Annual Review A T T H E W O R L D B A N K toward environmentally and socially sustainable development · 2004 A LETTER FROM OUR PRESIDENT Making Growth Green hen the world's leaders met at the Millennium Summit four years ago, they agreed on a set of goals aimed at cutting global poverty in half by 2015. They also set targets for the environment, because they understood its centrality to long-term economic growth, human development, and the stability of the planet. The problem is that today, ten years shy of when the 2015 goals are to be met, progress on the environment is alarmingly slow. So much more is possible. The phaseout of ozone-depleting substances through the Montreal Protocol, for instance, shows what can be done when the international community works together. Thanks to the protocol, it is estimated that up to 20 million cases of skin cancer and 130 million eye cataracts will be avoided. This kind of success should encourage us. But now we need to match our action with the scale of the challenge. Our world is not only unbalanced, but endangered. The environmental challenge is stark in developing countries, where five billion of the earth's six billion people live. In these nations, the environment is linked directly to human development--and to poverty. More than a billion people in developing countries lack access to clean water; more than two billion have no access to basic sanitation. Five to six million people, mostly children, die every year due to air pollution and waterborne diseases such as diarrhea. Rich countries' larger contribution to environmental damage means they must shoulder greater responsibility for fixing the problem. That means changing the way they produce and consume energy--reducing subsidies, ensuring appropriate pricing, and adequately taxing environmentally damaging products. It also means providing more resources to developing countries for environmental conservation. Between 1990 and 2000, financing for environmental concerns followed roughly the same path as overall development assistance flows: it stagnated. Aid for the environment averaged about $2 billion per year--far short of what the international community, first at the Rio Summit in 1992 and then at the Johannesburg Summit ten years later, said was needed. In terms of global priorities, this figure compares with the $900 billion that the world currently commits to military expenditures each year. If the war on environmental degradation is to be won, we need a major turnaround. Three areas can help speed progress: Developed countries must set the example by moving toward environmentally friendly production and consumption patterns, including more control of greenhouse gas emissions and use of innovative mechanisms such as Carbon Funds to buy offsets (reductions in greenhouse gases) from developing countries. Richer countries must also increase bilateral and multilateral aid commitments. Reversing the declining trend in contributions to the Global Environment Facility would be a good start. Since its inception in 1991, GEF funding has declined by almost 10 percent as a share of the combined GDP of the 38 contributing nations. Developing countries must improve their policies governing the critical sectors of water, energy, transport, and trade, including pricing policies. This would help reduce consumption of scarce natural resources. Beyond this, environmental concerns must be integrated more fully into development policymaking. The international community must make a much more serious commitment to renewable energy, efficiency, and other environmentally friendly energy sources. A business-as-usual approach would mean that by 2030 carbon dioxide emissions would be 70 percent higher than today, and renewable energy would account for a mere 4 percent of total energy usage, up from 2 percent now. We need the kind of common effort launched a generation ago in agriculture that led to the Green Revolution. Another two billion people will be added to global population over the next 25 years, the vast majority in poorer nations, which will add huge demands for energy and economic growth. If that growth is not achieved in an environmentally sustainable way, its effects on poverty and human well-being will be disastrous. It will be too late 25 years from now to make the right choices. For the sake of our children and our children's children, we must act now. James D. Wolfensohn Based on an article distributed by Project Syndicate, © 2004. Annual Review · 2004 A Letter From Our President, James D. Wolfensohn Envisioning Responsible Growth 3 Vice President Ian Johnson, and Senior Vice President and Chief Economist Francois J. Bourguignon. Director's Overview 4 We need to put the environmental agenda firmly back on the development agenda, according to Environment Department Director James Warren Evans. Viewpoints Environment and Competitiveness 8 Ing. Alberto Cárdenas Jiménez, Mexico's Secretary of Environment and Natural Resources, says that adequate attention to the Energy, Climate Change, and Development 28 environment can actually help to improve national competitiveness. Robert Watson says that environmental sustainability in the energy Harmonizing Environmental Concerns and 10 sector cannot be achieved with continued reliance on today's Economic Growth -- The Indian Perspective technologies and policies. Prodipto Ghosh, India's Secretary of Environment and Forests, The Elements of Sustainable Infrastructure 30 considers future challenges as India seeks to ensure environmental Jeremy Warford says that due diligence relating to the environmen- conservation while speeding up its economic growth. tal and social aspects of infrastructure development should be Integrating Rapid Growth and Environmental 12 exercised far earlier in the development process. Protection -- A Challenge for China Bank-Wide Reviews Xie Zhenhua, Minister of China's State Environmental Protection The Environment and Natural Resources 32 Administration, discusses how to integrate environmental Management Portfolio protection and social development into China's fast-paced Anjali Acharya and Ayesha Aparakka-Hemantha review the fiscal economic development. 2004 environment and natural resources management portfolio. Growth and the Environment -- Can We Have Both? 14 Safeguard Policies -- Overview of Recent Activities 34 David Pearce notes that we need to continue the pursuit of growth The Quality Assurance and Compliance Unit describes the Bank's while having as much regard as possible for conserving the world's efforts to adapt safeguards to changing lending priorities. natural environments and resources. Regional Articles Mainstreaming and Infrastructure 16 Environmental priorities vary among the Bank's six Regions. The Francis Seymour of the World Resources Institute says that Regional articles describe progress in implementing the Environ- consistent attention to safeguards and mainstreaming will be ment Strategy and supporting their clients'efforts in promoting essential to meeting the Bank's commitment to environmentally environmentally appropriate policies and programs. and socially sustainable infrastructure investments. Africa -- Sub-Saharan 36 Health-Driven Environmental Issues a 18 East Asia and the Pacific 40 Top Concern in Low-GDP Countries Europe and Central Asia 44 GlobeScan's Doug Miller says polling about environmental Latin America and the Caribbean 48 concerns shows important differences between people in industrial- Middle East and North Africa 52 ized and developing nations. South Asia 56 Feature Articles Institutional Environment During Growth -- 19 IFC -- Growing Business with Sustainability 60 Accounting for Governance and Vulnerability On many fronts, the International Finance Corporation aims to David Wheeler and Susmita Dasgupta say research suggests that promote sustainable private sector investment. citizens of poor countries do not necessarily face a long wait for improvements in air quality. WBI -- Developing Capacity and Institutions 62 The World Bank Institute works to identify key catalysts for change Sustainable Development and Policy Reform -- 22 and build support for such changes through international NGOs, Implementing MDG 7, Target 9 aid agencies, governments, and private companies. Kulsum Ahmed and Ernesto Sanchez-Triana describe the elements of a framework for policy reform that seeks to move underlying Back of the Book incentives in the direction of greater sustainability. News Updates 63 Taking Resource Dependence into Account 26 Environmental Publications (inside back cover) Alan Gelb and Kirk Hamilton note that sound policies can transform resource endowments into economic growth. © 2004 The International Bank for Reconstruction and Development / The World Bank Welcome 1818 H Street, NW Washington, DC 20433 to All rights reserved. Environment Matters is a magazine of the World Bank Group. Visit the magazine at the Bank's website -- http://www.worldbank.org/environment matters. . . Environmentally and Socially Sustainable T Development Network Managers his issue, which serves as our annual review on the environment, has as its theme long- Chair/Vice President term sustainable growth. Within this topic, we present the latest thinking and practice Ian Johnson on enhancing the quality of policies and institutions as fundamental conditions to Environment improve the quality of growth, as well as on environmental mainstreaming in infra- James Warren Evans Rural structure. We also look back on the World Bank's environmental work from July 2003 through Kevin M. Cleaver this past June (our fiscal year 2004) and highlight upcoming challenges and opportunities. Social Steen Lau Jorgensen The overview article, by recently appointed Environment Department Director J. Warren Evans, reviews progress in the implementation of the Environment Strategy over the last year, Environment Matters is produced by the and emphasizes the need to put environment firmly back on the broader development agenda. World Bank's Environment staff with contributions from the Bank's Regions. This year we are delighted to include viewpoints from the highest environment officials from Editorial & Production Team three countries facing the challenges of economic growth and the environment head-on, as for the Annual Review well as viewpoints from the academic world, the NGO sector, and civil society directly Technical Editors through the results of public opinion surveys. Our contributors include Alberto Cardenas Kulsum Ahmed and Jimenez, the Mexican Secretary of Environment and Natural Resources; Prodipto Ghosh, the Ede Jorge Ijjasz-Vasquez Indian Secretary of Environment and Forests; Xie Zhenhua, the Minister of China's State Story Editor Robert T. Livernash Environment Protection Administration; David Pearce, Professor of Environmental Economics Designer, Photo and Managing Editor at University College, London; Frances Seymour, Director of Institutions and Governance Jim Cantrell Program at World Resources Institute; and Doug Miller, President of GlobeScan Inc. Associate Editors Milen F. Dyoulgerov and Sofia Plagakis Editorial Assistants Each of the Bank's operational Regions has written a review of the Region's work for the past Diane Flex fiscal year, taking a look at accomplishments, lessons learned, and future challenges. IFC and WBI have done the same. For operational purposes, the Bank defines the world's regions as: Special Contributors Kristyn E. Ebro Africa (AFR), East Asia and Pacific (EAP), Europe and Central Asia (ECA), Latin America and Sergio Jellinek Caribbean (LCR), Middle East and North Africa (MNA), and South Asia (SAR). Eri Tsutsui We hope you will find this year's edition thought-provoking. Notes: All $ = U.S. dollars except where noted. All tons = metric tons. Kulsum Ahmed Lead Environmental Specialist Thanks to David Bonnardeaux, J. & K. MacKinnon, and C. Carnemark for the Environment Department image bar on pages 19 through 31. IBRD maps numbered 31562R through 31567R contained in the Regional T H E W O R L D B A N K G R O U P section of the magazine were produced by the Map Design Unit of the World The World Bank Bank. The boundaries, colors, denomi- nations, and any other information IBRD IDA IFC MIGA ICSID shown on these maps do not imply, on the part of the World Bank Group, any International Bank International International Multilateral International judgment on the legal status of any for Reconstruction Development Finance Investment Centre for territory, or any endorsement or and Development Association Corporation Guarantee Agency Settlement of acceptance of such boundaries. The Investment countries identified by name on these Disputes maps are countries to which the Bank provides development assistance in the Established in 1945 Established in 1960 Established in 1956 Established in 1988 Established in 1966 form of loans or advisory services, and 184 countries own, 165 members 176 members 164 members 140 members for which the Bank has a designated subscribe to its capital official responsible for the country. Lends to creditworthy Provides intrest-free Assists economic Assists economic Provides facilities for borrowing countries credits to poorer development by development through the conciliation and countries that have a per promoting growth in loan guarantees to arbitration of disputes capita income in 2002 the private sector foreign investors between member Publications Info: 202-473-1155 of less than $875 and countries and General Inquiries: 202-473-3641 Department Fax: 202-477-0565 lack the financial ability foreign investors Web address: http://www.worldbank.org to borrow from IBRD Printed with soy ink on recycled, chlorine- free paper. Please recycle. The World Bank Group 1818 H Street, N.W. Cover: Cote d'Ivoire, 2002. World Bank. Washington, D.C. 20433 Photographer: Ami Vitale. Ian Johnson Francois J. Bourguignon Vice President, Environmentally and Senior Vice President Socially Sustainable Development and Chief Economist I t is widely recognized that faster economic growth is the key to meeting the Millennium Development Goals by 2015, and that continuing growth through 2050 could bring us close to a world that is safe, secure, and prosperous for all. Indeed, a recent Bank publication, Responsible Growth, suggests that using optimistic but reasonable assumptions--per capita GDP growth of 2 percent in rich countries, 3.3 percent in low- and middle-income countries--world income would be a staggering $135 trillion by 2050, up from $35 trillion today. Average per capita income in the developing world would be $6,300 by 2050--more than enough to meet basic human needs for shelter, food, and clothing. So there is a realistic promise of a world largely free of poverty by the middle of this century. Even if this growth materializes, however, it may not guarantee prosperity for all. In order to realize the full impact of economic growth on poverty reduction, a recent Bank study in the Latin America region found that reducing inequality is essential. Next year's World Development Report on Equity and Development promises to delve further into these issues. Meanwhile, it is important to note that potential inequality across generations--in terms of the quality of the environment and access to environmental resources--has been emphasized from the days of the Brundtland Commission's Report in 1987. Environmental dimensions of inequality include the poverty-growth-environment triangle. Lacking access to other forms of capital, the poor may be forced to over-exploit natural capital, thus reducing its future availability and often imposing external costs on others. Other examples are key environment-health indicators, which are directly linked to human capital and affect future productivity. Every year in developing countries, an estimated three million people die prematurely from water-related diseases, and two million people die from exposure to stove smoke inside their homes. Most of these deaths occur among infants and young children--followed by women--from poor rural families who lack access to safe water, sanitation, and modern household fuels. So how we grow matters. Depending on the options and priorities we choose, there is an all-too-real danger of worsening social conflicts and environmental degradation fueled by deepening inequality.This is a particular risk if today's distribution of income between rich and poor countries is not made more equal. Clearly the prudent way forward must be based on promot- ing a development path that integrates economic growth with environmental responsibility and social equity. Good governance is a key entry point to improving the quality of growth. Strengthening policies and institutions to ensure greater transparency, accountability, and equal opportunity, together with environmentally and socially responsible investment, is essential for attaining sustainable economic growth, and thus poverty reduction. This year's edition of Environment Matters, dedicated to Economic Growth and the Environment, brings together a wide variety of external and internal viewpoints on the challenges ahead and the progress that is taking place. In this issue, three major partner countries--China, India and Mexico--present their perspectives. Among other topics, this edition features the World Bank's recent research on what happens to environment during growth and the different tools available to promote environ- mentally and socially sustainable economic growth. It also includes reviews of the World Bank's environmental programs in developing countries and its global engagement. Integrating environmentally and socially sustainable development with economic growth is not straightforward, but it is crucial to making our dream of a world free of poverty into a reality. Every day, every decision, every investment leads the world in one direction or another. We can see a way forward that leads to a world free of poverty in 2050; the question is whether we will choose to follow that path. Ian Johnson Francois J. Bourguignon o v e r v i A nother year has passed, and it has now been two Box 1. MDGs and Environment years since the World Summit on Sustainable De- velopment in Johannesburg. Meanwhile, what has In addition to MDG 7 on Ensuring Environmental Sustainabili- happened to the state of the environment? Unfor- ty, environment plays a central role in several Millennium De- velopment Goals. It is an important component of MDG 4-- tunately, the picture is a worrisome one. While Reducing Child Mortality--since about 40 percent of under-5 there have been some strides forward in certain countries, we deaths are caused by diseases associated with environmental are still a long way away from meeting the Millennium Devel- factors, such as air pollution or unsafe water. It is also a signif- opment Goals (MDGs). The MDGs are the world community's icant factor in MDG 6--Combating HIV/AIDS, malaria, and collective commitment to eliminate poverty through environ- other diseases--since water-related infrastructure and waste mentally sound and socially responsible economic develop- management affect mosquito breeding areas. (For more infor- ment. "Ensuring environmental sustainability" is one of the mation on the MDGs and environment, see .) nomic growth, human development, and the stability of the planet. with a little more than 10 years left until 2015, we notice that overall progress is alarmingly slow. For example: The eight goals and their targets are to be achieved by 2015. A Air and water pollution take a tremendous death toll-- UN Task Force is currently reviewing progress and is expected estimated at five to six million people every year-- to submit its findings in January 2005. As we await this report, especiallyonchildrenandtheelderlyindevelopingcountries. 4 ENVIRONMENT MATTERS · 2004 Overview ploited or meet the target maximum Funds are also required: Aid for the en- sustainable yield. vironment averaged about $2 billion per CO2 emissions are on the rise, and year over the last decade--far less than global warming and shifts in weath- the international community said was er patterns can already be observed needed at the Rio Summit and confirmed around the world (see page 28, En- at the Johannesburg Summit ten years ergy, Climate Change, and Develop- later. Funds for global environmental ment). protection in developing countries-- from both bilateral and philanthropic If current trends continue, the millenni- sources and from the Global Environ- um targets for the environment will not ment Facility--amount to about $2.50 be met. Meanwhile, opinion polls show per person per year in industrialized that the environmental constituency is countries, less than the current price for changing globally (see Doug Miller's one gallon of gasoline in most OECD Viewpoint, page 18), with urban popu- countries. And unfortunately the trend lations in developing countries more pre- is not getting any better. Clearly, more occupied about the environment than can and must be done. e w people in industrialized countries.Asur- prising result from one perspective, but What is the World Bank doing to reverse not an unexpected one, since the health negative environmental trends and to impacts, quality of life, and correspond- help overcome the political and institu- ing decrease in productivity firmly link tional constraints that hinder environ- the environmental agenda with the mentally and socially sustainable growth agenda for people in developing development? Protecting the environ- countries. Many governments in devel- ment is one of six main principles in the by James Warren Evans oping countries increasingly understand World Bank's mission to alleviate pov- Director, Environment Department the need to look at environment as part erty and sustain the quality of develop- of the larger development agenda-- ment. About 250 professionals, spread linked to both clarifying the rules for across the six operational regions and in Access to sufficient, safe, and nutri- environmentally and socially sustainable a number of sector units and depart- tious food is the primary problem for growth and the poverty reduction agen- ments, work on environment-related ac- nearly 800 million chronically under- da (see Viewpoints, pages 8­13). But this tivities. These activities include lending nourished people, the vast majority is not an easy agenda. Significant politi- operations to improve environmental of whom depend on natural resourc- cal, governance, and institutional con- and living conditions in client countries. es and non-cultivated resources--for straints must be overcome to move Environmental lending has been declin- example, food, fodder, and firewood ahead in a decisive way. ing for several years, but the trend has from forests--for their living. It is unclear how well and at what cost Figure 1. Trends in ENRM Content ($ and %) of the Bank's Total Lending agricultural production can adapt 4,000 20 and keep up with growing demand ENRM Lending at the World Bank 17.2% ENRM as % of total Bank lending lending and the changing dietary preferenc- 3,000 14.3% 15 es of a growing world population. 13.1% Bank 12.7% 12.0% Freshwater resources and ocean fish- 11.6% millions 2,000 10 total eries are under stress. According to 8.8% of 7.9% 6.5% 6.0% the most recent FAO report, 28 per- Dollar 1,000 5.2% 4.7% 5 cent of global fish stocks are signifi- percent cantly depleted or overexploited, 0 0 ENRM and 47 percent are either fully ex- FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 5 been reversed (see article on the environ- nomic growth, has also increased over We have also seen an increase in non- ment and natural resources management the last three years. Recent examples in- lending operations. In support of the in- portfolio, page 32). After a low of $924 clude policy-based loans to Mexico and tegration of environment into the million in fiscal year 2002, lending for Brazil to support governmental efforts to strategies and programs of client coun- environment and natural resources went meet MDG number 7, Target 9 (see Fea- tries and the World Bank itself, 190 for- up to $1.1 billion in 2003 and is now ture Article on page 22), and an increase mal and informal analytical and advisory reaching $1.3 billion--an increase of 18 in the environmental content of Poverty products were completed in fiscal year percent last year and 41 percent over two Reduction Support Credits (PRSCs) (see 2004. They cover a wide variety of types years (see Figure, page 5). Box 2). This is an encouraging trend that and topics, with an emphasis on environ- directly links environmental issues to the mental policies and institutions. Exam- At the end of fiscal 2004, the total active ples include assessments of pollution and economic growth and poverty reduction environment and natural resources man- health in Africa; the environmental and agendas. We expect it to continue. agement (ENRM) portfolio amounted to social impacts of utility privatization in $11.2 billion. About 80 percent of this Europe and CentralAsia; analysis of for- In the light of the MDGs and the WSSD lending is mainstreamed in other sec- eign direct investment and pollution in commitments, and lessons learned over tors--an increase since approval of the China; and preparation of Country En- the last decade, the World Bank is build- Bank's Environment Strategy in 2001. vironmental Analyses (CEAs) in a num- ing on synergies between local and Infrastructure--the transport, energy, ber of countries. Such analytical and urban, and water sectors--is the most global benefits in its lending and non- advisory activities are crucial for provid- important sector, accounting for 40 per- lending operations. It is increasingly ing a solid base for mainstreaming envi- cent of ENRM lending, and this is pro- blending GEF grant funds with IBRD/ ronment in the dialogue between client jected to increase considerably over the IDA activities, including policy-based countries and the World Bank. We are next few years with implementation of lending. An example is the Cameroon now seeing increased mainstreaming of the Infrastructure Action Plan that was Forestry and Environment Program, environment in strategic documents such presented to the Board of Directors in which supports institutional reforms, as CountryAssistance Strategies (CASs) April 2004. enhanced community participation, im- and Poverty Reduction Strategy Papers proved control and accountability of the (PRSPs). Policy-based lending linked to the envi- forest industry, and rehabilitation of de- ronment, which helps clarify the rules of graded national parks and biodiversity Challenges ahead the game to encourage sustainable eco- conservation sites. The recently approved changes to the Bank's operational policy OP8.60 on de- Box 2. Linking Poverty and Environment in PRSPs, CASs, and PRSCs velopment policy lending (see Update on OP8.60), as well as the anticipated in- The latest assessment of environmental issues in 50 Poverty Reduction Strategy Papers crease in infrastructure and agriculture (PRSPs) found a wide variation in the average score from 0.3 to 2.4 (on a scale of 0­3) lending, offer enormous opportunities to and an average score for all countries of 1.3. The Ghana PRSP notes that high incidence continue to integrate environmental is- of diarrhea is due to the lack of safe drinking water and sanitation. The Zambia PRSP sues into the broader growth agenda. recognizes that environmental problems impose the greatest social costs on the poor. The Bank continues to emphasize the use Most Country Assistance Strategies (CASs) identify MDG7 with water supply and sanita- of key tools to facilitate this mainstream- tion issues. CASs--for example, Honduras and Nicaragua--are starting to pay attention ing and to assist countries to improve to environmental indicators. their institutional capacity, including the Among Poverty Reduction Support Credits (PRSCs) in Africa, good practice examples upstream preparation of Country Envi- include the third Uganda PRSC (2004), which supported the reform program, including ronmental Analyses and Strategic Envi- activities that improve access to and quality of education, health, water and sanitation, ronmentalAssessments (SEAs) to inform and rural services. The third Burkina Faso PRSC (2004) supported the implementation of policy and programmatic lending, to- key reforms to strengthen basic service delivery, such as health, water, and sanitation. gether with the application of our safe- guard policies for investment lending. 6 ENVIRONMENT MATTERS · 2004 Overview The new approach to development poli- cy lending provides a uniform frame- Box 3. Examples of Partnerships, Outreach, and Funding work for all World Bank lending that The Global Water Partnership (GWP) (www.gwpforum.org): Its objective is to sup- supports policy reforms (as opposed to port countries in the sustainable management of their water resources. investment projects). For the first time, World Bank/WWF Alliance for Forest Conservation and Sustainable Use (www.forest- the same treatment is required for pov- alliance.org): The goal of the alliance is to significantly reduce the rate of loss and erty, social, and environmental issues in degradation of all forest types. such operations. First, development pol- International Coral Reef Initiative (ICRI) (www.icriforum.org): Established in 1995 icy operations are expected to draw upon to reverse the growing worldwide degradation of coral reefs, ICRI involves some 80 relevant analytical work when the oper- countries. ation is in the design stage. Second, at Clean Air Initiative (www.worldbank.org/cleanair): Urban air pollution is linked to the operational level the Bank should the premature death of over 50,000 people each year in developing countries. In assess the likelihood of significant effects partnership with city and regional governments in Africa, Asia, and Latin America, the Clean Air Initiative helps build capacity for better urban air quality manage- on poverty, social, and environmental ment through technical and policy advice, knowledge transfer, and web-based and issues (including forests and other natu- distance learning programs. ral resources); the capacity of the borrow- Trust Fund for Environmentally and Socially Sustainable Development (TFESSD) ing government to manage these effects; (www.worldbank.org/tfessd): TFESSD is a multi-donor trust fund supported by the and the steps that will be taken to bol- governments of Norway and Finland. It provides grant resources for World Bank ster the government's capacity where it activities that mainstream environmental, social, and poverty-reducing dimensions is insufficient. of sustainable development. TFESSD currently funds more than 130 activities in 80 countries, with 50 percent of the funding going to Africa. In the coming year, we anticipate that The Prototype Carbon Fund (PCF) (www.prototypecarbonfund.org): The PCF is a environment and health will be an im- global public-private partnership to demonstrate how project-based emissions trans- portant theme. Our goal is to improve actions can contribute to mitigating climate change. our understanding of environment- health linkages and to more effectively coordinated. The Bank has been an early mental agenda firmly back on the devel- address environment-health issues in promoter of partnerships aimed at max- opment agenda, linked directly with regional work. Environmental health is- imizing effective use of resources and growth and poverty reduction. Environ- sues are an important part of the Bank's organizational strengths, as stipulated in ment is not an issue of interest only to a Environment Strategy and the MDGs. MDG 8, and will continue to be engaged well-off society, but is crucial to improv- According to the World Health Organi- in a number of alliances and joint pro- ing the quality of life--through better zation, rates of respiratory infections, grams with a diverse range of develop- health and increased productivity, as diarrhea, and malaria account for almost ment partners (see Box 3). well as improved livelihoods and great- 20 percent of deaths in developing coun- er opportunity--for the 3 billion people tries with high mortality rates. In addi- There are many challenges ahead, yet living on less than $2 a day in develop- tion to environmental health being raised many opportunities to put the environ- ing countries. increasingly as an important issue by developing countries in public opinion surveys, the issue is also consistently raised in internal Bank quality reviews (QAG) and in discussions with other sec- CarnemarkC. tors, particularly infrastructure. The agenda is a large one. It is crucial that we continue to work together in partnership to assist developing coun- tries achieve these challenges. In a world of shrinking aid, there is a greater need Bhutan to ensure that our efforts are targeted and ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 7 making on investment and development, thus supporting the competitiveness of both companies and countries. Over the past decade, Mexico's experience with the North American Free Trade Agreement (NAFTA)--in which the en- vironmental disasters that some predicted have not occurred-- is quite significant with regard to the compatibility of the objectives of commercial integration and progress toward sus- tainable development. Improving competitiveness requires a variety of systemic trans- formations, including the introduction of infrastructure and services, technological changes, new organizational processes, adoption of good practices, training, mobilization of underuti- lized resources, creation and segmentation of markets, certifi- cation of products, and efficiency in the utilization of inputs. Environment and Some of these factors are related to the effectiveness of envi- ronmental management. Saving water and energy, efficiently Competitiveness managing the disposal of wastes, and reducing air and water emissions are all measures that contribute both to competitive- Ing. Alberto Cárdenas Jiménez ness--by reducing costs--and to sustainable development. Even without undertaking radical technological changes, most T Secretary Environment and Natural Resources industries can achieve energy savings of 20 percent. Mexico The deterioration of natural capital implies the destruction or underutilization of resources that could have been used to pro- mote development and place goods and services in the nation- o be advantageously integrated into the global economy, Mex- al and international markets. Environmental degradation, ico urgently needs to improve its competitiveness--in which it which threatens human health and ecosystems, also contrib- is currently ranked 47th in the world, according to the World utes to production inefficiencies. Deterioration and pollution Economic Forum (WEF). are not the unavoidable price of development, but obstacles to development. Today all the developed countries have managed, In the drive to strengthen global competitiveness, environmen- in some measure, to uncouple economic growth from environ- tal concerns have sometimes been considered an obstacle. In mental degradation. recent years, however, many studies--for example, by the Or- ganisation for Economic Co-operation and Development Environmental management does of course imply taking ac- (OECD)--have found that increasing competitiveness and ac- tion and facing extra costs. But the costs of environmental pas- celerating the transition toward sustainable development are sivity or insufficient action are, without doubt, much higher. mutually compatible objectives. Adequate attention to envi- The National Institute of Statistics, Geography and Informat- ronmental concerns can actually help to improve the competi- ics (INEGI) has systematically estimated the national cost of tiveness of a company, a city, or an entire country. In an resource depletion and environmental degradation. Based on increasingly interconnected world with open economies, envi- this analysis, the domestic Ecological Net Internal Product has ronmental regulation and public policies to induce sustainable been determined, and we know that environmental degrada- development are not simply additional transaction costs. In both tion represents an annual liability that ranges between 10 and developed and developing countries, clear rules on property 11 percent of GDP. In monetary terms, that means that envi- rights and access to natural resources, as well as strong envi- ronmental degradation costs Mexico at least $64 billion per year: ronmental institutions, give institutional certainty to decision- Around one tenth of this amount is due to resource depletion 8 ENVIRONMENT MATTERS · 2004 VIEWPOINT and the rest is due to environmental degradation (see Table creased the number of international visitors from 65,000 in 1982 below). to more than 400,000 at the end of the 1990s. COSTS OF RESOURCE DEPLETION AND ENVIRONMENTAL DEGRADATION The lack of a developed and competitive forest industry costs (Percentage of GDP) Mexico nearly $6.4 billion in imports of forest products. Com- mercial plantations will help to improve the trade balance of Issue 1996 1997 1998 1999 2000 2001 2002 Total Cost 10.3 10.8 10.9 10.9 10.4 10.2 10 this sector. With a government subsidy of nearly $150 million, Cost of resource 1,700 plantation projects are in development in Mexico cover- 0.9 1.2 0.9 1 1 0.9 0.9 depletion ing 264,000 hectares and generating 13,000 permanent jobs. Cost of environmental 9.4 9.6 9.9 9.9 9.5 9.3 9.1 Through this and other initiatives, degraded and abandoned degradation forest land is recovering its tree cover. Between 2001 and 2003, Source: INEGI. Sistema de Cuentas Nacionales de México. the government has also invested nearly 80 million pesos to One way to limit the deterioration is to construct environ- promote sustainable forestry in native forests. mental infrastructure. Public and private investment in in- frastructure for pollution control and abatement barely Based on the principles and criteria of the Forest Stewardship represents 0.8 percent of Mexico's GDP. This investment is Council, sustainability certificates have been granted to some insufficient and should be increased in the near future. In- 656,000 hectares of community forest in Mexico, although this vesting in infrastructure does not seem to decrease competi- has yet to be translated into a solid economic advantage for tiveness; on the contrary, the three countries recognized by these communities. Certification, both in the forest sector and in many other areas, could open international markets and the WEF as the most competitive (Finland, the United States, greatly add to the value--and hence the price--of such prod- and Sweden) all devote larger shares of GDP (1.1, 1.6, and 1.2 ucts. Many companies are obtaining independent certifications, percent, respectively) to the construction of environmental including ISO 14000 related to environmental management ca- infrastructure. pacity. The coordinated action of the government, through its multi- Through SEMARNAT, the Federal Government is promoting ple environmental programs, helps to slow ecological deteri- mainstreaming agendas on sustainable development. For ex- oration and the depletion of natural ample, the Ministry of Tourism and resources. At the federal level, the SEMARNAT collaborate to ensure budget of the Ministry of Environ- Saving water and energy, efficiently the environmental quality of tour- ment and Natural Resources (SE- managing the disposal of wastes, and ist destinations and promote certi- MARNAT), which includes the reducing air and water emissions are fication. When the positive environ- National Water Commission (CNA), all measures that contribute both to mental attributes of tourist destina- tions are protected, so too are the was increased in 2004 to nearly $1.5 competitiveness--by reducing costs-- interests of investors and users. Oth- billion, which represents 2.3 percent and to sustainable development. er Ministries collaborating with SE- of the cost of environmental deterio- MARNAT include the Ministry of ration. This budget, expressed as a percentage of GDP, has Agriculture, Livestock, Rural Development, Fishing and Food, been falling continuously since 1998. The implications of this which is in the process of removing environmentally perverse process have not been evaluated in terms of potential loss of subsidies, which in the past promoted the conversion of forest economic competitiveness. On the other hand, there are no land to agricultural uses. Jointly with the Ministries of Health reliable estimates of the budgets that states and municipali- and Energy, we have also coordinated measures to improve ties spend on environmental management. fuel quality. In all, the facts indicate that caring for the environment, in ad- Other examples support the idea that spending on environ- dition to constituting an ethical requirement to protect public mental protection makes both economic and environmental health and guarantee future generations an adequate resource sense. For example, establishing national parks seems expen- base, is also an excellent economic investment for Mexico, even sive, but thanks to having more of them Costa Rica has in- in the short term. ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 9 accompanied by a sharp decline in environmental quality, as indicated by various key parameters. At per-capita GDP reck- oned in PPP terms of $6,000 to $7,000--long after the time when primary production dominates the economy--the trend reverses. In India, there is now sufficient accumulated evidence that the reversal has actually happened when per-capita GDP is about PPP $2,000--that is, much earlier than the international histor- ical norm. The evidence ranges across a diversity of environ- mental parameters, including pollution levels in major rivers; census data on wildlife species such as tiger, elephant, and leop- ard; area under forest cover; and ambient air quality levels in major cities. How do we account for this departure from the Harmonizing Environmental experience of other countries? Concerns and Economic Growth Part of the explanation is India's pluralistic democracy, which is based on universal adult suffrage and includes strong, inde- The Indian Perspective pendent judicial institutions and a free press. Pluralistic de- A mocracy has made it all but impossible for any group whose Prodipto Ghosh, Ph.D pecuniary interests may lie in degradation of natural resourc- Secretary Environment and Forests es--for example, forest or mining contractors--to dominate Government of India policymaking or regulatory actions over the interests of others with livelihood stakes in conservation, such as tribal forest ll countries face a number of tragic choices during their transi- dwellers. The press has ensured that attempts to do so would tion from agricultural, natural resource-based primary produc- be exposed to full public view. The judiciary has further en- tion economies to industrialized and service-based economies. sured that the weaker players are not placed in serious disad- They face choices because accelerated growth rates necessary vantage in situations of potential conflict. for generating resources for the transition may be based on more intensive extraction of natural resources for exports, or, alter- Another important explanation is the prior existence of legis- natively, may await the development of skills, capabilities, and lative frameworks and a regulatory apparatus that have been institutions that would enable higher growth with lower rates gradually strengthened over time. The laws relating to facto- of damage to pristine environmental resources. Such choices ries, forests, mining, water resources, and even criminal laws, may be tragic because, while the latter path would inevitably together with the necessary enforcement machinery, have en- mean that initial growth rates would be slower, the former sured that--right from the start of the growth process--envi- would ensure that excessive, permanent loss of environmental ronmentally irresponsible actions could be prevented or resources, which may adversely affect prospects for future well- penalized. These have been enhanced in the past three decades being, would necessarily occur. by specific laws in areas such as environmental conservation, prevention of air and water pollution, and wildlife protection. The typical path followed by currently developed countries is In addition, India has set up monitoring networks, enforcement captured in empirical estimates of the "Environmental Kuz- agencies at the state and central levels, and issued policy state- nets Curve." In most countries, increased per-capita income is ments on key natural resources. 10 ENVIRONMENT MATTERS · 2004 VIEWPOINT Further, India has carefully eschewed a growth path based rive directly from the fact of environmental conservation. A largely on primary production for export markets, and instead large suite of specific policy and programmatic measures may opted for the development of scientific, technical, entrepreneur- be devised to embody this shift. For example, this would re- ial, and institutional capabilities to enable growth based on quire that forest-dwelling tribals are given legal rights to har- secondary and tertiary sectors. No doubt this path has not been vest non-timber forest produce; that multistakeholder entirely smooth, and various challenges have had to be ad- partnerships involving public landowning agencies, local com- dressed, including the imperative of food security, population munities, and investors are established to promote reforesta- growth, perturbations in global tion of degraded forest land and energy markets, and reducing de- Part of the explanation is India's reclamation of wasteland; that legal- pendence on fickle monsoons. In pluralistic democracy, which is based on ly enforceable multilateral and do- addition, India's economic system universal adult suffrage and includes mestic regimes are put in place to until the 1980s--based on discre- strong, independent judicial institutions enable local communities to derive tionary interventions in investment, benefits from their ethnobiology and a free press. pricing, and marketing decisions, knowledge and to provide access to and erection of formidable trade genetic biodiversity; that public- barriers--over the long term proved to be not viable. Never- private partnerships are adopted for waste management, envi- theless, the current rates of growth of the economy overall, in ronmental monitoring, and environmental infrastructure; and comparison to the earlier rates, as well as that of skills- numerous others. intensive services and manufacturing sectors, are clear testimo- ny to the wisdom of the broad growth strategy that was adopted. Second, we need governance reform of environmental regula- tory institutions and processes. At present, the major regulato- Finally, the strengthening of environmental legislation and in- ry processes of EIA appraisal, permission for non-forest stitutions, and gradual improvement in monitoring and en- activities in notified forests, regulation of economic activities forcement actions, owe much to civil society. Environmental in coastal areas, and several others, comprise significant project awareness has significantly increased, in particular among stu- risks to investors owing to uncertainties in duration, required information, and decision rules. There is a need to ensure that dents and the youth. Community-based and voluntary organi- each of these regulatory processes is based on established prin- zations have been active in drawing public, regulatory, and ciples of good governance, including transparency, account- sometimes judicial attention to environmental violations and ability at all levels, and minimal transaction costs. issues. In a series of landmark judgments, the Supreme Court has filled in gaps in the legislative framework and enforcement Finally, we need to strengthen the systems of monitoring and machinery through jurisprudence. enforcement of environmental infringements. These would re- quire the greater involvement of the affected communities in As we seek to ensure environmental conservation while fur- monitoring of adherence to environmental standards and cov- ther speeding up our economic growth, what are our challeng- enants; public-private partnerships in enhancement of the es in the immediate future? I believe they are primarily the monitoring infrastructure and dissemination of environmen- following: tal information; and building capacity in public regulatory in- First, a paradigm shift in our regulatory philosophy needs to stitutions. Strengthening enforcement may require, in addition, occur--from placing environmental and growth concerns in a shift in doctrine, from the present focus on extremely hard- separate policy compartments, to that of ensuring that econom- to-prove criminal malfeasance, to one of greater reliance on civil ic, and in particular, livelihood opportunities for the poor, de- penalties and liability. ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 11 situations for both the economy and the environment. This is most obvious in the following major areas: First, previously uncoordinated macroeconomic decisionmak- ing on the economy and environment is becoming coordinat- ed. For example: Since 1966, when China's market changed from a situation of prevailing shortages to overall surplus, about 100,000 small enterprises that characteristically wasted resources, polluted the environment, and were unable to improve their managementhavebeencloseddown.Asaresult,theburden of pollution was significantly reduced. In the aftermath of the Asian financial crisis of 1997, when there was concern that the nation might be heading from inflation to deflation, we made environmental protection-- Integrating Rapid particularly urban infrastructure development for environmental protection--a major focus of our public Growth and investments. As a result, the urban sewage treatment rate Environmental Protection has increased to 42 percent, and fostered further economic growth. A Challenge for China The Environmental Impact Assessment Law of the People's Republic of China not only requires environmental impact O Xie Zhenhua assessments for construction projects, but also requires Minister strategicenvironmentalassessmentsfordevelopmentplans. State Environmental Protection Administration Thelawthuscreatesaninstitutionalobligationtocoordinate of the People's Republic of China environment and developmental decisionmaking. ne of the major challenges facing China is how to integrate en- Second, pollution control is in the process of a transition from end-of-pipe controls to lifecycle monitoring. To date, China has vironmental protection and social development into its fast- implemented cleaner production auditing in over 400 enter- paced economic development. This challenge occurs in a prises in more than 20 industries. Within 20 provinces, over 20 difficult context, including a huge population, insufficient per cleaner production centers have been set up. More than 5,000 capita resources, and relatively backward technologies and enterprises have passed the ISO14000 Environmental Manage- management skills. ment System Certification, and hundreds of products have been awarded Eco-Labels. In 2002, China enacted the Cleaner Pro- Over the past 20 years, China's economy has averaged a re- duction Promotion Law, so cleaner production is now governed markable 9 percent annual growth, i.e., grown 5­6 fold. This by the rule of law. was preceded, however, by a long period characterized by the traditional development pattern of high input, high consump- Third, the scope of pollution remediation has been expanded tion, serious pollution, and low output. In some regions, Chi- from pollution point sources to regional and watershed levels. na's focus on increased GDP has been at the expense of the In addition, the Chinese Government has focused on address- environment. Environmental pollution and degradation is a ing pollutants that are the most harmful to people's health. We significant limiting factor on China's future economic devel- have made progress in implementing pollution controls in key opment. watersheds, as well as in urban coastal areas. In recent years, with the benefit of our own circumstances and Fourth, we have shifted from a primary focus on pollution con- other international experience, China has tried to shift to an trol to a more balanced emphasis on both pollution control and approach that balances economic, environmental, and social ecosystem protection. China is implementing a series of eco- development. Environmental protection has undergone a se- system protection and restoration projects, such as protecting ries of important changes, including efforts to create win-win natural forests; restoring farmland to forests or grassland; re- 12 ENVIRONMENT MATTERS · 2004 VIEWPOINT verting reclaimed land to lakes; establishing nature reserves; cy in economy, low resource consumption, little environmen- and protecting key eco-function zones. Nature reserves now tal pollution, and fully empowered human resources. The com- account for 14.4 percent of the total area of the country. In the mitment of the Chinese Government provides China with a management of major river basins and watersheds, efforts have rare opportunity to coordinate economic, social, and environ- been made to harmonize pollution control with ecosystem res- mental development. toration; to integrate environmental management activities in upstream, midstream, and downstream areas; to harmonize the The traditional economic growth model leads to a pathway from use of water for living, production, and for ecosystems; and to resources to products and eventually to wastes. The more ad- conduct ecosystem management vanced the economy, the greater is that coordinates land and sea pol- the consumption of resources and the lution control. China's peaceful development will make more serious is the environmental an active contribution to the course of pollution and ecological degradation. Fifth, we are making a conceptual global environmental protection and A scientific development model shift in the role of environmental sustainable development. based on the "circular" economy, management in economic growth. however, envisions a cycle where re- Previously, environmental manage- sources become products, and the ment was thought to be merely for public welfare, requiring products are designed in such a way that they can be fully re- input without any output. The new understanding is that en- cycled. The circular economy focuses on the most efficient use vironmental management has a positive market value. In 2003, of resources and environmental protection. total investment in pollution remediation accounted for 1.39 percent of GDP, which represented a historic breakthrough. This We are implementing circular economy demonstration projects has spurred the development of environmental-protection-re- at three levels. At the first level, we encourage enterprises to lated industries. practice cleaner production and adopt the "reuse and recycle by the producer" principle, which is aimed at reducing usage Significant changes in environmental protection effectively in all the production procedures--from materials, technology promoted a harmonious relationship between economic growth and process selection, to production--and increasing recycling, and environmental protection. While the national economy is thus minimizing pollution discharge. At the second level, we rapidly growing and its general efficiency continues to improve, promote ecological industrial parks in concentrated industrial the trend toward increases in the total discharge of major pol- clusters. So far, 10 ecological industrial parks have been estab- lutants nationwide has been contained, and there have been lished. At the third level, we advocate regional (particularly improvements in environmental quality in some cities and re- urban) sustainable production and consumption. gions. Through honoring ecological provinces, ecological cities, envi- In the coming 16 years, China will develop into a mid-income ronmental protection demonstration cities, ecological demon- society. It is estimated that, by 2020, China's GDP will quadru- stration districts, counties with a pleasant environment, green ple compared to that of 2000. If the traditional pattern of devel- communities, green schools, and environmental friendly en- opment were to continue, natural resources would not be able terprises, we are building a sustainable society. Currently, sev- to sustain this growth, the environment would be unable to en provinces have been recognized as ecological provinces; 39 bear the heavy burden of pollution and waste, and as a result, cities are environmental protection demonstration cities, and the goal of building a more affluent society would not be achiev- 82 counties are ecological demonstration districts. China also able. The old development model of "pollution first and reme- is establishing new systems that require green GDP account- diation second; destroy first and restore second" should be ing, environmental performance appraisal for administrative abandoned to achieve the goals of a growth rate of 7 percent or officials, and public participation. higher, improved environmental quality, and enhanced sustain- able development capacity. The coming 16 years are a crucial period for China to harmo- nize its economic development and environmental protection. To fulfill these goals, the Chinese Government intends to im- Despite the arduous road ahead, we have full confidence in plement a balanced and sustainable development strategy. The the future, convinced that China's peaceful development will government expects to transfer to a pathway of "neo-industri- make an active contribution to the course of global environ- alization"--development with advanced technology, efficien- mental protection and sustainable development. ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 13 Take the fixed proportions argument first. The history of ad- vanced nations is one of lowering the ratio of materials and energy use to GNP. Global energy efficiency, for example, has been improving at a little over 1 percent per annum. Much of this is due to technological change. Resources are extracted more efficiently and used more efficiently. The result is an "En- David Pearce vironmental Kuznets Curve" (EKC) over time, with the energy/ Professor of Environmental Economics University College London GDP ratio rising in the early stages of development and de- clining thereafter. By and large, developing countries are on the rising part of the EKC and rich nations on the declining part. Importantly, few of these changes have been induced by explicit energy and materials conservation policies. Yet we Growth and know from the experience of changing oil prices since the 1970s the Environment: that nations can be induced to be far more energy efficient as real energy prices rise. The combination of "autonomous" and Can We Have Both? policy-induced technological change thus raises the prospect of efficiency improvements outweighing the combined effects D espite hostile and sustained reaction, mainly from of population change and economic growth. Of course, even if economists, the "big issue" of the early 1970s envi- this turns out to be true, the flow of energy and materials use ronmental debate refuses to go away. There are still remain positive quantities. If the stock is fixed, then exhaustion hosts of articles and books telling us we cannot have economic is postponed, not eliminated. Optimists point to the fact that growth and environmental quality. Whichever one we want world reserves of many materials and fossil fuels are now higher involves a sacrifice of the other. Societies have to choose. In than they were thirty years ago. Ultimately, it is self-evident this view, opting for growth will eventually become unsustain- that relying on a fixed stock must be unsustainable. But "ulti- able, either because natural resources will run out, or the waste mately" could be hundreds if not thousands of years hence, assimilative capacity of environments will be exhausted, or raising the issue of how far into the future we should all be both. looking. For the critics of growth, sustainable development is still about The second reason for optimism is that recycling and re-use of abandoning the goal of growth. The underlying rationale for materials can prevent their disposal to receiving environments. this view is simple. If the ratios of materials and energy use are Nations such as Germany recycle 70 percent of paper and board fixed proportions of gross national product (GNP), growth in consumption and 83 percent of glass. Much of this recycling is GNP must entail the use of more materials and more energy. policy-induced, and rates can be expected to rise further in The First Law of Thermodynamics dictates that these energy Europe because of strict packaging disposal regulations. More- and materials flows cannot be destroyed. Ultimately, they must over, the time-trend for most nations is upwards. Again, the reappear as waste emissions and solids. If the capacity of re- ceiving environments to assimilate these flows is itself, broadly good news has caveats. Only materials can be recycled. En- speaking, fixed, environments must degrade. Much the same ergy cannot. argument holds for fixed stocks of natural resources. This is the logic of the "materials balance" or "spaceship Earth" model The third offsetting factor to the gloomy view of growth and with which environmental economists of my age were raised. environment is the capacity of the world to switch to renew- But how valid is it? able resources.As far as energy is concerned, renewable sources already contribute some 15-20 percent of world energy demand, The obvious weaknesses in this view are several. First, there is but this fraction is dominated by (a) traditional energy sources no reason to assume fixed proportions for materials and en- such as woodfuels, and (b) hydropower. Most would see the ergy to GNP. Second, not all waste has to enter the environ- development process as one in which woodfuels decline--on ment. Third, while most economic development in the last five health and environmental grounds--while large hydropower hundred years or so has been based on exhaustible resources, remains controversial. The so-called "benign" renewable the capacity exists to substitute renewable sources. sources--wind, modern biomass, geothermal and small hydro- 14 ENVIRONMENT MATTERS · 2004 VIEWPOINT power--contribute perhaps just 2 percent of world energy de- human capital formation, securing no-growth would seem to mand. Nonetheless, this contribution is set to rise as more and involve less, not more, of these determinants. Yet technology more economic incentives are provided for the introduction of and education and skills will strike many as being "good" in renewable energy sources. themselves. Surrendering them in the name of environmental quality seems bizarre. Moreover, slowing technological change There are caveats once again. The world has long relied on re- would harm resource efficiency, since new technologies are newable resources such as fish and forests. The record on the usually more resource efficient. But resource efficiency is con- former is dramatically bad, with global fishing effort continu- ducive to environmental improvement. Hence slowing tech- ing apace despite several major stock collapses and with the nological change could harm the environment. Finally, if the majority of fisheries now being exploited at, or beyond, their focus on no-growth is on reducing consumption, perhaps by ecological limits. Many would argue that all the rhetoric about stimulating savings and investment, then no-growth policies forests and their importance has done little to slow deforesta- simply swap current growth for future growth. tion rates. Third, not pursuing growth can hardly be a unilateral policy. It The simplistic notion that economic growth must inevitably would have to embrace concerted international action, the pros- degenerate natural environments clearly needs revision, but it pects for which would seem fancifully remote. On the other is not logical to go to the other extreme and declare that growth hand, some might argue that by proceeding at such a slow pace and environment are necessarily compatible. That is certainly with trade liberalization, the world has, in one sense, already a message that some derived from the early EKC literature-- voted for slowing the growth process in favour of special inter- eventually growth would generate both the resources and the ests, such as subsidized industry and agriculture. attitudinal changes that would lead to environmental improve- ment. This is a politically deceptive message and was the weak- Fourth, some of the political compulsion in no-growth argu- ness of the Brundtland Commission's own vision of sustainable ments understandably emanates from observations about the development in which the world could have growth, environ- high level of natural resource consumption per capita in rich mental quality and social equity. It is easy to see why such a countries. In this sense, the rich are consuming more than ap- message is attractive, since it avoids facing the political reality. pears to be a "fair share" of the world's natural assets. Here the There are and will be trade-offs. argument shifts from no-growth to re-balanced growth, away from the rich toward the poor. The motivation is sound but the The previous arguments are all familiar. Curiously, far less at- analysis is faulty. If the rich reduce consumption of resources, tention has been paid to what a "no-growth" policy would look they do not magically become available to the poor. Moreover, like if only it was adopted. Yet the likely features of such a the rich are consuming more precisely because they are richer, policy must be part of the trade-off equation: it may be that a and being richer is what right-minded people want for the poor. no-growth world would itself be undesirable. Finally, the rich are more efficient at using resources per dollar of GNP. The goal has to be one of making the poor richer and First, many economies already experience zero or even nega- securing global improvements in environmental and resource tive growth in GNP. Of the 148 countries listed in World Devel- efficiency. That will not come about by some sacrifice of growth opment Indicators, 28 actually experienced negative growth in by the rich. GDP in the 1990s. Few would argue that these economies have levels of well-being higher than the remainder. Nor, on inspec- If the surrender of growth is neither inevitable because of lim- tion, would one want to argue that their environmental profile its to growth, nor politically feasible, the conclusion appears to is improving. be that we need to continue the pursuit of growth while hav- ing as much regard as possible for conserving what is left of Second, long-term growth may not be conducive to policy the world's natural environments and resources. No one should measures that are rational in themselves. The problem is that believe this is any easier a development path than one in which growth is not just the result of human acquisitiveness, the very we try to pretend there are no trade-offs. The growth and envi- motive that anti-growth advocates wish to see counteracted. ronment debate will run and run. Properly understood, it can In most respects, growth is determined by "good" things. If still be productive. growth is largely due to the pace of technological change and ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 15 The World Bank's commitment to mainstreaming is long-stand- ing; indeed, the title of the Bank's 1995 annual environment report was Mainstreaming the Environment, and the commitment to mainstreaming was reaffirmed in the World Bank's Envi- Frances J. Seymour ronment Strategy. In those documents, the Bank made clear Director that its attention to the environment would not be limited to Institutions and Governance Program World Resources Institute the financing of projects in the narrowly defined "environment sector" and the application of safeguard policies. Instead, con- World Resources cern for sustainability would be integrated into the design of Institute operations across all sectors, and into country and sector strat- egies. Mainstreaming and Despite a number of encouraging examples of "best practice," Infrastructure a variety of internal and external assessments have documented that the World Bank, other international financial institutions, T and client governments have made far too little progress in he World Bank Group is getting back into the mainstreaming. For example, the most recent update on imple- infrastructure business. From the perspective of en- mentation of the Bank's Environment Strategy reports that vironmental and social sustainability, the renewed progress in mainstreaming has lagged behind progress in other emphasis of the World Bank and other international financial areas. institutions on lending for infrastructure poses a challenge and an opportunity. The challenge is to ensure full compliance with Why has mainstreaming proven so difficult? A variety of fac- environmental and social safeguard policies. The opportunity tors are at play. is to use the Bank's financial and other resources to "main- stream" sustainability into infrastructure development. First, there is a natural tendency to think of "environment" only in terms of safeguard policies designed to avoid doing harm at As significant new public and private financing is mobilized the level of individual projects. Safeguard policies are impor- to meet needs for electricity, transportation, and water and sani- tant, but once a specific intervention has been selected--espe- tation services, the character of the development paths in these cially in the case of infrastructure development--many of the environmentally and socially significant sectors will be deter- opportunities to promote environmental sustainability have al- mined either by default or by design. Will investment in new ready been lost. In addition, the design of regulatory and fi- power generation capacity accelerate a shift to less emissions- nancing regimes--such as the degree of privatization of service intensive fuels and technologies? Will investment in new trans- delivery and expectations of cost recovery--can have profound port infrastructure encourage settlement patterns more environmental implications, yet because they are not "projects," conducive to mass transit? Will strategies to finance water and they are often formulated without attention to environmental sanitation infrastructure include investment in the natural "in- considerations. frastructure" that provides hydrological ecosystem services? Second, mainstreaming is hampered by divisions of labor Such questions cannot be adequately addressed by application within financial institutions and governments. Transport en- of environmental and social safeguards on a project-by-project gineers, agricultural economists, and finance ministry officials basis. Instead, they require "mainstreaming" of sustainability assume that concern for the environment is "not my job." They concerns into sectoral and cross-sector planning, and consider- may design road networks, irrigation schemes, and water pric- ation "upstream" of individual infrastructure investments. ing systems assuming that officials in environmental units will 16 ENVIRONMENT MATTERS · 2004 VIEWPOINT take care of applying appropriate safeguards. Maintenance of infrastructure options--such as renewable technologies for independent environment units is essential, but relegating en- electricity production--are dismissed as cost-ineffective. vironmental functions exclusively to a "clean-up" role within Rigorous environmental and economic analysis can often bureaucracies and societies dramatically reduces the scope for demonstrate the cost-effectiveness of alternatives, once mainstreaming. externalities have been internalized. The World Bank can support such analysis, assist in the design of appropriate Third, constituencies for the environment and for the poor-- subsidy regimes, and help mobilize concessional finance. who tend to bear the brunt of environmental harm--continue Improve national systems of information disclosure, public to be underrepresented in development decisionmaking pro- consultation, and accountability in development decisionmaking. cesses. When they are involved, their participation tends to One of the best ways to ensure that environmental come too late in the process to promote alternatives consistent sustainability and equity considerations get a fair hearing with mainstreaming . is to ensure that constituencies for the environment and the poor are empowered with information and have a seat at As the Bank gets back into the business of financing "bricks the decisionmaking table. and mortar," it has a special responsibility to ensure that sustainability is addressed not as an afterthought, but integrated The benefits of mainstreaming are numerous. While improved into the planning process in a deliberate and meaningful way. mainstreaming does not mean that safeguard policies can be The institution is well-positioned to assist client governments relaxed, upstream consideration of environmental and social to: issues will likely reduce the level of conflict that is typical when these issues are considered later on, reducing the risk of Identify infrastructure investments through a comprehensive "legacy" issues associated with controversial projects and poli- options assessment process, a key recommendation of the cies. World Commission on Dams. All too often, development challenges are inappropriately framed, and development In addition, mainstreaming reduces the risk of "locking in" interventions are prematurely specified. For example, if the unsustainable development trajectories that will be hard to re- problem is defined as "relieving urban traffic congestion," verse later on. For example, lumpy, large-scale infrastructure the solution will likely be to build more roads, which tend investments--such as expressways, coal-fired power plants, or to serve neither environmental nor equity interests. large dams--can set into motion patterns of settlement and re- However, if the problem is defined as "providing safe, source use that may cause profound environmental damage efficient, and affordable transport services," a wider range over the long term. of options, including public transit, is opened for consideration. Finally, mainstreaming can capture "win-win" opportunities Pay attention to the appropriate sequencing and bundling of to meet the needs of both the poor and the environment. Less- various interventions. The Bank can assist governments to polluting transport services can decrease the incidence of ad- consider sustainability concerns "upstream" through verse health impacts suffered by the urban poor; renewable support for country-, sector-, and landscape-level analysis energy technologies can provide rural communities far from prior to the formulation of specific policies and projects. In the grid with access to electricity services. addition, the Bank can provide targeted investments in capacity-building--both of the public sector and the general The Bank's InfrastructureAction Plan states that the Bank "will public--to play improved environmental governance roles continue to ensure that infrastructure investments are environ- prior to and in conjunction with project investments. mentally and socially sustainable." Consistent attention to safe- Identify appropriate fiscal regimes that serve economic and guards, and a renewed emphasis on mainstreaming, will be environmental efficiency. More environmentally sustainable essential to meeting that commitment. ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 17 VIEWPOINT For example, respondents in African countries (especially Kenya, Tanzania, Zimbabwe, Ghana, Nigeria) rate environmen- tal issues as being of secondary importance when compared with such social problems as HIV, poverty, homelessness, avail- Doug Miller ability of jobs, and hunger. President Another important example is whether people believe there GlobeScan Inc. are trade-offs between environment and economy. A majority of respondents in 10 of 12 developing countries surveyed ac- cept that there is a trade-off by emphasizing the economy over the environment. Between 50 to 70 percent of respondents in Health-Driven these countries agreed with the statement that "we worry too much about the future of the environment, and not enough about Environmental Issues prices and jobs today." Citizens of Indonesia and Cote d'Ivoire a Top Concern are the only developing country respondents more inclined to disagree with this statement (as do strong majorities in indus- in Low-GDP Countries trialized countries). It is also interesting to examine differences in perceptions related to the environmental impact of increasing globalization. W hile environment has historically been a more sa- Majorities of respondents in Nigeria and SouthAfrica think that lient issue in industrialized countries, Globe- environmental quality improves with greater globalization. Scan's latest research reveals that, for the first time Majorities inAsian and SouthAmerican countries with low GDP in seven years of tracking, health-driven environmental con- per capita exhibit skeptical attitudes toward environmental out- cerns are today more powerfully felt among urban dwellers comes of globalization, as do citizens of most industrialized in low GDP per capita countries than in any other part of the countries surveyed. world. GlobeScan's research suggests that there will be increas- GlobeScan (formerly Environics International) has been ing calls for environmental action from people in developing conducting annual public opinion surveys on environmental countries, amplified by their acute awareness that environmen- and related topics across 20­30 countries since 1997. This in- tal problems are affecting their personal health. The challenge cludes surveys of representative samples of 1,000 citizens, will be for leaders in business, government, civil society, and mainly in urban areas of 12 developing countries in Asia, Af- multilateral organizations to go beyond their own constituents' rica and South America (Brazil, China, Thailand, India, Indo- decreasing interest in environmental issues to help alleviate po- nesia, Kenya, Tanzania, Zimbabwe, South Africa, Ghana, tentially destabilizing environmental conditions affecting fast- Nigeria, Cote d'Ivoire). The findings reveal significant differ- growing urban populations in developing countries. ences between the environmental perceptions of citizens of de- veloping countries compared to citizens of industrialized Seriousness of Environmental Issues countries (see Figure at right). "Very Serious," High vs. Low GDP per capita, 2003 For people in industrialized nations, environmental con- cerns appear to be a component of post-modernist values. For Shortages of freshwater people in developing countries, it is one of the elements of real Air pollution life challenges. Automobile emissions With urgent concerns about water shortages and air pollu- Water pollution tion and a growing sense of individual efficacy to solve such problems, people in developing countries have also become Depletion of natural resources more likely than those in industrialized nations to be dissatis- Loss of rainforest/wilderness fied with their country's environmental regulatory system. Fully Loss of animal/plant species 75 percent of citizens in developing countries do not feel their Depletion of energy resources environmental laws currently go far enough. High GDP Production/transportation/ While these findings suggest the potential rise of a new use of chemicals environmental activism in urban areas of developing countries, Climate change Low GDP there are other findings suggesting that long-held developing- GM food country perceptions of the environment's secondary importance 0 10 20 30 40 50 60 70 80 may be slow to change. 18 ENVIRONMENT MATTERS · 2004 P olluted air is a major suggest that particulates cause health hazard in many 65 million days of illness each parts of the world, but year for urban residents in Lat- E it is particularly troublesome in America. A1994 study indi- nvironment in some developing countries, cates that air pollution in where regulations governing Jakarta, Indonesia, is responsi- air quality have been lax or ble for some 1,400 deaths, During Growth-- nonexistent. The international 49,000 emergency-room visits, health community currently and 600,000 asthma attacks per Accounting for believes suspended particulate year. A recent World Bank es- Governance and matter-- commonly known as timate of mortality and mor- dust--to be the most damag- bidity from urban air pollution Vulnerability ing among widely measured in India and China suggests air pollutants. Ambient con- annual losses in the range of 2 centrations of particulates in to 3 percent of GDP. Health ef- many cities of the developing fects of exposure to particu- world routinely exceed World lates range in severity from Health Organization (WHO) coughing and bronchitis to safety standards by a factor of heart disease and cancer. three or more. Conventional wisdom Figure 1. Urban vulnerability to emissions of fine particulates Particulate air pollution is a It is commonly believed that in complex mix- the first stage of industrializa- ture of small tion, pollution grows rapidly and large par- because people are far more ticles of vary- interested in jobs and income ing origin and than clean air, communities are chemical com- too poor to pay for abatement, position. Re- and environmental regulation cent epidemi- is correspondingly weak. In ologicalstudies this world view, the balance have reported shifts as income rises. Leading that exposure industrial sectors become to particulates, particularly cleaner, people value the envi- Figure 2. TSP distributions in non-OECD small particulates, is strongly ronment more highly, and reg- cities, 1986­2025 associated with respiratory ill- ulatory institutions become ness and death. (Small particles more effective. Pollution levels 600 are likely to be more danger- off in the middle-income range ous because they can be in- and then falls toward pre-in- dustrial levels in wealthy soci- 400 haled deeply into the lungs, settling in areas where the nat- eties. ural clearance mechanisms of 200 a body, like coughing, cannot Although economic develop- remove them.) Empirical re- ment is undoubtedly related to search suggests that associated environmental quality, recent 0 health costs are already quite research has shown that this TSP 86-90 TSP 91-95 TSP 96-99 Baseline TSP 2025 high in developing countries. conventional reliance on in- Reform TSP 2025 For example, some estimates come as the sole determinant Excludes outside values. ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 19 of pollution is misleading be- ity of particulate pollution. A tors. For example, once Space-Intensity of Activities: cause it is too restrictive. World Bank research team has small particulates are Thegeographic features of However, many empirical re- recently analyzed the latest emitted from combustion each locus of activity searchers have accepted this available data on suspended or other processes, they along with space-intensity approach, and have focused on particulates (TSP) from the will stay airborne for of activities are also impor- measuring the per capita in- World Health Organization shorter periods in areas tant determinants of envi- come at which pollution levels (WHO), which include time that are rainy and windy. ronmental quality. off. Their estimates, from ob- series from 1986 to 1999 for 340 More subtle factors (tem- servations across countries or individual air quality monitors perature, sunshine, air Using the monitored TSP regions, typically suggest that in 170 cities. Of these, 209 pressure, surrounding ter- dataset from WHO for the pe- air and water pollution in- monitors and 85 cities are in rain) may also affect the riod 1986­99, the World Bank crease with development until developing, newly industrial- airborne suspension of study has estimated air quali- per capita income reaches a ized, or Eastern European particulates. A recent ty models that control for range of $5,000 to $8,000. countries. World Bank-WHO study governance, vulnerability, pol- When income rises beyond lution-intensive economic ac- has provided the first sys- that level, they find that pollu- In addition to income per cap- tivity, and population density, tematic quantification of tion starts to decline. In devel- ita, the World Bank study has as well as income per capita. these factors, and com- oping countries and donor considered the following po- The results show varied im- bined their estimated im- institutions, some policy- tential determinants of the re- pacts for income, but they are pacts into a vulnerability makers have interpreted such lationship between economic unambiguous in their assign- index for approximately results as conveying an impor- activity and environmental ment of importance to gover- 3,200 world cities whose tant message about priorities: quality: nance and geographic vulnera- populationexceeds100,000. Grow first, then clean up. bility. The results suggest that Governance: Governance vulnerability is highly var- If such estimates are correct, quality and the effective- Comparative impacts ied, both within and across the prospects for environmen- ness of environmental in- regions. All continents Using their estimated models, tal quality are extremely poor stitutions vary widely have regions of low and the World Bank study team has for many developing coun- across countries. Recent high vulnerability (see Fig- conducted simulation experi- tries. According to World Bank assessments of country ure 1). ments to assess the relative data, average per capita GDP policies and institutional importance of income, gover- (in constant 1995 U.S. dollars) capacity have revealed Economic Structure: Envi- nance, vulnerability, and pop- in 2002 was $449 in 59 low-in- that low levels of develop- ronmental outcomes are ulation density as determi- come countries and $1,786 in ment do not prevent coun- significantly affected by nants of air quality. The results 52 lower-middle income coun- tries from having effective the sectoral composition of strongly suggest that gover- tries. These countries are no- environmental institutions economic activity. Not all nance and geographic vulner- where near the maximum and policies. Some poor industry sectors are equal ability alone are enough to pollution point in the conven- countries have strong sources of environmental- account for the crisis levels of tional story, and hence, they policy performance, and ly damaging emissions. air pollution in many cities in are fated to endure rising pol- somemiddle-incomecoun- For example, a shirt facto- the developing world. When lution for many decades. tries are weak in this di- their effects are combined with mension. ry is far less polluting than New evidence a steel mill. Hence, consid- those of income and popula- tion density, they find a suffi- Locational Vulnerability to ering the composition of cient explanation for the fact New monitoring data from Pollution: Environmental output along with mea- that some cities in developing developing countries are en- quality, in this case, atmo- sures of aggregate output countries already have air abling researchers to provide spheric concentration of is critical for understand- quality comparable to levels in much more detailed informa- TSP, is very much depen- ing potential environmen- OECD cities (see Box 1). tion about the scope and sever- dent on geographic fac- tal impacts. 20 ENVIRONMENT MATTERS · 2004 Feature Articles Conclusions BOX 1. ASSESSING THEDETERMINANTS OF AIR QUALITY Policymakers should be wary The table at right displays the relevant simulation Income Locational Population ranges for the sample dataset of non-OECD coun- per capita Governance vulnerability density of those who suggest that de- tries. ($US) index index (/sq. km.) veloping countries must grow Low 250 1.5 15 100 In order to assess the partial effect of each deter- first and clean up later. The Medium 1,000 4.5 50 5,000 minant, the baseline TSP concentration was estab- results of the World Bank lished for a city with "worst-case" conditions High 8,000 7.5 85 40,000 study offer no support for the (income $250;governance 1.5;vulnerability 85;population density 40,000/sq.km.). For the period 1996­ view that air quality universal- 99, the air quality model predicted an airborne TSP concentration of 437 micrograms per cubic meter (ug/m3) for this case--approximately nine times the current median TSP concentration for OECD cities. ly deteriorates during the first phase of economic growth. On From the baseline, the air quality model was 500 the contrary, the results sug- again used to predict the partial effect as the 450 four determinants are increased to medium and gest that, at worst, air quality )3 400 m high levels.The figure at left presents the results. 350 remains constant during ug/( 300 onitartne Low growth, even at very low in- Holding income, governance, and population 250 Medium 200 density constant at "worst-case" levels, chang- come levels, and that income High oncC 150 ing locational vulnerability from high to low re- P growth significantly improves TS 100 duced predicted air pollution from 437 to 131 air quality at the margin. 50 ug/m3. The other three determinants also had 0 major impacts on the TSP concentration, with Income Governance Locational Population vulnerability density similar orders of magnitude in the transition The findings also suggest that from low to high values. TSP fell from 467 to 252 for income, to 228 for governance, and to 216 for citizens of poor countries do population density. not necessarily face a long wait The figure below adds another perspective, by measuring the joint impacts of TSP determinants. For for major improvements in air jointly worst, medium, and best values, governance and locational vulnerability reduced TSP from 437 quality. Significantly im- to 194 and 69. In combination, all four determinants reduced TSP from 437 to 122 and 20 for medium proved governance is possible and high values. in poor countries, and the 500 500 World Bank research results 450 450 )3 suggest that policy reform 400 )3 400 m m 350 350 ug/( ug/( alone can be sufficient to re- 300 300 onitartne 250 250 duce air pollution by 50 per- 200 onitartne 200 ncoC cent, even in overcrowded, 150 ncoC 150 P 100 P 100 TS TS geographically vulnerable cit- 50 50 0 0 ies in countries with very low Worst Medium Best Worst Medium Best incomes. Combined levels of governance Combined levels: Income, governance, and locational vulnerability locational vulnerability, population density Urban air pollution-- ty. Even this conservative sce- population growth slows to Present and future nario leads to a moderate im- half the rate observed in 1995­ provement in air quality. In the 2000. In this reform scenario, This article was prepared by Susmita Dasgupta, (202) 473-2679, of the The World Bank study has pro- second set, policy reforms are the simulations predict sharp Development Research Group; Kirk jected air pollution in 2025 for assumed to produce real in- improvements in air quality for Hamilton, (202) 473-2053, fax (202) 522-1735, of the Environment De- many cities using two sets of come growth of 5 percent an- most cities in developing coun- partment; Kiran Pandey, (202) 458- assumptions. In the baseline nually, governance improves tries. By 2025, 75 percent have 5197, fax (202) 522-3240, of the Glo- projection, current trends are sufficiently to achieve parity attained air quality within the bal Environment Facility Secretariat; and David Wheeler, (202) 473-3401, maintained for income, gover- with the current lower quartile current range experienced by fax (202) 522-3230, of the Develop- nance, and population densi- of OECD countries, and urban OECD cities (see Figure 2). ment Research Group. ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 21 E conomic growth is cru- The term "sustainable devel- cial for poverty reduc- opment" refers to growth and tion, but growth that is expansion carried out in ways S not environmentally sustain- to ensure that future genera- able can degrade the health of tions have (at the least) the ustainable future generations as well as same opportunities as current deprive them of their homes generations. For many, the fu- Development and and livelihoods. As world ture is distant and difficult to economies grow, there is in- link to present needs. The fu- Policy Reform-- creasing recognition of the im- ture is, however, directly portance of an incentive linked to the present through Implementing framework for economic de- children, who are the future velopment that considers eco- generation. They are also the MDG 7, Target 9 logical systems' resilience and ones typically most affected in also intergenerational equity. developing countries by envi- Such a framework should be ronmental degradation, princi- Millennium Development Goal (MDG) 7: an integral part of national in- "Ensure environmental sustainability" pally through its impacts on stitutions that underpin eco- their health. On a global scale, Target 9: nomic growth. That type of (a) lack of access to clean wa- "Integrate the principles of sustainable framework is also an inevita- ter and sanitation and (b) in- development into country policies and ble outgrowth of Millennium programs and reverse loss of environ- door air pollution are the two Development Goal (MDG) mental resources" principal causes of illness and Number 7, regarding environ- death, mainly affecting chil- The eight MDGs were adopted by 191 mental sustainability. Target 9 dren and women in poor fam- nations in 2000 as part of a comprehen- of this Goal requires countries sive rights-based development agenda. ilies. to "integrate the principles of sustainable development into Development depends on eco- country policies and pro- nomic growth, which is neces- grams." sary but not sufficient for achieving the Millennium De- While the MDGs have articu- velopment Goals. Research on lated what needs to be done, countries are still learning how development has found that to achieve these goals. In the the state of institutional devel- Latin America Region, the opment is the single most im- Government of Mexico, fol- portant variable in explaining lowed by the Governments of a country's overall level of de- Brazil and Colombia, have velopment. As pointed out by been working since 2002--in the World Development Re- partnership with the World port 2003 on Sustainable Devel- Bank--to reach this MDG Tar- opment in a Dynamic World, get through environmental institutions matter. So MDG 7 policy reform. In this article, seems to call for an incentive we describe those efforts and framework, or institutions, a policy reform framework--a that look out for children while Sustainable Governance Process promoting economic growth. (SGP)--that seek to further in- tegrate sustainability concerns As Douglass North has point- into economic development ed out in his 1993 Nobel Prize programs. lecture, "Institutions are not 22 ENVIRONMENT MATTERS · 2004 Feature Articles necessarily or even usually cre- only change gradually. Togeth- welfare of the most vulnerable affect their future. Represent- ated to be socially efficient; er, these rules form the incen- groups. These variables in- ing future generations' inter- rather they, or at least the for- tive structure of a society. clude traditions, cultural pat- ests ensures that development mal rules, are created to serve terns, history, weather pat- will be sustainable. To be effec- the interests of those with the Learning, which is a function terns, and geographic charac- tive, development approaches bargaining power to create of imitation, exploration, and teristics. need to promote social learn- new rules." This will be a fa- experience, seems to be the key ing so that formal rules can miliar statement to those to long-term economic growth. The challenge to attaining eco- continue to evolve over time in involved with policy formula- But learning takes time. This nomic development with equi- a direction that is technically tion, where technical analysis implies that shaping institu- ty is to get institutions to pro- sound; overcome the bias of often plays a small part, with tions conducive to sustainable mote sustainable economic vested interests, and become political economy being the far development should be based growth. This requires a combi- increasingly more effective at greater influence in the design on incorporating appropriate nation of near-term changes to improving the quality of life of policies. These institutions, guiding principles into policies formal rules and the longer- for our children and their chil- or rules of the game, are typi- and programs. Those princi- term shaping of informal rules dren. cally comprised of formal rules ples must be informed by ana- through learning. It is also im- (for example, policies), infor- lytical work that identifies portant that someone effective- The main instrument in the mal rules (such as cultures and priorities at the local level, as ly represents the most vulner- World Bank for institutional behaviors), and the application well as local practices, based able, particularly children (fu- and policy reform is the adjust- of these rules. While formal on analytical and context- ture generations)--in effect ment loan. This instrument has rules could be changed rela- specific knowledge to under- giving them a voice at the ta- typically been used in the con- tively quickly, informal rules stand variables crucial to the ble as rules are formulated that text of macroeconomic, fiscal, Witlin.R Indonesia ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 23 and sectoral reforms, rather vironmental liabilities linked agenda. The Mexico EnvSAL in environmental manage- than as a mainstreamed instru- with privatization. supported part of the Govern- ment. The EnvSAL has also ment for environmental policy ment of Mexico's medium- provided a wealth of experi- reform. In some of these loans, A2002 Programmatic Environ- term, goal-oriented program to ence on how best to tackle sim- environment has been a more ment Structural Adjustment implement their policy of eco- ilar situations. This includes integrated component. An ex- Loan (EnvSAL) in Mexico nomic development with hu- the need to set up coordination ample is the Bulgaria Environ- marked the first time this in- man and environmental mechanisms attuned to the ment and Privatization Sup- strument was used to integrate quality. The operation was the particular country context, be- port Adjustment Loan (2000), environmental concerns more first in a program intended to cause existing institutional in- which includes a comprehen- broadly into a country's social (a) integrate principles of sus- centive frameworks make it sive program to deal with en- and economic development tainable development into key difficult to mainstream sus- economic sectors, and (b) im- tainable development ap- prove the effectiveness and ef- proaches. Added to this is the ficiency of the national challenge of obtaining commit- NooraniS. environmental management ments from different entities system. and ensuring adequate bud- getary and human resources. The basic design principles in- cluded the provision of a blue- Responding to client country print for mainstreaming demand following the Mexico environmental variables into EnvSAL, the Latin America key economic sectors; encour- and Caribbean Region Office aging public disclosure and has a growing portfolio and opening up decisionmaking to pipeline of such programmat- the public (measures aimed at ic loans. In fiscal year 2005, the strengthening overall gover- Bank's Board is expected to nance); and promoting the use discuss loans to Brazil and Co- of a set of environmental poli- lombia. cy instruments, including eco- nomic instruments, Strategic The Bank's role has been Environmental Assessments (a) providing leverage to the (SEAs), decentralization, and Ministries of Environment in environmental indicators to focusing the attention of Min- influence behavior. istries of Finance and Infra- structure on the need to The first EnvSAL operation mainstream sustainable devel- was completed in December opment considerations into 2003. To date, reforms support- their policies, (b) assisting the ed by this operation have governments in evaluating the yielded several benefits, in- effectiveness of programs and cluding improved water re- thus generating knowledge on sourcesmanagement,improved what works and what does not, management of marine pro- and (c) consolidating knowl- tected areas through the devel- edge about social learning to opment of fiscal instruments to achieve improvements in the increase tourism revenue quality of life. while protecting marine re- Bangladesh sources, and improved public Countries face complex and participation and transparency large-scale issues as they seek 24 ENVIRONMENT MATTERS · 2004 Feature Articles to move environmental con- Second, the process aims at cerns into the mainstream of ensuring that interests are bal- Ilyasov.A their economic development anced between different stake- activities. To help them with holders. The design of such these challenges, we advocate reform programs must assess the following approach--a the political economy and en- Sustainable Governance Pro- sure that the views of the most cess (SGP)--to design and im- vulnerable, particularly the plement such reform pro- poor and children--the future grams. generations--are represented. Useful tools in this regard in- First, the process is based on a clude SEAand the resources in solid analytical foundation to the Poverty and Social Impact provide decisionmakers with a Analysis (PSIA) toolkit. Inter- strong technical basis for de- institutional coordination signing formal rules and poli- mechanisms that allow for open discussion of different cies by (a) identifying environ- stakeholder perspectives, as- mental priorities that need to sessment of trade-offs between be addressed, and (b) analyz- competing priorities, and the ing the effectiveness and effi- design of solutions that require ciency of existing formal rules multi-sectoral participation are and their implementation to also important. To reduce the address identified priorities. impact of major environmen- Examples of such work in- tal health problems that affect clude cost-of-degradation children, such as indoor air studies that place an econom- pollution, an inter-institution- ic value on health impacts and al approach is essential for suc- on loss of productivity associ- cess. ated with environmental deg- Uzbekistan radation. Such studies help Reforms create winners and establish environmental prior- losers. Political economy con- mental decisionmaking out- The Bank's experience with ities that directly affect sustain- siderations are therefore cru- comes, and a mechanism to comprehensive environmental able economic growth. In the cial. Any reform that does not feed lessons back into further reforms of this type is still case of Colombia, such a study address the goals, interests, in- evolving. Target 9 in MDG 7 is changes to the formal and in- estimated the cost of environ- centives, and behaviors of a complex challenge and coun- formal rules to ensure institu- mental damage from only four those groups prone to win or tries are still learning how best tional change on a continuous causes was over 3 percent of lose is almost certain to fail. To to respond. The answer lies in basis to improve the quality of GDP. In the case of Mexico, the the success with which coun- ensure beneficial institutional life of future generations. Fur- 2001 OECD Environmental tries can shift their institutions change, it is essential to put in to a path that is consistent with Performance Review provided ther, the Mexico EnvSALexpe- place measures that promote both economic growth and a strong analytical basis for rience indicates the need for social learning (that is, the sustainability. identifying the main environ- identification and correction of continuous technical work--as mental issues. The Country errors on a continuous basis). formal rules are developed This article was prepared by Kulsum Ahmed, (202) 473-1130, fax (202) EnvironmentalAnalysis (CEA) This includes monitoring and over time and their implemen- 477-0565, of the Environment De- is another important tool iden- evaluating outcomes through tation is evaluated--and suffi- partment; and Ernesto Sanchez- tified in the Bank's Environ- an appropriate choice of indi- cient human and financial Triana, (202) 473-6952, fax (202) 676-9373, of the Environment Group ment Strategy for carrying out cators, improved accountabil- resources over an adequate of the Latin America and Caribbean such an analysis. ity with respect to environ- time period. Region. ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 25 B oth theory and intuition may impede the development suggest that countries of the non-oil export sector; with abundant natural easy money in the form of re- T resources should have a dis- source rents (that is, an excess tinct advantage in achieving return to a production factor) aking Resource economic development. But a may reduce incentives to im- large and growing body of ev- plement needed economic re- Dependence idence suggests that it is pre- forms; and volatile resource cisely these countries that have prices may complicate macro- into Account exhibited the lowest growth economic management, exac- rates over the last several de- erbating political conflicts cades of the 20th century. Why concerning the sharing and should this be so, and what management of resource reve- tools do we have to guide mac- nues. Three key policy ques- roeconomic management in tions concern how much resource-dependent econo- resource revenue to save for mies? future generations, how to deal with uncertain revenues and avoid "boom-bust" cycles, and Figure 1. Genuine saving vs. exhaustible resource share, 2000 how to ensure that govern- 30 ment spending is of high qual- ity. 20 Saving. Stocks of exhaustible 10 I resources such as oil represent 0 a potential source of develop- %GN, 0 10 20 30 40 50 60 ment finance. A key question vingas -10 for countries with resource en- einu dowments is whether to con- -20 Gen sume the rents as resources are -30 depleted, providing current welfare but at a cost to future -40 y = -0.7191x + 10.134 generations, or to invest the R2 = 0.6366 rents in other assets. The -50 Mineral & energy rents, %GNI Hartwick rule, a "rule of thumb" for sustainability, Note: Only countries with exhaustible resource shares greater than 1% of GNI are shown. states that economies with ex- haustible resources will be sus- tainable if the value of Oil exporting countries present resource depletion is offset by some of the most extreme ex- productive investments in oth- amples of this "resource er assets. This is a rule de- curse," and there are critical signed to preserve total wealth. issues of natural resource and economic management in Stabilizing. Oil prices have these countries. There are been twice as variable as those many plausible mechanisms of other commodities. If past by which the resource curse experience is a guide, price can operate: inflated currencies shocks will continue to be 26 ENVIRONMENT MATTERS · 2004 Feature Articles poorly foreseen, and produc- tend to encourage "rent-seek- Bank has published estimates icant proportion of the natural ing countries will be vulnera- ing" behavior, whereby groups of adjusted net or "genuine" resource endowment of these ble to boom-bust cycles. Insta- or individuals seek to appro- saving for roughly 150 coun- countries is apparently not be- bility is very costly, as econo- priate revenues for themselves. tries since 1999 in the World ing invested in other assets. mies and budgets adjust asym- Mechanisms to distribute rent Development Indicators. This is metrically. On the up-cycle, should thus be clear, and be an extended measure of sav- The "resource curse" is an un- growth increases little; on the part of a transparent budget ing, calculated as gross nation- fortunate reality for a range of down-cycle output contracts, process able to link fiscal choic- al saving (GNI minus the most resource-dependent often substantially. Rapid es to current and (conserva- consumption), plus education economies. Many of the roots growth in public spending, tively) projected resource expenditure, minus deprecia- of the resource curse lie in po- which often follows resource revenues. For any given level tion, mineral depletion, ener- litical economy--if the power- price increases, reduces spend- of rents, the mix of channels to gy depletion, net forest ful can appropriate resource rents for themselves, or if po- ing quality and introduces en- distribute rents to citizens-- depletion, and CO2 damages. litical consensus on economic titlements, which are often not whether through public invest- management is lacking, then sustainable in the long run. Ef- ment or recurrent spending, Genuine saving measures the abundant resource rents may ficiency can suffer as capital subsidies and transfers, or low- change in the assets--pro- actually inhibit growth and investments sit idle during er non-oil taxes--should reflect duced capital, human capital, natural resources--on which development. But the resource down-cycles because of short- the relative returns on public economic development de- curse is not inevitable. Sound ages of recurrent resources. versus private uses of funds. pends. It is an indicator of the policies can transform resource sustainability of growth and endowments into economic Policy simulations suggest that Beyond these general con- development. If the saving rate growth, as countries such as optimal saving during revenue cerns, two potential pitfalls for a country is negative (im- Malaysia and Botswana have booms like those of the 1970s tend to be particularly impor- plying falling wealth), then fu- shown. To support sound pol- ought to be 60 to 70 percent of tant for oil exporters. First, the ture levels of economic welfare icies, asset accounts can be a the revenue gains, far higher concentration of fiscal resourc- will decline. Positive but low crucial guide to policymakers than the levels achieved by es tends to encourage exces- rates of net saving indicate making decisions on taxation, exporters. They also show that sive and imprudent invest- small increases in future wel- consumption, and investment the costs of policies formulat- ment--the state implements fare. Over the 1990s, roughly in resource-dependent econo- ed on the basis of overoptimis- large projects without suffi- half the countries under $1,000 mies. tic projections of prices and cient consideration of risk. Sec- per capita income had negative revenues during a windfall ond, some ways of distributing saving rates. References period can amount to several rent, whether through sus- times the potential benefit of tained protection of favored Figure 1 explores whether For further information, see the windfall itself. There is activities or firms, or a combi- countries are consuming or in- Alan Gelb, and others. 1988. therefore a strong case for mak- nation of non-oil taxes and vesting natural resource rents Oil Windfalls: Blessing or Curse? ing cautious revenue projec- subsidies and public spending, by scattering genuine saving World Bank: Oxford Universi- tions, for holding larger than have high costs and encourage rates against the share of min- ty Press. normal currency reserves, for corruption. eral and energy rents in GNI minimizing outstanding pub- (each dot represents a coun- This article was prepared by Alan lic debt, and for using hedging Tools to support resource manage- try's saving rate on the left axis Gelb, (202) 473-7667, fax (202) 522- techniques in order to cushion ment. Expanded asset account- 0906, Office of the Senior Vice Presi- and the share of resource rents dent for Development Economics; shocks (taking insurance, in ing--measuring the total in national income on the bot- and Kirk Hamilton, (202) 473-2053, effect, against future resource wealth of a nation as the sum tom axis). The fitted line sug- fax (202) 522-1735, of the Environ- price declines). of its produced, natural, and ment Department. It is based on a gests that, looking across 2002 World Bank Policy Research human resources--is a tool for countries, for each additional Working Paper (#2899) by Benn Using rents well. In most coun- analyzing the effectiveness percent of GNI that is derived Eifert, Alan Gelb, and Nils Borje tries, resource rents are the with which natural resource from exhaustible resource Tallroth entitled "The Political Economy of Fiscal Policy and Eco- property of the nation. How- endowments are being man- rents, roughly 0.72 of this is nomic Management in Oil Export- ever, large resource revenues aged. For example, the World being consumed.Avery signif- ing Economies." ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 27 T he demand for energy to human activities increasing services is growing rap- the atmospheric concentra- idly, particularly in de- tions of greenhouse gases and E veloping countries, where aerosols, rather than changes cost-effective energy is critical nergy, Climate in solar radiation or other nat- for poverty alleviation and ural factors. Changes in sea economic development.Ama- level, snow cover, ice extent, Change, and jor challenge is to provide and precipitation are consis- modern, cost-effective, and tent with a warmer climate. Development environmentally and socially Assuming that there are no sustainable energy services to coordinated international pol- the 1.6 billion people who cur- icies to seriously address the rently lack access to electricity, issue of climate change, the and the 2.4 billion who rely on Earth's climate is projected to biomass for cooking and heat- warm an additional 1.4 to 5.8oC ing. While the choice of fuels between 1990 and 2100. These will vary by region and de- changes in temperature will be pend on price, availability, accompanied by changes in the technology, and social and en- temporal and spatial patterns vironmental considerations, of precipitation, increases in fossil fuels are expected to re- the incidence of extreme main the dominant source in weather events, and a sea lev- the coming decades. Unfortu- el rise of 8­88 cm. nately, the extraction, produc- tion, and use of fossil fuels are The Intergovernmental Panel associated with land degrada- on Climate Change concluded tion and conversion, pollution that developing countries, and of water bodies, local and re- especially poor people within gional air pollution, emissions developing countries, are the of heavy metals such as mer- most vulnerable to climate cury, and climate change. change. The panel also found that the number of people ad- Climate change is already oc- versely affected by climate curring and is projected to change will be greater than change even more in the com- those that benefit, and the ing decades. There is little greater the rate and magnitude doubt that the Earth's climate of change the more adverse the has warmed, on average by consequences. Low-lying about 0.6oC, over the past 100 Small Island States and deltaic years. The temporal and spa- regions of developing coun- tial patterns of precipitation tries in South Asia, the South have changed, sea levels have Pacific, and the Indian Ocean risen between 10 and 25 cm, could eventually disappear most non-polar glaciers are re- under water, displacing tens of treating, and the extent and millions of people in the pro- thickness of Arctic sea ice in cess; peoples' exposure to ma- summer are decreasing. Most laria and dengue fever, already of the observed warming of the rampant in the tropics and sub- past 50 years can be attributed tropics, could become even 28 ENVIRONMENT MATTERS · 2004 Feature Articles more severe; crop production with the impacts of climate could significantly decrease in change. CarnemarkC. Africa, Latin America, and in other developing countries; Based on our current under- and freshwater could become standing of the climate system, even more scarce in many ar- and the response of different eas of the world already facing ecological systems, if signifi- shortages. cant adverse changes are to be avoided, the scientific evi- Climate change will also exac- dence suggests that the maxi- erbate the loss of biodiversity; mum tolerable increase in Indonesia increase the risk of extinction global mean surface tempera- for many species, especially ture is about 2oC and that the and to implement an adaptive implementation of supporting those that are already at risk rate of change should not ex- management strategy as part policies to overcome barriers to due to factors such as low pop- ceed 0.2oC per decade. This of the broader developmental the diffusion of these technol- ulation numbers, restricted or will require that the atmo- framework to limit the adverse ogies into the market-place, in- patchy habitats, and limited spheric concentration of car- effects of climate change and creased public and private climatic ranges; and adversely bon dioxide be limited to about capture any beneficial effects. sector funding for research and impact ecosystem services es- 450 ppm--certainly no more development, and effective sential for sustainable develop- than 550 ppm--and that all Environmental sustainability technology transfer. ment. For the 800 million countries will need to reduce in the energy sector cannot be people who go to bed hungry their projected greenhouse gas achieved with continued reli- Policies and programs needed every night, and the 2 billion emissions. Key issues will in- ance on today's technologies to facilitate the widespread others exposed to insect-borne clude setting intermediate and policies. Significant reduc- deployment of environmental- diseases and water scarcity, cli- targets and the equitable allo- tions in the emissions of local ly friendly energy production mate change threatens to bring cation of emissions rights that and regional pollutants and and use technologies include more suffering in its wake. In recognizes the principle of greenhouse gases are techni- energy pricing strategies; car- this way, climate change may common but differentiated re- cally feasible due to an exten- bon and pollution taxes; re- undermine long-term develop- sponsibilities embodied in the sive array of technologies in moving subsidies that increase ment and the ability of many United Nations Convention on the energy supply and de- emissions of local and region- poor people to escape poverty, Climate Change. mand sectors--many at little al pollutants and greenhouse and will clearly threaten our or no net cost to society. Reduc- gases; internalizing externali- ability to achieve some of the The time for action is now. Both ing projected emissions will ties; domestic and internation- Millennium Development mitigation and adaptation ac- require a portfolio of energy al tradable emissions permits; Goals. tivities will be needed to ad- production technologies, in- voluntary programs; incen- dress the threat of climate cluding fuel switching (coal/ tives for use of new technolo- Developing countries are in change. Even with concerted oil to gas), increased power gies during market build-up; general more vulnerable to cli- international efforts to reduce plant efficiency, carbon dioxide regulatory programs, includ- mate variability and climate greenhouse gas emissions, in capture and storage, increased ing energy-efficiency stan- change because their econo- both developed and develop- use of renewable energy tech- dards; and education and mies are particularly depen- ing countries, the Earth's nologies (modern biomass, so- training. Priority should be af- dent on climate-sensitive climate will change, and adap- lar, wind, run-of-the river and forded to identifying and im- sectors such as agricultural and tation measures will be need- large hydropower and geo- plementing policies and forest resources, both in terms ed. The smaller the magnitude thermal) and nuclear power, technologies that can simulta- of national production and in and the lower the rate of cli- complemented by more effi- neously address local, region- the number of people directly mate change, the easier it will cient use of energy in the trans- al, and global concerns. dependent on them for liveli- be to adapt. Even though there portation, buildings, and This article was prepared by Robert hoods. They also lack the tech- are scientific uncertainties, the industry sectors. Realizing T. Watson, (202) 473-6965, fax (202) nical, institutional, and knowledge base is sufficient to these emissions reductions in- 522-3292, of the Office of the Vice financial infrastructure to deal justify mitigation measures volves the development and President, ESSD. ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 29 I nvestment in large-scale in- of infrastructure projects and frastructure projects and are conventionally under the programs has been con- control of environmental or T strained by the perception, and social agencies; and (b) a host often the reality, that their ad- of strategic issues that lie out- he Elements verse environmental and social side of their control, but which impacts make them at odds play an important role in de- termining environmental and of Sustainable with the achievement of a sus- tainable pattern of economic social outcomes. growth. Uncertainties about Infrastructure the costs and causality of en- Strategic issues vironmental and social dam- age, and thus of the magni- General market reform. Market tude and type of remedial mea- reforms, in which prices in- Abstracted from a paper that is part of a wider sures, present an obstacle to creasingly reflect true costs, infrastructure flagship study in the East Asia and Pacific Region. However, the conclusions and rec- efficient and equitable deci- provide incentives for efficien- ommendations are essentially generic, and equal- sionmaking. Externalities, con- cy in resource use and access ly applicable to other sectors and Regions. flicts of interest, and distribu- to modern technology, and as tional effects mean that value such tend to be environmental- judgments are inescapable, ly beneficial at the sector lev- making it difficult to identify el. But general findings from precise and universally accept- Thailand and Indonesia have able solutions to many of the shown that the very success of problems encountered, which such reforms in generating works to the advantage of the economic growth has placed politically powerful and to the excessive demands on the en- detriment of the poor, and in- vironment and often resulted vites corruption in the manip- in growing disparities in in- ulation of data and infor- comes. The failure of market mation. forces to adequately handle the Widely thought of as be- interrelated issues of environ- ing the source of severe envi- mental impacts and income ronmental and social pro- distribution requires a parallel blems, infrastructure projects strengthening of regulatory can, if properly designed and capacity. implemented, be a positive Infrastructure sector policies. force in addressing environ- The environmental and social mental and social objectives. impacts of sector-wide policies Positive outcomes require con- mayoftenbefargreaterthanthe siderable analytical, political, impacts attributable to any one and institutional efforts at all project. In many cases, environ- stages of the policy and project mentalandsocialconsiderations cycle, and involve a wide provide further arguments for range of actors in both public public intervention and policy and private sectors. reformsthatarejustifiedintheir A wide variety of factors own right. It remains the case can play a role in infrastructure that opportunities for "win- projects and their environmen- win" policies and actions tal and social outcomes.Ause- abound. These are most clearly ful distinction can be made evidentwithregardtotheexist- between (a) those measures ence of perverse subsidies; en- that relate explicitly to the en- ergy and water price reform is vironmental and social aspects high on the list of priorities. 30 ENVIRONMENT MATTERS · 2004 Feature Articles Social policies. Inadequate Asia region in recent years, ment in infrastructure are con- tify potential "win-win" access to information by those such as reform of the pollution siderable. Actions to improve strategies. adversely affected by infra- levy system in China, but en- the social and environmental Medium Term. (a) System- structure developments--typ- vironmental taxes and charg- performance of infrastructure atically use SEA proce- ically the poor and disadvan- es typically remain well below development programs should dures; (b) factor environ- taged--combined with an in- damage costs. therefore be of major concern mental and social objec- ability to articulate their con- Public disclosure and par- to national-level economic pol- tives and costs into pricing cerns in an effective way, ticipation in Environmental Im- icymakers. In particular, a and other policies in key means that environmental data pact Assessments. Many coun- wide range of public policies sectors such as energy, can be mismanaged by power- tries in the region have adopt- influence the design and im- water, agriculture, and transportation; and (c) cre- ful vested interests. Because ed the use of environmental plementation of vast numbers ate incentives within gov- the requisite social conditions impact assessment (EIA) as a of small-scale infrastructure ernment agencies and de- are often not in place, national tool for examination of poten- projects that in the aggregate velopment institutions so governments in most develop- tial environmental and social may be of even greater envi- that environmental and ing countries in the region face impacts of projects. Although ronmental and social signifi- social costs associated severe sequencing problems. adequate laws and regulations cance than large-scale projects. with infrastructure pro- They have no alternative but to may exist on paper, the will- Due diligence relating to jects and activities are in- carry out short- and medium- ingness and capacity to use the environmental and social ternalized in their own term technical measures to ad- these and other methods for aspects of infrastructure devel- opment should increasingly be decisionmaking. dress urgent environmental assessment, monitoring, and exercised at a level far earlier Longer Term. Empower and social priorities, but at the evaluation of environmental those adversely affected in the development process same time need to lay the foun- and social aspects of infrastruc- by infrastructure projects than is typically the case. dation of a social framework ture investments typically to participate effectively in Achieving this goal essential- that is required for such mea- leaves much to be desired. decisionmaking processes ly depends on governance, but sures to become really effective There are nevertheless some by addressing the "build- will vary enormously from and sustainable. grounds for optimism. Recent ing blocks" that are essen- experience in the region indi- country to country and may Strategic environmental as- tial if the foregoing im- cates that community-driven have very different time hori- sessment. Effective "main- provements are to be sus- initiatives and participation at zons. For example: streaming" depends to a large tained independently of all stages of the project cycle Short Term. (a) Adopt ade- degree on the feasibility of the prevailing political are feasible and likely to lead quate environmental leg- Strategic Environmental As- fashion, including the ba- to satisfactory outcomes. islation and capacity sessment (SEA), which in- sic elements of a demo- Private sector role. The pri- building related to tradi- cludes any environmental cratic system, such as tech- vate sector is increasingly sen- tional responsibilities of impact assessment over and nical education, freedom sitive to the environmental and social and environmental of expression, decentrali- above the individual project social consequences of its ac- agencies, such as project- zation of political authori- level. A number of "best prac- tivities. This positive trend re- level EIA, monitoring, and ty, and free and transpar- tice" case studies provide suf- quires continued encourage- enforcement of economic ent electoral systems. ficient evidence of the value of ment. The role of the banking incentives, regulations, These requirements are this approach to warrant in- sector, through adherence to and standards; (b) im- fundamentaltotheachieve- creased efforts in the future. the Equator Principles, is par- prove information and ment of virtually all devel- transparency about the Conventional ticularly important. Effective opment objectives, but in- government oversight also is magnitude and incidence dispensable for environ- environmental and important. The Japanese ap- of damage costs associat- mental and social goals, proach, which emphasizes col- ed with infrastructure due to the need to recon- social measures laboration and consensus, has projects, their direct and cile inherent conflicts of in- been highly successful in en- underlying causes, and re- terest that are invariably suring compliance with agreed medial measures; (c) sup- present. Economic instruments. Much port environmental edu- standards. still needs to be done to trans- cation for communities, This article was prepared by Jeremy late the polluter-pays principle and training and aware- Warford, (301) 897-0779, of the Cen- into practical and enforceable Sequencing reform ness in infrastructure-re- ter for Social and Economic Research ontheGlobalEnvironment(CSERGE), economic instruments.Anum- lated agencies and enter- University College London and Se- ber of major improvements The potential environmental prises about cost-effective nior Adviser, Economic Develop- have been made in the East and social impacts of invest- technologies; and (d) iden- ment, EX Corporation, Tokyo. ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 31 T he World Bank is now The ENRM portfolio in the fourth year of implementing its 2001 At the end of fiscal 2004, the T Environment Strategy. Over total active projects with ENRM content amounted to he Environment the last few years, we have $11.2 billion. This constitutes seen a gradual improvement in 12.2 percent of the Bank's total and Natural Resources our environmental lending, a active portfolio in the same strengthening of our environ- year (see Figure 2). Of this, the Management Portfolio mental analytical work, and core ENRM portfolio (projects progress in mainstreaming en- with more than 65 percent vironmental issues into our ENRM content) consists of 59 sectoral projects and programs. Figure 1. Lending Trends projects representing $ 3.2 bil- 4,000 20 ENRM Lending at the World Bank New ENRM lending lion in ENRM commitments. ENRM as % of total Bank lending 3,000 15 In fiscal 2004, there were 66 In terms of thematic distribu- tion, about a third of the active millions 2,000 10 new projects in 42 countries 6.5 environmental portfolio is con- Dollar Percentage with environment and natural 1,000 5 centrated on pollution man- resourcesmanagement(ENRM) agement and environmental 0 0 content, representing $1.3 bil- FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 health activities. Another 26 lion in commitments (see Fig- percent focused on water re- ure 1). source management activities Urban Rural development development within projects (see Figure 3). 12% 14% As a percent of total new Bank Figure 2. Human Environment and development natural resources lending, environment and nat- In terms of regional distribu- Total World Bank 13% 12% ural resource management tion, projects in the East Asia Project Portfolio Economic management lending is steadily increasing and Pacific Region accounted by Thematic Social development/ 1% from 4.7 percent in fiscal 2002, for 42 percent of the active en- Distribution gender Public sector 9% government to 6.0 percent in fiscal 2003, and vironmental portfolio. This Social protection 8% and risk Rule of law now to 6.5 percent in fiscal was followed by projects in the 7% Trade and Finance and 2% SouthAsia Region (15 percent), integration private sector 2004 (see Figure 1). 4% development and in the Europe and Central 18% Percentages are based on commitment amounts. Asia Region (14 percent) (see Progress in mainstreaming en- Figure 4). vironment continues, with 92 percent of new ENRM lending Other ENRM Figure 4. Active ENRM 4% ($433) managed by non-environmen- Biodiversity 2% ($229) Portfolio -- Regional tal sectors. In fiscal 2004, Distribution, FY04 Figure 3. Water resources Climate change management 10% ($1,070) projects with larger ENRM Active ENRM 26% ($2,881) LAC MNA content were under way in 12% 7% Portfolio -- Environment policy and Turkey and Mauritania (in en- SAR Thematic institutions ECA 15% Distribution, FY04 13% ($1,425) ergy and mining projects); Chi- 14% na and Brazil (in transport Pollution Land AFR management and management projects); Vietnam (in urban 10% environmental health 14% ($1,619) 31% ($3,596) projects); and Bangladesh and Percentages are based on commitment amounts; Iran (in water supply and san- figures are in $ millions. itation projects). EAP 42% 32 ENVIRONMENT MATTERS · 2004 Bank-Wide Review Analytical and recent analytical work that is and additional Bank financing Carbon Finance advisory activities aligned with the objectives of of $738 million. The Third the Environment Strategy. The Environment Program Support The new State of the Carbon review shows improvement in Market 2004 report shows a Through our analytical and Project in Madagascar, ap- both the quantity and quality growing carbon finance mar- advisory activities, we are de- proved in fiscal 2004, is the of ENRM AAA. ket. The Bank's carbon finance fining environmental priori- largest single grant for the en- business has more than $410 ties, informing policy dialogue, vironment ($148.8 million) ap- million under management in and influencing decisions Global Environment proved by the Bank. six funds (either approved or about policies, projects, and Facility (GEF) under operation), which in- programs to achieve better de- As of June 2004, there were 150 clude the Prototype Carbon velopment outcomes. Since the inception of the GEF, full-size (more than $1 million Fund, the Community Devel- the World Bank Group has each) GEF projects amounting opment Carbon Fund, and the In fiscal 2004, the Bank pre- mobilized nearly $12 billion in to $8.8 billion in total project BioCarbon Fund (see Box be- pared 51 ESW products with public and private funds for costs, of which $2.3 billion is low). primary ENRM objectives. biodiversity conservation, cli- Bank financing. In addition, This includes Country Envi- mate change, ozone-depleting there were 70 medium-sized CARBON FINANCE AT ronmentalAnalyses (such as in substances, and international projects (less than $1 million THE WORLD BANK Tunisia); Strategic Environ- waters (see Figure 6). mentalAssessments (such as in each) representing $38 million The Prototype Carbon Fund Figure 6. Active GEF Mali); Energy-Environment in Bank commitments and (PCF), a public-private part- Portfolio -- Thematic nership of 17 companies Reviews (such as in Rwanda); $175 million in total commit- Distribution, FY02­04 and 6 government entities, and other environmental stud- ments. is pioneering the market in Montreal Protocol ies (such as in Bulgaria and In- Climate change greenhouse gas emission 27% donesia), among others. In reductions. The Community Develop- addition, there were 47 non- The Bank's Montreal Protocol ment Carbon Fund extends lending technical assistance International program, now active for 12 carbon finance to small- products reflecting various en- waters scale projects in least- 10% years, has facilitated the phase- vironmental issues (see Figure developed countries and out of over 139,495 tons of ODP poorer areas of all develop- 5). Biodiversity Ozone 53% Multi-focal area depletion at a cost of roughly $650 mil- ing countries. 9% 1% The BioCarbon Fund ap- An in-depth qualitative analy- lion. Over 416 projects have In fiscal 2004, 41 new GEF plies carbon finance to sis of environmentalAAA, un- projects were approved for reached completion as of the agroforestry and land use projects. dertaken in FY04, highlights $219 million in GEF financing end of 2004. Figure 5. ESW and nonlending TA with In fiscal 2004, there were 28 primary ENRM themes, FY02­04 new subprojects, including 3 60 TA with primary ENRM pipeline approvals, 18 invest- 51 50 ESWs with primary ENRM ment projects, and 7 non- 47 43 41 investment technical assis- 40 40 tance subprojects. Approved This article was prepared by Anjali 30 funding associated with these Acharya, (202) 458-5298, Ayesha 25 subprojects amounted to $66.2 Apparaka-Hemantha, (202) 458- 20 million, including $245,000 for 5099, and Eri Tsutsui,(202) 458- 5766, fax (202) 477-0565, of the En- pipeline approvals, $63.6 mil- 10 vironment Department, with inputs lion for investment projects, from the Environment Strategy 0 Implementation Team. Environment FY02 FY03 FY04 and $2.4 million for technical Strategy website: . ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 33 Ten safeguard Support for policies infrastructure T he World Bank's "safe The Bank has prepared an In- guard" policies (see frastructure Action Plan Table 1) require that (http://www.worldbank.org/ potentially adverse environ- infrastructure) that provides a mental impacts and selected framework for expanded S social impacts of Bank invest- support through a variety of ment projects should be iden- approaches at the sector, pro- afeguards Policies tified, avoided, or minimized gram, and project level. The where feasible, and mitigated Action Plan recognizes that the Overview of Recent Activities and monitored. The policies Bank's safeguards are "a criti- provide guidelines for Bank cal asset for ensuring develop- and borrower staff in the iden- ment effectiveness and im- tification, preparation, and im- pact." The Action Plan notes plementation of programs and the importance of supporting Table 1. The safeguard policies at the projects. The broad objective of infrastructure investments that World Bank (IBRD and IDA) the safeguard policy system is factor environmental and so- OP/BP 4.01 Environmental Assessment to integrate issues that the pol- cial safeguards into their de- OP/BP 4.04 Natural Habitats icies address into the decision- sign and operation. A greater OP 4.09 Pest Management making process in order to OP/BP 4.12 Involuntary Resettlement emphasis on infrastructure re- support environmentally and OD 4.20 Indigenous Peoples quires scaling-up of Bank and OP/BP 4.36 Forests socially sustainable develop- borrower capacity to integrate OP/BP 4.37 Safety of Dams ment. safeguards into program and OPN 11.03 Cultural Property project development and im- OP/BP 7.50 Projects on International Waterways During fiscal 2004, the Bank plementation. OP/BP 7.60 Projects in Disputed Areas approved 267 new projects, in- For the full text, please visit our website: <>. The Infrastructure Action Plan tions. The amount of invest- complements the Water Re- ment lending increased 8.5 per- sources Strategy issued in fis- Table 2. EA categories of invest- cent over fiscal 2003 (IDA$9 cal 2003 (http://lnweb18. ment projects in fiscal 2004 billion, IBRD $11 billion). See w o r l d b a n k . o rg / E S S D / Table 2 for the environmental Number Lending ardext.nsf/18ByDocName/ screening categories assigned Category (%) $ (%) WaterResourcesManagement). A 10 22 to these projects. B 54 50 The Action Plan, like the Wa- C 28 19 ter Resources Strategy, pro- Three themes have dominated FI 8 9 vides an entry point for more in this area over the last fiscal systematic use of Strategic En- year: (1) application of safe- guard policies to an expanded vironmental Assessment, Sec- program of infrastructure de- tor Environmental Assess- velopment; (2) continued sup- ment, and/or Regional Envi- portforsafeguardstrainingand ronmentalAssessment.Through capacity building with a diver- analysis of alternatives, the sity of parties; and (3) contin- Action Plan and Water Re- ued interest in the Inspection sources Strategy also provide Panel process, which supports opportunities to examine ways accountability and transparen- that existing infrastructure can cy at the World Bank. more fully contribute to meet- 34 ENVIRONMENT MATTERS · 2004 Bank-Wide Review ing current and future needs The World Bank Group took an bility Phase Requests for In- approval, will become ef- through rehabilitation, im- active role in the 2004 meeting spection in fiscal 2004: Philip- fective by the beginning of provement, and/or changes in of the International Associa- pines--Manila Second Sewer- fiscal 2006. operational practices. tion for Impact Assessment in age Project; Mexico--Indige- The World Bank will issue Vancouver, and will continue nous and Community Biodi- Safeguards training a framework for the pilot its engagement at the 2005 versity Project (COINBIO); use of country systems for and dissemination of meeting in Boston, where it Colombia--Cartagena Water safeguard policies, follow- plans to organize an event re- Supply, Sewerage, and Envi- ing discussions with the experience viewing recent policy and pro- ronmental Management Pro- Board and consultations. cedural developments within ject;andIndia--MumbaiUrban The World Bank will The Quality Assurance and the Bank, IFC, and MIGA. Transport Project (two Re- continue to support the Compliance Unit (QACU) and More information is available quests from different groups). harmonization of environ- the Regional Safeguard Units at http://www.iaia.org/. mental assessment proce- have continued to provide The Inspection Panel recom- dures among development training on safeguard policies Inspection Panel mended an investigation of the organizations. Progress in for staff from the Bank, bor- Colombia Request, which was this area will be reported rowers, consulting firms, and cases agreed to by the Board. The on at the "High Level Fo- NGOs. During fiscal 2004, for Inspection Panel did not rec- rum on Harmonization The World Bank's Inspection example, over 600 Bank staff ommend investigation of the and Development Effec- Panel has become a model for and consultants were trained Philippines Request. The Pan- tiveness" to be held in Par- accountability mechanisms es- by QACU on individual safe- el concluded that an investiga- tablished at a number of ma- is in early 2005. guard policies and the applica- tion of the Mexico Request was jor international financial Application of strategic tion of these policies to various not the best course of action at institutions as well as the Japan approaches to environ- sectors and themes. Madagas- this time. The Panel's eligibili- Bank for International Cooper- mental assessment at the car and other field offices held ty report and recommendation ation, a bilateral organization. program, sectoral, and re- training via videoconferenc- regarding investigation of the gional level will be ex- es--an approach that will be two India Requests are expect- In fiscal 2004, the Board of Ex- panded. expanded significantly during ed shortly. ecutive Directors discussed Emphasis will continue to the new fiscal year. Individual two cases, one in Africa and be placed on strengthen- Bank Regions also developed The Yacyreta Hydroelectric one in South Asia; in both cas- ing Bank and borrower their own safeguards training Project in Paraguay andArgen- es, Panel Investigations and supervision of Environ- courses for headquarters staff, Management Responses and tina was registered in fiscal mentalManagementPlans. field staff, and clients. Joint Recommendations had been 2002. Investigation began in Preliminary guidance will QACU/AFR pilots were con- completed in fiscal 2003. The fiscal 2003. In May 2004 the be provided on addressing ducted to train task managers Board discussion of the case Board approved the Manage- disability issues in the con- in the new regional safeguards in Cameroon involved two mentAction Plan and request- text of environmental as- management process. More of projects associated with the ed that management report sessment and other relat- these sessions will be conduct- Chad-Cameroon Pipeline--the back in 90 days on progress ed processes as a contribu- ed with the other Regions in Cameroon Petroleum Devel- made. tion to the World Bank's fiscal 2005. opment and Pipeline Project Disabilities and Develop- and the Petroleum Environ- Looking forward ment agenda. A new joint committee for mental Capacity Enhancement Knowledge Sharing and Project. In addition, the Board The safeguard policy work of Learning (KSL) will foster discussed the India Coal Sec- the World Bank will continue greater synergies and impacts This article was prepared by the tor Environmental and Social to evolve during fiscal 2005: Quality Assurance and Compliance from a combined approach to Mitigation Project and Coal The revision of the Indig- Unit. For more information, contact training to be shared by the Sector Rehabilitation Project. enous Peoples Policy is L. Panneer Selvam, phone (202) 458- Environment, Social Develop- proposed for discussion 2728, fax (202) 477-0565; or Jean- Roger Mercier, phone (202) 473- ment, and Rural Development The Bank submitted Manage- by the Board during fiscal 5565, fax (202) 477-0565. Website: Departments. ment Responses for five Eligi- 2005 and, subject to Board . ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 35 Sub-Saharan Africa Region Mauritania Cape Verde Mali Niger Senegal Chad Eritrea Burkina Sudan Nigeria Guinea Faso Benin Sierra Togo C.A.R. Ethiopia Leone Cameroon Somalia Liberia Uganda Guinea-Bissau Congo The Gambia Rwanda Côte d'Ivoire Burundi Kenya Ghana Tanzania Equatorial Guinea D.R. of São Tomé and Congo Seychelles Príncipe Angola Comoros Gabon Zambia Malawi Zimbabwe Mauritius Namibia Botswana Madagascar South Mozambique Africa Swaziland IBRD 31567R DECEMBER 2004 Lesotho Carnemark Mali C. Natural resource sustainability Good management of natural resources is also crucial in Sub- and economic growth in Africa Saharan Africa due to the region's extreme vulnerability to natural hazards. Localized droughts and floods--leading to t famine, death, and destruction of homes, crops, and natural he short- and medium-term options for Sub- habitats--continue to threaten years of progress. With a natu- Saharan Africa to fight poverty and to grow ral hydrological variability of up to 35 percent in many of more sustainably lie in the careful manage- Africa's economies, the ensuing floods and droughts also lead ment and utilization of its natural resources. to unpredictable and massive economic shocks, destruction The population is predominantly rural, and about two thirds of infrastructure, and to risk aversion by farmers. of all rural households are living below each country's pover- The over-exploitation and unsustainable management of nat- ty line. Nearly 70 percent of households are engaged in food ural resources threaten growth and poverty reduction efforts. crop and non-food cash crop production. Firewood and char- The economic and social costs are roughly estimated at 3 to 5 coal provide up to 80 percent of local energy needs. Africa is percent of the region's GDP. Environmental health costs in rapidly urbanizing, but the livelihoods of the majority of the Sub-Saharan Africa are also staggering, amounting to 2.9 mil- population will continue to be dependent on the utilization lion deaths and 99.6 million DALYs lost in 2002, according to of natural resources. the 2004 World Health Organization annual report. 36 ENVIRONMENT MATTERS · 2004 SUB-SAHARAN AFRICA REGION Portfolio Infrastructure devel- trend in the region--46 percent of Sub- SaharanAfrica will be urban by 2020, and The Bank has maintained its efforts on opment and the envi- 70 cities will have populations of more natural resources sustainability through than 1 million people. the financing of a combination of ronment (a) projects primarily focused on environ- mental issues, (b) sector projects with sig- Excluding South Africa, less than 10 per- BOX 2. nificant environmental components, and cent of Sub-SaharanAfricans have access URBAN INFRASTRUCTURE (c) other activities such as technical as- to electricity and less than half have ac- sistance, capacity building, and studies. cess to safe water supplies. Road density GhanaUESP1.The Ghana Urban Environ- At the end of June 2004, there were 13 stands at 7km/100km2, compared to mental Sanitation Project supported the active environmental projects totaling just 170km/100km2 in Europe. With a much nascent Metropolitan and Municipal As- over $230 million. Environmental compo- higher climatic variability and greater semblies in the five largest towns to nents of 68 sector projects, particularly prepare and approve annual waste man- intensity of floods and drought, Africa's focused on infrastructure and rural de- agement budgets,raise revenues,and pro- water security is also far behind that of vide basic services.The project improved velopment, added another $900 million. other regions. For example, water storage the institutional arrangements for waste Many of these projects are in support of per person (natural and artificial) is 42 m3 management, engaged more private op- initiatives such as those launched by The per person per year in Ethiopia and erators in refuse collection, created the New Partnership for Africa's Develop- 6,150m3 in the United States. It is estimat- first three sanitary landfills in the country, ment and by regional and sub-regional ed that the region will need about $15 improved storm drainage, and construct- organizations. In addition to project fi- billion a year in infrastructure financing ed latrines in residences, public places, nancing, the Bank is furthering its efforts and schools. Solid waste collection in- to achieve the 7 percent economic growth to mainstream environmental issues in creased by 55 percent in four of the five most areas of its work, including macro needed to halve extreme poverty by 2015 cities. Commerce is thriving again in the adjustments and PRSC (see Box 1). The and to reach the MDGs. Progress in ser- central business district ofTakoradi,which challenge to integrate environmental pro- vice provision has been much too slow, is now clean and free of serious flooding, tection with growth and poverty allevia- access in rural areas remains very low, and won an award as the cleanest city in tion is most pronounced in the case of and infrastructure will need to greatly the nation in 2002.Community upgrading infrastructure. expand to cope with the urbanization activities brought about a striking trans- formation in the lower income neighbor- hoods. The combination of access roads BOX 1. MAINSTREAMING ENVIRONMENT IN POVERTY and street lighting has resulted in a surge REDUCTION SUPPORT CREDIT IN TANZANIA of economic activity in the beneficiary communities, and new small-scale busi- The Government of Tanzania has taken several important steps in recent years to set in nesses (many of them owned and operat- place an environmental framework for the country,including the development of a nation- ed by women) have sprung up in the al environmental policy (1997), endorsement of an institutional framework (2002), initia- project communities. tion of strategic environmental assessments (2003), launching of a Public Environmental Tanzania Urban Sector Rehabilitation Expenditure Review (2004), formulation of a National Environmental Act (2004), and main- Project.The project supports (a) rehabili- streaming poverty/environment indicators within the national Poverty Monitoring System tation of basic infrastructure and expan- (2003/2004). sion into high priority,under-served urban The Environment Minister requested Bank support to address key environmental issues in areas in the nine towns, and (b) improve- the country, including Tanzania's high resource dependence, the links between poverty ments in urban local government man- and environment, and appropriate institutional frameworks. In response to this request, agement and financing capacity. The the Bank team launched a study to assess the links between poverty and environmental project achieved rehabilitation of about degradation. Together with the priorities identified by the government in its recent initia- 30 percent of the tarmac roads;solid waste tives, the study formed the basis for the environmental agenda mainstreamed within the collection increased from about 25 per- Poverty Reduction Support Credit (PRSC). The PRSC supports the government's efforts to cent to 60 percent;water supply coverage address key issues through a three-pronged strategy involving (a) mainstreaming environ- increased from 66 percent to 82.4 percent; mental concerns into the PRS, the budget process, and sector policies; (b) better under- and sewer connections increased by 2.5 standing of poverty-environment links and options for reducing vulnerability of the poor; times. The improvement in urban servic- and (c) strengthening institutional capacity to integrate environmental assessment proce- es has further stimulated growth of pri- dures into sector strategies and policies and specific activities at the district and local levels. vate businesses in small-scale industry. ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 37 Some infrastructure projects can be al- good track record of successful urban in- with longer-term positive environmental most entirely win-win: in addition to di- frastructure projects (see Box 2). In addi- outcomes, which have to be balanced rect economic benefits, they also produce tion, some projects in the energy sector with localized impacts that may disrupt social and environmental benefits such as provide evidence of ample win-win op- ecosystems and affect entire local com- better housing, better environmental con- portunities (see Box 3). munities, who are typically poor and ditions, mitigation of vulnerability and have few alternatives. In the case of large risks, and overall improved livelihoods. In many cases, projects produce signifi- productive infrastructure projects such as This is frequently the case with urban in- cant social and economic gains for urban dams, the region has the capacity to find frastructure projects involving water sup- and peri-urban communities coupled innovative approaches to mitigate the ply and sanitation, urban upgrading, and solid waste. The Bank has maintained a BOX 4. SENEGAL RIVER BASIN MANAGEMENT BOX 3. The Senegal River connects fourWest African countries--Guinea,Mali,Mauritania,and Sene- gal. In response to the severe social and economic shocks from the 1970s droughts, Mali, ENERGY INFRASTRUCTURE Mauritania, and Senegal jointly constructed the Manantali and Diama dams. By operating the dams as a single unit,the countries have improved their water availability and electric- Senegal Sustainable and Participatory ity supply to the three capital cities.In Mali, total electricity consumption and subscription EnergyManagementProject--PROGEDE. increased by over 50 percent between 1995 and 2003; the water supply of Dakar's 1.3 mil- This project will help meet the rapidly lion inhabitants has improved; work is under way to triple Nouakchott's water supply by growing urban demand for household fu- 2020; and the Senegal Basin's irrigated area has increased to 120,000 ha. Success can be els while preserving forest cover and the largely attributed to the river's joint management through the Organisation pour la Mise ecosystem's carbon sequestration poten- en Valeur du fleuve Sénégal (OMVS). OMVS is implementing institutional and operational tial. These objectives are being met measures, including principles of effective water resource management, definition of min- through (a) the implementation and mon- imum flow releases, and participation of water users' associations in the Permanent Water itoring of 300,000 hectares of sustainable Commission deliberations on water allocation and artificial flood releases. community-managed forests in 50 per- cent of the country's woodfuel supply The river's regulation altered its ecosystem, leading to environmental and social impacts. zone; (b) the promotion of private sector- Historically, saline levels in the delta fluctuated daily and seasonally, making for a diverse basedinter-fuelsubstitutionandimproved- ecosystem that became more uniform with regulation.This resulted in an unforeseen pro- stoves initiatives; and (c) the strengthen- liferation of aquatic weeds and higher incidence of schistosomiasis and malaria. Further- ing of sector institutions. more,traditional agriculture downstream was affected by the artificial regime of Manantali Dam. These negative impacts are being addressed by OMVS through health pilot projects The Uganda West Nile Electricity in most infected areas, biological and mechanical removal activities in the areas most in- Project.The project will be the first Clean fested with water weeds, plus a regional sanitary plan that is under preparation to reverse Development Mechanism project negoti- the spread of waterborne diseases.The World Bank did not fund the dams due to environ- ated in Africa, where the World Bank's mental concerns, but it did finance the electricity generation and transmission infrastruc- Prototype Carbon Fund (PCF) will be pur- ture and is working with the countries to mitigate the environmental problems. chasing CO emission reductions for up to 2 $3.9 million over 15 to 20 years.While pub- lic diesel-generated power is only avail- able intermittently for a few hours per day, CarnemarkC. the people in the region increasingly rely on the use of petroleum to fuel very inef- ficient generators and engines. The $20 million project will replace emissions from these inefficient generators and engines in the districts of Arua and Nebbi in west- ern Uganda by constructing two small hydropower stations,efficient diesel back- up facilities, and rehabilitating the mini- grid in the region. The project is part of the Government of Uganda's Energy for Rural Transformation Scheme, which is supported by the World Bank and various bilateral partners. Senegal. 38 ENVIRONMENT MATTERS · 2004 SUB-SAHARAN AFRICA REGION BOX 5. LESOTHO HIGHLANDS WATER PROJECT THE AFR REGIONAL ENVIRONMENT PORTFOLIO The $8 billion Lesotho Highlands Water Project is the Bank's largest ongoing infrastructure development project. It has suffered from a series of controversies, including two Inspec- Other environmentalBiodiversity tion Panel complaints, a corruption scandal, and the objections of international NGOs.Yet management 4% 9% the project has gone ahead to achieve its major objectives of ensuring water security for Climate change 14% the heartland of South Africa--an area prone to drought, but generating 60 percent of its Water resource management GDP with just 8 percent of its water--by increasing water storage capacity and generating 16% Environmental substantial financial and economic benefits for Lesotho. policy and institutions This interbasin transfer project has the capacity to divert and export 27.6 m3/sec of water 17% and to also generate up to 72 MW of electricity to Lesotho. Environmental and social im- Pollution Land pacts were addressed by a variety of innovative measures, including (a) the formulation of management management 30% 10% a first World Bank-supported Instream Flow Requirement Policy, which links and predicts downstream biophysical impacts with socioeconomic impacts; (b) a framework for evalu- At the end of June 2004 the active portfolio of World Bank environmental lending in the AFR ating the health status of project rivers and for predicting changes in status that would Region was $1.1 billion. In fiscal 2004, new to- result from a range of scenarios of diversion and downstream releases; and (c) estimation tal environmental lending amounted to $195 of the social impacts for downstream communities and associated resource losses. million. After initial downstream release scenarios were agreed for each project diversion struc- zation, decentralization, and regional ture, detailed procedures were formulated for implementation, including socioeconomic integration may be opportunities to im- and biophysical monitoring programs,mitigation programs,compensation paid in advance prove environmental outcomes, but care- to downstream communities for predicted impacts over the first 10 years, and provisions ful mitigation measures and integration for an annual review and periodic audit. Public disclosure and community consultations were important aspects of the work. of environment with sector policies will remain critical challenges. negative impacts (see Boxes 4 and 5). Ba- deepen ongoing efforts on the environ- sic ingredients for the successful main- ment. The region needs to (a) ensure the CarnemarkC. streaming of social and environmental integration of the environment in broad- issues in infrastructure projects include er government planning and advance lo- public disclosure; extensive and timely cal capacity and regulatory frameworks; stakeholder and beneficiary consultation (b) address environmental issues ade- and involvement in project design and quately in projects; and (c) directly sup- implementation; upstream incorporation port activities that reduce vulnerability of environmental concerns; transparency and improve people's livelihoods, the in the design and implementation of global commons, and environmental projects; sound technical analyses of the health. benefits and the likely impacts of differ- ent alternatives; information dissemina- These are the guiding principles of the tion, particularly to more vulnerable or Bank's work on the environment in Sub- excluded groups; and scrutiny by inde- Saharan Africa and part of its strategy. pendent reviewers. The environment has been increasingly addressed in the Bank's macro and stra- Challenges and tegic work. Examples include the PRSC Lesotho. of Senegal and Rwanda; the Country As- opportunities sistance Strategies of Chad, Cameroon, This article was prepared by Sergio Margulis, and Ghana; and Mozambique's CEM. The (202) 458-1397, fax (202) 473-8185, of the Environmentally and Socially Sustainable In order to keep up with the challenge of Africa Region will further its efforts Development Unit for Southern Africa with protecting its natural resources as through stand-alone environmental contributions from Inger Andersen, Wiebe the basis for short- and medium-term projects, partnerships with GEF, integra- Moes, Undala Alam, Solomon Alemu, growth, and at the same time to expand tion with sector projects, and more tech- Andrew Macoun, Boris Utria, Arun Sanghvi, and Indumathie Hewawasam, all from the infrastructure provision, the countries in nical assistance and analytical work. The Africa Region. AFR website: . ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 39 East Asia and Pacific Region Mongolia China Rep. of Korea Lao P.D.R. Myanmar Vietnam Cambodia Thailand Philippines Marshall Islands Malaysia Palau Fed. States of Micronesia Kiribati Papua Indonesia New Solomon Guinea Is. Timor-Leste Samoa Vanuatu Fiji IBRD 31562R DECEMBER 2004 Tonga Carnemark C. Vietnam e conomic growth in the East Asia and Pacific Damages from air pollution are significant in many cities, in- region has remained strong, with regional GDP cluding Bangkok, Beijing, Jakarta, Manila, and Shanghai. In growth exceeding 6 percent over the last 12 addition, competition for water is increasing in parts of the months, and prospects look promising for the region, including growing urban areas. In rural areas, the rap- future. Economic growth of this magnitude id loss of forests, increased pressures on fisheries, and soil ero- implies further urbanization, rapid industrial and energy de- sion are having negative impacts on the income and welfare of velopment, and the need for infrastructure services to keep the poor, who have the highest direct dependence on natural pace with fast-growing needs. resources for both sustenance and livelihoods. If current trends continue, environmental degradation could constrain growth Rapid economic growth and related socioeconomic transfor- and undermine the region's potential for future economic de- mation in the region offer tremendous opportunities for im- velopment. proving the quality of people's lives, but also pose significant challenges for reconciling economic, environmental, and so- Refocusing Bank assistance cial objectives. Estimates indicate that the region's costs from environmental degradation range from 4 to 8 percent of GDP, Over the past year the World Bank has been involved in a wide with the poor suffering most from the consequences of envi- range of projects and programs to help countries in the region ronmental problems. More than 500,000 infants die each year address their environmental challenges, and to strike a bal- as a result of waterborne diseases linked to polluted water. ance between economic and environmental objectives and 40 ENVIRONMENT MATTERS · 2004 EAST ASIA AND PACIFIC REGION adopt a more sustainable development tion on environmental indicators of the Laguna de Bay watershed (see Box path. In order to enhance the effective- such as air and water pollution, de- 1). ness of Bank assistance, the Environment forestation, and waste management. and Social Development Unit (EASES) The series has emerged as a key tool The region's GEF program grew strong- has started to prepare an Environment for (a) diagnosis of environmental ly in fiscal 2004. The Board approved Strategy for the Bank in the East Asia and indicators, trends, and policy issues; seven new full-sized GEF co-financed Pacific Region. The Strategy, expected to (b) awareness raising among policy- projects. These projects cover a wide ar- be completed in fiscal 2005, will adopt the makers, academics, researchers, and ray of issues. Two promote renewable framework of the Bank's corporate envi- the general public; and (c) partner- energy (Cambodia and Philippines), and ronment strategy to the circumstances of ships among public sector, civil soci- another two will reduce land-based pol- the region, build on lessons from its ex- ety, and development partners. Over lution and promote efficient water use tensive environmental program in the the last year, Environment Monitors (China Hai Basin and China Pearl River region, and respond to recent develop- have been completed in Cambodia, Delta). Other projects will conserve ma- ments and challenges. Several activities Indonesia, Mongolia, the Philippines, rine biodiversity (Indonesia Coral Reef over the past year have been aligned with Thailand, and Vietnam. Management Phase II), promote sustain- the emerging strategy. Enhancing environmental gover- able land management (China Gansu/ nance. In Indonesia, the Good Envi- Enhancing environ- Xinjiang Pastoral Development), and sup- ronmental Governance program was port a power system energy efficiency launched to support innovation in mental analysis and introducing performance measures project (Philippines). In total, the Region's new GEF resource commitments are just assistance for environmental management. Public environmental disclosure pro- below $70 million. grams were supported in several The Bank's analytical services are aimed countries. For example, in the Phil- The Region's GEF program is fully main- at assisting policy dialogue and institu- ippines, a successful international streamed into the Region's country and tional development in client countries, workshop was organized (EcoWatch sector assistance strategies, and also re- raising awareness of key environmental for Beaches) to explore water quality flects the Region's increased focus on issues, and influencing the design of sec- information disclosure and links with regional issues and on promoting cross- tor strategies, plans, and operations. The tourism. country collaboration on shared or com- region has focused on several broad mon issues. Examples of the latter include analytical areas. A few are highlighted a multi-country GEF industrial livestock below: Financing environ- waste management project that is under Exploring environment-poverty mental improvements preparation, and a $75 million EAP/GEF linkages. An ambitious multi-year regional land-based pollution reduction program to explore the linkages be- During the last fiscal year, the Bank ap- program. tween environment and poverty in proved seven new Bank-financed projects Cambodia, Lao PDR, and Vietnam with significant environmental objectives has yielded valuable policy-relevant Strategic innovation is another defining in the EAP region (three with GEF findings, and helped integrate envi- feature of the Region's GEF program. co-financing): two in China and Indone- ronmental considerations into the For example, the GEF China Building sia, one in Vietnam, and three in the Phil- completion of Poverty Reduction Energy Efficiency Project will radically re- ippines. Of these projects, two address Strategy Papers and the preparation biodiversity, two are concerned with land form residential apartment heating poli- of Poverty Reduction Credits in management, and four involve climate cy and technology in China's colder Cambodia, Lao PDR, Mongolia, and change initiatives. Several are innovative regions and sharply improve energy effi- Vietnam. in nature. The Philippines Laguna de Bay ciency in residential buildings. Agree- Monitoring environmental trends. Institutional Strengthening and Commu- ment was also reached in principle with The Environment Monitor series con- nity Participation project, for example, the Chinese Government on a national tinued to expand and now includes takes an integrated watershed manage- EAP/GEF environmentally sustainable seven countries, providing informa- ment approach to improving the quality urban transport program. ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 41 Meeting global chain--pose a regional problem because ippines, and seven projects were identi- they can spread thousands of miles from fied and activated over the last year. In challenges the point of emission. In response to a Indonesia, the Bank has now signed the request from the Chinese Government, first-ever Emissions Reduction Purchase Implementing the Montreal Protocol. the Bank has started to prepare two large Agreement (ERPA) in the region, and The East Asian program to phase out demonstration projects for the phaseout technical negotiations on purchase agree- ozone-depleting substances (ODS) is the of POPs in China, focusing on the man- ments for two projects in China were also largest in the world. The region intends agement and disposal of PCBs and the completed. In the future, the focus will to reduce ODS emissions by 300,000 tons use of alternative chemicals for termite be on landfill projects, such as methane by 2010 (nearly three-quarters of the ODS control. It is also funding studies to sup- capture in solid waste management, and production in the developing world). port policy-led initiatives to tackle POPs a proposed HFC-23 project in China that China's Mobile Air Conditioning Sector issues; current work includes an evalua- will be one of the Banks largest CF Plan was the first such plan to be com- tion of effects of exposure to POPs and projects. pleted under the Bank's ODS program. enhancement of management capacity, National chlorofluorocarbon phaseout and the development of a PCB invento- Managing environ- plans (NCPPs) are under implementation ry, methodology, and strategy on PCB re- in Thailand, Malaysia, and the Philip- duction in China. mental risks and pines, along with a MobileAir Condition- ing Sector Plan and a Foam Sector Plan Building a carbon finance portfolio. The mainstreaming for Indonesia. A national phaseout plan region's new carbon finance portfolio environment into also is being developed for Vietnam. developed rapidly. Significant efforts were made to build constituencies with- project design Phasing out persistent organic pollut- in and outside the Bank (see Box 2). ants (POPS). POPs--toxic chemicals that Awareness raising activities were under- Managing the environmental and social become more concentrated along the food taken in China, Indonesia, and the Phil- aspects of the growing need in the region BOX 1. LAGUNA DE BAY, PHILIPPINES The Laguna de Bay Lake and watershed in the Philippines is a unique resource that pro- MortonJ. vides a range of life support services for more than 10 million people in the surrounding area. Despite various efforts to sustainably manage it, the system is suffering from severe environmental pressure. The Laguna De Bay Institutional Strengthening and Community Participation Project (LISCOP) has been designed to respond to this decline. It aims to im- prove environmental quality and support local institutional capacity building.The LISCOP project combines a number of innovative approaches, including: The Co-management approach, which requires government agencies and grassroots groups to collaborate on resource management issues.This is increasing public aware- ness, ownership and support for the environmental agenda. Community Driven Development (CDD), which is encouraging grassroots participation through multistakeholder river councils that allow everyone to participate in project design and resource allocation. Integrated Watershed Management, which embraces different resource users. At the administrative level, the project is supporting the Laguna Lake Development Au- thority with capacity strengthening activities to help it carry out policy, regulatory, and development functions.The project is also helping to build support for an effluent user fee by improving the charge calculation procedure and collection rate. Shore of Laguna de Bay showing fish aquaculture pens and aquatic weeds, resulting from pollution. The Bank is also exploring opportunities to use carbon finance programs for sub-projects to provide extra benefits to local communities while supporting the global commons. 42 ENVIRONMENT MATTERS · 2004 EAST ASIA AND PACIFIC REGION for enhanced infrastructure development BOX 2. SUPPORTING THE CLEAN THE EAP REGIONAL requires enhanced analytical tools, pro- ENVIRONMENT PORTFOLIO cesses for stakeholder consultation, and DEVELOPMENT MECHANISM IN financial resources allocated for enhanc- CHINA Other environmental Biodiversity management 2% ing environmental and social outcomes. Climate change 3% The Clean Development Mechanism 10% Well-prepared, large infrastructure (CDM) presents governments and the pri- Environmental Water resource projects have the potential to contribute policy and vate sector with complex challenges to management institutions to economic, environmental, and social 27% benefit from opportunities provided by 10% development objectives in a sustainable the Kyoto Protocol.In response,the World Land manner. Bank has been working with several client management 15% countries and development partners to Pollution The Region has a well-established envi- explore opportunities,build capacity,and management provide policy advice. As part of this ef- ronmental review process, which occurs 33% fort,a major study on the development of At the end of June 2004 the active portfolio of at key stages in project development. This CDM in China was prepared and launched World Bank environmental lending in the EAP process is used to ensure that environ- in July 2004 in Beijing. Region was $4.8 billion. In fiscal 2004, new to- mental and social considerations are in- tal environmental lending amounted to $432 million. tegrated into project design, and risks are appropriately managed. The environ- was launched in July 2004. In China, the mental review process has often led to Bank launched the Italian Trust Fund for significant design improvements, better Environment to support an environmen- environmental outcomes, and more sus- tal partnership. The Korean Environmen- tainable projects. One recent example is tal Knowledge Partnership has supported the Barangay Environmental Sanitation environmental analysis and capacity Plan in Palawan (Philippines), where en- building in China, the Philippines, and vironmental support led to improved Vietnam. water supply and sanitation plans, as well as attention to the plan's administrative At the regional level, Better Air Quality aspects. 2003, the largest-ever conference on air http://www.worldbank.org.cn/ quality in Asia, was held in Manila in English/Content/cdm-china.pdf During recent years it has been increas- December 2003 by the Clean Air Initia- ingly recognized that in cases where The study evaluates the main obstacles to tive to promote innovative ways to im- CDM initiatives in the power sector in Chi- countries have strong policy and institu- prove air quality through partnerships. na, and develops six case studies for po- tional capacity for managing and safe- The region's initiative on Faith and Envi- tential CDM projects. It also assesses guarding their environmental resources, ronment engaged several faith-based or- China's potential competitiveness in the ganizations in Cambodia, Indonesia, Bank-supported projects are more sus- global carbon market,and looks at strate- Mongolia, Papua New Guinea, and Thai- tainable and achieve greater development gic options for the first Kyoto commitment land, to capitalize on the links between outcomes. Therefore, supplementing its period.The CDM workshop was attended religion and environmental stewardship. own efforts to review projects, the Bank by more than 250 participants. The Bank has also been actively involved has also supported efforts to develop in regional activities of the Forestry Law country capacity in areas such as environ- Building environmen- Enforcement and Governance initiative, mental screening, risk assessment, the World Bank-WWF Forest Alliance, strategic environmental assessment, tal partnerships and others. monitoring, and evaluation. For example, This article was prepared by Magda Lovei, (202) the Institutional Development Fund is The Bank's assistance can be most effec- 473-3986, Giovanna Dore, (202) 473-2934, and supporting capacity building activities tive if it works with development part- Andrew Murray, (202) 473-4580, fax (202) 522- for improved environmental manage- ners. This is reflected in several country 1666, of the Environment and Social Develop- ment Sector Unit of the East Asia and Pacific ment in China, Mongolia, the Philippines, programs. In Thailand, the Country De- Region, with contributions from other EASES and Vietnam. velopment Partnership for Environment staff. EAP website: . ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 43 Europe and Central Asia Region Slovak Rep. Czech Rep. Estonia Russian Federation Latvia Lithuania Poland Belarus Ukraine Kazakhstan Moldova Hungary Romania Uzbekistan Bulgaria Georgia Kyrgyz Armenia Azerbaijan Rep. Turkey Turkmenistan Tajikistan FYR Macedonia Albania Serbia and Montenegro Bosnia and Herzegovina Croatia Slovenia IBRD 31563R2 DECEMBER 2004 Kiss.A Kyrgyz Republic The challenge of environmentally ing outdated technologies. The shortage of funds results partly from political difficulties in raising tariffs, but also from af- responsible growth fordability constraints, especially outside capital cities, and in countries where incomes are still below those of 1990. Infrastructure The World Bank is helping countries improve the quality of infrastructure and environment through several measures. f ollowing the transitions of the early 1990s, In addition to institutional reforms and cost recovery mea- many countries in the Europe and Central sures, they include investments in new technologies, contracts Asia region went through a period of econom- with private operators, economies of scale in solid waste dis- posal, and environmental improvements in port management ic decline accompanied by a severe deterio- (see Box 1). ration in infrastructure and related services, Another key ingredient in the region's economic growth such as electricity, gas and water supply, wastewater treat- is more efficient delivery of environmental services. As part ment, and solid waste disposal. This decline has reversed in of this effort, community engagement is essential to establish most countries, but unreliable service delivery and pollution consensus and support for systemic improvements in services. from solid waste, sewerage, and industrial effluent threatens Vehicle ownership has expanded rapidly in all ECAcoun- economic development--for example, through power and tries, so the Bank is investing in improved road infrastructure water cuts for industry, and in coastal communities where and transport, as well as the enforcement of traffic safety mea- tourism and fishing are vital to the economy. sures. Aproject to improve road maintenance and traffic safe- Acentral problem has been inadequate funding for basic ty in Poland was approved this year as part of a broader road maintenance and operation of infrastructure and for replac- improvement program. 44 ENVIRONMENT MATTERS · 2004 EUROPE AND CENTRAL ASIA REGION BOX 1. INNOVATIONS FOR NFRASTRUCTURE AND I ENVIRONMENT Along with rehabilitating existing local landfills, the Bosnia and Herzegovina Solid Waste Management Project is developing larger regional landfills to service multiple municipali- Covic.A ties with economies of scale that lower unit costs and make high standards of environmen- tal protection more affordable. In three coastal cities,the Albania Integrated Water and Ecosystems Management Project is supporting the development of new constructed wetlands as low-cost,close-to-nature treat- ment solutions, and--in conjunction with the Municipal Water and Waste Water Project-- is piloting the use of performance- and incentive-based contracts as a means of increasing private sector participation in the provision of water supply and sanitation services. The project also encompasses improvements in the management and monitoring of areas of globally important biodiversity, such as the Kune Vain protected marshland. The Croatia Coastal Cities Project forges a link between environmental health and econom- ic development by supporting improved wastewater treatment in 40 pilot cities where tour- ism represents an important element of the local economy. The Croatia Rijeka Gateway Project aims to improve road safety and reduce air pollution and noise in the city by introducing traffic management measures,diverting a large part of the traffic to a bypass/connector road,and by routing heavy trucks through an underground tunnel. The investments supported by the Poland Road Maintenance and Rehabilitation Project will lead to savings in fuel and in vehicle operating costs and to improvements in The River Vrbas, in Banja Luka region, near a Solid Waste Management Project in Bosnia and traffic safety. Herzegovina. The Bank also actively supports pro- preparation in Albania, and investments term costs, which may impact on profit- grams to promote energy efficiency, de- in improved water supply and wastewa- ability and be perceived as threatening velop renewable energy, and reduce ter treatment in coastal areas are ongo- jobs. The World Bank is helping countries atmospheric carbon emissions, including ing, including support for wetland tackle these challenges by working with several projects under the Prototype Car- ecosystem restoration.An analysis is also both the public and private sectors to bon Fund (see Figure 1, Boxes 2 and 3). under way to identify similarities and strengthen environmental management Alternative energy can be an element of gaps between the aquis and the Bank's capacity, clean up existing hazardous in- projects in other sectors as well, such as safeguard policies, with the aim of pilot- dustrial sites, and reduce pollution in the the Small Grants Program in the Central ing a country system approach (based on future by improving capacity and provid- Asia Transboundary Biodiversity Project the EU provisions and the countries' own ing incentives for industries to comply (involving Kazakhstan, Uzbekistan, and criteria) to meeting safeguard require- with higher environmental standards. the Kyrgyz Republic), which includes ments for projects in the new EU mem- The Russia Environment Manage- pilot projects for biogas and mini-hydro- ber states or those in line for EU accession. ment Project has supported a National power in the buffer zones of nature re- serves as a means of reducing pressure Industrial pollution Figure 1. Reliability of infrastruc- on forest resources. ture and energy services in ECA A special challenge in the ECA Re- Industrial pollution remains a challenge in early 2000s (Of households reporting gion is assisting countries preparing for access, percentage receiving water or in ECA. This is due largely to a legacy of electricity 24 hours per day) accession to the European Union to meet polluting industries and abandoned in- 80 the challenge of complying with the EU dustrial plants, but also to weak capacity Capital Other urban Rural environmental acquis communautaire. For to enforce environmental standards. New 60 example, under the Croatia Coastal Cit- industries, established with modern tech- 40 ies Project, the government has approved nologies, generally pose less of an envi- Percentage 20 a Coastal Cities Pollution Control Pro- ronmental challenge. Improving environ- 0 gram, which is aligned with EU standards mental standards for existing industries Potable water 24 hours Electricity 24 hours on ambient coastal water quality.Acoast- usually leads to greater efficiencies in the per day per day Source: Dimensions of Urban and Infrastructure Poverty al zone management project is under long run, but may entail substantial short- in ECA, The World Bank, March 2004. ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 45 dumps from disturbance by landslides BOX 2. EXAMPLES OF ENVIRONMENTALLY and floods, and by blocking leaching and FRIENDLY ENERGY INVESTMENTS dispersal into ground- and surface-water drainages. In Romania, the Hazards Risk The Turkey Renewable Energy Project builds on the recent Electricity Law and provides a Mitigation and Emergency Preparedness financing facility for private sector investment in renewables, including wind power and small-scale hydroelectric power. The project includes support for developing revised de- Project includes a component to improve sign procedures to ensure accordance with social and environmental protection princi- the safety of tailings dams and reduce the ples. It also supports the development of water resource and river basin planning. risk of spills of hazardous materials into the Danube. In Serbia and Montenegro, the consumption of primary energy is ten times higher per $ of GDP than in France. In Serbia, the Energy Efficiency Project aims to reduce the local and Financing industrial pollution abate- global environmental impact of the use of dirty fuels for heating buildings and to make ment raises important policy questions heating more affordable by improving end-use efficiency. The project would support the regarding public vs. private sector re- conversion of lignite- and mazout-fired boilers in a major clinic center, as well as energy sponsibilities for environmental liabili- efficiency improvements in schools and hospitals. An associated GEF project would sup- ties, particularly in the process of priva- port energy efficiency improvements in residential buildings. tizing state enterprises. When the govern- The Prototype Carbon Fund has also supported investments in energy efficiency and con- ment elects to take on these liabilities, a version to renewable energy resources. Examples include the Hungary Pannonpower Bio- conventional Bank loan can support mass Project, which supports conversion of electricity generation for the city of Pecs from clean-up and other mitigation measures coal to gas and biomass,and the Svilosa Wood Residue-to-Energy Project,where waste bio- (as in the Bulgaria Environmental Reme- mass will replace coal as a fuel source for a pulp plant. diation Pilot Project). When the liability is taken over by the new owner, the cost of basic compliance with local laws and Vitkov.R regulations should be internalized as part of such transactions. However, there will often also be a public goods element in- volving wider impacts, longer time frames, and incremental costs above and beyond what the purchaser can be expect- ed to bear. A targeted line of credit such as the National Pollution Abatement BOX 3. GEOTHERMAL ENERGY DEVELOPMENT IN ECA Svilosa,Bulgaria. The ECA-GEF Geothermal Energy Devel- opment Project is helping to identify and remove barriers to exploitation of the re- PollutionAbatement Fund, which recent- to regulatory capacity, including new reg- gion's abundant geothermal potential for ly provided environmental loans to a ulations. electricity generation and for district and number of pulp and paper mills in three In the mining sector, World Bank as- other heating. The project provides finan- regions that will substantially reduce pol- sistance is helping to contain and miti- cial and technical assistance for project lution emissions and discharges into gate the urgent threat of leakage of highly preparation and implementation of indi- water receiving bodies. The Azerbaijan toxic heavy metals from poorly managed vidual geothermal projects,and will serve as an umbrella for many individual invest- Urgent Environmental Investment mines and mine tailings. The recently ments in participating countries. It will Project has assisted the government in approved Natural Disaster Mitigation also support policy reforms for energy reorganizing its environmental manage- Project in the Kyrgyz Republic will re- markets; development of legal, regulato- ment system, including the creation of a duce the exposure of people, livestock, ry,and institutional frameworks;and mon- Ministry of Environment and Natural and riverine ecosystems to radionuclid- itoring trends in geothermal use. Resources and a Waste ManagementAu- es by isolating and protecting abandoned Source: Road Map for Scaling Up Access to Energy Ser- vices and Clean Energy, ECA Region. thority Agency, as well as improvements uranium mine tailings and waste rock 46 ENVIRONMENT MATTERS · 2004 EUROPE AND CENTRAL ASIA REGION Fund in Russia represents one approach and response systems. In the coming year, THE ECA REGIONAL for mobilizing public support in such cas- the Bank plans to support investments in es. Other options include concessionary ENVIRONMENT PORTFOLIO flood mitigation in Poland and in im- financing for technical assistance and ca- proved weather forecasting in Russia. Other environmental Biodiversity pacity building, one-time and matching management 1% Climate change 2% grants, and tax-related and other incen- Natural resource man- 12% tives. Water resource Environmental management policy and 25% institutions Natural disaster risks agement and biodiver- 9% Land and mitigation sity conservation management 22% Renewable natural resources continue to Pollution management Over the past three decades, natural di- play a large role in the local and national 29% sasters in the ECA region have caused economies of most of the region's coun- At the end of June 2004 the active portfolio of over $70 billion in economic losses. In tries. In the middle-income countries, World Bank environmental lending in the ECA 2002 alone, floods across Central Europe Region was $1.6 billion. In fiscal 2004, new to- landscape conservation is vital to the pro- tal environmental lending amounted to $309 resulted in losses of Euro 15 billion. The tection of tourism values. The Bank is million. Bank has prepared a strategic frame- helping these countries meet European work--Preventable Losses: Saving Lives and Union requirements for environmental- Recently, for example, the Bank has Property Through Hazard Risk Manage- ly responsible agriculture, incorporating supported: ment--to promote a pro-active approach environmental values into productive The Moldova Agricultural Pollution for reducing and mitigating the social and landscapes. In the poorer countries, the Control Project, which promotes economic impacts of earthquakes, floods, adoption of environmentally friend- sustainable use of natural resources is and landslides in ECA. The strategy in- ly crop and livestock production vital for rural livelihoods. cludes an initial quantitative risk assess- practices to reduce nutrient pollution The Bank is providing assistance ment and recommends priority actions in wetlands across the region for sustainable use and for each country, based on an approach The Tajikistan Community Water- improved management of water resourc- combining risk assessment, monitoring, shed Development Project, which early warning, planning and public es and watersheds, forests, rangelands, mainstreams sustainable land use awareness, mitigation and emergency freshwater and coastal fisheries, and ag- and biodiversity conservation into response measures, and drawing on les- ricultural soils, as well as conservation of agricultural and rural investment sons from Europe and other regions. biodiversity in both natural and agricul- decisions Examples of hazard risk mitigation tural systems. Key elements of these The Anatolia Watershed Rehabilita- projects financed by the Bank include the projects include empowerment and orga- tion Project in Turkey, which reduc- es discharge of agricultural pol- Lake Sarez Reconstruction and Mitigation nization of local resource users; strength- lutants to the Black Sea through Project in Tajikistan, which emphasizes ening the planning, regulatory, and participatory integrated river basin community participation, including the monitoring capacity of public agencies; management and improved farming first all-woman search and rescue team promoting environmentally sustainable practices in Central Asia; and the Turkish Earth- agriculture and forestry; and internation- The Romania Forest Development quake Insurance Pool, which received al cooperation for the management of Project, which supports improved capital support through a $100 million transboundary resources. The ECABiodi- forest management, especially for Committed Contingent Loan Facility. The versity Strategy stresses the need to go new private forest owners as well as first comprehensive risk mitigation beyond traditional protected areas to in- for state forests. project approved in ECA was for Roma- corporate landscape conservation into nia this year. This $150 million loan in- broader management of land, water, and This article was prepared by Agi Kiss, (202) cludes support for investments in flood forest resources. It also calls for increased 458-7180, fax (202) 614-0697, Tijen Arin, management and dam safety; earthquake attentiontoconservationofagro-biodiver- (202) 473-5535, fax (202) 614-0697, and Jane mitigation, including retrofitting of key sityinfarmingsystems,includingthepres- Ebinger, (202) 473-0204, of the Environment and Social Development Unit of the Europe and public buildings; and development of ervation of wild relatives and land races Central Asia Region. ECA website: . ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 47 Latin America and Caribbean Region The Bahamas Haiti Jamaica Dominican Rep. Mexico St. Kitts and Nevis Antigua and Barbuda Belize Dominica St. Lucia Guatemala Honduras Barbados El Salvador R.B. de St. Vincent and the Grenadines Grenada Nicaragua Venezuela Trinidad and Tobago Costa Rica Panama Guyana Colombia Suriname Ecuador Peru Brazil Bolivia Paraguay Chile Uruguay Argentina Falkland Islands (Islas Malvinas) A dispute concerning sovereignty over the islands exists between Argentina which claims this IBRD 31564R DECEMBER 2004 sovereignty and the U.K. which administers the islands. Brandriss.P Mexico l atin America and the Caribbean (LAC) is a The World Bank--working with national governments, local region that is extremely rich in natural re- communities, and civil society organizations--focuses on four sources, including vast areas of intact tropi- strategic areas: improving health, enhancing livelihoods, de- cal forest and extraordinary biodiversity veloping frameworks for sound and equitable management, resources.Yet forests are under pressure from and facilitating equitable solutions to regional and global chal- settlement, inappropriate agriculture, logging, and mining; lenges. The Bank supports activities as diverse as reducing soil depletion threatens food and cash crops; and much of the indoor air pollution from fuelwood; working with indigenous region's remaining biodiversity is found in isolated patches communities to increase environmentally sustainable income; of habitat that may be too small for the long-term survival of and policy lending that targets mainstreaming environmen- the species they contain. tal issues into sectors such as health, defense, justice, trans- port, forestry, and urban development. LAC is also the most urbanized region of the world; 75 per- cent of the region's 500 million people live in urban areas. Air Fighting deforestation in the and water pollution, poor sanitary systems, and a lack of ac- cess to potable water all represent critical threats to the health Brazilian Amazon and well-being of urban populations. These issues are exacer- bated by poverty and inequality; the poor often live in vul- Forest clearing in the Brazilian Amazon--a region of aston- nerable areas and lack access to basic services. ishing natural wealth and diversity--has been increasing, with 48 ENVIRONMENT MATTERS · 2004 LATIN AMERICA AND CARIBBEAN REGION particularly high rates of deforestation inResponding to Policy-based lending 2002 and 2003. Cattle ranching and soy- bean production, rapidly expanding as a climate change Many of the region's environmental prob- result of favorable market conditions, are lems result in adverse health consequenc- the main driving forces of deforestation. Latin America has much to lose as a re- es, mortality, damage and loss of pro- sult of global warming. Key anticipated perty, and loss of livelihoods. These costs impacts range from decreased water The Bank and the Government of Brazil are significant. In Colombia alone, it is availability and lower agricultural pro- have instituted a long-term dialogue to estimated that urban air pollution is as- ductivity to changes in ecological sys- address deforestation. One of the flagship sociated with approximately 6,000 pre- tems, population displacement due to efforts has been the Pilot Program to Con- mature deaths each year. Urban air rising sea levels and flooding, and in- serve the Brazilian Rain Forest. The pro- pollution, natural disasters, waterborne creased exposure to diseases such as ma- gram has successfully demonstrated diseases, and indoor air pollution may laria, dengue, and cholera. impose costs equivalent to over 3 percent alternative uses of the forest, protected of Colombia's GDP. large tracts of indigenous lands, strength- To face these challenges, the Bank has ened state institutions, and promoted the been supporting country efforts to (a) These problems call for an interdiscipli- concept of sustainable development in strengthen institutional capacity, so re- nary and cross-sectoral approach. Such an rain forest regions in Brazil. The program gional governments and civil society can approach integrates environmental con- and its projects have served as models of play an influential role in the internation- cerns into different sectors through re- forest conservation for international do- al climate agenda; (b) assign top priority form processes. In the LAC Region, nors, NGOs, and governments. to adaptation efforts; and (c) promote a environmental structural adjustment pro- quick increase in the use of the Kyoto grams provide such a vehicle, balancing The Amazon Region Protected Areas Protocol's Clean Development Mecha- social and economic development with Project (ARPA)--with funding from the nism (CDM). environmental protection and improve- GEF, WWF, and the German Govern- ment. ment--promotes the objective of land use Carbon finance resources are being used planning and management through the to promote the goal of sustainable devel- LAC has adopted a programmatic ap- creation and consolidation of protected opment in the local social and environ- proach to structural adjustment loans areas. Areas facing extreme pressures, mental contexts of each project, thus (SALs). Typically, SALs integrate princi- such as the "deforestation belt," receive contributing to the objectives of the coun- ples of sustainable development into key special attention. Over 6 million hectares try assistance strategies. By linking car- sectoral agendas in the client country, and bon revenues to local social and environ- of new protected areas have already been mental indicators, these resources re- improve the effectiveness and efficiency created. spond to the spirit of the CDM. of national environmental management systems. Furthermore, they provide sig- One groundbreaking result of the ongo- In Colombia, for example, the Amoya nificant opportunities for social and ing dialogue between the Bank and the River Environmental Services Project es- institutional learning and promote sus- Brazilian Government has been the Per- tablished a linkage between revenues for tainability of reforms and accountability. manent Interministerial Working Group carbon emission reductions and the pro- The Region's pipeline of future environ- on Amazonian Deforestation, which is tection of the páramo, an important high ment adjustment lending is valued at composed of 11 government bodies. The mountain habitat. Preserving this critical about $2 billion, distributed among pro- initiative represents a unique develop- ecosystem is key to maintaining the wa- grams in Brazil, Colombia, and Mexico. ment in the battle against deforestation. ter cycle in the long term, which in turn For the first time, deforestation is not makes the generation of clean energy vi- In Mexico, initial reforms have resulted treated solely as an environmental prob- able. The clean energy component is de- in improved management of water re- lem, but is mainstreamed into all sectors signed to have a minimum ecological sources and marine protected areas, as of policy. The far-reaching recommenda- footprint. The generation of clean energy well as improved public participation and tions of the interministerial group have helps displace greenhouse gas emissions transparency in environmental manage- contributed greatly to Brazil's compre- that are sold on the international market, ment. Experience shows that continual hensive "Sustainable Amazon" plan. making the project financially viable. coordination among institutions and ex- ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 49 tensive dialogue among sectors are nec- combusting the methane portion essary to achieve environmental main- of landfill gas. CDM support has Dobbs.F streaming. These issues will be further taken the form of a revenue addressed in the programs currently un- stream based on the value of the der preparation in Mexico, Colombia, and Carbon Emission Reductions Brazil. achieved. To date, projects have been developed in Mexico, Uru- The urban guay, Brazil, and Argentina. A newly launched regional strate- environment gy to develop landfill gas-to-en- ergy projects is expected to pave While often not as visible as "green" is- the way for eight additional sues, "brown" urban environmental is- projects. sues have the largest impact on health and vulnerable populations. The World Air pollution is becoming the Bank's Brown Environmental Agenda largest environmental problem (BEA), which targets pollution-related in the region's urban areas. The issues, is a primary focus of the urban poor normally are most impact- environment portfolio. ed, since their exposure to pol- lutants is greater, adding to LAC has put particular emphasis on sol- Argentina. their relatively higher burden of id waste (SWM), hazardous waste, and health problems. Many of the gion has been involved in the prepara- air quality management, critical issues greenhouse gasses emitted are also pre- tion of enabling activities (EA) for the related to urban pollution control. The cursors for ground-level ozone formation, Stockholm Convention on Persistent Or- region faces serious difficulties in man- which has serious local social costs while ganic Pollutants. The EAs will assist cli- aging urban refuse and solid waste. The contributing to global warming. These ent countries in the preparation of main impediments to good practices in emissions are mostly due to the use of National Implementation Plans to com- SWM are the lack of (a) proper final dis- gasoline and diesel in transportation, ply with convention commitments. Pro- posal facilities, (b) proper financial man- which is spurred by urbanization and posals have been approved for Mexico agement, and (c) a regional strategic GDP growth in the cities. and Colombia, and contaminated soil re- approach. mediation projects are under preparation The Clean Air Initiative (CAI) for Latin in Brazil, Colombia, and Chile. In order to address these issues, the Bank America and the Caribbean is aimed at is preparing a SWM regional strategy, promoting best practice dissemination Another example of the Bank's BEA is which has preliminarily identifiedArgen- and capacity building. The CAI brings that of slum upgrading projects with a tina, Brazil, and Mexico as priority coun- together the efforts of multiple organiza- focus on water pollution control. These tries for assistance. Amain objective is to tions and sectors to improve the capacity multisector projects, with significant provide technical and financial assistance of city leaders to address air quality man- municipal development components, are to small and medium cities in building agement. As part of the CAI effort, important precedents for addressing the final disposal facilities. In Brazil, the strat- Air Quality and Sustainable Transport challenges of the BEA in developing egy has been twofold: mainstreaming Projects improve the efficiency of trans- countries. SWM into broader urban projects, and port flows; promote shifts to non-motor- raising awareness for future investment ized or less energy-intensive modes of operations through focused regional tech- transport; coordinate land-use and trans- A partnership for nical capacity workshops. port policies; promote transport demand protection management; and adopt cleaner fuels and Additional funding for SWM comes from vehicles. The LatinAmerica and Caribbean Global the Clean Development Mechanism, Environment Facility (GEF) portfolio is which supports the reduction of CO2- Unsafe handling of hazardous chemicals one of the largest and most innovative in equivalent emissions from landfills by has also become a priority. The LAC Re- the Bank. There are currently 55 projects 50 ENVIRONMENT MATTERS · 2004 LATIN AMERICA AND CARIBBEAN REGION development. Highlights from THE LCR REGIONAL Brandriss.Pseveral MSPs illustrate their in- novative nature. TheAlbarradas ENVIRONMENT PORTFOLIO in Coastal Ecuador Project com- Other environmental Biodiversity 3% bines historical, anthropological, management Climate change 5% and ecological approaches to res- 2% Environmental cue traditional knowledge of the Water resource policy and sustainable use of biodiversity. management institutions 13% Under the Costa Rica Biodiver- 29% sity Conservation and Sustain- Land management able Production Project, cocoa 21% producers, professionals and ac- Pollution ademics learned improved agro- management 27% forestry practices, production At the end of June 2004 the active portfolio of and marketing of organic artisa- World Bank environmental lending in the LCR Region was $1.4 billion. In fiscal 2004, new to- nal chocolate, and organization tal environmental lending amounted to $159 of commercially viable micro ca- million. cao projects. plemented, monitored, and evaluated Ongoing MSPs such as the San- with the participation of local stakehold- The town of Huaraz, in the Callejón de Huaylas of Peru.In the tiago (Chile) Foothills Mountain background is the Cordillera Blanca and Huascaran National ers are often the most successful. Finally, Park. Ecosystem Conservation Project new prospects for promoting both con- promise lessons in cutting-edge work on servation and socioeconomic develop- totaling $338 million. Heavily focused on the rural-urban interface. The project ment are emerging every day. the biodiversity agenda, it supports 39 works closely with municipal govern- biodiversity projects such as the regional ments to guide urban growth, thereby Many challenges remain. Rapid urbaniza- Mesoamerican Biodiversity Corridor, and helping to ensure the conservation of the tion, continued deforestation, and limit- other initiatives such as the sustainable Santiago Foothills. Innovative projects ed public sector budgets continue to management of indigenous lands. Twelve like these are serving as models for work frustrate environmental efforts, while projects work with climate change, while throughout the region, both for the Bank poverty places an enormous burden on two jointly address climate change and and for other development institutions. scarce natural resources. The specter of biodiversity, and two involve internation- global warming presents future uncer- al waterways. The new Protected Areas Challenges ahead tainties and highlights the need for multi- and Sustainable Livelihoods Project, country cooperation. Yet lessons learned which includes countries within the Or- As the projects mentioned here show, it through experience, the growing recog- ganization of Eastern Caribbean States, is quite possible to combine the protec- nition of environmental issues, and the and the Inter-American Biodiversity In- tion of critical ecosystems and species and wealth of human and natural resources formation Network (covering the entire the sustainable use of natural resources in the region create a strong basis for con- region) illustrate the Bank's focus on with social, economic, and institutional fronting these challenges. multi-country projects addressing trans- development. Bank experience indicates boundary issues. that certain lessons are key to this suc- cess. Mainstreaming environmental con- LAC's large and diverse portfolio of me- cerns into other sectors, and at all levels This article was prepared by Christine Dragisic, dium-size projects (MSPs) reflects the of society, is both highly effective and (202) 522-1463, fax (202) 522-3540, and technical strength and competence of the cost-efficient. Cooperation among minis- George Ledec (202) 473-9267, fax (202) 676- 9373, of the Latin America and Caribbean nongovernmental organizations (NGOs) tries, donors, and other institutions is cru- Region, with contributions from Jocelyne that usually receive these grants. MSPs cial to developing and implementing Albert, Yewande Awe, Keiko Ashida, Abel have allowed NGOs and the Bank to test complete, cohesive strategies and produc- Mejia, Adriana Moreira, Paula Pini, Juan Quintero, Horacio Terraza, Ernesto Sanchez- innovative approaches to biodiversity ing long-term results. Participation is also Triana, Walter Vergara, and Gregor Wolf. conservation and sustainable economic critical. Initiatives that are designed, im- LCR website: . ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 51 Middle East and North Africa Region Syrian Lebanon A.R. Malta I.R. Morocco Tunisia West Bank and Gaza Iraq of Iran Jordan Algeria Arab Kuwait Libya Rep. of Bahrain Egypt Qatar U.A.E. Saudi Arabia Oman Rep. of Yemen Djibouti IBRD 31565R DECEMBER 2004 yonsL B. Republic of Yemen t he Middle East and North Africa (MNA) projects through three main intermediate outcomes over the countries continue to make steady progress medium term. toward meeting the objectives set out in the Bank's MNA Environment Strategy, which Outcomes -- Efficiency and was adopted in 1995 and updated in 2001. The economic situation across MNA remains stag- governance nant. A low--but growing--number of people are living on less then $2 per day. The major environmental issues--water The first intended outcome is better public sector efficiency scarcity and land degradation--persist and, in some cases, are and environmental governance. In this area, the Bank has fo- worsening. Major urban centers add increasing amounts of cused on strengthening environment-related institutions and pollution-related illnesses and growing solid waste manage- promoting greater participation by civil society. The Bank ment problems to the mix. Most MNA countries are making helps countries through developing and sharing knowledge significant progress in developing the legal frameworks nec- on (a) the use of economic criteria and valuation of externali- essary to address these issues; however, providing enforce- ties, and (b) understanding the linkages between environment ment mechanisms through functioning regulatory bodies and other key factors such as poverty, trade, health, and ener- remains several years away. gy. In the past year, MNA has supported: The MNA Environment Strategy aims to improve both Yemen's Groundwater and Soil Conservation Project, the quality of life and sustainability of economic growth by which is testing innovative solutions to the country's crit- mainstreaming environment into policies, programs, and ical groundwater problem. This $40 million project will 52 ENVIRONMENT MATTERS · 2004 MIDDLE EAST AND NORTH AFRICA REGION install PVC and galvanized iron public-private partnerships, and de- lack of access to water supply and pipes to improve water conveyance velopment of new non-conventional sanitation services; land degradation; and distribution efficiency and up- water supplies. coastal zone degradation; and waste grade selected small- and medium- Regional solid waste planning management. This program provides sized traditional irrigation schemes through the development of region- a useful ranking mechanism for var- that use flood waters within identi- al guidelines and training manuals. ious forms of environmental degra- fied river beds. These guidelines address (a) policy, dation, as well as an instrument for Urban upgrading in Iran through an institutional, and legal issues; (b) fi- policymakers to integrate the envi- $80 million project that will improve nance and cost recovery; (c) private ronment into economic development living conditions in under-serviced sector participation; and (d) public decisions and a tool for the Ministry neighborhoods, as well as prepare awareness and community participa- of the Environment to discuss the the systems, capacity, and regulato- tion. This initiative is being financed importance of environmental protec- ry foundation and initiate market- in partnership with the European tion in economic terms. based housing sector reforms. Commission through the Mediterra- Municipalities are expected to under- nean Environmental TechnicalAssis- Safeguards take a strategic planning process with tance Program (METAP). significant community participation. A regional program on banking and The second intended outcome is a more Tunisia'smarineenvironmentthrough the environment, in association with efficient safeguard system based on up- a $6 million dollar GEF grant for the the International Finance Corpora- stream considerations in the planning of Gulf of Gabès Marine and Coastal tion (IFC) and METAP, in order to policies, programs, and projects and on Resources Protection Project. With assist regional private sector finan- predictable environmental guidelines for the involvement of the concerned ciers in developing their capacity to private sector development. This will re- communities, the project will devel- manage environmental risks and to quire enhancement of the enabling envi- op mechanisms for the integrated help their clients develop environ- ronment through the development of biodiversity management of the Gulf mental investments. environmental protection laws based on of Gabès. A focus on costing environmental incentives and economic instruments, a A policy note on health-care waste degradation--including studies in workable system of environmental as- management with Iran that ad- Jordan, Morocco, and Syria--and on sessment (EA), a well-structured learning dressed the overlapping roles of pub- costing the effects of poor water qual- program, and the use of strategic envi- lic agencies and the burden placed on ity inAlgeria and Egypt. In addition, ronmental assessment (SEA) as a tool for municipal governments in shoulder- regional training was provided on decisionmaking.Accomplishments in the ing the bulk of the operational and these studies in both Lebanon and last year have focused on the develop- financial responsibilities for health- Morocco. The reports allow policy- ment of strategic environmental assess- care wastes. makers to quantify and monetize the ments (SEAs) in Egypt and Iran and on The development of water strategies cost of degradation across a wide capacity building. In fiscal 2004, MNA and/or policy notes in Iran, Yemen, range of environmental issues, such supported: and Morocco. These initiatives take as indoor and outdoor air pollution; The Policy Note on the Energy-En- a cross-disciplinary approach to ad- vironment Review of the Islamic Re- dress several aspects of water re- public of Iran, which showed that source management. EtchartJ. environmental damage from air pol- Water resource management for ur- lution was equivalent to 1.6 percent ban water supply and sanitation in of GDP in PPP terms (or 5.7 percent the Gulf Countries through a partner- of nominal GDPequivalent). To reach ship with AGFUND and the MNA the objectives of improving energy Regional Water Initiative (RWI). The performance and the environment, study aims to formulate policy rec- important measures include the elim- ommendations for sustainable and ination of subsidies in a suitable time efficient water resource management frame, taking into consideration the in terms of water demand manage- Young woman fetching well water. Taroudant political feasibility and social suit- ment, institutional and legal reforms, Province,Morocco. ability of energy reform. Price reform ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 53 is not sufficient if is not accompanied Annual cost of environmental Shiraz, particularly in poor areas, by by sector reforms in the electricity degradation in Egypt (mean improving access to satisfactory wa- and transport sectors.Anew Energy- estimate) ter supply and significantly increas- Environment Strategic Framework is Million EGP Percent ing coverage of sanitation services; proposed. per year of GDP (b) improve environmental, hygiene, Air 6,400 2.1 A Country Environmental Analysis Soil 3,600 1.2 and health conditions, as well as pro- (CEA) for Egypt, which indicated Water 2,900 1.0 mote reuse of treated effluents; (c) that Egypt's economic growth was Coastal zones and 1,000 0.3 strengthen and develop the capacity cultural heritage not accompanied by an improvement of municipal water and wastewater Waste 600 0.2 in environmental sustainability. The Sub-Total 14,500 4.8 companies; and (d) initiate sector re- analysis confirmed that the country Global environment 1,900 0.6 forms, particularly with respect to faces high costs from environmental Total 16,400 5.4 institutional arrangements, the reg- degradation (see Table at right) and ulatory framework, and demand needs to address air quality, water (EIA), with a particular focus on wa- management, as well as prepare a quality, and waste management ter supply and sanitation issues, in- sanitation strategy. issues. Despite considerable govern- cluding the review and supervision Piloting Interventions to Reduce En- ment effort and investment--esti- of environmental management plans vironmental Health Risks in Djibou- mated at 1 percent annually of its (EMP); assessing the institutional ti and Yemen. These projects are GDP--water and air quality, solid needs of the EPA for carrying out its aimed at reducing the critical envi- waste, and costal zone management regulatory mandate under Yemeni ronmental health risks affecting remain the most pressing environ- Law; working with the EPA staff to women and children under five mental inter-sectoral problems in begin building the capacity of both through coordinated environmental, Egypt. Solutions to these problems public and private sector stakehold- infrastructure, and behavior change should be anchored in the economic, ers responsible for preparing and im- interventions and by promoting institutional, and social reforms pro- plementing EIAs and EMPs; and stakeholder involvement in the for- posed by Egypt within the scope of introducing recent developments in mulation and implementation of a World Bank environment and social its free market economy. These solu- multisectoral action plan to reduce safeguards policies to EIA and line tions must respond to the following environmental health hazards at the ministry staff. two inter-related goals: (a) reduction household and neighborhood levels. in the prevalence of respiratory and waterborne diseases due to poor air Environmental health Regional partnerships and water quality and inadequate risks collection and disposal of municipal A number of regional programs support waste; and (b) improving the quality the goals of the Strategy by promoting The third intended outcome concerns of growth of Egypt's coastal areas. partnerships with and among the MNA lowering environmental health risks Promoting best practice for environ- countries and fostering the mainstream- through the development of health- and mental screening through the Tuni- ing of environmental issues on a region- poverty-related prevention and mitiga- sia Education Project and Yemen tion measures in MNA's selected portfo- al level. These partnerships include the Social Fund for Development. These lio of projects, for example by including Mediterranean Environmental Technical projects have developed environ- an environmental health component in Assistance Program (METAP--www. mental screening criteria for building water supply and sanitation, or by pro- metap.org), the MNARegional Water Ini- new and upgrading existing small- viding information to local communities tiative (RWI--www.worldbank.org/ scale infrastructure that are consid- concerning the negative impacts of poor mna-water), The Nile Basin Initiative ered best practice and are being water and waste management practices. (NBI--www.nilebasin.org), the Regional replicated throughout the region. During fiscal 2004, MNA supported: Dry Lands Management Project, and the Supporting Yemen's Environmental The Iran Water Supply and Sanita- Red Sea and Gulf of Aden Environmen- Protection Authority (EPA) by train- tion Project. This $279 million project tal Strategic Action Program (SAP-- ing EPA staff on best practices of en- is designed to a) enhance the quality www.persga.org). More information on vironmental impact assessment of life in two cities, Ahwaz and these partnerships is available through 54 ENVIRONMENT MATTERS · 2004 MIDDLE EAST AND NORTH AFRICA REGION Cumulative benefits and costs Annaba CPI Conference, held in Jor- Project (discount rate 6%) THE MNA REGIONAL dan in mid-2004. At- 180 tended by more than 20 ENVIRONMENT PORTFOLIO 160 Cumulative discounted total country participants, the benefits Other environmental Environmental 140 sessions presented and management Cumulative discounted total policy and 4% institutions 120 project cost discussedlessonslearned 15% and best practices from 100 Cumulative Discounted public Water resource management Land millions health benefits implementation of wa- 80 39% management US$ ter policy reforms in an 6% 60 attempt to achieve inte- 40 grated water resources 20 management and sus- Pollution 0 tainable urban water management 36% 1990 1995 2000 2005 2010 2015supply services. The ses- Years At the end of June 2004 the active portfolio of sion also offered a re- World Bank environmental lending in the MNA the above listed links or at www.world view of recent World Region was $0.7 billion. In fiscal 2004, new to- tal environmental lending amounted to $114 bank.org/mna. Bank involvement in the water sector in million. As part of its partnership agreement the entire MNA region, highlighting the with the Swiss Agency for Development preparation of country water assistance and Cooperation (SDC), the MNA Re- strategies in Yemen and Iran and support Long-term success gional Water Initiative organized a toward sector reforms in Saudi Arabia. two-day session on Integrated Water Re- Proceedings will be available in Septem- As the MNA countries continue to work sources Management during the Interna- ber 2004 and will be distributed at future toward implementing the MNAEnviron- tional Water Demand Management RWI consultations. ment Strategy and reaching their MDGs, the coming years will likely see an in- creasing policy dialogue on managing BOX 1. ALGERIA INDUSTRIAL POLLUTION CONTROL PROJECT water, where competing claims from multiple stakeholders vie for an increas- After the introduction of the 1995 Strategy, one of the region's first environment-related ingly scarce resource. The Bank remains projects was the Algeria Industrial Pollution Control Project. This project, which was pre- pared during the early 1990s with the assistance of two METAP Grants, aims at improving an active partner and will continue to public health in Annaba (on Algeria's northeast coast) by reducing levels of local industrial support the region in meeting its goals. pollution.Through this project,the Government of Algeria was able to take necessary mea- Planned investments include water and sures that were both environmentally and economically sound.The project financed envi- urban infrastructure in Iraq, fisheries in ronmental investments in two major industrial complexes,one producing fertilizer and the Yemen, solid waste in Iran, energy effi- other iron and steel. Early on, the project financed the closing of two of the most polluting ciency in Tunisia, and power and water units. Recent analysis confirms earlier reported anecdotal evidence that the project has supply in Djibouti. significantly improved the local environment around Anaba. Air quality in Anaba has improved dramatically since 1994, with PM10 dropping 29.2 per- cent and both SO and NO dropping to undetectable levels. Improvements for nearby ar- 2 x eas are equally dramatic. As a direct consequence, the incidence of respiratory illness in Anaba fell almost 25 percent, from 42.5 to 32 cases per thousand, while the resulting mor- bidity fell over 45 percent,from 3.8 to 2.6.Asthma and chronic bronchitis,once common in Anaba's schools and factories, are becoming rarer and easier to treat. By closing the heavily polluting units, the project has also improved the quality of water in This article was prepared by J.B. Collier, (202) the Gulf of Anaba by reducing the annual flow of phosphogypsum into Annaba Bay by 473-8551, fax (202) 477-1374, and reviewed by nearly 300,000 tons. Fish catches have risen significantly and new areas of the coast are Sherif Arif, (202) 473-7315, and Julia Bucknall now open to sustainable development. (202) 473-5323, fax (202) 614-5323, of the Rural Development, Water, and Environment During the period covered by the analysis, for each dollar invested in the project by all Group of the Middle East and North Africa stakeholders, nearly $3 were generated as direct benefits or as avoided costs. Region. MNA website: . ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 55 South Asia Region Afghanistan Pakistan Nepal Bhutan Bangladesh India Sri Lanka Maldives IBRD 31566R DECEMBER 2004 Carnemark C. Bhutan w ith new commitments for infrastructure and Bank is helping to build the capacity of highway authorities development policy lending forming an in- for Environmental Impact Assessment and the implementa- creasing share of Bank support for poverty- tion of environmental management plans. To transfer best reducing growth in South Asia, it is increa- practice into standard procedure, training extends from the singly important to build capacity to manage national to the local setting, and reaches contractors, supervi- associated environmental and social risks. sion consultants, and the staff of environment agencies, in ad- Building sustainable development dition to highway authorities. To sustain this capacity, the long-term challenge is to establish environmental manage- into infrastructure investment ment as an option in the career path of highway staff. The Powergrid Corporation of India is addressing the Bank support for the new generation of infrastructure invest- challenge of sustainable development through its commitment ment in SouthAsia focuses on (a) the application of good prac- to continual improvement, a goal in its implementation of the tice as standard procedure; (b) the creation of capacity and ISO 14001 standard for environmental management (see Box 2). systems for environmental management that extend beyond The Bank has been working closely with Powergrid and oth- the lives of individual projects; and (c) the integration of sus- er public sector corporations across South Asia to help them tainability considerations, such as adaptation to climate deal more effectively with environmental and social issues change, into infrastructure planning. through stakeholder consultation and participatory planning. For example, as an integral element of major highway The potential for mitigating risks through a well-designed development programs in India (see Box 1) and Pakistan, the program of consultation was demonstrated in the design of 56 ENVIRONMENT MATTERS · 2004 SOUTH ASIA REGION op policy that incorporates goals for en- BOX 1. TRANSFERRING BEST BOX 3. INFLUENCING DESIGN vironmental remediation and rehabilita- PRACTICE INTO STANDARD tion into the sale of assets, enhancing the THROUGH PARTICIPATION -- PROCEDURE -- INDIA ROADS sustainability of industrial production. PAKISTAN GHAZI-BAROTHA At the other end of the scale of infra- HYDROPOWER PROJECT The highways sector in India is a prime structure investment, the Bank is support- generator of economic activity. Between ing many community-driven develop- Ghazi-Barotha, a major 1,450 MW hydro- 2002 and 2007, investment in highways ment initiatives in South Asia. These ini- power project in northern Pakistan, development will be about $20 billion.As pioneered a number of innovative ap- part of this massive expansion, the road tiatives provide opportunities for the proaches to integrate environmental and agencies in India, with the Bank's assis- poor to develop their own subprojects to social considerations into project design. tance, have taken significant strides to strengthen and secure their asset base, The evaluation of design alternatives and understand and manage the environmen- and to improve their livelihoods and the adoption of modifications took place tal and social implications of such a pro- quality of life. To help manage potential in close consultation with affected com- gram. local or cumulative impacts and to take munities. As a result, the power channel A recent stocktaking study revealed a advantage of opportunities that promote was realigned away from the most direct wide acceptance of the consultative Envi- sustainable resource use and reduce en- route to one that was sited on higher, ronmental Assessment (EA) approach to vironmental health risks, Environmental more difficult terrain.Although more cost- promote sustainable development in in- ly, the channel alignment significantly Management Frameworks have been de- frastructure projects. Project activities minimized resettlement,bypassing many veloped for each of these projects. These include the enhancement of roadside at- villages and minimizing damage to tributes such as ponds, temples, roadside shrines, graveyards, and archaeological amenities, and community resources. En- sites. vironmental Management Plans (EMPs) BOX 2. COMMITMENT TO The participatory process was facilitated are part of contract documents, and are CONTINUAL IMPROVEMENT -- by an independent panel.The panel con- specifically detailed for implementation POWERGRID CORPORATION sulted extensively with local stakeholders by contractors. Low-emission equipment and developed credibility as an indepen- is being widely used, excavation sites are Powergrid Corporation, India's central dent channel for voicing concerns. Other rehabilitated for productive use,and emis- transmission utility and one of the largest innovative mechanisms included commu- sions control measures are being used on of its type in the world,is working in part- nity participation in the valuation of stone crushers, hot mix, and batching nership with the Bank to implement its assets,and a program to address compen- plants.The study identified a series of best corporate commitment to sustainable de- sation claims related to a much earlier practices related to EAs, EMPs and super- velopment.Through a national process of project, which helped establish interna- vision that are being applied to the next consultation supported by a committee of tional best practice in addressing"legacy" generation of highway projects in India. experts, the corporation has developed a issues. The participatory mechanisms comprehensive set of Environmental and used in this project are now being reflect- Social Policies and Procedures (ESPP) ed in the development of a national reset- based on the principles of avoidance,min- tlement policy. the Gazi-Barotha Hydropower Project in imization,and mitigation.Implementation Pakistan (see Box 3), while long-term as- of the ESPP in Powergrid's projects, and sistance to Coal India Limited (CIL) has the mainstreaming of environmental and include environmental guidelines, well- served to underscore the value of mak- social sustainability in operations, has re- defined roles and responsibilities for ing resettlement a development opportu- sulted in significant outcomes, including screening and assessment, and the pro- nity. The active participation of com- reduced deforestation, the safe elimina- vision of regular training and technical munities in local projects supported by tion of PCBs, greening of Powergrid sub- assistance. Recent reviews indicate suc- CIL, including income generation on un- stations, and the protection of wildlife cess in stimulating widespread environ- used and reclaimed land, has enhanced through design modifications such as very investments in settlements around mines tall (85 meter) towers, which help protect mentalawarenessatthelocallevel(seeBox and strengthened local support for the habitat in ecologically sensitive areas. 4) and increasing impact on subproject company's activities. The formation of a Powergrid is committed to continual im- design, implementation, and operation. separate environmental cadre within CIL provement of its ESPP in line with inter- A new area of involvement for the national best practice, and is establishing helps attract employees to this role. Work- Bank in South Asia is support for sector- an environmental management system ing with the Privatization Commission in wide approaches. Investments in sectoral based on ISO 14001. Bangladesh, the Bank has helped devel- programs are based on an assessment of ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 57 mation and extend transparency through BOX 4. ACTING LOCALLY -- Institutions that pro- the many thematic websites that have ANDHRA PRADESH mote participation and grown out of the Environmental Manage- ment Capacity Building Project in India The Andhra Pradesh rural poverty allevia- build consensus (see Box 5). tion program (Velugu) incorporates an En- vironmental Management Framework A particular area of focus in South In addition to building environmental (EMF) that is increasingly influencing en- Asia is the development of policies and capacity for specific programs of infra- vironmentally responsible design of com- institutions for air quality management. structure investment, the Bank is increas- munity investment initiatives. Managed This is an objective that calls for close by the Society for Elimination of Rural Pov- ingly engaged in helping to strengthen cross-sectoral coordination, in particular erty (SERP), and led by the Centre for En- the broader institutional and policy among the environment, transport, and vironmental Education (CEE), training on framework in order to achieve the MDG petroleum sectors. Such collaboration has environmental management establishes on environmental sustainability. A com- led to the phaseout of two-stroke baby the foundation for implementing the EMF, mon theme in all these initiatives has been reaching some 130 environmental spe- taxis in Dhaka, and the early elimination the promotion of stakeholder participa- cialists across the state, and about 300 of leaded gasoline in Sri Lanka (see Box tion to help build consensus and increase livelihood associates, community coordi- 6). Air quality monitoring--such as the the transparency of decisionmaking. nators, and project staff in each district. daily Air Quality Index under develop- Communication goes hand-in-hand with Technical assistance for environmen- ment in Dhaka--forms an important part training, and includes environmental tal capacity building has focused on of the Bank's technical assistance in this newsletters,a compilation of best environ- strengthening the policymaking process, field, providing a scientific basis for the mental practices, a handbook on renew- enhancing inter-ministerial coordination, development of policies and objectives, able energy technologies, campaigns to and improving monitoring, analysis, and raise community awareness of local con- enabling the measurement of achieve- enforcement. In Sri Lanka, the scope of cerns, and a television show covering ments against targets, and helping build assistance has been broadened to include droughtmanagementandorganicfarming. the public consensus necessary for en- key line ministries, sub-national agencies, forcement actions. the judiciary, and civil society, creating a Environmental monitoring was also policies and procedures, often in partner- critical mass of environmental awareness central to a Bank-supported hydrology ship with other development partners. that helps hold the environmental author- project in India, which helped strength- The sustainable development challenge ities more accountable for their services. en the capacity of central and state wa- of these programs is to build systems and The value of establishing a broad base of ter-related agencies to develop reliable strengthen capacity to ensure that envi- environmental awareness was reflected in and accessible hydrological, hydro-mete- ronmental and social risks are consistent- feedback from the Government of Af- orological, and water quality data to ly addressed, and that they take full ghanistan, leading to a program of support the design and monitoring of in- advantage of opportunities for environ- training for representatives of five key frastructure investments. In Bangladesh, mental and poverty-reducing enhance- ministries that includes visits to good Bank support for water supply has fo- ments. The Indian national program of practice examples of environmental man- cused on promoting the participation of universal elementary education is an ex- agement in India. The internet is an in- the private sector and civil society to ex- ample of this approach; the principles creasingly important tool for expanding pand access to safe drinking water. developed as a result cover site selection, awareness of environmental issues. For An important step in building the sub-project screening, health, hygiene example, it is used to disseminate infor- momentum necessary for cross-sectoral and safety in schools, as well as supervi- sion and independent environmental au- dits. These principles have been incor- BOX 5. WEBSITES DEVELOPED UNDER THE ENVIRONMENTAL porated into the community construction MANAGEMENT CAPACITY-BUILDING PROJECT -- INDIA manual and guidelines for building ru- ral primary schools. Water supply, sani- Environmental Economics: http://www.igidr.ac.in/~eerc/EERC/DEV/index2.html tation, and other environmental com- http://www.mse.ac.in/envis/emcab/brochure.htm ponents will be included in district infra- Environmental Law: http://www.ceeraindia.org/ structure plans, and environmental Environmental Information: http://envis.nic.in/ Environmental Assessment: http://www.eicinformation.org/ awareness will be introduced through the Zoning Atlas: http://envfor.nic.in/cpcb/zoning/contents.html school curriculum. 58 ENVIRONMENT MATTERS · 2004 SOUTH ASIA REGION The Karnataka Community-Based Harshadeep. Tank Management N.R by Project -- Kolar District in Images eastern Karnataka Excavated silt is being used to create small kitchen gardens in village depressions that now provide livelihood opportunities for vulnerable families. BOX 6. COLLABORATION FOR BOX 7. BUILDING REGIONAL THE SAR REGIONAL URBAN AIR QUALITY COOPERATION TO PROTECT ENVIRONMENT PORTFOLIO MANAGEMENT -- SRI LANKA THE BAY OF BENGAL Biodiversity Other environmental 1% management In response to deteriorating air quality in The Bay of Bengal suffers from a range of 3% Climate change 12% Colombo,the Bank supported the Govern- environmental problems--particularly Water resource management ment of Sri Lanka through a grant for in- pollution,over-fishing,and habitat degra- 21% Environmental stitutional development that helped to dation--that threaten serious conse- policy and institutions build cross-sectoral capabilities not only quences for its productivity and biological 18% in government agencies, but also in the resources, and consequently the liveli- private sector and civil society. A key hoods of those who depend on this Land management achievement was to facilitate national ecosystem. The bay provides direct em- Pollution 5% management consensus to move the target date for ployment to over 2 million fisherman,and 40% eliminating leaded gasoline from 2010 to is a source of livelihood and food security At the end of June 2004 the active portfolio of mid-2002. The grant also supported the for an additional 10 million coastal World Bank environmental lending in the SAR establishment of the Air Resource Man- dwellers. Region was $1.7 billion. In fiscal 2004, new to- agement Center, which has had consider- tal environmental lending amounted to $95 While action can be taken nationally, the million. able success in achieving cross-sectoral more effective approach to save the bay coordination, leading to development of would be a collaborative effort among the a program of measures to improve urban eight littoral countries. With the support air quality, including the Clean Air 2005 An even greater consensus-building of a GEF grant and with FAO participation, Plan,and the introduction of initiatives to challenge is development of the interna- the Bank has facilitated a very successful control vehicular pollution through emis- tional collaboration required to deal with two-year effort at building regional coop- sions standards, regulation, fuel pricing, regional environmental concerns. Protec- eration.Regional and technical in-country import policies, and public awareness. meetings have helped governments rec- tion of the Bay of Bengal presents a series ognize that they have shared interests.The of challenges that the Bank is helping to meetings also led to information sharing address through an ongoing initiative to action is the establishment of consensus and the identification of critical issues of build shared understanding and commit- in the identification of priorities. To as- common concern.There is agreement that these will be subject to further collabora- ment among the eight littoral countries sist in this process, the Bank is support- tive analysis, leading to the identification (see Box 7). ing the development of Country Environ- of actions to be taken both nationally and mental Analyses in Bangladesh and regionally. Pakistan, and helped prepare environ- ment reports for Uttar Pradesh and Kar- This article was prepared by Paul Martin, (202) impacts, these are designed to ensure 473-3588, fax (202) 522-1662, of the South nataka. Based on extensive consultation, broad-based agreement on priority areas Asia Environment and Social Development and supported by economic analysis of for action. Unit. SAR website: . ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 59 W e are in the midst of portfolio-level screens that a new business steer their funds toward revolution, one in ventures that create pub- which businesses are embrac- lic goods. IFC takes this ing more responsibility toward concept a step further by people and the environment as evaluating each project to a way to advance their mar- ensure that it meets envi- kets. This means matching GROWING ronmental and social stan- profitability and good business dards, and scoring the po- with social concerns and care tential impact on local for our environment. While communities and develop- BUSINESS much progress has been made, WITH ing nations. there is a need to keep push- IFC sponsors training and ing the boundaries forward, workshops to help banks, SUSTAINABILITY and nowhere is this more criti- funds, leasing companies, cal than in emerging markets. venture capital firms, and The International Finance Cor- other financial organiza- poration (IFC) is playing a piv- tions examine techniques otal role in pushing forward for transforming the in- these boundaries through di- creased risks posed by en- rect investments, capacity building, and setting standards vironmental and social is- that will ensure change hap- sues into commercial op- SansoniD. pens and is lasting. portunity. IFC offers sustainability Economic growth is sustain- training programs each able only if it is environmen- year that offer a mix of in- tally and socially sound and depth cases and inter- helps improve the quality of action with clients, indus- life for people in developing try experts, NGOs, and countries. Thus, in addition to others. Performance score- mainstream projects, IFC is fo- cards, on both an individ- cused on frontier markets with ual and departmental lev- a particular emphasis on small el, have been introduced and medium enterprises, inno- to measure the environ- vative financing mechanisms, mental and social impact "south-to-south" investments, of work by IFC staff, along long-term partnerships, infra- with a long-term perfor- structure, and health & educa- mance award. tion. IFC is currently updating Sustainability and its Safeguard Policies and associated guidelines, Good Business which help clients manage their environment and so- On many fronts, IFC aims to cial risks and form the ba- promote sustainable private sis of IFC's leadership on sector investment. For exam- environmental and social ple: sustainability. Over the Socially responsible inves- coming months, IFC will Solar energy lighting, Sri Lanka. tors often use broad, consult withvarious stake- 60 ENVIRONMENT MATTERS · 2004 Institutional Articles holders in order to publish The Sustainable Financial financial institutions, includ- funds are studying ways to in- a robust set of perfor- Markets Facility enhances ing one export credit agency, corporate environmental and mance standards and a the environmental and so- Eksport Kredit Fonden (EKF) social criteria into their stock disclosure policy that will cial impact of financial in- of Denmark, and one develop- selections. There is also a Sus- become the new industry termediaries, providing ing country bank, Unibanco of tainability Working Group standard. environmental risk man- Brazil. These financial institu- formed as a multi-stakeholder To minimize the negative agement training to staff tions are applying the princi- effort to launch Bovespa's new environmental impact of from some 100 banks, in- ples to their project finance Sustainability Index. investments, IFC provides vestment funds, and oth- activities, both globally and in technical assistance and er financial institutions in all industry sectors. Collective- IFC has embarked on a train- financing to help client developing countries. ly, these banks are estimated to ing program for the Equator companies re-engineer account for more than 80 per- Principles Banks, and training their production process- Focusing on energy cent of the worldwide project is also being provided to mi- es. Cleaner production re- finance market. In effect, IFC crocredit banks to assist them duces use of resources, efficiency and and the Equator Banks creat- in their frontier work, helping increases efficiency, and renewable energy ed a new set of global business the poor to help themselves. minimizes waste. norms for project finance, Over 400 bankers at 13 banks Since 1990, IFC has provided which is expected to represent have been through a licensed Under the umbrella of the Sus- over $90 million in commit- more than $100 billion in in- training program offered by tainable Business Assistance ments to energy-efficient in- vestment over the next decade. IFC, an effort supported by Program, specific environmen- vestments. For example, a This momentum indicates that ongoing advice and guidance tal and social facilities are in Chinese fiberboard producer these principles, based on to the banks. The objective is place that make highly selec- was able to reduce its trim- IFC's environmental and social to permeate all levels of the fi- tive and strategic interventions ming allowances and increase policies, have become the new nancial industry to make their in key sectors of the market its salable output by 6 percent. work socially and environ- standard in project finance. where demonstrating sustain- While consumption of raw mentally effective, which will Compliance with these stan- able business practices offers material and energy remained help advance the mainstream- dards has become essential to significant benefits. The pro- the same, the change is expect- ing of these concerns in the glo- successfully arrange project fi- gram comprises three donor- ed to increase the company's bal economy. nancing. supported facilities: annual profits by 20 percent. Promoting sustainability, ener- IFC also provides financing The Equator Principles are an The Corporate Citizenship gy efficiency, and change in the and leverages donor funds to important part of IFC's long- Facility helps clients to im- finance industry are three of support renewable energy and standing commitment to forge prove the environmental the major ways in which IFC other sustainable energy and social impacts of their standards and implement is able to make real, effective, projects, especially those that business activities, with a training to meet new challeng- and lasting change in the en- focus on helping clients commercialize new technolo- es. IFC has urged the private vironmental and social respon- design and implement ef- gies. Total IFC commitments to equity industry to adopt these sibility of private sector fective strategies for en- renewable energy projects standards and the equator investment in the lives of the gaging stakeholders. have exceeded $765 million model. In the emerging mar- poor, who are at the heart of since 1990. kets, IFC is working for change IFC's mission. The Environmental Oppor- with local financial partici- tunities Facility finances Financing through pants; for example, Brazil is innovative projects that the Equator now both home to the world's promote local environ- first sell-side stock brokerage mental benefits, with a fo- Principles research service for socially re- cus on cleaner production sponsible investing (SRI) and This article was prepared by David and energy-efficiency Derived from IFC's Safeguard the birthplace of the first Cowan, (202) 458-8709, fax (202) 974-4384, IFC's Media & Marketing projects in Asia and Latin Policies, the Equator Principles emerging market SRI fund. Manager, Environmental & Social America. have now been adopted by 24 Several of the largest pension Development Department. ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 61 T his year the World country practitioners a plat- Bank Institute contin- form to share useful ideas, tan- ued to strengthen its gible solutions, and working focus on work at the country proof of how to get results on level and forge a closer align- a larger scale. ment with World Bank opera- tions. This has meant DEVELOPING Recognizing the critical role of customizing content to meet institutions and the need to specific national needs and pri- strengthen their capacity to in- orities and designing pro- fluence policy for more inclu- CAPACITY AND grams to complement the sive and sustainable growth, work done by the Bank's op- WBI's Environment and Nat- erational units. As a result, ural Resources Management INSTITUTIONS WBI has shifted its emphasis learning program helps clients from individual training to the (1) improve their understand- design and delivery of prod- ing of the linkages among the ucts and services for long-term economy, natural resources, institutional capacity develop- ecosystem services and institu- ment. tions, and how societies func- tion; and (2) develop the skills Our programs also have be- necessary to address sustain- come more efficient. By work- ability, equity, and vulnerabil- ing closely with partners and ity issues of environmental using information technology, public goods. mass media, and other knowl- edge-sharing instruments in Achieving these objectives at innovative ways, we reach the country level has meant larger audiences. One such in- deepening the learning pro- novation, for example, was the grams in Brazil, China, Egypt, year-long Global Learning Pro- and other countries. For exam- cess and Conference in Shang- ple, in China, the number and BOX 1. STRATEGIC ENVIRONMENTAL hai on Scaling Up Poverty scope of training activities ex- ASSESSMENT (SEA) IN CHINA Reduction, which was de- panded from providing basic signed and implemented by environmental management Strategic Environmental Assessment (SEA) aims to further WBI. develop the capacity of Chinese policymakers and skills to new local environment analysts at local and national levels to examine the directors, to more partnerships environmental implications of development policies-- The Shanghai Conference fo- with Chinese universities that particularly in key sectors such as energy, transport, cused on lessons learned by are teaching environmental industry and water--and subsequently design policy reforms and corrective measures. The SEA process doing--the kind of practical economics courses, as well as promotes coordination among different government and experiential knowledge piloting and fully implement- agencies as well as enable participation by stakeholders that has been so difficult to ing Strategic Environmental in decisionmaking that affects their quality of life. The unlock and share with those courses on SEA are the result of a partnership that Assessment (SEA) capacity includes the State Environmental Protection Adminis- who have the most to gain building courses (see Box 1). tration of China (SEPA),WBI,the International Association from it. With 100 case studies of Impact Assessment, and the United States about how people have scaled As discussed earlier in this is- Environmental Protection Agency. up pilot programs to national sue of Environment Matters, in- and even regional scope, stitutions are critical for Shanghai also gave developing influencing the quality of 62 ENVIRONMENT MATTERS · 2004 Institutional Articles growth. Drawing from the for carbon finance and knowl- BOX 2. TRANSFORMING INSTITUTIONS framework of the World Devel- edge exchange on improving FOR SUSTAINABLE DEVELOPMENT opment Report 2003, WBI pre- urban air quality through the pared a course to highlight Quality of growth depends on the quality of policies,and most im- Clean Air Initiative. portantly,on the institutions entrusted to formulate and implement how institutions can emerge to those policies. Recognizing the growing demand for learning on promote well-being, broad- institutional change,WBI's course on"Transforming Institutions for based public interest, and ad- a Sustainable Future" helps participants learn about ways to help competent institutions emerge, even in unfavorable circum- dress environmental, social, stances.Participants explore the basic characteristics of competent and economic problems (see This article was prepared by Laura institutions and the interdependence of social,environmental,and Tlaiye and Bonnie Bradford of the Box 2). economic concerns. Cases and examples illustrate how people in World Bank Institute's Environmen- different contexts and situations have worked their way out of tally and Socially Sustainable Devel- vicious circles of environmental degradation,social conflict,and de- opment Division (WBIEN). Fax: WBI's country orientation is clining growth. Participants also learn to identify catalysts and (202) 676-0978. complemented by support to assess how innovations could be more broadly applied in their Email: sustainabledevelopment@ countries.This course has been offered in Southeast Asia and West worldbank.org regional and global programs, Africa, and is in preparation for China. Website: www.worldbank.org/wbi/ such as capacity development sustainabledevelopment From Adjustment Lending to Development Policy Support New Environment Health Anchor Lending Program The Bank in June 2004 announced a new Environment Health Anchor Program. After more than two years of It emphasizes the importance of The program is intended to help consultations, the World Bank in governments taking ownership of Regional environment departments August 2004 announced a new reforms in developing a program that improve their understanding of environ- Development Policy Lending (OP/BP meets their countries' needs, as well mental health linkages, identify cost- 8.60) framework that will replace its as ensuring broader participation in effective and environmentally beneficial main Adjustment Lending Policy. government policymaking by ways to reduce pollutant risks, and emphasizing advance consultation develop analytical and lending tools that The new policy will provide a with stakeholders and a deeper can be applied by the Regions to meet coherent and comprehensive policy understanding of the social and one of the Bank's Environment Strategy framework for fast- environmental impacts of proposed objectives, namely to improve the disbursing policy-based lending. policies. quality of life, through improving health, livelihoods and reducing vulnerability. J. Warren Evans Appointed as New Bank Environment Director J.Warren Evans has been appointed as the Thai National Environment Board the new director of the World Bank from 1978 to 1981, and was managing Environment Department. His appoint- director of an international environmen- ment is effective October 1, 2004. Evans tal consulting firm. joined the Bank in July 2003, and since February 2004 has been acting director Outgoing Environment Director Kristali- of the department. Prior to that, he was na Georgieva has been appointed as the the director for the Environment and new director of the World Bank's Moscow Social Safeguards Division of the Asian office and permanent representative in Development Bank, where he worked for Russia. Georgieva took up her new 15 years.He also served as an advisor to appointment on May 1,2004. ANNUAL REVIEW · JULY 2003­JUNE 2004 (FY04) 63 Environment 2004 The World Bank's Environmental and Social Sustainability Program The Environmental and Social Sustainability (ESS) Bank staff in Washington have participated in a number program is the World Bank's answer to the private of greening projects, including special cell phone and sector's Corporate Social Responsibility (CSR). ESS athletic shoe recycling events, as well as activities in priority activities for fiscal year 2004 include the observance of International Car-Free Day on September publication of the Bank's first Sustainability Report, 22. In the cafeterias, staff now have more environmen- initiatives to reduce the Bank's corporate environmental tally friendly choices available: several unsustainable footprint, and environmentally and socially responsible species, such as shark and Chilean sea bass, have been procurement. removed from the menu, and all non-specialty coffee is certified fair-trade,organic, and shade-grown. In an effort to bring together all of the Bank's sustain- ability-related activities, and in alignment with the Environmental efforts in the field have increased global sustainability reporting movement, the Bank through a Country Office Greening Challenge.The Brazil published its first Sustainability Report in October. The Country Office was given the top award for its involve- report includes explanations of the Bank's checks and ment with local organizations to collect office balances related to sustainability, the Bank's commit- recyclables. ment to sustainable development, details of our corporate footprint, and work still to be done. The One of the biggest impacts the Bank can have is report can be found on the web under Environmental through environmentally and socially responsible and Social Sustainability at www.worldbank.org/ procurement practices (ESRP). A pilot program is under sustainabledevelopment. way in selected country offices to further understand the risks and opportunities related to procurement, and Together with the Bank's Greening Program, the ESS ESRP training sessions are being held in Washington and group has been working on a number of initiatives to the field. We are also collaborating with our develop- reduce our"footprint"--the impact our offices have on ment partners, including other bilateral and multilateral the environment. A significant step has been the recent development banks and UN agencies, to harmonize our purchase of renewable energy credits (RECs) equivalent environmental purchasing requirements. to 100 percent of the electricity used by the Bank's Washington offices. There have also been additions of For more information, please contact: new energy efficiency equipment, and a photovoltaic eadvisor@worldbank.org. (solar-powered) roof will soon be installed. Green Awards Announced The World Bank in April 2004 presented Green Awards recognizing staff leadership and personal commitment in mainstreaming environment in the Bank's work. Three country directors won the award: Judy O'Connor, country director for Tanzania, was recognized for her work in integrating environmental dimensions into major programs in Tanzania; Robert Vance Pulley, former country director for the Philippines, was recog- nized for being a strong proponent of advancing the Bank's environ- mental dialogue in the Philippines; and Isabel Guerrero, country director for Colombia and Mexico, was recognized for work in mainstreaming the environment in country policy dialogue and lending/grant operations. Luis Descaire, Director of GSD; Kristalina Georgieva,Director of ECCU1;and Ian Johnson, Five task teams--the Cambodia Rural Investment and Local Gover- Vice President of ESSD. nance Project, Ghana Urban Environmental Sanitation Project, Gujarat Emergency Earthquake Reconstruction Project, South Asia India Transport Team, and the MNA Legal Team--also were honored. Also honored were Kristalina Georgieva, outgoing director of the Environment Department, and Luis Descaire, director of the General Services Department, for his leadership in reducing the Bank's environmental footprint. 64 ENVIRONMENT MATTERS · 2004 A Selecton of World Bank Group Environmental Publications The following publications may be obtained by sending an email to eadvisor@worldbank.org, or by phoning the Environment Department Publications Unit at (202) 473-3641. Good Dams and Bad Dams -- Environmental Criteria Paying for Biodiversity Conservation Services for Site Selection of Hydroelectric Projects in Agricultural Landscapes Sustainable Development Working Paper No. 16 Environment Department Paper No. 96 PUBLICAPUBLICATIONS George Ledec and Juan David Quintero Stefano Pagiola, Paola Agostini, José Gobbi, Cees de Haan, November 2003 Muhammad Ibrahim, Enrique Murgueitio, Elías Ramírez, Mauricio Rosales, Juan Pablo Ruíz TIONS Climate Change May 2004 (Available in English and Spanish) An Adaptation Mosaic -- A Sample of the Emerging World Bank Work in Climate Change Adaptation Participatory Conservation for Protected Areas -- Ajay Mathur, Ian Burton, and Maarten van Aalst, editors An Annotated Bibliography of Selected Sources (1996-2001) February 2004 Environment Department Paper No. 95 Nancy Diamond, Elisabeth Nkrumah, and Alan Isaac Environment Department Papers January 2004 Look Before You Leap -- A Risk Management Approach for A Review of the Valuation of Environmental Costs Incorporating Climate Change Adaptation in World Bank and Benefits in World Bank Projects Operations Environment Department Paper No. 94 Environment Department Paper No. 100 Patricia Silva and Stefano Pagiola Ian Burton and Maarten van Aalst December 2003 October 2004 Status and Evolution of Environmental Priorities in the Poverty Models for Recognizing Indigenous Land Reduction Strategies -- An Assessment of Fifty Poverty Rights in Latin America Reduction Strategy Papers Environment Department Paper No. 99 Environment Department Paper No. 93 Roque Roldan Ortiga Jan Bojö and Rama Chandra Reddy October 2004 November 2003 Cost of Environmental Degradation -- Poverty Reduction Strategies and the Millennium Development The Case of Lebanon and Tunisia and Environmental Stability -- Opportunities for Alignment Environment Department Paper No. 97 Environment Department Paper No. 92 Maria Sarraf, Bjorn Larsen, and Marwan Owaygen Jan Bojö and Rama Chandra Reddy June 2004 September 2003 To be added to the Environment Matters mailing list, please complete form and mail to the address below. Name Title Organization Address City/State/Postal Code Country Preferred language edition: English Spanish To order other Environment Department publications, refer to our publications list and write those you would like to receive below. To order more than 3, please contact the Environment Department publications office directly. Title Series No. Author Date Mail or fax to: Environment Department Publications Fax: (202) 477-0565; phone (202) 473-3641 The World Bank 1818 H Street, N.W., Room MC-5-126 Washington, D.C. 20433 U.S.A. The Global Pursuit Reforming Forest Fiscal TIONS of the Sound Systems -- An Overview Management of Chemicals of Country Approaches by John Buccini and Experiences February 2004 Program on Forests (PROFOR) 102 pages Proceedings of the International Workshop on Reforming Forest Fiscal Systems to Promote Poverty PUBLICA Reduction, and Sustainable Forest Management (October 2003). February 2004 120 pages (Available in French and Spanish) Score Card to Assess Philippines Environment Progress in Achieving Monitor 2003 Management Effectiveness December 2003 Goals for Marine 48 pages Protected Areas July 2004 32 pages (Available in French and Spanish) There are also Thailand, Mongolia, and Vietnam Environment Monitors available. Counting on the Environment -- Does the Treatment of Forest Incomes and the Rural Poor Environmental Liability Environment Department Paper No. 98, During Privatization Environmental Economics Series Really Matter? -- by Paul Vedeld, Arild Angelsen, An Empirical Evaluation Espen Sjaastad, and Gertrude Kobugabe Berg in Central Europe June 2004 Environment Strategy Paper No.9 112 pages by Randall Bluffstone and Theodore Panayotou December 2003 132 pages The Little Green Cornerstones for Causes of Deforestation Data Book 2004 Conservation, of the Brazilian Amazon April 2004 1988-2003 -- by Sergio Margulis 240 pages World Bank December 2003 (ISBN 0-8213-5734-4) Assistance for 100 pages $15.00 Protected Areas (ISBN 0-8213-5691-7) August 2003 $22.00 56 pages For information on how to obtain these publications, please call the World Bank Environment Department at (202) 473-3641, or email eadvisor@worldbank.org.