'$ ' '2 >< t -~ i' i ' r ' r @A T T H E W O R L D B A N K At~~~~~~~~~~~~~~~~~~~~~1 . . ,4 . . ,, ~~__ V -~~~~~~~~- tgLwqOd envirairimeryt.311 _and soctay Austmfibble developmeni i~,jnter/spi. - s ..18t-rnatter.- s'' ws~~~A TH WOL BAN;/ ',K, * .. . -t .. - . . \ ; + - ; '~~r tgidenirnmS, adsoraioisaiabledvvlornntw I6te/pr,n W Q--C. :~~~~~~~~~~ - Educating Students Around the World About the Environment - .;E J = E i The World Bank's Eco- -. I: t: :I nomic Development Insti- tute has launched the World Links for Develop- ment ("WorLD") Program to create on-line educa- tional communities for secondary school stu- dents and teachers around the world. WorLD is working in partnership with the GLOBE Program, a distance environmental education program founded under the leader- ship of US Vice President Al Gore. Together, these complementary programs hope to advance world scientific knowledge and achieve their goals in building awareness about the environment and sus- tainable development. See page 29. N~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~N t 4 - -L'D - M B._ _~~~~~~ Letter from Al Gore, Vice President of the United States It has been five years since the Earth Summit at Rio. The great riches of human creativity were on full display there: a giant "tree of life" decorated with messages from children around the world; stardlingly beautiful computer images of earth seen from space; spectacular sculptures, paintings, music, and graphics. The many parts of this human tableau seemed more alike than different: indigenous person and artist, scientist and child, tourist and diplomat. AU seemed to recognize that we are all part of something larger, a family related intimately by commitments to each other's common future. On this fifth anniversary, we are united by the knowledge that human activities are causing grave and perhaps irreparable damage to the global environment. The problem runs from local air and water pollution to destruction of the rain forests, global climate change and the diminished diversity of plant and animal species. We have made some remarkable progress since Rio. We renegotiated the Biodiversity Treaty and Climate Convention, addressed population concerns at Cairo, and worked to vigorously enforce the Montreal Protocol. We are seeing that the ban on ozone depleting chemicals has begun to heal the fragile shield that protects us from ultraviolet radiation. But those five years have also heightened new concerns. The new Global Biodiversity assessment reports that rates of species loss worldwide are 100-1,000 the normal rates of extinction and accelerating. And the Intergovernmental Panel on Climate Change reports a discernible human influence on the climate, and projects temperature changing faster than ecosystems can adapt. Responding to these large scale problems requires bold new approaches. We must harness the planet's scientific and technological capabilities to develop sustainably. The link between energy use and environmental degradation must be broken. UNEP's first Global Environment Outlook report calls for an "Energy Decade" to promote alternative energy sources and improve energy efficiency. I would like to take this opportunity to challenge the World Bank Group to accelerate its efforts to promote and fund clean energy worldwide so that by early in the new millennium, a significant portion of their energy portfolio is renewable. We must also pursue a more rigorous analysis of the challenges we face. The traditional economic system measures the value of things such as food, clothing and manufactured goods, but often understates or ignores the value of things more difficult to buy and sell: fresh water, clean air, the beauty of the mountains, the diversity of life and the quality of the world we leave to future generations. The World Bank has taken a great step forward by characterizing a nation's true wealth not only by the importance of industrial output, but also by the value of natural, social and human capital. I hope the Bank will continue to actively promote Green GDPs. The Global Environment Facility is a promising development. It mobilized more than $2 billion for projects around the globe to tackle global environmental problems. The World Bank Group provides more than $25 billion in loans each year and fortunately its lending for environmental projects has climbed, as has lending for human resource development, population, poverty reduction, clean energy and forestry. However, even the World Bank's resources are dwarfed by the demand for environmental goods and services globally, approximately $400 billion per year. And the market for energy efficiency and power generation is another several hundred billion dollars a year and growing. Those of us in government and international financial institutions need to help capital flow toward more sustainable solutions and develop incentives for private sector financing of environmental technologies. Policies that subsidize resource waste must be ended. Five years ago, we achieved unity of purpose out of diversity at Rio. Everything we have learned since then should deepen our resolve to protect our home. Environmental protection is not a luxury, it is a necessity. We are all on spaceship Earth together. contents Letter from 1 WINTER/SPRING 1997 Vice President Al Gore President's Letter 3 Overview: The Bank's 4 Environment Community Takes Stock Solving the Water Crisis 10 Together: The Global Water Partnership The new Global Water Partnership is the first-ever international attempt to coordinate efforts to solve water problems on a global scale. Innovative Financial 12 Instruments for Global Environmental Management The World Bank Group is promoting a variety of innovative public and private financing mechanisms for the environment. 6 Persuasion and Incentives: New Ways to Achieve a Cleaner World Getting the Public Involved: A 14 The World Bank and its client countries are using new and innovative tools such as persuasion, social Key to Environmental Solutions pressure and market forces to get polluters to clean up their act. By involving the public, we stand the best chance of achieving sustainable development. Reflections 1 9 Anil Agarwal The Aral Sea Disaster: 20 Turning the Tide? The international community is working together to find sustainable solutions to the survival of the Aral Sea. Russia's Special Initiative to 22 Complete ODS Phase-Out Russia, with help from the donor community, is phasing out ozone-depleting substances by the year 2000. Building Global Markets to 23 Reduce Climate Change 16 Regreening: Making Agriculture Environmentally Sustainable The World Bank and its partners are The World Bank and its client countries are pursuing resource use and land management for exploring ways to build global markets for sustainable agriculture in promising new ways: reversing soil decline, turning wastes into assets, using offsetting and trading greenhouse gas land quality indicators, and integrating biodiversity conservation into agriculture. emissions. Reforming Subsidies: 24 Five Years After Rio 27 Now Is the Time to Act Derek Osborn Reducing subsidies for resources such as fossil fuels, fertilizers and pesticides for agriculture At a Glance... must become a key policy instrument. What's New at the Bank? 28 Scanning the Portfolio 30 Innovations in Environmental 26 Policy: Progress Since Rio Recent Publications 31 This policy matrix dassifies tools and best practices around the world in environmental Mailing List 32 management. About the Covers: Photographer: Curt Camemark Front Cover: A salt miner at work in Irian Jaya, Indonesia Environment Matters is a magazine of the World Bank Group produced three times a year by the Environment Department. Each fall features an annual report on the Bank's work in the environment, and a second Letter from the President volume containing a matrix of Bank Group projects with relevant environmental information. Visit us on the Bank's Environment Department Web page. Managers of the World Bank Group's Environment Program Environment Family Sector Board: Chair: Andrew Steer Africa: Francots Falloux Europe & Central Asia: Michele de Nevers Five years after the Rio Earth Summit is a good time to take stock of how far Middle East & N. Africa: Tony Garvey we have come in sustainable development. Labn Amenca & the Canb.: Constance Bernard E. Asia: Jon Hitchings S. Asia: Walter Vergara Although awareness of environmental issues has increased, progress in putting World Bank Environment Department: environmentalism into practice around the globe has clearly not been what we Director: Andrew Steer hvopmed ntlsmini o dte lopment inadequ ate Sr. Scence Advisor: had hoped. Investment in sustainable development has been inadequate or in Sro Environmental Advisor: some cases not cost effecfve. Targets under the Climate Change Convention Ken Newcombe ce for the year 2000 are unlikely to be met. Most important, we have not made Senior Water Advisor: John Briscoe th uub os ae md Environmental Assessment Advisor: nearly enough progress in improving the qualty of life for the 3 billion people Robert Goodland who still live on less than $2 a day. ~ Land, Water & Natural Habitats, ENVLW _ _ _~ Chief: Colin Rees We have, of course, seen some remarkable examples of dedication, innovation Global Environment (including and success. WeV estimate that of the 100 countries which have now prepared GEF and MP operat one L national environmental strategies, about half are beginning to see progress on Chief: LarsVideaus the ground. Some countries are experiencina changes that will become best Social Policy, ENVSP practices for others to follow. Innovations range from Mexico's new W1; Chief: Gloria Davis Environment Law and Indonesia's new pollution policy to the halving of Pollution & EniomntlEooic,EVEwasteful subsidies on energy consumption and expansion of the power of civil Pollution & Environmental Economics, ENVPE -Technology and Pollution Policy society in promoting sustainable development around the world. Chief: Richard Ackermann -Indicators and I In this issue of Environment Matters, we take a look at some of the successes Environmental v o r t Valuation the Bank's client countries have brought to the table since Rio and ty to Chief: John Dixon honestly assess the unfinished agenda. The Bank's own agenda for Environmental Law Unit, LEGEN: David Freestone sustainability over the coming years will include investing in partnerships that Environmental Research, PRDEI: work mainstreaming environmental concerns into all of our lending, Zmarak Shalizi, David Wheeler l Chiefs of Regional Units: addressing the social and cultural dimensions of development, building and Asia: Maritta Koch-Weser sharing knowledge and best practice, measuring progress differently through Africa: Cynthia Cook techniques like participatory poverty assessments and green national accounts, Europe & Central Asia/ iepvrygre cons Middle East & N. Africa: Anand Seth and channeling finance for sustainable development. The articles in this issue Latin America & the Carib.:William Partridge illustrate our work with our client countries in applying these goals. International Finance Corporation Technical & Environment Department: Director: Andreas Raczynski I invite you to read this issue of Environment Matters as part of our continuing Environment Division Manager: Martyn Riddle attempt to share information at the cutting edge of environmental practice and Editor, Production & Circulation Manager: learn from one another, as we mark the five-year guiding post on the road Clare Fleming from Rio. Associate Editor: Diana Chung Design: Bennet Akpa, Clare Fleming Advisor: Louise Scura Publications Info: 202-458-8459 General Inquiries: 202-473-3641 Department Fax: 202-477-0565 / D W hap:/ /w-nsd.woridbank.org,htm/esdtenvtenvmain.htm ames D. Wolfensohn Printed with soy ink on 100% recycled paper; Cover is 50% recycled and totally chlorine-free. Please recycle. Q "T ts The World Bank Group d8t8 H Street, N.W. fkl u Washington, D.C. 20433 Overview Five Years After Rio: The World Bank's Environmental Professionals Take Stock Since Rio, the World Bank environmental to ensure environmental and social sus- On the positive side, a recent review of community has grown dramatically, with tainability. our experience with Environmental over 300 specialists devoted to environmen- Assessment of Bank-supported projects tal issues. This past January, all the environ- We believe real progress is being made in showed strong improvement in technical mental staff were formally linked in an our efforts to mainstream the environment quality and impact. Evidence shows that 'Environment Family' (see page 28) under across the board, but we're not satisfied yet. the kinds of investments supported by the Banks new professional network struc- Along with other development agencies, the Bank are, in most instances, much ture. Now, five years heyond more sensitive to ecological Rio, the Banki environmental _____________________concerns than those we professionals are taking stock pported a decade ago. and planning for the future. But fill mainstreaming is The following statement hy no t complete. With this the Bankf Environment in mind we, along with our Family lays out six impera- colleagues in the energy tives that will help guide our sector, are taking a tough own work as we seek to sup- look at our activities in port our clients in making energy and the environ- development sustainable. ment. The Bank is also launching a major program Mainstream to renew our work in rural Environmental development with a maj'or Sustainability into emphasis on sustainability All Development (see Regreening, page 16). Programs Since Rio, the Bank has Invest in sharply expanded its tar- PaItnerships geted support for environ- that Work mental reforms in our client One of the strengths of countries, with active envi- Agenda 21 was its insis- ronmental programs in 68 tence that al groups in countries. The portfolio of Isociety have a role to play (disbursing) loans for these in promoting sustainable programs now stands at development, and that by nearly $12 billion. Such M. ANNACOI acting together the whole interventions-to reduce pol- President James Wolfensohn addressing Bank staff. can be much more effective lution, protect ecosystems than the sum of its parts. In and build capacity for environmental we now need to work harder to incorporate the Bank's environment work, we've management in developing countries-are environmental concems into sectoral and begun to internalize this message. Part- playing an important role in environmen- even macroeconomic strategies in the same nerships are essential to our work on the tal reform. But as we focus on these tar- way that we have at the project level. We environment; the majority of projects are geted programs, we must also be sure that believe that sectoral and regional environ- now implemented with active NGO and all Bank-financed programs are designed mental assessments can yield high pay-offs. community group involvement, and 4 ENVIRONMENT MATTERS we've been sharply expanding our joint structures are severely weakened or the environment will be an important programs with the private sector and destroyed. And, to help build and dis- task for the Environment Family. other international agencies. seminate knowledge, the 1999 World Development Report will likely be Measure Progress We believe there is still a huge untapped devoted to social development. Differently potential in working together in partner- To make progress toward sustainable ships to bring about the transformations Build and Share development, we need better indicators in corporate, consumer and official Knowledge dev action nd mntor prors to guide action and monitor progress. behavior needed to make development We recognize that we, like all profession- Reducing poverty rapidly in a manner sustainable. Consider forest industries, als in this area, are on the steep part of that conserves ecosystems' productivity is for example. Why is it that there are so the learning curve when it comes to the central goal of sustainable develop- few examples of good environmental environmental sustainability. The devel- ment. But we need to deepen our under- stewardship? It's because there is rarely opment path laid out in Agenda 21 was standing and measurement of both the right combination of enlightened new, and with each passing year we all poverty and ecology if we are to have a corporate behavior, appropriate govern- gain experience as to what works and yardstick against which to measure ment policy, adequate stakeholder con- progress. sultation, strong NGO and scientific involvement to ensure independent cer- Making deelopmn susIngable a c i tification of good practice, and adequate invoves mtch more than simply : development indicators is essential. financing. The recently established For- ensurig that the environmenti - More countries are seeking to incorpo- est Market Transformation Initiative E -- - $ :: est Market Transformation Initiative preserved. There'are social, rate environmental and social concerns (described in Environment Matters, Fall 1996) is an example of an effort to bring instiutional and economic into their national accounts. We believe we need to move vigorously to make this precisely this set of actors together in a dirensions to sustainabilitv th a normnal practice. g y a nrma prctie.We need to progress way that will help realize the competitive are not neessari related to th6 on indicators of several different types: advantage that can underlie sound envi-II -I onidctrofsvalifentyp: ronmentale than scial coderpoe bdehavio, environment. Nonethlss, it has better indicators of the state of the envi- ronmental and social corporate behavior. - -E - - We expect to actively participate in this been theevironmental focus ronment and of related trends, better and other market transformation efforts that has been a pnrme mover tn measures of the pressures affectng envi- ronmental conditions and trends, and in sectors such as renewable energy and encou *ra g a more holtic betermeas of the acts o li marine products (see Photovoltaic MTI, development :odet. and other interventions. page 28). Ca0 Kch-WeWfJ, World Bank Make Every Integrate Social and Cultural Dimensions Managing Director Dollar Count Funding for environmental programs A key tenet at Rio was that social sus- tainability is equally important as-and what doesn't. remains inadequate. It is important that tainabiiety isely itanmend funding be raised: a strong replenish- often linked closely with-environmen-metothGlblEvrnntFc- tal sustainability. But the implications of Some of the best innovations are still ity this year is vital Funds that are this truth are still rarely worked out in experimental and we must learn from ilb mus be alloctedo the asi public policy. these so that good practices can be repli- Of cost-elfectiveness and leverage. Set- cated. The World Bank's project portfo- ting priorities carefully and actively Last year President Wolfensohn lio itself offers a remarkable living moniorithe iacof endites requested that a task force prepare an laboratory from which not only the Bank needs to be the hallmark of our work. action plan to incorporate social concerns but others too can learn. But we recog- And finally, our recent innovations in into our activities across the board. This nize too that many of the best innova- Atalying piaendin novative has recently been completed and tions come from outside and in particular Financial Instruments, page 12) must be approved by the Board of Directors. At from locally-led development efforts. replicated the project level, social assessment will gradually become the norm just as in the Too much knowledge rests in supply- case of environmental assessment. At the driven reports and not enough in user- strategic level, the Social Development friendly systems available to This article was written by Andrew Steer, Family will address social capital issues in decision-makers and practitioners. Rec- Environment Department Director, in collaboration Country Assistance Strategies for a num- ognizing this, the Bank will invest in cre- with the Environment Sector Board. ber of key countries. The Bank will also ating a knowledge management system expand support for work in post-conflict for development professionals. Building situations, where social and institutional and maintaining the knowledge base on WINTER/SPRING 1997 5 I Ii; _ ,I 1~~~~~~~~~~~~~~~~' - E D. HANRAHAM NAew~z Ways to Achieve overnment regulation is not the only solution to pollution. There is eCleaner W orldGnow an expanding tool-kit of inno- a > eaner 7or 5 I t V Ivative and flexible incentives which can be used to get polluters to clean up their act. 6 ENVIRONMENT MATTERS While there is no substitute for mean- ---- 5 Commercial market forces can also be ingfuil regulatory frameworks and infor- powerful. Evidence suggests that a firm's mation about the environment, these environmental reputation matters; when new tools, which rely on persuasion, customers, suppliers and stockholders social pressure and market forces to help ; judge a firm's environmental perfor- push for improved environmental perf- mance, that firm's expected costs or rev- ormance, can often succeed where regu- enues are affected. For companies lations can't. g sensitive about their reputations, public recognition of good or bad performance The World Bank and its client countries ~ ~ ~may translate into large expected gains or are putting some of these tools to work losses over time. This market pressure with promising results, as demonstrated has resulted in a wide variety of Codes of by the four described below. S Practice and other voluntary guidelines Harnessing the Power of ~~~~~~~~~~~~by companies or industrial associations, PublicaOpinessiong thePoand NGOs and other groups are becom- Public Opinion ing more active in promoting the imple- Local communities and market forces mentation of such commitments. can significantly influence polluting industries to comply with environmental .i~ ~ ,~ .~The World Bank Group is supporting a regulations. In countries as different as number of initiatives to bring togeterti China, Brazil, Mexico, and Indonesia, industries, local regulators and commu- local communities are finding ways to citizens' movements or politicians. For nity groups to discuss local priorities and force environmental norms on local pol- example, a community group can negoti- to improve those industries' environmen- luters. Where formal regulations are pre- ate directly with a factory, by compelling tal performance. sent,s. communities ruseth e poia it to respect social norms or by explicit or process to ensure tighter enforcement of implicit threats of social or political sanc- An example is Indonesia's PROPER regulations. Where formal regulations tions if the factory fails to reduce dam- program, which rates and publicly dis- are absent or ineffective, community ages caused by its emissions. Given the closes factories' environmental perfor- grroups or nongovernmental organiza- influence these community groups can mance (see Box and Figures). Armed with tions (NGOs) can use forms of "informal have, it is important to get accurate envi- government-certified performance rat- regulation." The agents of informal regu- ronmental information to them so they ings like those provided by PROPER, lation can be local religious institutions, may be more effective in their negotia- environment agencies can reduce expen- social organizations, community leaders, tions with polluters. sive legal enforcement procedures by THE "PROPER" WAY TO PERSUADE Severl years, ag when the Governm ent of Indonesia realized In PROPEPrs pilot phase,- 187 plants were-rated and i June --that it wafacing the risk -of severe pollution damage because - :1995, when the program was offidialty launched,.only the -names. yenfent as k and ufacturing was grow- of the five: Green plants were public announced (no plants rated ing atver1:0.h% a year, it designed-an innovative.program for Gold). The 1-15 plants rated as Red and six plants rated as Black ra and publicly disclosing the environmental performance of were privately notified and given until December 1995 to improve Indonesianfactorie-s. The program was implemented in 1995-by their performance. Before full disclosure in December, half the a team-at Indonesia's at-Polution Control:Agency Black plants and 6% of the Red plants had made successful -BPAL) withteci supportfrom the World Bank. It is efforts to upgrade their status. By last September, 33 of the origi- called PROPER PROKASII During the past-year, BAPEDAL's nal 121 Black or Red Plants achieved Blue status and one PR,OPER-,PR=;lOKASII-I ,team has successfully. managed and achieved Green. Of the six plants originally rated Black,, five had epd the programa. - - -X-X'---- = ;,-achieved better ratings and he sixth was brought to court by the tocal community. Five plants originally rated Red were reduced to In tPROPER, afa'cto is assigned a color,rating based on the Blackstatus-because of their refusal to work toward improved per- n.tvesame "t 02sevlaon of itsenvironmental performance. A formance. Bluering is,gtvento factories whocomply with national regula- tory standards, Gold is reserved for World-class performers, and Inspired by PROPER, other-countries have begun planning or, Black for factries which havie made no attempt to control pollu- implementing similar programs with World Bank assistance. In ind-ae causing seriousmge. Iermediate ratings tare the Philippines, the ECOWATCH program is nearing first disclo- ed, for-factories that have some pollution control but fall short sure after six mnonths of preparation (see page 30.) Colombia' is of bcmpliance, andGreen, for factortes whose emissi-ons control also planning to begin a PROPER-type program this year. arnd, housekeeping, proedures significantly exceed those rineeded for cornpliance. ' WINTERISPRING 1997 7 GOLD PROPER'S ~~GREENA Five-Color ~BLUEB REDPulcPesr& bringing community and market pressure from everyone (though usually not at the among themselves how they will most to bear on polluters. In the context of same cost). On the other hand, local reg- efficiently meet ambient water quality informal regulation, public disclosure can ulatory bodies can set more efficient standards; the government then holds significantly empower local communities. plant-specific requirements based on real the representative accountable. The ben- PROPER also provides a novel applica- costs and specific local environmental efits accrue to the industries in that they tion of 'incentive regulation' principles. conditions. There is a growing accep- can negotiate among each other to Traditional regulation has been plagued tance of the need to build serious dia- reduce pollution in the most cost-effec- by the fact that regulators need good logue among all the stakeholders in areas tive manner, and to the government in data about firms' performance, but firms where action is urgently needed-in that it requires less administrative effort have clear incentives to withhold such some cases, this involves bringing in pro- to achieve a positive outcome. information. The PROPER approach fessional mediators. augments the regulators' information on These kinds of flexible approaches are firms by encouraging good performers to These approaches are very new but are reflected in the World Bank Group's Pol- identify themselves. already leading to tangible results and lution Prevention and Abatement Hand- the prospect of new opportunities. For book, to be sent out for public comment Making Regulation example, a local government agency can shortly. In summing up the lessons More Flexible request industries in a watershed to learned over several decades of dealing The traditional approach to environmen- appoint a representative and agree with pollution problems, the Handbook tal regulation through permits, monitor- ing and enforcement has often been slow, contentious and costly. As a result, industrialized and developing countries A rcn ED aksuyo niomna mlctoso nrysbiisi alike are trying two new approaches to Rssasosttareisinar eudmrebicesngerypreso more effective pollution regulation. usbiie eesta yicesn h ee fpluinfe ntecretss The first is to more proactively prevent deraeeej'usangeehuegsemsisdrng10200baot pollution, rather than focusing on treat- 14"oprdt rsrigsbiisattehg r-eom(90 ee,and by ment and clean-up. There will always be 10 oprdt anann rdcd usde a h 94lvl n ncreasn a need for regulation, quality standards and clearly defined limits on certain dis- (%eiso Xmore appropriate to establish 'citizen environmental ~tadvisory panels' in order to elicit a range of views, dimensions of / - 1 | 16A Broad Range of Social development into Actors There are a large number of social actors decision-making. besides national governments, interna- F_/ai,, _ tional donor agencies and technical C. CARNEMARK experts who are concerned about the social and environmental implications of these societal instruments into their environmental development policies. These social actors include policies and programs, especially as part of broader regional and local authorities, vulnerable groups or programs of legal and political reforms. Mexico's communities (displaced populations, refugees, radical new law reform stands as a prime example. indigenous peoples), international and domestic NGOs, parliamentarians, the media, the private sec- World Bank Support ~~~~~tor, religious groups, women, youth, farmers and Social and environmental specialists in the World trade unions. Much of the recent work being done Bank are following these new experiments quite by social scientists at the Bank and elsewhere in closely. Part of the reason for this is that the Bank's 'stakeholder analysis' and 'social assessment' This article was own policies, such as those dealing with Environ- attempts to bring this growing number and diversity written by Sandy mental Assessments (EAs) and National Environ- of social actors into the environmental and develop- Davis, Principal mental Action Plans (NEAPs) and those on ment decision-making process. Sociologist in the Involuntary Resettlement and Indigenous Peoples, Banh' Social Policy and Resettlement require consultation with affected communities and In the end, public involvement is part of a broader Division. Copies of local NGOs. At the same time, the Bank recog- social learning process whereby individuals and thefzdlpaperfrom nizes that citizen involvement at all levels is funda- institutions can create the conditions for sustainable which this was mental to all forms of effective environmental development. By investing in this social learning drawn can be protection, including those relating to urban pollu- process, we stand the best chance of achieving obtainedfrom Mr. tion control and waste management. some of the broader goals first espoused in the Davis at (202) 473- Brundtland Commissions' Report and at Rio. 3413,fax (202) The Bank and its client countries have learned that Mexico's reform shows firsthand the practical sdavis22 worldbank. public involvement strategies need to be adapted to results of such a process. org. WINTER/SPRING 1997 15 I4i~~~~~~~~~~~~~~~~~~~~~~~~~~~~I IU~~~~~~~~ 7'C Al~~~~~~~~~~~~~~~~~~~~~~~~~~~~~A VA-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I _2 I obe sure that there's enough food In muitch of the developing world, espe- 2 Z$~~C LLcLLL J~~ A ofeed the world inito the next ciall,v Suib-Saharan Africa, degraded soil -: L citr experts say; we miust severely limilts food security, for po -iost obeteaon ffo farmers. Unfortunatch', many- farmers L1L11C_'LT1cA[\/ w~~~e prodticc today. To do this, weC doni't have enoughi inicomie or lanid securityv LU~~VLta1L\' must get more yi~eld out of the samne land to farm sustainabINv; foirced to repeatedly are lite ficatiOTn) anad growv crops in exploit thieir lanid, their production level i new reas(extnsiication). 1\lost of thi's miarg'inal at best. Blut when they have the - e~~~~~~~xpans,ion is projected to be in Sub-Saha- opportunityv developing counitries' farmers rani Africa, Latlin Amierica anid the demionstrate that they can inicrease their ~~~~ ~~~~~~~ ~~Caribbeani, muitch of it overlapping \vith inet returns, throuigh criwironm-rcntally fores,ts, wetlands or other critical ecosys- friendly farming, suich as crop rotationls, renins. This, nvo-fold expansion of agricul- integcrated pest management anid appro- ttirit, more thani any other single humnan priate use of livestock. These changes =-== .. =-. .. actiVi threatens to degrade the soil, reduce their costs fior fuel and farm chem- ~~~~ ~~destroy niatuiral hiabitats, anid cause serious icals, equipmecnt wecar and tear, anid off- ~~~~~~ ~~~~~polltition Unless fairmers can grow crops farm environmental degradlationi, anad they ina en irnentally suistainable way, ter- can actually produce above-average yields restrial ecosy-stems an'd indeed agricultural With improved niet incomei. produictioni systems themselves are insel - . Otis~~(11~ jeopardlv. Kenvari anid Chlinese farmers have brought ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~abidie or de I = 1 :'.,~ A eradfwyt eg n back to life V -nst look for -- to 'r, e sureeii tatr trough soil In clit-ire Tilsistiosmllchallengre. 1979, innovatiVe farmers in Parana, Brazil * a ded, it calls for u-is to literal-ly transform formed the Clube de Minhoca (Earthi- Ia e da culture as we kmnowt. worm Cluib) to rehabilitate poor sopl, one of the first soil clubs to promote integrated / I FX > S ^ s X _ n \ [ \ / _ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ r of the world's . cc Rio, the Bank has worked with its soiil mianagement in Brazil. Later, the Baki S~ ~~ 'th world'-s ms' e oestdoto~h aeln ( amssanb;t)cdt czael clien t countries to regreen agriculture. Its started sippoirt for lanti a nuagemient pro- loanis to client countries, for 216 agricul- jects in four Braziliani states, in which local S16.8 milliuonl, iniclude actions, to improve anid local authorities all became involved, 8~~~~~~~ tor pret wolwd at mor tha f 1Carmers, extensifton ls workeris, agriblla hs.1utsinellthsscth WE 9V =. rsmall farmers' conditions, promnote s- helping farmners adopt reduced tillage tech- vi iii~~enit in technology, and enhance resource niques, intercrop legumes and food crops, use efficiency,. Buit gVcn the imrnensit, of use vegetative contours, and wvork with tlot challenge, un iticl more needs to be retorestationta done. The Bank and its elient countries are pursuin, sustainable resource use and Recently the Bank jorined with other - v, _ ~ ~ * ~ ~ U land managrment to create sustainable groups -to lauinch an international cdoisr- agricuLlture in a number of proising new trrn called the Soil Fertilit Initiative, to wav s, includignr' dissemtinate appropriate technaologies for orgranic and inorganic fertizizrsl erosion Reversing Soil Decline control and water anagaement, and cco- .--, * The qtalitv of soil is key to landl's capac- nlomic valuation of soil fertility bencfits. itv to suipport intensified growth of crops. Soil can be degraded by erosion, a Turning Wastes into Assets shortlnded fallow period, overgrazing and The 1990 Bank/tlNDiP \Vaste \Ianagt- dcfo)rcstation. ment and Resoure Rccovery Pro,ram 17 identified a number of technologies as planning for agricultural expansion. To project to develop a decentralized infor- the most promising for developing accurately assess, monitor and evaluate mation system on the environment. countries, including: changes in the quality of land resources, planners must have access to good land Integrating Biodiversity Recycling Municipal Solid Waste and quality indicators, such as nutrient bal- Conservation into Agriculture Composting. Processors of raw materials ance and the ratio of cultivated land to Expanding and intensifying agriculture are finding new ways to reuse discarded cultivable land. Unfortunately, few such contributes significantly to habitat loss, products made from metals, glass, plas- indicators exist today. impairment of ecological integrity, and tics and paper. But large quantities of world-wide threats to biodiversity. But organic materials also pollute rivers and To help address this problem, the Bank, agricultural landscapes often provide the lakes or end up in landfills. Rather than United Nations Environment Pro- biodiversity on which production allowing this pollution, or paying for gramme (UNEP), United Nations depends, in the form, for instance, of discarding these wastes, they can be Development Programme (UNDP), genetic information for new crop vari- composted. Compost improves soil Food &Agriculture Organization eties, crop poUination, soil fertility moisture retention and increases biolog- (FAO) and the Consultative Group for enhanced by micro-organisms, and pest ical activity, resulting in more efficient International Agricultural Research control by insects and other wildlife. absorption of nitrogen and phosphorus (CGIAR) have joined together to Conserving biodiversity offers an by crop plants. launch a Land Quality Indicators important way to enhance agricultural (LQIs) program. The program provides production and achieve sustainable Re-using Wastewater: The same princi- a framework for national and sub- development at the same time. ple applies to used wastewater. Rather national land management information than paying for secondary or tertiary In light of this, the Bank has begun work treatment, the water can be used for with its client countries to incorporate irrigation or aquaculture. When the cost -bioiversity conservation into national of these alternative approaches is calcu- and local environmental planning. Last lated into the decision-making process year, the Bank's Mainstreaming Biodiver- and the total costs to the community sity Conservation in Agricultural Develop- considered (for health, poUution, landfill ment paper2 created a framework for and/or incinerator costs, and the like), it examining agricultural activities and poli- becomes apparent that such approaches cies' effect on biodiversity. make a lot of sense. . - IlBank-supported country studies apply- With this in mind, the Bank sponsored ing the framework and developing good a seminar on Recycling WasteforAgricul- 0 practice in the agriculture and forest ture: The Rural- Urban Connection as part . sectors include Nepal's Land Resources of last September's annual Conference -C Management Study, the Congo Basin's on Environmentally Sustainable Devel- Sustainable Forestry Management and opment. Many of the 150 agriculture, Biodiversity Conservation Sector Strat- health, and urban specialists from systems, preventive maintenance, and egy Study, Vietnam's Sustainable Agri- around the world who attended integrated socio-economic and biophys- culture Study and Ethiopia's Sources of described successful waste recycling pro- ical information on sustainable land Agricultural Growth Study. grams, including both large-scale and management strategies. individual farm-scale examples: com- posting in Egypt and Senegal; use of The LQI program is developing a set of For more detailed discussion of food security, production municipal solid waste in North America indicators for the condition of land, and access, see Food Sectrity for the World, November, municipal sd si o A1996. For the Bank's plan of action for rural develop- and China; reclamation of wastewater including the combined resources of ment, see RuralDevelopment: Putting the Pieces in Place, for agriculture, industry and groundwa- soil, water, vegetation and terrain. It November 1996. Both documenrs by the Bank's Agri- ter recharge in India, the Middle East provides information on the state of and culture & Natural Resources Department, fax (202) 522-3307. and Chile; and use of treated effluents pressures on these resources, and what 2MainstrearningBiodiversity inAgricultural Development: on fish farms in Peru. people are doing about them. Toward Good Practice. Aorld Bank Environment Department Paper No. 42. October 1996. Using Indicators of Land The Bank and FAO are also developing Quality LOIs for four countries to be selected This article was written by a team from the Banks Over the next decades, getting the right from Ghana, C6te d'Ivoire, Kenya, environment and agriculture sectors led by Co/in balance of intensification and extensifi- Malawi, Mali, Kenya and Uganda, and Rees, Division Chief Land, Water and Natural Habitats. (202) 458-2715. Ed Courrierl original cation will be a critical but difficult conducting a case study as part of the sketch was provided by Rodale Institute. challenge, requiring careful and strategic Tunisia Natural Resources Management 18 ENVIRONMENT MATTERS Rebuilding Natural Capital ANIL AGARWAL Director, Centre for Science and Environment, New Delhi, India If there is anything that India's environmental movement has been able to show in the last two decades, it is that good village-level environmental management-what I would call 'village ecosystem management'-can greatly improve the local economy of the poor. Millions of poor villagers in degraded lands face uncertain food production, increased vulnerability to natural climate variations, male outmigration, heavy female work burden and continuing poverty. This chain of events can be broken by rebuilding local natural capital. In the village of Sukhomajri, nestled in the denuded sub-Himalayan hills, rains can wash away as much as 900 tonnes per hectare of topsoil per year. In 1979, a massive drought swept across India: rains failed and agricultural production dropped. Sukhoma- jri was badly hit. The villagers would normally take only one monsoon crop a year, but this year they were not even going to get that. Into this desolate landscape stepped P. R. Mishra, a soil conservationist who, to get the villagers to stop grazing their animals in the degraded watershed, had helped them build a small earthen dam across the village's stream. The villagers, desperate this year for the dammed water, appealed to him to help them make channels to convey the water to their fields. Mishra told them first that if they did not stop grazing their cattle in the watershed, their own dam would silt up very fast and they would not have this water when the next drought hit. The villagers agreed to take care of the watershed. This small water harvesting gave birth to a pio- neering village-based natural resource management system which has si-nce inspired many Indian environmentalists and village workers. Today, the village has several water harvesting structures. It regularly takes three crops a year. From a food-importing village, it has become food-exporting. And with grass increasing and trees regenerating in the watershed, it now has so much fodder that the villagers have given up their goats for high-yielding buffaloes and sell thousands of dol- lars of milk to neighbouring towns. With a small investment in a few earthen dams and a self-managed natural resource base, the village economy improved dramatically and mud houses have given way to brick houses. Today, a rich forest of valuable native species has come up in the watershed. Once the villagers get government permission to harvest these trees, they can earn at least $300,000 a year on a sustainable basis. And a small-scale industry of wood products could fetch even more. Says economist Gopal Kadekodi at New Delhi's Institute of Economic Growth, "the rate of return from this project cannot be matched even by the corporate sector." Several such outstanding examples in India show that we can put a floor to poverty by regenerating natural capital. Of course, programmes to help villagers revive their natural capital will have to be supported by national policies with appropriate changes in prop- erty rights, institutional development and financial mechanisms. Combating Poverty was clearly identified in Agenda 21, but little has actually taken place since then. It is sad that the issue which affects the poor so intensely has remained neglected-by the North and the South. The Northern leadership had gone to Rio largely focusing on global issues like climate change, biodiversity conservation and sus- tainable forest management. The interface of poverty and natural resource management received little attention at Rio in 1992-the Southern leadership too did not push the concern adequately. One can only hope that this interface, which could turn environ- mental management in the developing world into a real mass movement, will not get neglected again in Rio and New York. WINTER/SPRING 1997 19 The Aral Sea Disaster: Turning the Tide? he Aral Sea was once the world's fourth World Attentiion largest lake. It is called a sea because of its The Soviet Union. asked for help from the United size, but "sea" is in fact a misnomer; the Nations Environment Programme (UNEP), which Aral Sea is a lake which once had slightly launched a study by an international group of brackish water. It lies in Central Asia, experts to analyze the crisis. The working group's partly in Uzbekistan, partly in Kazakstan, and is fed 1992 report, issued by UNEP and the Soviet by the Amu Darya and Syr Darya rivers. It has no Union's successor governments, sounded the alarm. outlet, and for millennia there was an equilibrium The international communitv decided to see what between inflow and evaporation. Then, in the could be done. Study of the problem was sobering, 1920s, the former Soviet Union decided to turn as it became apparent there was no easy way to Central Asia into a major cotton producing area, remedy decades of cumulative loss. The difference using the river waters to vastly expand irrigation in between the amount of water needed to restore the the abundant drylands upstream from Aral Sea to a healthy ecosystem and the amount of the Aral Sea. Massive irrigation schemes water that could be devoted to the Sea even under were constructed and the region turned the most optimistic water-use scenarios was too into a major producer of cotton, or large to be a realistic option. Hope for restoring the "White Gold." But at a price.... Aral Sea was abandoned. But there appeared to be many possibilities for smaller remedies, and so the Irrigation and Its Price Aral Sea Basin Program (ASBP) was born. In the 1960s, deprived of most of the inflowing water, the Aral Sea started to The ASBP is managed and coordinated by the shrink. The shoreline retreated and the Interstate Council for the Aral Sea (ICAS), repre- harbors of the fishing villages of Muy- senting the participating countries (Kazakstan, nak and Aralsk fell dry. Today one can Kyrgyz Republic, Tajikistan, Turkmenistan and still see a fleet of ships stuck in the sand, Uzbekistan). Many donors contribute to the ASBP, the sea's shore having withdrawn to over and a special World Bank unit assists ICAS. 60 km away. But the most devastating effect has been the salt concentrated in The ASBP's first phase included 19 projects in the ever-shrinking water body. In the eight thematic areas. The following examples illus- J POST mid -1980s, the salt rose to the concen- trate the range of issues tackled by the program. tration of seawater, and today the Sea is approach- ing hypersalinity. The once-abundant fish, birds Water and Salt Management and other organisms have disappeared, and the Sea Work is underway to establish a regional frame- is now nearly dead. work for water and salt management. Formerly, Moscow dealt with transboundary water issues; but About 3.5 million people living near the Sea suffer now the five new independent states must agree from shortages of clean water, and people living among themselves. There are conflicts of interest, along its shores have lost their fishing grounds. for example, between the mountain states which Water fowl using the West Asian flyway, including would like to release water to generate hydro-elec- several rare and endangered species, have lost a tricity in winter, as they have limited fossil fuels to major staging ground and source of food on their burn for energy, and the downstream states which migration route. A subspecies of fish unique to the need this water for irrigation during the growing Aral Sea has become extinct. season. Cooperation among the states has been sur- prisingly good so far, but they must codify existing Living conditions in this "disaster zone" are dismal, understandings to ensure the full force of interna- although it is difficult to determine which prob- tional law. lems can be attributed to the Sea's desiccation and which are caused by the poverty that followed. Salt management, another international issue, may What is certain is that respiratory diseases, cancer, be the most pressing challenge to the Basin's agri- tuberculosis, hepatitis, intestinal disorders and culture. About a third of the irrigated lands are los- infant mortality, among other health problems, ing productivity because of salinization, and have risen to disturbing levels. millions of hectares will be out of production soon if the trend continues. In addition, salt levels in the 20 ENVIRONMENT MATTERS Water Resources Management } K. it .1>4< e . 7 ¾ ~habitat for water birds. These measures would also This section ˇ,j~~~~~~~ 4 ~~~~allow Uzbekistan to designate its first site undler the Ramsar Convention for the conservation of focuses on habitat of critical importance to migratory birds. freshwater, lImmediate Impact Project In 1995, a visit by World Bank President James coastal and Wolfensohn to the disaster zone drew attention to the fact that the tens of milions of dollars pledged marine resource to rescue the Sea and the millions already spent on studies had not had an observable effect on the management, plight of the people who live there. An Immediate Impact Project was prepared to alleviate the suffer- integrating an i ~~~~~~~~~~~~ing of people in the disaster zone. About $1 million land without suffiaent drainage, the water tablewas spent in the first tranche by mid-1996 to buy ecological water tankers, fishing nets and ambuilances for the J. POST people of the disaster zone, help provide clear the into majorriars aretrio ing, thesoparzi. e ather usevaorate at cwater and fishing opportunities in the deltas, and major priv sers arke drising,gjeo aringtheir. usenzaio for provide health care for people living near the Sea. water resource other pur oauses lker drink ing water.sa ztion A second tranche being implemented now is occrrd beaoutsufe, t aftryarsge ofaplyn water tobl expected to finance a range of activities includling management from landwithut sfficent rainge, he wter ablerepair of hospitals, schools, kindergartens and rose so that the irrigation water now forms an orphanages, and help for the neediest families unbroken column with salty ground water through through productive assets (farm animals), winter the upper capillary action in the soil. The water evaporates at clothing and subsidies to kindergartens. the surface, "Sucking up" more water from the sub- watershed to soil. As the water travels up, salt from the subsoil dissolves in it and is deposited at the surface where the coastal zone. the water evaporates. Methods to deal with this problem are now being investigated. 1- v .Ak-lg Wetland Restoration When it became clear that the Aral Sea could not be filly restored, another strategy was adopted, AD which posed the question, "If there is not enough water to rescue the whole Sea, is it possible to res- cue parts of the Sea, or to rehabilitate some ecosys- This article was tems on the Sea's perimeter?" By such measures, prepared by Peter the detrimental effects of the Sea's destruction J i - / Whitford, Manager, would at least partly be mitigated. and Lucy Hancock, Consultant, the Bank's Aral Basin This seems to be possible. In the north, near the Program office, and mouth of the Syr Darya River, a former bay of the Jan Post and Steve Sea can probably be closed off and the river water Lintner, Senior conveyed through it to flush out its salt into the :.l Environmental Aral Sea, re-creating a large fresh or brackish water *Specialists in the lake. In the south a plan has been designed to Eniomt restore a wetland belt between the Sea and the _ Departments Land, Water, and Natural agricultural hinterland in the Amu Darya River Habitats Division. delta. This wetland belt would provide many bene- J POST Forfurther fits such as preventing the delta from drying out, information, please creating opportunities for fishing, grazing, liquorice call Peter Whitford production, muskrat trapping (fur) and providing (202) 473-2504. WINTERISPRING 1997 21 Russian Federation: Special Initiative to Complete ODS Phase-Out n December 1991, the Russian Federation com- 40,000 MT-but its installed productive capacity mitted itself to continuing its membership in remains high and represents almost haf the world's the Montreal Protocol on Substances that CFC production capacity. Deplete the Ozone Layer. But because of chal- lenges it has faced in making the transition to a Dealing with both actual and potential CFC pro- market economy, Russia has not yet been able to duction in Russia is crucial. Without Russia's com- comply with the Protocol's requirement that indus- pliance, China and other producers are likely to trialized countries complete their phase-out of pro- question the true global commitment to the phase- duction and use of ozone depleting substances out and continue producing. This could have disas- (ODS) by the end of 1995. The Government of trous results for the future. Russia has now developed an alternative plan to achieve complete phase-out by 2000-a major step In the fall of 1996, illegal CFCs were estimated to forward for protecting the ozone layer in this be worth $300 million a year.1 In the United States, tenth-anniversary year of the Montreal Protocol. smuggled CFCs may be supplying as much as 30% of the market. The black market trade in North Estimated CFC Production Capacity Recognizing the global impor- America and Europe means higher enforcement Outside Compliant Industrialized Nations tance of Russia's effort, the costs and lower revenues for governments and World Bank is supporting a undermines the investment private industry has special initiative to help the made in alternatives. In developing countries, the China Korea country meet its goal. This ini- continued availability of cheap CFCs undermines 28% Venezuela tiative, which will "clean up" the Montreal Protocol investments and creates a Mexico B az both the production and the disincentive to move to alternatives. This effect is 3% ~~~~~~~~~consumption sectors, will already being seen in Latin America, where the India achieve what is probably the motivation to phase out CFCs is falling along with 7% Russ most cost-effective large-scale their prices. ODS phase-out in the world. Estimnated Total: 290-300 Thousand Tons Russia's initiative vill work in concert with a $60 In early 1996, with the Bank's million Bank-GEF umbrella project to complete help, the seven Russian chlorofluorocarbon (CFC) phase-out in the ODS-consumption sectors, producers developed comprehensive business plans focussing on enterprises in the fire protection, sol- outlining the CFC production shutdown schedule vents and non-insulating foams sectors. and replacement activities. A strategy is now in place for Completing production closure for the Support from Donors mnajority of companies by 1998, writh final phase- The Bank has been active in developing donor sup- out completed in 2000. All seven producers have now port for provkding compensation packages to ODS- agreed Jo rmaily to closef down their CF; production. 0 producing enterprises for an accelerated program of This will mean closure of over 140,000 tons per production phase-out. A number of countries have year of production capacity, or about 80% of the aready expressed a strong interest in supporting the installed Russian CFC-production capacity. With initiative. The Uted States has taken a lead role, this, commitment in hand, the way is cleared for offering a substantial commitment of $6 million Joint enterprises with western chemical companies (given fill donor commitment from other countries). and new potential for development of chemical Austria, Norway, Denmark, the United Kingdom business in the region. and the European Union were early supporters offer- This article was ing additional finding. Currently, Finland, Sweden, prepared by Ellen The Production Sector :GermyJapan and Canada have the funding under Tynan, Operations Russia's economic crisis, while creating difficulties in active review and strongly support the initiative. In Aonealys ot o ntheBanksachieving last year's phase-out deadline, has had the the Russian Federation, both the govemment and [Mont real ProtocolI g Unit, (202) 473- unexpected result of dramatically reducing the pro- the enterprises have made significant commitments 8201,fax (202) duction and consumption of ODS throughout the to the effort to ensure its success. 522-3256. Russian Federation. Today, Russias national con- sumnption is less than half what is was in 1990. Its actual production has also dropped-to approximately Pearce, Fred. "Smart Smugglers Outwt the CFC Cops, New Sci- entist, 26 Oc 1996 (Vol. 152; O No. 2053). 22 ENVIRONMENT MATTERS Building Global Markets The Global Atmosphere To Reduce Climate Change A T here is increasing scientific evidence that Many Benefits for the Bank's Client This section greenhouse gas emissions from fossil fuels, Countries industry and land degradation contribute to The main flow of trades will take place between focuses on the climate change. If current emissions con- industrialized countries and developing countries or tinue, temperatures may increase by 1-3.5' countries with economies in transition. Abatement Bank's work in Celsius and sea levels may rise 15-95 centimeters costs in industrialized countries may be in the range by 2100. While emissions are primarily from indus- of $50-$100 for a ton of carbon, whereas abate- fostering global trialized countries, developing countries will face ment options in developing countries can be pur- the consequences on human settlement, health and sued for a fraction of this. warming livelihoods. Carbon trading will create tens of billions of dollars solutions through The World Bank is exploring innovative ways to of income for developing countries. By linking help efficiently achieve the goals of the United these funds to other investments, they may leverage energy efficiency, Nations Framework Convention on Climate investment flows to host countries that are several Change (UNFCCC) and in a manner that pro- times larger. demand side motes economic development among the Bank's client countries. One such way could be the build- All greenhouse gas offset investments must be compat- management and ing of global markets for offsetting and trading ible with and supportive of host country development greenhouse gas emissions. priorities, and contribute to capacity building and tech- nological development. By facilitating investments in renewable The Basis for Carbon Markets more efficient technologies, emission trades will pro- A strengthened international agreement expected mote broader environmental and economic efficiency. technologies, and by the end of 1997 could commit industrialized countries to reduce current emissions by 10-20% by The Bank Contributes to Exploring its role in 2010 or 2020. and Realizing the Potential Beneifits In 1996, the Bank and the Government of Norway carrying out the The UNFCCC provides for the possibility of oint initiated a three-year program to explore green- implementation" of commitments between countries. house gas markets. During the pilot phase, the GEF and Montreal If this option is pursued, a company in one country main priority is maximizing learning about the pos- may meet emission requirements through investments sible mechanisms for carbon deals. Protocol work. in another country. It would do so in countries where reduction costs are lower. The global environmental Pilot projects form the basis for exploring how differ- effects would be the same. The resulting benefits ent mechanisms can contribute to the interests of the could be shared between the investor and the host Bank's client countries and to promoting the objectives country. Such a mechanism would lower the costs of of the UNFCCC. The Bank will work to ensure a reducing global emissions substantially, and it would level playing field for negotiations between host coun- promote more ambitious global climate policies. tries and investors. The projects will also explore solu- tions to analytical and methodological issues and to Large Potential Markets increasing private sector participation in carbon deals. Two factors drive the potential global market for emission trades: the level of emission reduction To reduce transaction costs and ensure quality, commitments and the costs of emission reductions these pilot projects wiUl be linked to regular Bank This article was in different regions. The Norwegian research insti- and IFC projects. The Bank recently reached agree- prepared by Eivind tution ECON has recently completed a study of ment on a new pilot project in Burkina Faso, the Tandberg, AIJ the market perspectives for 2020. Even under mod- first AIJ (Activities Implemented Jointly) pilot pro- Program Adviser, in erate commitments, the global market for carbon, ject in Africa. During 1997, more pilot projects will the Environment the major greenhouse gas, may involve $30 bil- be initiated in Asia and Eastern Europe. DepartmentC lion-$40 billion. Stronger conmmitments would Unit (ENVGC), result in substantially larger trading volumes. (202) 473-9746,fax (202) 522-3256. WINTER/SPRING 1997 23 Reforming Subsidies: Now Is the Time To Act conomic development's sustainability is Multilateral development institutions should use imperiled, not only by what governments their privilege of policy dialogue with governments are not doing-taxing pollution emissions, to urge immediate subsidy reform. But to achieve for instance-but also by what they are subsidy reform, political commitment may be the doing: subsidizing activities and inputs that scarcest resource of all. Politicians must be con- are destructive to the enterprise of building sustain- vinced that reducing subsidies will bring the great- able societies. est good to the greatest number. Subsidy Reform: Findings by the Participants made some suggestions to policymak- Last S e rs Earth Council and World Bank ers interested in reform: u WRorld Bank/Earth Last September, at a workshop to discuss reforming C :GouncilX seminar, t00 ;0government policies on subsidies, experts concluded: * Be opportunistic. For example, the liberalization Subsidies.; . and :;Su: : ;Dt: 5 s-; vz0:Sof the economies in transition provided an excellent opportunity to reform subsidies. Fiscal tainabflty.~ Seekn or environmental crises might provide another. Win-Win Policy * ~~~~~~~~~~~~Privatize. Privatization may provide another Reforms was opening for subsidy reform. a opened by Maurice * Recognize that vested interests in the subsidy realm may lead to unpalatable policy choices. For Strog Carnofinstance, phasing out price supports and the Earth Cuil, replacing them with lump-sum payments may SeniorA r to be the only practical way to begin to limit the ; 0the WorldBank; \00: \0 0 _;:-_ i@ fharm done by agricultural subsidies. 000-'President and: Rii:o0 J.DIXON * Introduce subsidy removal subtly. For example, Eart Sumi Sec$; ; ;j-00\0 i * While there may be 'good' subsidies in princi- threaten a tax hike to meet some fiscal short- ple, in practice most are wasteful of scarce fiscal fall, then offer to reduce a subsidy instead of 0 r,etary, w ,s chairedresources, miss their intended targets (the poor, introducing the tax. : by thSe latewEmiIe 0 \ 0 for example), and have the undesirable effect of * Compensate the poor Where the poor have van Iennep, State stiffing innovation and limiting competitiveness. benefited from the subsidy, use part of the Minister, The t0: t: tt * Given the fiscal constraints governments face, revenue gained from the subsidy removal to MiniX;s0a.C\ter,D: tTh ;s (V the political climate for reducing subsidies has offset any real income loss. Netherla, and probably never been better. But the political * Build a constituencyfor reform. If more people 0Swas attended by obstacles to removing subsidies should not be knew where their tax dollars went, there would ; 2 over 3n-00 leading dX underestimated. be greater political support for subsidy reform. experts on subsidy * In reforming subsidies, it is important to r tii;fiefoSrm.0k000 -0000; make the message clear and get the analysis Fossil Fuel Subsidies right, especially if the target audience is the Recently, researchers at the Bank have begun to Ministry of Finance. quantify the prevalence and trends of subsidies on * The first practical step should be targeting fossil fuels and other productive inputs. Looking at financial subsidies. 20 developing countries that account for 77% of * The OECD countries account for roughly the world's total energy consumption outside the two-thirds of the subsidies with environmen- developed world, they have found that in the early tal consequences, with the remainder in devel- 1990s unit energy subsidies as a proportion of the oping countries, unsubsidized price were as high as 40-50% in East- Recent Bank analysis suggests that financial ern Europe, Russia, and among the oil producers.' subsidies are declining in developing countries, Subsidy rates in Asia were close to 33%. The past largely as a res the ibn ro mauntrkets five years, however, have seen significant decreases largely as a result Of the liberalzation of markets. in the magnitude of energy subsidies in almost all Seminar participants also concluded that subsidy regions (Figure). reduction must be prominent among the policy mstrumentsion bep inentamngbe policy The analysis of movements in subsidy rates-subsidy as a proportion of the unsubsidized price-is often 24 ENVIRONMENT MATTERS L:: / New Indicators of Progress more illuminatng than total subsidies, since This section illuminating ~On the Decline: Fossil Fuel Subsidi-es I990-95 a decline in the latter may well be due to focuses on lower consumption levels. A number of tota-lsubid'es countries undergoing economic transition 30 - environmental have made substantial moves to reduce (although not yet eliminate) subsidy rates. information at two This is true for most countries in Eastern levels: under- Europe and the Former Soviet Union. In -- China, subsidy rates have fallen from 42% to standing projects' 20%, and in India from 25% to 19%. The environmental main oil-producing countries in the sample 0-- substantialy increased real prices for petro- dimensions and leum products. Prices have more than dou- s : a -: u Oe moniton thei 1 1 1 ' T 1 1 1 1 ' n 1' . Russia ffmefJfpe Asia OdPfoucers. rAhersmonitoring teir bled in Iran and almost tripled in Saudi : - - - - - - e s Arabia, for example. Despite these reduc- iiPeiroleum : NaturaiGas Coai performance; tions, subsidy rates among oil producers the Treasury that was the prime motivation for these and observing remain high compared to other countries. reductions. a nation's Subsidies on Agricultural Inputs Unfinished Business management of Subsidies for agro-chemicals, mainly pesticides and Because the process of subsidy reform is a recent fertilizers, have also been reduced in recent years. In one, it is too early to detect significant reductions Its environment. Indonesia in the early 1980s, for example, pesticide in environmental damages. But studies of energy It also explores subsidies of up to 85% were integral to government use after the 1970s oil shock indicate that the effect efforts to boost agricultural production. By the late of a change in prices on energy efficiency, though economic 1980s, however, the threats to pubihc health from not immediate, is likely to be substantial. Energy analysis tools to pesticide pollution caused a drastic policy change: use per unit of output fell by 38% in OECD coun- many pesticides were banned and integrated pest tre between 17 and 198. Fo dg coun- link physical management wa adpedhnti res between 1971 and 1988. For developing coun- mndemen was adopte. Pesti- tries, in the long run, energy environmental cide subsidies were eliminated by WHATARESUBSIDIES dmnislkytoflbyhfa 1989. This produced a triple divi- WHAT ARE SUBSIDIES? demand is likely to fal by half a effects to dend: reducing risks to biodiver- S a t m f but percentage poit for each per- sity and health while maintaining a result inlower pres in the mar- economic rice production levels. -ketplace, through:explit subsidies : Subsidy reform is not just a devel- impacts. Fertilizersubsidieshavebrprodu =r throgh oping country issue. Agricultural FerdiSzer subsidies have been used subsidies to ipt:thatlower prow:~ subidis t Inutstha loer ~0- subsidies in the OECD countries by governments to induce farmers ductionlcOsts. Pic subsidies are to increase yields. Agricultural thepevlntdrect subsidy,; corn are damaging the environment. intensification can be good for the mir -for energ.y, water and agricu- Any broad-based international This article was intensification can be good for the - _ Tturairiputs.a credits.and effort to reform subsidies must prepared by Kirk environment, reducing pressures prf itial 6brr6wingrates both target OECD countes as vveli Hamilton andAru on ecologically sensitive lands; and lower productio ostsc aleading to K unte, correct fertilizer application higher investmnent in th4 targetetd : . . . . Environmental restores soil nutrients. But exces- sectors and artifilcially low product- emoval of subsidies iS JUst the Economists in the sive use leads to runoff into water- prices. Inadequate cost recovery first step. For products like fossil Environment ways, polluted drinking water and for infrastructure, such- as irgatior fuels and pesticides, where the Departments or electric power, is another com-- environmental effects of their use Indicators and eutrophication. Many countries mon form of subsidy that leads to are substantial, reform must exend Environmental have struggled to find the right fwasteful resource use. beyond eliminating subsidies to EvaluatiUt balance in encouraging fertilizer Forfurther use. Since the mid-1980s, Bangladesh decreased sub- fen dsial costs of consumt In information, please sidies from $56 million to $19 milion, Indonesia tfhil ew uronmental and social costs of consumption. In contact Unit Chief ^ , .,.. .this way, users w1 be given the right incentives to John Dixon at (202) from $732 rmrLlon to $333 millon, Pakistan from bring private behavior into line with social goals. 473-8594,fax (202) $178 million to $33 miTlon, and the Philippines 477-0968. from $48 million to zero. While environmental con- lEgYpt, Indonesia, Iran, Mexico, Nigeria, Saudi Arabia, and siderations played a role, often it was the burden on Venezuela. WINTER/SPRING 1997 25 Innovations in Environmental Policy: Progress Since Rio or the Earth Summit's fifth anniversary, the have a better chance of success. Building capacity World Bank has prepared Five Years After for improved environmental management is an Rio: Innovations in Environmental Policy1. At important, but longer-term process. the heart of this paper is a policy matrix designed to distill and organize a very rich Engaging the Public. Since governments rarely and diverse set of best practices in environmental lead in the cause of environmental reform-but management. more often respond to public pressure-the role of an informed and involved citizenry is crucial. The matrix classifies innovative environmental Engaging the public, both to inform them about management tools that enable countries to get the costs of environmental degradation or pollu- some of the financial resources they need to achieve tion, and to involve them as advocates for reform, is sustainable development. The tools are classified facilitated by open exchange of information, and under the four broad categories as shown in the more open societies. Some of the most polluted table below. places on earth were in parts of Eastern Europe and the former Soviet Union where environmental _:1~J i :ILOM 1 'i VA 1 iWhile different protests and debates were not tolerated. Without countries have the combination of an informed, and involved pub- Using ceating Seguisions E~aging tried very differ- lic, and a committed government, the best laws and iarkets MaCkets the Public>1ent approaches to legislation are likely to have little impact. Subsiy roprby rgWts Stanards ubt. similar environ- ree otio deentaliasin WrS mental manage- Seeking Policy Integration. One of the lessons Environmental Tredabte ; ans Consultation ment problems, from Rio is that the environment and economic taXes permits/tightsssome general development are inextricably linked. lessons have offse sysems uota disiosu emergdfrom For example, economic liberalization can exacer- fft? *t '\this review: bate environmental problems. Increased access to international markets can put pressure on natural Financial Sus- resources where property rights and resource pric- Targeted communty Q tainability. ing regimes are inadequate, leading to excessive Subsidies ~~~~~~~~~Despite the exploitation. And, to the extent that liberalization -srhetoric of Rio, it leads to growth in production and incomes, this involvemen uis clear that there may lead to pollution emissions. The bottom line, will be few if any of course, is for countries to ensure that policy additional resources to fund environmental reforms of the sort highlighted in the Policy improvements. Therefore, new policies must be Matrix are established to work in conjunction financially sustainable to create effective change. with the process of economic liberalization. There are many examples of policies that do gener- ate financial resources, such as user fees and envi- These lessons in the Five Years After Rio show there ronmental taxes. The most successful policy is great potential for environmental reform, but initiatives are those that both generate revenues tempered with the reality that money is scarce and and recognize the fiscal constraints of governments. that major institutional issues need to be addressed. Administrative Sustainability. There are often major administrative constraints to implementing 'See back cover for reference. new policies or procedures. Since the environment is a relatively new concern, few countries have well- This article wasprepared byjohn Dixon and Kirk Hamilton of established environmental management bureaucra- the Environment Departments Pollution and Environmental cies. Consequently, policies that do not require Economics Division. elaborate and expensive administrative support 26 ENVIRONMENT MATTERS Five Years After Rio: What have we done and where are we going? Personal reflections by Derek Osborn, Chairman, European Environ- fresh water in many parts of the world and conta- ment Agency, Copenhagen, and co-chairman of the mination of some supplies are gaining increasing intersessional meeting of the Comnzission onZ Sustain- attention. How to manage the world's forests sus- able Development (CSD). tainably is a major piece of unfinished business from the Rio agenda. New instruments will be ustainable development remains our cen- proposed. Many other ideas will be canvassed. tral and essential goal. We must have development to relieve poverty and to The development agenda will come equally to the give all people everywhere a decent fore. In some developing countries the means of chance in life. But we must develop in securing sustainable growth loom larger as an such a way that we do not damage our own envi- immediate political priority than longer-term ronment and the quality of life of our own and environmental protection. How countries can use succeeding generations. international trade and private investment, and how to mobilize international support through The enormous Agenda 21 which we negotiated at adequately funded and well-directed aid pro- Rio spelt out a comprehensive programme of grammes will be prime concerns here. action for all sectors of civil society to achieve a sustainable pattern of development throughout Governments have made some progress since Rio. the world. We shall need to consider how to support and Five years later, that programme remains robust. encourage this progress with ideas such as peer group review and indicators. The _ CSD itself and other parts of the to be reshaped to support national progress better. Sustainable development is not a matter for governments alone. The Local Agenda 21 which has been driven forward by local govern- ments throughout the world has -> i l - -l N H ffi l >+made remarkable headway in many cities of the world. Progres- sive sectors of the business com- munity have made their own contribution through such pro- grammes as ISO 14001 and C.CARNEMARK Responsible Care. Financial insti- tutions are gradually finding ways But we need to find more effective ways of imple- to integrate the environment and sustainability menting it properly, and to re-energize all parts of into their programmes. NGOs are helping to the world community in this task. transform communities on the ground as well as lobbying effectively for change at national and Many ideas and proposals will be brought forward international levels. from the environmental agenda. Stronger action will be demanded on climate change and on air Everyone associated with this year's meetings has pollution. Pollution of the oceans and the cata- a keen determination to make real progress. The strophic decline in some fish stocks will be world expects and deserves no less. emphasized. Growing problems about shortage of WINTER/SPRING 1997 27 What's New at the Bank ? THE PHOTOVOLTAIC MARKET TRANSFORMATION INITIATIVE The Global Environment Facility (GEF) and the International World Bank Finance Corporation have introduced the Photovoltaic Market Transformation Initiative (PVMTI), which will support competi- Launches New tively solicited, private-sector photovoltaic projects in India, Global Water Unit Kenya, and Morocco. The GEF Council gave initial approval for the project last October. PVMTI will use $30 million in GEF funds to help reduce obstacles to market development and attract ~ he Global Water Unit additional investment for new and expanded activities. (GWU), part of the new ESSD network, brings NEW ENVIRONMENTALLY AND together Bank staff working on water-related issues. Water SOCIALLY SUSTAINABLE issues are dealt with in a num- DEVELOPMENT (ESSD) NETWORK ber of sectors-hydropower issues in energy and mining, In an effort to better serve its The ESSD Network is divided irrigation and drainage in the client countries, the Bank has into the Environment, Social rural sector and water and san- just launched four "networks" Development, and Rural fami- itation in infrastructure. The O"'. '0:,,'-.,: in Environmentally & Socially lies. Each of these families will GWU will coordinate these sec- Sustainable Development; be coordinated by a Sector tors to better meet the needs of Human Development; Board made up of members Finance, Private Sector & selected from across the Bank. client countries In this crtical Infrastructure; and Poverty The Boards will formulate area. John Briscoe, the Bank's Reduction & Economic Man- strategies, organize knowledge senior water advisor and head agement. These networks bring management, supply innovative of the GWU, is also the Bank's together communities of staff learning opportunities, support representative to the interna- from related sectors. The professional excellence, and tional Global Water Partnership. ESSD Network is a group of organize partnerships with (See page 10) several hundred staff from other institutions. (See across the Bank in the agricul- Overviewv, page 4.) ture, rural development, natural resources, environment and social development sectors. 'Iint cini giutr These networks are designed to empower staff to achieve greater excellence in their work ~h4r~iatodytann oreette.$saial and the services they provide by replacing the old, compartmen- talized way of working with M S one that emphasizes and teShl~diriae ie~evytm nIdaadsg rewards cooperation and col- ~t ~~oessanbeitnii laboration. Key to this is shared ainiW#4akidssr Teecrdmiive1sa strategy. By developing shared iltr en 4swne