47655 A World Bank Toolkit A © 2008 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org All rights reserved. This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. R I G H T S A N D P E R M I S S I O N S The material in this publication is copyrighted. 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For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone 978-750-8400; fax 978- 750-4470; Internet: www.copyright.com. ii Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending Abbreviations ADB Asian Development Bank AfDB African Development Bank BBN Bayesian Belief Network CEA Country Environmental Analysis CGE Computable general equilibrium CREED Center of Research on the Epidemiology of Disaster DALY Disability adjusted life years DFID UK Department for International Development DPL Development policy lending EER Energy-Environment Reviews ENS Environmental studies IADB Inter-American Development Bank NAFTA North American Free Trade Agreement PEER Public Environmental Expenditure Reviews SEA Strategic Environment Assessment SME Small and medium enterprises A World Bank Toolkit iii Contents Abbreviations iii 3.1.4 Forest degradation, forest conversion, Acknowledgments vii and loss of biodiversity. 47 1 Introduction 1 3.1.5 Natural disasters 48 1.1 Objective and audience 1 3.1.6 Impacts on coastal areas 49 1.2 Key policies and programs addressed 2 3.1.7 Human health/welfare and 1.3 Structure of the toolkit 3 the environment 49 1.4 Use of the toolkit 3 3.2 Indicators of Potential Environmental 1.5 List of countries with available data 4 Problems in Countries where the World Bank is Undertaking DPL Operations 50 2 Module I--Transmission Channels 6 3.2.1 Purpose and background 50 2.1 Introduction to Module I 6 3.2.2 Indicators chosen 50 2.2 Macroeconomic, Fiscal, and 3.3 Environmental Analytical Work 55 Public Sector Reforms 8 3.4 Major Data Sources 58 2.2.1 Ensuring macroeconomic stability 8 2.2.2 Improving the investment climate 11 4 Module III 61 2.2.3 Improving public financial management 15 4.1 Introduction 61 2.2.4 Governance reforms 17 4.2 Summary of tools available for analysis 62 2.2.5 Social protection 19 4.2.1 Checklist 62 2.2.6 Decentralization 20 4.2.2 Red flags 64 2.2.7 Increasing competition and 4.2.3 Network diagrams 64 entrenching property rights 21 4.2.4 Action-Impact Matrix (AIM) 67 2.2.8 Modernizing the rural economy 22 4.2.5 Environmental balance sheet 69 2.3 Sectoral Reforms 22 4.2.6 Stakeholder analysis 71 2.3.1 Agriculture 22 4.2.7 Public Environmental Expenditure Review 72 2.3.2 Forestry 26 4.2.8 Partial equilibrium models 72 2.3.3 Mining 28 4.2.9 Sectoral econometric models 73 2.3.4 Fisheries 30 4.2.10 Multi-market models 74 2.3.5 Environmental management 31 4.2.11 Demand analysis 75 2.3.6 Education 32 4.2.12 Supply-response modeling 76 2.3.7 Health 33 4.2.13 Scale-technology-composition analysis 77 2.3.8 Infrastructure 34 4.2.14 Input-output models 77 2.3.9 Energy 38 4.2.15 Social accounting matrix 78 2.3.10 Financial sector 40 4.2.16 Computable general equilibrium models 80 2.3.11 Tourism sector 41 4.2.17 Bayesian networks for analyzing coastal impacts 80 3 Module II--Indicators 44 3.1 Environmental Problems and References 83 Sustainability 44 3.1.1 Water quality and scarcity issues 44 Annex 88 3.1.2 Air pollution and deterioration of air quality 46 Case Studies 91 3.1.3 Land and soil degradation 46 A World Bank Toolkit v List of Tables 1. Transmission channels for policies designed to 18. Transmission channels for policies designed to ensure macroeconomic stability improve performance of the financial sector 2. Transmission channels for policies designed to 19. Transmission channels for policies designed to improve the investment climate promote tourism and tourism revenue 3. Transmission channels for policies designed to 20. Indicators tracked for DPL countries improve public financial management 21. Coding for the chosen indicators 4. Transmission channels for policies designed to 22. Indicators of Environmental Pressures in Selected improve governance Countries with DPL Operations 5. Transmission channels for policies designed to 23. Summary of background studies annotated in target polices for the poor Attachment A 6. Transmission channels for policies designed to 24. Summary of available tools promote decentralization 25. Assessment of PRSC-7: Original Triggers and 7. Transmission channels for policies designed to Proposed Prior Actions increase competition and entrench property rights 26. Tools to be used for Supportive Analytical Work 8. Transmission channels for policies designed to 27. Assessment of PDPG-2 Original Triggers and modernize the rural economy Proposed Prior Actions 9. Transmission channels for policies designed to 28. Environmental Risks and Advice on Suitable Action increase production and competitiveness in agriculture 10. Transmission channels for policies designed to develop the forest sector List of Figures 11. Transmission channels for policies designed to develop the mining sector 1. Steps in use of DPL toolkit 12. Transmission channels for policies designed to 2. Potential transmission mechanisms from develop the fisheries sector macroeconomic and sectoral policies to the 13. Transmission channels for policies designed to environment improve efficiency and effectiveness of 3. Possible linkages between DPL policies, environmental management expansion of agriculture, and deforestation 14. Transmission channels for policies designed to 4. Range of possible impacts from mining operations improve financing and fiduciary environment for and products education and improve sector governance 5. Environmental impacts of infrastructure 15. Transmission channels for policies designed to development in coastal areas improve financing and fiduciary environment for 6. Possible environmental impacts of energy sector health and better target healthcare for the poor policies 16. Transmission channels for policies designed to 7. Environmental impacts of tourism development on improve infrastructure coastal areas 17. Transmission channels for policies designed to 8. Volatility of Cotton Yields in Burkina Faso, improve energy supply and distribution 1950­2000 vi Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending Acknowledgments This toolkit was prepared by a team led by (Zambia), Sudarshan Canagarajah (Tajikistan), Siaka Muthukumara Mani (ENV). The core team comprised Coulibaly (Burkina Faso), and Gilles Alfandari (Malawi). of Anil Markandya, Nicola Cennachi, Sunanda Kishore and Viju Ipe. This toolkit is a product of the Policy and Economics Team in the Environment Department led by Kirk In preparing the toolkit, the team has greatly benefited Hamilton. Editorial support was provided by Alexandra from comments and inputs received from Sushenjit Sears, James Cantrell and Robert Livernash. The work Bandyopadhyay, Juan C. Belausteguigoitia, Dan Biller, was conducted under the overall supervision of Sector Jan Bojö, Diji Chandrasekharan, Richard Damania, Managers Laura Tlaiye and Michele De Nevers. Milen Dyoulgerov, Marea Hatziolos, Fernando Loayza, Nalin Kishor, Paul Martin, Giovanni Ruta, Ernesto The generous support of the Bank Netherlands Sanchez-Triana, Jan Walliser, and Jos Verbeek. Partnership Program (BNPP) is duly acknowledged. For the Country Case Studies, the team gratefully acknowledges and thanks the Task Team Leaders of the Development Policy Lending operations, Jos Verbeek A World Bank Toolkit vii viii Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending 1. Introduction The Operations Policy (OP/BP8.60) on Development resources. No one tool can capture all effects, both Policy Lending (DPL), approved by the Board in direct and indirect, of these policies; hence, an array of August 2004, requires that the Bank systematically tools may be required for a complete analysis. There analyze whether specific country policies supported has not been any systematic attempt to organize and by an operation are likely to have "significant effects" evaluate the different tools for a rapid assessment of on the country's environment, forests, and other the "likely significant effects" of specific policies natural resources.11 The implicit objective behind this envisaged in DPL operations in order to meet the due requirement is to ensure that there is adequate diligence requirement as laid out in the OP/BP8.60.33 capacity in the country to deal with adverse effects on Further, there is little guidance regarding the the environment, forests, and other natural resources circumstances under which the different tools can be that the policies could trigger, even at the program applied. The toolkit proposed in this document will design stage. Therefore, as part of all development help operationalize the determination of "likely policy operations, task managers are now required to: significant effects" (see Module I). n Determine the "likelihood of significant effects" on The proposed toolkit will complement the PSIA toolkit; the environment, forests, and other natural both will feed into the design of lending activities (both resources of specific country policies supported DPL and PRSC) for a country and ensure that operations by the DPL. contribute to sustainable development without significant environmental and social effects. It will also complement n Assess the country's environmental and natural other analytical tools--such as CEA and SEA--that are resources management systems to determine directed at a more comprehensive analysis. whether there is appropriate capacity to handle potential effects, if any, and recommend actions 1.1 Objective and audience within or outside of operations with emphasis on building required capacity.2 The toolkit facilitates systematic analysis of direct and indirect effects of development policy reforms on the The fast-disbursing nature of DPL operations often natural environment and natural resources. It provides requires that the analysis be conducted in a short time a framework and guidance for rapidly assessing frame. There are a wide range of tools, both qualitative environmental, forestry, and natural resource issues at and quantitative, to analyze the effects of specific the program concept design stage of the lending policies on the natural environment and natural activity. The specific objectives are to: n Organize and evaluate different tools, both 1 Environmental effects mean a policy-induced change in qualitative and quantitative, for a rapid human activity that in turn leads to a change in the quantity assessment of likely significant effects of specific or quality of an environmental resource (for example, loss of forest cover or habitat, or a change in the concentration economic policies envisaged in the DPL of pollutants in air, soil, or water). Significant effects are operations and other development policies on the environmental changes of sufficient magnitude, duration, and intensity as to have non-negligible effects on the natural environment, forests, and other natural resources. resource base and on human welfare (OPCS 2005). 2 Borrowers' or country systems broadly refers to the capacity underlying the policy and institutional framework to identify 3 Consequent to the approval of the OP/BP8.60 on and address environmental problems/priorities in an effective Development Policy Lending by the Bank Board in August manner taking into account concerns of stakeholders 2004, the Environment Department prepared a good practice (including the most vulnerable groups). It also embodies note on environment and natural resource aspects of DPL. processes to adequately monitor and evaluate progress The good practice note and the economic sector work on to overcome these problems. This could also include DPLs and forest outcomes prepared by the Agriculture and private initiatives/mechanisms for promoting sustainable Rural Development Department forms the starting point for development (OPCS 2005) this work. A World Bank Toolkit 1 n Provide a framework (including questions to be turn could increase production of agricultural answered, key elements, data requirements, products, potentially leading to encroachment into limitations, references, and country applications) forest areas where the forests are effectively open- for the tools to enable the user to choose those access. Similarly, privatization in certain sensitive that are appropriate for evaluating the effects of sectors may need to account for environmental specific policy reforms on a country's key damages caused by past operations. Since many of environmental, forestry, and other natural resources these reforms involve complex changes in incentive issues (see case example, section 5.1). structures (with differential impacts on various n Provide assistance in identifying a country's key segments of the population) and also have cross- environmental, forestry, and other natural resource sectoral impacts, the environmental implications may issues (see case example, section 5.1). not be obvious and are often difficult to predict. n Identify circumstances under which each of the Nonetheless, these issues need to be confronted tools can be applied. during program preparation or in analytic work, as the n Provide guidance for appropriate actions needed nature, even the direction of these effects will be highly for assessing institutional capacity. sensitive to the prevailing structural characteristics and the environmental priorities of the economy.4 Apart from DPL task managers and environmental specialists involved in DPL operations, the toolkit Annex A presents the pathways by which DPL policy should be useful to practitioners in other development reforms can impact on the natural environment and how organizations (multilateral and bilateral institutions) for such impacts can be analyzed. The policy impacts work better understanding of the implications of the policies through a number of transmission channels involving supported through their budget support operations on process, quantities, access to resources, and transfers environment and natural resources, including forests. of income and assets across the population. These impacts can be evaluated rapidly for their seriousness, 1.2 Key policies and programs using already developed tools and experience from past addressed policy reforms. When a significant effect is likely, an institutional assessment is needed to see if the existing DPL operations are associated with a whole array of institutions in the country can cope with it. Furthermore, policies such as macro policy reforms, fiscal policies, the impact itself will need further evaluation. This may and specific sectoral policies, particularly in key sectors be possible based on existing analytical work. If no such as agriculture, health and education, energy, etc. such work is available, some analytical work may be In some cases, the operation may deal directly with needed to prepare a mitigation plan to address any reforms in certain environmentally sensitive sectors major negative consequences of the DPL. such as energy, transport, water and sanitation, agriculture, and forestry. In these cases, there is an 1.3 Structure of the toolkit obvious need for careful analysis of environmental, natural resource, and forestry impacts. In other cases, The toolkit organizes the different tools available for such as public sector reform and governance, there is analysis of the effects of each policy, identifies less potential for likely significant impacts on the environmental priorities, and then provides guidance on natural environment and natural resources. Moreover, selection and use of the tools given the time and resource reforms in sectors such as education and health are constraints. The toolkit is designed to be concise and unlikely to have significant effects in these areas. user-friendly. It consists of three specific modules. From an analytical standpoint, the most difficult cases are those where the effect is indirect. Trade, public 4 For example, reform and modernization of the energy use expenditure management, and privatization reforms and transport sectors offer potential for improving efficiency (with attendant environmental benefits), as both sectors are could have a significant bearing on the environment the major users of final commercial energy. However, it is and on natural resources, but mostly through indirect often the case that the poor are disenfranchised from energy use because of the increase in utility prices and are driven to channels. For example, reducing export tariffs on cheaper alternatives like fuelwood, which not only degrades agriculture products may increase exports, which in forests, but also leads to indoor air pollution with serious health consequences. 2 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending The first module identifies relevant transmission The combination of the data from Modules I and II channels through which the proposed reform would provides an assessment of the significance of the have a likely effect on the identified environmental, impact. Although elementary, this information is useful forest, and other natural resource priorities. The to set priorities. In fact, it is often the case that not one transmission channels can be broadly grouped into but several policies are suggested for implementation; prices, assets, taxes, transfers, access and other therefore, an initial measure of significance allows a country-specific factors (such as social and cultural distinction to be made between those impacts that factors). The effects of policy reform could be need to be analyzed more urgently and carefully due transmitted through one or more of these to their potentially severe risks and those that do not transmission channels. need further attention. The second module provides assistance in identifying When the preliminary assessment of significance is key environmental issues in the country, regions, or complete, Module III offers a range of tools to expand sectors likely to be influenced by the DPL program. the analysis. This analysis may go from a qualitative This module captures the key initial biophysical, exploration of the range of possible impacts to a more environmental, forestry, and other natural resources sophisticated quantitative assessment of the issues in the DPL's relevant area of influence. The data environmental impacts. and information are drawn from the reports and publications of national governments, the Bank's The choice of the specific tool depends on the kind of Green Data Book, and other relevant publications. questions that are perceived as most important by the user (both staff and stakeholders). The third module presents different tools and methodologies for rapid assessment of the likely Summary of steps: significant effects of each reform. For each tool, this module presents information on the type of questions 1. Policy A is suggested for implementation. Find the it can answer, its complementarity with other tools, key policy in the tables of Module I. A color code elements, data requirements, limitations, and shows whether the policy may have positive references to country applications. This module also impacts on the environment (green color), no provides guidance on circumstances under which effects (blue color), some negative effect (yellow), each of the tools can be used. or serious negative effects (red) 2. The tables in Module I also identify the indicators of 1.4 Use of the toolkit state that should be taken into consideration for that specific policy. Refer to Module II to find the Figure 1 shows how the different modules integrate status of the indicator for the country under study. with one another to identify the possible impacts and Like Module I, the indicators provided in Module II assess their relevance. have a color code. The indicator can reveal bad conditions (red color), medium conditions (yellow Once a specific policy A is chosen, the transmission color), or good conditions (green color). channels in Module I show what kind of impact can be 3. The combination of data from Module I and II expected. The description provided in the comment suggest the significance of the impact (a column of each table of Module I helps to identify the significance matrix is provided in the case example) risks arising from the channel and the possible actions 4. The user can now refer to Module III for a range of to manage them. An additional column identifies the additional tools to extend the analysis. relevant "indicators of state" offered in Module II. A World Bank Toolkit 3 Figure 1. Steps in use of DPL toolkit Module II Module I + Module II = Correspondent Indicator(s) Further analysis: Preliminary indication of on the status of environment Selection Tools impact Significance receptors--Sensitivity from Module III Which environmental receptors affected? Negative Impact: Red Yellow Module I: Policy A Impact from Positive Impacts: Module III: Policy A Green solutions to encourage positive Impacts No Impacts: No further action Blue needed 1.5 List of countries with available data This toolkit provides data for 73 countries that have had DPL operations or where DPL operations are being planned. The full list is given below. Albania Armenia Argentina Bangladesh Benin Brazil Bulgaria Burkina Faso Burundi Cambodia Cameroon Cape Verde Central African Republic Chad Chile Colombia Congo Democratic Republic Cote D'Ivoire Croatia Dominican Republic Ecuador El Salvador Georgia Ghana Guatemala Guinea Bissau Haiti Honduras India Indonesia Iraq Kenya Lao People's Democratic Republic Lesotho Liberia Macedonia Madagascar Malawi Mali Mauritius Mexico Moldova Mongolia Montenegro Morocco Mozambique Namibia Nepal Nicaragua Niger Pakistan Panama Paraguay Peru Philippines Romania Rwanda Senegal Serbia Sierra Leone Sudan Tajikistan Tanzania Tonga Turkey Tunisia Uganda Ukraine Vietnam Yemen Republic Zambia 4 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending A World Bank Toolkit 5 2 Module I--Transmission Channels 2.1 Introduction to Module I Similarly, in the examples of agricultural policies the impacts are dependent on the institutions in place and The purpose of this module is to identify the main their effectiveness, as well as on what complementary channels through which structural adjustment policies policies are introduced to mitigate some of the could affect the natural environment and to provide possible negative social impacts of the policies. For task team leaders preparing DPL operations with a example, the elimination of agricultural subsidies could guide to those channels that are likely to be significant. result in increased rural poverty, which in turn could cause more migration to urban areas, a shift to The pathways by which macroeconomic and sectoral marginal lands, and deforestation. However, if policies reforms can influence the environment are complex were in place to protect the incomes of those and depend on the existing institutional framework. negatively affected, this transmission channel could With appropriate institutions to protect the become insignificant. Likewise, in the case of environment and protect the poor, some of the promotion of agricultural exports there is a risk that the possible negative consequences can be avoided, process will result in increased concentration of land in whereas in the absence of such institutional support the hands of a few large landowners. If this were to the negative effects can be severe. Of course, the happen, the poor could move to marginal land, institutional structures in place are not to be judged as causing loss of biodiversity and soil degradation. But black or white. They can be relatively weak or strong, whether this happens depends on what policies are in as assessed in the CPIA and as shown in Module II, place to protect small farmers. Finally, liberalization in where the environmental institutional scores for the agricultural marketing should lead to improved countries of interest were provided. The degree of supplies and incomes for intermediaries. At the farm transmission of negative impacts will thus be a matter level, there should be benefits in the form of higher of judgment, depending on the strength of the national incomes and better land management. But there could institutions. With the right institutional support, it is also be increased pressure to expand production, possible that a number of structural reforms could which, if not properly regulated, could lead to forest have benefits for the environment. clearance and biodiversity loss. The transmission mechanisms linking macroeconomic It is clear from this brief introduction that the and sectoral reforms to the environment can be seen transmission channels are dependent on how well in Figure 2, which looks at fiscal reforms at the macro environmental resources are managed and on what level and agricultural reforms as an example of policies the government introduces to mitigate any sectoral policies. The fiscal reforms could reduce negative social and environmental impacts of the resources available for environmental protection. The reforms. The following sections identify the main extent of such a reduction will depend on how well the reform policies and their possible and likely impacts. A ministries of environment and natural resources can color coding is used: (a) green indicates there could be make a case for their expenditures. The impacts of any positive impacts for the environment; (b) blue indicates reduction will depend on the capacity to enforce that the environment should not be affected; (c) yellow environmental laws and regulations and on the extent indicates there could be negative impacts; and (d) red to which the environmental authorities can rely on indicates that negative impacts are very likely. In the other sources of finance, such as charges for case of yellow- or red-colored policies and for some environmental services and earmarked taxes on others, some comments are also provided on the environmental pollution. The final impact will therefore impacts and possible mitigation measures. depend very much on the institutional framework, but could include damages to the natural environment and The policies are divided as follows: 1 through 8 are increased risks to human health. macroeconomic reforms, and 9 through 19 are sectoral reforms. 6 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending 1. Ensuring macroeconomic stability 10, Forestry sector reforms 2. Improving the investment climate 11. Mining sector reforms 3. Improving public financial management 12. Fisheries sector reforms 4. Governance reforms 13. Environmental management reforms 5. Social protection 14. Education sector reforms 6. Decentralization 15. Health sector reforms 7. Increasing competition and entrenching 16. Infrastructure reforms property rights 17. Energy sector reforms 8. Modernizing the rural economy 18. Financial sector reforms 9. Agricultural sector reforms 19. Tourism sector reforms Figure 2. Potential transmission mechanisms from macroeconomic and sectoral policies to the environment Macroeconomic Reform Anticipated Response Social/Institutional Impact Environmental Linkages Fiscal Reform Reduction in resources Depends on: Effects include: Reduce primary spending for environmental protection Enforcement capacity Deforestation Monitoring ability Soil contamination Scope for using MBIs Increased risks to human health Sectoral Reform Linkages Anticipated Response Social/Institutional Environmental Impact Elimination of Decline in domestic production Increased rural poverty depends Increased urban migration Agricultural Subsidies on complementary support deforestation polices for the poor Sectoral Reform Linkages Anticipated Response Social/Institutional Environmental Impact Promotion of Agricultural Increase in export Increased land concentration Depends on expansion of Exports agriculture with larger farms. agricultural frontier. Biodiversity loss Soil degradation Sectoral Reform Linkages Anticipated Response Social/Institutional Environmental Impact Liberalization of Agricultural Rise in market entrants Improved welfare of merchants, Depends on agriculture/land policies, resulting in increased large & medium farmers soil and water management, competition soil degradation and biodiversity loss Source: Adapted from Environmental Impact Assessment for Macroeconomic Reform Programs, WWF, undated. A World Bank Toolkit 7 2.2 Macroeconomic, Fiscal and resources have resulted from trade liberalization Public Sector Reforms have been documented. An analysis of the potential for such exports should be carried out (see Module Policies considered in this section include those 3 for details) and appropriate measures to prevent designed to ensure macroeconomic stability, improve such exploitation should be introduced. the investment climate, improve public financial c. Regional trade agreements can have negative management, improve governance, provide social environmental consequences. Major agreements protection, promote fiscal decentralization, increase such as NAFTA have been subject to SEAs, which competition and entrench property rights, and have identified the potentially damaging impacts modernize the rural economy. of such agreements. Where the Bank is supporting regional agreements, it would be wise 2.2.1 Ensuring macroeconomic stability to have some upstream work that has identified The broad objectives are to (a) improve fiscal the problem areas. performance and fiscal sustainability, (b) reduce d. Where environmental budgets are at risk, it is government debt and improve debt management, and important to make a fair valuation of the (c) expand and deepen international trade. The expenditures in this area. Ministries of Finance specific policies and their impacts are shown in Table often see the expenditures on the environment as 1. The following comments should be noted: a luxury, which they are not. But the capacity of the environment ministries to make the case can a. Positive impacts on the environment are possible be weak. They may need help to quantify with a number of policies. In such cases a environmental benefits to the economy and proactive environmental approach can enhance people's dependence on environmental goods these benefits. This applies to tax reform (where and services. there can be some scope for "green" taxation), or e. Tax devolution runs the risk of competition in reduction of public debt (where there may be environmental standards (so regional authorities potential for a debt for nature swap in some are lax in imposing environmental standards or cases). These should be explored where possible. levying charges so as to attract investment). This b. The most risky area is with respect to trade reform. needs to be avoided, if necessary by having Cases where unsustainable exports of natural national minimum standards. 8 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending Table 1. Transmission channels for policies designed to ensure macroeconomic stability Improve fiscal performance and fiscal sustainability Policy Action Impact Comment Relative indicators (Module II) Strengthen tax administration Green Could be beneficial if it results in better collection or green taxes Maintain sound expenditure composition Blue across sectors and improve management of public expenditures Reduce primary spending Yellow Could result in cuts to Environmental Health environmental budgets CPIA Improve transparency of fiscal accounts and Blue budget execution Reform tax policy to increase revenue base Green Could benefit environment if green taxes are included Adhere to fiscal discipline, meet targets, and Blue ensure priority spending Make tax system more equitable, transparent, Blue and stable Reduce tax-based expenditures Yellow Could result in cuts to Environmental Health environmental budgets CPIA Use budget management and fiscal rules to Blue ensure budget envelope and ensure allocations to line ministries are in accord with preset ceilings Set a fiscal framework, identifying priority Blue Important to develop capability to spending show benefits of environment- related spending Encourage increased and more predictable Blue Broader tax base could include revenues through improved compliance, taxes on environmental "bads," broader tax base, and reduction in tax rates to which would benefit environment improve investment Create an operational fiscal policy office with Blue capability and access to information sufficient to provide analysis of proposed tax, tariff, and financial market policies Strengthen fiscal devolution Yellow Danger of tax competition Environmental Health resulting in a "race to the bottom" CPIA Strengthen budget reporting and planning Blue Increase equity in intergovernmental transfers Green Needs of regions should include funds to protect environmental resources Improve efficiency and impact of public Green Impacts should include spending on national, subnational, and sectoral environmental impacts levels A World Bank Toolkit 9 Table 1. Transmission channels for policies designed to ensure macroeconomic stability (continued) Improve fiscal performance and fiscal sustainability (continued) Policy Action Impact Comment Relative indicators (Module II) Improve budget execution and financial Blue reporting Improve treasury operations Blue Reduction of government debt/ improve debt management Policy Action Impact Comment Relative indicators (Module II) Simplify expenditure management and make it Blue transparent Strengthen public expenditure management Blue Strengthen legislative oversight on public Blue finances Blue Ensure this does not become an Phase out direct and indirect subsidies to excuse for not meeting state-owned enterprises environmental regulations Implement a medium-term expenditure (MTEF) Blue to have greater visibility of policies and place budgetary allocations in a medium-term framework Reallocate inefficient spending Blue Reduction of public debt Green Debt for nature swaps could benefit environment; also some evidence that lower debt means less unsustainable natural resource exploitation Assessment of civil service pension liabilities Blue and possibilities for reform Develop and implement a debt management Blue strategy Improve debt management Blue Reducing subsidies to the non-poor Green Often these subsidies are environmentally harmful (e.g. transport, agriculture) Make tax revenue administration more efficient Blue 10 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending Expand and deepen international trade Policy Action Impact Comment Relative indicators (Module II) Trade policy reforms; liberalization of trade Red Risks of increased exports of Natural resources regime, tariff, and nontariff regulations natural resources in an degradation unsustainable way if appropriate protection polices for these Deforestation resources are not in place Air quality Terrestrial Biodiversity Expand market access for domestic exports Red Natural resources degradation Air quality Deforestation Terrestrial Biodiversity Implement complementary measures to Blue facilitate trade and customs clearance Yellow May affect the poor, may lead to Natural resources increased environmental degradation degradation.; SEA for such Implementation of regional trade agreements policies should be carried out. Ensure compliance with international Blue conventions and property rights Blue FDI should abide by good Reform to promote foreign direct investment environmental practices 2.2.2 Improving the investment climate b. The promotion of FDI should also not be at the expense of good environmental practices. The The broad objectives here are to improve investment evidence suggests that a lot of FDI does meet procedures, promote privatization reform and national standards, and sometimes even higher liquidation of state-owned enterprises, promote private standards. But this is not always the case. For sector development, and facilitate trade. The specific example if a major job creation investment is at policies and their impacts are given in Table 2. The stake, there is an incentive for national authorities to following comments should be noted: accept lower performance standards or turn a blind eye to their not being met. The Bank should not be a. There have been problems with the speeding up seen as supporting or condoning such practices. of business start-up times and licensing c. Privatization can be beneficial to the environment, procedures. Where the primary investment since it is often state industries that are the least sectors and/or operations are likely to have major compliant with environmental standards. environmental impacts, it is not appropriate to However, the new, more private-sector-oriented require these to be done hastily. This applies industrial structure will need a larger and a especially to areas such as mining and forestry. different regulatory capacity with regard to the Proper procedures in these sectors will take time environment. The macro reform program should (as they do in industrialized countries) and the therefore be complemented with an environmental Bank should not press countries to meet shorter support program, as has been the case in a processing times in such cases. number of countries. A World Bank Toolkit 11 d. Policies that support international norms and efficient and better managers of their waste and conventions should be environmentally beneficial. environmental impacts. It is important to include such conventions when f. The Bank should pursue possibilities to introduce designing a support program. macroeconomic reforms that link with specific e. Policies to strengthen small businesses should reforms in a sector that could enhance the include measures to help them be more energy positive outcomes. Table 2. Transmission channels for policies designed to improve the investment climate Improve investment procedures Policy Action Impact Comment Relative indicators (Module II) Reduce uncertainty for investors by Yellow It is important to ensure that the Environmental Heath implementing the investment law and its supporting regulations include supporting regulations and new operating good environmental practice procedures Reduction in business start-up time by Yellow This should not be done at the Environmental Heath simplifying or eliminating unnecessary expense of proper environmental business licenses, procedures, and multiple due diligence registration requirements Facilitate doing business by streamlining Blue registration procedures Establish one-stop center for business Blue registration Ease entry of foreign professionals and skilled Blue workers Strengthen arrangements for public-private Yellow The inclusion of private partners Environmental Heath partnerships should not be an excuse for lowering environmental standards Strengthen banking system Blue Strengthen non-bank financial sector Blue regulation and supervision to minimize chances of crisis Reforms to promote Foreign Direct Investment Blue Promoting FDI is a good policy as long as it is not done by lowering environmental standards Speeding up licensing of complex operations Yellow This can often mean that due Environmental Heath such as forest concession, power plants, pulp diligence on environmental mills, etc. issues, which takes time, is not Natural resources practiced; this has to be avoided degradation Improve access to international capital markets Blue Blue The program should meet Establish a national investment program environmental standards Issuance of international bonds Blue 12 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending Privatization, reform and liquidation of state-owned enterprises Policy Action Impact Comment Relative indicators (Module II) Sell or cancel state's minority shares in Green Often the state enterprises are enterprises the least compliant, but Sell or liquidate companies with majority state Blue enforcement capacity may need ownership to increase to handle the privatized industries Sell state shares in shipyards Yellow Environmental health Sell or liquidate agro-kombinants Green Promote public-private partnerships in Yellow The inclusion of private partners Environmental health providing infrastructure facilities should not be an excuse for lowering environmental standards Reduce state subsidies to enterprises Yellow This should not result in Environmental health Contain enterprise arrears Yellow non-payment of environmental Environmental health fees Privatization, restructuring, and bankruptcy of Yellow Often the state enterprises are state enterprises the least compliant, but enforcement capacity may need to be increased to ensure compliance by the privatized industries Reforms for private sector development Policy Action Impact Comment Relative indicators (Module II) Reduce cost of factors like electricity, Yellow It is important that the costs of Pressure on water telephone, water, transportation these services should still cover resources full costs of provision, including environmental costs Environmental health Facilitate transit of import goods Yellow Ensure that international norms Environmental health on hazardous goods are complied with (e.g. Basel Convention) Lower administrative barriers for private Yellow This should not be done by Environmental health investors making environmental Liberalize permitting and licensing rule Yellow requirements unduly lax Environmental health Improve the rule of law for the private sector Green It should include a fair and able implementation of laws relating to environmental infractions Liberalization of labor laws--less intervention Blue by the state Improve and monitor business regulatory Yellow Improvement should not mean Environmental health environment bypassing necessary environmental regulations Natural resources degradation Improve functioning of land markets Blue Increase private sector access to finance Blue A World Bank Toolkit 13 Table 2. Transmission channels for policies designed to improve the investment climate (continued) Reforms for private sector development (continued) Policy Action Impact Comment Relative indicators (Module II) Improve functioning of labor markets through Blue development of flexible labor and employment laws Create enabling environment for foreign direct Yellow Promoting FDI should not lead to Environmental health investment lowering environmental standards Natural resources degradation Enforcement of standards for goods exported, Green This should help raise especially WTO standards for food products environmental standards generally Strengthen small business Green Emphasis on capacity of small business to manage waste efficiently Promote export of handicrafts by revising laws Blue Ensure that raw materials for and tax (expertise tax) schemes handicrafts are sustainably exploited Trade facilitation Policy Action Impact Comment Relative indicators (Module II) Improve governance procedures and promotion Blue of e-government Ensure compliance with international Green Also include here possible conventions and property rights environmental conventions (e.g. trade in endangered species) Simplification of customs regulations, Green computerization of customs procedures Enhance team tariff through improved Blue governance procedures, better information technology solutions, and research capability 14 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending 2.2.3. Improving public financial case they should be allowed to remain as such, management although the consolidation can still continue. The broad objectives here are to strengthen budgeting A number of countries operate with environmental and financial management, improve procurement, and funds. Some of these have played an important role in initiate civil service reform. The specific policies and financing environmental investments. Where the Bank their impacts are described in Table 3. The following engages in strengthening non-bank financial comments should be noted: institutions it should look to ensure that these institutions are also operating under `good practice' In improving control of government revenues the Bank rules (e.g. as under the "St. Petersburg Principles" as and the Fund look to establish a consolidated set of set out by the OECD5). budgetary accounts. This includes revenues from taxes that are earmarked. Sometimes the Bretton Woods institutions also ask for the taxes not to be 5 OECD (Organisation for Economic Co-operation and earmarked. For the environment, however, some Development). 1995. "The St. Petersburgh Guidelines on earmarked taxes can be justified. Where this is the Environmental Funds in the Transition to a Market Economy." Paris: OECD/GD(95) 108. Table 3. Transmission channels for policies designed to improve public financial management Strengthen budgeting and financial management Policy Action Impact Comment Relative indicators (Module II) Improve budgeting through future expenditure Blue framework with a system of clear forward estimates Improve controls and efficiency in treasury Yellow Regarding earmarked taxes, in Environmental health management by consolidating revenue and some cases such taxes may be expenditure accounts justified, but revenues from them should still be included in the consolidated budget Increase accountability and transparency in Blue government financial management Improve the stability of the financial sector by Yellow Banks should be encouraged to Environmental health implementing good corporate governance and require good environmental risk management standards, particularly in standards when making loans, as Natural resources state-owned banks is the practice in industrialized degradation countries; they should be encouraged to adopt the environmentally relevant principles derived from the Equator Principles A World Bank Toolkit 15 Table 3. Transmission channels for policies designed to improve public financial management (continued) Strengthen budgeting and financial management (continued) Policy Action Impact Comment Relative indicators (Module II) Commercialization and transparency of Blue commercial banks Strengthen non-bank financial institutions to Green Some countries have specialized develop a diversified financial sector environmental funds (e.g. transition economies, China); these institutions should operate under good banking practices, and the Bank should help them when it is involved in strengthening non-bank financial institutions Improve procurement Policy Action Impact Comment Relative indicators (Module II) Implement transparent procurement processes Blue and better procurement outcomes Enhance efficiency of procurement, Blue e-procurement Legal, regulatory, and institutional framework Blue in public procurement that complies with international standards Public procurement reforms to increase Blue transparency Initiate civil service reform Blue Pension reforms Policy Action Impact Comment Relative indicators (Module II) Establish independent salary commission that Blue can propose new pay designs for higher level state officials Civil service reform to include a framework for Blue training, payroll verification, pay and grading policy Set up functional human resource Blue management office Capacity of civil service to ensure skills base Blue and address issues of retention and sustainability Efficient, transparent, and fair policies Blue regarding personnel 16 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending 2.2.4. Governance reforms service more accountable and transparent should help ensure that environmental laws are respected. The The broad objectives here are to improve public component dealing with raising awareness of citizens' administration, raise fiduciary standards, and rights should also include a program of environmental implement judiciary and civil service reforms. The awareness and freedom of access to information on specific policies and their impacts are given in Table 4. the environment. These have been important drivers of There are no cases in this subgroup where concerns environmental reforms in many industrialized countries are raised about the environment. In general, policies and economies in transition, as well as some that reduce corruption and make the judiciary and civil developing economies. Table 4. Transmission channels for policies designed to improve governance Improve public administration Policy Action Impact Comment Institution building at the public administration sector to improve Blue financial management, personnel management, and economic decision making Raise awareness of citizens about rights, the rule of law, and Green It is important to raise awareness of corruption environmental rights in the public as part of such a program Improve performance through introduction of internal auditing, Blue evaluation, and performance review Improve performance of civil service through incentives Blue Better fiduciary standards and public expenditure management Policy Action Impact Comment Transparency and accountability in treasury cash management Blue Regulations to prevent money laundering activities Blue Strengthen Accountant General's department Blue Set up public accounts committee and records management Blue Strengthen internal and external audit Blue Transparency and equity in decentralized resource allocation Yellow Equity in resource allocation should take account of environmental obligations in different regions Improve accountability and transparency of government financing Blue A World Bank Toolkit 17 Table 4. Transmission channels for policies designed to improve governance (continued) Judiciary reforms Policy Action Impact Comment Improve transparency and efficiency of judiciary Green Should also help ensure environmental compliance Improve financial situation of the judiciary sector and sustain the Blue allocation Strengthen institutional capacity, promote broader civil society Green Should help to ensure environmental participation, and provide judicial services in courts that are more compliance as well transparent, fair, equitable, and accessible Prepare and implement action plans to fight corruption and money Blue laundering Strengthen institutional capacity of the Ministry of Justice Blue Should help ensure environmental compliance as well Setting up anticorruption commissions/committees Blue Regulatory and institutional mechanisms to fight corruption Blue Should help ensure environmental compliance as well Civil Service reforms Policy Action Impact Comment Rationalize employment in the public sector Blue Reduce deficits in the pension system and move the system Blue toward fiscal sustainability Create a lean, effective, and efficient civil service free of Green Should help ensure environmental corruption compliance as well Development of a human resource management system Blue Promote gender equality in civil service Blue Improve human resource management in the public sector Blue Early retirement options, redeployment of staff, stabilization of Blue civil service staff 18 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending 2.2.5 Social Protection overexploit the natural resource base. In other cases, the programs would benefit from explicitly taking The broad objectives here are to target policies for the account of the relationship between the poor and their poor, implement pension reforms, and bring in policies use of natural resources. For example, decentralization to encourage growth and development of small and of poverty reduction programs should take greater medium enterprises. The specific policies and their account of different dependencies on the natural impacts are given in Table 5. resources in different regions and in rural versus urban environments. In supporting small and medium In general, measures that directly act to reduce poverty enterprises (SME), attention should be paid to issues of should benefit the environment. There are some cases, energy efficiency and waste management. Finally where however, where the measures may need to be looked at support is provided for handicrafts, it is important to carefully; for example, removal of some subsidies to the ensure that the raw materials are sustainably accessed. poor, where these subsidies provide an incentive not to Table 5. Transmission channels for policies designed to target polices for the poor Target policies for the poor Policy Action Impact Comment Relative indicators (Module II) Replace consumer subsidies with targeted Yellow Some subsidies--such as for Environmental health programs for poor, cash transfers, etc. kerosene--can be beneficial to the environment; in removing Urban air quality these, account should be taken of possible environmental impacts Deforestation Improve monitoring and analysis of information Green Including use of natural resources on poverty and social well-being by the poor Encourage participation of stakeholders in Green poverty reduction programs Decentralization of poverty reduction programs Green Should take account of dependence of the poor on the natural resource base Social security and universal health insurance Blue reform Improve poverty orientation of public spending Blue Pension reforms Blue Increase pensions, pay pensions on time, and Blue improve pension administration Reform pension schemes to reduce the state Blue expenditure Policies to encourage growth and development of small and medium enterprises Policy Action Impact Comment Relative indicators (Module II) Provide access to credit, technical assistance, Green Include their capacity to manage and capacity building to these enterprises waste efficiently Promote the handicrafts industry, reduce the Blue Ensure that raw materials for skill tax handcrafts are sustainably exploited A World Bank Toolkit 19 2.2.6 Decentralization account of the need to build capacity at that level. This The broad objectives here are to promote fiscal applies especially to EIA procedures, which are part of decentralization and to strengthen the capacity of the issuance of permits for land use, including communities to deliver public services. The specific industrial plants, roads, energy sources, and mining policies and their impacts are given in rights. Without adequate capacity, there is a serious Table 6. risk that damage will be done to the environment. It is frequently the experience that local authorities are As noted earlier, it is also important to ensure that less equipped and less qualified in managing competition to attract investment does not result in a environmental resources than central governments. lowering of overall environmental standards. Any program of decentralization must therefore take Table 6. Transmission channels for policies designed to promote decentralization Promote fiscal decentralization Policy Action Impact Comment Relative Indicators (Module II) Improve resource allocation to the local levels, Yellow It is important to take account of CPIA including communities, and strengthen capacity in the regions and intergovernmental fiscal relations communities to manage complex environmental management programs, including issuance of permits for development in environmentally sensitive areas Strengthen capacity of communes to deliver public services Policy Action Impact Comment Relative Indicators (Module II) Improve decentralization by issuing ministerial Blue decrees for blue-book and on-granting procedures and improve the framework for sub-national government bond issuance and work-out procedures Provide leadership, policy, and regulatory Blue frameworks Adequate and timely resources for local Yellow The resources and capacity CPIA institutions and capacity building needs should take account of the management of the environment as well 20 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending 2.2.7 Increasing competition and of past damage and liability for that damage. It has entrenching property rights been shown that privatization is more effective and privatization proceeds are higher with such a prior The broad objectives here are to liberalize the audit than they are without it. Second, as noted earlier, provision of key services, entrench property rights and as the economy moves towards private ownership of, secured transactions, and reform state-owned utilities. or participation in, key industries such as transport, The specific policies and their impacts are shown in water and energy, the modes of environmental Table 7. regulation will change, with more reliance on fiscal instruments and less on direct controls. In view of that, There are two key environmental issues here. First, the Bank should support a program to strengthen and privatization of existing services is best carried out adapt the environment regulatory framework, ideally with a prior environmental audit establishing the extent before it launches the privatization drive. Table 7. Transmission channels for policies designed to increase competition and entrench property rights Liberalization of key services Policy Action Impact Comment Relative Indicators (Module II) Liberalization of railway services Yellow In bringing in the private sector it Environmental health Liberalization of civil aviation services Yellow is important to carry out Environmental health environmental audits and establish environmental liability for past operations, as well as to strengthen and adapt the management of the environment in the light of these changes Liberalization of telecommunication services Blue Entrenching property rights and secured transactions Policy Action Impact Comment Relative Indicators (Module II) Strengthen creditor rights Blue Strengthen civil procedures for debt recovery Blue Simplify procedure for property transactions Blue Reform of state-owned utilities Policy Action Impact Comment Relative Indicators (Module II) Privatization of state-owned utilities Yellow In bringing in the private sector it Environmental health Encourage private sector participation Yellow is important to carry out environmental audits and establish environmental liability for past operations, as well as to strengthen and adapt the management of the environment in the light f these changes A World Bank Toolkit 21 2.2.8 Modernizing the rural economy agricultural research and development programs are conscious of the environmental constraints and The broad objective here is to stimulate farm incomes. challenges that farmers face and that solutions are The specific policies and their impacts are shown in designed with a view to ensuring a sustainable Table 8. agricultural sector. This should not be in conflict with the goal of increasing farm incomes; indeed, the two The environmental implications of these reforms should be complementary. should be positive. However, one should ensure that Table 8. Transmission channels for policies designed to modernize the rural economy Stimulate farm incomes Policy Action Impact Comment Strengthen agricultural research and development Green Ensure focus is on sustainable, environment Strengthen agricultural extension services Green friendly agriculture Provision of private extension advisory services Blue Provide stimulus to agricultural research Green 2.3 Sectoral Reforms private sector development can help improve the environment. But it does mean a different system Sectoral reforms generally accompany investment of regulation and the greater use of indirect programs in the relevant sectors. The policies methods of control, often based on market-based supporting the investments, however, need to be incentives. These should be developed in parallel mindful of possible environmental impacts. The with sectoral reforms. following are the key transmission channels: d. Task managers are already mindful of the need to ensure that reforms do not cause hardship to the a. In agriculture there is a serious risk of deforestation poor sectors of society. This is also important and cultivation of land that is better not cultivated from an environmental point of view. If people are as a result of policies that increase the profitability unable to access resources they were previously of some crops. Measures need to be in place to using in a relatively benign way, they may turn to prevent such impacts. activities that further damage the environment. b. Many sectoral reforms offer a real opportunity to Social protection programs need to be aware of promote sustainable development and improve these possibilities and be designed to avoid them. the environment. These should be taken wherever possible. Areas include building sustainability 2.3.1 Agriculture considerations into policies for sectors such as forestry, fisheries, energy, and tourism. A tool to The broad objectives are to (a) increase production ensure that environmental issues are taken into and productivity and (b) increase competitiveness in account at the strategic level is the Strategic specific commodities. The specific policies and their Environmental Assessment. Greater use should impacts are shown in Table 9. be made of this in deciding options in the infrastructure, energy, tourism, and other Because of its close links to natural resources, environmentally sensitive sectors. agriculture is a particularly vulnerable sector where c. Promoting privatization and protecting the policy reforms with sound macroeconomic intentions environment are not mutually exclusive; indeed, can spill over into impacts on the natural environment. 22 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending It has been noted that some reforms may lead to cases, reforms need to be accompanied by measures expansion of agriculture to areas that were previously to ensure that environmental standards and forestland or marginal land unsuitable for cultivation. requirements for good practice are respected. In the Figure 3 shows some of the factors that are most likely absence of such complementary policies, even the to interact with a policy change. The extent of such best-designed reforms can have negative agricultural expansion depends on the institutional environmental consequences. arrangements for the protection of such lands. In other Figure 3. Possible linkages between DPL policies, expansion of agriculture, and deforestation. Distortions DPL Policies Other factors Improved access to markets (including exogenous variables) Infrastructure: Price of inputs may contribute to roads density % paved roads high high density Property rights weak Land use conversion: Deforestation high Rural population growth may exacerbate Climate Change: Rainfall Sustainable land-management practices: agroforestry weak Soil Erosion cover crops, etc. Physical factors: Terrain incline Soil composition A World Bank Toolkit 23 Table 9. Transmission channels for policies designed to increase production and competitiveness in agriculture Increase production and productivity Policy Action Impact Comment Relative Indicators (Module II) Improve access to markets (trade liberalization) Red Chance for extension of Deforestation cultivation to marginal lands and deforestation as a result of Air quality reforms Terrestrial systems under threat Land degradation Promote agronomic research Blue Support for infrastructure and equipment Yellow Ensure environmental regulations Environmental health are respected Strengthen performance and productivity of the Green Scope for environmental irrigation sector improvements if this dimension is addressed specifically Increase access to micro finance Yellow Ensure rules and procedures for Environmental health rural credit do not permit increased environmental degradation Reform of land tenure laws and land acts Yellow Ensure it does not increase Deforestation population without access to land Air quality Terrestrial systems under threat. Improve rural roads Yellow Beneficial, but opening up of Deforestation hitherto closed areas can result in deforestation Air quality Terrestrial systems under threat. Product price and input price reforms Yellow Such reforms can increase Deforestation production of some crops and increase use of inputs that are Air quality environmentally damaging; care needs to be taken to ensure this Terrestrial systems does not happen under threat Maintenance and expansion of irrigation Yellow Beneficial if expansion does not Environmental health lead to overuse, waterlogging and salinity from overexploitation of Pressure on water water sources resources 24 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending Increase competitiveness in specific commodities (Coffee, tea, cotton, etc.) Policy Action Impact Comment Relative Indicators (Module II) Provide better incentives and institutional Yellow Increased returns should not lead Deforestation arrangements to farmers to increase returns to adoption of environmentally damaging practices Air quality Terrestrial systems under threat Improve marketing arrangements for improved Yellow Should be adapted to local Environmental health seeds and fertilizers conditions and accompanied by training in application methods to Natural resource avoid excessive runoff degradation Improved processing facilities Yellow Ensure environmental standards Environmental health are respected Natural resource degradation Reform of sector boards Blue Improve trade and marketing of agro- Red Need to ensure that this does not Deforestation processed products lead to expanded production that is environmentally damaging Air quality Terrestrial systems under threat Implementation of producer price setting Blue mechanism Privatization of processing facilities (e.g. cotton Yellow Ensure that private sector Environmental health ginning, coffee processing) complies with environmental regulations A World Bank Toolkit 25 2.3.2 Forestry greater, since sustainability considerations are now better integrated into many forest policies at the Bank. The broad objectives are to move to the sustainable Areas where care is needed are in the streamlining of management of forest resources, improve EI (where speed is not always desirable); and in management of production forests, and increase promoting forest production, where conservation of conservation of biodiversity. The specific policies and some forest areas should not be compromised. There their impacts are shown in Table 10. are also potential benefits to the environment from reforms relating to better forest management, As in the case of agriculture, forest sector reforms are sustainable logging, and sustainable exploitation of closely tied to the environment. In this case the other forest products. prospects of positive environmental impacts are Table 10. Transmission channels for policies designed to develop the forest sector Sustainable management of forest resources Policy Action Impact Comment Relative Indicators (Module II) Implementation and compliance with forestry Green Code should include code environmental considerations Encourage domestic processing of logs Yellow Take account of sustainability Deforestation requirements Urban air quality Community engagement in forestry sector Green Implement forest sector monitoring Green Streamline environmental and forest impact Yellow Streamlining should not be Deforestation assessment equated with speeding up impact assessment processes that need time to be carried out Transparency in allocation of forest permits Green Sustainable forest management plans and Green Should result in more timely delivery of services to the private sector environmentally friendly management Effective enforcement of forest fiscal regime, Green If earmarked, finance can such as effective collection of forest taxes improve enforcement Recruitment of internationally reputed observer Green Should help with compliance and to monitor logging activities enforcement Decentralization, passing a share of forest Green revenues to local governments Setting up national forest observatory with GIS Green This can also assist in policing capabilities to track timber flows and payment illegal logging of related fees Capacity building for forest institutions Green Green Reform forestry fund with private sector and Green local government participation 26 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending Management of production forests Policy Action Impact Comment Relative Indicators (Module II) Complete forest estate zoning plan Green Plan should include environmental considerations Afforestation may benefit from carbon capture benefits Implement forest management policies and Green Benefits in the form of carbon plans for production forests sequestration should be taken into account Promote efficiency and value-added in timber Yellow Protection of protected forests Deforestation product processing and reduce wastage should not be compromised Ensure control of forest production, field Green applications, and enforcement and application of penalties Establish a price for non-timber forest products Yellow Can improve sustainable use, but Natural resource sustainability has to be managed degradation Deforestation Continue the plantation development program Green Can be environmentally beneficial Encourage competitive bidding of logging Yellow Permits should not be given in Natural resource permits for natural and planted timber environmentally sensitive areas degradation Deforestation Develop a framework for effective log tracking Green Should improve sustainable system forestry. Enactment of sustainable forestry law Green Improve livelihood of natural resource owners Yellow Can improve sustainable use but Natural resource through appropriate valuation of forest sustainability has to be managed degradation resources Deforestation Biodiversity Conservation Policy Action Impact Comment Relative Indicators (Module II) Strengthen institutions for management and Green Ensure adequate resources for administration of parks, protected areas, and management, including through wildlife payments for ecological services, ecotourism, etc. Local community participation in Green Helps to ensure less conflict in administration of protected and sensitive areas management Systematic application of environmental Green impact assessment Implementation of socioeconomic mitigation Green plans and resettlement of indigenous people Measures to exempt nationally protected areas Green from logging, industrial mining, fishing, or any activity that threatens biodiversity A World Bank Toolkit 27 2.3.3 Mining The mining sector has major environmental impacts that need to be respected in any programs that The broad objective is to develop the mining sector as expand the sector (Figure 4). The risks of regional a source of growth. The specific policies and their authorities turning a blind eye to such concerns so as impacts are shown in to attract private investors have to be addressed. Table 11. Similar concerns apply for different reasons in the case of artisanal mines. Figure 4. Range of possible impacts from mining operations and products Distortions DPL Policies Mining Impacts Surface stripping Mining wastes dumped in streams and valleys Rule of Law Environmental regulations weak Mining operations Complete deforestation Release of methane during operations Distortions DPL Policies Mining Impacts Waste from coal transport Rule of Law Environmental Mining procedures regulations weak (e.g., coal) Toxic run-off 28 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending Table 11. Transmission channels for policies designed to develop the mining sector Develop the mining sector as a source of growth Policy Action Impact Comment Relative Indicators (Module II) Reform the legal, regulatory, and institutional Yellow Both policy actions can facilitate CPIA settings in the mining sector better environmental Improve governance and transparency Yellow management, but that dimension CPIA needs to be addressed explicitly Improve private sector investment in the Yellow There has to be an adequate CPIA mining sector framework to ensure environmental regulations are respected and that the capacity to enforce the regulations are in place in a privatized setting Expand administration of all mining licenses Blue through cadastral system Improvements in the level and quality of mining Blue extension services Improve competition in the mining sector Blue Update regulatory and legislative framework to Green bring governance and institutional standards to international levels Design a mechanism to share mining revenues Blue with local communities Capacity building in the mining sector Green Include capacity in the environmental sphere Setting up environmental management policies Green Ensure capacity to carry out the and guidelines for social and environmental assessments impact assessment Introduce better practices for improved work Green This is a potentially difficult area and living conditions in artisanal mine sites for environmental regulation and resources; also should ensure that the mining is not damaging to the environment Improve economic efficiency and transparency Blue of the sector Restructuring of mining right titling system Blue Strengthen environmental and forest impact Green assessment of mining A World Bank Toolkit 29 2.3.4 Fisheries The high level of awareness of the risks of overfishing means that policies deigned to promote this sector are The broad objective is sustainable development of the sensitive to this factor. The danger of promoting fisheries sector. The specific policies and their impacts industrial fisheries is the impact it can have on small- are shown in Table 12. scale fishers, who in turn can damage their environment as they seek alternative sources of livelihood. Table 12. Transmission channels for policies designed to develop the fisheries sector Develop the fishery sector Policy Action Impact Comment Relative Indicators (Module II) Establishing rules of a geo-positioning system Green Can help monitor compliance to monitor industrial fishing Implement transparency in industrial fishing Blue activities Comprehensive socioeconomic and Yellow This should look at the impacts environmental review of the industrial fishing on small/artisanal fishers and in sector turn on the environmental impacts of their activities as well as on the extent of overfishing Design and enforce conservation measures to Green protect and or restore fish populations in overexploited or fragile marine areas 30 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending 2.3.5 Environmental Management Reforms in this area are of course beneficial to the environment. The main risks are (a) overestimation of The broad objective is to improve efficiency and local capacity to handle complex management effectiveness of environmental management. The systems, and (b) promotion of decentralization in specific policies and their impacts are given in Table 13. environmental management, which may create the incentives for a "race to the bottom." Table 13. Transmission channels for policies designed to improve efficiency and effectiveness of environmental management Improve efficiency and effectiveness of environmental management Policy Action Impact Comment Relative indicators (Module II) Ensure adequate financing for building Green capacity and investments for environmental management Adoption of environmental impact mitigation Green plans Pass laws and decrees on environmental Green These should be sensitive to local regulation and monitoring needs and capacities Streamline Environmental and Forest Impact Green Assessment Decentralization of environmental management Yellow Can be problematic if local/ CPIA instruments and plans regional authorities do not have capacity; can also create a "race to the bottom," with authorities vying with each other to attract investment Promote transparency and public participation Green in environmental management Develop fiscal instruments to promote Green Management of the funds in an environmental management and allocate more efficient and transparent manner funds to promote sustainability is important (see section 2.3) Promote decentralization and role of Green This can be problematic if local/ communities in environmental management regional authorities do not have capacity; can also create a "race to the bottom," with authorities vying with each other to attract investment A World Bank Toolkit 31 2.3.6 Education This sector does not have strong links to the environment. One issue, which perhaps is worth considering, is to The broad objectives are to improve the financing and promote environmental awareness in school curricula. fiduciary environment for education, improve sector governance, promote equitable access to education and improve quality, and improve the quality of education. The specific policies and their impacts are shown in Table 14. Table 14. Transmission channels for policies designed to improve financing and fiduciary environment for education and improve sector governance Improve financing and fiduciary environment for education Policy Action Impact Comment Fiscal framework and increased sector financing Blue Facilitate transfer of resources to districts to meet the needs of education Blue service delivery Increase transparency of financial management process and strengthen Blue capacity of provincial and district capacity for monitoring flows Improve transparency in procurement procedures and practices Blue Improve efficiency of education expenditure Blue Improve sector governance Policy Action Impact Comment Enhance monitoring of school performance by communities Blue Strengthen monitoring and evaluation Blue Improve teacher management Blue Revitalize parent teacher associations Blue Develop an education management information system Blue Promote community oversight of educational programs Blue Include environmental awareness in such programs Promote equitable access to education and improve quality Policy Action Impact Comment Reduce drop-out rates, especially at lower levels Blue Ensure equitable access to education at all levels Blue Encourage participation of the private sector Blue Promote equal access to boys and girls Blue Target poor and marginalized areas with the weakest education indicators Blue Reduce regional disparities Blue 32 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending Improve quality of education Policy Action Impact Comment Improve teaching practices with focus on schools and student outcomes Blue Reduce repetition rates and increase completion rates Blue Reinforce capacity of existing academic structures and administration Blue Raise awareness of parents Blue Increase accountability of schools to both government and community Blue Improve teacher quality via emphasis on teacher recruiting and training Blue Reduce corruption and misuse of public resources Blue 2.3.7 Health consideration for resources relative to interventions The broad objectives are to improve financing and the arising from malnutrition at one end and lifestyle fiduciary environment, and to better target healthcare choices at the other. Measures of the cost per DALY to the poor. The specific policies and their impacts are can show improvements in water supply, sanitation shown in Table 15. and reductions in some forms of air pollution to be more cost effective than some of the more In the health sector the main issue is to ensure that conventional medical interventions. environment-related interventions are given a fair Table 15. Transmission channels for policies designed to improve financing and fiduciary environment for health and better target healthcare for the poor Improve financing and fiduciary environment for health Policy Action Impact Comment Relative Indicators (Module II) Increase and sustain government spending to Blue healthcare Increase allocative and technical efficiency of Yellow It may be that some health Environmental health healthcare spending interventions are much more costly in terms of life years saved than some environmental interventions; an assessment of these alternatives can help in the allocation of resources between environmental health programs and others Decentralization of delivery and public Blue oversight Improve monitoring and evaluation Blue A World Bank Toolkit 33 Table 15. Transmission channels for policies designed to improve financing and fiduciary environment for health and better target healthcare for the poor (continued) Targeting healthcare to the poor Policy Action Impact Comment Relative Indicators (Module II) Increase access to affordable healthcare Blue Improve quality and equity Blue Decentralize health services, primary- and Blue secondary-level services Planning, budgeting at the central, state, Blue regional, district, and peripheral levels Strengthen partnership with private and NGO Blue sectors 2.3.8 Infrastructure delivery of services. The environmental implications of these policies are central to the decisions regarding The broad objectives are to implement general which infrastructure is developed. Figure 5 focuses on transport sector reforms, urban sector reforms, the coastal impacts of infrastructure development. A development of ports, water sector reforms, central role should be given to SEAs that analyze the liberalization of the telecom sector, and urban sector different alternatives. This would include estimates of reforms. The specific policies and their impacts are the environmental impacts of different options. shown in Table 16. Environmental issues also arise with respect to the affordability of upgraded systems to the public and to Reforms relating to infrastructure often involve policies ensure compliance with environmental regulations in to accompany the upgrading of systems for the any move to engage the private sector. Figure 5. Environmental impacts of infrastructure development in coastal areas DPL Policies DPL Policies Exogenous factors Improvement rural roads Construction new roads Distortions Property weak Easier access to settlers Increased migration Cut off retreat coastal Climate change: rights for deforestation to coasts ecosystems sea level rise Direct impact on coastal ecosystems Erosion Loss of habitat Loss of habitat 34 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending Table 16. Transmission channels for policies designed to improve infrastructure Implement general transport sector reforms Policy Action Impact Comment Relative indicators (Module II) Rehabilitation of rural tracks and roads in Yellow All these have to be subject to an Deforestation production centers environmental assessment; ideally, whole programs should Terrestrial biodiversity be assessed at the sectoral level under pressure Development and maintenance of road Yellow as part of an SEA, where wider Deforestation network alternatives are considered (e.g. road vs. rail). Then specific Terrestrial biodiversity projects are subject to the normal Modernize and streamline trade and transport Yellow EIA procedures. Capacity to carry Environmental health logistics practices these out effectively has to be present. Increase private sector participation in rail and Yellow There has to be an adequate Deforestation road services framework to ensure environmental regulations are Terrestrial biodiversity respected and has capacity to under pressure enforce the regulations in a privatized setting Sustained development of a safe, secure and Blue efficient national highway system Catalyze institutional reforms in order to Blue develop a sustainable toll highway system Reduce costs for port users and enhance Blue management accountability Secure, safe, economical, and efficient civil Blue aviation system Development of air transport Blue Possible area for an SEA and EA Increase resource generation and attract Blue See comment on private sector private capital participation Implement urban transport sector reforms Policy Action Impact Comment Relative indicators (Module II) Lanes fully dedicated to public transport Blue These policies have (often Congestion pricing Green positive) impacts on urban air quality; such impacts should be Reduction of fleet and taxi services Blue assessed and taken into account Rationalization of public transport supply Blue in the design of the policies Measures for financial sustainability of urban Blue transport sector Promote citizen's participation in government- Blue sponsored infrastructure projects Establish air pollution reduction targets Green Also measures to meet those targets and resources to ensure the measures can be carried out A World Bank Toolkit 35 Table 16. Transmission channels for policies designed to improve infrastructure (continued) Implement urban transport sector reforms (continued) Policy Action Impact Comment Relative indicators (Module II) Coordinated management of land use and land Blue An SEA can be particularly useful use planning for urban transport here in looking at the environmental impacts of alternative land use options Improve service coverage and provision for Blue access and inclusion of people with reduced mobility/disability Development of ports Policy Action Impact Comment Relative indicators (Module II) Privatization of core services Yellow An adequate framework is Environmental health Private sector participation in port development Yellow needed to ensure environmental Marine systems under regulations are respected and pressure there is capacity to enforce the regulations in a privatized setting, including issues regarding discharge of waste and ballast waters Water sector reforms Policy Action Impact Comment Relative indicators (Module II) Improve access to improved water sources and Green The environmental health sanitation services benefits here can be significant, Increase wastewater treatment capacity Green especially with regard to drinking water; priorities in programs should be based on a careful assessment of these benefits, among others Improve water use productivity in irrigated Green There are environmental benefits lands to be gained here. The issues of Foster integrated water resource management Green water management cover reform for sustainable water use avoidance of waterlogging and salinity; farmers need training and information in these areas. Improve financial sustainability of water Yellow The issue here is not to raise Pressure on water services costs so much that poor resources households cannot afford the services; social protection Lack of access to programs will need to be improved sanitation implemented Improved monitoring and evaluation Blue 36 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending Promoting hand washing Green This can produce excellent results in terms of reduced diarrhea Measures for water pollution control Green Costs of treatment can be high and environmental benefits difficult to quantify; prioritization is essential Promote cost recovery in water utilities Yellow Issue here is not to raise costs so Pressure on water much that poor households resources cannot afford the services; social protection programs will need to Lack of access to be implemented improved sanitation Promote private sector participation in water Yellow Pressure on water utilities resources Lack of Access to improved sanitation Remove subsidies in water sector Yellow Pressure on water resources Lack of access to improved sanitation Development of spatial water availability data Green Can help in the management of water resources in an environmentally friendly way Develop a water rights registry and Blue implementation of water rights market Enforcement of water rights and permits for Blue establishment of more efficient water markets Liberalize telecom sector Policy Action Impact Comment Relative indicators (Module II) Encourage private sector participation Blue Urban sector reforms Policy Action Impact Comment Relative indicators (Module II) Repeal urban land ceiling regulation Blue Rationalization of stamp duty in land Blue transactions Reform rent control laws to stimulate private Blue investment in rental housing and development Introduction of computerized land registration Blue process Reform property taxes so that it becomes a Blue major source of revenue for urban and local bodies Reform of user charges by urban local bodies Blue A World Bank Toolkit 37 2.3.9 Energy As with infrastructure, alternatives for energy The broad objectives are to implement tariff structure development have to be guided in part by their reforms, privatization, improvements in operational environmental implications. Hence a proper efficiency and fiscal sustainability of utilities, promotion assessment of alternative policies in these terms of renewable energy, increased competition in the should be part of the framework for selecting options. energy market, competition in the petroleum market, In addition, social protection programs should and improvements in social and environmental recognize the possible impacts that raising energy sustainability of energy reforms. The specific policies costs for the poor can have on the environment, as and their impacts are shown in Table 17. households revert to environmentally damaging options to meet their energy needs (Figure 6). Figure 6. Possible environmental impacts of energy sector policies DPL Energy Policies Distortions Reform of tariff structure Remedial measures Reduction subsidies may lead to Increase costs Property rights Prices too high Social protection & unaffordable programs for poor households Switch to fuelwood Alternative energy sources weak Deforestation 38 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending Table 17. Transmission channels for policies designed to improve energy supply and distribution Tariff Structure Reforms Policy Action Impact Comment Relative Indicators (Module II) Reform of tariff structure to reflect costs, cover Yellow Higher costs may imply poor households Deforestation costs of generation cannot afford the services.They may then revert to traditional fuels with Urban air quality environmental and health implications. Social protection programs will need to be implemented. Privatization Policy Action Impact Comment Relative Indicators (Module II) Develop rules and procedures for entry of Yellow There has to be an adequate framework private sector to ensure that environmental regulations are respected and have capacity to enforce the regulations in a privatized setting. Government programs to deal with the debt of Yellow electric utilities as they are being privatized Improve operational efficiency and fiscal sustainability of utilities Policy Action Impact Comment Relative Indicators (Module II) Reduce transmission and system losses Blue Increase in tariff rates to cover operating costs Yellow Higher costs may imply poor households cannot afford the services.They may then revert to traditional fuels with environmental and health implications. Social protection programs will need to be implemented. Improve operational efficiency of electric utility Blue Reduce corruption in power sector Blue Increasing collection rate Blue Higher costs may imply poor households Remove subsidies to utilities in the power Yellow cannot afford the services.They may sector then revert to traditional fuels with environmental and health implications. Social protection programs will need to be implemented. Improve fuel quality with respect to sulfur Blue content, lead content Promote use of renewable energy Policy Action Impact Comment Relative Indicators (Module II) Reform or legal environment to promote use of Green renewable energy Communication to increase public awareness Green Develop institutional arrangements for Green Take advantage of carbon-related operation of renewable energy projects benefits A World Bank Toolkit 39 2.3.10 Financial Sector Financial sector reforms of the kind outlined below do not generally have environmental consequences. It The broad objectives are to increase resilience and may be required, however, for privatized banks to be soundness of the financial system, implement reforms made aware of environmental procedures and the in the rural finance sector, and reform the insurance need for their credit policies to ensure that these sector. The specific policies and their impacts are regulations are respected. shown in Table 18. Table 18. Transmission channels for policies designed to improve performance of the financial sector Increase resilience and soundness of the financial system Policy Action Impact Comment Restructuring and privatization of state banks Blue Banks should be aware of the environmental regulations governing investments and should ensure their loans are made in the light of these regulations Reducing the stock of non-performing loans Blue Reform the financial institution Blue Improve internal control and audit in banks Blue Modernize the payment system, legislation to prevent money Blue laundering, and improving quality of financial information Strengthen fiduciary framework for public financial Blue management and corporate financial reporting Increase access to finance Blue Reform of the rural finance sector Policy Action Impact Comment Establishment of a rural finance agency Blue Banks should be aware of the environmental regulations governing investments and should ensure its loans and grants are made in the light of these regulations Reform of insurance sector Policy Action Impact Comment Improving legal, regulatory, and supervisory framework for the Blue banking sector and capital markets 40 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending 2.3.11 Tourism Sector Tourism has major environmental impacts (Figure 7) and policies in this sector must be sensitive to these The broad objective is to promote tourism and tourism impacts. Several of the policies described below revenue. The specific policies and their impacts are address these issues in a positive manner. When the shown in Table 19. Bank supports further tourism development, an SEA is desirable. Figure 7. Environmental impacts of tourism development on coastal areas Distortions DPL Policies Promotion of tourism Exogenous factors Enforcement weak environmental regulations may lead to weak Property rights Haphazard tourist development + Climate change: Urban sprawl around tourism centers sea level rise storms causes Habitat loss: Deforestation damage to forests and coral reefs A World Bank Toolkit 41 Table 19. Transmission channels for policies designed to promote tourism and tourism revenue Promote tourism and tourism revenue Policy Action Impact Comment Relative Indicators (Module II) Increase the number of tourist destinations Yellow Subject to meeting key Marine systems under environmental conditions based pressure on concepts such as carrying capacity; perhaps undertake an Coastal habitat SEA destruction (Mangrove annual % loss) Terrestrial biodiversity under pressure Establishment and implementation of a set of Green These are all areas where benchmarks for good environmental practice in environmental issues are tourist facilities addressed in a positive manner. It Promote sustainable tourism Green may also be worth looking at raising revenues from a tourism Promote environmental conditions, especially Green tax to finance the environmental in regard to wastewater and solid waste at improvements and to support tourist sites conservation. 42 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending A World Bank Toolkit 43 3 Module II--Indicators This module has five sections. The first section n The tropical forest estate is shrinking at about 5 describes the current environmental and sustainability percent per decade, adding 3 billion tons of problems in the context of developing countries. The carbon dioxide to the atmosphere each year and second section presents a list of indicators of potential contributing to major loss of biodiversity environmental problems in the countries where the n About one-third of the world is living under Bank is undertaking DPL operations. The third section moderate to severe water stress, and groundwater specifically addresses the issue of environmental is being depleted almost everywhere. impacts on coastal areas by presenting a list of indicators tailored for coastal impacts. Environmental problems thus pose significant threats to sustainable development with severe consequences In the fourth section, a general review of environmental for economic development, human health, and analytical work completed in the countries considered ecosystems. Moreover, the poor and the is presented. The major data sources for the disadvantaged bear a disproportionate cost of construction of the country environmental indicators environmental pollution and resource degradation. are then presented in the fifth section. The evidence now available on the state of the global 3.1 Environmental problems and environment and its effects deserves more attention in sustainability the wider context of development. The evidence also offers a cautionary note on the difficulty of restoring The environmental problems of developing environmental quality to sustainable levels. We present countries are growing below the major environmental challenges/problems-- including those relating to human health and welfare-- The overall environmental record in low- and middle- that could seriously endanger development outcomes, income countries is not improving. Despite the even in the near future. Although presented recognized importance of protecting the environment individually, we should note that the problems are and conserving natural resources, many countries still interconnected: for example, water quality and scarcity continue to pollute their water and air excessively, and are related to deforestation, which in turn has overexploit their water, forest, soil, fish, and mineral implications for climate change and land degradation. resources in the name of accelerating economic These interlinkages will be important when we come to growth and increasing the welfare of citizens. examine the implications of development policy prescriptions on the environment. A number of statistics indicate the seriousness of the situation: 3.1.1 Water quality and scarcity issues n A rapidly growing share--now a little over half--of the world's population lives in urban areas, The principal sources of water for human use are contributing to more traffic, congestion, and lakes, rivers, soil moisture, and groundwater. Human pollution activities have caused serious damage to water n Half the world's wetlands have been lost in the resources around the world. The damage to past century ecosystems reduces water quality and quantity, n 80 percent of grasslands are suffering from soil leading to a reduction in the effective water availability degradation for human use. According to the World Commission on n 20 percent of dry lands are in the danger of Water, more than half of the world's major rivers are becoming deserts seriously depleted and polluted. This degrades and n Current atmospheric emissions of carbon dioxide poisons surrounding ecosystems, threatening the are nearly four times the total emissions in 1950 health and livelihood of people who depend on them. Sources of pollutants include untreated sewage, 44 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending chemical discharges, petroleum leaks and spills, sewage return flows, runoff of nutrients and pesticides dumping in old mines and pits, and agricultural from farmlands, and salinization as a result of chemicals that are washed off or seep into the ground inappropriate spray irrigation. from farms. Similarly, groundwater resources are vulnerable to overuse and pollution. Overuse has also Although Europe as a whole is rich in water, parts of resulted in depletion and salt-water intrusion in several Central and Eastern Europe and the Mediterranean cases in coastal areas (for example, in Chennai, India). countries suffer water stress and there are signs it is About 2 billion people--one-third of the world's increasing. Water quality and pollution concerns arise population--live in countries suffering from moderate to from nitrate overload in agricultural lands and high water stress, where water consumption is more than phosphorous from domestic and industrial wastewater 10 percent of renewable freshwater resources. running off into seas, lakes, rivers, and groundwater. In Population growth, industrial development, and some of the Central and Eastern European countries, expansion of irrigated agriculture have resulted in groundwater pollution continues to be a serious significant increases in water demand in the past century. problem, although the use of nitrogen-phosphorous fertilizers has steadily been curtailed and treatment of Continued use of untreated water is one of the greatest wastewater increased. Waters of the Adriatic, the threats to the health of poor people. Although the Black Sea, the Baltic, and other closed or semi-closed percentage of the population with access to improved seas are prone to a range of pollution dangers from water and sanitation has increased, about 1.1 billion shipping and a variety of land-based sources. people still lack access to safe water and about 2.4 billion lack access to improved sanitation. As a result, In Latin America and the Caribbean, the spread of hundreds of millions of cases of water-related diseases irrigation systems in recent decades and wasteful and and more than 5 million deaths occur every year. Of the inefficient state-run irrigation systems has increased 1.1 billion people using water from unimproved sources, pressure on available water resources. In South America, nearly two-thirds live in Asia. (UNICEF and WHO 2003). especially Argentina and Brazil, a large proportion of water is used for industry, mostly the energy, mining, and In coastal areas, pollution--from overcrowding, petroleum sectors. Agricultural wastes and industrial urbanization, industrial operations, tourism, and discharges are key sources of water pollution. Untreated agricultural runoff--has degraded habitats and urban sewage is a problem in and around big cities. Oil resources on land and offshore. Sewage and industrial and gas industry activities pose some threat to marine effluents--which have increased significantly in the past and coastal ecosystems, and urban growth and tourism few years, particularly in developing countries--are the infrastructure have physically altered coastal areas. most important sources of marine contamination. Asia and the Pacific are facing problems due to Runoff of fertilizers and pesticides from agricultural pollution and inadequate supply of improved water activities has polluted surface water bodies and and sanitation. In South and Southeast Asia, rivers groundwater. Rising levels of nitrate pollution from such as the Yellow (China), Ganges (India), and Amu agricultural non-point and other sources have caused and Syr Darya (Central Asia) top the list of the world's eutrophication in large lakes and water bodies. most polluted rivers (World Commission on Water 1999). Most water bodies in the developing countries We present below a regional picture of the global state of the region are now heavily polluted with domestic of quantity and quality of water. sewage, industrial effluents, chemicals, and solid wastes. Water pollution has affected human health. Africa experiences large spatial variations in rainfall, The use of polluted groundwater for drinking and with 95 percent of the total falling in the central and cooking leads to health problems such as diarrhea, southwestern wet equatorial zone. Water stress is hepatitis, and occasional outbreaks of typhoid and widespread and is on the increase in many countries, cholera. Inadequate water supply and poor sanitation undermining food security and human and animal cause more than 500,000 infant deaths a year, as well health. In various parts of Africa, water quality is as a huge burden of illness and disability in the region impaired by industrial or mine effluents, sewage or (UNEP 1999). About 2.6 billion people--half of the A World Bank Toolkit 45 developing world--live without improved sanitation. are wood, agricultural residues, animal dung, charcoal, Asia-India and China account for over half of those and (in some countries) coal. without improved sanitation. Though major progress was made in South Asia, only a little more than a third Another dimension of fossil fuel combustion is the of its population are currently using improved greenhouse effect and ocean acidification, which are sanitation. In sub-Saharan Africa as well, coverage is a largely due to elevated levels of carbon dioxide, mere 36 per cent (UNICEF and WHO 2003). methane, nitrous oxide, halocarbons, and halons. Elevated levels of greenhouse gases lead to global It is important to note that many of the problems of warming and climate change. water stress will be exacerbated with the inevitable climate change that will take place. Expectations of Greenhouse gas emissions--and the impacts of global more periods of drought, as well as of excessive rainfall, warming and climate change--are of major concern to in virtually all regions of the world are among the almost all regions. While industrial countries are predictions of the recently completed 4th Assessment of responsible for observed increases in such gases, the International Panel for Climate Change. developing country emissions are rapidly catching up. Their contribution to future environmental damage 3.1.2 Air pollution and deterioration increases as they grow. Climate change is expected to of air quality raise ocean levels, swamping the homes and lands of millions of people in low-lying countries. Developing Air pollution is the change in characteristics of the countries lack adaptive mechanisms to cope with atmosphere due to a chemical, physical, or biological climate variability and sea-level change. Systems that agent. In addition to the direct effects of air pollution are vulnerable also include agriculture and forestry. If on human health, stratospheric ozone depletion as a projected climate changes materialize, the impacts on result of air pollution has long been recognized as a forests are likely to be regionally varied, affecting both threat to human health as well as earth's ecosystem. distribution and composition of forests. Land In most emerging economies, emissions from mobile degradation, floods, fires, and droughts are expected sources, principally automobiles, are one of the largest to reduce crop yields and worsen food deficits around sources of air pollution. In addition, stationary sources the tropics and subtropics. Climate change is also such as fossil-fuel-burning power plants, petroleum likely to affect human health through changes in the refineries, petrochemical plants, food processing availability of freshwater and distribution of vector- plants, and other heavy industrial sources add to borne diseases such as malaria and dengue fever. global emissions. According to the World Health Organization, about 4.6 million people each year die 3.1.3 Land and soil degradation from causes directly attributable to air pollution. The direct causes of air-pollution-related deaths include Land degradation is the temporary or permanent aggravated asthma, bronchitis, emphysema, lung and lowering of the productive capacity of land. It thus heart diseases, and respiratory allergies. covers the various forms of soil degradation, desertification, adverse human impacts on water Most air pollutants--such as particulate matter, other resources, deforestation, and lowering of the secondary small particles, and sulfur dioxide--are productive capacity of rangelands. The term land produced as a result of combustion. Secondary refers to all natural resources that contribute to pollutants are formed in the atmosphere as a result of agricultural production, including livestock production chemical reactions involving direct release pollutants. and forestry. Activities that contribute to land In addition to atmospheric air pollution, indoor air degradation include soil erosion, denudation, pollution, pollution from the burning of traditional fuels in spaces loss of organic matter, loss of fertility and vegetation that lack proper ventilation poses serious health risks cover, invasive species, habitat conversion (whether to humans. WHO (2002) estimates that 1.6 million urban or agricultural), and aquifer degradation. Land people (mainly children under 5 and women) die each degradation in arid, semi-arid, and dry sub-humid year globally due to indoor smoke from domestic use areas resulting from adverse human impacts are often of traditional fuels. The most common of such fuels referred to as desertification. 46 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending The pace of land degradation has been increasing. In been substantial gains in cereal production in Africa in 1991 land degradation was estimated to be occurring recent decades, primarily through expansion of at a rate of 5 to 6 million hectares per year. By 1996 it agricultural activities into marginal lands, natural had affected nearly 2000 million hectares (about 15 forests, and wetlands. Such expansion carries the percent) of the world's land area. A Land Degradation inevitable risk of land degradation. In many areas, loss Assessment of Dry lands was initiated by GEF and of natural vegetation cover exposes soils to wind and UNEP in 2000 and is now being further developed by water erosion and nutrient depletion. In Asia and the FAO. Land degradation can have multiple causes and Pacific, land use changes driven by rapidly expanding impacts. Deforestation is the biggest single cause of populations and exploitation of marginal lands or land degradation, followed by agricultural activities, forest areas results in degradation. Water erosion is overexploitation of vegetation, and industrial activities. most severe in the Himalayas, Central Asia, China, the Climate change can also play a role, both as a cause South Pacific Islands, and Australia. Wind erosion and effect of degradation. If loss of soil organic matter seriously affects many countries, including resulting from degradation were curbed, more carbon Afghanistan, China, India, and Pakistan. In Europe, could be stored in soils and plant cover rather than erosion--mainly water-induced--remains a problem in released into the atmosphere, a potentially significant the black-soil regions of the Republic of Moldova, the carbon sequestration gain. Russian Federation, and the Ukraine. Loss of natural ground cover during conversion of Water and wind erosion are widespread agents of land marginal drylands, wilderness areas, or forests to degradation in Latin America and the Caribbean, agricultural uses is another key cause of land affecting over 14 percent of the territory in South degradation. In productive agricultural zones, America and 26 percent in Central America. The inappropriate land management policy and practice underlying causes are urban growth and land (sometimes prompted by overcrowding, food deficits, conversion. The Clearing of forests--in Argentina and and national debt) can give rise to waterlogging, Brazil and elsewhere on a vast scale--have been salinization, soil erosion, loss of soil fertility, and in largely for cattle ranching or farming cash crops for worst cases outright desertification. Irrigated drylands export. The forces driving land degradation and and mountain soils are especially vulnerable. Other desertification in the region include tax incentives, the causes are acidification, toxic chemical residues, and expansion of infrastructure such as roads and disasters such as floods or droughts. Inequitable land settlements, and the increased use of chemical tenure, the spread of urban settlements, transport fertilizers and the consequent nitrification of soils and networks, industrial developments, and other human waters and salinization of irrigated soil (Argentina, infrastructure can also play a part in raising the Brazil, Chile, Mexico, and Peru). likelihood of degradation. Desertification and land degradation are extensive The main types of soil and land degradation are water across arid and semi-arid regions of West Asia. erosion, wind erosion, chemical degradation, and Desertification of rangelands is a pressing problem in physical degradation. These impacts can considerably Iraq, Jordan, Syria, and over the whole Arabian lower the productive capacity of land, as well as Peninsula. Wind erosion is a key agent of land reduce the ability of soils to filter out pollutants and act degradation; overgrazing is among the factors that as a buffer for soil acidity or alkalinity. Soil degradation have hastened its effect on rangelands. also limits the contribution soils can make to critical life support cycles--such as the hydrological or 3.1.4 Forest degradation, forest nitrogen cycle--and to maintain natural habitats and conversion and loss of biodiversity biodiversity. In the worst cases, land degradation leads to outright desertification. Forests play a crucial role in the lives of scores of poor people. Around 60 million people (mainly indigenous A closer look at degradation and desertification at the and tribal groups) are almost wholly dependent on regional level shows that it is an ever-present risk in forests, and some 350 million people live within or almost 50 percent of Africa's drylands. There have adjacent to dense forests, relying on them to a high A World Bank Toolkit 47 degree for subsistence and income. Another 1.2 billion the net loss in forest area in the period 2000­05 at 7.3 people depend on open woodlands or agro-forestry million hectares per year (an area about the size of farming systems, which help sustain agricultural Sierra Leone or Panama), down from 8.9 million productivity and generate income. In addition, forests hectares per year in the period 1990­2000. Africa and also serve as economic safety nets for large sections South America continued to have the largest net loss of of the population. Such safety net characteristics are forests. Oceania and North and Central America also triggered in periods of economic recessions, as well as had a net loss of forests. In Europe, forest area through macroeconomic policy changes; for example, continued to expand, although at a slower rate. Asia, increasing prices of commercial fuels and electricity which had a net loss of forests in the 1990s, reported a tariffs lead to an increase in fuelwood used for net gain in the period 2000­05, primarily due to large- satisfying energy needs. scale afforestation reported by China. Deforestation is conversion of forested areas to non- 3.1.5 Natural disasters forest use such as for agriculture and urban use. Other causes of deforestation are the construction of dams Natural disasters are emerging as an increasingly and roads. Forests differ in the deforestation pressures important constraint on economic development and they face, the extent and depth of poverty they harbor, poverty reduction. Over the past few decades, a and the environmental consequences of their growing number of natural disasters have taken an conversion (Chomitz and others 2006). To understand increasingly devastating toll on human lives, the environmental impacts of forest conversion, it is livelihoods, and physical infrastructure. Scientists important to distinguish between forest types. A believe that this long-term upward trend is the result of simple classification would be forest-agriculture more frequent disasters, a growing global population mosaic lands, where natural forest management that continues to expand its economic assets and cannot compete with agriculture or plantation forests; often lives in increasingly vulnerable areas, and agricultural frontier and disputed areas, where continued environmental degradation. pressure for deforestation and degradation are increasing; and areas beyond the agricultural frontier, In the last 10 years, economic losses from natural where there are a lot of forests and some pressure on disasters have averaged about $40 billion a year, timber resources (Chomitz and others 2006). which is more than a sevenfold increase in real losses since the 1960s. Low-income and emerging The environmental effects of deforestation can be economies, especially in Asia and South America, are broadly grouped into effects on climate (global as well particularly at risk; and within these countries, the poor as local effects), biodiversity, hydrology and water stand to suffer most. Between 1990 and 1998, 94 resources (watershed management), and soil erosion. percent of the world's major disasters were in Deforestation is one of the major causes of increasing developing countries. Twenty-four of the 49 least- the greenhouse effect, since it leads to more carbon developed countries face a high-level of disaster risk. being released into and less carbon being sequestered Six of them have been hit by at least two major from the atmosphere. The presence of trees and plants disasters in each of the last 15 years. Looking forward, significantly affects the hydrological cycle and the increase in surface temperatures combined with an watershed management in a number of ways: Tree increasing concentration of populations in urban canopies intercept precipitation, slow surface runoff, areas, especially in "megacities," suggests that natural enhance infiltration, and reduce soil moisture through disasters are likely to loom even larger as a source of evapotranspiration. Their litter increases soil organic macroeconomic disruption and an impediment to matter and thus enhances capacity to store water. On sustained growth in the years ahead. The 2005 World steep slopes, deforestation may result in landslides as Disasters Report estimated that global costs of natural tree roots that bind the shallow soils are lost. disasters will rise fivefold over the next 50 years. (International Red Cross 2005). According to the FAO Forest Resource Assessment (2005), deforestation continues at an alarmingly high rate--about 13 million hectares per year. FAO estimates 48 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending 3.1.6 Impacts on coastal areas inadequate sanitation and poor hygiene continue to be primarily responsible for global outbreaks of cholera Coastal areas host a range of diverse habitats and and other diarrhoeal diseases, which claim three some of the most productive ecosystems on earth in million lives each year (WHO 1997). terms of goods and services. They account for about Vector-borne diseases, affecting more than 700 million 20 percent of the total land area and host more than people a year, are considered the most sensitive to 50 percent of the world's population, which makes climatic and environmental conditions. WHO has them critically important both from an environmental declared malaria, the best-known vector-borne and a human welfare perspective. Coastal areas are disease, "public enemy number one." It affects more increasingly threatened due to direct and indirect than 500 million people in 90 countries, causing 1.5 to impacts of human activities. In particular, global 2.7 million deaths per year (WHO 1997). warming and climate change are expected to have a significant impact on coastal areas. In many developing regions, these traditional environmental health problems are now exacerbated The most significant effects on coastal areas are by emerging problems of pollution from industry and changes in water quality (pollution), quantity, and agriculture. Chemical agents, particularly airborne pattern (seasonal pulsing of freshwater flow to ones, are considered to be major factors in causing estuaries). The above three effects ultimately alter the and worsening tuberculosis, bronchitis, heart disease, physical and chemical conditions of estuarine-coastal cancers and asthma. Tuberculosis, the single largest waters to the detriment of local flora and fauna. cause of death in adults from infectious diseases, was Impacts of pollution include nutrients and toxic responsible for three million deaths in 1996, 95 per chemicals in water, as well as changes in pH, cent of which occurred in the developing world (WHO temperature, and turbidity (due to sediments), which 1997). Exposure to pesticides, fertilizers, and heavy can reduce the survival of various organisms. These metals poses health risks through soil, water, air, and effects tend to modify the biotic community, thus food contamination. Global pesticide use has resulted impairing the functionality of habitats and entire in 3 to 5 million acute pesticide poisonings per year ecosystems. Erosion, which leads both to changes in (WHO 1990). According to a recent report jointly water quality (sediment load) and quantity (alteration of published by FAO, UNEP, and WHO, children face the flow), is exacerbated by agricultural activities, higher risks than adults and need greater protection upstream construction, and road building. These against these chemicals, particularly in developing activities remove ground cover and at the same time countries. The above report estimates that about 1 alter the drainage pattern, while soil compaction million to 5 million cases of pesticide poisonings occur increases the risk. every year, resulting in several thousands of fatalities, including children. Most of the poisonings take place 3.1.7 Human health/welfare and in rural areas of developing countries, where the environment safeguards typically are inadequate or are lacking altogether. Although developing countries use 25 Human health depends to a large extent on the percent of the world's production of pesticides, they environment in which we live. The World Health experience 99 percent of the deaths due to pesticide Organization (WHO) estimates that poor environmental poisoning (FAO, UNEP, and WHO 2004). quality contributes to 25 percent of all preventable ill Epidemiological studies have suggested a link health in the world today (WHO, 1998). The primary between organochlorine pesticides and cancer, environmental factors that contribute to ill health are including lymphoma and breast cancer (Zahm and contaminated water, poor sanitation, smoky indoor air Devesa 1995). and exposure to mosquitoes and other animal disease vectors. Insufficient and contaminated water supplies, A World Bank Toolkit 49 3.2 Indicators of Potential other countries? Hence a number of indicators used Environmental Problems in by Acharya and others, which are based on aggregate Countries where the World Bank levels of environmental pressures, are not appropriate is Undertaking DPL Operations for this exercise. 3.2.1 Purpose and background We present therefore a revised set of indicators that cover the main areas of concern for environment and The purpose of this section is to provide task natural resources when DPL operations are being managers with an easy-to-use table that alerts them to designed. We do not provide an overall "environmental potential environmental problems in countries where problems" indicator, but the information that is they are undertaking DPL operations. It is adapted available provides at a glance the possible issues of from work by Acharya and others (2004) at the Bank. environmental importance in the country. They were concerned to see how much bank lending and assistance had been directed at countries with 3.2.2 Indicators chosen environmental problems, and what the correlation had been between the extent of these problems and the Eight indicators are used as guides to environmental amount of lending and technical assistance. In this concerns in the countries concerned (Table 20). More exercise, we are interested in a slightly different precise indicators to capture the impact on fisheries question: How serious are the environmental pressures are being developed (see Annex B). in a country relative to its size, as well as relative to Table 20. Indicators tracked for DPL countries Indicator Measure Comments Carbon efficiency GDP per kg. of carbon Taken from WDI, Green Data Book, 2007 Environmental health No of Disability Adjusted Life Years (DALYs) lost per Data are from Acharya and others capita due to air and water pollution adjusted for population Natural resource degradation % of total rural population living on fragile lands Data are from Acharya and others Terrestrial biodiversity under % of mammals and birds that are threatened Data are from WDI, Green Data pressure Book, 2007 Marine systems under % of fish species under threat Basic data were collected by pressure Acharya and others Lack of access to improved % of urban population without access to improved Data are from WDI sanitation sanitation Urban air quality Urban population weighted annual average ePM10 Data are from WDI concentration Deforestation Annual % deforestation over the period 1990­2005 Data are from WDI, Green Data Book, 2007. Pressure on water resources Population in areas of excess demand and deaths/ Basic data were collected by injuries from floods. Weights are equal for two Acharya and others components. Sum is normalized by dividing by total population. Institutional capacity to CPIA Score for policies & institutions for World Bank Data manage the natural environmental sustainability environment Note: The CPIA scores are only available for IDA countries. 50 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending It must be noted that the scores and relative rankings green listing does not imply we can ignore it presented in Table 21 are not a comprehensive guide altogether; rather, it suggests that the impact does not to the particular environmental issue in the country. appear to be a priority. It may still need to be Rather they are general indicators of possible addressed if there is evidence from other upstream importance of each of the issues concerned. A red studies to indicate a particular transmission channel listing for an indicator implies that it should be taken from the development policy to the environmental into account when investigating linkages between impact in question. The set of priorities is evident from development policies and the environment. A yellow the environmental indicators highlighted for each listing implies the need to look at the issue when there country in Table 22. are other signs that the problem may be present. A Table 21. Coding for the chosen indicators Indicator Coding Comments Carbon efficiency Red when the country's efficiency is lower than both Carbon efficiency is much affected its income group and its regional group averages by level of development and region. This captures the performance of a Yellow when its efficiency lies between that of its country relative to these markers. income group and its regional group Green otherwise Environmental health Red when a country has a score more than twice The group is all countries in the DPL Natural resource degradation the median. Yellow when the score is above the set. The use of the benchmarks median of the group. Green otherwise. reflects a judgment on the relative Terrestrial systems under seriousness in the countries. pressure Marine systems under ressure Urban air quality Lack of access to improved Red when more than 25% of a country's population Based on expert opinion from WSS sanitation has no access to improved sanitation. Yellow when experts. between 10% and 25% has no access and green when less than 10% has no access. Deforestation Red when there is deforestation. Green otherwise. Based on expert opinion from forestry experts. Pressure on water resources Red when a country has a score more than twice The group is all countries in the DPL the median. Yellow when the score is above the set. The use of the benchmarks median of the group. Green otherwise. reflects some judgment on the relative seriousness in the countries. Institutional capacity to Red for CPIA scores of 3 or lower. Yellow for score of Based on knowledge and judgment manage the natural 3.5. Green for scores of 4 or higher. about the countries concerned. environment A World Bank Toolkit 51 desreveR 5002 ni erocS AIPC snoitutitsni latnemnorivnE 3.00 .. 2.50 3.00 2.50 2.50 .. .. 2.50 3.50 3.50 2.00 2.00 3.50 3.50 .. .. 3.50 3.00 .. .. rof xedni melborP sdoolF morf seirujnI/shtaeD & dnameD ssecxE fo saerA ni noitalupoP 3.5 8.2 12.5 29.1 3.0 5.2 3.4 6.8 6.5 4.1 2.7 0.8 0.6 2.9 4.5 6.0 5.0 1.7 1.7 2.3 2.7 xednI erusserP retaW 5002-0991 stserof rednu aera ni egnahc % launnA noitatserofeD 0.0 0.4 1.2 0.1 1.9 0.4 0.5 -0.6 0.3 3.2 1.3 0.9 -3.0 0.1 6.0 -0.4 0.1 0.3 -0.1 -0.1 0.0 2002 ,retem cibuc rep smargorcim 01MP dethgiew noitalupoP -nabrU snoitartnecnoc .. rettam etalucitraP 58 78 84 157 51 92 35 69 97 99 51 86 24 73 56 24 74 38 35 36 :ytilauq riA nabrU )%( nabrU noitatinas devorpmi ot ssecca fo kcaL 1 0 4 25 42 42 17 0 55 53 47 37 39 53 70 4 4 .. 57 39 33 Operations taerht rednu DPL seiceps hsfi fo % taerhT .. .. rednU smetsyS eniraM with 20 22 6 16 14 0 12 13 12 28 11 0 0 7 9 24 14 37 ALUEV taerht rednu seiceps drib dna lammam Countries fo % erusserP rednU smetsyS lairetserreT 4.3 13.8 15.5 20.6 4.2 9.3 19.8 14.2 5.1 7.5 22.7 15.0 14.0 6.3 12.5 21.0 13.1 9.4 11.6 9.8 21.0 Selected in % sdnal eligarf no noitalupoP es 0.24 0.34 0.26 2.22 0.56 0.66 3.85 0.14 2.15 0.50 0.82 1.53 0.00 0.32 0.94 0.29 1.60 7.56 1.36 0.16 0.49 essur Pr .a.p atipaC reP sYLAD 0.02 0.12 0.19 0.02 0.05 0.07 0.02 0.16 0.06 0.03 0.06 0.08 0.22 0.06 0.11 0.07 0.01 0.09 0.06 0.02 0.03 onmental tnelaviuqe lio fo gk rep $ PPP 0002 tnatsnoc esu .. .. .. .. .. .. Envir ygrene fo tinu rep PDG 6.4 7.2 5.2 10.4 3.5 4.9 6.9 2.8 4.6 5.9 10.1 2.1 3.8 5.6 7.4 of tic Indicators Repub 22. y asoF erdeV African Democra d'Ivoire tia pe ableT Countr Albania Argentina Armenia Bangladesh Benin Bolivia Brazil Bulgaria Burkina Burundi Cambodia Cameroon Ca Central Chad Chile Colombia Congo, Cote Croa Dominican 52 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending .. .. 2.50 2.50 .. 3.00 3.50 3.00 2.50 3.50 .. 3.00 2.50 3.00 na .. 2.00 2.50 3.00 .. .. 2.50 3.50 .. .. 3.00 .. 3.00 2.50 3.00 7.2 7.3 1.8 3.7 1.3 3.1 3.5 3.3 6.3 2.9 na 3.7 1.9 1.8 0.1 4.4 1.5 5.8 4.5 0.4 8.5 .. 11.4 10.0 8.6 4.8 9.1 0.8 3.8 10.7 1.4 1.4 0.0 1.7 1.1 0.4 0.6 2.5 -0.4 1.6 -0.1 0.3 0.5 -4.0 1.5 0.0 0.4 0.8 0.7 0.3 0.5 -0.2 0.7 .. -0.1 0.2 0.8 1.6 1.4 2.3 28 40 46 42 76 84 47 46 84 114 167 38 25 94 39 29 51 88 102 47 43 41 16 17 27 44 50 43 32 95 20 22 4 26 28 43 48 11 42 29 5 .. 44 39 39 51 51 34 41 0 .. 10 14 25 17 49 34 32 22 57 6 6 18 18 8 14 7 1 3 3 22 12 50 16 47 18 63 50 2 16 18 100 18 7 15 0 8 100 14.5 2.2 14.2 7.1 5.1 5.2 15.3 5.8 26.8 29.4 13.4 10.6 16.9 7.3 12.8 13.2 42.7 5.4 9.8 .. 30.9 18.8 11.9 15.0 12.3 8.6 8.1 .. 4.6 8.5 0.77 0.36 0.27 1.33 1.05 0.08 0.70 0.48 na 71.25 14.76 3.27 0.70 0.29 0.25 0.09 1.07 0.45 1.67 0.00 4.81 0.23 0.10 .. 3.48 1.02 0.28 2.10 0.23 2.39 0.03 0.03 0.21 0.04 0.02 0.09 0.06 0.02 0.05 0.05 na 0.06 0.02 0.04 0.04 0.02 0.06 0.05 0.06 0.00 0.05 0.03 0.05 .. 0.03 0.06 0.03 0.02 0.03 0.07 4.9 6.9 4.1 5.0 6.5 .. 6.4 4.9 5.3 4.3 na 2.1 na na .. .. .. .. .. 5.6 1.9 .. .. 10.2 2.5 9.9 4.0 5.5 .. Des fyr gua Salvador temala ay eople'P gascar wi Ecuador El Georgia Ghana Gua Guinea-Bissau Haiti Honduras India Indonesia Iraq Ken Lao Lesotho Liberia Macedonia, Mada Mala Mali Mauritius Mexico Moldova Mongolia Montenegro Morocco Mozambique Namibia Nepal Nicara Niger A World Bank Toolkit 53 desreveR 5002 ni erocS AIPC snoitutitsni latnemnorivnE 2.50 4.50 .. .. .. .. 3.00 2.50 2.50 3.50 3.50 3.50 2.50 .. .. .. 2.00 .. .. 2.50 3.00 2.50 rof xedni melborP sdoolF morf seirujnI/shtaeD & dnameD ssecxE fo saerA ni noitalupoP 10.7 0.4 3.0 6.0 3.8 63.8 3.4 6.8 .. 0.0 10.7 9.4 5.0 6.8 4.1 3.9 6.6 3.4 2.4 12.8 2.5 xednI erusserP retaW 222.9 5002-0991 stserof rednu aera ni egnahc % launnA noitatserofeD 1.6 0.1 0.8 0.1 2.2 0.0 3.4 0.5 -0.4 0.6 0.8 0.0 1.0 0.0 -4.3 -0.3 1.8 -0.2 -4.4 -2.5 0.0 0.9 2002 ,retem cibuc rep smargorcim 01MP dethgiew noitalupoP -nabrU snoitartnecnoc .. rettam etalucitraP 165 58 103 68 34 20 100 93 17 69 219 57 38 46 56 33 29 154 66 82 71 :ytilauq riA nabrU (continuted) )%( nabrU noitatinas devorpmi ot ssecca fo kcaL 8 11 6 28 19 14 44 30 3 47 50 29 46 2 10 6 47 0 5 16 24 57 . Operations taerht rednu country DPL seiceps hsfi fo % taerhT that rednU smetsyS eniraM with 15 7 0 5 6 15 47 15 0 12 8 83 39 5 14 32 100 16 33 12 10 75 and taerht rednu seiceps drib dna lammam indicator Countries fo % erusserP rednU that smetsyS lairetserreT 13.5 9.3 10.4 15.7 34.4 18.4 7.7 6.6 13.0 7.7 6.3 11.8 12.6 46.5 15.3 13.6 9.5 15.7 10.9 19.6 11.7 5. for Selected in % sdnal eligarf no noitalupoP es 13.39 0.18 0.22 1.67 1.61 0.51 0.97 1.15 .. 0.70 4.62 0.85 3.05 0.41 0.92 2.75 3.11 0.86 0.01 5.88 3.73 0.57 availableear essur data Pr .a.p atipaC reP sYLAD no 0.08 0.03 0.04 0.05 0.03 0.03 0.07 0.08 .. 0.11 0.06 0.03 0.06 2.98 0.03 0.09 0.05 0.08 0.13 0.05 0.06 0.09 that onmental tnelaviuqe lio fo gk rep $ PPP 0002 tnatsnoc esu indicates .. .. .. .. .. Envir ygrene fo tinu rep PDG 4.2 7.6 6.4 11.3 7.8 4.0 5.2 3.7 2.1 1.3 8.1 6.0 1.9 10.5 4.4 2.8 1.4 color of no with cell Indicators 22. y Leone Republic blank guay A: ableT Countr akistanP anamaP araP eruP Philippines Romania Rwanda Senegal Serbia Sierra Sudan ajikistanT anzaniaT ongaT unisiaT urkeyT Uganda Ukraine Uruguay Vietnam emen,Y Zambia Note 54 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending 3.3 Environmental Analytical Work The Bank also undertakes Public Environmental Expenditure Reviews (PEERs), and Energy- The implicit commitment underlying the Operations Environment Reviews (EERs) and other Environmental Policy OP/BP 8.60 is that the World Bank would Studies (ENSs). A PEER offers a way of systematically systematically undertake upstream analytic work assessing the equity, efficiency, and effectiveness of (Environmental-ESW) to ensure that environmental, public environmental spending. A PEER may be a forest, and natural resource considerations are standalone analysis, or it may be a part of a wider adequately addressed at the program design stage. To public expenditure review or CEA. The data and some extent, this is also reflected in the commitments insights it yields can be valuable for the design of given to stakeholders (mainly NGOs) during the OP/BP government budgets, policy reforms, and investment 8.60 consultations, under the new forest strategy, and projects.6 An EER helps to better integrate energy in response to the Extractive Industries Review. sector development and investment plans with the country's environmental objectives. EERs have often Identifying perceived environmental, forest, and natural been supported by the joint UNDP-World Bank Energy resource risks of policy reforms requires a better Sector Management Assistance Program. There are a understanding of (often complex) institutional systems, number of other sector studies that broadly integrate policies, and capacity in client countries. Two broadly environmental considerations. accepted and structured analytical tools in the environmental and natural resource area are the Apart from the World Bank, a number of other "Country Environmental Analysis" (CEA) and "Strategic multilateral (e.g., ADB, AfDB, IADB) and bilateral (e.g., Environment Assessment" (SEA). A CEA covers DFID) agencies undertake their own country as well as countrywide policies and institutions dealing with the sectoral environmental assessments. We provide, in environment, forests, and other natural resources. It Attachment A, a stocktaking of existing environmental focuses on the major environmental and natural resource analytical work in countries with prospective DPL issues in a country, reviews the policy and institutional operations. This will be updated from time to time. The framework, assesses institutional capacity to implement present list consists of 260 studies in 71 countries. It the framework, and makes recommendations for priority includes economy-wide studies that look at links reforms, all at the level of the country or, in large between the economic sectors and the environment; countries, at state or provincial levels. It is a relatively environment-wide studies that report on the state of new approach. Sixteen CEAs having been delivered, the environment in a range of sectors; and sectoral including recommendations on which both the Bank and studies that analyze the links between the environment the country agree. The completed CEAs, the CEA toolkit, and the economy in a given sector. In total, there are and other related information on CEA are available at 103 economy-wide studies, 97 environment-wide http://go.worldbank.org/J5OPF24SX1. studies, and 60 sectoral studies. Table 23 provides more details by country. The table in Attachment A An SEA concentrates more on policies and institutions uses grey shading where data are not available on within specific sectors. It considers the linkages some aspect or another of a given study. The first between a given sector (energy, for example) and the entry for each country is in bold. environment and natural resources, reviews the policy and institutional framework for dealing with environmental issues within the sector, assesses institutional capacity, and may make recommendations for reforms of policies and institutions. The World Bank's work and other supporting information on SEAs 6 See: http://lnweb18.worldbank.org/ESSD/envext.nsf/ 41ByDocNam/EnvironmentStrategyPaperNo7Public are available at http://go.worldbank.org/Y6R18VF6Z0 EnvironmentalExpenditureReviewsExperienceandEmerging Practice2003850KBPDF A World Bank Toolkit 55 Table 23. Summary of background studies annotated in Attachment A Country No. of studies Economy-Wide Environment-Wide Sectoral Total Albania 3 2 0 5 Armenia 0 2 0 2 Argentina 3 2 4 9 Bangladesh 4 3 4 11 Benin 2 1 0 3 Bolivia 0 3 1 4 Brazil 4 1 4 9 Bulgaria 0 0 1 1 Burkina Faso 0 1 1 2 Burundi 0 1 0 1 Cambodia 1 3 2 6 Cameroon 0 1 0 1 Central African Republic 0 1 0 1 Chad 0 0 1 1 Chile 4 1 0 5 Colombia 4 2 1 7 Congo Democratic 0 2 0 2 Cote D'Ivoire 0 1 0 1 Croatia 2 1 0 3 Dominican Republic 3 1 0 4 Ecuador 1 1 0 2 El Salvador 1 1 0 2 Georgia 0 2 0 2 Ghana 3 3 0 6 Guatemala 2 1 0 3 Guinea-Bissau 0 1 0 1 Honduras 1 0 0 1 India 2 6 7 15 Indonesia 2 2 3 7 Iraq 3 0 0 3 Kenya 3 3 2 8 Kosovo 3 1 0 4 Lao PDR 4 2 2 8 Lesotho 1 1 0 2 Liberia 1 1 1 3 Macedonia 5 1 0 6 Madagascar 2 0 0 2 Malawi 0 1 0 1 56 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending Country No. of studies Economy-Wide Environment-Wide Sectoral Total Mali 1 0 0 1 Mauritius 0 1 0 1 Mexico 1 1 0 2 Moldova 1 3 0 4 Mongolia 1 0 2 3 Montenegro 3 1 1 5 Morocco 1 1 2 4 Mozambique 2 2 1 5 Namibia 1 3 0 4 Nepal 2 0 0 2 Nicaragua 0 1 0 1 Niger 0 1 0 1 Pakistan 3 2 2 7 Panama 0 1 0 1 Peru 1 0 1 2 Philippines 2 2 2 6 Romania 2 1 2 5 Rwanda 0 1 0 1 Senegal 2 1 0 3 Serbia 3 1 1 5 Sierra Leone 1 0 2 3 Sudan 0 2 0 2 Tajikistan 1 1 0 2 Tanzania 2 2 4 8 Tonga 0 1 0 1 Tunisia 1 1 0 2 Turkey 1 0 0 1 Uganda 1 4 2 7 Ukraine 1 2 0 3 Uruguay 0 1 0 1 Vietnam 5 1 4 10 Yemen 0 2 0 2 Zambia 0 1 0 1 Total 103 97 60 260 Notes: 1. Studies specific to project preparation in the Bank are not included here. 2. Countries not covered for lack of data or time are: Afghanistan, Algeria, Angola, Belarus, Bosnia, Botswana, Cape Verde, China, Costa Rica, Egypt, Ethiopia, Eritrea, Gambia, Haiti, Iran, Jordan, Lebanon, Nigeria, Paraguay, Seychelles, South Africa, and Thailand. A World Bank Toolkit 57 3.4 Major Data Sources Summing across all endangered reefs, the country's share of the total is used as the index of marine Acharya, A., E. Ijjasz-Vasquez, K. Hamilton, P. Buys, biodiversity threat. The biodiversity threat indicator is S. Dasgupta, C. Meisner, K. Pandey, and D. Wheeler. the composite of the terrestrial and marine indices 2004. How has environment mattered: An analysis with equal weights for both. of World Bank Resource Allocation. Policy Research Working Paper 3269. Washington, DC: World Bank. The water resource indicator is based on two sources of information. The first is an indicator of excess This paper developed indicators of five environmental demand for water resources, using GIS to compute problems, an overall environmental index, and a the total population residing in excess water-demand problem index for environmental institutions. The five areas identified by Vorosmarty and others (2000). The environmental problem indices considered are second dataset is the database on deaths and injuries greenhouse gas emissions, health damage from air from floods maintained by the Center of Research on and water pollution, the threat of natural resource the Epidemiology of Disaster (CREED, Université degradation on fragile lands, threats to biodiversity, Catholique de Louvain). The sum of deaths and and problems related to water resources. injuries for all recorded floods since 1960 was first calculated and then an indicator of flood damage was The indicator for greenhouse gas emissions is the total computed. In computing the indicator of flood metric tons of carbon-equivalent in 2000 from fuel damage, deaths and injuries are weighted in the ratio combustion (CO2), land use change (CO2) and other 50:1. The water-resource indicator is then computed sources such as methane, hydroflurocarbons, by combining the indicators of demand pressure and perflurocarbons, and sulfur hexafluoride. floods using equal weights. The estimate of health damage from pollution is the The indicator for environmental policy and institutional total DALY (Disability Adjusted Life Year) losses from problems is from the World Bank CPIA database, which air and water pollution. The DALY estimates are from rates environmental policies and institutions on a research by the World Bank in collaboration with WHO numerical scale from 1 to 5, with 1 as the lowest score. (Pandey, and others 2004; Wang and others 2003) Wheeler and others reversed the scaling (so that 1 becomes highest) and then normalized the ratings so As regards the threat of natural resource degradation, that countries with the greatest problems scored 100. the indicator is the total rural population living on fragile To proxy the scale of problems confronted by lands, constructed from a GIS overlay of demographic, environmental institutions, the mean value of five topographic, climatic, and natural resource information. thematic indicators (global emissions, pollution, natural The rationale is based on recent research that identifies resource degradation, biodiversity threats, and water- the vulnerability of people on fragile lands (land that is related problems) is computed and normalized to the steeply sloped, arid, or covered by natural forest) as a mean to the range 0­100. Then the composite problem major determinant of rural poverty and natural resource index for environmental institutions is the product of degradation (World Bank 2003). normalized environmental index and the CPIA rating. The biodiversity threat indicator uses data from World Bank. 2006. The Little Green Data Book. different sources. The World Bank's environment strategy focuses on both the threat to biodiversity The Little Green Data Book was produced by the from human encroachment and the value of Environment Department in collaboration with the biodiversity resources for human populations. For Development Economics Data Group. It provides data on terrestrial biodiversity, the report used a GIS-based agriculture, forests and biodiversity, energy, emissions overlay of human population with critical areas and pollution, water and sanitation, environment and identified by Conservation International, the World health, and national accounting aggregates. Wildlife Fund, and Birdlife International. For marine biodiversity, the report used estimates of reef http://siteresources.worldbank.org/INTEEI/935214- ecosystems at risk by Bryant and others (1998). 1146251511077/20916989/LGDB2006.pdf 58 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending World Resources Institute. Earth Trends. n Reducing human vulnerability to environmental stresses Earth Trends is a comprehensive online database, n Societal and institutional capacity to respond to maintained by the World Resources Institute, which environmental challenges focuses on the environmental, social, and economic n Global stewardship trends that shape our world. The Earth Trends database provides information on coastal and marine ecosystems; The indicators and variables on which they are water resources and freshwater ecosystems; climate constructed build on the well-established "pressure- and atmosphere; population, health, and human well- state-response" environmental policy model. The issues being; economics, business, and environment; energy incorporated and variables used were chosen through and resources; biodiversity and protected areas; an extensive review of the environmental literature, agriculture and food; forests, grasslands, and drylands; assessment of available data, rigorous analysis, and and environmental governance and institutions. broad-based consultation with policy makers, scientists, and indicator experts. The higher a country's http://www.earthtrends.wri.org/ ESI score, the better positioned it is to maintain favorable environmental conditions into the future. World Bank. Country Environmental Fact Sheets. http://sedac.ciesin.columbia.edu/es/esi/ The Fact Sheets provide country-specific information on specific environmental indicators. These Fact Sheets Food and Agriculture Organization of the have been created to present the information in a clear United Nations (FAO). Global Forest Resource and user-friendly manner. The information covered in Assessment 2005. these Fact Sheets ranges from fertilizer consumption (agriculture), bird species (biodiversity), to adjusted net FAO has been coordinating global forest resources savings (national accounting aggregates). assessments every five to ten years since 1946. Global Forest Resource Assessment (FRA) 2005 is the latest http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/ and the most comprehensive assessment of forests and ENVIRONMENT/EXTEEI/0,,contentMDK:20733046~ forestry to date. With data collected from 229 countries pagePK:148956~216618~theSitePK:408050,00.html and territories, it contains information on current status and recent trends for about 40 variables covering the Environmental Sustainability Index extent, condition, uses, and values of forests and other wooded land. The key findings are presented under six The Environmental Sustainability Index (ESI) is an initiative themes: extent of forest resources, forest health, of the Yale Center for Environmental Law and Policy biological diversity, productive, protective, and (YCELP) and the Center for International Earth Science socioeconomic functions of forest resources. Information Network (CIESIN) of Columbia University, in collaboration with the World Economic Forum and the The FRA has global tables, country tables, country Joint Research Centre of the European Commission. reports, and the background documents used in the preparation of the report. The global tables present ESI benchmarks the ability of nations to protect the information for 229 countries and territories grouped environment over the next several decades. It does so into six regions. The country tables provide data on all by integrating 76 datasets--tracking natural resource the reporting countries in a set of 15 national reporting endowments, past and present pollution levels, tables. In addition, the assessment has seven thematic environmental management efforts, and the capacity of studies, which provide complementary information on a society to improve its environmental performance-- specific topics like planted forests, mangroves, into 21 indicators of environmental sustainability. These bamboo, wildland fires, forest pests, forests and water, indicators permit comparison across a range of issues and forest ownership and resource tenure. that fall into the following five broad categories: n Environmental systems http://www.fao.org/forestry/site/fra/en/ n Reducing environmental stresses A World Bank Toolkit 59 60 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending 4 Module III The available tools for analysis of impacts of Table 24 summarizes the tools presented here. A task macroeconomic and sectoral policies are summarized manager will probably use the screening tools to and presented in this module. identify the environmental impacts described in Module I. Further analytical work may be needed 4.1 Introduction depending on the transmission channels that are important and previous analytical work available (see This module provides information on the tools Figure 2 in module I). The selection of tools will available for the analysis of the environmental impacts depend on the exact nature of the exercise, data of macroeconomic and sectoral policies. The tools availability, and on the time and resources available. range from simple screening devices that help identify the key impacts, to instruments that provide more data The summaries below provide a simple introduction on how serious these impacts are perceived to be, and to each tool: what it is, what it can be used for, finally to tools that can carry out an analysis of the what it tells you, which tools are complementary to impacts in a quantitative fashion with varying degrees it, key elements in the use of the tool, data of sophistication. Although the users may be familiar requirements, time needed for its implementation, with most of the tools presented here-- as they have skills needed to use the tool, some limitations, and been used to analyze a variety of macro and sectoral some references giving further information as well policy shifts, not necessarily environmental impacts as examples of its use. alone--they could be modified to analyze impacts of policies on environmental and natural resources. Table 24. Summary of available tools Tool Purpose Likely applications Checklist Screening of major impacts Early identification of areas where Red flags action may be needed. The two are alternatives for the same objective Network diagrams Screening tool that traces impacts through primary, Takes checklists and red flags one secondary, and tertiary stages stage further Action-impact matrix Serves similar purpose to network diagrams, working An alternative or complement to with impacts across sectors rather than in terms of network diagrams primary secondary stages Environmental balance Weighs negative and positive effects of a macro policy in Complements action-impact sheet terms of likelihood, severity, irreversibility, and matrices and network diagrams significance; the scores are added to give an overall evaluation Stakeholder analysis Source of public perceptions of policies that are likely to Undertaken as part of Environmental impact on the. Assessments, SEAs, and other tools Public environmental Exercise that is complementary to a public expenditure In cases where major fiscal reforms expenditure review review; serves to identify where public finance changes are part of the DPL can harm or benefit the environment Partial equilibrium Uses quantitative information on specific markets to In cases where single markets are models estimate downstream environmental impacts affected, especially in sectoral DPLs A World Bank Toolkit 61 Table 24. Summary of available tools (continued) Tool Purpose Likely applications Sectoral econometric Takes partial equilibrium models one stage further, As for partial equilibrium models, models looking at a number of related markets in a sector except a little more sophisticated Multi-market models Similar to sectoral models, but involving possibly more Appropriate where clearly defined than one sector; markets are interrelated subsets of markets are affected by the DPL Demand analysis Assessment of how demand changes as a result of policy Useful when demand impacts are will feed through to environmental impacts dominant Supply response models Assessment of how supply changes as a result of policy Useful when supply impacts are will feed through to environmental impacts dominant Scale-technology Relevant to assessment of trade impacts of a policy; Trade effects of macro policies can composition analysis breaks these down to how trade affects the overall scale increase environmental pressures, of the economy, techniques of production, and the which are evaluated using this tool composition of industries Input-output model Intersectoral assessment of policies across all sectors of Useful for assessment of the direct the economy, traced through to the environment and indirect effects of changes in output structure Social accounting matrix Extends input-output analysis to social sectors and In addition to being an input to income transfers resulting from policies general equilibrium models, they can be used to assess specific environmental consequences of changes in incomes and transfers Computable general Full intersectoral assessment of policies, taking account The tool is normally developed equilibrium model of price and income changes through the whole economy upstream of any DPL and can be adapted to answer specific questions posed by the policy 4.2 Summary of tools available for What can it be used for? analysis This can be used to perform qualitative analysis of the impact of macroeconomic policies, sectoral policies, This subsection presents a brief summary of the investment projects, and other complementary policies individual tools available for analysis of impacts of on the environment, natural resources, and forests. DPL policies on the environment, natural resources, and forests. What does it tell you? The strength of the checklist consists in fostering 4.2.1 Checklist thinking about all the possible significant impacts. The answers to the checklist will provide indications of What is it? possible impacts of policies, both positive and A checklist is a tool that aims to identify and analyze negative, on the environment, natural resources, and environmental impacts through lists of environmental forests, as well as actions that can be taken in the resources that may be affected or lists of impacts design of the operation or within the country program that may occur. It lists possible questions on both to mitigate negative effects while enhancing the positive and negative effects of a particular policy. positive impacts of the operation. A checklist could Depending on the answers to these questions, one include such items as likely policy impacts on use of may develop actions that can be taken in the design nonrenewable resources; use of renewable resources; of the policy to enhance positive impacts and conservation of wildlife, habitats, landscapes, and mitigate negative effects. protected areas; quality of soil, water, and other local 62 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending environmental resources; poverty alleviation; local or A Sample Checklist public participation in decisions about resource use Below is a set of questions about the individual and sustainability issues; access to information; and operation and/or the broader country program: judicial redress for affected communities. A sample 1. Is there an adequate and current environmental/ checklist is attached for reference. natural resource ESW, such as a Country Environmental Analysis or Strategic Environmental Complementary tools Assessment? Any tool that provides quantitative estimates of policy 2. Have the country's environmental/natural resource impacts. policies and practices been reviewed and, where appropriate, taken into account in the design of Key elements the policy-based program? The key element of this tool is a set of questions and 3. Specifically, are the environment and natural answers about the policy reform or individual resources discussed as a potential risk or benefit operation or the broader country program and their in the loan document? impacts on the environment, natural resources, and 4. Have the linkages between the proposed reforms forests in the country/region. and the environment and natural resources been identified? Data/information 5. What effects of the operation are likely to be National environmental data, information/knowledge significant? on linkages of proposed policies on the environment, 6. If there are negative linkages, have specific natural resources, and forests. measures been devised to counteract the possible negative effects or an explanation Time provided on how mitigation is being achieved Could be done rapidly--in a matter of weeks. elsewhere within the country program/CAS? 7. Is there potential for enhancing positive effects? Skills 8. How are the effects channeled? Do policy actions Knowledge about the reform proposed and their stimulate the substitution of inputs or possible impacts; identification of different consumption goods? Are the substitutes harmful stakeholders who may be affected by the policy. to the environment and natural resources? 9. When will effects materialize? Within the life of the Supporting software operation or beyond? Microsoft applications 10. How do institutions affect outcomes? Do major environmental/natural resource policy and Limitation institutional failures exist? The value of the assessment is limited and will provide 11. How is environmental liability assessed and only descriptive impacts of policies. A commonly apportioned in privatization operations? reported limit is in the identification of direct impacts, 12. At the level of the country program, does the CAS but not of indirect effects. It does not provide detailed include any interventions aimed at improving quantitative measures of impacts of policies. environmental/natural resource performance, such as technical assistance by the Bank or other donors? References and application 13. Does the government require the public disclosure Iannariello and others (2002) of information and data about the environment and natural resources? Is public participation part of the policy process? 14. What are the risks of unexpected outcomes? Some policy changes (devaluation, for example) change price signals throughout the economy, leading to a high probability of unexpected outcomes, while others such as education reform are less likely to have unforeseen consequences. A World Bank Toolkit 63 4.2.2 Red Flags Supporting software Microsoft applications What are they? Red flags look for issues in the policy reforms that Limitations raise the likelihood of significant negative effects on The tool will only flag the likelihood of negative the environment, natural resources, and forests. For impacts. It does not provide any quantitative measure instance, they may focus on the policy, economic, and of the impacts. institutional distortions that contribute to negative outcomes. The transmission channels in Module I References: Stedman-Edwards (2005), Wolf, Yoffe, provide a set of red flags, as well as some more and Glordano (2003) information on possible effects for generic cases. 4.2.3. Network diagrams What can they be used for? This tool can be used to identify/flag the likely negative What are they? impacts of policies on the environment, natural A network diagram is a tool to illustrate both direct and resources, and forests. Examples of policies that raise indirect impacts and the related consequences of red flags are energy price reforms, natural resource development policy interventions on the environment, price reforms, privatization reforms, exchange rate natural resources, and forests. policies, export policies, land tenure reforms, policies for agricultural growth, promotion of tourism, and What can they be used for? promotion of fisheries. This tool will identify the It can be used to trace the direct and indirect impacts resources at risk, policy and institutional failures of a given policy and the consequences of these (particularly in the resources sectors), weak regulations impacts. A simple network diagram can be used to or absence of regulations, lack of monitoring and trace the chain of events arising from policy reforms enforcement, etc. The information provided in Module and the consequent environmental and natural I serves as a preliminary set of red flags, indicating resource impacts. Estimates of impacts from where issues may arise when undertaking quantitative tools could be fed into the network macroeconomic and sectoral reforms. diagrams to present quantitative estimates of the impacts. An example of a network analysis is provided What do they tell you? at the end of this section. This tool will provide warning signals of the likelihood of significant negative impacts, both direct and indirect, of What do they tell you? policies and interventions on the environment, natural Network diagrams trace the chain of events arising from resources, and forests. At the country program level, policy reforms that lead to environmental impacts. They red flags identify adverse impacts when the country show the causes and effects, moving through undertakes macroeconomic reforms to cope with crises. economic, social, and political spheres, thus providing a very useful tool for selecting points of intervention to Complementary tools mitigate environmental damage and promote Network diagram environmental benefits. A causal chain diagram could Checklists also suggest ways of facilitating positive impacts, by Action-impact matrix reducing the number of links between the original action and the final impact, and maximizing the likelihood that Data and information the links will occur. Similarly, the likelihood of negative National environmental data, information on impacts may be reduced, by making the chain long and interactions between the economy and environment tenuous, with links that are unlikely to occur. and natural resources, including forests. Complementary tools Skills GIS Overlays Knowledge of linkages between policies and the Expert advice environment, natural resources, and forests. Quantitative tools 64 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending Key elements Skills The key elements of a network are a complete mapping Knowledge of the transmission channels and the chain of all possible effects--direct and indirect--and related of events that could arise from a policy action and consequences of selected policy reforms. The network experience with environmental impact analysis. can be translated into more complicated mathematical models. Networks can be descriptive (qualitative) or Supporting software quantitative depending on the level of detail of the Microsoft office applications impacts mapped in a network. In some cases it may be possible to give substantial detail and draw specific Limitation quantitative conclusions about the impacts. When such Simple networks provide only descriptive/qualitative detailed information is not available, it may be possible measures of direct and indirect impacts and related only to predict the likely direction of change. A sample consequences. Complex quantitative networks are network diagram to analyze the impact of a policy to needed if quantitative measures of impacts are needed. subsidize tube wells is presented below. References and application: Iannariello and others Time (2002), Dougherty and Hall (1995) The time required depends on the degree of complexity of the network analysis. A simple qualitative network diagram could be completed in a few weeks to about three months. Example of a network analysis showing the impact of a policy subsidizing tube wells and groundwater exploitation Primary impacts Secondary impacts Tertiary impacts Quaternary impacts Mitigation Lowering of Loss of income & Use of poorer quality Increased health risks Ensure that new deep tube groundwater in the water from domestic water wells either hold domestic dry season hand pumps Income diverted to Decreased income water locally or feed into the buy water and time distribution system Travel to distant Reduced quality of life sources to collect water Loss of income & Income diverted to Decreased income & Deepen shallow tube wells water from shallow buy water time leading to tube wells for possible food shortage Ensure that new Deep tube irrigation wells supply the shallow tube Crop failure Abandonment of land wells in dry season & migration Reduced quality of life Provide compensation from deep tube well taxation Drawdown of surface Decreased fish Decreased protein Retain stock of water bodies water bodies capture/fish mortality intake Loss of income for fisherman Loss of wetland Loss of wetland flora/ fauna migratory birds, fish spawning areas Loss of wetland Restrict deep well products development in vulnerable areas Reduced navigation Increased transport Increase navigation depth by possibilities costs dredging A World Bank Toolkit 65 Example of a network analysis showing the impact of a policy subsidizing tube wells and groundwater exploitation Primary impacts Secondary impacts Tertiary impacts Quaternary impacts Mitigation Agricultural Increased fertilizer use Groundwater Polluted drinking water Control fertilizer use intensification contamination by by nitrates causes Educate fertilizer users nitrate illness Eutrophication of Increased weeds and Remove and control weeds surface water bodies algal bodies in surface Educate about these effects water bodies Increased pesticide use Groundwater Contamination of Regulate pesticide use contamination drinking water & health Encourage integrated pest effects, more expensive management alternative drinking Subsidize non-persistent water pesticides Poisoning of fish, Reduction in fish Tax undesirable pesticides shrimp, and other living catches & protein Educate users of pesticides organisms availability Educate people about eating Pesticide residues in contaminated fish fish & health effects Reduced income for fisherman Bioaccumulation of pesticides in humans Increased level of pest Increased pesticide use Bioaccumulation of Vaccination to prevent & disease vectors due pesticides in humans epidemics to loss of fallow periods Increase in human and Loss of quality of life Encourage alternative cropping animal diseases due to patterns vector Educate about disease vectors Reduced fallow land & Fewer or poor quality Reduced protein intake Develop alternative grazing grassland for grazing livestock & income for landless groups Reduced scrubland for Alternative sources Income & time spent Develop fuelwood supplies fuelwood sought for fuel collecting fuel Promote energy-efficient Destruction of trees cooking methods Reference: Dougherty and Hall 1995 66 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending 4.2.4. Action-Impact Matrix (AIM) organize them into a table to identify priority environmental problems. The second step is to identify What is it? the specific reforms/policies proposed and a brief An action-impact matrix is a nonquantitative review of the potential impacts of these policies. The systematic approach to screen the effects of policy information from the above two matrices could be reforms in terms of likelihood of effect. This tool will combined to develop an action-impact matrix. In provide an integrated view of the effect of meshing general, this tool will have a table of indicators and economic policies on the environment, natural causes of selected environmental problems in the resources, and forest sector. country/region, a table of current economic conditions, and the proposed reforms in the country/region. The What can it be used for? above two tables are then used to construct the action- It could be used to analyze the impact of impact matrix, which will list the reforms and their macroeconomic and sectoral policies, and investment impact on the environment, natural resources, and projects and other complementary policies on the forests. A sample AIM is presented below. environment, natural resources, and forests. Examples of macroeconomic policies are measures to improve Data/information fiscal performance and fiscal stability; reduction of National environmental and economic data, government debt and improved debt management; information on current economic and environmental trade policy reforms to expand and deepen policies, proposed economic policies and their international trade; improving public financial implications on the environment, natural resources, management, etc. Examples of sectoral policies and forests. include reforms in key sectors like agriculture, forestry, mining, fisheries, education, health, infrastructure, Time energy, tourism, and financial sector reforms. The The time depends on the degree of complexity desired. complementary policies include, among other things, improving the investment climate, governance Skills reforms, social protection, decentralization, reforms to Knowledge of the macroeconomy, possible impacts of encourage private sector, privatization, etc. Examples policies on environment natural resources and forests, of investment projects include hydroelectric dams, knowledge of the transmission channels through mining, afforestation, irrigation, etc. which these could transcend. What does it tell you? Supporting software The matrix helps to identify explicitly the key linkages Excel, Microsoft applications between development policies and impacts on the environment, natural resources, and forests. It will first Limitation identify the transmission channels and explicitly The preliminary action-impact matrix will provide only specify the key linkages. In the next stage, it will qualitative impacts of policies. It does not provide provide qualitative indicators of possible impacts on detailed quantitative measures of impacts of policies. variables of interest. Such quantitative measures will be available only after detailed analysis using tools that provide quantitative Complementary tools estimates of the impact of policies. The results from the use of the other tools could be fed in to an action-impact matrix; the final matrix will References and application: Munasinghe, Cruz, and provide a comprehensive account of the impacts. Warford (1996) Key elements Construction of AIM is a stepwise process. The first step is to develop a table of national environmental data from all available sources--national environmental action plans, environmental assessments, etc.--and A World Bank Toolkit 67 be of coastal tion resource for of may funds Degrada coastal [-] protection resources affected in to , be in and ter ter the more and ter & will use access wa y; access wa on resources tion wa may result for reduction prices poor increase use mix of teraW poor May the may promote depletion degrada [+/-] subsidies increase efficienc to affected [-] higher reduced improved for [-] demand depending export [+] efficient supply resources & andy andy y in tion subsidies waste, access ge could sector energ needs efficienc plants, pricing,y use generay tion affect te tion efficienc for ting reduction va reduced poor increase tion and discoura may the priva pollution may increase genera efficienc Energ conser [+/-] will but of [+] participa improve less [-] demand genera [+] of use reforms, waste & tion, va may on may ,y prices; gement depending conversion conser land effects prices programs in tus input land efficienc mana tion for increase sta land and output better gement, land funds affected may through tenure increase productivity Agric. degrada [-] extension be [+] investment development [+/-] output higher foster mana on [+] better and of in affects protection theif trade biodiversity biodiversity& for development, and affected; promote reduce tion tion be tion increase promotes funds could may products May ariablesv orestF protection [-] forests may enforcement [+] planta and deforesta [-] deforesta reform wood are tends effects pollution affected ,y programs environmental tement be polluting ven pollution aba to key investment less efficienc and on matrix industrial& first te y waste Environmental pollution the priva pollution-ha introduce increase Impact Urban [-] like often [+] to technolog [+/-] [+] reduce tion action-impact in reformsy investment tion te liberaliza tiza sample A olicP Reduction government expenditure Improve limac radeT Priva 68 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending 4.2.5. Environmental Balance Sheet irreversibility, and significance. While probability measures how likely it is that the effect will occur, What is it? severity measures the extent of the effect (like size of An environmental balance sheet is an analytical tool to the geographical area, number of people, or the number reflect the positive and negative consequences of of species affected). Irreversibility measures the degree policy reforms on the environment, natural resources, to which the effect cannot be reversed. Significance is a and forests. measure of the local importance of an affected resource (such as economic indispensability) or its importance at What can it be used for? the global level (such as the rarity of the species or This can be used to carry out an analysis of the impact ecosystem). An example is provided below. of macroeconomic and sectoral policies, investment projects, and other complementary policies on the Data/information environment, natural resources, and forests. It could National environmental data, information on linkages either be qualitative or could provide quantitative of proposed policies on the environment, natural measures of the impacts. resources, and forests What does it tell you? Time The environmental balance sheet weighs the positive An environmental balance sheet could be completed and negative effects of reforms in a form that allows in a few weeks to six months, depending on the them to be weighed against economic benefits. The degree of complexity and data availability. balance sheet can be simple or quite complex, encompassing quantitative measures. When Skills quantitative estimates of positive and negative impacts Knowledge of impacts of policies on environment and are available, they could be fed into the balance sheet natural resources, their probability, severity, to get a better picture of the overall impact. irreversibility, and significance. Complementary tools Supporting software Results from other qualitative tools like stakeholder Microsoft applications analysis could be fed into the environmental balance sheet. The tools, which provide estimates of Limitation quantitative impacts, will add value to the environmental The value of the assessment provided by a simple balance sheet, providing quantitative estimates. balance sheet is limited and will provide only qualitative impacts of policies. Detailed quantitative Key elements measures could only be obtained through detailed An environmental balance sheet could be a simple analysis using complementary tools and after sheet or a complex one by combining several balance combining several balance sheets. sheets. The environmental effects in a balance sheet are weighted by taking into account four factors in relation References and application: Iannariello and others to the anticipated effect: probability, severity, (2002), USEPA (1998) A World Bank Toolkit 69 -4 Balance very).5 Sum 14 and, very 5 not Significance (1= 2 eductionr Irreversibility subsidy 4 or Severity effects omotion, 3 pr Negative Probability export Sum 10 devaluation, 2 of Significance impact the 4 Irreversibility analyze to 3 Severity sheet effects 1 balance ositiveP Probability others and onmental alaspects on envir gases areas quality depletion use usey Iannariello: quality sample A Environment Agricultural land orestF Air teraW Biodiversity Greenhouse Ozone teraW Energ Encroachment protected Source 70 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending 4.2.6. Stakeholder analysis stakeholders. Data could be collected by interviewing the stakeholders or local experts who are What is it? knowledgeable in the field or international experts. A stakeholder analysis is a systematic methodology, Data from the interviews are tabulated and presented using both qualitative and quantitative analysis to as charts/matrices highlighting the attributes of understand stakeholders, their positions, influence stakeholder groups, including their interest (salience), with other groups, and their interests in a particular influence (power), and position on the reform. An reform. A stakeholder is an entity with a declared or assessment of each stakeholder's power and their conceivable interest or stake in a policy of concern. likely impacts on policy is then conducted through Stakeholders can be of any form size and capacity. several steps. The third step is to organize the They can be individuals, organizations, or unorganized stakeholder data according to relative power/influence groups. and salience of each stakeholder to understand their potential support or opposition to the proposed What can it be used for? reform. A stakeholder analysis can be used to identify people, groups, and institutions that will influence the policy Data/information reform either positively or negatively; anticipate the The main sources of data and information are from kind of influence, positive or negative, these groups interviews of the stakeholders and/or experts in the will have on the policy reform; develop strategies to field, background information from a literature review, get the most effective support possible for the policy and study of the country's political structure. reform; and reduce any obstacles to successful implementation of the reform program. It is an integral part of an EA and SEA. Time If key informant interviews are already being carried What does it tell you? out as part of other qualitative analysis, a stakeholder It provides an idea of the impact of the reform on analysis may be completed in a week or two. In cases political and social forces, illustrates the divergent where significant qualitative work has not been done, viewpoints toward the proposed reforms and the a thorough stakeholder analysis would likely involve a potential power struggles among groups and trip to the field, as well as collection of data and individuals, and helps to identify potential strategies background information. This would probably take for negotiating with opposing stakeholders. three to four weeks. A stakeholder analysis under different scenarios is more comprehensive and should Complementary tools grow out of the findings from other complementary Qualitative tools analysis analyses. A complete and comprehensive analysis Social impact assessments may require the work of a specialist for a few months. Key elements Skills A complete stakeholder analysis involves a series of The specialist should have a combination of recursive steps. The first step is to review the literature background in sociology, political science, and some and country studies to understand the country's knowledge of economics. Local knowledge, including political economy and structure. The next step contacts with local and international experts, is crucial. consists of collecting comprehensive data on A World Bank Toolkit 71 Supporting software Complementary tools Microsoft applications Economy-wide Public Expenditure Reviews Sectoral Public Expenditure Reviews Limitations Agricultural sector review Stakeholder analysis uses qualitative data collected from the respondents and hence is quite subjective. Data and information The results depend on the careful selection of Financial statistics, government budget data, detailed respondents and the interpretation of data collected environmental expenditures from them. Skills References and applications: Bianchi and Kossoudji Expertise in public expenditure review and (2001), Brinkerhoff and Crosby (2002) environmental issues 4.2.7 Public Environmental Supporting software Expenditure Review Microsoft office applications What is it? Limitations A Public Environmental Expenditure Review (PEER) The scope of PEER depends on the availability of data examines government resource allocations within and on environmental expenditures. The definition of among sectors, and/or at federal and sub-national environmental expenditures usually is difficult, as levels of government, and assesses the efficiency and budgets of most countries typically include only effectiveness of those allocations in the context of the expenditures of one or two agencies or ministries environmental management framework and priorities. exclusively dealing with environmental management In addition, it identifies reforms needed to improve the such as the ministry of environment. Sectoral effectiveness, efficiency, and sustainability of public environmental expenditures are difficult to get and are spending for environmental management. not properly accounted for in most countries. What can it be used for? References: Markandya, Hamilton and Sanchez- A PEER can be used to evaluate the government's Tirana (2006), Swanson and Lundethors (2003), environmental management capacity as reflected in its Pradhan (1996) public expenditures and could be used to evaluate how well environmental policies are being carried out 4.2.8. Partial equilibrium models as reflected in the program. The results could provide indications on how the proposed public expenditure What are they? reforms affect the environmental management Partial equilibrium models, using reduced form capacity and implementation of environmental policies. equations, analyze the effect of specific policies (such as trade policy, fiscal policy, or exchange rate policies) What does it tell you? on variables of interest. The reduced form equations PEER first explores whether the environmental are estimated using econometric procedures and the expenditures, both past and proposed, address the parameter estimates are used to quantify the impacts. policy priorities in this sector. It then checks whether Examples of partial equilibrium models include supply- the expenditures address the policy priority in the response models, demand-response models, and von most appropriate way. This involves asking whether Thunen analysis. there is a rationale for government intervention (market failure) in the first place and whether the instrument What can they be used for? chosen to address it is the most efficient. The results Partial equilibrium analysis using reduced form would tell you the impact of proposed public equations is one of the most common applications of expenditure reforms, based on past experience, on applied econometric analysis. It can be used to predict government capacity for management of the the impact of a wide range of development policies. For environment, forests, and natural resources and example, a reduced form model could be used to implementation of policies. analyze the effects of change in trade policy or price 72 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending and subsidy policies, particularly in the agricultural or Supporting software energy sectors. A supply-response model would STATA, Eviews, Gaus, etc. analyze how price changes affect supply of a commodity like timber, estimating the own and cross- Limitations price elasticities. Similarly, demand models could be The results depend on the quality and availability of used to analyze the impact of price changes on the data. When cross-country data are used, the demand for an environmentally sensitive good, demand elasticities derived from cross-country regressions for natural resources (including timber), and the may differ from the elasticity in the country itself. consequent deforestation. An example of the use of cross-price elasticities is to analyze the impact of an References and applications: Meier, Munasinghe increase in natural gas prices on the demand for coal and Siyambalapitiya (1996), Pandey and Wheeler and the possible environmental impacts of the increase. (2001), R. Lopez (1993) What do they tell you? 4.2.9 Sectoral Econometric Models The results provide estimates of the impacts of changes in a given policy on a particular variable of What are they? interest. The reduced form models are estimated using These are econometric models of individual sectors econometric procedures. These parameter estimates such as agriculture, forestry, wildlife and natural could be used to estimate quantitative measures of resources, water, energy, mining, tourism, etc. A impacts of specific policies on variables of interest. sectoral econometric model consists of a set of completely specified structural equations, which are Complementary tools estimated simultaneously. Multimarket analysis Sectoral models What can they be used for? Computable general equilibrium models Sectoral models can be used, for instance, in the agricultural sector, to analyze the effects of a variety of Key elements policies like trade liberalization, exchange rate policies, The key elements are a system of equations specifying price and subsidy policies, reforms in land tenure, the underlying economic system and the reforms in rural credit, and financial markets. In the environmental interactions, from which the reduced forest, wildlife, and natural resource sectors, sectoral form equation is derived and estimated. The reduced models have been used to analyze the impact of form equation, which relates the policy variable and policies such as price reforms, public sector reforms, the outcomes, is estimated using applied fiscal reforms, devaluation, exchange rate reforms, etc. econometrics procedures. on deforestation, logging, loss of biodiversity, and other forest sector impacts. In sectors like energy and water, Data/information sectoral models could be used to analyze the impacts The specific data requirements depend on the scope of trade reforms, price reforms, and privatization on of analysis, the level of aggregation, and the type of resource use, efficiency, or pollution generation. policies considered. In order to estimate the reduced form model, data on the variables of interest and their What do they tell you? hypothesized determinants are required. Sectoral analysis provides information on the outcomes of development policies on the particular Time sector and their potential environmental impacts. For Among other things, the time depends on the policy instance, in the agricultural sector devaluation can considered, the level of sophistication of the result in a change in crop prices and increased crop econometric model, and data availability. specialization, which in turn may result in increased soil erosion and water pollution. Examples of other Skills development policies with an impact on the Applied econometric skills and skills in econometric agricultural sector and consequent environmental modeling and environmental impact analysis impacts are price liberalization; institutional reforms A World Bank Toolkit 73 like tenure reforms; donor assistance for research and 4.2.10 Multi-Market models extension; soil conservation; and financial market reforms. A forest sector model could tell you the What are they? impact of devaluation on roundwood prices and the Multi-market models are a class of partial equilibrium consequent impacts on roundwood production and models that focus on a set of interrelated markets in deforestation. A water sector model could predict the which the proposed policy is likely to have its main effect of pricing reforms on use efficiency. In the effects. It is a simulation tool that incorporates both energy sector, sectoral models could be used to interactions across markets and economic, political, or analyze the impact of pricing/subsidy reform on use technical constraints faced by policy makers. The efficiency, fuel substitution, and air pollution. markets most affected by the policy are included in the model. They are not full general equilibrium models, Complementary tools since they do not account for all sources and uses of Multisector analysis to analyze impacts across sectors resources in the economy. Computable general equilibrium model What can they be used for? Key elements Multi-market models could be used to analyze the The key elements of an econometric model are the impact of development policies on the environment underlying system of equations to specify the through their impacts on production, factor use, economic interactions within the sector. The system of prices, government revenues and expenditures, and equations could be estimated as a system or solved to foreign trade. They have been particularly popular in get the reduced form estimating equation of interest, the agricultural sector. which could be estimated econometrically using appropriate econometric techniques. What do they tell you? The multi-market models provide ex-ante policy Data requirements impacts, both direct and indirect impacts. Econometric estimation requires data on the variables of interest and its hypothesized determinants. The Complementary tools data could be either time-series or cross-sectional Input-Output models time-series depending on data availability. CGE models Single market analysis Time The time required depends on the availability of data on Key elements key variables of interest and the degree of sophistication The basic multi-market model has four key of the econometric model, which will be estimated. components: (1) specification of technology and producer behavior including resource constraints; (2) Skills market clearing conditions, which can be represented Econometrics and applied economics. by commodity balance constraints; (3) determinants of distribution of income; and (4) explicit representation Supporting software of consumer demand behavior. In addition to the STATA, Eviews, SPSS above, a multi-market model to analyze environmental impacts will have extensions to describe the Limitations relationships to the environment and natural resource This tool does not account for cross-sectoral impacts. sector and pollution generation. A typical multi-market Although sectoral impacts may be strong, the overall model will have a set of structural equations, including impacts considering all sectors could be neutral. commodity budget constraints; resource limitation constraints; pollution generation and equations References: Cropper, Griffiths and Mani(1999), depicting interactions between the environment and Grossman and Krueger (1993), Hughes and Lovei natural resources; constraints for demand behavior of (1999), Mackenzie (1993), Pandey and Wheeler (2001), consumers; equations to describe the distribution of Richardson (1996), Saunders and Cagatay (2004) income; factor income and product pricing constraints; 74 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending and the objective function, which drives the model to 4.2.11 Demand analysis market-clearing equilibrium values. What is it? Data/Information A demand model is another class of partial equilibrium Multi-market modeling is data-intensive. It requires (a) models that analyze the consumer demand for estimates of the parameters for the supply and commodities given the structure of relative prices, real demand functions in the markets that are affected by incomes, and other characteristics of the economy. the policy reform; (b) determination of closure rules for Demand analysis can be done for own-price effects or the markets that are being modeled; and (c) cross-price effects on an environmentally sensitive quantitative mapping of endogenous variables to good and its effect on the environment, natural impacts on the environment, natural resources, and resources, and forests. forests. There are two plausible approaches to gather the data. The first approach would be to estimate the What can it be used for? producer, consumer, and factor markets to get Demand models could be used to estimate the own- elasticities. The second approach would use estimates price and cross-price elasticities of demand for (or best guesses) from other studies. environmentally sensitive goods. Demand models have been extensively used in the agricultural sector. Time An example of its use in the agricultural sector is the A complete multi-market analysis will take at least analysis of the impact of pricing, tax, and subsidy three to six months. reforms for agricultural inputs like fertilizer and pesticides, which will produce environmental impacts. Skills Another example from the natural resources sector is Working experience with household models, input-output analysis of the effect of price and/or subsidy reforms models, applied mathematical programming, and for water on consumption and sustainable use. optimization techniques. Experience with Excel, GAMS Another example is an analysis of raising prices for natural gas on the demand for coal and the Supporting software consequent environmental impacts. Excel, GAMS. May need STATA, SAS, or SPSS to work on the household models and related datasets What does it tell you? Demand analysis gives you quantitative estimates of Limitations the impacts of price changes on consumer demand The results are dependent on the choice of parameters for an environmentally sensitive good or resource. The in the structural equations and objective function. Any impacts could be either direct (own-price elasticity) or change in assumptions in the model often requires indirect (cross-price effects). complete recalibration, which is time consuming and complicated. The behavioral parameters are subject to Complementary tools error and inadequacies of the data and the results CGE modeling could be sensitive to such effects. Multi-market models are not necessarily fully specified and are not Key elements general equilibrium models. Hence, if the proposed There are two general approaches to demand analysis. policy is likely to have general equilibrium impacts, The first approach is to specify estimable single- multi-market models may not capture them. equation demand models and estimate them. The second approach is to use the theory of demand as a References: Braverman and Hammer (1986), guide to the choice of functional forms and variables Lundberg and Rich (2002), Willet and Sharda (1988) to be included. The key elements of the latter approach are derivation of estimable functional forms of demand equations from mathematically specified models of consumer choice, imposition of constraints on demand parameters, and derivation of estimable reduced form equations. A World Bank Toolkit 75 Data/information production/supply of timber and the consequent Demand analysis requires data on prices, quantities, deforestation could be analyzed using this tool. and related variables that may have direct and/or indirect effects. What does it tell you? Supply-response models tell you the own- and cross- Time price elasticities of supply. It will also give the long-run A complete demand analysis could take two to six and short-run elasticities, which are indicative of the months, depending on the data availability and level of rapidity of the adjustment. complexity desired. Complementary tools Skills Demand analysis Expertise in applied econometric analysis and model CGE modeling building, applied micro and macroeconomics. Key elements Supporting software There are two key elements in determining the STATA, Eviews, SAS, Excel production response: (1) the technological relationship that exists between inputs and outputs, and (2) the Limitations producer behavior in the choice of inputs, given the Demand models are partial equilibrium models and market prices and the availability of fixed factor of hence have the inherent limitations of such models. production. There are two approaches to estimate the The results depend on the quality and availability of production response: (1) the structural form approach, relevant data and the underlying assumptions. and (2) the reduced form approach. The different structural form approaches are the cost/production References: Mier, Munasinghe and Siyambalapitiya function models from cross-sectional data, linear (1996) programming models, profit function approach, and the use of complete structural models of the sector. 4.2.12 Supply-response modeling The reduced form estimation of supply-response uses procedures like partial adjustment and expectations What is it? formation, estimation of complete systems of supply Supply-response models analyze how producers from profit functions, and estimation of structural respond to changes in product and factor prices, models of supply and demand equilibrium. technology, and access to certain constraining factors of production. Production response may arise either Data/information from the producers' behavior or from changes in The data required depend on the approach and the technological relationships. methodology followed. The structural form approach would require, in general, data on prices, the production What can it be used for? technology, and the prices. The data could be either Supply-response models can be used to assess the cross-sectional firm-level data or time-series, or a impact of development policies that may result in combination of the above two could be used. The partial changes in factor and product prices, changes in adjustment and expectations formation models use time- technology, and access to certain constraining factors series data on prices and other variables considered. of production, which in turn may produce significant impacts on the environment, natural resources, and Time forests. Supply-response models have been extensively A complete supply analysis takes about three to six used in the agricultural sector. One example of their use months, depending on the level of detail desired. in the agricultural sector is analysis of production response of crops to price reforms, pricing reforms Skills resulting in specialization in commercial crops, and the Expertise in applied microeconomic modeling, consequent environmental impacts. In the forestry econometrics, linear programming, and optimization sector, for example, the impact of price changes on methods 76 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending Supporting software production, composition of imports, and foreign direct GAMS, STATA, SAS, Eviews, SPSS investment inflows. Limitations Data/information These are partial equilibrium models and hence may The data required for this analysis is exhaustive. The not capture the general equilibrium effects. main source of the data could be the central statistical agency and the concerned ministries, like the ministry References: H. Binswanger (1989) , L.Mamingi (1996) of commerce. The required data include in general disaggregated data on industrial output, net value 4.2.13 Scale-technology-composition added, pollution load of the industries, data on exports analysis and imports, disaggregated data on foreign direct investment, industrial wages, employment data, etc. What is it? This tool analyzes the effects of trade liberalization on Skills environmental quality by analyzing how trade affects Experienced economists/econometricians with the overall scale of the economy, techniques of specialization in international trade and environmental production, and the composition of industries. economics and skill in applied econometrics. What can it be used for? Time This tool can be used to analyze the effects of trade A complete analysis could take about six months to a liberalization and other trade policies on environmental year depending on the data availability and access to quality and the use of natural resources and forests. the available data. Policies of trade liberalization include tariff reduction, removal of quota restrictions, and facilitating foreign Supporting software direct investment. Excel, Applied econometric software like STATA, SAS What does it tell you? Limitations The analysis tells you how trade liberalization affects Analysis is data-intensive, in terms of both quality and the overall scale of the economy, techniques of quantity of data. Requires services of economists production, and finally its effect on the composition of specialized in this kind of analysis. the industries, less polluting (pollution intensive) versus dirtier industries. The above three effects will provide References and applications: Mani and Jha, (2006), an indication of the effects of trade liberalization on the Gamper-Rabindran and Jha (2004), Copeland and environment, natural resources, and forests. However, Taylor (2003) the focus of the literature has been on the composition effects of trade reforms. 4.2.14 Input-Output models Complementary tools What are they? Econometric models Input-output models are a class of economy-wide Partial equilibrium models models made up of commodity and activity accounts that could be extended to account for the Key elements environment, forest, and natural resource The first step in a scale-composition analysis is a interactions. In an extended environmental input- study of how trade liberalization affects the overall output model, the basic model is extended to scale--the level of production technology--of the account for the interactions between economic economy. This will be followed by an analysis of the sectors and environmental sectors. The basic effects of trade liberalization on investment in new and principle of such an environmental input-output improved technology. The third and the most model is that economic activities create pollution or important component is an analysis of the impact of effects on the environment, forests, and natural trade policies on the composition of domestic resources as a byproduct. A World Bank Toolkit 77 What can they be used for? Skills The extended environmental input-output model can Working experience with household models, input- be used to make simulations of impacts of general output models, economy-environment interactions, macroeconomic and fiscal policies on the economic and experience with Excel, GAMS. Experience with and environmental sectors. The underlying principle is applied mathematical programming and optimization that every unit of sectoral output is associated with techniques is also desirable. their impact on environment and natural resources through pollution generation, resource use, resource Supporting software depletion or degradation. Excel, GAMS. May need STATA, SAS, or SPSS to work on the household models and related datasets What do they tell you? The input-output multipliers tell you the direct and Limitations indirect impact of policies on each sector of the Input-output models assume there is excess economy. The environmental extension will provide production capacity in all sectors and that increasing multipliers that trace impacts on the environment, demand can always be met by higher output with no forests, and natural resources. price increase. This may be unrealistic. Further, the underlying production functions in simple input-output Complementary tools models assume constant returns to scale and no Social Accounting Matrix substitution among the different inputs. CGE models References: Doherty and Tol (2007), Huang, Anderson Key elements and Baetz (1994), Lee (1982), Leontief (1970) The key element of an input-output model is the matrix of technical coefficients and the input-output 4.2.15 Social Accounting Matrix multipliers. In an environmental input-output model, a row of coefficients representing physical output of What is it? each pollutant/environmental impacts and or effects A social accounting matrix (SAM) is a national on forests and natural resources per dollar of sectoral accounting system that presents, in one unified set of output is augmented to the matrix of technical accounts, a picture of the circular flow of the economy. coefficients, thus allowing the prediction of impacts. It provides a consistent picture of the flow-of-funds as a square matrix with each row and column representing a Data/Information separate account. An environmentally extended social The data and information required are the input-output accounting matrix (ESAM) provides an integrated, tables and the environmental accounts that trace the consistent dataset describing the relationships among pollution and environmental impacts. The central economic activities, environment and natural resources statistical organization in the country responsible for including forests and pollution activities. A SAM is a key the national income accounts will have data required component of the CGE tool (see 4.2.16). for compiling the input-output matrix. The data on the environmental and natural resource interactions could What can it be used for? be collected from different related agencies. An ESAM can be used as a modeling tool to carry out simulations of impacts of specific development Time policies on the environment (environmental pollution, A complete input-output analysis will take at least pollution abatement), natural resources, and forests. three to six months depending on the availability of the The multiplier analysis technique provides estimates of required data and prior models to work on. It is the impacts of policy shocks. The impacts could assumed that a reasonably updated matrix is available further be decomposed and traced out using several in the first place. decomposition approaches, such as the additive 78 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending decomposition method,7 multiplicative decomposition have separate accounts for environment- and natural- method,8 and structural path analysis.9 resource-related information. Environment will be treated as a production factor. It will distinguish What does it tell you? production activities and pollution abatement activities An ESAM gives you a lot of information about the in the activity account. A base model is first calibrated interrelations among production activities, factors of to track the overall and sectoral growth performance production, institutions, and the interactions among of the economy. It becomes the foundation for the the economy, environment, and natural resources, policy simulations. This base model is then extended including forests. It will capture the interactions to simulate macroeconomic disequilibria and between pollution and the environmental and natural environmental, natural resource, and forest-sector resource effects of economic activities in an impacts associated with alternative policy regimes. accounting system and provide quantitative estimates of these interactions. Data/Information Construction of a SAM is very demanding in terms of Complementary tools data. Without specifying the degree of disaggregation Input-output models desired. it is impossible to define a general set of data CGE models needed to compile a SAM. The data sources for a Action-impact matrices conventional SAM are input-output tables, national income statistics, and household surveys with a labor Key elements module. An extension of the conventional SAM to an There are six types of accounts in a SAM: (1) activity environmental SAM would of course need additional or production accounts, (2) commodity accounts data on environment and natural resource sectors, representing domestic product markets, (3) factor which need to be collected from available sources. accounts representing primarily labor and capital, (4) institutions, (5) capital accounts, and (6) the rest of the Time world. Activity or production accounts are used to buy A complete SAM analysis will take between six raw materials and intermediate goods and hire factor months to about a year depending on the complexity, services to produce commodities. Commodity the degree of disaggregation, and availability of data. accounts represent domestic product markets. Factor accounts include labor and capital accounts and Skills receive payments from the sale of their services to Working experience with household models, input- activities in the form of wages and rent and income output models, and accounting of economy- from abroad. Institutions include households, firms, environmental impacts. Experience with Excel, GAMS and government; separate capital accounts could be identified for each. The transactions between the Supporting software domestic economy and the rest of the world are Excel, GAMS. May need STATA, SAS, or SPSS to work recorded in the last account. In addition to the above on the household models and related datasets. six accounts, an environmentally extended SAM will Limitations A major limitation of SAM is that it does not contain 7 Stone, R. 1978. "The diaggregation of the household sector the notion of equilibrium prices. Prices are fixed and in the national accounts." Paper presented at the World Bank do not adjust endogenously. As a result, supply is Conference on Social Accounting Methods in development either perfectly elastic and entirely demand driven, or planning, Cambridge, United Kingdon, April 16­21. perfectly inelastic. A second limitation is that the 8 Pyatt, G., and J. Round. 1970. Social accounting for results are sensitive to the assumptions and the development planning: with special reference to Sri Lanka. specification of the different accounts. Chicago: Cambridge University Press. 9 Defouny, J., and E. Thorbecke. 1984. "Structural path References: Adelman and Taylor (1990), Keuing analysis and multiplier decomposition with a social (1993), Xie (2000) accounting matrix framework." The Economic Journal 94:111­136. A World Bank Toolkit 79 4.2.16 Computable General characteristics of the economy, and the economy- Equilibrium Models environment interactions. What are they? Data/information Computable general equilibrium (CGE) models are CGE models are data-intensive and are constructed completely specified, multi-sectoral/ multi-market from combined national accounts data and survey models of an economy, consisting of a system of data. These are first compiled into social accounting equations describing the economic relations among matrices (SAM), which would become the foundation production activities, factors, and institutions. These of the CGE. models include the modeling of all markets (in which the decisions of the agents' are price responsive and Time markets clear supply and demand decisions) and Construction and development of CGE model is time macroeconomic components. They assume underlying consuming and will take six months to about a year. values for parameters in the equations. Macroeconomic The time required depends on the existence of a SAM policy shocks are then incorporated to simulate how or a different CGE model built to address a different these shocks affect the economy, environment, natural question and also the degree of disaggregation/ resources, and forests. complexity desired. What can they be used for? Skills CGE models can be used to simulate the "economy- Experienced modelers with prior experience and wide" impacts of a policy or project and their exposure to general equilibrium/CGE models are interaction on the environment, natural resources, and required. Experience with economy-environment forests. They can be used to analyze impacts of a interactions is needed. wide range of development policies like fiscal and tax policies, subsidies, public expenditure policies, trade Supporting software policies, exchange rate policies, energy policies, price Excel, Eviews, Gauss, GAMS policies, and sector-specific policies. Limitation What do they tell you? The results are sensitive to the assumptions made in CGE models take into account all sectors of the the model, such as the "closure" rules and assumed economy and hence permit explicit analysis of both values of key parameters. The closure rules ensure direct and indirect impacts of relevant policies on all that the fiscal, trade, and savings-investment accounts sectors simultaneously, depending on the degree of balance. Whether the closure rules are fixed disaggregation desired. endogenously or exogenously can have significant impacts on the outcomes. The nature of aggregation Complementary tools of the production accounts will significantly affect the Input-Output models outcome of the model. Further, CGE models are data- Social accounting matrix intensive and the results are sensitive to the Partial equilibrium models parameters used. Key elements References and applications: Unemo (1996), These models are improvements on traditional input- Persson and Munasinghe (1996), Wing and others output analysis generating quantities and prices (2001), Goldin and Roland-Host (1994) endogenously and reflecting market incentives and are dynamic. They complement partial equilibrium analysis 4.2.17 Bayesian Networks for with a broader scope of analysis and the quantification analyzing coastal impacts of indirect and often non-intuitive effects. Key elements of a CGE model are the models specifying What is it? the agents and their behavior, the underlying rules that Bayesian networks, also called Bayesian belief bring the markets to equilibrium, the macroeconomic networks (BBNs), or causal maps, are probabilistic 80 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending graphical models based on the concepts of conditional is attached to each node (either prior unconditional probability and on the Bayes theorem of probability. probability, if the nodes have no parents, or a conditional probability if the nodes have parents). BBNs are technically defined as direct acyclic graphs These probabilities are introduced through the use of representing a set of variables linked by causal raw data, expert opinion, or information from other relationships that are expressed in terms of probability. sources (including literature). Therefore they consist of a qualitative and a quantitative layer. The former is the graphical representation of the Data/Information relations between some variables (as in an influence Bayesian maps are knowledge-intensive. Once the diagram), whereas the latter informs about the strength maps are correctly laid out, data is required to establish of these relations in terms of probability. the relationship between nodes. Where there is a lack of quantitative data, expert opinion is equally valid. It has What can they be used for? been studied that the power of the system is such that The main application of Bayesian nets is to take expert opinion produces very strong results. decisions in the face of uncertainty (about the way a system works, the factors involved, etc ). Time Time required depends on data gathering for the Bayesian nets emerged from the field of artificial nodes of the maps. A complete analysis may take a intelligence (AI), and their use spread to the risk few weeks. assessment field. Since the early 1990s, they have been applied to the environmental sciences, in Skills particular in water management and wildlife Experience with the concepts of Bayesian statistics, management studies, in the fisheries area, and lately probability. Experience with Excel. they have been extended to climate change studies. Complementary tools What do they tell you? Quantitative tools BBNs are decision support tools increasingly applied Network diagrams in the risk assessment field and in adaptive management studies. These instruments allow the Supporting software combination of available data and expert judgment to Netica software (www.norsys.com) measure the probability of an event given specific observations, and to help choose between different Limitations management options. Bayesian networks are acyclic graphs, and as a result they cannot contain feedback loops (which in some Key elements cases are useful in environmental modeling). It is also The basic components of Bayesian networks are (a) a fairly time-consuming to represent changes in time set of nodes (i.e. the variables, or events that populate and space, as these would need to be modeled the map); (b) edges or arcs (i.e. the connecting arrows through separate networks. that specify the direction of the causal relation between nodes); (c) a combination of nodes and References: Charniak E. (1991), Jensen F.V. (2001), edges, which forms the graph; (d) a probability, which Uusitalo L. (2006) A World Bank Toolkit 81 82 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending References Acharya, A., E. Ijjasz-Vasquez, K. Hamilton, P. Buys, S. Bryant, D., L. Burke, J. McManus, and M. Spalding. Dasgupta, C. Meisner, K. Pandey, and D. Wheeler. 1998. 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"Childhood Cancer: Overview of Incidence Trends and Environmental World Bank. 2007. "Burkina Faso: Country Economic Carcinogens." Environmental Health Perspectives 103 Memorandum Section on Agriculture, Forestry and (Supplement 6): 177­185. Fisheries." Washington, DC: World Bank. World Bank. 2001. "Tajikistan: Towards accelerated economic growth-A country economic Memorandum." Report No. 22013-TJ. PREM/Europe and Central Asia Region. Washington, DC: World Bank. A World Bank Toolkit 87 88 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending Annex DPL Policy Reform Key environmental, forest and other natural resource issues Transmission channels Prices Quantities Access Transfers Other Tools to analyze potential effects on key environmental, forest and natural resource issues Potential effects on environment, forests and other natural resources Likely significant effect No significant effect Assessment of institutional capacity to manage potential effects No existing analytical work Analytical work exists Short assessment Comprehensive assessment (CPIA, Green data, etc.) (CEA, SEA, etc.) Analytical work Gaps A World Bank Toolkit 89 References 90 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending DPL Toolkit Case Studies: Burkina Faso Background and Environmental Profile 100,000 ha of new land are brought into cultivation each year). The values for all these indicators are much worse Burkina Faso is a landlocked country located in the than the mean for the countries in which the Bank is West African Sahel. It has a population of about 13.4 undertaking DPL operations.10 million. Agriculture provides a livelihood for 80 percent of the population, but only contributes around 22 The country has a "yellow" rating for disability- percent to GDP. Cotton exports accounted for roughly adjusted life-years lost per person, the quality of the 60 percent of export revenues in 2005. The high air in the main urban center of Ouagadougou, the dependence on cotton exports leaves the country's population in areas of excess demand for water, and economy very vulnerable to external shocks, such as the number of fatalities from floods. For these adverse developments in international cotton prices or indicators, Burkina Faso has values above the median rainfall deficits. Burkina is known to have some minor for the group of 73 countries considered. Furthermore, gold resources; in addition, small quantities of zinc the quality of its environmental institutions is rated and other metals have recently been considered to be intermediate, implying modest capacity at best to worth extracting commercially. Per capita income was develop and implement environmental policy. $350 in 2005, below the $450 average for low-income countries and $490 for the Sub-Saharan Africa region. Importance of cotton The high and growing dependence on cotton can be Social indicators rank largely below the average in Sub- seen from the increase in area under cotton, which has Saharan Africa. In 2005, the literacy rate was 30 percent gone up from 23,000 hectares in 1961 to over 500,000 and life expectancy at birth was 43 years, compared to in 2004. In recent years, much of this increase has 35 percent and 46 years respectively for Sub-Saharan occurred as a result of government policies to promote Africa. Burkina Faso was ranked 174th out of 177 cotton (in 2000 the area planted was only 209,000 countries in the 2006 Human Development Index (HDI) hectares.). The expansion of land area for cotton has published by the United Nations Development Program come partly by clearing forestland, which has (UNDP). As a result of stable and high economic growth, exacerbated the problems of erosion and availability of poverty levels have fallen in recent years from 55 fuelwood. An EU GIS project in the eastern region of percent in 1998 to 46 percent in 2003 and an estimated the country shows satellite pictures of forests being 42 percent in 2005. Nevertheless, the levels are high, depleted, while the area under cotton is increasing. In especially in rural areas, where just over half the rural other areas, classified forest areas are adjacent to population was living below the poverty line in 2004. cotton fields, which should not happen as the buffer areas next to forests are not supposed to grow cotton. Against the background of unfavorable natural conditions, the country has achieved macroeconomic stability, aided When an economy is so dependent on one crop, its by fiscal discipline and significant inflows of external economic performance is very dependent on the price support of about 8 to 9 percent of GDP for the last 10 of that crop, as well as on weather and other natural years. The growth rate of gross domestic product (GDP) events. For cotton, both these factors continue to be has averaged 6 percent annually since 1995. Real per sources of volatility. The Bank's CAS and its PRSC capita income has increased 20 percent since 1994. recognize the price volatility, but pay less attention to volatility in yields, which remain high, although there The environmental indicators provided by the Bank and has been some improvement since 2000. Figure 1 summarized in Module 2 of the toolkit show the country presents the data on the volatility of cotton output to be in the "red" category with respect to the proportion measured as the 5-year standard deviation in yields. of the population living on fragile lands, the proportion of the population without access to improved sanitation in 10 Module 1 looks at data from 73 countries where DPL urban areas, and the rate of deforestation (about operations have been carried out or are being planned. A World Bank Toolkit 91 Figure 8. Volatility of Cotton Yields in Burkina Faso, 1950­2000 250 200 .aH/.gK 150 100 50 0 1960 1970 1980 1990 2000 2010 Volatility 5 Yr. SD While recognizing the need for diversification, Other environmental trends improvements in efficiency in the cotton sector remain In addition to the trends already noted, other adverse the major objective, and this has environmental agricultural and environmental developments observed repercussions. For example, a major reform in the by the government in its National Capacity Self- cotton sector has been to liberalize the cotton market. Assessment are: According to the Bank's draft PRSC, this has resulted in an increase in the production of cotton from n Loss of soil fertility 276,000 tons in 2000 to 751,000 tons in 2006. Burkina n Stagnating yields for cereals is now the largest cotton producer in Africa. The n Little progress in controlling the environmental increase in cotton output has undoubtedly come in impacts of fertilizers and pesticides large part from putting more land under cotton, in part n Falling groundwater tables (about 2 meters from by clearing forestland. CONEDD, the National Office 1978 to 1999) for Sustainable Development, estimates that at this n Overgrazing and land degradation, especially near rate of expansion the country will effectively be water sources deforested in 15 to 20 years. Another important local n Lack of continuity of projects to recover degraded agency (IUCN) notes a number of negative impacts land and to hold back the advance of the desert. from the use of inadmissible pesticides (imported from Nigeria) on cotton. Traces of these pesticides are All these indicate that the state of the environment in appearing in meat. Burkina Faso is poor and declining. It is clear that policies to promote cotton need to look Main analytical work available at environmental and sustainability issues more The annex to Module 2 provides a list of studies that closely. The government has a number of measures have some useful material on the environmental sector that seek to reduce the impact of cotton on in Burkina Faso. forestland. These include the (a) adoption of genetically modified (GM) cotton, which is currently in a. The Government of Burkina Faso's (2007) National a trial stage; and (b) the development of seed Capacity Self-Assessment was prepared by the varieties that are more resistant to pests and to Ministry of Environment with support from UNDP drought conditions. Projects under the donor-funded and GEF in 2007. It provides detailed information Terre Afrique program seek to contribute to these on the environmental issues facing the country, as solutions through a participative approach, but so far well as its needs in meeting the objectives of no measurable impact has been reported. addressing climate change biodiversity, 92 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending desertification, and sustainable development would provide annual budget support of $90 million. The more generally. It also identifies all the agencies program supports reforms in a number of areas. Table 1 working in these areas in the country and describes the original trigger (from PRSC-VI) and the estimates their capacity needs. prior actions (as agreed under PRSC-VII) required from b. The World Bank Country Economic Memorandum the government. There are a number of areas covered: Section on Agriculture, Forestry, and Fisheries (World Bank 2007) was prepared by the Bank as a. On the macroeconomic front, the triggers consist part of the CEM in 2007. It provides an up-to-date of maintaining an adequate macroeconomic review of the issues in these sectors, as well as framework, making reforms to the systems of VAT the economic and policy implications of likely refunds for exports, and adopting a budget for trends in the near future. 2007 that respects the sectoral ceilings that are in c. Burkina Faso: Poverty Reduction Strategy Paper line with PRSP priorities. (IMF 2005) provides information on developments b. On improving the investment climate, it seeks to in the natural resource sectors in the context of reduce business start-up times. the poverty reduction strategy. c. On improving financial management, the trigger is d. Writing about cotton, Baffes (2005) discusses to improve procurement. what reforms are needed in the cotton market to d. On better governance, it asks for strengthening of improve its contribution to the livelihoods of capacity of audit institutions. poor households. Does not cover the e. On decentralization, it seeks progress in environmental linkages. transferring responsibilities and resources to e. Gray (1999) found that cotton has increased municipalities and regions. farmed areas, decreased fallow periods, and f. On improving infrastructure, it requires as contributed to pressure on land resources. triggers the effective implementation of the water Regarding the impact in terms of land and sanitation improvement program and degradation, at the broader scale there is progress in contracting services under the urban evidence of deforestation and areas classified as development project. degraded, but at the field level there is little g. Finally, there is a sectoral trigger for agriculture, evidence of loss of soil quality. asking for reforms in the tenure laws to give f. IUCN (2005) notes that the eastern part of greater security to farmers in targeted provinces. Burkina is home to much of the biodiversity and wildlife of the country, but is currently under Most of these triggers do not have environmental pressure from population growth and cotton implications, but some do. The next section provides expansion. The study looks at one area (Kondio) an assessment of these implications. and the impacts of cotton on the other resources available to the villagers. Environmental Risks Associated With g. Guibert and Prudent (2005) report more widely on Proposed Policies the changes in land use in the east of the country, in and around the "Parc du W." The expansion of The potential links between the reforms being cotton is one of the major factors that has supported by the PRSC and the environment are influenced land degradation. shown in Table 2. In each case, the corresponding h. Guibert (1999) is a detailed assessment of the transmission channels to the environment and the environmental impacts of expanding cotton in advice given on action are provided. These are taken Burkina Faso. from Module 1 of the toolkit. There are no documents that specifically look at the a. The macroeconomic triggers are mostly neutral as economy-environment linkages in a systematic and far as the environment is concerned. The only comprehensive manner. exception is the determination of sectoral expenditure ceilings in line with the MTEF. The Triggers and policy actions raised in the PRSC-VII problem is that the expenditures for environmental The Bank is currently appraising the 7th Poverty protection and management are often not given the Reduction Strategy Credit for Burkina Faso, which priority they deserve. This needs to be addressed. A World Bank Toolkit 93 b. On improving the investment climate, the toolkit they have direct environmental benefits. flags the risk that environmental due diligence for Furthermore, they offer the potential of increasing some projects takes time. The desire to speed up the environmental dividend from the projects by the establishment of a business should not mean designing them with that dimension in mind. This we cut corners in the process of EIA. can be achieved by bringing in environmental c. On decentralization, the toolkit warns that account experts as part of the team that designs the should be taken of local capacity to implement investment programs. environmental regulations. Furthermore, e. The trigger on land tenure is classified as "yellow," regulations should be designed such that there is meaning there could be negative impacts. These not a "race to the bottom," with regions would arise if the application of the law resulted in competing to offer investors easier terms with some users who cannot establish tenure being regard to environmental regulations. evicted and becoming landless. Cases where d. The triggers on water and sanitation and on urban such effects have resulted from land tenure development are classified as "green," meaning programs are not uncommon. Table 25. Assessment of PRSC-7: Original Triggers and Proposed Prior Actions Original Trigger (from PRSC-VI) Prior Actions (as agreed under PRSC-VII) Maintain an adequate macroeconomic framework Maintain an adequate macroeconomic framework Adopt and implement the action plan drawn from the trade Launch the preparation of the strategy derived from the trade diagnostic diagnostic study, including assessing the issue of VAT refunds study and start the reimbursement of VAT arrears to exporting for exporters within the existing regulatory framework. enterprises. Improve the business climate by implementing the The specific indicators to be improved in the framework of PRSC-7 are government's action plan based on the 10 macro indicators of as follows: (a) days to register a company; (b) employment rigidity index; the "Doing Business" report. (c) cost of the creation of a company (in % of national per capita income). The authorities initiated a reflection on the core 10 Doing Business indicators (starting a business; dealing with licenses; employing workers; enforcing contracts; protecting investors; getting credits; registering property; paying taxes, trading across borders closing business). This led to the preparation of a technical note that proposes a series of measures to improve the score of each indicator. Effective implementation of the road map established by the Effective implementation of the activities of the roadmap established by government to reach the MDGs for water and sanitation, the government to reach the MDGs for water and sanitation, including including adequate financing of the program budget of the adequate funding for the program budget of the General Directorate of General Directorate of Water and Sanitation (DGEAP) and for Water and Sanitation (DGEAP) and for the expansion of the urban water the expansion of the hygiene and sanitation program of the public utility's (ONEA) hygiene and sanitation program to four new towns. National Office of Water and Sanitation (ONEA) to four other cities. Effective implementation of the pilot program of land tenure Pursue implementation of the pilot land tenure security program in security in the targeted provinces; approve the land strategy targeted provinces; and conduct further consultations to approve the in rural areas as a critical step toward the adoption of the strategy for land tenure security in rural areas as a critical step toward framework law on rural land tenure. the adoption of the framework law on rural land tenure. Adopt the draft budget for 2007 on the basis of sectoral Adopt the draft budget for 2007 on the basis of sectoral ceilings of the ceilings of the 2007­09 MTEF and in line with the PRSP 2007­09 MTEF and in line with the PRSP priorities. priorities. 94 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending Original Trigger (from PRSC-VI) Prior Actions (as agreed under PRSC-VII) Implement the action plan drawn from the 2005 CPAR. The trigger for PRSC-7 aims at allowing an improvement of procurements contracting and execution of the reforms and a control of former procurements (a) adopt a decree stating creation of a Public Procurements Regulation Agency (ARMP); (b) revise attribution, composition, and operation of the Central Tender Board (DCMP) ; (c) create services specialized in procurements contracting in the principal contracting administrations; and (d) define their attributions and operation and give more responsibilities to the contracting authorities. The realization of this measure is related to the transposition of the WAEMU directives in the national laws. A consultant has been recruited to help prepare a draft decree that will be adopted in December 2007. Implement the functional budget classification with a marker Implement the functional budget classification with a marker for poverty for poverty spending to allow for tracking of such spending. spending to allow for tracking of such spending. Strengthen the capacity of audit institutions for public finance Strengthen the capacity of audit institutions for public finance management. management. Effective transfers of responsibilities and resources to Effective transfers of responsibilities and resources to municipalities and municipalities and regions. regions. City contracts are prepared with the 6 main cities. City contracts are prepared with the 6 main cities. Table 2. Environmental Risks and Advice on Suitable Action Prior Actions (as agreed under PRSC-VII) Transmission Channel to Environment Classification and Action (*) Maintain an adequate macroeconomic framework Policies designed to ensure macroeconomic stability (Table 1) Launch the preparation of the strategy derived from the trade Policies designed to ensure diagnostic study and start the reimbursement of VAT arrears macroeconomic stability: (a) improve fiscal Classified as blue--no to exporting enterprises. performance and fiscal sustainability by action. making the tax system more equitable, transparent, and stable; and (b) expand and deepen international trade. (Table 1) The specific indicators to be improved in the framework of Policies designed to improve the Classified as yellow-- this PRSC-7 are as follows: (a) days to register a company; (b) investment climate: reduction in business should not be done at the employment rigidity index; (c) cost of the creation of a start-up time by eliminating unnecessary expense of environmental company (in % of national per capita income). The authorities business licenses, procedures, and due diligence. initiated a reflection on the core 10 Doing Business indicators multiple registration requirements. (starting a business; dealing with licenses; employing (Table 2) workers; enforcing contracts; protecting investors; getting credits; registering property; paying taxes, trading across borders closing business). This led to the preparation of a technical note that proposes a series of measures to improve the score of each indicator. Effective implementation of the activities of the roadmap Policies designed to Improve infrastructure: Classified as green-- established by the government to reach the MDGs for water sector reforms, including greater generates direct water and sanitation, including adequate funding for the access to improved water sources and environmental benefits. program budget of the General Directorate of Water and sanitation services. (Table 16) Sanitation (DGEAP) and for the expansion of the urban water public utility's (ONEA) hygiene and sanitation program to four new towns. A World Bank Toolkit 95 Prior Actions (as agreed under PRSC-VII) Transmission Channel to Environment Classification and Action (*) Pursue implementation of the pilot land tenure security Policies designed to increase production Classified as yellow-- program in targeted provinces; and conduct further and competitiveness in agriculture: reform ensure this does not consultations to approve the strategy for land tenure security of land tenure laws and acts. (Table 9) increase number without in rural areas as a critical step toward the adoption of the access to land. framework law on rural land tenure. Adopt the draft budget for 2007 on the basis of sectoral Policies designed to ensure Classified as yellow-- but ceilings of the 2007­09 MTEF and in line with the PRSP macroeconomic stability: improve fiscal it is important to include priorities. performance and fiscal sustainability; environment as a sector implement a mediumeterm expenditure that needs to have a (MTEF) to have grater visibility of policies budget in line with PRSP and place budgetary allocations in a priorities. medium-term framework. (Table 1) The trigger for PRSC-7 aims at allowing an improvement of Policies designed to improve public procurements contracting and execution of the reforms and a financial management: improve control of former procurements (a) adopt a decree stating procurement. (Table 3) creation of a Public Procurements Regulation Agency (ARMP); (b) revise attribution, composition, and operation of the Classified as blue-- no Central Tender Board (DCMP) ; (c) create services specialized action. in procurements contracting in the principal contracting administrations; and (d) define their attributions and operation and give more responsibilities to the contracting authorities. The realization of this measure is related to the transposition of the WAEMU directives in the national laws. A consultant has been recruited to help prepare a draft decree that will be adopted in December 2007. Implement the functional budget classification with a marker Policies designed to ensure for poverty spending to allow for tracking of such spending. macroeconomic stability: improve fiscal performance and fiscal sustainability; strengthen budget reporting and planning Strengthen the capacity of audit institutions for public finance Policies designed to improve governance: Classified as blue-- no management. better fiduciary standards and public action. expenditure management; strengthen internal and external audit. (Table 4) Effective transfers of responsibilities and resources to Policies designed to promote Classified as yellow--the municipalities and regions. decentralization: adequate and timely resources and capacity resources for local institutions and needs should take account capacity building. (Table 6). of the management of the environment. City contracts are prepared with the 6 main cities. Policies designed to improve infrastructure: Classified as green urban transport and other sector reforms. --policies can and should (Table 16) be designed to promote environmental benefits. (*) The table number refers to the Table in Module 1, which describes the transmission channel. 96 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending Analysis of Policies: Preliminary There are also signs that the capacity to carry out EIAs Significance of Impacts that has been delegated to other departments is insufficient. For example, the Ministry of Infrastructure Given the screening carried out in the previous and Transport has problems supervising the EIA section, we can now look at the policies in more detail. process, including checking on whether mitigation We exclude the ones where the classification was measures have been implemented. Although the green or blue according to Module 1. The ones left for ministry has been given equipment by donors for further discussion are then (a) capacity for undertaking these tasks (vehicles, etc.), it lacks the environmental management and environmental funds to cover the variable costs. Hence it is budgets (relevant to the MTEF-based budget sometimes unable to monitor and supervise the allocations), (b) the trigger for improving the business activities. Private firms can and do help with the climate, (c) transfer of responsibilities to municipalities supervision, but budgetary support is needed. and regions and (d) securing of land tenure. The analysis presented here is based partly on the Likewise in the Ministry of Energy and Mines, documents and literature and partly on direct resources are inadequate. There is only one person discussions with officials during a visit to Burkina who deals with the environment, at a time when many Faso, as part of the PRSC VII Appraisal Mission, from exploration licenses are being issued. February 22­27, 2007. Environmental "cells" were supposed to be established Capacity for environmental management and in the Ministry of Agriculture and the Ministry of Mines environmental budgets and Energy, but this has not been done. The Ministry of Environment is aware of its increased responsibilities in the context of the country's wider The recommendation here is that the Ministry of goals of poverty reduction and there is a lot of Environment should given greater resources and the evidence that it is doing its best to meet these capacity of the environmental offices in the responsibilities. However, it is constrained by a lack of departments should be enhanced through more resources. For example: training and resources. The central ministry can outsource some of the work for some of its activities n It has not been able to monitor the measures (some monitoring, data collection, etc.). But recommended by an environment audit of the notwithstanding that, it needs more resources, both in cotton sector that was carried out as part of terms of personnel and equipment, if it is to fulfill its PRSC-4. responsibilities in an economy that is being n It is hampered in monitoring the implementation of increasingly devolved. In terms of the triggers, the EIAs for major projects. adoption of the next draft budget should be preceded n In the water sector, many projects have been by a careful assessment of the needs of this ministry. undertaken without EIAs. Big reservoirs such as Ziga are an exception, but there are many smaller Reforms to reduce the costs of doing business, projects where due procedures have not been simplify the EIA process, and possibly make it carried out due to lack of capacity. less effective n There were not enough resources for the ministry The PRSC seeks to reduce the cost of doing business, to carry out its supervision of investments including the time involved in obtaining permits. undertaken under the PNGT2 project. However, EIAs are one area where due diligence can n There are four staffers in the ministry responsible take time. While it makes good sense to streamline for evaluating EIAs and preparing mitigation plans this procedure for simple projects that do not have where necessary. The ministry has eight significant environmental implications, it would be a inspectors who are responsible for checking for mistake to put pressure on the EIA process for major compliance with environmental regulations and investments with important environmental they are not adequately trained. consequences. As a general point of caution, therefore, one should allow such large projects reasonable time to be reviewed. If the target time it A World Bank Toolkit 97 takes to set up a business does not fall fast enough on building, and more resources. There should be account of these considerations, that should not be incentives for the communities to stop resource seen as a failure. degradation. Information campaigns and education could help. But the concept of "eco-citizenship" The recommendation for this policy is to make sure should evolve from within. that complex projects with significant potential environmental impacts are not subject to an The recommendation with regard to this policy is to acceleration of the processes of setting up a business. monitor that this is indeed the case-- that is, that Furthermore, enough resources should be available to transfers are only made when capacity to implement the Department of the Environment to evaluate EIAs environmental policy is adequate. The government carried out externally and to make the appropriate should also monitor how regions interpret decisions on mitigation measures. environmental regulations and do not, through competition for funds, start a race to the bottom. Transfer of responsibilities to regions This policy is controversial and some government Land tenure officials have expressed their concerns about it. The Information on the land tenure program is limited. Ministry of Environment, for example, is worried about CONEDD noted that the law on property rights is not the environmental implications of the decentralization favorable to smallholders. There are still inherent policy and has raised the following concerns: First, as conflicts between traditional and modern rights. Under increased responsibility for land use planning is given new land policy, a piece of land may belong to the to the communes, there will be an incentive to be lax government; at the local level, chiefs have on environmental constraints for projects that promise considerable say in how it is used and by whom. The employment creation. Second, the officials in the proposals for changes in the law, based on extensive Ministry believe that capacity for environmental consultations and the Bank's own review and carried planning and EIA evaluation in the communes is very out by experts in the area, indicate that the proposals weak. Under the new regulations, the ministry itself will amount to good practice. only have responsibility for land that is owned by or directly under the management of the central The recommendation here is to monitor carefully the government (for example, closed forests). For other implementation of the program, especially in terms land use changes, the ministry can only advise the of its impacts on smallholders and on environmental communes. There is no obligation on their part to practices. follow this advice. Further Analysis Through Tools CONEDD, the Office for Sustainable Development, Developed in Module III also believes that the transfer of capacity to the communes could be at the expense of sustainable This section looks at what additional materials on natural resource management. Rapid exploitation of economy-environment linkages are needed for Burkina natural resources can only be prevented through Faso and what models if any should be used to carry helping to develop capacity at the local level. With out the studies referred to in the previous section. Bank support, CONEDD is involved in some initial activities (pilots) under the Country Partnership There is no Country Environmental Analysis available Program (although it cannot cover all the communes). for Burkina Faso. Given the importance of natural resources for the economy, it would be appropriate to On the other hand, the Ministry of Decentralization is conduct such an analysis as part of upstream work more positive. It recognizes the problem of local on the country. The study should cover all major capacity and proposes that the central ministries sectors, as well as addressing the links between key should not transfer responsibilities until local capacity economic sectors and natural resources. Notable to manage resources is adequate. In general, the among these is cotton. Another sector that should be capacity at the level of communes is quite weak and looked at is mining. should be augmented through training, capacity 98 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending Another upstream piece of work that may be justified References is an SEA looking at the cotton and mining sectors within the context of strategies for economic Baffes, J. 2005. The "Cotton Problem." The World development. Given the crucial importance of cotton Bank Research Observer 20:109­144. and its links to both the environment and economic development, it is surprising that no serious analysis of Gray, L.C. 1999. "Is Land Being Degraded? A Multi- the links has been carried out. As mining and mineral scale Investigation of Landscape Change in extraction is a relatively new economic activity in the Southwestern Burkina Faso." Land Degradation and country, a better understanding of how its expansion Development 10(4):329­343. will impact on other sectors and on the natural resource base is warranted. Guibert, H., and P. Prudent. 2005. "Mise en place d'un programme d'évaluation des impacts There are no specific pieces of analytical work that environnementaux exercés par le front agricole follow from the recommendations in Section III. Mostly pionnier dans l'aire protégée et la périphérie du Parc what is required is monitoring of the effects of the du W." Fonds Européen de Développement. reforms with regard to the natural resource base of the country. The one possible analytical study that could IUCN. 2005. Les Impacts De La Culture Cotonnière be warranted is a Public Expenditure Review, part of Sur La Gestion Des Ressources Naturelles Du Parc W which should include a Public Environmental Cas de l'enclave de Kondio. Ouagadougou : IUCN. Expenditure Review that will address the needs for public expenditure to protect the environment in the Markandya, A., K. Hamilton, and E. Sanchez-Tirana. light of the changing economic structure of the 2006. "Getting the most for the money--how public country. The Environment Department has a short environmental expenditure reviews can help." World introduction on how such reviews should be carried Bank Environment Strategy Note No. 16. .http://www. out and what their scope and coverage should be worldbank.org/environmentstrategy (Markandya and others 2006). Ministère de L'Environnment et Cadre De Vie. 2007. National Capacity Self-Assessment. Ouagadougou : Ministry of Environment. World Bank. 2007. World Bank Country Economic Memorandum Section on Agriculture, Forestry, and Fisheries. Washington, DC: World Bank. IMF (International Monetary Fund). 2005. "Burkina Faso: Poverty Reduction Strategy Paper." IMF Country Report No. 5/340. Progress Report. Washington, DC: IMF. A World Bank Toolkit 99 DPL Toolkit Case Studies: Malawi Background and Environmental Profile Other environmental indicators that could affect DPL policies include the following: Malawi is one the poorest countries in the world, with an economy that is based on subsistence agriculture n The relatively high number of disability-adjusted and with over 90 percent of the population living in life-years lost per capita due to air and water rural areas. Average income per capita is around $160. pollution (above the median for the countries Population is currently estimated at 12 million people considered).11 and has on average been growing at the rate of 2 n Population in areas of excess demand for water percent per year. With gross domestic product (GDP) and numbers of deaths/injuries from floods (above growth averaging below 3 percent, this has translated the median for the groups of countries considered). into a modest 1 percent increase in per capita incomes n The quality of its environmental institutions as during the period from 1996 to 2005. Malawi also has measured by the CPIA score, indicating modest relatively high inequality in income distribution, with a capacity at best to develop and implement Gini coefficient of 0.38. The poverty headcount was environmental policy. measured at 54 percent in a 2004/05 household survey and has hardly changed since the previous The problems that beset Malawi, as well as the household survey was undertaken in 1997/98. possible sources for future sustainable growth, are closely tied to its natural resource base. In agriculture, Social indicators are also very weak. The maternal land area under cultivation has been expanding at mortality rate is currently 984 and is one of the about 3 percent a year, often at the expense of forest highest in the world. AIDS has also taken its toll, and onto lands unsuitable for cultivation; about 16 reducing life expectancy from 51.1 to 36.6 years. percent of agricultural land is believed to be in this Adult literacy for males is 75 percent, while that of category. At the same time, the mean size of land females is only 54 percent. A third of the population holdings has been declining (it nearly halved between still uses unsafe water. The country has been hit hard 1968 and 2000 and is now only about 0.8 ha.). Soil by drought and crop failures, which have caused erosion has been exacerbated and runoff to Lake famine in recent years. Malawi has increased significantly, both largely due to deforestation. Crop yields are cyclical due to factors The environmental indicators provided by the Bank such as drought, but there is also a notable lack of and summarized in Module 2 of the toolkit paint a improvement despite the increased application of relatively poor picture of the environmental situation in fertilizers since the mid-1990s. This may be due to the the country. Its rate of deforestation, the percent of high erosion rates mentioned above. marine species under threat, and the state of sanitation in urban areas are all classified as "red." The main source of foreign exchange (around 70 percent in 2006) is tobacco, with other agricultural The rate of deforestation is probably worse or getting products (mainly coffee, tea, and sugar) accounting for worse than the official figure of 0.8 percent per annum most of the rest. Tobacco is strongly associated with (over the period 1990­2000) suggests. Studies based deforestation because the curing is mostly done using on WRI and FAO data estimate the annual rate of loss fuelwood. It has been estimated that as much as 25 at 0.9 percent between 2000 and 2005 (Butler 2006). percent of household wood consumption is for On the other hand, there is some indication that the tobacco curing. Although there are rules requiring the rate of loss relative to the 1970s and 1980s has maintenance of wood lots to provide sustainable declined. The government's own State of the timber for tobacco, these are not observed. Thus there Environment Report (the latest one was published in 2002) reports loss rates of 2.8 percent over the 11 Module 1 looks at data from 71 countries where DPL 25-year-period 1972­97. operations have been carried out or are being planned. 100 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending is a strong conflict between the goals of promoting c. Malawi Tobacco Industry and the Environment. tobacco production (where the national Growth and Prepared by Earthlink in 1999 and available on Development Strategy aims to improve yields and http://www.american.edu/TED/maltobac.htm. profitability) and the goals of reforestation (the same Details links between tobacco production and strategy suggests increasing forest cover from 27.2 deforestation. percent of land area in 2005 to 20 percent in 2011 and d. Evaluation of the 2006/7 Agricultural Input Supply to reforest 200,000 hectares). Programme, Malawi. Prepared by several consultants with support from DFID, it evaluates Fishery resources are an important contributor to rural the effects of the fertilizer subsidy program that is household livelihoods and accounts for around 4 part of the PRSC being reviewed in this case study. percent of GDP. There are signs, however, of declining e. "The Economic Linkages Between Rural Poverty catches due to overexploitation. Fish consumption per and Land Degradation: Some Evidence from capita has fallen sharply from 10 to18 kg/capita/year in Africa." (Barbier 2000) This paper looks at a the 1970s to 6 to 8 kg/capita/year at the beginning of number of polices, including in Malawi, where this century. erratic agricultural pricing policies in the 1980s may have distorted the incentives to smallholders There is a stated objective of promoting tourism and to adopt less-erosive crops. Although this is not increasing its share in the economy from 1.8 percent to directly relevant now, it is useful to see how such 8 percent by 2011. While the country's natural areas polices could impact on the environment. could attract many more visitors, there are serious constraints in terms of transport and other Task managers may wish to consult some of these, infrastructure. Furthermore, tourism and mining (the but especially C and D above. other area where the government plans to increase activity substantially) are both sectors where sound and Issues raised in the PRSC-I effective environmental controls should be an important The Bank is currently appraising a Poverty Reduction part of a sustainable development strategy. At present, Strategy Credit for Malawi to provide annual budget the capacity to provide these controls is not adequate. support to the value of $20 million. The program supports reforms in the following areas: Main analytical work available The annex to Module II has a few studies that provide (i) Functioning of agricultural markets with a focus some information on economy-environmental linkages on the establishment of additional auction floors in Malawi: for agricultural products; having in place a better targeted and more private-sector inclusive system a. National Capacity Self-Assessment. This report of providing fertilizers and seeds to farmers; was prepared in 2005 by the Ministry of Mines, improving the functioning of land markets to Natural Resources and Environment with support improve collection of land rents from leased land; from UNDP and GEF. It looks at the needs of the and providing title deeds for land that is currently country for preparing and implementing projects held under traditional rights. with global environmental impacts (biodiversity, (ii) Improving the business environment through climate change, desertification). This is in the reforms focusing on streamlining the business nature of an inception report and is unlikely to be licensing regime and establishing a commercial helpful at this stage in assessment of capacity. court. b. State of the Environment Report. Prepared by the (iii) Improving the coordination, funding, and coverage Ministry of Natural Resources and Environmental of social protection programs through the Affairs (as it then was called) in 2002, it provides a establishment of national social protection useful though dated picture of the main trends in steering and technical committees and reaching the use of environmental resources and the areas agreement on a social protection framework. where problems are evident. It provides only a (iv) Economic governance with a focus on reforms superficial discussion of the possible causes of that improve payroll management and external the trends. financial accountability of the GoM. A World Bank Toolkit 101 Of these, the ones that have potential links to the Improved Seeds and Fertilizer." The policy is classified environment are (i) and (ii). These links are discussed as yellow and the advice given there is that such further in the next section. policies "should be adapted to local conditions and accompanied by training in application methods to Environmental Risks Associated With avoid excessive runoff." Proposed Policies Greater auctioning efficiency and improved contract The potential links from the reforms to the environment farming of tobacco lead to greater demand for and vice-versa are the following: charcoal and thereby to further loss of forest area. In Module 1 this policy also falls under "Policies Functioning of agricultural markets Designed to Increase Production and Competitiveness The possible impacts here are: in Agriculture--Improve Access to Markets." The concern with deforestation here is obvious given the 1. Increases in marketing efficiency make agriculture literature reviewed in Module 1. more attractive and thereby lead to more pressure to expand onto marginal land and to clear Unsuccessful reforms in land taxation allow forestland. leasehold land to remain idle. 2. Increased application of fertilizer causes The relevant section in Module 1 is "Reform of land environmental problems from runoff and also tenure laws and land acts." The policy is classified as increases cultivated land area. yellow and states: "Ensure it does not increase 3. Greater auctioning efficiency and improved number without access to land." contract farming of tobacco leads to greater demand for charcoal and thereby to further loss of Improving the business environment forest area. The possible impacts here are: 4. Unsuccessful reforms in land taxation allow leasehold land to remain idle or take away Moves to reduce the costs of doing business put traditional rights. pressure to make EIA processes simpler and 5. Moves to reduce the costs of doing business put possibly less effective. pressure to make EIA processes simpler and This is classified in Module 1 under "Improve the possibly less effective. Investment Climate: Reduction in business start-up time by simplifying or eliminating unnecessary Increases in marketing efficiency make agriculture business licenses, procedures and multiple registration more attractive and thereby lead to more pressure to requirements." The policy is classified as yellow and expand onto marginal land and to clear forestland. the advice is that this should not be done at the In Module 1 such a policy would be classified under expense of proper environmental due diligence. "Policies Designed to Increase Production and Competitiveness in Agriculture--Improve Access to Improving the coordination, funding, and coverage Markets" (Module 2, Table 9). The policy is classified as of social protection programs red, meaning that there is scope for increased cultivation The possible impacts are classified partly under of marginal land and for deforestation. Care therefore "Social Protection: Improved monitoring and analysis needs to be taken to ensure that this does not happen. of information on poverty and social wellbeing;" and partly under "Improve poverty orientation of public Increased application of fertilizer causes spending" (see Table 5, Module 1). The first policy is environmental problems from runoff and also classified as "green," and the recommendation is that increases cultivated land area. any monitoring should also look at the natural resource In Module 1 this policy also appears under "Policies dependence of the poor. The second policy is Designed to Increase Production and Competitiveness classified as blue, indicating no need to follow it from in Agriculture--Improve Marketing Arrangements for an environmental perspective. 102 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending Economic governance with a focus on reforms that contract farming of tobacco lead to greater improve payroll management and external financial demand for charcoal and thereby to further loss of accountability of the GoM forest area. The possible impacts here are part of the "Policies to 4. Unsuccessful reforms in land taxation allow Improve Fiscal Performance and Fiscal Sustainability" leasehold land to remain idle or take away (Table 2, Module 1), or part of "Policies to Improve traditional rights. Public Financial Management" (Table 3, Module 1), or 5. Moves to reduce the costs of doing business put part of "Policies Designed to Improve Governance" pressure to make EIA processes simpler and (Table 4, Module 1). In detail they are listed as: possibly less effective. n Strengthen budget support and planning (Table 1) Increases in marketing efficiency make agriculture n Civil service reform to include a framework for more attractive and thereby lead to more pressure to training, payroll verification, pay and grading expand onto marginal land and to clear forestland. policy (Table 3) The discussions that were held during the mission to n Strengthen internal and external audits (Table 4) Malawi and documents reviewed at that time did not n Improve debt management (Table 1) lead one to conclude that this would be a serious n Regulatory and institutional mechanisms to fight problem. The reforms are essentially to do with corruption (Table 4) improving the operations of the national marketing board for agriculture (ADMARC), which has become All these policies are classified as blue in Module 1, so synonymous with financial and operational no further attention need be paid to them. mismanagement. The measures to be taken include setting up a new warehouse and trading company. A Analysis of Policies: Preliminary more efficient agricultural market corporation should Significance of Impacts improve agricultural incomes and free budgetary resources for other more effective forms of agricultural Given the screening carried out in the previous support. While there is a possibility that making section, we can now look at the policies in more detail. agriculture more attractive will result in marginal land We exclude the ones where the classification was blue being brought into production, there is also the fact that according to Module 1. The ones left for further farmers with more sustainable livelihoods will respond discussion are then (a) those that come under to incentives that discourage such expansion. Thus the "Functioning of Agricultural Markets" and (b) those government can be more effective in preventing such that are under "Improving the Business Environment." expansion when farmers are not facing serious poverty. The analysis presented here is based partly on the The government needs to ensure that policies to documents and literature and partly on direct prevent further expansion of agricultural land in discussions with officials during a visit to Malawi, as marginal areas are in place and are effective. If part of the PRSC I Appraisal Mission, from July 29 to necessary, such policies should be strengthened, but August 4, 2008. this can be done at the same time as making the changes in agricultural marketing arrangements. Functioning of agricultural markets Under the functioning of agricultural markets, we The recommendation for this policy therefore is to identified the following policies: strengthen policies to prevent expansion of agriculture onto marginal land and to control deforestation but to 1. Increases in marketing efficiency make agriculture proceed with this component as scheduled. more attractive and thereby lead to more pressure to expand onto marginal land and to clear Increased applications of fertilizer cause forestland. environmental problems from runoff and also 2. Increased application of fertilizer causes increase cultivated land area cultivated. environmental problems from runoff and also Fertilizer subsidies can improve yields and thus create increased cultivated land area. better incomes. The evidence suggests that this is the 3. Greater auctioning efficiency and improved case with the present program. It is fairly well targeted A World Bank Toolkit 103 to the poor (there are reports of fraud). While it may and better returns, it may be easier to enforce this not be the most efficient way of getting higher yields, it regulation, which is currently ignored. The Bank could appears to be having positive results in terms of bigger help the government in implementing the regulation. harvests and higher incomes (see the DFID-funded study just published). The other measure is to look at alternative sources of energy for curing. The Ministry of Energy, Mines, and There are some concerns, however, that applications Environment is looking for partners to review more are not being made in the most efficient way, or they efficient curing systems (the BARREM project) are being made on sloping land near irrigation canals (Ministry of Energy, Mines, and Environment 2006). and rivers, resulting in runoff. These reports are only This involves the use of solar-powered fans for anecdotal and some more systematic monitoring is preparing flue-cured tobacco. Benefits include not warranted. To the extent that such effects are only reduced pressure on forests, but also reductions occurring, they can be addressed through better in CO2 emissions, which may be marketable through information to farmers on good application practices one or the other of the carbon funds. A preliminary and the team should note the importance of that. assessment of the viability of the project has been Overall levels being applied are not high and with care carried out, from which it is clear that some kind of the environmental impacts should be manageable. subsidy scheme will be needed if it is to be implemented effectively. This is something that could The recommendation for this policy therefore is be looked at as a complementary activity for the monitor the impacts of increased fertilizer use on promotion of tobacco. More generally, Malawi is runoff and to provide support to farmers in these seeking to reduce dependence on traditional fuels. areas on good application practices. The PAESP project lays out a proposed program with a budget of 430 million Kwacha ($3 million) Greater auctioning efficiency and improved contract (Department of Energy Affairs 2006). It is not clear farming of tobacco lead to greater demand for exactly what reductions the program will achieve, but charcoal and thereby to further loss of forest. if it can be shown to be cost-effective, it would be The issue of tobacco and charcoal is of serious attractive for the Bank to support a larger effort in concern. Malawi has a high rate of deforestation and if future years, tied perhaps to substitution of traditional successful these reforms will increase the pressure on fuels in areas where it is active, such as tobacco. the existing forest resources. While the government is aware of the problem, one cannot feel confident that it The recommendation for this policy is to develop, for realizes how large a task it will be to reverse the the next PRSC or subsequent ones, a clear plan to current decline. The projected planting of 200,000 ensure either that the wood for curing tobacco is hectares as part of the Malawi Growth and derived from a sustainable source or that curing is Development Strategy (MGDS) is very ambitious; done using other sources of energy. This will require although a budget for it is estimated, the sources of an evaluation of these alternatives and the funding have been not been identified. The Forestry preparation of a background document to assist the Department only planted around 2,000 hectares last preparation of future PRSCs. year and will need to scale up considerably to achieve the target. It is a very underfunded department at Unsuccessful reforms in land taxation allow leasehold present and morale is low. Reforestation on customary land to remain idle or take away traditional rights. land is taking place on a larger scale, but survival rates are lower there and in all cases losses from fires are The reforms in land taxation are a complex issue. At high (there is very poor firefighting equipment). present leaseholders are not paying the tax, partly on grounds of horizontal equity and partly because they All these factors indicate that the Bank needs to be say they cannot afford to pay. There are two actively involved in supporting measures to prevent possibilities that have to be considered. First, and deforestation and to undertake reforestation. One is to most likely, is that stronger enforcement (as proposed enforce the requirement that tobacco growers keep 10 in PRSC-1) will not work. In that case the present percent of their land as a woodlot. With contract farming situation, in which land held under leasehold is not 104 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending being farmed or is being encroached on and farmed reasonable, although the resources to look at complex unsustainably, will continue. The second is that the issues within the department are very limited. It rightly enforcement is effective, in which case the draws on outside expertise, but that still means it leaseholders will try and make productive use of the needs internal resources to evaluate the advice and land, and in the process evict the encroachers. This in make key decisions. As a general point of caution, turn could cause an increase in rural poverty and therefore, one should allow such large projects increased pressure on the environment elsewhere. reasonable time to be reviewed and if the target time it takes to set up a business does not fall fast enough on It is difficult to assess the consequences of the policy, account of these considerations, that should not be not least because the new tax rates that will be seen as a failure. introduced and enforced have still to be determined. It is claimed that it will be a "more equitable tax The recommendation for this policy is to make sure structure," but what exactly the levels will be and how that complex projects with significant potential acceptable they will be is an open question. environmental impacts are not subjected to the speeding up of the processes of setting up a One issue that was raised during the mission was the business. Furthermore, enough resources should be need for access to credit for some leaseholders if they available to the Department of the Environment to are to bring their land into production. It may be worth evaluate EIAs carried out externally and to make the looking at how this could be provided as a first step, appropriate decisions on mitigation measures. so that the leaseholders had an income from which the tax could be paid. Further Analysis through Tools Developed in Module III The recommendation for this policy is to undertake more analytical work on the possible consequences This section looks at what additional materials on of the changes in the tax rates on leasehold land, as economy-environment linkages are needed for Malawi well as the consequences of stricter enforcement of and what models should be used to carry out the the new rates on land use and on individuals who studies referred to in the previous section. have encroached on the land. Based on the results of the study, the nature of the intervention in the There is no Country Environmental Analysis available leasehold land market should be reformulated. for Malawi. Given the importance of natural resources for the economy, it would be appropriate to conduct Moves to reduce the costs of doing business, such an analysis as part of upstream work on the putting pressure to make EIA processes simpler and country. The study should cover all the major sectors possibly less effective. as well as address the links between key economic The final issue is related to the component of the sectors and natural resources. Notable among these is PRSC that seeks to reduce the cost of doing business, tobacco. Other sectors that could be looked at are including the time involved in obtaining permits, etc. maize, sugar, coffee, and tea. However, one area where due diligence can take time is EIA. While it makes good sense to streamline this Another upstream piece of work that may be justified procedure for simple projects that do not have is an SEA looking at the environmental and economic significant environmental implications, it would be a impacts of the major infrastructure projects (such as mistake to put pressure on the EIA process for major the Shire-Zambesi water way) and of major mining investments with important environmental projects (such as the Palladin uranium mine). consequences. A case in point is the proposed Uranium Mine ("Palladin") that is currently undergoing The studies proposed in this review and possible tools an EIA. There are already complaints that corners have for carrying out the studies are given in Table 1 below. been cut in the consultation process. The Department of Environment is dealing with this and many other new projects as best it can. From what one could see, the department's management of the process is A World Bank Toolkit 105 Table 26. Tools to be used for Supportive Analytical Work Proposed Study Method Carry out an evaluation of the alternatives to the current Partial equilibrium models and/or sectoral econometric unsustainable use of fuelwood for curing tobacco. models linking the market for cured tobacco with the market for renewable energies. Analytical work on the possible consequences of the changes in This requires a careful analysis of the agricultural sector. the tax rates on leasehold land as well as the consequences of Possible tools are partial equilibrium models, combined stricter enforcement of the new rates on land use and on with supply response models. individuals who have encroached on the land. The tobacco energy alternatives study will have to References examine the reasons why sustainable use of fuelwood is failing and what are the economics of using Barbier, E.B. 2000. "The Economic Linkages Between alternatives. Hence it has to understand the Rural Poverty and Land Degradation: Some Evidence economics of tobacco production and the likely from Africa." Agricultural Ecosystems and Environment demand for fuels for curing tobacco. Previous work in 82:355­370. this area has used the kind of models mentioned in Table 1. Butler, Rhett A. 2006. "Diversities of Image - Rainforest Biodiversity." Mongabay.com / A Place Out of Time: The land market impacts of changes in tax rates and Tropical Rainforests and the Perils They Face. January enforcement rates will of course focus on the role of 9, 2006. http://rainforests.mongabay.com/0305.htm. land in agricultural production. As rates change, farm economics will determine changes in uses to which Department of Energy Affairs. 2006. "Promotion of land is put. This will require careful analysis of farm- Alternative Energy Sources Project (PAESP)." based decision-making models, which are generally Lilongwe: DEA. partial equilibrium models but ones that have to be rich in the institutional aspects of the rural economy. DFID/USAID/Future Agricultures Consortium. 2007. One will also want to understand, for example, what "Evaluation of the 2006/7 Agricultural Input Supply will happen to those who have encroached on unused Programme, Malawi." Lilongwe:DFID/USAID/Future leasehold land. This will require deep knowledge of Agricultures Consortium. rural society, which can be embedded in the supply- response models mentioned in Module 3. Malawi Tobacco Industry and the Environment. 2000. "Trade and Environment Database Case Study 252." http://www.american.edu/TED/maltobac.htm Ministry of Energy, Mines and Environment. 2006. "Report on the Promotion of Solar-Powered Fans for Flue-cured Tobacco Curing." Lilongwe:MEME. Ministry of Mines, Natural Resources and Environment. 2005. National Capacity Self-Assessment. Lilongwe:MMNRE. Ministry of Mines, Natural Resources and Environmental Affairs. 2002. State of the Environment Report. Lilongwe: MMNRE. 106 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending DPL Toolkit Case Studies: Tajikistan Background and Environmental Profile less than 0.1 percent. Recently there has been an increase in the incidence of tuberculosis in the country, Tajikistan is a mountainous landlocked country in increasing from 65 per 100,000 people in 1995 to 198 Central Asia with an economy that depends heavily on per 100,000 people in 2005. exports of cotton and hydroelectric power and remittances from migrants living abroad.12 The The environmental indicators summarized in Module 1 macroeconomic performance has been impressive of the toolkit portray a relatively poor picture of the since the end of the civil war in 1997. The economy environmental situation in the country. The problem has been growing, and gross domestic product grew index for environmental institutions shows the poor at an average rate of 8.7 percent in the last five years. status of environmental governance and the need to The country had a population of 6.65 million in 2006, strengthen those institutions. Access to improved of which about 75 percent live in rural areas. It is one sanitation in urban areas, the problem index for of the low-income countries with a per capita income environmental institutions represented by the CPIA of $390 in 2006.13 The population has been growing at score, and the index of marine systems under threat about 1.3 percent annually during 1997­2006, and per are classified as "red," suggesting that they should be capita income at 5.9 percent. The country has taken into account when investigating linkages moderate to high inequality in income distribution, with between development policies contemplated and their a Gini coefficient of 0.33 in 2003. Poverty in the effects on the above indicators. There has been a country is still high, although declining steadily. In concern that the recent civil conflict following 1999, 59 percent of the population was living on less independence resulted in worsened public service than $2.15 a day (at 1993 international prices); the delivery and weaker governance.15 share fell to 43 percent in 2003.14 GDP per unit of energy use is relatively low, in yellow, Social indicators are relatively strong in Tajikistan, suggesting the need to look for opportunities to increase although the recent civil conflict has affected the pace of energy efficiency. Similarly, urban air quality signals a progress. In 2005, life expectancy at birth for females need to use caution and to look at linkages between the was 67 years and for males was 61, an overall average policies contemplated and urban air quality. of 64 years. Literacy rates in 2000 were 100 percent for males and 99 percent for females. The net primary and In addition to the above, other indicators that should secondary school enrollment ratios in 2005 were 97 and be noted include: 80 percent respectively. Both infant and child mortality rates declined over the period 1995 through 2005. The n The relatively high proportion of people living in infant mortality rate and child mortality rates in 2005 fragile lands, which is above the median for the were 59 per 1,000 live births and 71 per 1,000 groups of countries considered.16 respectively. In 2005, about 59 percent of the population n The population in areas of excess demand for had access to an improved water source, which shows water and numbers of deaths/injuries from floods, a marginal decline from 61 percent in 1995. Access to which is above the median for the groups of improved sanitation also fell marginally, from 52 percent countries considered. in 1995 to 51 percent in 2004. The prevalence of HIV is The government has pursued sound macroeconomic management since the end of the civil war in late 12 There has been an increasing inflow of remittances recently. 13 Per capita gross national income using the World Bank Atlas 15 Tajikistan Living Standards Survey, 2003 method. 16 Module 1 looks at data from 71 countries where DPL 14 World Bank, WDI online operations have been carried out or are being planned. A World Bank Toolkit 107 1997. To sustain economic growth, the country will and sectoral integration. The issues that received need significant improvements to the private special attention during the reviews were poverty, investment climate; reforms in business licensing, environment, and economy; the policy, legal, and permits, and inspections; and transparency in institutional framework; environmental expenditures privatization and market development. and privatization; information, public participation, and education; management of air, water, and The key strategic sectors for future sustainable waste; agriculture; biodiversity; and ecotourism. economic growth in Tajikistan are agriculture, notably B. Tajikistan 2002: State of the Environment. This cotton, and aviation . In recent years remittances have report, prepared by the Research Laboratory for grown exponentially due to unsatisfactory job Nature Protection (Tajikistan) in partnership with prospects in Tajikistan and buoyant growth in Russia-- UNEP/GRID-Arendal (Norway), contains twelve the origin of about 90 percent of remittances--where environmental topics, as well as the information monthly dollar wages have tripled since 2001. The about the country and its socioeconomic main sources of foreign exchange are cotton, development, a collection of maps and graphics, electricity, and remittances. Cotton is traditionally the and references to additional information sources. most important agricultural product in the country. It Environmental indicators used in this report are accounts for about 60 percent of agricultural output, based on the national environmental priorities and 15 percent of export earnings, and 35 percent of tax correspond to the international set of indicators, revenues. Productivity and yields in the cotton sector including those accepted by OECD, UNCSD, EIA, are low and rural poverty is highest in the cotton and UNEP. growing areas. Cotton yields are currently only half of C. Tajikistan: Country Environmental Analysis. This their pre-independence levels and 55 percent of the 2004 report prepared by the Asian Development yield required for reasonable profits. In order to meet Bank provides an assessment of the existing the challenges in the cotton sector, the government constraints, needs, and opportunities in the finalized a cotton sector reform strategy in 2005. The country, an overview of the environmental electricity tariffs in the country are below the cost- strategy, the principal environmental issues, and recovery level. The government has raised electricity the environmental management regime in the tariffs recently and plans to continue to do so until country. The principal environmental issues tariffs reach cost-recovery levels. identified are natural disasters, including drought and landslides; land degradation, including salinity In addition to the reforms in the core sectors, the in irrigated areas and soil erosion; deforestation government is committed to implementing public and desertification; inadequate supplies of safe sector reforms like rationalization of core public water in rural areas and deterioration of water administration structures, civil service reforms, and supply; and inadequate wastewater and solid reforms in public financial management. In order to waste management infrastructure. improve public delivery of services, the government D. "The effects of market reform on cotton plans to implement reforms in the delivery of primary production efficiency: The case of Tajikistan." This health care and education. paper (Tashrifov 2005) examines the effects of market reform on the agriculture sector of Main analytical work available Tajikistan. It investigates the level and The attachment to the main report provides a list of determinants of technical efficiency for a sample studies that provide some information on economy- of cotton growing regions. The results show that environmental linkages in Tajikistan: market reforms had a significant positive impact on technical efficiency of cotton production, A. Tajikistan Environmental Performance Review. which, in turn has made a substantial contribution Prepared in 2004 by United Nations Economic to the process of economic development. Commission for Europe, this report covers twelve E. "Tajikistan-Welfare implications of cotton farmland issues of importance to Tajikistan, including the privatization: A poverty and social impact framework for environmental policy, management analysis." This World Bank paper published in of pollution and natural resources, and economic 2004 analyzes the welfare implications of cotton 108 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending sector reform, with special reference to the Triggers and policy actions in the Tajikistan privatization of farmlands in Tajikistan, which PDPG-2 began in 1998. The Bank is currently pursuing the Second F. Tajikistan: Toward accelerated economic growth-A Programmatic Development Policy Grant for Tajikistan country economic memorandum. Published in to provide annual budget of $10 million. The program 2001, this World Bank Country Economic supports reforms in a number of areas. The original Memorandum looks at the potential to reduce trigger and the prior actions required from the poverty in Tajikistan through accelerated government are presented in Table 1. The reforms economic growth. It focuses on productive proposed are summarized below: economic sectors, such as industry, agriculture, and the power sector. The role of the finance and a. Improve the investment climate through reforms banking, telecommunications, and transport in licensing, permitting, and inspections. sectors are also outlined because of their Specific triggers are meant to ensure importance in the expansion of domestic compliance with the amended law on licensing economic activity and regional/international trade. and inspections amendments. G. Priorities for Sustainable growth: A strategy for b. In order to achieve transparency and accountability agricultural sector development in Tajikistan. in privatization and enhancing competition, the Published in 2006, this World Bank study reviews program stipulates disclosure of information on all recent trends and performance in the agriculture 2005 and 2006 asset sales by the state committee sector, identifies the factors limiting sustainability on investment and state property, and all of the sector, and provides a strategic framework information requested by the international firm for sustainable agricultural growth. It provides a carrying out the compliance review. review of the cotton sector. The proposed sector c. In order to improve public sector management, strategies include extension of the land reform triggers include rationalization of core public programs, cotton sector reforms, improved sector administration structures. access to rural finance, diversification of the d. On improving the public financial management production base, livestock production and system, triggers to improve the internal and productivity, expansion of horticultural production external audit systems are proposed. and exports, reforms in rural institutions, and e. Regulatory reform in the aviation sector, energy integration of agricultural markets. sector and cotton sector include restructuring the aviation sector (Tajik State Airlines), revising The above documents provide a general overview of electricity tariffs to cost-recovery levels, revising the environmental conditions in the country. the cotton pricing method, and accreditation of a joint venture to provide cotton grading services f. Reforms in public delivery of health services and the education sector. A World Bank Toolkit 109 Table 27. Assessment of PDPG-2 Original Triggers and Proposed Prior Actions Original Trigger Prior Actions Improving the investment climate Submit to the Parliament draft amendments to existing legislation to ensure compliance with through reforms in licensing, permitting, the amended law on licensing and inspections. Adopt amended regulations to ensure and inspections consistency with the amended law on licensing. Adopt government and presidential decrees to implement the new law on inspections. Submit to the Parliament draft amendments to ensure compliance with new law on inspections and issue new regulations and manuals for inspection. Transparency and accountability in Disclose information on all 2005 and 2006 asset sales by the State Committee on Investment privatization and enhancing competition and State Property Management in the media. Adopt an action plan to implement the communication strategy and implement short-term measures. The State Committee for Investment and Property Management submit all information requested by the international firm carrying out the compliance review. Revise implementing regulations and institutional mechanisms to implement new competition law and submit to the Parliament a new draft law acceptable to IDA on natural monopolies. Regulatory reform in the aviation sector Adopt a presidential decree acceptable to IDA on separation of policy making and technical regulation. Adopt a government resolution on restructuring of Tajik State Airlines that foresees by the end of 2008 separation of airlines, airports, and air traffic control. Regulatory reforms in the cotton sector Publish revised cotton pricing method and accredit a joint venture to provide grading services (subject to the laboratory being established with ADB financing). Regulatory reforms in the energy sector Complete separation of functions between electricity utility Barki Tajik and Ministry of Energy. Issue government resolution to raise electricity tariffs to full cost-recovery level in line with the agreed schedule by 2010, and adjust gas tariffs in line with increases in import prices. Reform public sector management, Complete horizontal functional review of the central level of the executive. Establish a working including rationalization of core public group to develop the concept for the structure of the public administration and develop an sector administration structures. action plan that includes an analysis of the current situation, development of proposals for the structure of public administration as well as reporting and accountability arrangements, public awareness, and development of a concept and measures for its realization. Reform of the civil service Civil service management, including adoption of a new civil service law and adoption of a government resolution and secondary legislation on merit-based recruitment and promotion. Reform of the public financial Issue a medium-term expenditure framework instructions, and issue budget instructions for management system the public sector in accordance with instructions for the medium-term expenditure framework. Adopt Procurement reforms--including standard bidding documents for goods, works, and services--and implementing regulations as referred to in the public procurement law. Reform of the internal audit and control Adopt government resolution endorsing the strategy for the development of public internal financial control. Reform of external audit Presidential declaration on commitment to develop an independent audit function and announcing the formation of a task force that will be responsible for setting out the options. Reform in the public delivery of primary Allocate in 2007 a greater share of wage increases in the health sector to primary health care health care workers as agreed with IDA. Introduce a calculation of co-payment categories and pricing for guaranteed basic benefit package acceptable to IDA. Educational sector reform Reform of remuneration system, pay allowances, bonuses, and promotion system of education workers so as to compensate them based on the level of responsibility and qualifications. Expand implementation of per capita financing through a government resolution to additional rayons. 110 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending While most of these triggers are benign in terms of d. On reform of public sector management, including environmental, impacts some of them may have rationalization of core public sector administration potential/significant environmental impacts. The structures and reform of the civil service system, environmental implications associated with proposed the triggers are mostly neutral as far as the triggers are presented below in the next section. environment is concerned. e. On reform of the public financial management Environmental Risks Associated with system, including internal and external audits, the Proposed Policies triggers are also neutral. The only exception is in the determination of sectoral expenditure ceilings The potential effects of the proposed reforms on in line with the MTEF framework. Expenditures for environment, natural resources, and forests in Tajikistan environmental protection and management are are presented in Table 2 below. The transmission not usually given the priority they deserve; this channels and the advice on possible action, taken from should be sufficiently addressed. module 1 of the toolkit, are also provided. f. In the case of the triggers for cotton sector reforms, the toolkit flags the possibility of a. On improving the investment climate, the toolkit negative environmental impacts. The suggested alerts us to the risk that environmental due revision of the cotton pricing system raises the diligence for some projects takes time and the possibility that the resulting increase in returns reforms to speed up licensing and permitting from cotton production may lead to adoption of should not undercut the importance of the EIA or environmentally damaging practices. Similarly, any other environmental due diligence that may better grading practices may lead to increased be required. opportunities for expansion of trade. Although b. On transparency and accountability in increased trade/marketing is a desirable privatization and enhancing competition, the outcome, there is a need to ensure that this does toolkit warns that measures to increase private not lead to expanded production that is sector competition and speed up privatization environmentally damaging. must ensure that the supporting regulations g. The trigger for energy sector reform, revision of include good environmental practice. prices, is classified as "yellow," which implies c. The triggers associated with restructuring of the the possibility of negative impacts. Higher aviation sector, delivery of public health services, prices for electricity may lead poor households and the education sector are mostly neutral as far to revert to traditional fuels, with environmental as the environment is concerned, and no further and health implications. action is required. A World Bank Toolkit 111 Table 28. Environmental Risks and Advice on Suitable Action Original Trigger Transmission Channel to Environment (*) Classification and Action Improve the investment climate through reforms in Policies designed to improve investment Classified as yellow. This should licensing, permitting, and inspections climate: eliminating unnecessary business not be done at the expense of licenses, procedures, and multiple registration environmental due diligence, requirements. (Table 6 of Toolkit) environmental impact analysis Transparency and accountability in privatization Policies designed to improve investment Classified as yellow. It is important and enhancing competition. State Committee for procedures: Reduce uncertainty for investors to ensure that the supporting Investment and Property Management submit all by implementing the investment law and its regulations include and require information requested by the international firm supporting regulations and new operating good environmental practice. carrying out the compliance review. Revise procedures (Table 6 of Toolkit) implementing regulations and institutional mechanisms to implement new competition law and submit to the Parliament new draft law Regulatory reform in the aviation sector, Policies designed to improve infrastructure: Classified as blue: no action restructuring of Tajik State Airlines, which foresees Secure, safe, economical and efficient civil by the end of 2008 separation of airlines, airports, aviation system (Table 20 of toolkit) and air traffic control. Implement regulatory reforms in the cotton sector, Policies designed to increase production and Classified as yellow: Increased implement revised cotton pricing method, and competitiveness in agriculture (cotton). returns should not be from accredit a joint venture to provide grading services Provide better incentives to and institutional adopting environmentally arrangements to farmers to increase returns damaging practices (Table 13 of toolkit) Policies designed to improve trade and Classified as red: Need to ensure marketing of agro-processed products (Table this does not lead to expanded 13 of toolkit) production that is environmentally damaging. Regulatory reforms in the energy sector- raise Policies designed to reform tariff structure to Classified as yellow: Higher costs electricity tariffs to full cost recovery level by 2010 reflect costs, cover costs of generation (Table may imply poor households and adjust gas tariffs in line with increases in 21 of toolkit) cannot afford the services. They import prices. may then revert to traditional fuels, with environmental and health implications. Social protection programs will need to be implemented Reform public sector management, including Policies designed to promote institution Classified as blue: No action rationalization of core public sector administration building in the public administration sector to structures. affect financial management, personnel management, and economic decision making and improve performance through introduction of internal auditing, evaluation, and performance review (Table 8 of toolkit) Reform of the civil service to include adoption of a Policies designed to create a lean, effective, Classified as blue: No action new civil service law and adoption of a government and efficient civil service free of corruption resolution and secondary legislation on merit- and improve human resource management in based recruitment and promotion the public sector (Table 8 of toolkit) 112 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending Original Trigger Transmission Channel to Environment (*) Classification and Action Reform of the public financial management system Policies designed to improve macroeconomic Classified as green: But it is to include medium-term expenditure framework stability and improve fiscal performance and important to include environment and procurement reforms fiscal sustainability: Implement a Medium- as a sector that needs to have a Term Expenditure (MTEF) to have greater budget line with other priorities. visibility of policies and place budgetary allocations in a medium-term framework (Table 5 of toolkit) Reform of the internal audit and control Policies designed to improve public Classified as blue; No action administration through introduction of internal auditing, evaluation, and performance review; strengthening internal audit (Table 8 of toolkit) Reform of external audit Policies designed to improve public Classified as blue; No action administration through strengthening external audit (Table 8 of toolkit) Reform in the public delivery of primary health care Policies designed to: improve financial and Classified as blue; No action fiduciary environment for health- decentralize health services, primary and secondary level services (Table 19 of toolkit) Educational sector reform, reform of remuneration Policies designed to improve financial and Classified as blue; No action system fiduciary environment of education sector; facilitate transfer of resources to districts to meet the needs of education service delivery; improve efficiency of education expenditure (Table 18 of toolkit) (*) Table number refers to the table in Module 2, which describes the transmission channel Analysis of Policies: Preliminary The above policies/triggers may produce likely significant Significance of Impacts impacts on environment and natural resources in the country and are discussed in detail below. Based on the screening carried out in the previous section, this section looks at the policies in more Policy reforms in licensing, permitting, and detail. We exclude the ones where the classification inspections to improve the investment climate was green according to Module 2. The remaining The Tajik government has identified private sector policies that are left (yellow and red) are: development as one of the pillars for sustained economic growth and development. The proposed a. Policy reforms in licensing, permitting, and reform seeks to improve the investment climate in the inspections to improve the investment climate country through reforms in business licensing, b. Policies to encourage transparency and permitting, and inspections. The specific actions accountability in privatization and enhance proposed are amendments to the existing legislation competition for improving the investment climate to ensure compliance with the amended law on c. Regulatory reforms in the cotton sector, including licensing and inspection and prepare new guidelines, implementation of a revised cotton pricing method manuals, and checklists for inspections. There have and accreditation of a joint venture to provide been problems with the speeding up of business start- grading services up times and licensing procedures. When the primary d. Regulatory reforms in the energy sector, including investment sectors and/or operations are likely to have raising electricity tariffs to full cost-recovery level major environmental impacts, it is not appropriate to by 2010 and adjusting gas tariffs in line with require these to be done hastily. This applies to areas increases in import prices. such as mining and forestry. Proper procedures in A World Bank Toolkit 113 these sectors will take time (as they do in industrialized pesticides are more important), water use, soil erosion countries) and should not compromised for due and degradation, freshwater contamination, and habitat diligence regarding effects on environment. conversion and the associated loss of biodiversity. The increased use of fertilizers and pesticides will affect the The recommendation for this policy is that in the case quality of water and soil. The high use of pesticides may of complex projects with a possibility of significant result in human health concerns for both farm workers environmental impacts, the analysis of potential and downstream populations. environmental impacts should not be compromised by speeding up the licensing and permitting process. The On the processing and manufacturing side, the use Department of Environment may be strengthened with of industrial chemicals, especially ones associated more resources for more effective inspections and with dyeing textiles and finishing clothes, are of implement compliance requirements. concern. These chemicals not only affect the environment, but also the workers in the processing Policies to encourage transparency and and apparel industries. accountability in privatization and enhance competition for improving the investment climate The recommendation for this policy is to monitor the While competition increases efficiency and improves impacts of increased pesticide and fertilizers use on investment climate, measures to improve competition runoff and water quality impacts downstream. may result in the deterioration of overall environmental Development and use of varieties that are resistant to standards. As the government pursues privatization pests and diseases could result in overall reduction in and encourages competition in sectors like aviation, pesticide use. Soil erosion, land degradation, habitat energy, and other infrastructure operations, there conversion, and effects on biodiversity need to be could be possible impacts on the environment. systematically monitored. The occupational health of farm workers also should be monitored. On the The general recommendation here is to give due processing and manufacturing side, ensure that consideration to the environmental impacts while proper environmental safeguards are in place implementing triggers for fostering competition though regarding the use and disposal of industrial chemicals private sector participation. and the safety of workers. Regulatory reforms in the cotton sector, including Regulatory reforms in the energy sector, including implementation of a revised cotton pricing method raising electricity tariffs to full cost-recovery level and accreditation of a joint venture to provide by 2010 and adjusting gas tariffs in line with grading services increases in import prices Cotton is one the key sectors in the Tajik economy. Electric energy is another key sector of the Tajik Productivity and yields in the cotton sector are low, and economy that provides significant foreign exchange by rural poverty is highest in the cotton growing areas. In way of exports. The proposed reform is to revise the order to meet the challenges in this sector, the domestic tariff rates to cost-recovery levels. government finalized a cotton sector reform strategy in 2005. The reforms in pricing and grading of cotton will Higher electricity tariffs may result in poor households provide better incentives and institutional arrangements switching to traditional fuels, including wood fuels. A to farmers to increase their returns. As returns to cotton switch to fuelwood in turn could lead to deforestation. production increase, farmers will tend to intensify and Use of traditional fuels may also have health implications. expand production. This might lead to adverse environmental impacts associated with production and The recommendation here is to implement targeted processing. At the producer level, the main social protection programs to provide relief to poorer environmental impacts from cotton production, in order household as tariff rates are increased to cost- of importance, are use of agrochemicals (of which recovery levels. 114 Assessing the Environmental, Forest, and Other Natural Resource Aspects of Development Policy Lending Further Analysis Through Tools protect the environment as the country adopts the Developed in Module III MTEF framework and in the light of the changing economic structure of the country. The Environment This section looks at what additional materials on Department has a short introduction on how such linkages between development policies and reviews should be carried out and what the scope and environment are needed for Tajikistan and what coverage should be (Markandya and others 2006). models should be used to carry out further detailed analysis of policies referred to in the previous section. References An upstream piece of work that may be justified is an Asian Development Bank. 2004. Tajikistan: Country SEA on the cotton sector with emphasis on the Environmental Analysis. http://www.adb.org/ environmental and economic impacts of the revised Documents/Reports/CEA/taj-july-2004.pdf cotton pricing and the proposed improvement in grading services. Given the crucial role of cotton in the country's IMF. 2007. Republic of Tajikistan: article IV consultation economy and the environmental impacts of cotton report. IMF Country Report No. 07/144. Staff Report. growing, such a study is justified. Among the tools Washington, DC: International Monetary Fund. identified in the toolkit, partial equilibrium models or econometric models linking impact of pricing and Markandya, A., K. Hamilton, and E. Sanchez-Tirana. market reforms, including improvements in grading on 2006. "Getting the most for the money- how public cotton production and supply (economic impacts), could environmental expenditure reviews can help." World be done. The economic impacts could then be mapped Bank Environment Strategy Note No. 16. http://www. to the environmental and health impacts at the farm level worldbank.org/environmentstrategy and at the post-harvest processing operations. Tashrifov, Yusuf. 2005. "The effects of market Reform Additional analytical work that may be required deals on cotton production efficiency: The case of Tajikistan." with the economic and environmental impacts of the Working Paper. International and Development revision of tariffs in the electric sector. The analysis Economics. Asia Pacific School of Economics and should explore the economic effects of pricing reforms Government, Acton: The Australian National University. on generating capacity and power generation in the electricity industry and the associated environmental United Nations Economic Commission for Europe. impacts. Similarly, pricing reforms will have impacts on 2004. Tajikistan-Environmental Performance Review. poor households. The analysis should explore the http://www.unece.org/env/epr/studies/Tajikistan possibility of those poor households reverting to traditional fuels as electricity prices go up. Switching to UNEP and Tajikistan Research Library for Nature wood fuels and or charcoal may induce deforestation Protection. 2004. Tajikistan-State of the Environment and lead to environmental/occupational health effects.17 Report. http://enrin.grida.no/htmls/tadjik/soe2001/eng/ Selection of appropriate tools to analyze these effects will depend on the nature of the available data (and World Bank. 2001. "Tajikistan: Toward accelerated based on the input from the mission). economic growth-A Country Economic Memorandum." Report No. 22013-TJ. PREM/Europe and Central Asia The impact of reforms in public financial management Region. Washington, DC: World Bank. on the environment could be addressed through a public environmental expenditure review (PEER) that will World Bank. 2004. "Tajikistan-Welfare implications of address the needs for public expenditure allocations to cotton farmland privatization: A poverty and social impact analysis." Europe and Central Asia Region. Washington, DC: World Bank. 17 In Tajikistan, there are cases of families with no access to gas and limited availability of electricity, burning wood in apartment buildings with no chimneys, which would be extremely World Bank 2006. "Priorities for Sustainable growth: A hazardous to health. If the reforms result in less power cuts, strategy for agricultural sector development in the effects could be positive. Hence it is not clear that the reforms will have a negative environmental health impact. Tajikistan." Washington, DC: World Bank. A World Bank Toolkit 115 1818 H Street, NW Washington, DC 20433, USA Telephone: 202-473-1000 Facsimile: 202-522-1735 Internet: www.worldbank.org/environmentaleconomics 25% Cert no. SW-COC-001530