Evaluating the implementation of cleaner production audit demonstration projects

EVALUATING THE IMPLEMENTATION OF CLEANER PRODUCTION AUDIT DEMONSTRATION PROJECTS Katherine Kao Cushing University of California, Berkeley

Peter L. Wise and Janet Hawes-Davis Illinois Environmental Protection Agency

Cleaner production audit demonstration projects were carried out in two Chinese case factories as part of a project co-sponsored by the Illinois Environmental Protection Agency and China’s State Environmental Protection Administration. Audit results at both factories were characterized by implementation of predominantly low- or no-cost options, notable reductions in water pollution, and incomplete financial benefit analyses. Two reasons explain the financial benefit analyses’ apparent weakness. First, factory audit teams were inexperienced in the techniques and procedures used to determine the economic benefits of cleaner production options. Second, motivations project personnel had for participating in the demonstration projects were not centered on attaining the monetary benefits of implementing cleaner production. Instead, other factors related to the international nature of the project, such as a high degree of state level oversight and prestige, were more influential in affecting the behavior of project personnel.  1999 Elsevier Science Inc.

Introduction The Chinese government’s formal efforts to promote cleaner production (qingjie shengchan) began in the early 1990s. A central component of these efforts has been implementing cleaner production audit demonstration projects with the assistance of bilateral and multilateral aid agencies. Since 1992, China’s government has conducted cleaner production audit demonstration projects with organizations including the World Bank, the United Nations Environment Programme (UNEP), the Overseas Development Agency of Address requests for reprints to: Katherine Kao Cushing, 990 Lundy Lane, Los Altos, CA 94024, USA. [email protected] ENVIRON IMPACT ASSESS REV 1999;19:569–586  1999 Elsevier Science Inc. All rights reserved. 655 Avenue of the Americas, New York, NY 10010

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Britain, and the Canadian Ministry of Foreign Affairs (NEPA and CNCPC 1996). This research examines one such project—a cooperative effort between the Illinois Environmental Protection Agency (IL EPA) of the United States and the National Environmental Protection Agency (NEPA)1 of China. This project, “International Diffusion of Pollution Prevention Technologies through Outreach, Assessments, Demonstrations, and Evaluations for the Metal Finishing, Petrochemical, and Pharmaceutical Industries in China,” hereafter referred to as the “IL EPA-NEPA project,” included carrying out cleaner production audits in six large state-owned factories. The IL EPA-NEPA project team selected two factories in each of these sectors (i.e., metal finishing, petrochemical, and pharmaceutical) to participate in the audits. This paper follows the progress of the two Chinese pharmaceutical factories, Xinhua and Huabei, that participated in the IL EPA-NEPA project through a 10-month audit implementation process. It assesses the environmental and financial impacts of audit implementation, explains those results, and relates the study’s findings to the larger issue of promoting cleaner production via demonstration projects in China and other industrializing countries.

Definition and Process Cleaner production is one of several terms used to describe an environmental management strategy that focuses on waste minimization. According to the Chinese National Cleaner Production Center (CNCPC), a leading authority on cleaner production in China, cleaner production in the Chinese context is defined as follows: Cleaner production is the continuous application of an integrated preventative environmental strategy to processes and products to reduce risks to humans and the environment. For production processes, cleaner production includes conserving raw materials and energy, eliminating toxic raw materials, and reducing the quantity and toxicity of all emissions and wastes before they leave a process. For products, the strategy focuses on reducing impacts along the entire life cycle of the product, from raw material extraction to the ultimate disposal of the product. Cleaner production is achieved by applying knowhow, by improving technology, and by changing attitudes (Duan 1996). Based on this broad definition, cleaner production encompasses numerous activities, ranging from instituting a periodic valve maintenance system 1 Since the time of the project, NEPA has been elevated in organizational status and renamed the State Environmental Protection Administration (SEPA).

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to installing equipment to recover solvents in the manufacturing process. Examples of cleaner production activities commonly used by US pharmaceutical factories include using water-based cleaning solutions instead of solvent-based solutions, automating a material handling and transfer system to reduce the likelihood of spilling raw materials, and recovering acetone or other solvents from a wastestream for re-use in a chemical reactor (US EPA 1991). Chinese factories can implement cleaner production in a variety of ways. For example, the study by Warren (1996) of Chinese electroplating factories shows how Chinese factory management may elect to adopt certain pollution prevention practices in a “piecemeal” fashion, independent of conducting a factorywide pollution prevention audit. Alternatively, factories may implement cleaner production in a more systematic, formal manner, in which factory teams follow detailed step-by-step procedures. The two case factories in this study utilized the following formalized audit process developed by the CNCPC. According to the CNCPC, a formalized audit should consist of the following seven steps: (1) planning and organization, (2) preassessment, (3) assessment, (4) option generation and screening, (5) feasibility analysis, (6) option implementation, and (7) continuing cleaner production (CNCPC 1995). Although there are other ways to implement cleaner production, this sevenstep methodology is promoted by the CNCPC as the recommended way to perform an audit. In the first two steps of the audit process, top factory management should assemble a multi-disciplinary audit team, and that team should conduct a basic survey of the plant site’s operations to identify one particular manufacturing area, or workshop,2 as the focus of the audit. The team should establish pollution prevention goals and begin implementing low- and nocost options as they are identified. During the third step of the audit process (assessment), the audit team is supposed to conduct an in-depth analysis of each manufacturing operation carried out in the selected workshop and, from this analysis, identify further cleaner production options that the team should consider implementing. In the fourth step (option generation and screening), the audit team should implement low- and no-cost options identified during the previous step as well as conduct a general analysis of medium- and high-cost cleaner production options. The CNCPC also recommends writing a mid-term audit report during step 4. In step 5, feasibility analysis, the audit team should further analyze medium- and high-cost options using criteria related to technical and financial feasibility, as well as environmental benefits. Based on this analysis, the team members determine which, if any, of the medium- or high-cost options 2 In China, manufacturing facilities are organized into units called chejian workshops, which are productor process-specific.

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they want to implement. In step 6, option implementation, the audit team carries out the medium- and high-cost options that appear feasible based on the analysis performed in the previous step. The seventh and final step in the process is continuing cleaner production. Here, the audit team should analyze what it learned from the initial audit and develop ways to continue implementing cleaner production throughout the factory.

Project Background Market opportunities motivated a US state environmental protection agency, the IL EPA, to become involved in an international cleaner production project. Although the US currently holds a large share of the total world market for environmental technology, the sales of most US companies are domestic (IL EPA 1997). Moreover, the world market for environmental technologies is expected to grow from $300 billion in 1994 to $600 billion by 2000 (US EPA 1994). The US portion of the IL EPA-NEPA project was funded by the US EPA Environmental Technology Initiative (ETI), a program established in 1994 to maximize US opportunities for entering the world market for environmental technology through a strategic use of US government funds and collaboration between government agencies and private stakeholders. To implement the ETI program, the US EPA announced a grant competition in which federal, state, and tribal entities, in partnership with other government agencies or private industries, proposed projects that would serve the program’s purpose. The IL EPA-NEPA project—led by the IL EPA in cooperation with NEPA, the World Bank, the UNEP, and the Chemical Industry Council of Illinois—was one of the US EPA’s grant competition winners. The IL EPA selected China as the project location for several reasons. First, China is faced with significant sustainable development issues. The country’s rapid industrialization, combined with and problematic enforcement of its environmental laws (Cushing 1998; Ma 1997; Sinkule 1993) has led to severe environmental degradation (Edmonds 1994; He 1991; Smil 1993). Thus, the perceived need for a cleaner production demonstration project in China was high. Second, Chinese government institutions and the general public have become increasingly aware of and interested in environmental protection issues, including cleaner production. And third, the US government views China as an important potential market for American environmental products and services. By conducting the project in China, the IL EPA would be able to obtain information on the current and future environmental technology needs of several Chinese industries. The pharmaceutical industry was selected as one of the IL EPA-NEPA project’s target sectors for three reasons: (1) previous initiatives by the World Bank and UNEP identified this sector as a major source of pollution in China; (2) the pharmaceutical industry was the focus of previous US EPA

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pollution prevention outreach efforts, thus a substantial body of cleaner production research materials existed for this industry; and (3) pharmaceutical companies and environmental technology vendors that support them were prevalent in Illinois and throughout the US. The IL EPA considered the Chinese pharmaceutical sector in China to be expanding rapidly, with needs for environmental technologies similar to those being utilized in the US. Audit Implementation Results The two case pharmaceutical factories that participated in the IL EPANEPA project, Huabei and Xinhua, are representative of the 50 very large state-owned enterprises that form the backbone of the Chinese pharmaceutical industry. In total, these large firms accounted for approximately 40% of the industry’s total output in 1995 (Shen 1996). Nationwide, there are about 1,500 firms in China that produce Western pharmaceuticals (e.g., antibiotics, cardiovascular drugs) (SPAC 1995). The Huabei and Xinhua audit teams conducted the majority of their audit work between January and October 1996. During this period, audit team members received training and assistance from IL EPA staff, US pharmaceutical industry experts, UNEP cleaner production specialists, and CNCPC staff. On the Chinese side, two national-level Chinese organizations, NEPA and the State Pharmaceutical Administration of China (SPAC), oversaw the audits’ implementation (e.g., by attending workshops and visiting factories). Each of the case factories had several on-site manufacturing areas, or workshops, where different types of production operations were carried out. For example, Huabei had 10 workshops and a branch factory located in another area of town. Xinhua had 16 workshops under its direct supervision. At both factories, cleaner production projects were conducted in a single workshop at the main factory site—a solvent workshop at Huabei and a caffeine workshop at Xinhua. Each of these workshops was the main source of organic pollution at its factory, accounting for 25% and 30% of the total chemical oxygen demand (COD)3 in wastewater discharges at Huabei and Xinhua, respectively. Both factories implemented about half of the options identified by their audit teams. Huabei followed through with 5 of 10 options, and they are described in Table 1. All of the implemented options were categorized by the audit team as low or no cost.4 Two of the options the team implemented—recycling equipment washwater and hot wastewater, and increasing the quantity of distiller material recirculated—fall into the cleaner 3

COD is a widely used indicator of the amount of organic material in wastewater. Typically, there are three cost categories for analyzing cleaner production options: (1) low and no cost; medium cost; and high cost. The ranges for each of these categories are typically determined by each individual audit team and often depend on the factory’s size, with larger factories having larger ranges for the cost categories. 4

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TABLE 1. Cleaner Production Options Implemented by Huabei Option No. 1 2 3 4 5

Description Recycling equipment cleaning water and hot wastewater Increasing the quantity of distiller material recirculated Recovering butanol from wastestream Increasing the concentration of base added to the distillation tower Adding measuring equipment to economize on water consumption

Source: Huabei Pharmaceutical Factory (1996).

production category of recycling and reuse. The other three implemented options—recovering butanol from wastestream, increasing the concentration of base added to the distillation tower, and adding measuring equipment to economize on water consumption—involved efforts to optimize operating conditions. The Huabei team chose not to implement five other options identified through the audit process, and these included measures such as improving the waste distiller unit treatment process, recycling solid carbon dioxide from fermentation exhaust gas, culturing higher quality bacteria for the fermentation process, and redesigning the distillation process. In the process of screening options, these projects were eliminated for implementation based on reasons such as the high degree of new technology required, high cost, and the length of time required to implement the project (Huabei Pharmaceutical Factory, 1996). The following excerpt from the audit team’s final report explains, for example, why two of the these options weren’t selected: Options F5 [redesigning distillation tower] and F9 [culturing high quality bacteria] are high cost and high tech options. No mature technology exists [in China] to implement these options at the present time, so we can’t implement them immediately (Huabei Pharmaceutical Factory, 1996, p. 37). The Xinhua factory team implemented 11 of 21 cleaner production options. Table 2 presents descriptions of these projects. The audit team categorized the first four options as enhancing internal management (i.e., via training, monitoring, and maintenance) and the remaining seven options as optimizing process conditions (e.g., decreasing active carbon usage). Eight of the 21 options identified by the audit team were related to technology and equipment renovation, but none of these options was carried out as part of this project. The vast majority of the options implemented by the project team, 10 of 11, were low or no cost (options 1 through 10 in Table 2), whereas one of the implemented options (option 11) was medium cost. The audit team estimated the cost of option 11 to be approximately $30,000 US. Of the 10 options identified by the audit team that were not

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TABLE 2. Cleaner Production Options Implemented by Xinhua Option No. 1 2 3 4 5 6 7 8 9 10 11

Description Providing cleaner production training to operators Improving operating procedures by including cleaner productionrelated components Periodically maintaining and repairing equipment Periodically monitoring and analyzing wastestream Controlling raw material quality, improving yield rate of dimethyl FAU Increasing amount of vacuum in chamber, decreasing amount of acetic andryhide Decreasing formic acid usage Decreasing active carbon usage Decreasing consumption of dimethyl urea Recycling distilled water from mother liquor concentration into primary refining Treat water containing cyanide, recover NaCN, recycle water

Source: Xinhua Pharmaceutical Factory (1996).

carried out, two were low cost ($1,800 to $4,000), three were medium cost ($6,000 to $30,000), and five were high cost ($144,000 to $360,000) (Xinhua Pharmaceutical Factory 1996). Reasons cited for not implementing certain cleaner production options included additional equipment requirements, technical complexity, and high cost (Xinhua Pharmaceutical Factory 1996).

Environmental Significance To analyze the environmental benefits of the projects, we examined two variables: reduction in COD generated, and reduction in wastewater generated.5 We selected these variables because, in the Chinese pharmaceutical industry, wastewater is the most significant type of pollution and COD is the wastewater pollutant indicator of greatest concern (Cushing 1998). We compared the amounts of COD and wastewater generated before the implementation of the cleaner production project to the amount of COD and wastewater generated after project implementation. We defined the environmental effects of project implementation to be significant if they 5 The issue of regulatory compliance was not a major part of the factories’ cleaner production audits and, as such, was not emphasized in our analysis. Originally, we had planned to interpret the effects of implementing cleaner production as significant from a regulatory perspective if a factory went from exceeding local discharge standards to being in compliance with local discharge standards as a result of following through on options identified through the audit. However, in the course of collecting data on the factories’ regulatory status before and after the project, we found that the factories themselves paid little attention to the state of their environmental compliance, both during their participation in project conferences and in their final audit reports. Furthermore, interviews with IL EPA officials and US consultants working on the project confirmed that regulatory compliance was not a major priority of the audit teams.

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approximated the reduction goals set by the factory in the preassessment stage of the audit process. Tables 3 and 4 present estimated reductions in COD and wastewater generation that resulted from executing options identified through the cleaner production audits. Differences between the targeted and actual reduction values are in the far right columns of the tables. Because the two factories used different units for setting their reduction targets, their results are not comparable. In each case, however, the tables indicate whether the factory met its own reduction goals. Table 3 lists COD reduction. Huabei’s main reduction objective in this regard was to reduce the COD concentration in its wastestream. In Huabei’s cleaner production audit plans, the target was to reduce COD concentration by 2%. As shown in Table 3, Huabei exceeded its COD reduction goal by 32%. Xinhua’s COD reduction goals had different units—tons COD generated per year. In Xinhua’s cleaner production audit plans, the goal was to reduce tons of COD generated per year by 29%. Table 3 shows that Xinhua came close to meeting its COD reduction goal. The factory’s actual reduction was 25%, which was 4% less than the target. Table 4 lists reduction data for wastewater generation in units of tons wastewater per year. For this variable, Huabei analyzed two different wastewater streams within the workshop. One wastewater stream came from a distillation unit and had a high concentration of COD; the other stream came from cooling water and washwater and had a low concentration of COD. Table 4 shows that Huabei exceeded its goal for wastewater reduction in its low COD concentration wastestream by 18% and came close to meeting its goal for wastewater reduction in its high COD concentration wastestream. The Xinhua factory was concerned only with wastewater reduction in its high concentration COD wastestream, and Table 4 shows that Huabei exceeded its goal for wastewater reduction by 1%. Because both Huabei and Xinhua either exceeded or came close to meeting their COD and wastewater reduction goals, we characterized the environmental benefits of audit implementation as “significant.”

Financial Significance To evaluate the financial impact of the projects, we examined the factory audit teams’ analyses of estimated financial benefits for the cleaner production options they implemented. According to factory audit teams reports, Huabei and Xinhua estimated that the annual monetary benefits of implementing cleaner production in the targeted workshops were ¥228,000 ($27,500 US)6 and ¥1.6 million ($193,000 US), respectively. However, after examining the methods used to derive these amounts, we had doubts about the credibility of those figures. 6

In 1997, 1 US dollar 5 approximately 8.3 yuan (¥).

High concentration COD High concentration COD

Huabei Xinhua

Tons COD/year

COD concentration (mg/L)

Variable

1,200

24,800

Value Before CP

900

16,300

Value After CP

High concentration COD

Xinhua

7 28 19

443 3 103 204 3 103 110 3 103

475 3 103 285 3 103 136 3 103

Sources: Huabei Pharmaceutical Factory (1996) and Xinhua Pharmaceutical Factory (1996). CP 5 cleaner production.

High concentation COD Low concentration COD

Wastestream Description

Huabei

Factory

Actual Reduction (%)

Wastewater Generated per Year After CP (tons/year)

Wastewater Generated per Year Before CP (tons/year)

TABLE 4. Estimated Reduction in Wastewater Generation for Huabei and Xinhua

Sources: Huabei Pharmaceutical Factory (1996) and Xinhua Pharmaceutical Factory (1996). CP 5 cleaner production. 555 No target set for this variable.

Wastestream Description

Factory

25

34

Actual Reduction (%)

18

9 10

Target Reduction (%)

29

2

Target Reduction (%)

TABLE 3. Estimated Reduction in Chemical Oxygen Demand (COD) for Huabei and Xinhua

11

22 118

Difference Between Actual Reduction and Target (%)

24

132

Difference Between Actual Reduction and Target (%)

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TABLE 5. Variables Used to Estimate Financial Benefits of Cleaner Production Options Factory

Variables Included in Estimates

Calculation Data

Huabei

1. Decreased water consumption 2. Increased solvent production

Cost of water 5 ¥1/ton Solvent 5 ¥10,000/ton

Xinhua

1. Decreased consumption of raw material 2. Decreased wastewater drainage expenses

No details on calculation No details on calculation

Sources: Huabei Pharmaceutical Factory (1996) and Xinhua Pharmaceutical Factory (1996).

For example, the variables used by both Huabei and Xinhua to calculate financial benefits are clearly not as comprehensive as the variables that the CNCPC recommends using for evaluating the financial benefits of cleaner production. Table 5 shows that the Xinhua and Huabei used only two variables (decreased water consumption and increased solvent production for Huabei) for estimating the monetary benefits of carrying out cleaner production options. This contrasts markedly with the more complete set of variables the CNCPC recommends using. As shown in Table 6, the CNCPC recommendations include a much more comprehensive set of variables for estimating both savings related to reduced end-of-pipe treatment costs and savings resulting from reduced raw material consumption. Interviews we conducted with US and Chinese project personnel revealed that they were skeptical of the accuracy and reliability of financial benefits calculated by the project staff at Xinhua and Huabei.7–11 At best, the financial benefit analyses represent only a very general approximation of the projects’ financial benefits. In the end, we concluded that although the cleaner production options implemented generated some financial gains to the factories, the calculations of those benefits were not detailed enough to provide insights into the significance of those gains. Explaining Financial Analysis Results Two reasons explain the apparent weakness in the case factories’ financial benefit analyses. The first reason is that factory audit teams were inexperienced in the techniques and procedures used to determine monetary benefits. Implementing a cleaner production audit involves two types of financial analysis, and both were completely new to the participating factories. The 7 Du, B. Illinois Environmental Protection Agency, Engineer. 1997. Interview by author, 8 September. Springfield, IL. 8 Mathur, B. Illinois Environmental Protection Agency, Air Bureau Chief. 1997. Interview by author, 9 September. Springfield, IL. 9 Miner, B. Tetratech, EMI consultant. 1997. Interview by author, 5 September. Rolling Meadows, IL. 10 Durley, S. Tetratech, EMI Consultant. 1997. Interview by author, 5 September. Rolling Meadows, IL. 11 Zhou, Z. China National Cleaner Production Center, Senior Engineer. 1997. Interview by author, 9 June, Beijing.

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TABLE 6. CNCPC-Suggested Variables for Estimating Financial Benefits of Cleaner Production Options Variables related to end-of-pipe treatment equipment • Wastewater treatment equipment depreciation • Capital construction cost of wastewater treatment equipment • Operational costs of wastewater treatment equipment Variables related to implementation of cleaner production options implemented • Cost savings from material reutilization and reduced consumption (within the manufacturing process) • Value of recycled material (from end-of-pipe treatment) • Cost of implementing low or no cost options • Cost of end-of-pipe treatment for amount of pollutant reduced (e.g., yuan/ 10,000 tons of wastewater treated, yuan/ton kg pollutant removed) Source: Duan and Chen (1995). Cleaner Production Assessment Handbook Training Manual (English version). Beijing: CNCPC, 1995, pp. 78–79.

first type of analysis relates to calculating the financial benefits derived from implementing cleaner production options. The discussion of Tables 5 and 6 illustrates the weakness of the financial analyses used to calculate this kind of benefit. The second type of analysis deals with estimating the future costs and payback periods associated with medium- and high-cost cleaner production options identified during the audit. Based on our interviews with project staff on both the Chinese and US sides, the lack of attention to future costs and benefits was widely perceived as a major weakness of the audits. For example, the IL EPA’s final project report made the following observation: Many facilities need to further improve their accounting methods to properly calculate the return on investment of cleaner production technologies. In addition, environmental personnel at Chinese industrial facilities need training on return on investment accounting so that they can present not only the environmental benefits, but also the financial benefits to financial managers (IL EPA 1997, pp 4–28). Our own analysis of Huabei’s and Xinhua’s cleaner production audit reports, along with the opinions of Chinese and US project staff, indicate that the factory audit teams did not fully understand the financial analysis methods for estimating the monetary benefits of the implemented options, as well as for determining payback periods and return on investment (ROI). One NEPA official elaborated on this point: Our ability to understand the financial benefits of cleaner production for individual factories is very weak. Auditing is a new thing, so it is very difficult to get exact numbers. We know that auditing should be done in light of the whole factory, but it is very difficult to integrate these figures into the [accounting of the] whole factory. So, qualitatively,

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you can say the financial benefits are good, but quantitatively, you can’t say anything very specific.12 Although the factory audit team members received some training on estimating financial benefits, payback periods, and ROI, it was only a small part of the overall project training. Because of their high level of technical skills, the factory teams were able to do a good job carrying out aspects of the audit related to manufacturing. However, because they were not as knowledgeable of the financial dimensions of cleaner production, they were not able to conduct as thorough an analysis of the financial benefits of the implemented options. Nor were the audit teams able to fully understand the potential financial benefits of implementing higher cost options and effectively “sell” them to upper factory management. This partially explains why neither of the case factories chose to implement any high-cost options and why Xinhua implemented only one medium-cost option. The second reason why the audit teams’ financial benefit analyses were incomplete is because project personnel were motivated to participate in the demonstration project for reasons that were not centered on attaining the monetary benefits of cleaner production. Although the idea of saving money for the factory played some role in motivating staff at the two case factories to participate, other factors related to the international nature of the demonstration project were more crucial. Based on interviews we conducted with six key US and Chinese officials involved in the case factory demonstration projects,7,9,10,12–14 the most important factors motivating case factory personnel participation in the project were the high degree of state level oversight and involvement, the opportunity to learn about cleaner production and US technologies, the prestige associated with working on an international project, and the opportunity for factory staff to travel to the US on a study tour.

State-Level Oversight In China, attention from higher-level government organizations commands respect. National agencies such as NEPA (now SEPA) and SPAC are government organizations at the highest level. The case factories involved in the IL EPA-NEPA project were hand picked by NEPA and SPAC to participate in the project, and NEPA and SPAC representatives continued their involvement throughout the duration of the projects. In addition, representatives from NEPA and SPAC attended all the IL EPA-NEPA project’s workshops and seminars and kept abreast of the cleaner production projects’ progress. 12 Wang, J. National Environmental Protection Agency, Industrial Pollution Control Division, Deputy Division Chief. 1997. Personal communication, 15 November. 13 Duan, N. China National Cleaner Production Center, Director. 1997. Personal communication, 16 November. 14 Wise, P. Illinois Environmental Protection Agency, Associate Director. 1997. Personal communication, 8 September.

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The influence of state-level oversight and involvement was cited by all six interviewees as a primary motivating factor. One NEPA official explained the importance of state-level participation in the following way. This is a demonstration project, so the administration from NEPA, SPAC, and so on, is very strong. You know, SPAC’s Zhang Mingqi [the environmental protection manager for SPAC], personally called the factory directors to tell them to participate. So they [the factory directors] think this is an issue of national significance, a national demonstration project, and that they were selected by the national government. . . . Also, the project was overseen by these agencies from the beginning of the project to its end. In China, leadership is very important (lingdao zhongshi). If it’s coming from the top, it’s important.12 One of the key IL EPA staff participating in the IL EPA-NEPA project was a Chinese-born engineer who was working for IL EPA during the project. He often served as a translator and liaison between the US and Chinese sides of the project. His comments also emphasize the importance of high-level oversight. For our project we involved national-level industry organizations. The political impact is so big, no one dare drop out. In China, everything from the top is important. If they are doing something with NEPA or any national state-level organization, the factory directors like that.7

Learning Opportunities Another important factor motivating case factory participation in the IL EPA-NEPA project was the opportunity to learn. Five of the six people involved in the IL EPA-NEPA project who we interviewed cited learning opportunities as an important motivating factor. The different types of learning mentioned included learning about US cleaner production technology and implementation, learning how to reduce pollution, and learning about ways to cut costs. The Chinese-born IL EPA staff person provided a perspective on this point: The project gave them [the project participants] a lot. They got a lot of technical information for free. They also got to see and confirm if their factory was “on the same page” technologically, as the US.7 Two interviewees who worked on the Chinese side of the project specifically mentioned learning about ways to cut costs as an important motivation for factory participation. In fact, they cited this incentive as a very important, if not the most important, factor influencing participation.12,13

Prestige The prestige associated with working on an international project was a third factor that motivated factory participation. Four of the six interviewees

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posited that prestige was a strong incentive. The fact that the US, considered a technology leader, was sponsoring this cleaner production project piqued factory management’s interest in participating. Being involved in an international project bestowed prestige on the participants, especially at lower administrative levels in the factories, where interaction with foreigners can be rare. The following comments from an IL EPA project participant illustrates this point. IL EPA’s role is that of “boosting the atmosphere” of doing cleaner production in China. Having an international project helped market the project, and gave it a good image to the participating industries. By partnering with the US government, NEPA was able to get the factories interested in participating in cleaner production. . . . The US is considered the top level internationally, like a brand name. It represents the state of the art. So even though all the training material was developed by NEPA, it means more to the participants if they think it comes from the US EPA or the World Bank.7 A high-level CNCPC official also had an opinion about how the international nature of the project affected the demonstration factories’ participation. If we inform them that this is an international project, they pay more attention to the project. In some provinces, some factories will pay much attention to this. For example, if you are in a place where they don’t get a lot of foreigners, then, it makes a difference . . . in Shijiazhuang [where Huabei is located] they receive little exposure to foreigners. Where Xinhua is, Shandong, they get more than Shijiazhuang. I think being international played a big role in this project.13 The CNCPC official’s statement reiterates the importance of a highprofile international project in getting factories to pay more attention to cleaner production.

Travel The final motivating factor cited by the majority of our interviewees was the opportunity to travel to the US on a study tour. Four of the six interviewees considered this an important incentive. In July 1996, some factory personnel participating in the audit got the opportunity to go to the US. This travel opportunity was a major windfall for project participants. Due to the difficulty of obtaining a US visa and the substantial costs associated with airfare, food, and lodging in the US, it is often difficult for Chinese people to visit the US on their own. Frequently, work provides their only chance. The IL EPA-NEPA project afforded personnel in the factories a rare international travel opportunity. The following comments made by a CNCPC official explain the challenges Chinese nationals often face in traveling to the US.

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Two reasons prevent travel to the US. First, it requires a lot of money. This way [through the project], they can use project money, or their company’s money to pay for the trip. Second, the practice in China is that it is easier to get a US visa for work purposes than for leisure. It is possible to get a visa for leisure, but there are a lot of restrictions on the US side. . . . Going abroad for study tour was a very strong factor to get them [the factory staff] to join [in the project]. Going to the US is a big deal. Some of the managers want to try new things, they are willing to see things from a new side, and they think this [study tour] is a good way to learn. Sometimes, for some of the projects, this gives them an opportunity to learn about what is going on in the US. The better factory managers want to do this. For Xinhua, especially I think this was the case.13 By participating in the IL EPA-NEPA project, case factory personnel were able to overcome the financial and procedural obstacles that typically make travel to the US infeasible. Discussion An important implication of this research relates to the utility of using high-profile demonstration projects as a means to promote the practice of cleaner production. Of seven major multilateral and bilateral cleaner production projects conducted in China from 1994 to 1997, six have involved demonstration projects. All together, these projects have funded at least 59 cleaner production audit demonstration projects (NEPA and CNCPC 1996). According to a NEPA official, the demonstration project has emerged as the primary mechanism for promoting cleaner production audits in China.12 Our research shows that although demonstration projects at the case factories generated substantial environmental benefits, the financial benefits were unclear, and the audit teams’ motivations to participate in the project stemmed largely from the project’s international nature. That financial incentives at the factory level were not major motives driving participation in the case factories suggests that the diffusion of cleaner production practices via demonstration projects on a larger scale may face significant challenges. For cleaner production to spread effectively, sound financial analyses are needed to provide convincing evidence to the factories participating in the demonstration project, as well as other factories in the same industry, that clear financial gains can be realized by adopting cleaner production practices. The monetary benefits of audit implementation in the case factories’ analyses were unclear. This represents a crucial deficiency in the implementation of the audits because it fails to demonstrate to the case factory personnel and staff at other factories in the industry that adopting cleaner production practices pays off. Without such proof, other factories will not

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have incentives to adopt cleaner production independently, and staff at the demonstration factories themselves will lack motivation to continue with their own cleaner production activities. Lack of financial incentives for participating in cleaner production-related activities is not universal in China. Some Chinese enterprises are quite serious about reaping the monetary benefits of implementing cleaner production. For example, in the study by Warren (1996) of pollution prevention in Chinese electroplating factories, “lowering costs or improving benefits” was cited by all of her nine case factory managers as a criterion that very strongly influenced pollution prevention decisions.15 In Warren’s cases, cleaner production was implemented by the factories predominantly on their own initiative and often in a piecemeal fashion, as opposed to the formalized, top-down audit process used with our case factories. The difference between our findings and Warren’s suggests that there are connections between the way in which a cleaner production project is initiated and implemented (i.e., bottom-up and piecemail versus top-down using a formal audit process) and the incentives of factory personnel to engage in cleaner production-related activities. When cleaner production is promoted in China on a nationwide basis, most projects will not be funded by international or multilateral sources, and they will not have the same political, financial, technical, and human resources associated with them as the demonstration projects at Huabei and Xinhua. Unless there are clear incentives (financial or otherwise)16 and adequate financial analysis training for cleaner production, the Chinese government’s efforts to diffuse the practice of cleaner production using demonstration projects will have limited results. Without incentives, factory management will be unwilling to participate in cleaner production programs. Without proper financial training, factory staff will be unable to recognize and act on the financial benefits of higher cost cleaner production options. Demonstration projects can be a useful tool for transferring important knowledge about cleaner production practices from developed countries to China and other developing nations. The formalized audit process provides a way to systematically and comprehensively identify a host of cleaner production options that benefit both the factory and the environment. The case studies analyzed here show how implementing demonstration projects resulted in significant reductions in water pollution. However, these research findings also suggest that a wider consideration of the factors that influence project personnel behavior—factors that go beyond the traditional 15 See Warren et al. (1999) for more details on these Chinese factories and see Higgins (1995), Sarokin et al. (1985), Clark (1995), and Welch (1997) for discussions of the financial incentives for implementing cleaner production in Western firms. 16 Warren (1996) shows that other incentives, such as winning environmental management competitions, also can be effective motivating factors that encourage factories to adopt cleaner production practices.

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