~~~~~~~~~~~~~~~~~~~~~~~4A 4~~~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~ .. . 4 it -:jR . -2. , .i ;; 'i",':! ' , ~ ~ ~ ~ s ' * ey .FjSs-e ,9 * ' ' S.s~~~. Education for girls has a catalytic effect on every dimension of development.... As the African proverb tells us: "If we educate a boy, we educate one person. If we educate a girl, we educate a family - and a whole nation." - * 33 James D. Wolfensohn, E * i World Bank President . M - Y~~~~~~~~~~~~ ~ , S I-+ a. 3 D002 S S00 20000j f'Sed 0, S -00 0 3, 0 '. f X S B . . 0 0 0 0 0 0 : 0 0 ;; 0 0 h 0.: ;S C;\'.~~~~~~~~~~~~~~~~- ; S S 00 - S, ~~~~~~~~~~~~~~~~~~~~~~ 1~ $1~~ ~~~~~~~~~~~~~~~~~~~~ 0 :. !, _~~~~~~~~~~~~~~~~0 0. : jS:0:;:- .. 0,$ iS0 - Letter from A Gb - Vice PrWSdent 2 Abe United StaRes It has been five years since the Earth Summit at Rio. The great riches of human creativity were on full display there: a giant "tree of life" decorated with messages from children around the world; startlingly beautiful computer images of earth seen from space; spectacular sculptures, paintings, music, and graphics. The many parts of this human tableau seemed more alike than different: indigenous person and artist, scientist and child, tourist and diplomat. All seemed to recognize that we are all part of something larger, a family related intimately by commitments to each other's common future. On this fifth anniversary, we are united by the knowledge that human activities are causing grave and perhaps irreparable damage to the global environment. The problem runs from local air and water pollution to destruction of the rain forests, global climate change and the diminished diversity of plant and animal species. We have made some remarkable progress since Rio. We renegotiated the Biodiversity Treaty and Climate Convention, addressed population concerns at Cairo, and worked to vigorously enforce the Montreal Protocol. We are seeing that the ban on ozone depleting chemicals has begun to heal the fragile shield that protects us from ultraviolet radiation. But those five years have also heightened new concerns. The new Global Biodiversity assessment reports that rates of species loss worldwide are 100-1,000 the normal rates of extinction and accelerating. And the Intergovernmental Panel on Climate Change reports a discernible human influence on the climate, and projects temperature changing faster than ecosystems can adapt. Responding to these large scale problems requires bold new approaches. We must harness the planet's scientific and technological capabilities to develop sustainably. The link between energy use and environmental degradation must be broken. UNEP's first Global Environment Outlook report calls for an "Energy Decade" to promote alternative energy sources and improve energy efficiency. I would like to take this opportunity to challenge the World Bank Group to accelerate its efforts to promote and fund clean energy worldwide so that by early in the new millennium, a significant portion of their energy portfolio is renewable. We must also pursue a more rigorous analysis of the challenges we face. The traditional economic system measures the value of things such as food, clothing and manufactured goods, but often understates or ignores the value of things more difficult to buy and sell: fresh water, clean air, the beauty of the mountains, the diversity of life and the quality of the world we leave to future generations. The World Bank has taken a great step forward by characterizing a nation's true wealth not only by the importance of industrial output, but also by the value of natural, social and human capital. I hope the Bank will continue to actively promote Green GDPs. The Global Environment Facility is a promising development. It mobilized more than $2 billion for projects around the globe to tackle global environmental problems. The World Bank Group provides more than $25 billion in loans each year and fortunately its lending for environmental projects has climbed, as has lending for human resource development, population, poverty reduction, clean energy and forestry. However, even the World Bank's resources are dwarfed by the demand for environmental goods and services globally, approximately $400 billion per year. And the market for energy efficiency and power generation is another several hundred billion dollars a year and growing. Those of us in government and international financial institutions need to help capital flow toward more sustainable solutions and develop incentives for private sector financing of environmental technologies. Policies that subsidize resource waste must be ended. Five years ago, we achieved unity of purpose out of diversity at Rio. Everything we have learned since then should deepen our resolve to protect our home. Environmental protection is not a luxury, it is a necessity. We are all on spaceship Earth together. cont ents wD˘e eSS@XeHah WINTER/SPRING 1997 W je eas |W 4 >le i i _ The new Global Water Partnership is the first-ever international attempt to coordinate efforts to solve water problems on a global scale. Onnnu mtghe IFininciel 12 Smlunsimmen gw e 0b;ll The World Bank Group is promoting a variety of innovative public and private financing mechanisms for the environment. 6 Pmeeeiez5en end Onceleeee zi NeW Wayz e ) a chiev e Cleanea' World sMaHong, 2h l uElic Ia9lgowedl: Az 14 The World Bank and its client countries are using new and innovative tools such as persuasion, social ODeo eRMU61? Oentlo $ol02M20ons pressure and market forces to get polluters to clean up their act. By involving the public, we stand the best chance of achieving sustainable development. legecN0ain 19 Anil Agarwal MISe &aimg $@Ee Msaeee0e 20 Thmeing Ise X de? The international community is working together to find sustainable solutions to the survival of the Aral Sea. Nue'el Spec5ag OnMaVu~e ft 22 Russia, with help from the donor community, is phasing out ozone-depleting substances by the year 2000. [ENIgdieg Qgobagi EW8le*8g0 go 23 RSeduee ŠIiadeSe0 chn 16 lIgSens'eeeg:W Nakba AgAcsalu e Environmentally Sustainable The World Bank and its partners are The World Bank and its clent countries are pursuing resource use and land management for explorsng ways to build global markets for sustainable agriculture in promising new ways: reversing soil decline, turning wastes into assets, using offsetting and trading greenhouse gas land quality indicators, and integrating biodiversity conservation into agriculture. emissions. Regarman ousodeew 24 Fi e Veem l7Oes aftw IŠ( 27 Mowee le Mle Thee go&0 Derek Osborn Reducing subsidies for resources such as fossil fuels, fertilizers and pesticides for agriculture at a S;IeD ... must become a key policy instrument. What's New at the Bank? 28 Scanning the Portfolio 30 Ieeu Onn aif 5s eneln 26 P006cpy I s'ee $iece XDe IP(DceDD0 0eISIieaG& 31 This policy matrix classifies tools and best practices around the world in environmental JeiIie! Mlei 32 management. About the Covers: Photographer: Curt Carnemark Front Cover: A salt miner at work in Irian Jaya, Indonesia Environment Matters is a magazine of the World Bank Group produced three times a year by the Environment Department. Each fall features an annual report on the Bank's N work in the environment, and a second - volume containing a matrix of Bank Group L te projects with relevant environmental information. Visit us on the Bank's Environment Department Web page. Meanagers of the World Bank Group's Environment Program Environment Family Sector Board: Chair: Andrew Steer Africa: Francois Falloux Europe & Central Asia: Michele de Nevers Five years after the Rio Earth Summit is a good time to take stock of how far M ddle East & N. Africa: Tony Garvey w h c i s Latn Amnerica & the Carb: Constance Bernard we have come in sustaiable development. E. Asia: Jon Hitchings S. Asia: Walter Vergara Although awareness of environmental issues has increased, progress in putting World Bank Environment Department: Director: Andrew Steer environmentalism ito practice around the globe has clearly not been what we Sr. Science Advisor: had hoped. Investment in sustainable development has been inadequate or in Robert Watson e ue Sr. Environmental Advisor: ____ some cases not cost effective. Targets under the Clmate Change Convention Ken Newcombefo yeruu uusey be M shae md SeniorWae Advso John Brscoe for the year 2000 are unlikely to be met. Most important, we have not made Environmental Assessment Advisor: nearly enough progress in improving the quality of life for the 3 billion people Robert Goocdlandenuhite q pol who still live on less than $2 a day. 1 Land, Water & Natural Habitats, ENVLW - Chief: Colin Rees We have, of course, seen some remarkable examples of dedication, innovation Global Environment (including and success. We estimate that of the 100 countries which have now prepared GEF and MP operatons i63 coordination) ENVGC national environmental strategies, about half are beginiing to see progress on Chief: Lars Videaus the ground. Some countries are experiencing changes that will become best Social Policy, ENVSP practiccs for others to follow. Innovations range from Mexico's new L -i^ Chief: Gloria Davis Environment Law and Indonesia's new pollution policy to the halving of Pcllution & Environmental Economics, ENVPE wasteful subsidies on energy consumption and expansion of the power of civil -Technology and Pollution Policy society in promoting sustainable development around the world. Chief: Richard Ackermann Environmentalnd In this issue of Environment Matters, we take a look at some of the successes Valuation the Bank's client countries have brought to the table since Rio and try to Chief: John Dixonbruhsicty Envief:Jonmntal LawxUni LEGEN: honestly assess the unfinished agenda. The Bank's own agenda for Envinronmental Law Unit, LEGEN:. .. David Freestone sustainability over the coming years will include investing in partnerships that Environmental Research, PRDEI: work, mainstreaming environmental concerns into all of our lending, Zmarak Shalizi, David Wheeler Chiefs of Regional Units: addressing the social and cultural dimensions of development, building and Asia: Marifta Koch-Weser sharing knowledge and best practice, measuring progress differently through Africa: Cynthia Cook. . .. Europe & Central Asia/ techniques like participatory poverty assessments and green national accounts, Middle East & N. Africa: Anand Seth and channeling finance for sustainable development. The articles in this issue Latin America & the Carib.:Wiliam Partridge illustrate our work with our client countries in applying these goals. International Finance Corporation Technical & Environment Department: Director: Andreas Raczynski I invite you to read this issue of Environment Matters as part of our continuing Environment Division Manager: Martyn Riddley attempt to share information at the cutting edge of environmental practice and Editor, Production & Circulation Manager: learn from one another, as we mark the five-year guiding post on the road Clare Fleming from Rio. Associate Editor: Diana Chung Design: Bennet Akpa, Clare Fleming Advisor: Louise Scura Publications Info: 202-458-8459 General Inquiries: 202-473-3641 Department Fax: 202-477-0565 Web address: htOp/Av-.sdwaodbank.org/htmVesdenv/envmain htm ames D. Wolfensohn Printed with soy ink on 100% recycled paper; Cover is 50% recycled and totally chlorine-free. Please recycle. a m The World Bank Group <\Lw j t1818 H Street, N.W. mhY | Washington, D.C. 20433 Overview Five Years After Rio: Thefflrid Bank'sEnvi'ronmental Prfessional Take Stock Since Rio, the World Bank environmental to ensure environmental and social sus- On the positive side, a recent review of community has grown dramatically, with tainability. our experience with Environmental over 300 specialists devoted to environmen- Assessment of Bank-supported projects tal issues. This pastJanuary, all the environ- We believe real progress is being made in showed strong improvement in technical mental staff were formally linked in an our efforts to mainstream the environment quality and impact. Evidence shows that Environment Family' (see page 28) under across the board, but we're not satisfied yet. the kinds of investments supported by the Banks new professional network struc- Along with other development agencies, the Bank are, in most instances, much ture. Now, five years beyond more sensitive to ecological Rio, the Banks environmental i ; concerns than those we professionals are taking stock ififffIllfWsupported a decade ago. and planning for the future. But fidi mainstreaming is The following statement by ntyet complete. With this the Banks Environment in mind we, along with our Fiamily lays out six i'mp era- cleagues in the energy tives that will help guide our sector, are taking a tough own work as we seek to sup- -look at our activities in port our clients in making energy and the environ- deeopment sustaina i ment. The Bank is also launching a major program MVainstream to renew our work in rural Environmentag development with a major Sustainability into - emphasis on sustainability All Developmnelt (see Regreening, page 1 6). Since Rio, the Bank has I- Invest in sharply expanded its tar- Partnerships geted support for environ- that Work mental reforms in our client One of the strengths of countries, with active envi- Agenda 21 was its insis- ronmental programs in 68 tence that all groups in countries. The portfolio of society have a role to play (disbursing) loans for these -. - in promoting sustainable programs now stands at development, and that by nearly $12 billion. Such Bk sf M. IANNACCI acting together the whole interventions-to reduce pol- President James Wolfensohn addressing an sta. can be much more effective lution, protect ecosystems than the sum of its parts. In and build capacity for environmental we now need to work harder to incorporate the Bank's environment work, we've management in developing countries-are environmental concems into sectoral and begun to internalize this message. Part- playing an important role in environmen- even macroeconomic strategies in the same nerships are essential to our work on the tal reform. But as we focus on these tar- way that we have at the project level. We environment; the majority of projects are geted programs, we must also be sure that believe that sectoral and regional environ- now implemented with active NGO and all Bank-financed programs are designed mental assessments can yield high pay-offs. community group involvement, and 4 ENVIRONMENT MATTERS we've been sharply expanding our joint structures are severely weakened or the environment will be an important programs with the private sector and destroyed. And, to help build and dis- task for the Environment Family. other international agencies. seminate knowledge, the 1999 World Development Report will likely be Measure Progress We believe there is still a huge untapped devoted to social development. Differently potential in working together in partner- To make progress toward sustainable ships to bring about the transformations Build and Share development, we need better indicators in corporate, consumer and official Knowledge to guide action and monitor progress. behavior needed to make development We recognize that we, like all profession- Reducing poverty rapidly in a manner sustainable. Consider forest industries, als in this area, are on the steep part of that conserves ecosystems' productivity is for example. Why is it that there are so the learning curve when it comes to the central goal of sustainable develop- few examples of good environmental environmental sustainability. The devel- ment. But we need to deepen our under- stewardship? It's because there is rarely opment path laid out in Agenda 21 was standing and measurement of both the right combination of enlightened new, and with each passing year we all poverty and ecology if we are to have a corporate behavior, appropriate govern- gain experience as to what works and yardstick against which to measure ment policy, adequate stakeholder con- progress. sultation, strong NGO and scientific involvement to ensure independent cer- Making development sustainable Integrating environmental concerns into tification of good practice, and adequate involves much more than simply development indicators is essential. financing. The recently estabished For- ensuring that the environment is More countries are seeking to incorpo- est Market Transformation Initiative preserved. There are social, rate environmental and social concerns (described in Environment Matters, Fall inoterntoa'acut.W eiv 1996) is an example of an effort to bring institutional and economic into their natonal accounts. We believe . . . .......... . we need to move vi orouslY to make this precisely this set of actors together in a dimensions to sustainability that g W . . ~~~~~~~~~~~a normal practice. We need to progress way that will help realize the competitive are not necessarily related to the on indicators of several different types: advantage that can underlie sound envi- environment. Nonetheless, it has better indicators of the state of the envi- ronmental and social corporate behavior. Wee tat ancivl cparate n this. been the environmental focus ronment and of related trends, better a ee expect to acttvely particpate effrths that has been a prime mover in measures of the pressures affecting envi- ronmental conditions and trends, and in sectors such as renewable energy and encouraging a more holistic better measures of the impacts of policy marine products (see Photovoltaic MTI, development model. and other interventions. page 28). Caio Koch-Weser, World Bank Make Every Integrate Social Managing Director Dollar Count and Cultural Dimensions ~~~~~~~Funding for environmental programs A key tenet at Rio was that social sus- Fnigfrevrnetlporm A key tenet at .. Rio was that social susremains inadequate. It is important that tainability is equaly important as-and what doesn't. funding be raised: a strong replenish- often linked closely with-environmen- ment of the Global Environment Fad- tal sustainability. But the implications of Some of the best innovations are stil ity this year is vital. Funds that are this truth are stil rarely worked out in experimental and we must learn from available must be allocated on the basis public policy. these so that good practices can be repli- of cost-effectiveness and leverage. Set- cated. The World Bank's project portfo- ting priorities carefully and actively Last year President Wolfensohn lio itself offers a remarkable living monitoring the impact of expenditures requested that a task force prepare an laboratory from which not only the Bank needs to be the hallmark of our work. action plan to incorporate social concerns but others too can learn. But we recog- And finally, our recent innovations in into our activities across the board. This nize too that many of the best innova- catalyzing private funding (see Innovative has recently been completed and tions come from outside and in particular Financial Instruments, page 12) must be approved by the Board of Directors. At from locally-led development efforts. replicated the project level, social assessment will gradually become the norm just as in the Too much knowledge rests in supply- case of environmental assessment. At the driven reports and not enough in user- strategic level, the Social Development friendly systems available to This article was written by Andrew Steer, Family will address social capital issues in decision-makers and practitioners. Rec- Environment Department Director, in collaboration Country Assistance Strategies for a num- ognizing this, the Bank will invest in cre- with the Environment Sector Board. ber of key countries. The Bank will also ating a knowledge management system expand support for work in post-conflict for development professionals. Building situations, where social and institutional and maintaining the knowledge base on WINTER/SPRING 1997 5 D. HANRAHAN Persuasion AV;G now an expanding tool-knit of inno- n I I r r I IIVvative and flexible incentives which can N llr~~~~~~~~~~~~~~~~~~~~~~b use to -e poltr tocea phi act. 6 ENVIRONMENT MATTERS While there is no substitute for mean- r Commercial market forces can also be ingful regulatory frameworks and infor- For companies powerful. Evidence suggests that a firm's mation about the environment, these o environmental reputation matters; when new tools, which rely on persuasion, about their customers, suppliers and stockholders social pressure and market forces to help i judge a firm's environmental perfor- push for improved environmental perf- reputations, public mance, that firm's expected costs or rev- ormance, can often succeed where regu- enues are affected. For companies lations can't. recognition of their sensitive about their reputations, public recognition of good or bad performance The World Bank and its client countries ood or bad may translate into large expected gains or are putting some of these tools to work losses over time. This market pressure with promising results, as demonstrated environmental has resulted in a wide variety of Codes of by the four described below. Practice and other voluntary guidelines performance may by companies or industrial associations, Harnessing the Power of r m and NGOs and other groups are becom- Public Opinion translate into ing more active in promoting the imple- Local communities and market forces l mentation of such commitments. can significantly influence polluting gains or losses. industries to comply with environmental The World Bank Group is supporting a regulations. In countries as different as __ ___ _ number of initiatives to bring together China, Brazil, Mexico, and Indonesia, industries, local regulators and commu- local communities are finding ways to citizens' movements or politicians. For nity groups to discuss local priorities and force environmental norms on local pol- example, a community group can negoti- to improve those industries' environmen- luters. Where formal regulations are pre- ate directly with a factory, by compelling tal performance. sent, communities use the political it to respect social norms or by explicit or orocess to ensure tighter enforcement of implicit threats of social or political sanc- An example is Indonesia's PROPER regulations. Where formal regulations tions if the factory fails to reduce dam- program, which rates and publicly dis- are absent or ineffective, community ages caused by its emissions. Given the closes factories' environmental perfor- groups or nongovernmental organiza- influence these community groups can mance (see Box and Figures). Armed with tions (NGOs) can use forms of "informal have, it is important to get accurate envi- government-certified performance rat- regulation." The agents of informal regu ronmental information to them so they ings like those provided by PROPER, lation can be local religious institutions, may be more effective in their negotia- environment agencies can reduce expen- social organizations, community leaders, tions with polluters. sive legal enforcement procedures by THE "PROPER" WAY TO PERSUADE Several years ago, when the Government of Indonesia realized In PROPER's pilot phase, 187 plants were rated and in June that it was facing the risk of severe pollution damage because 1995, when the program was officially launched, only the names regulatory enforcement was weak and manufacturing was grow- of the five Green plants were publicly announced (no plants rated ing at over 10% a year, it designed an innovative program for Gold). The 115 plants rated as Red and six plants rated as Black rating and publicly disclosing the environmental performance of were privately notified and given until December 1995 to improve Indonesian factories. The program was implemented in 1995 by their performance. Before full disclosure in December, half the a team at Indonesia's National Pollution Control Agency Black plants and 6% of the Red plants had made successful (BAPEDAL), with technical support from the World Bank. It is efforts to upgrade their status. By last September, 33 of the origi- called PROPER PROKASIH. During the past year, BAPEDAL's nal 121 Black or Red Plants achieved Blue status and one PROPER PROKASIH team has successfully managed and achieved Green. Of the six plants originally rated Black, five had expanded the program. achieved better ratings and the sixth was brought to court by the local community. Five plants originally rated Red were reduced to In PROPER, a factory is assigned a color rating based on the Black status because of their refusal to work toward improved per- government's evaluation of its environmental performance. A formance. Blue rating is given to factories who comply with national regula- tory standards, Gold is reserved for world-class performers, and Inspired by PROPER, other countries have begun planning or Black for factories which have made no attempt to control pollu- implementing similar programs with World Bank assistance. In tion and are causing serious damage. Intermediate ratings are the Philippines, the ECOWATCH program is nearing first disclo- Red, for factories that have some pollution control but fall short sure after six months of preparation (see page 30.) Colombia is of compliance, and Green, for factories whose emissions control also planning to begin a PROPER-type program this year. and housekeeping procedures significantly exceed those needed for compliance. WINTER/SPRING 1997 7 Grading Factories: PROPER Incentives A + \ Public Praise GOLD PROPER's GREEN Five-Color BLUE B System | RED D _ Public Pressure & System Legal Enforcement BLACK F bringing community and market pressure from everyone (though usually not at the among themselves how they will most to bear on polluters. In the context of same cost). On the other hand, local reg- efficiently meet ambient water quality informal regulation, public disclosure can ulatory bodies can set more efficient standards; the government then holds significantly empower local communities. plant-specific requirements based on real the representative accountable. The ben- PROPER also provides a novel applica- costs and specific local environmental efits accrue to the industries in that they tion of 'incentive regulation' principles. conditions. There is a growing accep- can negotiate among each other to Traditional regulation has been plagued tance of the need to build serious dia- reduce pollution in the most cost-effec- by the fact that regulators need good logue among all the stakeholders in areas tive manner, and to the government in data about firms' performance, but firms where action is urgently needed-in that it requires less administrative effort have clear incentives to withhold such some cases, this involves bringing in pro- to achieve a positive outcome. information. The PROPER approach fessional mediators. augments the regulators' information on These kinds of flexible approaches are firms by encouraging good performers to These approaches are very new but are reflected in the World Bank Group's Pol- identify themselves. already leading to tangible results and lution Prevention and Abatement Hand- the prospect of new opportunities. For book, to be sent out for public comment Making Regulation example, a local government agency can shortly. In summing up the lessons More Flexible request industries in a watershed to learned over several decades of dealing The traditional approach to environmen- appoint a representative and agree with pollution problems, the Handbook tal regulation through permits, monitor- ing and enforcement has often been slow, . - contentious and costly. As a result, industrialized and developing countries A recent OECD/ Bank study on environmental implications of energy subsidies in alike are trying two new approaches to Russia shows that air emissions are reduced more by increasing energy prices to more effective pollution regulation. unsubsidized levels than by increasing the level of pollution fees in the current sys- tem or by introducing a CO2 tax. A complete phase-out of energy subsidies would The first is to more proactively prevent decrease energy use and greenhouse gas emissions during 1990-2010 by about pollution, rather than focusing on treat- 14% compared to preserving subsidies at the high pre-reform (1990) level, and by ment and clean-up. There will always be 10% compared to maintaining "reduced" subsidies (at the 1994 level) and increasing a need for regulation, quality standards pollution fees. The impact of high pollution charges is rather marginal by comparison and clearly defined limits on certain dis- (2% emission reduction). This impact is more profound for particulate and sulfur diox- charges, but this proactive approach ide control, but still smaller than that of subsidies elimination. shifts the emphasis to improvements in process and management to reduce the The study concludes that market-oriented economic reforms, by creating incentives volumes of pollution generated. for energy savings and accelerated technological innovation, are a fundamental con- dition for a long-term decline in air emissions. Removing energy subsidies is the The second approach is to establish a most effective instrument for reducing carbon emissions and has a significant impact carefuil balance between central standards on emissions of other air pollutants. Market-based instruments (MBIs), such as emis- and locally negotiated environmental sion fees or a carbon tax, can promote further emission reductions. However, the requirements. Uniform national stan- effect of these instruments may be diminished if appropriate macroeconomic and dards have the advantage of being clear energy pricing policies don't exist. and equitable, requiring the same results 8 ENVIRONMENT MATTERS reflects the move to a paradigm of sus- exercise in Mexico to develop and trans- whose use or disposal causes pollution) tainability in the phrase: environmental fer IS014000 approaches from large are becoming an increasingly popular management, not just pollution control. companies to their suppliers as part of a instrument for environmental policy. joint effort with government regulators. They are now widely applied in OECD Applying Self-Regulatory This joint effort will also examine how countries and are a key pollution abate- Mechanisms the new systems can dovetail with ment instrument in most transition While these approaches can be effective, streamlining licensing systems. There are economies. They have also recently been they can't stand alone. Frustration has clear benefits all around in making such introduced in developing countries, par- grown as improved incentives and infor- a partnership work. The findings hope- ticularly in Latin America and East Asia. mation have not improved performance fully will be transferable to other coun- as much as anticipated. As a result, there tries who have expressed interest. Theoretically, the advantage of economic is a surge of interest in Environmental instruments over uniform command- Management Systems (EMS-see Box). Choosing Effective Market- and-control regulations is in greater flex- A good deal of interest has been focused Based Instruments ibility and cost-effectiveness. But poorly on the development by the International Financial incentives can be key to per- designed pollution charge programs may Organization for Standardization (ISO) suasion, and pollution charges (charges not yield measurable economic and envi- of standards for environmental manage- on emissions of pollutants or on products ronmental benefits. The full potential of ment-the IS014000 series. This series market-based instruments can be sets out the elements of a system which WHAT IS AN ENVIRONMENTAL achieved only in the overall context of can be audited and certified, and pro- MANAGEMENT SYSTEM (EMS)? sound macroeconomic policies. "Envi- vides a common basis for development ronmentally perverse" subsidies and price and comparison of EMS. Any company An environmental management sys- distortions can often negate the can, and usually should, start with a sim- tem is a program of continuous envi- improvements made possible by applying ple EMS which reflects its character and ronmental improvement: it follows a pollution charges. sophistication. As the enterprise gains defined sequence of steps drawn experience and upgrades its operations, it from established project management "Walk Softly But Carry can then seek ISO14000 certification (or practice and routinely applied in busi- a Big Stick" equivalent) to demonstrate that it has a ness management. In simple terms, Relying on "punitive" approaches alone- high-quality EMS in place. In many these steps are: big fines and occasional jail terms-has cases, this issue of certification is critical frequently been shown to be ineffective, or controversial and at the heart of the . review the environmental conse- especially where the legal system is weak discussions of possible trade implica- quences of the operations; or where there is a lack of resources and tions. a define a set of policies and objec- will to enforce consistently. Persuasive tives for environmental perfor- approaches can help make real progress As awareness of the scope of IS014000 mance; in such situations. At the same time, spreads, industrializing countries are . establish an action plan to achieve however, environmental regulators must increasingly interested in the potential the objectives; have a battery of tools at their disposal to for environmental requirements to be * monitor performance against these address the wide range of pollution prob- used as implicit or explicit trade barriers. objectives; lems and local circumstances. The skill IS014000 certification may eventually . report the results appropriately; lies in selecting those tools that can be become a practical requirement for suc- and most effective under the given circum- cess in trading in a small number of sec- I review the system and outcomes, stances. Persuasion can achieve much, tors and markets, and may also be a and strive for continuous improve- and building a social consensus around useful marketing tool for companies to ment. achieving key environmental objectives demonstrate their commitment to envi- provides a good foundation for making ronmentally sound behavior. Not every system will present these even more progress. But there will always steps in exactly the same way, but be some polluters who resist persuasion On the other hand, there is now the basic principles are clear. and incentives, and for these there must widespread discussion about whether the be a credible threat of real punishment. monitoring and reporting systems that a ISO14000 is an international stan- The old saying holds: "walk softly but well-managed enterprise puts into place dard outlining one such system as a carry a big stick." can substitute for some of the statutory common basis (the European EMAS inspections, audits and reports that may is a similar standard and steps are be required under government regula- underway to harmonize the two). Both This article was written by David Hanrahan with tions. EMS certification is a very attrac- IS014000 and EMAS also identify the staff of the Banks Technology & Pollution Policy tive approach, but there are a number of those steps which can be audited Unit and contributionsfrom the Policy Research hurdles to clear before it can be used and independently verified, providing Department's Envronment, Infrastructure and widely. a basis for certification. The Bank is supporting a pathfinding WINTER/SPRING 1997 9 Solving the Water Crisis Together: The Global Water Partnership Around the world, over a billion people lack access to world gathered in Stockholm at a first-of-its-kind adequate supplies of water and close to two billion peo- Water Meeting. The Meeting, hosted by the ple sufferfrom the consequences ofpoor sanitation. Mil- Swedish International Development Agency lions ofpeople, especially children, die each yearfrom (Sida), was organized by the World Bank and contaminated water. In many areas, the lack of water, United Nations Development Programme, who not land, will be the main constraint to agricultural have worked together extensively on water-related production. The urban and industrial demandfor projects. Both organizations felt that progress had water also competes with agriculturalproduction needs, been unacceptably slow in translating principles and adversely affects the ruralpoor and ecosystems as a articulated at the 1991 Dublin International Con- consequence of increased water abstractions and dis- ference on Water & the Environment and reiter- charges of wastewaters. Environment Matters recently ated in Rio, Habitat II, and elsewhere, including in spoke with John Briscoe, the World Banks Senior Water the Bank's 1993 Water Resources Management Policy Advisor,' andJohann Holmberg, the Executive Secre- Paper. At an early stage the UN's Food & Agricul- tary of the Global Water Partnership, about this new ture Organization (FAO) expressed an interest in globalgroups efforts to create solutions to these prob- the idea of a partnership and made a financial con- lems. This article summarizes that dialogue. tribution toward initiating it. "The success of Global Water Partnership The meeting was chaired by Johann Holmberg, this venture ulti- Recognizing that water is critical to sustainable director of Sida's Department for Natural mately depends on development, many aid organizations have tried to Resources and the Environment. "The participants the participation of solve water problems by creating water-focused were acutely aware of the international climate of key actors at all programs. But, with little decliening aid resources and had coordination, these pro- ~~~~~~~little enthusiasm for new institu- levels. We must not crdat thee proetlions," Mr. Holmberg said. grams have frequently fail: the well-being overlapped, competed or "They stressed that membership of humanity, left serious issues unad- in the GWP should be widely indeed the planet, dressed. ! W _S- J inclusive but must be matched by commitment, and that commit- demands our Last August, to solve this ment includes contributing to cooperation." problem, a group of agen- the GWAP's support. Even devel- Ismail Serageldin cies founded the Global oping nations, however lmited World Bank Water Partnership their resources, should expect to Vice President (GWP), the first-ever provide a level of support appro- Environmentally attempt to coordinate priate to their ability to pay." Sustainable ateptocrdne Development water solutions on a global n scale. Membership in the An Economic Resource group now includes or a Human Right? national governments, The matter of soliciting contri- multilateral banks, UN butions underlines the kind of agencies, professional asso- issues which have kept water ciations, the private sector from receiving the coordinated and non-governmental CARNEMARK effort the GWP hopes to pro- organizations. Still in its vide. For example, the question formative stages, the GWP is moving to establish arises as to whether water is an economic resource a conceptual framework for considering the vari- which should be priced accordingly, or whether it is ous water sub-sectors' needs, then to prioritize a basic human right. them and suggest approaches for dealing with them. To start answering such questions, the GWP has established a Steering Committee which acts on How It Began behalf of its full membership, and has appointed a In December 1995, in an effort to rationalize the 12-member Technical & Advisory Committee scattered array of water programs, 75 representa- (TAC), to which all GWP members must con- tives from 56 agencies and governments around the tribute. 10 ENVIRONMENT MATTERS *g 2 Partnerships The TAC has already begun a global overview of For now, the GWP will focus chiefly on those This section the major water sub-sectors like health, agriculture, water issues that most immediately affect the peo- environment and industry. The participants also ple in developing nations. The GWP organizers focuses on came to a clear consensus that the TAC needs to be have welcomed environmentalists with wider port- rigorously non-political to guarantee the GWP's folios, such as water pollution in industrialized building strategic integrity. All the GWP members constitute the nations or the well-being of wildlife, and eventually group's Consultative Group (CG), the GWP's hope to be in a position to address those issues as alliances to highest policy-making body which will meet peri- part of the group's mandate as well. odically, possibly once a year. One of the Dublin principles acknowledges generate new In each water sub-sector, the TAC has begun women's central role in providing, managing and knowledge and studying aid organizations' present efforts and is safeguarding water. "The GWP has not as yet trying to identify ways in which these programs developed any approaches to explore ways in which can be extended to cover areas presently over- women can be involved in solving water issues," avoid dupicating looked. Mr. Holmberg said, "but it will do so as it moves z- -1 _ ^_ 1X'. _ closer to supporting individual projects." efforts In the The Private Sector's Role Bank's As the private sector becomes increas- environmental ingly involved in water issues in indus- trialized nations, the GWP expects to draw on its expertise to find solutions to work. I _ _ _ A S . = 3 developing countries'problems. In the United Kingdom and especially in France, the private sector has developed methodologies that the GWP feels '~: <~ could be mobilized in less developed countries, such as the African Utilities Partnership, managed by the Union of S.VOLLERTHUN African Water Distributors in Abidjan. The Utilities Partnership aims to improve water utilities' performance, ensure that Focusing on Regions the needs of the poor are addressed, and have water The water sub-sectors will be broken down along utilities pay increasing attention to sanitation regional lines. "At the outset," Mr. Briscoe explained, issues. "the GWP is directing its efforts to Africa and Asia, where need and donor interest is greatest, and where Interestingly, at about the same time as the Stock- This article was many aid organizations have close relationships with holm Water Meeting, a separate group met in written for authorities." The GWP aims to set up a number of Montreal to organize the World Water Council Environment regional partnerslips, while being careful not to (WWC). Initial concern that the GWP and the Matters byfreelance overwhelm the regional organizations with whom WWC might be too similar has been quickly Landrigan. JoS n they work, hoping, for instance, to eventually create a allayed. The WWC has formed itself to be a delib- Briscoe is the World Southern Africa Technical Advisory Committee. erative group of eminent people looking at long- Banks Senior Water This replication of the TAC on a sub-regional level range, large-scale issues. By contrast, the GVWP will Advisor and the will be able to advise governments and institutions be action-oriented, focusing on problems at hand. Bank's representative on water issues, and coordinate the flow of consul- to the Global Water tants from Europe and America. The first regional "The WWC appears to be exactly the kind of big- Partnership tants foEuoeadAeiaThfisreinl "hWW apertobexclthkidobg-Questions about the meeting was held last November jointly with the picture forum on water issues from which the GWP Bank's partnership Southern Africa Development Community (SADC) can greatly benefit," stated Mr. Holmberg. "If they with the GWP or in Windhoek. The next TAC regional meeting will did not exist, we would have had to invent them." other water-related be hosted by the Asian Development Bank in issues can be directed Manila in June. 'See page 28 on the Bank's Global Water Unit to (202) 473-5557. WINTER/SPRING 1997 11 Innovative Financial Instruments for Global Environmental Management T he task of effectively financing the man- centralized administration of environmentally sus- agement of the global environment is tainable development activities. The Philippines daunting. In developing countries, this Conservation of Protected Areas Project demon- task is particularly difficult because of the strates that, by channeling funds directly to NGOs constraints that must be overcome to raise or communities, local participation in conservation is the hundreds of billions of dollars needed. Such guaranteed and implementation improved. constraints include the lack of long-term funding for recurrent costs of conservation, under-valued Adequately Valuing Natural Resource Assets. Under- natural resource assets, little incentive for commu- valued natural areas typically generate resource nities to initiate conservation programs, few alter- rents which accrue in part to private interests natives for small- and medium-scale enterprises through extractive uses and, less frequently, non- with environmental projects, the perceived high extractive activities. Through the Czech Republic risks of investing in emerging environmental indus- Biodiversity project, the Czech government is try- tries, and poorly developed markets for environ- ing to capture part of these rents by applying such mental technologies. Economic Instruments as: economy-wide policies that liberalize markets and reduce subsidies for The Bank Group is using innovative financial environmentally damaging substances such as agro- instruments to address these constraints-instru- chemicals and fossil fuels; appropriate resource ments that have not previously been applied to the prices which at least recover the fill market cost-if environment sector. The table provides a matrix of not social cost-of using natural resources; user fees different instruments, the constraints they address, linked to natural resource extraction; and taxes and the projects in which they are used. They which "penalize" the use of environmentally harm- include: ful products. The revenues generated contribute to financing conservation activities that benefit the Securing Long-termRecurrent CostFunding. Biodi- global environment. versity conservation programs need guaranteed long-term funding of essential recurrent costs. But Financing Small- and Medium-Scale Enterprise biodiversity conservation activities rarely generate (SME) Environmental Projects. Because lenders net revenue; if they do, governments frequently allo- and investors typically perceive SMEs as high risks, cate revenues to general budgetary support. The these enterprises have few affordable financing Bank Group is addressing this constraint by helping alternatives. This is especially true in developing developing countries establish biodiversity Trust countries and in a relatively new sector like the Funds. For example, the Bhutan Environmental environment. The Bank Group's International Conservation project establishes a conservation trust Finance Corporation (IFC) is overcoming this con- for protected areas. With professional asset man- straint by Channeling Concessional Funds through agement, the initial trust capital is maintained in FinancialIntermediaries to SMEs, introducing a perpetuity, and recurrent conservation costs are variety of environmental ventures (renewable funded from investment income. Some trust funds, energy, energy efficiency, sustainable forestry and like the Brazil Biodiversity Fund (with a sinking agriculture, and ecotourism). The financial inter- rather than a permanent fund), are designed to mediaries (venture funds, NGOs) are attracted to directly support community organizations and the IFC programs because of their low-interest NGOs in implementing conservation activities. loans, credit enhancement (guarantees), co-financ- ing, and technical assistance. Incentives for Community Participation. Integrated conservation and development programs depend on Addressing Emerging Sector and Market Risks. Most local participation to be effective. To stimulate com- professional and institutional investors are unfamil- munity participation, the Madagascar Environmen- iar with environmental businesses in biodiversity or tal Support project indudes Alternative Livelihood renewable energy and energy efficiency. Yet, many Grants (ALGs), which offset potential economic promising investments in these sectors are in devel- losses incurred by reducing income-generating activ- oping countries that often do not have well-estab- ities that threaten valuable biodiversity resources. lished businesses and capital markets infrastructure. NGO and Small Grant Funds also engage communi- The IFC is helping to address both the market and ties by overcoming constraints imposed by highly sector constraints by helping to create Sector Invest- 12 ENVIRONMENT MATTERS Engaging The Private Sector ment Funds for emerging markets. One example is industries: energy-efficient lighting, photovoltaic a proposed fund to invest in biodiversity-linked energy, and sustainable forestry. At the conclusion projects in Latin America in the sustainable agri- of these MTIs, the targeted industry segments and culture, forestry, and tourism sectors. Another consumer demand should be developed enough to example is a proposed renewable energy and energy allow future market growth to occur on a sustain- efficiency (RE & EE) fund. The role of these sec- able basis without incentives. (see PVMTI, page 28.) tor investment funds is catalytic, encouraging fol- low-on investment by defining the investment Looking Ahead opportunities, educating investors, and helping to The Bank Group is committed to promoting a channel new capital flows to the area. variety of innovative financial instruments in pro- jects that yield global environmental benefits. This article was Developing Marketsfor Environmental Technologies. Many initiatives have been introduced somewhat prepared by Musa In many developing countries, specific markets for sporadically in the past few years, in part because of Asad, Financial environmentally sustainable products or technolo- GEF pilot phase financial and technical support, Specialist in the gies either do not exist, or face market barriers. which promoted greater (perceived) risk-taking Environment Market Transformation Initiatives (MTIs), which than what the Bank Group might otherwise Departments Global provide targeted financial incentives and consumer accept. To continue such initiatives, the challenge in consultation with education in various segments of a given environ- now is to closely monitor the implementation of the International mental industry, may mitigate the risks associated the initial round of innovations and learn from suc- Finance with investing in individual businesses and help cesses and failures. This will enable the Bank Corporations Special reduce market barriers to accelerate the introduc- Group to consolidate best practice in innovative Projects Unit. For tion of environmentally friendly technologies. The financing for global environmental management, more information, IFC is taking this approach using concessional inancing g ob management,ppleaseccallMMsa IFC is taking this approach using concessional understand gaps that need to be filled, and develop Asad, (202) 473- funds in a number of environmentally sustainable a more strategic action plan for the fiuture. 4386. Scarce Finance Inefficient or Insecure Disincentives Disincentives Under-valuabon for SME Emerging Non-existent Financing of to Community to Community of Natural Environment Sector and Environment CONSTRAINTS Recurrent Costs Participation: Participation: Resource Assets Businesses Market Risks Markets economic cent ralized losses administration Trust Funds ALGs NGO and Economic Financial Investment Market INNOVATIVE FINANCIAL Small Grant Instruments Intermediary Funds Transforming INSTRUMENTS Funds Programs Initiatives SELECTED PROJECTS Bhutan Environmental Conservation XX Biodiversity Fund for Latin America (IFC) xx Brazil Biodiversity Fund China Gas Transmission and Distribution XX Congo Wildlands Protection & Mgmt. XX Czech Republic Biodiversity XX XX Ecuador Biodiversity XX XX Forestry MTI XX Hungary EE Co-financing Program (IFC) XX India Alternate Energy XX Madagascar Environmental Support XX XX Mexico Fund for Protected Areas XX Mexico High Efficiency Lighting XX Philippines Conservation Protected Areas XX Photovoltaic MTI (IFC) XX Poland Efficient Lighting Project (IFC) XX RE & EE Fund (IFC) XX Slovak Republic Biodiversity XX XX SME Program (IFC) XX Uganda BINP & MGNP XX These projects are partially or fully funded by the Global Environment Facility. The implementing agency is the World Bank unless otherwise noted. WINTER/SPRING 1997 13 Getting the Public Involved: A Key to Environmental Solutions n countries all around the world, people have decision-making has been looked on as an essential Broad public par- * taken this statement to heart. Whether it's instrument in the quest for sustainable ticipation in pol- * Mexico's new environment law, or recent dec- development. At last October's meeting of icy development, larations from Sofia or Santa Cruz, public European Environment Ministers in Sofia, combined with 1 participation is now recognized as essential to Bulgaria, for instance, major attention focused on effective environmental policy-making. the role improved environmental information- greater account- gathering, reporting and dissemination, and greater ability, is essen- How Public Involvement Can Work: involvement of citizens in the public policy and tial to achieving Mexico's Radical Law Reform environmental decision-making processes could sustainable Last November, the Mexican Congress passed a play in implementing the Environment Programme series of radical reforms in the General Law of for Europe. In the meeting's final declaration, the development ...i n- Ecological Equilibrium and Environmental Protec- ministers approved a set of guidelines drafted by dividuals, groups tion which will have far-reaching implications for United Nations Economic Commission for Europe and organiza- citizen involvement in all aspects of environmental on Public Participation in Environmental decision-making and management. Decision-making. The guidelines dealt with three tions need to themes: public access to environmental know about and Based on a year-long consultative process, which information, citizen participation in environmental participate in included intensive discussions with all levels of decision-making (especially in EIAs), and environment and Mexican government and society, the new law administrative and judicial proceedings and development reforms go far beyond previous initiatives and remedies for citizens in the environment arena. development reflect a growing trend toward greater citizen par- decisions, partic- ticipation throughout Latin America. A strong emphasis on citizen involvement in envi- ularly those ronmental decision-making is also reflected in the which can affect Following Rio's Agenda 21 document, the new law work leading up to the Summit of the Americas on reforms call for widespread social participation in Sustainable Development held in Santa Cruz, their communi- environmental decision-making and activities by all Bolivia last December. To prepare for the Summit, ties. Agenda 21 actors, including state and municipal authorities, a special Inter-American Seminar on Public Partic- the scientific and academic communities, non-gov- ipation in Sustainable Development was held in ernmental organizations (NGOs), the private sec- Montevideo, Uruguay bringing together 120 gov- tor, workers, farmers, and indigenous communities. ernmental and non-governmental representatives from 27 countries. The Seminar produced an Inter- The reforms' key elements are designed to create American Strategy for the Promotion of Citizen greater governmental accountability and trans- Participation, highlighting the need for measures to parency in the environmental area; transfer deci- ensure the rights of citizens to participate in defin- sion-making and management authority for many ing and implementing sustainable development environmental activities to state and local govern- policies, support for citizens' efforts to organize ments; co-responsibility for environmental protec- themselves and to participate effectively and tion and management among government, the responsibly in environmental decision-making, and private sector and civil society; increased access for strengthening government institutions to receive, citizens to environmental information; and expan- manage and use citizen input. sion of the fora for citizens to participate in envi- ronmental decision-making and management, Societal Instruments for especially in the Environmental Impact Assessment Environmental Reform (EIA) process. This last point is particularly signifi- Recently, environmental specialists have come to cant since, in the context of the North American recognize that conventional command-and-con- Free Trade Agreement, the EIA process has trol and market mechanisms alone cannot create become a subject of contention in Mexico. the widespread behavioral and institutional changes necessary for sustainable development. Growing Public Involvement Environmental policy analysts have come to focus Since the 1987 Brundtland Commission Report greater attention on various types of societal and the 1992 Earth Summit, the widespread instruments, such as public information and promotion of public involvement in environmental involvement strategies which, combined with the 14 ENVIRONMENT MATTERS Social Perspectives more conventional instruments, can bring about the specific political cultures and traditions of each This section environmental reform and modernization. region, country or locality. They also need to take into account each country's legal frameworks for focuses on efforts Taken together, these elements form a battery of participation (or lack thereof) and the evolution of social instruments which can contribute to overall civil society organizations that provide the wider to increase environmental policy reform. They are proving par- public or political space in which public involve- ticularly effective in the increasing number of ment activities take place. participatory countries that have chosen a democratic path to development or are undergoing democratic transi- The Bank is also recognizing that public involve- approaches, tion processes and wish to use public information ment may take different forms depending on the and participation strategies as an instrument in the types of environmental policy or program arena in quest for sustainable development. Several govern- which it occurs. For example, various forms of 'pub- enhance pubic ments, especially in Eastern and Central Europe lic hearings' are commonly used to elicit citizen involvement, and and Latin America, have recently incorporated views on development interventions as part of the EA process in a growing number of countries. For other types of exercises,inertth - ~~~~~~~~~~~~such as the preparation of NEA-Ps or the su henvironmental analysis of sectoral poli- social and cies as in transport or energy, it may beenineta B W\r ~~~~~~~~~~~~~~~~~more appropriSaPt°e to estabfisYhit'zyen environmental advisory panels' in order to elicit a range ~~ A ~~~~~ ~of views, dimensions of 4 rt 7; _ A Broad Range of Social development into Actors There are a large number of social actors decision-making. "I T. Z - s , 5 _besides national governments, interna- ./'4= fl _ - tional donor agencies and technical C. CARNEMARK experts who are concerned about the social and environmental implications of these societal instruments into their environmental development policies. These social actors include policies and programs, especially as part of broader regional and local authorities, vulnerable groups or programs of legal and political reforms. Mexico's communities (displaced populations, refugees, radical new law reform stands as a prime example. indigenous peoples), international and domestic NGOs, parliamentarians, the media, the private sec- World Bank Support tor, religious groups, women, youth, farmers and Social and environmental specialists in the World trade unions. Much of the recent work being done Bank are following these new experiments quite by social scientists at the Bank and elsewhere in closely. Part of the reason for this is that the Bank's 'stakeholder analysis' and 'social assessment' This article was own policies, such as those dealing with Environ- attempts to bring this growing number and diversity written by Sandy mental Assessments (EAs) and National Environ- of social actors into the environmental and develop- Davis, Principal mental Action Plans (NEAPs) and those on ment decision-making process. Sociologist in the Involuntary Resettlement and Indigenous Peoples, Bank's Social Policy and Resettlement require consultation with affected communities and In the end, public involvement is part of a broader Division. Copies of local NGOs. At the same time, the Bank recog- social learning process whereby individuals and thefullpaperfrom nizes that citizen involvement at all levels is funda- institutions can create the conditions for sustainable which this was mental to all forms of effective environmental development. By investing in this social learning drawn can he protection, including those relating to urban pollu- process, we stand the best chance of achieving obtainedfrom Mr. tion control and waste management. some of the broader goals first espoused in the Davis at (202) 473- Brundtland Commissions' Report and at Rio. 3413,fax (202) 522-3247, The Bank and its client countries have learned that Mexico's reform shows firsthand the practical sdavis2@worldbank. public involvement strategies need to be adapted to results of such a process. org. WINTER/SPRING 1997 15 , { I, .i;j i: / a be sure that there's enough food In much of the developing world, espe- to feed the world into the next cially Sub-Saharan Africa, degraded soil century, experts say, we must severely limits food security for poor r~~~~P ~~~ almost double the amount of food farmers. Unfortunately, many farmers ~~ jfr~~~7 ~we produce today. To do this, we don't have enough income or land security must get more yield out of the same land to farm sustainably; forced to repeatedly 7- ~ ~ ~ ~ ~~~larea (intensification) and grow crops in exploit their land, their production level is new areas (extensification). Most of this marginal at best. But when they have the - expansion is projected to be in Sub-S aha- opportunity, developing countries' farmers ~~~~ ~~~~~~ ~~ran Africa, Latin America and the demonstrate that they can increase their Caribbean, much of it overlapping with net returns through environmentally forests, wetlands or other critical ecosys- friendly farming, such as crop rotations, tems. This two-fold expansion of agricul- integrated pest management and appro- ture, more than any other single human priate use of livestock. These changes Iactivity, threatens to degrade the soil, reduce their costs for fiiel and farm chem- - - - ~~~destroy natural habitats, and cause serious icals, equipment wear and tear, and off- pollution. Unless farmers can grow crops farm environmental degradation, and they in an environmentally sustainable way, ter- can actually produce above-average yields - ~~~restrial ecosystems and indeed agricultural with improved net income. production systems themselves are in seri- ous jeopardy.' Kenyan and Chinese farmers have brought abandoned or degraded soil back to life We must look for ways to 'regreen' agri- through soil conservation measures. In culture. This is no small challenge. 1979, innovative farmers in Parana, Brazil Indeed, it calls for us to literally transform formed the Clube de Minhoca (Earth- agriculture as we know it. worm Club) to rehabilitate poor soil, one - ~~~~~~~~~~~~~~~~~~~~~of the first soil clubs to promote integrated Since Rio, the Bank has worked with its soil management in Brazil. Later, the Bank client countries to regreen agriculture. Its started support for land management pro- _______ 4~~~~~~ loans to client countries, for 216 agricul- jects in four Brazilian states, in which local ~~1~~~O ~~~~ ture projects worldwide at more than farmers, extension workers, agribusiness $16.8 million, include actions to improve and local authorities all became involved, ~~ ~~~ ~~ -. ~~~ small farmers' conditions, promote invest- helping farmers adopt reduced tillage tech- ment in technology, and enhance resource niques, intercrop legumes and food crops, use efficiency. But given the immensity of use vegetative contours, and work with * the challenge, much more needs to be reforestation. done. The Bank and its client countries * ~~~~~~~~~are pursuing sustainable resource use and Recently the Bank joined with other land management to create sustainable groups to launch an intemational consor- agriculture in a number of promising new tium called the Soil Fertility Initiative, to . ._. ways, including: disseminate appropriate technologies for , =Šw - [.X~ŠluThŽ organic and inorganic fertilizers, erosion Thualityof soil gis e control and water management, and eco- TheS n L quality o f soil ishaty tohere d's ca - fo nomic valuation of soil fertility benefits. ity to support intensified growth of crops. Soil can be degraded by erosion, a l foo scryf o - shortened fallow period, overgrazing and The 1990 Bank/UNDP Waste Manage- *$S1 :tS i)deforestation. ment and Resource Recovery Program 17 identified a number of technologies as planning for agricultural expansion. To project to develop a decentralized infor- the most promising for developing accurately assess, monitor and evaluate mation system on the environment. countries, including: changes in the quality of land resources, planners must have access to good land Integrating Biodiversity Recycling Municipal Solid Waste and quality indicators, such as nutrient bal- Conservation into Agriculture Composting: Processors of raw materials ance and the ratio of cultivated land to Expanding and intensifying agriculture are finding new ways to reuse discarded cultivable land. Unfortunately, few such contributes significantly to habitat loss, products made from metals, glass, plas- indicators exist today. impairment of ecological integrity, and tics and paper. But large quantities of world-wide threats to biodiversity. But organic materials also pollute rivers and To help address this problem, the Bank, agricultural landscapes often provide the lakes or end up in landfills. Rather than United Nations Environment Pro- biodiversity on which production allowing this pollution, or paying for gramme (UNEP), United Nations depends, in the form, for instance, of discarding these wastes, they can be Development Programme (UNDP), genetic information for new crop vari- composted. Compost improves soil Food & Agriculture Organization eties, crop pollination, soil fertility moisture retention and increases biolog- (FAO) and the Consultative Group for enhanced by micro-organisms, and pest ical activity, resulting in more efficient International Agricultural Research control by insects and other wildlife. absorption of nitrogen and phosphorus (CGIAR) have joined together to Conserving biodiversity offers an by crop plants. launch a Land Quality Indicators important way to enhance agricultural (LQIs) program. The program provides production and achieve sustainable Re-using Wastewater: The same princi- a framework for national and sub- development at the same time. ple applies to used wastewater. Rather national land management information than paying for secondary or tertiary In light of this, the Bank has begun work treatment, the water can be used for with its client countries to incorporate irrigation or aquaculture. When the cost biodiversity conservation into national of these alternative approaches is calcu- and local environmental planning. Last lated into the decision-making process year, the Bank's MainstreamingBiodiver- and the total costs to the community sity Conservation in Agricultural Develop- considered (for health, pollution, landfdl ment paper2 created a framework for and/or incinerator costs, and the like), it examining agricultural activities and poli- becomes apparent that such approaches cies' effect on biodiversity. make a lot of sense. _ l* Bank-supported country studies apply- With this in mind, the Bank sponsored ing the framework and developing good a seminar on Recycling WasteforAgricul- practice in the agriculture and forest ture: The Rural- Urban Connection as part sectors include Nepal's Land Resources of last September's annual Conference -1 Management Study, the Congo Basin's on Environmentally Sustainable Devel- X _ - - Sustainable Forestry Management and opment. Many of the 150 agriculture, Biodiversity Conservation Sector Strat- health, and urban specialists from systems, preventive maintenance, and egy Study, Vietnam's Sustainable Agri- around the world who attended integrated socio-economic and biophys- culture Study and Ethiopia's Sources of described successful waste recycling pro- ical information on sustainable land Agricultural Growth Study. grams, including both large-scale and management strategies. individual farm-scale examples: com- posting in Egypt and Senegal; use of The LQI program is developing a set of I For more detailed discussion of food security, production municipal solid waste in North America indicators for the condition of land, and access, see Food Securityfor the World, November, 1996. For the Banl's plan of action for rural develop- and China; reclamation of wastewater including the combined resources of ment, see Rural Development: Putting the Pieces in Place, for agriculture, industry and groundwa- soil, water, vegetation and terrain. It November 1996. Both documents by the Bank's Agri- ter recharge in India, the Middle East provides information on the state of and culture & Natural Resources Department, fax (202) 522-3307. and Chile; and use of treated effluents pressures on these resources, and what 2 Mainstreaming Biodiversity in Agricultural Development: on fish farms in Peru. people are doing about them. Toward Good Practice. World Bank Environment Department Paper No. 42. October 1996. Using Indicators of Land The Bank and FAO are also developing Quality LQIs for four countries to be selected This article was written by a team from the Banks Over the next decades, getting the right from Ghana, C6te d'Ivoire, Kenya, environment and agriculture sectors led by Colin balance of intensification and extensifi- Malawi, Mali, Kenya and Uganda, and Rees, Division Chief, Land, Water andNatural Habitats. (202) 458-2715. Ed Courrier's original cation will be a critical but difficult conducting a case study as part of the sketch was provided by Rodale Institute. challenge, requiring careful and strategic Tunisia Natural Resources Management 18 ENVIRONMENT MATTERS Rebuilding Natural Capital ANIL AGARWAL Director, Centre for Science and Environment, New Delhi, India If there is anything that India's environmental movement has been able to show in the last two decades, it is that good village-level environmental management-what I would call 'village ecosystem management'-can greatly improve the local economy of the poor. Millions of poor villagers in degraded lands face uncertain food production, \ Na increased vulnerability to natural climate variations, male outmigration, heavy female work burden and continuing poverty. This chain of events can be broken by rebuilding local natural capital. X\ \ In the village of Sukhomajri, nestled in the denuded sub-Himalayan hills, rains can V > wash away as much as 900 tonnes per hectare of topsoil per year. In- 1979, a massive drought swept across India: rains failed and agricultural production dropped. Sukhoma- jri was badly hit. The villagers would normally take only one monsoon crop a year, but this year they were not even going to get that. Into this desolate landscape stepped P. R. Mishra, a soil conservationist who, to get the villagers to stop grazing their animals in the degraded watershed, had helped them build a small earthen dam across the village's 'K stream. The villagers, desperate this year for the dammed water, appealed to him to help them make channels to convey the water to their fields. Mishra told them first that if they did not stop grazing their cattle in the watershed, their own dam would silt up very fast and they would not have this water when the next drought hit. The villagers agreed to take care of the watershed. This small water harvesting gave birth to a pio- '.\ neering village-based natural resource management system which has since inspired many Indian environmentalists and village workers. K.) Today, the village has several water harvesting structures. It regularly takes three crops a year. From a food-importing village, it has become food-exporting. And with grass increasing and trees regenerating in the watershed, it now has so much fodder that the villagers have given up their goats for high-yielding buffaloes and sell thousands of dol- lars of milk to neighbouring towns. With a small investment in a few earthen dams and a self-managed natural resource base, the village economy improved dramatically and mud houses have given way to brick houses. Today, a rich forest of valuable native species has come up in the watershed. Once the villagers get government permission to harvest these trees, they can earn at least $300,000 a year on a sustainable basis. And a small-scale industry of wood products could fetch even more. Says economist Gopal Kadekodi at New Delhi's Institute of Economic Growth, "the rate of return from this project cannot be matched even by the corporate sector." Several such outstanding examples in India show that we can put a floor to poverty by regenerating natural capital. Of course, programmes to help villagers revive their natural capital will have to be supported by national policies with appropriate changes in prop- erty rights, institutional development and financial mechanisms. Combating Poverty was clearly identified in Agenda 21, but little has actually taken place since then. It is sad that the issue which affects the poor so intensely has remained neglected-by the North and the South. The Northern leadership had gone to Rio largely focusing on global issues like climate change, biodiversity conservation and sus- tainable forest management. The interface of poverty and natural resource management received little attention at Rio in 1992-the Southern leadership too did not push the concern adequately. One can only hope that this interface, which could turn environ- mental management in the developing world into a real mass movement, will not get neglected again in Rio and New York. WINTER/SPRING 1997 19 The Aral Sea Disaster: Turning the Tide? he Aral Sea was once the world's fourth World Attention largest lake. It is called a sea because of its The Soviet Union asked for help from the United size, but "sea is in fact a misnomer; the Nations Environment Programme (UNEP), which Aral Sea is a lake which once had slightly launched a study by an international group of brackish water. It lies in Central Asia, experts to analyze the crisis. The working group's partly in Uzbekistan, partly in Kazakstan, and is fed 1992 report, issued by UNEP and the Soviet by the Amu Darya and Syr Darya rivers. It has no Union's successor governments, sounded the alarm. outlet, and for millennia there was an equilibrium The international community decided to see what between inflow and evaporation. Then, in the could be done. Study of the problem was sobering, 1920s, the former Soviet Union decided to turn as it became apparent there was no easy way to Central Asia into a major cotton producing area, remedy decades of cumulative loss. The difference using the river waters to vastly expand irrigation in between the amount of water needed to restore the the abundant drylands upstream from Aral Sea to a healthy ecosystem and the amount of the Aral Sea. Massive irrigation schemes water that could be devoted to the Sea even under were constructed and the region turned the most optimistic water-use scenarios was too into a major producer of cotton, or large to be a realistic option. Hope for restoring the "White Gold." But at a price.... Aral Sea was abandoned. But there appeared to be many possibilities for smaller remedies, and so the Irrigation and Its Price Aral Sea Basin Program (ASBP) was born. In the 1960s, deprived of most of the I inflowing water, the Aral Sea started to The ASBP is managed and coordinated by the f''t \ [ _ shrink. The shoreline retreated and the Interstate Council for the Aral Sea (ICAS), repre- harbors of the fishing villages of Muy- senting the participating countries (Kazakstan, nak and Aralsk fell dry. Today one can Kyrgyz Republic, Tajikistan, Turkmenistan and still see a fleet of ships stuck in the sand, Uzbekistan). Many donors contribute to the ASBP, the sea's shore having withdrawn to over and a special World Bank unit assists ICAS. 60 km away. But the most devastating effect has been the salt concentrated in The ASBP's first phase included 19 projects in the ever-shrinking water body. In the eight thematic areas. The following examples illus- J. POST mid-1980s, the salt rose to the concen- trate the range of issues tackled by the program. tration of seawater, and today the Sea is approach- ing hypersalinity. The once-abundant fish, birds Water and Salt Management and other organisms have disappeared, and the Sea Work is underway to establish a regional frame- is now nearly dead. work for water and salt management. Formerly, Moscow dealt with transboundary water issues; but About 3.5 million people living near the Sea suffer now the five new independent states must agree from shortages of clean water, and people living among themselves. There are conflicts of interest, along its shores have lost their fishing grounds. for example, between the mountain states which Water fowl using the West Asian flyway, including would like to release water to generate hydro-elec- several rare and endangered species, have lost a tricity in winter, as they have limited fossil fuels to major staging ground and source of food on their burn for energy, and the downstream states which migration route. A subspecies of fish unique to the need this water for irrigation during the growing Aral Sea has become extinct. season. Cooperation among the states has been sur- prisingly good so far, but they must codify existing Living conditions in this "disaster zone" are dismal, understandings to ensure the fill force of interna- although it is difficult to determine which prob- tional law. lems can be attributed to the Sea's desiccation and which are caused by the poverty that followed. Salt management, another international issue, may What is certain is that respiratory diseases, cancer, be the most pressing challenge to the Basin's agri- tuberculosis, hepatitis, intestinal disorders and culture. About a third of the irrigated lands are los- infant mortality, among other health problems, ing productivity because of salinization, and have risen to disturbing levels. millions of hectares will be out of production soon if the trend continues. In addition, salt levels in the 20 ENVIRONMENT MATTERS Water Resources Management W,f-+-So; S 4-- habitat for water birds. These measures would also This section * A ~~~~allow Uzbekistan to designate its first site under V i 8the Ramsar Convention for the conservation of focuses on habitat of critical importance to migratory birds. freshwater, Immediate Impact Project In 1995, a visit by World Bank President James coastal and Wolfensohn to the disaster zone drew attention to the fact that the tens of millions of dollars pledged marine resource to rescue the Sea and the millions already spent on A ' l _ l v studies had not had an observable effect on the management, - . . ~ l l plight of the people who live there. An Immediate Impact Project was prepared to alleviate the suffer- integrating an ing of people in the disaster zone. About $1 million was spent in the first tranche by mid-1996 to buy ecological water tankers, fishing nets and ambulances for the J. POST people of the disaster zone, help provide clean dimension into major rivers are risng,jeowater and fishing opportunities in the deltas, and major rivers are rising, jeopardizing their use for provide health care for people living near the Sea. water resource other purposes like drinking water. Salinization has A second tranche being implemented now is occurred because, after years of applying water to expected to finance a range of activities including land without sufficient drainage, the water table repair of hospitals, schools, kindergartens and management from rose so that the irrigation water now forms an orphanages, and help for the neediest families unbroken column with salty ground water through through productive assets (farm animals), winter the upper capillary action in the soil. The water evaporates at clothing and subsidies to kindergartens. the surface, "sucking up" more water from the sub- watershed to soil. As the water travels up, salt from the subsoil dissolves in it and is deposited at the surface where r - the coastal zone. the water evaporates. Methods to deal with this rp, problem are now being investigated. , Wetland Restoration When it became clear that the Aral Sea could not be fully restored, another strategy was adopted, - fg, which posed the question, "If there is not enough water to rescue the whole Sea, is it possible to res- l cue parts of the Sea, or to rehabilitate some ecosys- This article was tems on the Sea's perimeter?" By such measures, AL A prepared by Peter the detrimental effects of the Sea's destruction - Whitford, Manager, would at least partly be mitigated. and LucyoHancock, Consultant, the '-Bank'sAral Basin This seems to be possible. In the north, near the q , Program ice, and mouth of the Syr Darya River, a former bay of the Jan Post and Steve Sea can probably be closed off and the river water Lintner, Senior conveyed through it to flush out its salt into the Environmental Aral Sea, re-creating a large fresh or brackish water . A Specialists in the lake. In the south a plan has been designed to , l Environment restore a wetland belt between the Sea and the _ . .. Departments Land, Water, and Natural agricultural hinterland in the Amu Darya River V: Hati - Hbitats Division. delta. This wetland belt would provide many bene- J POST Forfurther fits such as preventing the delta from drying out, information, please creating opportunities for fishing, grazing, liquorice call Peter Whitford production, muskrat trapping (fiir) and providing (202) 473-2504. WINTER/SPRING 1997 21 Russian Federation: Special Initiative to Complete ODS Phase-Out n December 1991, the Russian Federation com- 40,000 MT-but its installed productive capacity mitted itself to continuing its membership in remains high and represents almost haff the worlds the Montreal Protocol on Substances that CFCproduction capacity. Deplete the Ozone Layer. But because of chal- lenges it has faced in making the transition to a Dealing with both actual and potential CFC pro- market economy, Russia has not yet been able to duction in Russia is crucial. Without Russia's com- comply with the Protocol's requirement that indus- pliance, China and other producers are likely to trialized countries complete their phase-out of pro- question the true global commitment to the phase- duction and use of ozone depleting substances out and continue producing. This could have disas- (ODS) by the end of 1995. The Government of trous results for the future. Russia has now developed an alternative plan to achieve complete phase-out by 2000-a major step In the fall of 1996, illegal CFCs were estimated to forward for protecting the ozone layer in this be worth $300 million a year.' In the United States, tenth-anniversary year of the Montreal Protocol. smuggled CFCs may be supplying as much as 30% of the market. The black market trade in North Estimated CFC Production Capacity Recognizing the global impor- America and Europe means higher enforcement Outside Compliant Industrialized Nations tance of Russias effort, the costs and lower revenues for governments and World Bank is supporting a undermines the investment private industry has special initiative to help the made in alternatives. In developing countries, the China Korea country meet its goal. This ini- continued availability of cheap CFCs undermines 28% Korea Venezuela tiative, which will "clean up" the Montreal Protocol investments and creates a Mexico Brazil both the production and the disincentive to move to alternatives. This effect is 3% <_277-3-7- 3% consumption sectors, will already being seen in Latin America, where the India : achieve what is probably the motivation to phase out CFCs is falling along with 7% 7 Russia most cost-effective large-scale their prices. 47% ODS phase-out in the world. Estimated Total: 290-300 Thousand Tons Russia's initiative will work in concert with a $60 In early 1996, with the Bank's million Bank-GEF umbrella project to complete help, the seven Russian chlorofluorocarbon (CFC) phase-out in the ODS-consumption sectors, producers developed comprehensive business plans focussing on enterprises in the fire protection, sol- outlining the CFC production shutdown schedule vents and non-insulating foams sectors. and replacement activities. A strategy is now in place for completing production closure for the Support from Donors majority of companies by 1998, with final phase- The Bank has been active in developing donor sup- out completed in 2000. All seven producers have now port for providing compensation packages to ODS- agreedformally to close down their CFCproduction. producing enterprises for an accelerated program of This will mean closure of over 140,000 tons per production phase-out. A number of countries have year of production capacity, or about 80% of the already expressed a strong interest in supporting the installed Russian CFC-production capacity. With initiative. The United States has taken a lead role, this commitment in hand, the way is cleared for offering a substantial commitment of $6 million joint enterprises with western chemical companies (given full donor commitment from other countries). and new potential for development of chemical Austria, Norway, Denmark, the United Kingdom business in the region. and the European Union were early supporters offer- This article was ing additional funding. Currently, Finland, Sweden, prepared by Ellen The Production Sector Germany, Japan and Canada have the funding under Tynan, Operations Russia's economic crisis, while creating difficulties in active review and strongly support the initiative. In Montreal Protocol achieving last year's phase-out deadline, has had the the Russian Federation, both the government and Unit, (202) 473- unexpected result of dramatically reducing the pro- the enterprises have made significant commitments 8201,fax (202) duction and consumption of ODS throughout the to the effort to ensure its success. 522-3256. Russian Federation. Today, Russia's national con- sumption is less than half what is was in 1990. Its actual production has also dropped-to approximately Pearce, Fred. "Smart Smugglers Outwit the CFC Cops," New Sci- entist, 26 October 1996 (Vol. 152; No. 2053). 22 ENVIRONMENT MATTERS Building Global Markets The Global To Reduce Climate Change * T here is increasing scientific evidence that Many Benefits for the Bank's Client This section greenhouse gas emissions from fossil fuels, Countries industry and land degradation contribute to The main flow of trades will take place between focuses on the climate change. If current emissions con- industrialized countries and developing countries or tinue, temperatures may increase by 1-3.5° countries with economies in transition. Abatement Bank's work in Celsius and sea levels may rise 15-95 centimeters costs in industrialized countries may be in the range by 2100. While emissions are primarily from indus- of $50-$100 for a ton of carbon, whereas abate- fostering global trialized countries, developing countries will face ment options in developing countries can be pur- the consequences on human settlement, health and sued for a fraction of this. warming livelihoods. Carbon trading will create tens of billions of dollars solutions through The World Bank is exploring innovative ways to of income for developing countries. By linking help efficiently achieve the goals of the United these funds to other investments, they may leverage energy efficiency, Nations Framework Convention on Climate investment flows to host countries that are several Change (UNFCCC) and in a manner that pro- times larger. demand side motes economic development among the Bank's client countries. One such way could be the build- All greenhouse gas offset investments must be compat- management and ing of global markets for offsetting and trading ible with and supportive of host country development greenhouse gas emissions. priorities, and contribute to capacity building and tech- renewable nological development. By facilitating investments in The Basis for Carbon Markets more efficient technologies, emission trades will pro- technologies, and A strengthened international agreement expected mote broader environmental and economic efficiency. by the end of 1997 could commit industrialized countries to reduce current emissions by 10-20% by The Bank Contributes to Exploring its role in 2010 or 2020. and Realizing the Potential Benefits In 1996, the Bank and the Government of Norway carrying out the The UNFCCC provides for the possibility of 'joint initiated a three-year program to explore green- EF d implementation" of commitments between countries. house gas markets. During the pilot phase, the G an Montreal If this option is pursued, a company in one country main priority is maximizing learning about the pos- may meet emission requirements through investments sible mechanisms for carbon deals. Protocol work. in another country. It would do so in countries where reduction costs are lower. The global environmental Pilot projects form the basis for exploring how differ- effects would be the same. The resulting benefits ent mechanisms can contribute to the interests of the could be shared between the investor and the host Bank's client countries and to promoting the objectives country. Such a mechanism would lower the costs of of the UNFCCC. The Bank will work to ensure a reducing global emissions substantially, and it would level playing field for negotiations between host coun- promote more ambitious global climate policies. tries and investors. The projects will also explore solu- tions to analytical and methodological issues and to Large Potential Markets increasing private sector participation in carbon deals. Two factors drive the potential global market for emission trades: the level of emission reduction To reduce transaction costs and ensure quality, commitments and the costs of emission reductions these pilot projects will be linked to regular Bank This article was in different regions. The Norwegian research insti- and IFC projects. The Bank recently reached agree- prepared by Eivind tution ECON has recently completed a study of ment on a new pilot project in Burkina Faso, the Tandberg, AIJ the market perspectives for 2020. Even under mod- first AIJ (Activities Implemented Jointly) pilot pro- Program Adviser, in erate commitments, the global market for carbon, ject in Africa. During 1997, more pilot projects will the Environment the major greenhouse gas, may involve $30 bil- be initiated in Asia and Eastern Europe. DepartmentCa lion-$40 billion. Stronger commitments would Unit (EN VGC), result in substantially larger trading volumes. (202) 473-9746,fax (202) 522-3256. WINTER/SPRING 1997 23 Reforming Subsidies: Now Is the Time To Act conomic development's sustainability is Multilateral development institutions should use imperiled, not only by what governments their privilege of policy dialogue with governments are not doing-taxing pollution emissions, to urge immediate subsidy reform. But to achieve for instance-but also by what they are subsidy reform, political commitment may be the doing: subsidizing activities and inputs that scarcest resource of all. Politicians must be con- are destructive to the enterprise of building sustain- vinced that reducing subsidies will bring the great- able societies. est good to the greatest number. Subsidy Reform: Findings by the Participants made some suggestions to policymak- Last September's Earth Council and World Bank ers interested in reform: World Bank/Earth Last September, at a workshop to discuss reforming Council seminar, government policies on subsidies, experts concluded: * Be opportunistic. For example, the liberalization Subsidies and Sus- of the economies in transition provided an excellent opportunity to reform subsidies. Fiscal tainability: Seeking or environmental crises might provide another. Win-Win Policy Privatize. Privatization may provide another Reforms was opening for subsidy reform. opened by Maurice 7_l l * Recognize that vested interests in the subsidy opened by Maurice realm may lead to unpalatable policy choices. For Strong, Chairman of instance, phasing out price supports and the Earth Council, replacing them with lump-sum payments may Senior Adviser to be the only practical way to begin to limit the the World Bank harm done by agricultural subsidies. President and Rio J. DIXON * Introduce subsidy removal subtly. For example, Erth Summit Sec * While there may be 'good' subsidies in princi- threaten a tax hike to meet some fiscal short- Earth Summit Sec- ple, in practice most are wasteful of scarce fiscal fall, then offer to reduce a subsidy instead of retary, was chaired resources, miss their intended targets (the poor, introducing the tax. by the late Emile for example), and have the undesirable effect of * Compensate the poor. Where the poor have van Lennep, State stifling innovation and limiting competitiveness. benefited from the subsidy, use part of the Minister, The * Given the fiscal constraints governments face, revenue gained from the subsidy removal to the political climate for reducing subsidies has offset any real income loss. Netherlands, and probably never been better. But the political * Build a constituencyfor reform. If more people was attended by obstacles to removing subsidies should not be knew where their tax dollars went, there would over 30 leading underestimated. be greater political support for subsidy reform. experts on subsidy * In reforming subsidies, it is important to reform, make the message clear and get the analysis Fossil Fuel Subsidies right, especially if the target audience is the Recently, researchers at the Bank have begun to Ministry of Finance. quantify the prevalence and trends of subsidies on * The first practical step should be targeting fossil fuels and other productive inputs. Looking at financial subsidies. 20 developing countries that account for 77% of * The OECD countries account for roughly the world's total energy consumption outside the two-thirds of the subsidies with environmen- developed world, they have found that in the early tal consequences, with the remainder in devel- 1990s unit energy subsidies as a proportion of the oping countries. unsubsidized price were as high as 40-50% in East- Recent Bank analysis suggests that financial ern Europe, Russia, and among the oil producers.' subsidies are declining in developing countries, Subsidy rates in Asia were close to 33%. The past largely as a result of the liberalization of markets. five years, however, have seen significant decreases in the magnitude of energy subsidies in almost all Seminar participants also concluded that subsidy regions (Figure). reduction must be prominent among the policy The analysis of movements in subsidy rates-subsidy instruments for achieving sustainable development, as a proportion of the unsubsidized price-ts often 24 ENVIRONMENT MATTERS New Indicators ; i of Progress more illuminating than total subsidies, since This section a dclnein helaterma wll e ueto On the Decline: Fossil Fuel Subsidies 1990-95 a decline in the latter may well be due to fcsso lower consumption levels. A number of Total 1 focuses on . . . ...........................(WlBlo 1990 5 US$) countries undergoing economic transition 0 environmental have made substantial moves to reduce 30 i env_ionmetal (although not yet eliminate) subsidy rates. 2t information at two 20- This is true for most countries in Eastern levels: under- Europe and the Former Soviet Union. In China, subsidy rates have fallen from 42% to standing projects' 200/o, and in India from 25% to 19%. The 5 environmental main oil-producing countries in the sample - L substantially increased real prices for petro- dimensions and leum products. Prices have more than dou- Q _n _ O -it bled in Iran and almost tripled in Saudi Rusla Eastem Europe Asia Oil Producers Others monitoring their Arabia, for example. Despite these reduc- I Petroleum * Natural Gas Ocoal performance; tions, subsidy rates among oil producers the Treasury that was the prime motivation for these and observing remain iigh compared to other countries. reductions. a nation's Subsidies on Agricultural Inputs Unfinished Business management of Subsidies for agro-chemicals, mainly pesticides and Because the process of subsidy reform is a recent its environment. fertilzers, have also been reduced in recent years. In one, it is too early to detect significant reductions Indonesia in the early 1980s, for example, pesticide in environmental damages. But studies of energy It also explores subsidies of up to 85% were integral to government use after the 1970s oil shock indicate that the effect efforts to boost agricultural production. By the late of afternge in.price ock effciency, though economic 190s howver th thet to public.. helhfo of a change in prices on energy efficiency, though 1980s, however, the threats to pub.c health from not immediate, is likely to be substantial. Energy analysis tools to pesticide polluon caused a drastic policy change: use per unit of output fell by 38% in OECD coun- many pesticides were banned and integrated pest tries between 1971 and 1988. For developing coun- link physical management was adopted. Pesti- tries, in the long run, energy environmental ide subsidies were eliminatediby WHAT ARE SUBSIDIES? demand is lkely to fall by half a 1989. This produced a triple divi- percentage point for each per- effects to dend: reducng risks to biodiver- Subsidies can take many forms, but centage point price rise. economic sity and health while maintaining all result in lower prices in the mar- rice production levels. ketplace, through explicit subsidies Subsidy reform is not just a devel- impacts. for consumer products or through i . A Fertilizer subsidies have been used subsidies to inputs that lower pro- opmg country issue. Agrcultural by governments to induce farmers duction costs. Price subsidies are subsidies in the OECD countries to increase yields. Agricultural the prevalent direct subsidy, com- are damaging the environment. intensification can be good for the mon for energy, water and agricul- Any broad-based international prepared by Kirk envionmnt,redcingpresurs tralinputs. Tax credits and effort to reformn subsidies must Hamilton andAru environment, reducing pressures preferential borrowing rates both target OECD countries as well. Kunte d on ecologically sensitive lands; and lower production costs, leading to E rnt al correct fertlizer application higher investment in the targeted Removal of subsidies is just the Environmental restores soil nutrients. But exces- sectors and artificially low product sive use leads to runoff into water- prices. Inadequate cost recovery first step. For products like fossil Environment ways, polluted drinking water and for infrastructure, such as irrigation fuels and pestcides, where the Departments ways, poluted drikng water and or electric power, is another com- environmental effects of their use Indicators and eutrophication. Many countries mon form of subsidy that leads to are substantial, reform must extend Envlronmental have struggled to find the right wasteful resource use. beyond elniinating subsidies to Evaluati i. balance in encouraging fertifzer m c t use. Since the mid-1980s, Bangladesh decreased sub- l lmposmg changes that reflect the information, please usidie. from $56 niillion to $19 miffion, Indonesiafe.l enviroeriental and sodal costs of consumption. In contact Unit Chief f trom $732 mllion to $333 millon, Pakisanfrom this way, users will be given the right incentives to John Dixon at (202) from $732 million to $333 miion,Pakistan from bring private behavior into line with social goals. 473 -8594,fax (202) $178 million to $33 million, and the Philippines bnng_pvate________mto_le_w_th ______goals 477-0968. from $48 million to zero. While environmental con- 'Egypt, Indonesia, Iran, Mexico, Nigeria, Saudi Arabia, and siderations played a role, often it was the burden on Venezuela. WINTER/SPRING 1997 25 Innovations in Environmental Policy: Progress Since Rio F_ or the Earth Summit's fifth anniversary, the have a better chance of success. Building capacity World Bank has prepared Five Years After for improved environmental management is an Rio: Innovations in Environmental Policy'. At important, but longer-term process. the heart of this paper is a policy matrix designed to distill and organize a very rich Engaging the Public. Since governments rarely and diverse set of best practices in environmental lead in the cause of environmental reform-but management. more often respond to public pressure-the role of an informed and involved citizenry is crucial. The matrix classifies innovative environmental Engaging the public, both to inform them about management tools that enable countries to get the costs of environmental degradation or pollu- some of the financial resources they need to achieve tion, and to involve them as advocates for reform, is sustainable development. The tools are classified facilitated by open exchange of information, and under the four broad categories as shown in the more open societies. Some of the most polluted table below. places on earth were in parts of Eastern Europe and the former Soviet Union where environmental While different protests and debates were not tolerated. Without countries have the combination of an informed, and involved pub- Using Creating Regulations Engaging tried very differ- lic, and a committed government, the best laws and Markets Markets the Public ent approaches to legislation are likely to have little impact. Subsidy Property nghts/ Standards Public similar environ- reduction decentralization participation mental manage- Seeking Policy Integration. One of the lessons Environmental Tradable Bans Consultation ment problems, from Rio is that the environment and economic taxes permits/rights some general development are inextricably linked. lessons have User fees international Pegnuitas Information emerged from For example, economic liberalization can exacer- this review: bate environmental problems. Increased access to Deposit-refund Informal international markets can put pressure on natural systems negotiation Financal Sus- resources where property rights and resource pric- Targeted Community tainability. ing regimes are inadequate, leading to excessive subsidies pressure Despite the exploitation. And, to the extent that liberalization NGO rhetoric of Rio, it leads to growth in production and incomes, this involvement is clear that there may lead to pollution emissions. The bottom line, will be few if any of course, is for countries to ensure that policy additional resources to fund environmental reforms of the sort highlighted in the Policy improvements. Therefore, new policies must be Matrix are established to work in conjunction financially sustainable to create effective change. with the process of economic liberalization. There are many examples of policies that do gener- ate financial resources, such as user fees and envi- These lessons in the Five Years After Rio show there ronmental taxes. The most successful policy is great potential for environmental reform, but initiatives are those that both generate revenues tempered with the reality that money is scarce and and recognize the fiscal constraints of governments. that major institutional issues need to be addressed. Administrative Sustainability. There are often major administrative constraints to implementing l See back cover for reference. new policies or procedures. Since the environment is a relatively new concern, few countries have well- This article was prepared by John Dixon and Kirk Hamilton of established environmental management bureaucra- the Environment Departments Pollution and Environmental cies. Consequently, policies that do not require Economics Division. elaborate and expensive administrative support 26 ENVIRONMENT MATTERS Five Years After Rio: What have we done and where are we going? Personal reflections by Derek Osborn, Chairman, European Environ- fresh water in many parts of the world and conta- mentAgency, Copenhagen, and co-chairman of the mination of some supplies are gaining increasing intersessional meeting of the Commission on Sustain- attention. How to manage the world's forests sus- able Development (CSD). tainably is a major piece of unfinished business from the Rio agenda. New instruments will be ustainable development remains our cen- proposed. Many other ideas will be canvassed. tral and essential goal. We must have development to relieve poverty and to The development agenda will come equally to the give all people everywhere a decent fore. In some developing countries the means of chance in life. But we must develop in securing sustainable growth loom larger as an such a way that we do not damage our own envi- immediate political priority than longer-term ronment and the quality of life of our own and environmental protection. How countries can use succeeding generations. international trade and private investment, and how to mobilize international support through The enormous Agenda 21 which we negotiated at adequately funded and well-directed aid pro- Rio spelt out a comprehensive programme of grammes will be prime concerns here. action for all sectors of civil society to achieve a sustainable pattern of development throughout Governments have made some progress since Rio. the world. We shall need to consider how to support and Five years later, that programme remains robust. encourage this progress with ideas such as peer group review and indicators. The CSD itself and other parts of the 1 ,- international machinery may need |> i to be reshaped to support national progress better. Sustainable development is not a matter for governments alone. The Local Agenda 21 which has been driven forward by local govern- ments throughout the world has N-- ~t _ lmade remarkable headway in many cities of the world. Progres- sive sectors of the business com- munity have made their own contribution through such pro- grammes as ISO 14001 and C. CARNEMARK Responsible Care. Financial insti- tutions are gradually finding ways But we need to find more effective ways of imple- to integrate the environment and sustainability menting it properly, and to re-energize ali parts of into their programmes. NGOs are helping to the world community in this task. transform communities on the ground as well as lobbying effectively for change at national and Many ideas and proposals will be brought forward international levels. from the environmental agenda. Stronger action will be demanded on climate change and on air Everyone associated with this year's meetings has pollution. Pollution of the oceans and the cata- a keen determination to make real progress. The strophic decline in some fish stocks will be world expects and deserves no less. emphasized. Growing problems about shortage of WINTER/SPRING 1997 27 What's New at the Bank ? 0 O THE PHOTOVOLTAIC MARKET TRANSFORMATION INITIATIVE 0 The Global Environment Facility (GEF) and the International World Bank Finance Corporation have introduced the Photovoltaic Market Transformation Initiative (PVMTI), which will support competi- Launches New tively solicited, private-sector photovoltaic projects in India, Global Water Unit Kenya, and Morocco. The GEF Council gave initial approval for the project last October. PVMTI will use $30 million in GEF funds to help reduce obstacles to market development and attract he Global Water Unit additional investment for new and expanded activities. (GWU), part of the new ) E~~~~~~~~~~~~~~~~~~~~~~~~SSD network, brings NEW ENVIRONMENTALLY AND together Bank staff working on water-related issues. Water SOCIALLY SUSTAINABLE issues are dealt with in a num- DEVELOPMENT (ESSD) NETWORK ber of sectors-hydropower issues in energy and mining, In an effort to better serve its The ESSD Network is divided irrigation and drainage in the client countries, the Bank has into the Environment, Social rural sector and water and san- just launched four "networks" Development, and Rural fami- itation in infrastructure. The D_ in Environmentally & Socially lies. Each of these families will GWU will coordinate these sec- Sustainable Development; be coordinated by a Sector tors to better meet the needs of Human Development; Board made up of members Finance, Private Sector & selected from across the Bank client countries in this critical Infrastructure; and Poverty The Boards will formulate area. John Briscoe, the Bank's Reduction & Economic Man- strategies, organize knowledge senior water advisor and head