Bilag 3: Finansieringsrapporten fra Århus ECE/CEP/50
Bilag 3:
Finansieringsrapporten fra Århus ECE/CEP/50 3.1.
Environmental Financing in CEEC/NIS
3.2.
Trends in
Environmental Expenditure
3.3. Demand for
Environmental Financing
3.4. Specific
Issues in Environmental Financing
3.5. Environmental
Financing Mechanisms 3.6. Recommendations
ENVIRONMENTAL FINANCING IN
CEEC/NIS;
Applications for permission to reproduce or translate all
or part of this material should be made to:
Head of Publications Service, OECD, 2, rue André Pascal
75775 Paris cedex, 16, France.
Copyright OECD/OCDE 1998
Background
and Introduction
The attached paper presents draft Policy Conclusions and
Recommendations on Environmental Financing in CEEC/NIS. It has been
prepared by the OECD/EAP Task Force Secretariat, in co-operation with the
Project Preparation Committee. The Working Group of Senior Officials
(WGSO), which is preparing the held Environment for Europe
Ministerial Conference to be in Aarhus 23-25th June 1998, agreed that the
paper should be forwarded to the Aarhus Conference.
This paper has a dual role: it aims to report on the
progress which has been made since the last Ministerial Conference in
Sofia in October 1995, and to summarise trends over the last half decade
since the Lucerne Conference in April 1993. The paper is based on the
findings of a more comprehensive analytical report, and discussions of
those findings at a workshop in Paris, 9-10th February 1998.
A draft of this paper was also discussed at the March 18 meeting of the
EAP Task Force. Comments and suggestions made at that meeting have been
taken into account in the preparation of the present paper. The
comprehensive analytical report will be made available at the Aarhus
Conference as a background document.
The attached paper:
-
Reviews the debate on environmental financing within
the Environment for Europe process;
-
Presents trends in environmental expenditures;
-
Examines the forces creating demand for environmental
financing in CEEC/NIS;
-
Analyses environmental financing in the enterprise
sector, municipalities and national budgets;
-
Assesses the potential of existing and emerging
environmental financing mechanisms (the supply side), and;
-
Recommends some next steps.
-
The debates about environmental financing have evolved
considerably over the course of the Environment for Europe
process. In the preparations for the 1993 Conference in Lucerne,
considerable attention was focused on new and additional
financing which was to be provided by external sources. During the
discussion of the Environmental Action Programme for Central and
Eastern Europe (EAP) at Lucerne it was acknowledged that the bulk of
financing for environmental investments in CEEC/NIS would have to come
from domestic sources. Discussions highlighted the importance of
priority setting, strengthening domestic environmental financial
institutions to ensure the most cost-effective use of resources, and
using external financing in a catalytic and strategic way.
-
At the 1995 Conference in Sofia, there was a
recognition that the obstacle to increased financing is not so much
a lack of foreign capital as the high cost of commercial capital, the
limited flexibility of financing mechanisms, and problems in linking
priority needs with the available financing. It was acknowledged
that demand for environmental finance was still at low levels
throughout the region. However, most discussions focused on the supply
of finance, in particular the development of innovative financial
mechanisms and the role of soft financing.
-
Since Sofia, the growing divergence in contexts and
priorities between countries advanced in the transition to market
economies and others, particularly the NIS, has become more evident.
Some of the countries more advanced in transition have been very
successful in mobilising resources for environmental investments, and
they are now developing a new range of policies and instruments. In
the NIS, progress has been considerably slower: sources of
environmental finance are in very short supply and in some countries
virtually non- existent. These developments have served to emphasise
that environmental financing must be analysed more systematically as
the interaction between demand and supply. Such a perspective
emphasises the linkages between policies and instruments (to create
demand and raise revenues), institutions (to channel scarce resources
most cost-effectively) and investments (involving project sponsors in
different sectors). This perspective also provides insights into how
external financing and technical assistance can be made most
effective.
-
Information about environmental expenditure is weak in
most ministries of environment: responsibility for investments is
usually with other ministries, local government or the enterprise
sector. However, this lack of information and analysis limits the
ability of ministries of environment to develop realistic
environmental strategies, including financing strategies. Further
efforts should be made to strengthen this capacity in ministries of
environment.
4a. To support the preparation of this report,
several studies were carried out. The main results and trends are
presented below. (See annex 1 for more details.) These studies focused
on environmental projects only. As such, they generally do not capture
expenditures for integrated projects, which achieve both economic and
environmental goals, such as cleaner production, and energy efficiency
projects, nor the environmental benefits of improved environmental
management in enterprises and investments to modernise production
equipment.
(i) CEEC/NIS Environmental Expenditures
-
In most CEEC/NIS, domestic sources constitute more
than 90% of total environmental expenditures. However, in the complex
and difficult transition to a market economy, the overall levels,
sources and types of expenditures are likely to vary. A
Danish-supported study assessed trends in pollution abatement and
control expenditures in six countries selected to represent a range of
economic and environmental characteristics: Georgia, Hungary,
Lithuania, Poland, Russia and Slovenia. Some of the main findings
were:
-
There is a positive correlation between
environmental expenditure and level of economic development (GDP per
capita)
-
Environmental investment as a percentage of GDP in
the countries most advanced in the transition (Poland, Hungary,
Slovenia) compare very favourably with those in high-income OECD
countries; and they are similar on a per capita basis with
lower-income OECD countries;
-
Environmental investment expenditures appear to be
virtually non-existent in Georgia; in Russia, they are comparable
with low- income OECD countries as a percentage of GDP, but less on
a per capita basis;
-
Environmental investments measured in constant
prices appear to have peaked in 1994; Poland is the exception, where
environmental expenditures have grown throughout the 1990s;
-
The public sector share of environmental investments
in Hungary, Lithuania and Poland has increased in the 1990s; where
it is possible to break down public sector investments, the share of
local governments budgets has increased;
-
Environmental funds account for about 40% of
environmental expenditures in Poland; 20% in Hungary, Lithuania and
Slovenia; 5% in Russia; and they do not exist in Georgia;
-
Air and water protection account for the
overwhelming share of investments; air is most important in Poland
and Slovenia; water in the others; waste is an insignificant share
in all countries except Hungary.
(ii) External Environmental Aid and Finance
-
External finance and assistance can play a catalytic
role and complement domestic financial resources. Donor assistance is
mostly in the form of grants, usually for technical assistance. IFIs
channel funds from international capital markets in the form of loans
on terms which are more attractive than those available on the
domestic commercial markets of the recipient country. The Project
Preparation Committee is a network in which donors and IFIs co-operate
in order to accelerate environmental investments. The Global
Environment Facility, which provides grants and concessional funding
to meet the agreed incremental costs of measures to achieve approved
global environmental benefits.
-
The main findings on external environmental aid and
finance are:
-
Assistance from most, though not all, donors appears
to have peaked and is now declining;
-
Finance from IFIs appears to have declined,
particularly in CEEC; however, IFI finance for non-environmental
projects with significant environmental benefits appears to have
grown in recent years;
-
CEEC continue to receive more than twice the aid and
finance received by the NIS, and many times more on a per capita
basis;
-
The level of assistance and finance going to the NIS
has not changed significantly since 1994, while that going to CEEC
has declined slightly;
-
The largest share of assistance and finance goes to
the water sector;
-
From 1993 through March 1998, the PPC had 58
projects under implementation or approved, with total investment
costs amounting to 3.3 billion ECU, of which donor funding totalled
about 319 million ECU; the bulk of projects have been in the
municipal (water) sector and in CEEC (for further details see the
PPC report).
(iii) Foreign Direct Investment
-
FDI has grown rapidly in recent years and is now at
roughly the same level as official aid and financial flows. The way in
which these private funds are channelled will probably have a much
more significant effect on the environment over time than official aid
and financial flows. The main trends appear to be:
-
While further analysis of the environmental
implications of investment flows is needed, preliminary evidence
suggests that no more than 10% is going to the environmentally
sensitive heavy industry sector;
-
CEEC/NIS receive a relatively small proportion of
FDI globally: as of 1995, about 2/3 of total investment going to
Latin America and the Caribbean and less than 1/4 of that going to
Asia; but almost three times as much going to Africa.
-
Reflecting investors assessment of opportunities
and risks, FDI is concentrated in relatively few countries; in 1996,
74% went to five countries Poland, Russia, Hungary, the Czech
Republic and Kazakstan;
-
A review conducted at an OECD workshop suggested
that environmental liability had not been a major impediment to FDI,
in part because of policies put in place. However, there is some
evidence that concerns about environmental liability have deterred
investors and delayed deals in some sectors.
-
Demand for environmental financing reflects the
willingness and ability of polluters and users of environmental
resources to pay for investments to resolve environmental problems. It
is shaped by the level of economic development and the stringency with
which envi- ronmenal standards are set and enforced. Demand will also
reflect the perceived and actual severity of environmental problems.
Generally, demand in CEEC is still low compared with that in OECD
countries. In the NIS, the demand is even lower and, in some cases,
virtually non-existent. The supply of finance mirrors these
situations.
-
In many CEEC, there has been a recent shift in demand
for environmental investments. In most countries: economic growth has
resumed, generating resources for investment; macroeconomic
stabilisation has helped reduce interest rates and inflation; the
reduction in subsidies on energy, water and other resources has
created incentives for greater efficiency; new trade relations have
required exporters to pay more attention to environmental issues; new
policies, including NEAPs, and instruments have promoted better
implemen- tation of the Polluter-Pays Principle (PPP);
decentralisation is creating demand for better environmental services
at local level; public awareness and, in some cases,
willingness-to-pay for environmental improvements is increasing; and
obligations under regional and global environmental conventions are
leading to investments, often with international assistance.
-
Accession to the EU will transform the demand for
environmental investments in the countries concerned. It has been
estimated that the total investment costs for the 10 accession
countries to comply with EU Directives for air, urban and industrial
wastewater and solid and hazardous waste management are on the order
of 122 billion ECU. This is equivalent to investments several times
higher as a proportion of GDP than in most OECD countries and more on
a per capita basis. There may also be important distributional and
social issues to address as prices for water and other environmental
services increase. While these figures require careful
interpretation, and do not address the benefits of expenditures, they
far exceed current levels of expenditures and the resources which
might be made available by the EU. Designing cost-effective strategies
which strike a realistic balance between the demand for, and supply
of, finance therefore will be a massive challenge.
-
No equivalent demand exists in the NIS: several are
classified as developing countries; and in the others, generally low
personal and co-orporate wealth levels contribute to low-level demand
for environmental investments; high inflation and stringent lending
conditions discourage most types of investment; enterprises and local
governments are still heavily subsidised; NEAPs are under development
and have yet to be implemented; public demand for environmental
improvement is weak; the implementation gap to objectives in
regional and global environmental conventions is greater than in CEEC.
The low demand for environmental improvements has made it difficult
secure financing within the state budget and to establish new domestic
financing mechanisms.
(i) Enterprise Sector
-
EBRD estimated that by mid 1997, the private sector
accounted for 50% or more of GDP in all CEEC and six out of 12 NIS.
However, privatisation has not necessarily led to better economic or
environmental performance in enterprises. In some countries
governments hold minimum shares in enterprises and sometimes provide
credits and subsidies that shield these enterprises from competition.
In other countries, the new owners are former managers from the period
of state ownership who have found it easier to maximize personal
wealth by selling corporate assets and obtaining subsidies than by
improving corporate performance in the marketplace. In addition,
political will to enforce environmental requirements has been weak in
many countries.
-
Even allowing for weaknesses in the existing incentive
structure, win-win investments are not occurring at the rate
originally hoped for. In addition to a weak policy framework they are
constrained by limited availability of affordable investment capital,
and lack of information and skills in enterprises and financial
institutions to develop and implement projects. Cleaner Production
programmes and related financing mechanisms can play a useful, though
probably modest, role in overcoming these obstacles in CEEC and some
NIS. More substantial investments will be required to comply with EU
standards. Strengthening environmental management in enterprises and
undertaking win-win investments, nevertheless, are important first
steps. The most important needs in most countries are to strengthen
demand for better environmental performance by subjecting enterprises
to budgetary, policy and other incentives which promote efficient use
of resources, and to pursue effective environmental compliance.
(ii) Municipal Environmental Finance
-
In the transition, responsibility for the provision of
a variety of environmental services has been decentralised. Local or
regional authorities inherited a backlog of unfinished projects,
infrastructure in varying states of disrepair, and, frequently, sharp
declines in support from central budgets to finance new and
replacement capital. Where these services generate pollution as a
by-product (e.g., district heating and wastewater collection,
treatment and discharge) existing pollution control or treatment
systems were most often outdated, inefficient or non-existent.
-
Demand for environmental services is closely related
to the process of (fiscal) decentralisation and the ability of
communities to cover costs through user charges or local taxes.
Generally, operation and maintenance costs for municipal services are
covered by annual user fees. Capital costs can be substantial and
unless they are financed over 15 to 20 years they may require
significant increases in user changes. This, in turn, may exceed the
ability of some households to pay for basic services like water or
energy. The revenue base for municipal services is particularly weak
in the NIS where household incomes significantly lag those in most
CEEC. Yet, the capital requirements in the NIS are substantial because
infrastructure is in a serious state of deterioration and resulting,
inter alia, in increased risk of water-borne disease.
-
Subsidies have played an instrumental role in the
development of municipal environmental infrastructure in CEEC/NIS, and
OECD countries, often representing more than three-quarters of capital
outlays. While subsidies reduce the revenue requirements that must be
covered from user chargers (thereby shifting the costs of services to
a broader range of taxpayers), they often engender perverse effects,
encouraging end-of-pipe investments at the expense of pollution
prevention and providing incentives for oversizing of infrastructure.
They have also promoted overuse of energy and water, thus exerting
upward pressure on user fees once financial support from central
budgets was withdrawn or reduced.
-
Across-the-board subsidies are blunt instruments to
treat cases of social hardship. Support targeted on the most needy
households is more efficient if decoupled from the pricing of
services. Subsidies can also be useful to support project
preparation for capital investments, or public-partnerships. They
should not discourage energy and water conservation or public-private
partnerships.
-
As the demand in the advanced transition countries for
better quality environmental services rises and municipalities invest
in controls to achieve EU environmental quality standards, new
mechanisms will be needed to finance the higher investment costs.
Indeed, encouraging new initiatives are already underway in some of
the advanced transition countries. Support should be given to efforts
to develop least-cost solutions and creative financing arrangements,
such as those involving public-private partnerships, issuance of
municipal bonds, and the use of municipal guarantees.
-
In the NIS, the most immediate need in the municipal
sector is to restore or improve the quality of basic services. The
institutional capabilities to manage these services and place them on
a firmer financial foundation also need to be strengthened. Subsidies
and external financing will be needed to catalyse improvements in the
environmental performance of the municipal sector in the NIS in the
absence of rapid increases in per capita incomes and affordability of
services.
(iii) National Budgets
-
Despite significant decentralisation in some CEEC, the
national budget continues to be a major source of environmental
expenditures. In some of the Baltic States, for example, Public
Investment Programmes have prioritised environment and this has helped
leverage donor grants and IFI loans. Some CEEC have also become more
effective at linking their environmental programmes with the national
budget cycle. However, in many CEEC/NIS, there is much inertia in the
budget process, with resources sometimes allocated on the basis of
precedence rather than efficiency considerations. In many NIS,
allocations for the environment have fallen significantly. In some
cases, extra-budgetary funds are financing monitoring equipment and
other services normally provided by the state budget. As the
transition progresses, there is a need to promote greater involvement
of the private sector in environmental investments.
-
Protection of biodiversity has traditionally been
financed from the public sector. In many CEEC/NIS, it was a positive
legacy of the former regimes. However, demand for biodiversity has
been low in most, though not all, CEEC/NIS during the transition.
Frequently the demand has come from international or external sources.
Further efforts are needed to stimulate domestic demand, for example
through public information and awareness campaigns.
-
Financing biodiversity projects is difficult because
they tend to be small, geographically dispersed and lacking revenues
which could be used to repay loans. However, efforts are being made to
integrate biodiversity into economic activities, e.g. agriculture and
tourism. Experimentation with a range of user fees is increasing e.g.
timber sales, hunting permits, sale of seedlings, revenue for
recreational activities. A group of experts recently proposed that a
Pan-European accreditation scheme should be established to help
identify biodiversity projects. This should be linked with efforts to
strengthen project preparation capacity and the development of
mechanisms to bundle small projects into packages which could be
supported by financing institutions. Alternatively, mechanisms should
be established specifically to finance small projects; the Global
Environment Facilitys Small Grants Programme provides one model.
Public-private partnerships may also provide opportunities to expand
financing e.g. by allowing private sector partners to develop
non-sensitive areas in return for services provided in protection
areas.
-
Substantially more experience has been gained with
environmental financing mechanisms since the Sofia Conference. Donors
and IFIs have helped to supplement domestic sources of capital and to
transfer know-how. Domestic financing mechanisms have evolved in CEEC,
but there is a continuing challenge to ensure that soft financing is
used transparently and in the most cost-effective manner and that it
does not inhibit the emergence of more market-based mechanisms. This
is also true for finance provided directly from the State budget.
Strengthening financing mechanisms in the context of higher costs of
compliance with EU legislation and the potential benefits of
facilitating access to EU sources of financing will become the major
challenge in accession countries. For the NIS, establishing financing
mechanisms in the current state of low demand will be the main
challenge. It is unlikely that such mechanisms will be established
without external finance and/or technical assistance. In both groups
of countries, new opportunities will arise as a result of the Kyoto
Protocol.
(i) Environmental Funds
-
Environmental funds, capitalised largely by
environmental charges and taxes, continue to play an important role in
CEEC. They are strongest in Poland where expenditures from the
National Fund were nearly $500M in 1996, and the contribution from all
funds accounted for about 40% of domestic environmental expenditures.
New funds have been established in several countries since Sofia and
the capacities of some existing funds strengthened. The revenue base
of funds has improved and new disbursement mechanisms have developed.
However, substantial further efforts are required in most funds to
meet the recommendations in the St. Petersburg Guidelines. If this
could be achieved, environmental funds could play an important role in
the EU accession process.
-
In the NIS, the institutional base and legal
foundations of funds are much weaker. In Russia, the expenditure of
the Federal Environmental Fund in 1996 was about $14M. The fees and
fines which generate the Funds revenues are much lower than in
CEEC. For example, the charge for one ton of SO2 in Russia is $1.22,
compared to $20.80 in Estonia and $82.61 in Poland. Failure to
recirculate revenues and their diversion for non-environmental
purposes has undermined collection efforts. Overall the capacities and
effectiveness of funds in the NIS are weak. However, in Russia the
system of environmental funds is being consolidated and strengthened
with Danish support. The experience from this project will provide
valuable lessons for other NIS.
(ii) Environmental Funds Capitalised by Donors
and IFIs
-
Four types of funds have been established, capitalised
by donor grants and/or IFI loans:
-
Debt for environment swaps (Switzerland agreed a
swap with Bulgaria at the time of the Sofia Conference; Poland had
previously concluded swaps with several donors);
-
Environmental Investment Funds (in Lithuania and
Latvia capitalised by PHARE grants);
-
Environmental Development Fund (a joint stock
company owned by the Slovenian government, operating as a non-profit
organisation);
-
Pollution abatement facility capitalised by an IFI
loan (the National Pollution Abatement Fund in Russia was
capitalised by $55m loan from the World Bank and a $13m Swiss
grant).
-
All of those funds, with the exception of the Polish
EcoFund, operate on a revolving basis, providing soft loans for
priority projects. As a review of the Polish EcoFund illustrated,
institutions established by donors and/or IFIs can have a catalytic
effect in mobilising other resources and enabling the establishment of
solid institutional capacity that encourages greater financial
discipline and improved accountability and transparency. The
opportunities for replicating financing mechanisms using IFI loans
and/or donor grants are probably greater across the region than the
opportunities for establishing new mechanisms based on debt for
environment swaps.
-
A second stage of the National Pollution Abatement
Facility in Russia is under development which would involve a more
region-oriented approach, with loans on-lent through financial
intermediaries (e.g. banks, environmental funds) with repayment
guarantees provided by regional governments. This type of approach
could be promising in other NIS, provided there is adequate capacity
to prepare projects and manage the project cycle, adequate demand for
financing, and adequate supply of co-financing.
(iii) Mechanisms Established in Existing Financial
Institutions
-
IFIs and donors have established credit lines for
environmental investments in co-operation with financial
intermediaries in the region. With the local partner sharing the
credit risk, these credit lines can reduce the costs of preparing
projects and conducting financial appraisals of borrowers, and
facilitate IFI support for smaller loans than would be available
directly from the IFI. In addition, this co-operation often
contributes to the strengthening of the local financial intermediary,
particularly in appraising environmental projects and
non-environmental projects with environmental components, and
demonstrating the financial attractiveness of win-win environmental
investments.
-
A similar approach is represented by the Cleaner
Production Revolving Facility established by NEFCO with Norwegian
support to provide co-financing for investments in Northwest Russia
and the Baltic countries, primarily Lithuania. For this facility,
NEFCO relies on local Cleaner Production Centres to assist project
promoters in the identification and preparation of projects.
(iv) Support from EU Institutions
-
As part the EUs approach to enlargement, the
European Commission is now reorienting the PHARE Programme. This
reorientation has two key objectives to better facilitate the EU
applicant countries efforts to adopt, implement and enforce the acquis
communautaire, and to further decentralise the management of PHARE
programmes to the EU applicant countries themselves. A key feature of
this reorientation is an increase in PHAREs level of investment
support and a refocusing of its technical assistance and institution
building support onto those critical weaknesses in applicant
countries accession strategies. The result of this reorientation is
a significantly enhanced level of support for the environment sector.
-
As well as innovative institution building support
mechanisms (such as civil servant exchanges and access for applicant
countries to internal EU programmes like LIFE), the reorientation will
see a concentration in the investment support area on four critical
aspects of enlargement: direct promotion of compliance with EU norms;
integra- ted regional development programmes; support for the banking
sector to better meet the needs of small and medium enterprises; and,
support to large scale infrastructure projects.
-
In addition, a centrally managed Large Scale
Infrastructure Facility will be established, with 150 mecu for
1998-99, to co-finance investment projects with the IFIs, solely in
environment and transport. A second centralised facility is now being
established to address the needs of applicant countries which will not
start accession negotiations in 1998 (i.e. Lithuania, Latvia, Romania,
Bulgaria and Slovakia). This second facility will focus on
privatisation, SME development and border control.
-
In the period 2000-2005, support from the Commission
to central Europe will expand. A facility with 1 billion ECU per annum
will be established focusing on financing accession-related
investments in environment and in transport. In addition, a separate
agricultural facility of 500 mecu per annum will assist the applicant
countries in integrating their agricultural policies with those of
the EU. Lastly, the PHARE programme, with a budget of 1.5 billion ecu
per annum, will continue its support for general approximation and
other critical areas such as regional development.
-
The European Investment Bank (EIB), the EUs
long-term financing institution, will also expand its efforts to
support the accession process. The EIB has been active in CEE since
1990, signing loans to a total value of about 6.4 billion ECU in its
ten countries of operation (the Bank does not lend in the NIS). In the
period to the year 2000, the EIB has a mandate to lend 3.5 billion ECU
in the 10 accession countries; in addition a special Pre-adhesion
Facility of 3.5 billion ECU has been established to support the
accession process. Within this financial framework totalling 7 billion
ECU, EIB will seek to increase lending to help accession countries
comply with the environmental acquis of the European Community;
recent studies suggest that the needs are particularly large in the
fields of water, wastewater, air pollution and solid waste though
considerable preparations will be necessary to establish viable
projects for financing. In stepping up its environmental activity in
CEEC, the EIB expects to work closely with the services of the
European Commission as well as other multilateral and bilateral
sources of finance.
(v) Commercial Banks
-
With the exception of credit lines established by
IFIs, commercial banks have not played a significant role in
environmental financing in CEEC or NIS. This is because of the low
demand for financing, the more attractive lending opportunities
available to banks and lack of knowledge of environmental financing.
However, there are some promising developments involving banks
co-operating with environmental funds in financial appraisals of
investments, management of loans, and/or co-financing. Allocation of
costs and risks are the key factors in these arrangements.
(vi) Green Equity, Loan Guarantees, and Leasing
-
Green equity schemes were one of the initiatives
proposed at Sofia. Such schemes are used to invest in start-up
companies or companies expanding into the environmental goods and
services industry. After Sofia, there appears to have been different
expectations among donors, IFIs and CEEC, concerning the objectives
and organisation of green equity schemes. As a result, only one scheme
has come to fruition and several others have stalled. Existing venture
capital funds may in some countries provide a sufficient source of
equity for companies entering the environmental goods and service
industry. However, green equity schemes could also play a potentially
useful role in helping to support the broadest possible scope of
environmental investments.
-
The main experiment with loan guarantees appears to
have been in the Czech Republic, where the US supported a domestically
owned and operated Municipal Infrastructure Financing Company which
guaranteed loans for, inter alia, environmental investments (often
co-financed by the State Environmental Fund). Another important
development concerned an EBRD loan in St. Petersburg for a water pro-
ject; the first IFI supported project where the guarantee was provided
by a municipality rather than the central government.
-
There is an increasing market for environmental
leasing arrangements, whereby private firms provide equipment that is
needed in the provision of environmental services. Typically, leasing
involves vehicles or equipment used in solid waste collection,
transport, and disposal. Such arrangements enable municipalities to
spread costs out over a longer period and mitigate the need for
capital financing.
(vii) Global Environmental Financing Mechanisms
-
The Kyoto Protocol to the Framework Convention on
Climate Change (FCCC) provides for several co-operative mechanisms.
These will be discussed further at the Conference of Parties in Buenos
Aires in November 1998. If the operational rules of these mechanisms
are agreed, there would seem to be considerable scope for CEEC/NIS to
benefit from the opportunities provided. The mechanisms would allow:
-
Annex I countries to fulfil their reduction
obligations as a group rather than one by one. Countries can
agree among themselves how they wish to distribute the burdens and
choose whichever mechanisms they see fit. All such arrangements must
be announced at the time of ratification of the protocol. Emissions
bubbles cannot be created at a later stage unless the parties
to the FCCC agree to modify the rules.
-
Joint implementation between the industrialised
countries. This means that cross border investments reducing
greenhouse gas emissions among parties listed in Annex I of the FCCC
will count towards meeting the obligations of the country where the
investment originates. Pilot projects have been carried out and
systems of verification and certification are being developed.
-
Trading emission rights between countries with
quantified emissions commitments. At the moment only Annex I
countries have taken on such commitments, and the rules for
emissions trading are still to be developed. If countries agree that
private companies can invest subject to general rules and
controls the reduction units may become the property of
companies and like all other property, it can be bought and sold.
-
Annex I countries investing in emission
reductions outside their group through the Clean Development
Mechanism (CDM). Such reductions may be credited from the year
2000, and these credits can be accumulated to meet future
obligations. A share of the proceeds for project activities should
be used to contribute to adaptation measures in the countries
concerned, probably through some sort of fee for CDM approval.
Consequently, the price of certified emissions reductions will
be higher than the cost of the climate gas reductions themselves.
The role of the CDM awaits clarification, but there seems to be
general agreement that the CDM is neither a fund nor a new
institution. The CDM would rather be a regulatory mechanism
controlled by the parties to the Kyoto Protocol charged with
ensuring proper certification, and serving in a clearing-house
function to the extent requested.
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As of March 1997, the Global Environment Facility
(GEF), managed by the World Bank, UNDP and UNEP, has allocated 223.3
million USD in the CEEC/NIS region, which represents 16.6% of total
GEF allocations throughout the world. Within its main program areas,
the GEF has allocated 57.1 mUSD to reduce greenhouse gases, 109.3 mUSD
to reduce emissions of ozone-depleting substances, 33.4 mUSD to
protect biological diversity, and 23.5 mUSD to address water pollution
problems of international water bodies. The GEF could play an expanded
role, particularly in the NIS, provided there are increased efforts to
strengthen project identification and preparation capabilities. The
Capacity 21 Fund, managed by UNDP, could play an important role
in this regard, particularly in the NIS, as well as in developing the
human resources necessary for preparing and implementing national
Agenda 21 and environmental action plans.
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In all countries of the region, there is a need to
strengthen the demand for environmental financing and to better
integrate environmental considerations into economic and financial
sector reforms. In addition:
(i) There is now a pressing need
in the NIS to develop or strengthen the policy and institutional
frameworks required in order to mobilise and channel domestic financial
resources more effectively. Technical assistance can play an important
role in this respect. IFIs and donor financial resources can also play a
crucial catalytic role in supporting the establishment and development
of domestic mechanisms to finance pilot and demonstration environmental
projects.
(ii) CEEC will need to
strengthen domestic mechanisms in order to finance the investments
required to comply with EU environmental standards. Mechanisms also will
be needed to ensure that the substantial resources provided by EU
institutions (PHARE, EIB) will be used to address priorities in a
cost-effective manner.
(iii) Within their mandates, the
EAP Task Force and PPC should work to implement these
recommendations. Concerted action will be needed by all partners;
CEEC/NIS, IFIs, donors and increasingly the private sector. A report
assessing progress should be prepared for the next Environment for
Europe Ministerial Conference.
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More specifically:
(i) Both CEEC and NIS should
develop environmental financing strategies adapted to their
particular circumstances. These strategies will be most effective when
they establish clear targets, address both the demand for and supply of
finance, and integrate policy, institutional and investment measures.
They should also consider social and distributional issues. Donors and
IFIs can provide valuable support in assisting CEEC/NIS to develop
strategies at the national, regional, and sectoral levels. The financing
strategy developed by Lithuania provides a useful model, but further
work is needed to develop methodologies for preparing such strategies.
(ii) CEEC/NIS should strengthen project
preparation capacity, though the needs are different among
countries. In many CEEC, considerable progress has been made in
establishing capacity in this area; the lessons from the US-supported
EAPS Programme are helpful in this respect. However, there are still
major capacity gaps in municipalities, enterprises and communities which
could create important bottlenecks and inefficiencies in EU accession
investment programmes. Further analysis of the obstacles should be
undertaken to help design capacity building programmes. In the NIS,
there is a widespread need to strengthen capacity for, and understanding
of, the investment project cycle. In some NIS, establishing effective
project implementation units to assist in implementing NEAPs could be a
useful first step.
(iii) In the enterprise
sector, financing mechanisms which provide capital on affordable
terms to support win-win investments can play an important role in most
CEEC/NIS. Experience is being gained with various approaches and this
should be assessed and shared. As foreign investment flows increase,
their positive and negative environmental impacts should be monitored
and measures to maximise their environmental benefits identified. More
generally, there is a need to strengthen incentives for private sector
investments.
(iv) Efforts to develop more
market-based schemes to finance municipal environmental services
have been successful in some CEEC and NIS and should receive greater
support (e.g. municipal bond and guarantee schemes). The results of
these efforts should be assessed and disseminated widely. Factors which
either promote or impede public/private partnerships in the provision of
municipal environmental services, including the role of subsidies,
should be analysed, and work carried out to develop projects
demonstrating the potential of such partnerships.
(v) Expansion of capacity to
identify and prepare biodiversity projects is a important need.
Awareness programmes should be strengthened, and incentive measures
which can help raise revenues introduced. Mechanisms either to help
bundle groups of projects into financeable packages, or to support
small projects should be developed.
(vi) Further efforts should be
made to strengthen the capacities of Environmental Funds in CEEC
to help them meet the recommendations of the St. Petersburg Guidelines;
if this could be achieved, they could play an important role in
channelling domestic and external resources for investments linked to EU
accession. In some CEEC, particularly where private capital markets are
developing quickly, greater efforts should be made to ensure that funds,
through their provision of subsidised finance, do not inhibit the
emergence of more market-based financing mechanisms. As the legal,
institutional and revenue base of Environmental Funds in the NIS is
clarified and strengthened, donor assistance could provide important
institutional support and co-financing opportunities.
(vii) Promising forms of environmental
financing mechanisms capitalised by IFI loans and/or donor grants
should receive further support. In most cases, this type of approach
will be easier to replicate with IFI loans and/or donor grants than debt
for environment swaps. Alternative models, and key factors in their
successful application in different countries, should be assessed.
(viii) Experimentation with a
range of other facilities, revolving funds and credit lines should be
continued. These mechanisms can contribute to the transition to more
market-based financing in the municipal sector and help finance win-win
investments in the enterprise sector.
(ix) Experience with equity,
guarantee and leasing schemes in the region is limited, thus the
role to be played by such schemes requires further analysis.
Nevertheless, they can be useful in specific circumstances and their
further development should take account of experience to date.
(x) Opportunities for making
more effective use of global financing mechanisms should be
further examined in the appropriate forums. There is an important
potential for the Global Environmental Facility to seed the development
of environmental financing capacity in the NIS. A high priority should
be given to developing concrete means for realising the important
opportunities provided by the Kyoto Protocol for enhancing financial and
technology flows from advanced industrial countries to CEEC/NIS.
(xi) There is a need to reinforce
co-operation and the exchange of experience on environmental financing
among CEEC/NIS. More effective ways should be found to share the
positive experiences of CEEC with NIS. Partial untying of aid to enable
donors to hire CEEC experts to participate in NIS programmes would help.
The countries engaged in EU accession would benefit from sharing their
experiences in developing and implementing environmental finance
strategies. The EU should help them to do so.
(xii) A better understanding and
analysis needs to be developed of the opportunities for, and
constraints to, environmental financing. This is particularly true
in environment ministries which generally do not control the financial
means, but need to improve their understanding of, and influence over,
the main financing mechanisms. To assist in these tasks, better
information should be collected, analysis deepened, and indicators for
the demand and supply sides developed. In particular, CEEC/ NIS need to
develop better indicators of their environmental expenditures. An agreed
methodology should be developed to assess the environmental components
of non-environmental projects. F
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