The Environmental Challenge of EU Enlargement in Central and Eastern Europe
Chapter 5
Economic Implications of the Enlargement for the Environment Sector
The amount of investment required to comply with the environmental acquis has been debated since the early 1990s. In 1997, a desk study carried out for DG Environment estimated the amount of environmental investment required in the CEE applicant countries to reach EU compliance at around 120 billion EUR(24).
Some of the recent efforts to estimate investment costs are summarised in the following table(25). These place the lower range of investment required at around 80 billion EUR.
However, as is clear from the individual citations, these estimates were prepared by a variety of experts, and the methodologies used to prepare the estimates for different countries and sectors have varied widely. These figures, most of which date from 1999 and 2000, must therefore be considered preliminary. The applicant countries have developed more detalied estimates throughout 2001, in the course of their negotiations of the Environment chapter. These negotiating figures are not yet public available. In any case, they are likely to continue change significantly as the applicant countries develop strategic investment strategies and as further experience is gathered.
Table 5.1:
Estimated Environmental Financing Needs in CEE Candidate Countries (total plus
selected directives)
For example, in November 2001, Poland's cost of meeting the EU urban waste water treatment requirements was estimated at 12,592 MEUR, and the cost of meeting the landfill and recycling obligations estimated at 8,306 MEUR.(41) These estimates were double the figures developed in 1999. And Latvia's position paper for its negotiations of the Environment Chapter estimated the cost of complying wtih the IPPC requirements at 714 MEUR, of wich 521 MEUR would be needed just for large combustionplants.(43)
Given that the CEE applicant countries have a total population of 105 million, the investment requirement comes to approximated 800-1000 EUR per capita over ± 10 years. This is a significant expenditure for countries with 1998 GDP per capita at 4,517 EUR (Bulgaria) or 7,287 EUR (Poland).(43)
By way of comparison, the average per capita GDP for the 15 EU Member States in 1998 was 24,597 EUR. The CEE applicant countries' average per capita GDP comes to less just 41% of this (35%, if Slovenia and the Czech Republic are excluded).
Clearly, the financing of environmental infrastructure in the applicant countries represents a major challenge for the CEE applicant countries. For assurance that the applicant countries are taking this obligation seriously, the Commission has asked applicant countries to prepare Directive-specific Implementation and Financing Plans (DSIFP), as a prerequisite for negotiation of any transition periods. The first step in preparing a DSIFP is to outline the steps required for full implementation, including how many investment projects are needed to achieve compliance and how much they will cost. This is not so difficult to do in a smaller country like Slovenia, but the logistics are quite different in a larger country like Poland where local governments must undertake the task of project identification. Since municipalities are generally responsible for delivery of a number of environment-related services such as water supply, waste water collection and treatment, and solid waste management, local governments need to be aware of the range of EU environmental requirements affecting them, so that they can carry out integrated municipal-level infrastructure planning.
Benefits of EU Environmental Compliance Concern over the cost of investments to meet the EU environmental requirements and the lack of financing should be weighed against the benefits of compliance. A recent study for DG Environment looked at the long-term benefits that will accrue to the applicant countries from environmental compliance, e.g., reduced pressures on the environment through diminished pollution emissions and deposits. The most striking benefits were estimated to come from implementing the air sector requirements - between 8 and 44 billion EUR a year by 2010. Benefits would accrue from reduced mortality, incidence of diseases, and damages to buildings and crops; and would arise primarily from lower emissions of particulates, SO2 and NOx, volatile organic compounds (VOCs) and ammonia. In the water sector, benefits of EU compliance were estimated at between 5 to 14 billion EUR a year. For the waste management sector, benefits were estimated at between 0.6 to 8.7 billion EUR a year, with implementation of the Landfill Directive the largest contributor of benefits. Aggregated benefits from compliance with the EU air, water, waste management and nature protection sectors were estimated at a value ranging between 12 and 69 billion EUR per year (note that reduced air pollution accounts for around half of the total benefits). This corresponded to between 80 and 410 EUR per capita annually. Moreover, reductions in transboundary pollution were estimated to yield a benefit of approximately 6.5 billion EUR a year to Member States, with a further benefit of 9.5 billion EUR a year to other countries, notably Ukraine, Belarus and Russia. The study also found that acceleration of implementation would result in even higher total benefits, because earlier reductions in emissions leading to improvements in air, water and soil quality would enable benefits to start accruing earlier. |
If a municipality needs to invest in upgrading pipelines for delivering drinking water
supply and collecting waste water, it may be able to save costs if one channel is dug and
the two piping systems laid at the same time. It will need to figure out the annualised
cost of the proposed investment, including the cost of repaying any loans required for
financing, the costs of operation and maintenance (O & M), and so on. If it also needs
to develop a new landfill or build a new waste water treatment plant, a municipality will
need to set priorities and to schedule the construction of infrastructure as funds become
available.
A municipality's short and long term priorities may differ from the national government's accession priorities. The availability of outside funding from the EU or other donors can also affect the setting of priorities.
Investment planning needs also to calculate how the costs of implementation will be financed. For a DSIFP, which needs to consider how to finance the aggregate costs of implementing a directive throughout the country, the investment planner needs to look at the overall supply of financing available.
This involves inter alia determining the sources of financing, (e.g. national/local public investment budgets, internal sources of grants/soft loans, external sources of grants/soft loans, loans through international financial institutions or commercial financing, etc.).
A related question, if part of the financing will be through loans, is the debt-carrying capacity of the borrower, such as a municipality. Most countries have legislation in place limiting the amount that individual municipalities can borrow, (e.g. loan payments only up to 50% of a municipality's annual budget). If a municipality has already borrowed up to its limit, it will need to wait until it has repaid some of its debt before it can borrow for building additional environmental infrastructure. Affordability may become an issue, making it difficult for a municipality to recover costs through, e.g. raising user fees.