Trends in Environmental Finance in EECCA

1. EAP Task Force Trends in Environmental Finance in EECCA Carla Bertuzzi, Xavier Leflaive Paris, 22 February 2007

2. Outline of the presentation • Rationale for the project • A reminder on method • Key messages • Environmental protection expenditure (EPE) • International environmental assistance (IEA)

3. Rationale for the project • To provide analysis and policy conclusions on environmental finance in EECCA countries to Ministers at the Belgrade Conference • a comprehensive picture of all sources of environmental finance in EECCA • a basis for the ministerial discussion • a synthesis of EAP Task Force work • Two companion publications for Belgrade • Category 1 paper on Mobilising environmental finance in SEE and EECCA (with PPC and the World Bank) • Category 1 paper on Progress assessment in the implementation of the EECCA Strategy

4. Environmental Protection Expenditure Protection of ambient air and climate Wastewater management Waste management Protection and remediation of soil, groundwater and surface water Noise and vibration abatement Protection of biodiversity and landscape Protection against radiation Research and development Other environmental protection activities Abater principle vs financing principle Sectors Public sector Business sector Specialised Producers of Environmental Services Household sector Type of expenditure Investment Expenditure Current Expenditure Receipts from by-products Subsidies/Transfers Revenues A reminder on methodEnvironmental expenditure

5. A reminder on methodProject organisation • Build on existing work • EAP Task Force work on environmental finance • DAC database on ODA • Collect up-to-date and reliable data • In EECCA, via national administrations, on environmental expenditure and finance • Analyse information • Compatibility of data • Crosscheck with international sources • Key messages • Discuss key messages • Annual meeting of the network of environmental finance experts (February 2007) • Annual meeting of the EAP Task Force (March 2007)

6. A reminder on methodThe data collected • 10 countries out of 12 • no reporting for Turkmenistan and Uzbekistan • Scope • domains covered: air, wastewater, soil and groundwater, biodiversity, still little information on waste • some countries included expenditure for the management of natural resources and their mobilisation • Level of detail • insufficient coverage of the public sector • low reporting on transfers • Data quality • enhancement of the register • specification on sectors coverage • distinction between financing and spending • estimation of investments for integrated technologies and cleaner products

7. Structure of the report • Economic trends in EECCA • Environmental expenditure in EECCA • Trends • Share by domain, sector, type • Sources of environmental expenditure • International environmental assistance and financing • Bilateral, multilateral • Share by country, domain

8. Key messages A sharp dichotomy • In economic terms • GDP, GDP per capita • from USD 763.3 billion (Russia) to USD 2.3 billion (Tajikistan) • Growth performance, • 26 per cent in Azerbaijan in 2006 • -0.6 per cent in the Kyrgyz Republic in 2006 • Drivers for growth • energy- and resource-rich economies

9. Key messages - EPEThree groups of countries • In Russia, Ukraine and Kazakhstan • between 1.6 and 1.2% of income allocated to environment protection; similar to CEE countries • environmental expenditure per capita remains low at less than 40 USD per year (some 50 USD in the Slovak Republic and 100 USD in Poland) • In Moldova, Azerbaijan, Georgia, the Kyrgyz Republic and Armenia • environment protection expenditure are less than 30 million USD per year • between 1.0 and 0.2% of GDP • environmental protection expenditure per capita remains extremely low in both absolute and relative terms (less than 10 USD per capita per year); • Belarus • relatively high levels of environmental expenditure (499 million USD, 2.4% of GDP, 44 USD per capita) • investments represent a significantly high share of environmental protection expenditure

10. Environmental protection expenditure, 2000-05, million 2003 USD Environmental protection expenditure per capita, 2000-05 Key messages - EPEThree groups of countries

11. Key messages - EPEUneven benefits from GDP growth • Environmental protection expenditure as a share of GDP

12. Key messages - EPEConcentration on few domains • Wastewater • The lion’s share (between 43 and 67% of the total amount) • Especially for countries where EPE is low • Air attracts a significant share of the total in industrialised economies • 37% in Kazakhstan; 22% in the Russian Federation and Ukraine), in Armenia (32%) and Belarus (20%) • Waste attracts relatively little attention • except in Kazakhstan (18%), Ukraine (15%) and the Kyrgyz Republic (12%)

13. Key messages - EPEContrasted performances for investments • Environmental protection investments as share of GFCF and GDP per capita, average 2000-2005

14. Key messages - EPEContrasted priorities for investments • The public and the private sector do not put their money in the same domain • the public sector allocates most of its investments to wastewater • the private sector invests mainly on air • Types of investment, by domain, by country

15. Key messages - EPETowards a measurement of transfers • Azerbaijan • only marginal transfers between sectors • Belarus • 40% of the total amount spent by the private sector have been transferred • the public sector is a net financier in the wastewater sector only • Kazakhstan • all expenditure from the private sector for air is financed by the firms’ own resources • transfers from the public sector for wastewater, soil and groundwater, and biodiversity • for waste, net transfers go from the private sector to the public sector • Kyrgyz Republic • there are (marginal) transfers from the private to the public sector only in the wastewater and waste domains (some 6% of the total expenditure of the private sector in each domain) • Moldova • the bulk of public expenditure is in biodiversity, where there are no transfer to other sectors • transfers from the private sector are significant for wastewater only

16. Key messages – IEAA structural change • Environmental assistance to the EECCA countries, 2001-05, million USD

17. Key messages – IEAThe attraction of large, oil-rich countries • Donors’ and IFIs’ environmental assistance to EECCA countries, total 2001-2005

18. Key messages – IEAA limited direct impact • Neither ODA nor IFI finance can be a substitute for domestic environmental finance in EECCA • Bilateral and multilateral environmental assistance remains marginal as a share of GDP (below 0.6% in most cases) • Bilateral environmental assistance represents less than 5 USD per capita and per year • Multilateral environmental assistance is below 3 USD per capita and per year • Demonstration and catalytic effects • technology transfer • development of new skills and know-how

19. Key messages – IEADifferent priorities, by domain • Donors’ and multilateral environmental assistance by domain, total 2001-05

20. Key messages An on-going challenge • To scale up and disseminate the positive experiences from donor and IFI projects • On the donors’ side • improved coordination among donors and IFIs to avoid overlaps and competition • On EECCA countries’ side • explicitly identify environmental protection as a priority in national economic strategies and bilateral cooperation programme • design sustainable and realistic finance strategies to achieve environmental goals • strengthen capacity to plan, at both central and decentralised levels • improve capacity to prepare and implement projects • demonstrate capacity to achieve environmental objectives