Competitiveness with (out) sacrificing environment: Estimating economic cost of groundwater pollution

E. Wardhani & S. Nugraheni

Parahyangan Catholic University, Bandung, Indonesia

ABSTRACT: Indonesia is one of the largest textile producers because of its high competitiveness.

1 INTRODUCTION

Indonesia is one of the largest textile producing countries in the world. In 2017, the value of Indone­sia’s exports from the textile industry reached $ 12.58 billion; it is the fourth largest export com­modity after the food industry, chemical industry, and basic Meta industry (Ministry of Industry of the Republic of Indonesia, n.d.). Some reports state that Indonesian textiles and clothing have high competi­tiveness. Quoting the UN Commtrade report, the Coordinating Ministry for Economic Affairs of the Republic of Indonesia (2018) noted that Indonesian textile products’ Revealed Comparative Advantage (RCA) was 55, the highest among other Indonesian export commodities.

Most of Indonesia’s textile industries are located in West Java, especially in Bandung and its sur­rounding areas.

In some cases, high competitiveness of Indone­sia’s textile products has to sacrifice environment. Greenpeace’s report (2013) states that textile factor­ies are the main cause of water pollution. Waste water from textile factories is disposed to rivers without being processed, and flows along the rivers, or seeps into the soil, and causes groundwater pol­lution around the factories’ areas. Water is also an important input in textile production process, and the factories often use groundwater to fulfill their water needs. They drill deep wells that deplete groundwater quantity in the areas around the factories.

Lagadar Village, Bandung District, is one of the areas where several textile factories are located. Research by Suhari (2012) concluded that Lagadar Village is one of the areas in Bandung District that experienced shallow groundwater contamination. This is confirmed by Greenpeace’s report (2013) and Lagadar’s local people who stated that, before the textile industries built their factories in Lagadar’s neighborhood, local people of the village used groundwater as their clean water resources. Once the textile factories established and operated in Lagadar village, the majority of the local people rely their clean water need from sources other than ground­water, such as: ‘bottled’ water (i.e. clean water in gallons that is sold based on refill system), tap water, and communal artesian wells that were built by the local community.

This study aims to estimate the economic costs borne by local people of Lagadar due to groundwater pollution in their areas. The study covered two ham­lets (sub-villages), namely RW 04 and RW 17 of Lagadar village. Those two hamlets were chosen as the object of this research because the distance between the two hamlets and the textile factory com­plex is quite close, about 1.5 to 4 kilometers.

2 EXTERNALITY AND ECONOMIC COST OF POLLUTION

Theoretically, pollution in the production process is the impact of externalities without compensation

from one-child actions on third party welfare (Mankiw 2009). Externality is a type of market fail­ure that can be negative or positive, depending on whether the impact by the stander is detrimental or profitable.

Research by Suhari (2012) and Greenpeace (2013) and statements by local residents of Lagadar state that the main cause of Lagadar groundwater pollution is textile industry wastewater. Suppose the statements are scientifically proven, cases of ground­water pollution in RW 04 and RW 17 Lagadar Vil­lage are negative externalities from textile factories located adjacent to the village. Externalities ignore Lagadar residents because they have to provide add­itional budgets to buy clean water. Lagadar villagers must bear the costs of groundwater pollution caused by the textile industry. As long as the costs are not included in the production costs of the textile indus­try, externalities occur.

Externalities will make the production costs of tex­tile factories ‘too low’ because they do not take into account the costs of externalities (Tietenberg & Lewis 2012). Graphically, this is illustrated in Figure 1. Sup­pose marginal costs represent the costs of producing textile factories, the MPC curve is the cost of produc­tion without including negative externality costs. When we take into account the cost of pollution, this gives a factory ‘real’ production cost symbolized by the MSC curve. We can see that the externalities pro­duce ‘too much’ out-put (Q1 compared to Q *), and the price is ‘too low’ (P1 compared to P *).

In Economics, externalities are overcome by internalization. One method of internalization is to provide compensation to the affected parties.

Figure 1. Negative externalities and the cost of production.

consequences. This is the economic cost of ground­water pollution.

Estimating economic costs from pollution not only for the purpose of providing compensation, but these costs can be used as information to develop a green growth strategy. Another use of the estimation results is to calculate the “net economic contribu­tion” of the industrial sector.

3 RESEARCH METHOD

This paper aims to estimate economic cost of ground­water pollution in two hamlets (i.e. RW 04 and RW 17) of Lagadar village. The importance of this study is to raise villagers’ awareness by proving that water pollution generates economic loss which showed in monetary values. The object of this study are RW 04 and RW 17 as they harmed the most compared to other sub district in that village (Suhari 2012).

There are studies on economic cost of water pol­lution and five of them are summarized in Table 1.

The estimation method used in this study is replacement and prevention costs. Data obtained from the survey at household level. Total number of household in RW 04 and RW 17 is 546 households. Using the following Slovin’s formula, the sample size is 84 households.

n : number of sample N : total population E : limit of error tolerance

Each household is given a questionnaire to gather information about two types of costs associated with additional costs (referring to replacement and pre­vention costs) to provide clean water.

ReplCost: Replacement Cost of Respondent (house­hold) i (Rp.).

PrevCost: Prevention Cost of Respondent (house­hold) i (Rp.).

n: Number of Respondents.

i: Respondent (household) to-i (1,2,3,... n).

Table 1. Previous studies on estimation of economic costs of water pollution.

3 FINDINGS AND DISCUSSION

Based on the survey, the average cost of replacement and prevention per household is Rp. 67,048 per month or Rp. 804,576 per year. If there are 546 households in the study area (ie two hamlets: RW 04 and RW 17 in Lagadar village), the total economic costs due to groundwater pollution are Rp. 36,608,208 per month or Rp. 439,298,496 per year. The results of data collec­tion are presented in Table 2.

The total economic cost of groundwater pollution is Rp. 36,608,208 per month or Rp. 439, 298,496 per year. This is not cheap for two reasons. First, this amount of money is only estimated for two hamlets. Water pollution caused by the textile industry affects communities along the river basin. Second, the Table 2. Household expenditure related to water consumption in Lagadar Village.

Type of Household Descriptive Statistic (in Rupiah)

Expenditure

Minimum Maximum Mean

Replacement Costs per Household per month

to clean water consumption per household per month

Source: authors' calculation based on survey.

calculation of economic costs in this study does not include health costs due to pollution. Thus, the real costs will be more than the costs estimated by this study. Indeed, textile factories have provided employment for the local community. Our survey shows that 55 percent of respondents (49 heads of households) work in factories. However, this should not reduce the company's obligation to preserve the environment around their industrial location, includ­ing groundwater. Workers are paid for their work, not to receive pollution.

4 CONCLUSION

This study aims to estimate the economic costs of groundwater pollution borne by residents of two hamlets (RW 04 and RW 17) in Lagadar village due to textile factory wastewater. Economic costs are estimated by calculating replacement and preven­tion costs from 84 sample households. The average cost of pollution of ground water per household is Rp. 67,048 per month or Rp. 804,576 per year. Because the total number of households in RW 04 and RW 17 from Lagadar is 546, the value of eco­nomic losses due to groundwater pollution borne by the population in the two hamlets is Rp. 36,608,208 per month or Rp. 439,298,496 per year. As long as residents bear the costs of pollution, externality exists.

Estimates of the economic costs of pollution can be used as information for compensation payments. However, there are ways to prevent contamination of ground water. Government regulation is one of them. Under these regulations, textile factories must treat their wastewater before disposal. Law enforcement is the main problem. Another way is to make spatial zoning into action. Industrial sites may not be in the same zone as residential areas.

Indonesian textile products that have high com­petitiveness make Indonesia the 11th largest textile and garment exporter in the world (Greenpeace 2013). However, high product competitiveness must not sacrifice the environment and people who live around textile factories.

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