recognised as an important means towards sustainable development.

The 8th Plan stresses the need to address environmental and resource management issues in an integrated and holistic manner. Steps will be taken to identify prudent, cost effective and appropriate management approaches that yield multiple benefits in order to ensure that development is sustainable and resilient.

Over the past 20 years, Malaysia has undergone the economic transition towards an urban and industrial economic base, away from agriculture and primary production. As a consequence, the socio-economic change has brought about many new pressures to bear on the environment, and similarly, on the institutions and mechanisms established to manage the environment. The environmental issues are, therefore, a mixture of problems related to natural resource depletion and exploitation, and the lack of environmental management in areas such as industrial pollution.

The Government of Malaysia acknowledges that major challenges have emerged as a consequence of rapid expansion in the economy; in particular, managing and sustaining the rapid economic growth, ensuring the equitable distribution of the benefits of such growth and the balancing of economic growth with the protection of the environment and natural resources. This balancing requires adjustments to the existing policies and programmes and the adoption of new approaches.

Poverty-induced environmental problems are on the decrease in Malaysia in line with the increasing success of poverty alleviation programmes. Compared to other countries in the region, problems such as deforestation and soil erosion are not problems that are related to core poverty but rather a result of lack of enforcement and technical knowledge. Environmental problems do however tend to further reduce the quality of life of those on low incomes or marginalized by the mainstream economy. Examples include low income families that live in the vicinity of polluting industries; high density housing that is subject to traffic and air pollution and squatter settlements that are flooded and without infrastructure or services. In some areas ethnic groups that are dependent on natural resources such as fishing or forestry have had their livelihood affected by logging, river pollution and loss of biodiversity.

The 8th Malaysia Plan recognises that sustainable development requires an integrated and coordinated approach by the public sector, private sector interests and the general population. Proper incentive measures must be in place if the private sector and communities are to be encouraged to support sustainable development objectives. Smart partnerships based on consultation, dialogue, mutual trust and transparency between government, the private sector and communities are encouraged.

Malaysia is a party to a range of international environmental conventions that provide an important orientation to environmental planning and implementation in Malaysia. Important conventions to which Malaysia is a party are: Convention on Biological Diversity (CBD); Ramsar Convention on Wetlands; Montreal Protocol on Reduction of Ozone Depleting Substances; and the UN Framework Convention on Climate Change (UNFCCC). Other conventions to which Malaysia is a party include the Convention on International Trade in Endangered Species (CITES), Basel Convention on transboundary movement of hazardous wastes. In addition a number of new conventions are still under negotiation or are not yet in force such as the Kyoto Protocol, the Cartegena Protocol on Biosafety and the Convention on Persistent Organic Pollutants.

3.1 Environmental Challenges and Opportunities – Regional and National

Regional Context

Serious environmental challenges are looming ahead for the South East Asian region. Increasing population, especially in the urban growth centres, is putting stress on the environment. The continued rapid economic growth and industrialisation efforts have the potential to cause further environmental damage and will lead to increased pollution of air, water and land, deforestation, and less ecological diversity in time to come. In addition the demand for primary energy in Asia is expected to double every 12 years (the world average is 28 years). At least one in three Asians has no access to safe drinking water. Freshwater will be a limiting factor for food and industrial production in the future.

Six main environmental problem complexes have been identified in S.E. Asia – notably: competing demands for water resources; unsustainable use of agriculture and forestry resources; pollution and waste management problems associated with rapid urbanisation; pollution and health and safety problems linked with rapid industrialisation; unsustainable use of coastal and marine resources and, rapid increase in energy demand and supply, leading to pollution, degradation of natural resources and climate change.

The root causes of these problems can be attributed to a number of factors such as the inevitable consequence of rapid population and economic growth. Institutional and policy failures are also a cause in some instances and are often a result of transitions in political and economic systems. Changes in social structures and value systems are also important factors.

National Context

Urban and industry
Increasing urban migration has resulted in more than half of Malaysia's population being located in urban areas. Malaysian urban centres suffer from air pollution due to industry and transportation. Traffic congestion, and problematic air and noise emissions are commonplace and in some areas lead to a severe reduction in the quality of life. Excessive pollution of urban river stretches coupled with indiscriminate garbage-dumping lead to rivers becoming channels for waste and encourage a general disregard for the environment. Urban rivers are increasingly silted due to upstream erosion and urban flooding is an increasing problem. Poor solid and hazardous waste management leads to pollution of air, land and water as well as imposing a serious health risk especially in the poorer communities. Inadequate sewage and industrial wastewater treatment is a persistent feature of many towns. Improperly managed land –clearing and construction activities involving commercial, residential and infrastructure development exacerbate the problems.

A key issue is the lack of effective environmental planning despite the introduction of EIA and similar procedures. Policies, strategies, legislation and enforcement are inadequate. The land management system encourages environmental degradation by making conversion from forest and agricultural to urban or industrial land one of the main sources of revenue for developers and local governments alike. There is still insufficient awareness of the long-term costs and problems associated with unsustainable development and environmental degradation.

Environmental management is relatively new as a political priority. Consequently, sufficient capacity and technical capability within enforcement and other environment-related agencies still need to be built up. Urban services require cost recovery if they are to be maintained and extended. The systems and culture of payment are not sufficiently rooted within the population and the institutions that serve them – although this is steadily improving as evidenced by higher water supply tariffs and cost recovery rates. The collection of revenue for wastewater and solid waste services is an ongoing challenge. The rapid pace of economic and industrial growth leads to an increase in waste generation outpacing the collective ability of the authorities to respond.

Natural Resources
Malaysia has a wide variety of natural ecosystems and habitats and these support a rich and diverse fauna and flora. Malaysia is one of the world’s 12 mega-diversity countries. Major threats to Malaysia’s terrestrial biodiversity include unsustainable forest management practices, land conversion (particularly for agriculture and plantation development) and hunting of wildlife or over collecting of non-timber forest products. Coastal and marine biodiversity faces threats relating to land reclamation, pollution from land based sources and marine shipping, poorly planned development and over exploitation of fishery and other resources. Freshwater biodiversity is threatened by domestic, industrial and agro-pollution siltation, removal of riverine and floodplain forests, canalisation of river courses, dam construction, over-harvesting of fishery resources and over-extraction of freshwater.

Efforts need to be made to preserve biological diversity not only within but also outside the protected area system. As development and intensified land use have proceeded rapidly in Malaysia during recent years, biodiversity outside the protected areas has declined significantly over the last decades and the protected areas have simultaneously become increasingly isolated.

The tropical forests of Malaysia represent some of the most rich and diverse ecosystems in the world, having evolved over millions of years. Forests cover about 60 percent of the country’s total land area. Apart from some areas where customary rights apply (mainly in Sarawak), Malaysian forests are all government-owned, and land administration falls within the jurisdiction of the States concerned. Forests are significant not only for their contribution of revenue from the exploitation of timber, but also because of their important non-timber forest products. Forests also provide valuable ecological services such as flood control, catchment protection and carbon storage.

Malaysia’s freshwater resources include rivers, lakes, marshes and wetlands as well as the water itself. These freshwater ecosystems are of great importance for biodiversity conservation as well as support to rural livelihoods. There are more than 150 river systems in Malaysia, many of them being important for biodiversity, fisheries and other uses. However many of them are also polluted, negatively impacting their natural values.

The country has abundant rainfall of about three metres per year, however there are increasing problems with supplies due to concentrated demands in some river basins combined with periodic droughts. Severe water shortages have occurred in Selangor, Malacca, Penang and Sabah states. The national approach to water resources has been to focus on supply management – increasing the number of dams and pipelines to cater for growing demand from urban and industrial sectors. There has been little focus on or incentives for water efficiency or recycling and this has contributed to the shortages. The 8th Malaysia Plan has recognised the need for a strong focus on water demand management as well as securing alternate water sources such as rainwater harvesting and sustainable groundwater use.

Demand for energy is growing much faster than the GDP and increasing an exceptionally high energy use per unit of GDP. The traditional domestic sources of fuel such as oil and natural gas are rapidly being depleted. Oil resources may run out in less than 20 years while gas reserves may last for more than 60 years. Malaysia is expected to become a net importer of energy in the next decade. In this context there is a need for rapid development of renewable energy.

While in the past, the Government of Malaysia had maintained the supply demand balance with supply side instruments, greater attention has recently shifted to include demand side management issues.

There is a need for the establishment of a consistent analytical framework for overall planning, financial decisions and policy analysis within the energy sector with a clear and consistent link to natural resources and environmental management concerns. An improved balance between command and control approaches and economic approaches to regulation is required including the use of economic instruments such as incentive focused tariffs and subsidies, demonstration of best practices and participation of the consumers through consumer associations in information and awareness campaigns.

3.2 The Policy and Institutional Framework

Environmental Policies, Plans and Legislation

Prior to the 3rd Malaysia Plan (1976-1980) environmental provisions were ad-hoc and sectoral, relating mainly to water and wildlife. Such legislation included the Fisheries Act, the Continental Shelf Act, the Petroleum Mining Act, the Merchant Shipping Ordinance, the Land Conservation Act and the Local Government Act in the 1960s. Later sectoral legislation included those for Forestry and the Exclusive Economic Zone.

In 1974 the Environmental Quality Act was gazetted following the UN Conference on Human Environment held in Stockholm in 1972. Many of the subsequent policies were incorporated into regulations in the framework of the act such as the EIA Order of 1987. Further promotion of environment was more seriously instituted with each of the Development Plans and Outline Perspective Plans. The National Forestry Policy was adopted in 1992 and the national Biodiversity Policy in 1997. A Draft National Environment Policy is still under consideration.

Most of the States have separate enactments pertaining to land and water resources over which the States have direct jurisdiction. The most prominent among these are the Natural Resources and Environment Ordinance of Sarawak resulting in its Natural Resources and Environment (Prescribed Activities) Order, 1994, and the Conservation of Environment Enactment 1996 of Sabah.

The Government Framework

The Federal-State system in Malaysia and the corresponding legal and institutional frameworks present inherent constraints to holistic and integrated environmental planning. The legislative and executive authority over issues with environmental implications is allocated between the Federal and State Governments by the Federal Constitution. The Federal Government has jurisdiction over matters such as commerce, trade and industry, and by virtue of this jurisdiction, is regarded to be responsible for general environmental protection and pollution prevention. Jurisdiction over matters such as development control, local government, land, water, forests and mining is largely allocated to the State governments.

Natural resource (e.g. forestry, fisheries, wildlife protection, mining and water) and environmental management legislation has been enacted at both federal and state level. The constitutional division of powers underpins the processes by which natural resources in the country are managed. It is therefore, of crucial importance that the State Governments’ involvement and participation is present in the implementation of policies relating to environmental and natural resource management. Whilst the Federal Government may formulate policies, the mandate for the implementation of the policies lies, in many cases, within the jurisdiction of the State Governments.

The institutional framework in Malaysia is sectorally-structured; meaning that the administration of natural resources and environmental protection is dealt with, sector by sector, by many agencies in various Ministries. Within the Federal government alone, some 20 agencies can be said to have some environment-related function or responsibility. Responsibilities for water, land, agriculture, forestry and wildlife are spread out between the Federal Ministries and various State level agencies. The institutional framework for environmental planning and management is therefore complex, involving both Federal and State agencies.

At the Federal level, the EPU in the Prime Minister’s Department plays the central planning and coordinating role. It is responsible for coordinating the formulation and development of the 5-year Malaysia Plans, and is therefore, in charge of the comprehensive consultation process required to identify the development priorities for the country. At the State level, the equivalent of the EPU is the State Economic Planning Unit (UPEN), which coordinates and implements macro planning in each State.

In the broadest terms, the EPU can be regarded as the key macro policy and planning agency within the administrative structure. The policies and plans emanating from EPU are then translated into sectoral policies and implemented accordingly by the various Federal Ministries. Thus, the national development plans such as the Eight Malaysia Plan provide the general, multi-sectoral policy framework, from which the policy directions for the different sectors are obtained, then interpreted into specific sectoral policies and guidelines for implementation.

The Federal institutional structure is duplicated, to some extent, at the State level; particularly in the case of the planning and resource management agencies. Whilst national policies and plans may be developed by the Federal Government, the State level agencies and local governments are responsible for the implementation of many of them. Some Federal agencies have undergone decentralisation, and have offices in the respective States. The State level arms of Federal agencies include the Department of Environment and the Department of Wildlife and National Parks. Some of the key sectoral agencies at both State and Federal levels with responsibilities for aspects of environmental planning and management are listed below.

The Ministry of Science, Technology and the Environment (MOSTE) is a key agency in terms of environmental management and protection. MOSTE’s mandate is to develop and expand science and technology activities for national development, whilst preserving the quality of life and the country’s natural resources. The implementation of this mandate is tasked to several departments within MOSTE, such as the Department of Environment (DOE) and the Department of Wildlife and National Parks (DWNP). At the State level, the DOE and DWNP have their State offices to carry out the implementation and enforcement aspects. The DOE is the implementing agency for the Environmental Quality Act 1974, and the EIA process. DWNP enforces the Wildlife Protection Act 1972 and is responsible for the management of the protected areas (wildlife sanctuaries and reserves) established under the Act.

The Ministry of Energy, Communications and Multimedia (MECM) is responsible for coordinating the implementation of energy policies. The Department of Electricity and Gas Supply currently regulates the supply of electricity and licenses the installation of electrical equipment. There are a number of utilities companies that have monopolies in the transmission and distribution of electricity. In 1998 the MECM set up a Malaysian Energy Centre (PTM) to help in programme implementation. A number of important issues are dealt with by multi sector committees such as the privatisation committee and the electricity supply planning committee. Recently an Energy Commission has been set up to improve the regulation of the sector.

The Ministry of Agriculture (MOA) through its Department of Agriculture, Department of Fisheries and its Department of Irrigation and Drainage has significant environmental responsibilities including responsibility for maintenance of river systems and conservation of aquatic biodiversity.

The Ministry of Primary Industries (MPI) is responsible for the development of Malaysia’s primary commodities. The Federal Forest Department under this Ministry has a wide range of environmental responsibilities including the overseeing of the management of the nation’s forests. Other agencies with importance for management of land include the Malaysian Rubber Board and the Malaysian Oil Palm Board, which oversee the large plantations sector.

The Ministry of Housing and Local Government, Ministry of Transport, Department of Marine, Ministry of Finance and the Town and Country Planning Department of the Ministry are responsible for physical planning and the integration of environment into development planning in cooperation with local authorities. The Department of Local Government under the Ministry is in the process of establishing a national framework for solid waste management

Society and NGOs

The Public at large as well as local communities are becoming more concerned about environmental degradation and impacts on the quality of life. As a result they are becoming more active in debate and discussions on environmental issues and also engaged in sustainable development and environment improvement initiatives. The government is now actively encouraging public and community involvement in environment management with one of the strategic policy thrusts of the 8th Malaysia Plan being "empowering local authorities and engaging local communities in addressing environmental problems". During the 8th Plan period the government will "continue to enhance collaboration with relevant NGOs that have the necessary expertise and experience to help implement programmes in and activities in specific areas". Malaysia has a relatively small but active environmental NGO sector with about 15 environmental NGOs and another 10 NGOs with some environmental activities. NGOs range from professional advisory groups to advocacy or community based groups. The working relationship between the government and NGOs has been steadily improving over the past 10 years with government recognising the role of NGOs especially in providing technical advice as well as generating public awareness and supporting community mobilisation.

The Private Sector

The private sector is represented by a number of business associations and chambers of commerce and industry, one of the most significant being the Federation of Malaysian Manufacturers which has a membership of more than 2000, of which 60% are small or medium scale businesses. The Business Council for Sustainable Development Malaysia (BCSDM), and the Malaysian International Chamber of Commerce and Industry (MICCI) are representatives of the prominent businesses in Malaysia. The manufacturing sector, both large and small scale, is considerable in Malaysia. The private sector has many skilled agents working in consultancies and businesses that are able to provide environmental services and this is expected to grow in the future, but currently is relatively small. This sector has faced difficulties since the economic downturn in 1997 due to a reduced local market for environmental services. It is hoped that this will improve in the period 2002-2006.

The Universities

Malaysia has more than 15 universities, including a few with a history of more than 30 years but many of which have been established in the past five years. Almost all of the universities have departments related to the environment or natural resources, although most have traditionally taken a sectoral rather than an integrated approach to teaching and research in these fields in the past. In recent years there has been a trend to increase the number of courses at undergraduate and postgraduate levels relating to the environment. The university sector is also very active in research with many applied environmental research projects being funded under the research fund of the Ministry of Science, Technology and the Environment (which is being increased to RM 1 billion under the 8th Malaysia Plan), as well as being commissioned by public and private sector agencies.

3.3 Funding

The anticipated Federal and total State Expenditure and Revenue for 2001 is summarised in the diagrams below (from the 2001 Budget).

As can be seen the state revenue is only a small proportion of the federal revenue. The States' own sources of revenue account for about 80 percent of total revenue. It consists of tax revenue (about 25 percent), which comprises largely land-based and entertainment taxes, and non-tax revenue, comprising royalties from forestry and petroleum and other sources (about 75 %). Some of these revenue-generating activities have a detrimental effect on the environment (reclamation and conversion of land, logging, etc). In certain states like Penang, which for historical reasons does not have significant government owned land, the state permits private developers to reclaim land cheaply so that it can receive a percentage of the reclaimed land from the developer.

Line ministries and State governments submit their 5-year plans and budgets to EPU for approval and inclusion in the national 5-year Malaysia Plans. All the plans and budgets are discussed and taken through a process of negotiation and adjustment in order to arrive at a unified national plan. Once the 5-year plan is approved by parliament, the line ministries and state governments submit to EPU for approval annual plans and budgets that are within the 5 year plan framework. Finally, the Ministry of Finance presents annual budgets for federal and state expenditure to parliament for approval. Allocations are then approved and expenditure can take place in line with national accounting and expenditure standards.

Environmental Expenditure

Environment does not have a separate budget line in the budget system. The budget for MOSTE and a proportion of Federal and State Ministries responsible for natural resource management and administration, pollution control, environmental education and training, research and development could be classified as environmental expenditure.

In the 7th Malaysia Plan the budget for environment-related development expenditure in Malaysia was estimated to be RM 1.9 billion or about 2 percent of the RM 83 billion in overall development expenditure. The corresponding figures for expenditure in the social sector such as health and education is RM6.1 billion and about RM10 billion respectively. No specific estimate was given for the overall environment-related expenditure in the 8th Malaysia Plan, but the allocations for forest management, water resources management all got substantial increases.

3.4 Donor Activities

Compared to other South East Asian countries, Malaysia receives a relatively small contribution from the international donor community. Within the funds received however, environmental and social activities have a priority.

The major donor within the environment and natural resource sector is Japan followed by Danced and UNDP-GEF. Japan supports toxic waste management, cleaner production, energy, waste management, forest management and water resource and supply as well as wastewater treatment projects. The Global Environment Facility has channelled funds through UNDP for a major programme in the Energy sector as well as smaller projects relating to biodiversity (conservation and sustainable management of peat swamp forests and marine parks). UNDP is also supporting some projects with its own resources such as work on better environmental planning and management in the highlands. Other donors with activities in Malaysia include Australia, Canada, the European Union, Germany, UK and USA. The multilateral development assistance agencies such as the World Bank and Asian Development Bank have small programmes in Malaysia.

The Directorate for External Assistance in EPU coordinates the donor programmes. Donors in the environmental and other sectors are coordinated bilaterally i.e. there is no common forum for donors, but the coordination works well and there are few cases of overlap or donor programmes not in line with government priorities.