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The World Bank
and
The Global
Environment
May 2000
Environment Department
Environmentally and Socially Sustainable Development
World Bank
Washington , DC



This report was prepared by a team from the Environment Department of the
World Bank, led by Lars Vidaeus with Gonzalo Castro. A large number of
staff from Regional operating units, the Development Economics Research
Group, the World Bank Institute, and the International Finance Corporation
have contributed to the report and offered useful suggestions. Assistance is
gratefully acknowledged to Jim Cantrell for desktopping and designing the
layout, to Joyce C. Petruzzelli for designing the cover, and to Linda Starke
for editing the first draft.
Photographs: World Bank.



Foreword    v
Executive Summary    vii
Chapter 1
The Global Environment and the Mission of the World Bank Group    1
1.1  Environmental Issues of Global Concern    2
1.2  Global Environmental Conventions and the Role of the WBG    3
1.3 Global Environmental Issues-Links to Poverty Reduction and Sustainable
Development   4
1.4  Challenges for the World Bank Group    7
Chapter 2
Mainstreaming the Global Environment    9
2.1 Country Assistance Strategies 9
2.2  Sector Work and Global Environmental Issues    11
2.3  Operational Tools, Research, Training, and Knowledge Management   16
2.4  Operational Policies and Sectoral Policies and Strategies   19
2.5 Mainstreaming WBG's Role as an Implementing Agency for Global
Financing Mechanisms   21
2.6  Toward Full Mainstreaming    23
Chapter 3
Lending for the Global Environment    25
3.1  Protecting the Ozone Layer   25
3.2  Addressing Climate Change    29
3.3  Conservation and Sustainable Use of Biodiversity   34
3.4 Sustainable Use of Forests 40
3.5  Fresh and Marine Water Resources Management   44
3.6  Addressing Land Degradation and Desertification    47
3.7 Implementation of the GEF Program 49
Chapter 4
Challenges and the Way Forward    55
4.1  Challenges and Priorities for Action    55
4.2  The Environment Strategy and Mainstreaming the Global Environment   56
iii



Notes    59
Boxes
1  The Panama CAS and Biodiversity-Toward Best Practice    1 1
2  Climate Overlays: Ukraine-Energy Options Global Environment Analysis   13
3 The Biodiversity Overlays Program-The Case of Fisheries Management Planning and
Biodiversity Conservation in Argentina    15
4  Forestry Reform and Innovation in Eastern Europe and the Former Soviet Union    16
5  Mainstreaming Biodiversity in the Flood-Protection Subsector   24
6  Innovative ODS Phaseout Projects-The Chiller Replacement Program in Thailand    28
7  Asia Alternative Energy Program-Promoting alternative energy    30
8  GEF Medium-Sized Projects-Opportunities for New Partnerships    37
9  The Global Forest Alliance    42
10  Forest Conservation and Management in Papua New Guinea    43
11  Strategic Support-African Water Resources Management    45
12  Trinidad and Tobago Water Resources Management Strategy    45
13  The Strategic Partnership for Nutrient Reduction in the Black Sea/Danube Basins    46
14  The World Bank Group's Environment Strategy-Emerging Framework   57
Figures
1  Linkages Among Food Production and Global Environmental Issues  7
2  Instruments for World Bank Group's Development Assistance    9
3  Trends in Mainstreaming of GEF Biodiversity Projects   22
4  CFCs Production and Consumption Trends   27
5  Annual Comm itments-WBG-GEF Climate Change Projects   31
6  The Prototype Carbon Fund    33
7  Annual World Bank Funding for Biodiversity, FY88-99    36
8  Current World Bank Forest Project Portfolio, FY92-99    41
9  The World Bank Group's GEF and MLF Programs at a Glance   51
10  Mobilizing Resources for the Global Environment through WBG-GEF Projects   52
Tables
1  Global Environmental Issues and Links to National Sustainable Development   2
2  IDA and IBRD Lending for Energy Development, FY94-00    29
3  World Bank Support for Biodiversity, FY88-99    35
iv   The World Bank and the Global Environment - A Progress Report



Three years ago, Mr. James D. Wolfensohn,          This process has also reaffirmed the role of
President of the World Bank Group (WBG),      the environment as a cornerstone of sustainable
addressed the United Nations Special Session  development. Within this context, two patterns
in New York to commemorate the fifth          are clear. First, the environment at all levels-
anniversary of the United Nations Conference  national, regional, and global-is a
on Environment and Development (Rio+ 5). On    fundamental building block of the world's
that occasion, he presented a progress report  economies by sustaining biodiversity,
summarizing the efforts of the WBG in support    agriculture, fisheries, and climate stability; and
of the accords signed in Rio. Even though only  second, because sound environmental
three years have passed since then, our society  management provides benefits at multiple
has continued to change at a very rapid pace. A  levels, global environmental issues are linked
central challenge for the WBG is to keep up   to local ones. Hence, global environmental
with this change by constantly asking ourselves  objectives are central to our mission.
how to better fulfill our mission of poverty       I am very proud to release this report on
alleviation for lasting results. The enormous  the occasion of the 'millennium' spring
speed of technological improvement and the    meeting of the Council of the Global
opportunities that these changes provide to   Environment Facility. Here, we present to you a
. .              ~~~~~transparent view nf our efforts to mainstream
enhance the human condition are unfortunately    goalpenviron      onerns to mnsC
matched by still unacceptable levels of        operaions     entat you  i sam
widespread poverty, suffering, and increased  enthusiasm about the successes already
environmental degradation.                    etuis   bu h  ucse  led
environmental degradation.         achieved by our client countries. Equally
Over the last decade, we have embarked     ieve   o client  the  Equally
on a meaningful analysis of how our activities  important, we also present the shortcomings
respon to tese cangin need. Theand challenges, so that you may judge our
respond to these changing needs. The          failures and understand the difficulties still
consensus that is emerging recognizes that the  ahead. Whether the glass is half full or half
development process cannot simply be          empty is not important. What is important is
measured in terms of indicators of            that our commitment to the Rio accords
macroeconomic performance. Although that is    remains strong, because it matters to our
a necessary condition, it is not sufficient   clients, the poor. We look forward to a
without appropriate social, environmental, and  continued strong relationship with the GEF and
human agendas. With a sharpened focus on      other partners in our continuing quest to make
poverty reduction, we have strengthened our   this a better world.
understanding about the linkages between
poverty, development, and environmental                                       Ian Johnson
degradation at local and global levels. It is now       Vice President, Environmentally and
very clear that poverty alleviation today makes           Socially Sustainable Development,
no sense without a healthy environment to                                 The World Bank
support it over the long term.                                                 May 2000
v






-~~~~~~                    a
About ten years ago a growing world-wide      of the strategy is part of a larger process within
concern over the state of environment led the  the Bank to rethink how WBG development
WBG to begin assisting its client country     assistance can become more effective in
partners in addressing global environmental   addressing poverty; hence, the proposed focus
objectives. Initially, the Bank's role was    of the environment strategy on poverty related
confined to being an implementing agency for  outcomes.
two global financing mechanisms, the               This report is one of many building blocks
Multilateral Fund for the Montreal Protocol   toward the development of the new
(MLF) and the Global Environment Facility     environment strategy. It summarizes the
(GEF). Channeling concessional resources from  progress the Bank has made in moving global
these mechanisms to client countries has since  environmental issues into its mainstream work,
expanded significantly.                       the lessons along the way and the key
Two noteworthy developments have          challenges ahead. Throughout, the report
occurred since the early engagement on global  attempts to recognize the "local-to-global"
environmental issues. First, the Bank has     linkages as well as the "environment-
multiplied and diversified its initiatives,   development" synergies. The report stops short
partnerships, projects, and funding sources in  of prescribing detailed responses to the
an effort to better help client country partners  challenges posed, leaving this as part of the
meet the objectives under the global          further development of the WBG's Environment
conventions. Second, there has been a growing  Strategy.
realization within the Bank that global
environmental concerns, such as long term     What are the global environmental issues?
climate change or loss of biodiversity, should
not be seen as being separate from mainstream  Global environmental issues fall into one of
Bank's assistance for sustainable development  two categories: The global commons issues are
and poverty reduction. Rather, the global     directly related to the maintenance of major
environment needs to be addressed as an       components of Earth's systems: global
extension of the local, national and regional  warming; loss of the protective ozone layer;
environmental gradient which underpins        loss of certain biodiversity elements, such as
sustainable development.                      migratory species crossing national borders;
Therefore, at a time when the WBG is      and globally important genetic resources. To
evaluating its recent environmental           address them, countries need to collaborate,
performance and formulating its environment   hence the need for global conventions.
strategy for the future, the lessons learned from  Natural resources degradation on a global
the global environment agenda are being       scale, on the other hand, involves issues that
reviewed to help shape the broader corporate  are primarily national in nature. Actions to
strategy on the environment. The development  arrest desertification, degradation of land and
vii



water resources, and the loss of forestry and       The degradation of the global commons
biodiversity generate direct benefits that are  affects the development paths of client
largely local, national or regional in nature. The    countries today through adverse impacts of
results depend to a lesser extent on whether    climatic variations and associated natural
action is taken by other countries or not.      disasters. These impacts hit poor population
Helping countries to take action in the    segments the hardest. The Bank needs to assists
interest of the global commons requires use of  client country partners to reduce their
concessional funds (GEE and MLF) to             vulnerability to such impacts. Long term
compensate for the cost of addressing the       climate change is predicted to adversely affect
global externality. The Bank may also help     the health and future livelihoods of primarily
countries access available markets for global   rural poor in the tropics and the subtropics
environmenta goods, as itisthrough increased incidence of disease,
environmental goods, as It is doing in respect  chneinwtregmsadrdud
to carbon offsets with the Prototype Carbon     c
Fund. On the other hand, WBG support of         agricultural productivity, In addition, tens of
client country efforts to arrest land degradation,    millions of people located in low-lying areas
and s nare expected to be displaced by sea level rise.
and sustain ably manage forest and water
With the help of GEF and MLF resources,
resources tend to take the conventional form of      the Bniastn  its cnt       resouact
development assistance. Should such efforts    the Bank Is assisting Its chent countries to act
leadevelopmhent creassistanofenvironme l s effts  on the objectives of the global conventions and
lead to the creation of environmental benefits  their associated protocols. Since 1991, the
beyond national boundaries, incremental GEE     Bank has committed a total of US$1.5 billion
funding may be mobilized by the Bank.           dollars of GEF and MLF funding for climate
change mitigation, biodiversity conservation,
How are these issues related to the WBG's       phaseout of ozone depleting substances, and
mission?                                        protection of international waters. These
The WBG's mission is to work with its client    projects have been co-funded by IBRD and IDA
countries to reduce poverty with lasting results.    in the amount of US$1.1 billion and by other
donors, government contributions, NGOs and
Concerns over global environmentalg
deterioration must be addressed if this mission  the private sector to the tune of US$3.9 billion.
Many of the actions that countries can
is to succeed.'
take through policy reform or with support
Degorcesandaion of l wte   an  rest        from regular Bank funding to alleviate poverty,
resources and  loss of most biological resources  however, also contribute to the protection of
all directly undermine the prospects of         the global commons. For example providing
sustainable livelihoods of large segments of the  modern energy services to rural populations
world's poor. Arresting these trends is therefore    that substitute for inefficient traditional fuels
central to the Bank's mission. Over the last 10  help to promote local development and result
years or so, the Bank has annually committed   in less indoor air pollution (a major
an average of about US$3.5 billion of IDA and   environmental health problem) while at the
IBRD resources for water resource               same time reducing GHG emissions. To make
management, management of land and other       full use of such synergies and better address
natural resource degradation on drylands,      trade-offs, the Bank's challenge is to deepen its
sustainable forestry, and conservation and      understanding and better address operationally
sustainable use of biodiversity.               the environment-development links as well as
viii   The World Bank and the Global Environment - A Progress Report



the relationship between local, regional and   global environmental issues, require long-term
global environmental issues.                   solutions; threats to environmental
sustainability differ in severity from country to
What do we mean by mainstreaming?              country, and global environmental concerns
The ultimate objective of mainstreaming is for  are not of equal importance to all client
countries; and lastly, the selective focus of
the environment, including its global aspects,  some CASs may result in environmental aspects
to be factored into client countries' decisions  sofe         prioritiesu   benirntal set
regarding sustainable development options. To  asideaslower priorities. 
this end, the WBG has to ensure that it has the     Exper   torites.
capacity (policies, operational tools, and skills)  icExperience to date indicates that
to efectivly inludethe evironent,incorporating environmental issues generally in
to effectively include the environment,        the CAS formulation process is a challenge. An
including its global dimension, in its dialogue  analysis of CASs completed in FY99 revealed
with client countries,                         that while most CASs included specific sections
Mainstreaming the environment in the       on the environment, they often presented the
country dialogue may result in environmentally  environment in isolation from other priorities,
sustainable and poverty focused outcomes in    rather than as a cross-sectoral issue. Also, CASs
more than one way. Policy dialogue,            tended to make reference to ongoing GEF
appropriately supported by country economic    activities, but did not place WBG-GEF
and sector work, may lead to reforms and       assistance strategically enough in the CAS
incentive structures that promote resource     framework.
allocations and technology choices that can         While operational policies (including the
help make development environmentally          Bank's "safeguard" policies) and sectoral
sustainable. A country dialogue in which the   strategies are largely responsive to global
environment is mainstreamed may also lead to   environmental objectives, the analytical tools
WBG lending that explicitly targets            and skills for measuring global externalities and
environmental objectives and/or to a broader   understanding their links to national sustainable
WBG portfolio of projects that address national  development are not sufficiently available. As a
or sectoral development objectives in a more   result, the global environment-focused country
environmentally sustainable and poverty        sector work which is required to inform the
focused manner.                                 country dialogue is not forthcoming. All this
calls for strengthening, in partnerships with
What progress has been achieved in             others, our efforts on developing methodology,
mainstreaming the global environment in the     research and training to incorporate global
country dialogue?
environment into country policy and sector
The Country Assistance Strategy (CAS) is the   work.
central instrument in the WBGs development          Finally, mainstreaming the global
assistance dialogue with client country        environment into the country dialogue also
partners. There are several reasons why it     requires that the transaction costs to
would be inappropriate to hold CASs to a        management and staff for handling and
common standard for coverage of                 processing of GEF and MLF funded projects are
environmental concerns: CASs deal with short-   minimized. While major progress has been
to medium-term economic problems while         made in streamlining documentation, review
many environmental issues, and particularly    requirements, and portfolio management, three
Executive Summary  ix



challenges remain: to find more programmatic       Creative initiatives in program design are
ways to channel GEF resources to clients (for  largely responsible for this success, establishing
example by building on the good practice set  models for other global environment related
by the WBG's MLF program); to ensure that GEF    programs. Umbrella grant agreements were
and MLF products are fully covered by the     pioneered to simplify project processing and
Bank's new accounting, budgeting, and         transfer of resources to recipient countries.
operations monitoring system (action underway);   Innovative sectoral approaches to ODS
and to continue to work with the GEF Council  phaseout have proven highly effective, and use
and the GEF Secretariat to further streamline the  of market based instruments (auctions) and
external review and approval cycle.           effective financial intermediation have provided
strong incentives for implementation at the
What progress has been achieved in WBG's      country level. As the MLF program moves
lending targeted at global environmental      toward completion, a major challenge for the
issues?                                       WBG is to design and implement strategies that
Global environmental objectives are           will induce large numbers of small to medium-
incorporated in WBG lending at two levels:    sized enterprises to follow the examples of their
targeted lending for global environmental     larger colleagues in phasing out ODS use.
issues (see below) and the broader portfolio of   Addressing Climate Change. The WBG
Bank projects indirectly supporting such issues  assists client countries in addressing the
(see next section).                           objectives under the UN Framework
Protecting the O7one Layer. Since 1991,   Convention on Climate Change and its 1997
the WBG has committed US$360 million of       Kyoto protocol. This assistance takes the form
MLF resources for close to 480 individual     of capacity building and support for climate
projects in 20 developing countries to help   friendly outcomes from investments primarily
enterprises convert to ozone friendly         in the energy sector. Beginning in 1993 the
technologies. US$125 million in GEF funding   Bank's lending policies in the energy sector
have been approved for similar projects in    have shifted emphasis toward regulatory
transition economies of Central and Eastern   reforms, sector restructuring and greater
Europe and the former Soviet Union. These     selectivity in investment support. These factors
efforts have produced immediate and tangible  plus the increased private capital flow caused
results: Almost 75 percent of the MLF's overall  annual Bank commitments to decline from
target for ODS consumption phaseout has been  US$2.7 billion to US$600 million (projected)
supported through WBG supported               between FY94 and FY00.
interventions. On the production side, the         Over the course of these developments,
WBG is working with the Governments of        the WBG's portfolio of GEF climate change
Russia, China and India to phase out CFC      projects has developed generally satisfactorily.
production during this decade. These          The portfolio now stands at 54 projects at a
endeavors should lead to the elimination of   total cost of US$4.2 billion, with GEF financing
more than 80 percent of the overall CFC       of US$641 million and funding from the Bank,
production in developing countries and        private co-funding, and government
countries with economies in transition,       counterparts on the order of about US$3.5
equivalent to more than half of global CFC    billion. The majority of projects aim at
production.                                   removing barriers and reducing implementation
x   The World Bank and the Global Environment - A Progress Report



costs of energy-efficient and renewable energy  improved management and sustainable use of
technologies.                                  natural resources in the production landscape.
The biggest challenge for the WBG in      All of these activities have important links to
expanding its lending for climate friendly     poverty alleviation initiatives. In the future, it is
energy development is to help open markets for    expected that the Bank's activities in support of
renewable energy and energy efficiency         conservation and sustainable use of biodiversity
technologies through sector reform,            will further emphasize mainstreaming of
mainstreaming project lending, and creative    biodiversity in the productive landscape,
project structures and financing mechanisms.   including agriculture, fisheries, and other rural
Several partnerships help address these        development activities.
challenges: IFC's Renewable Energy and Energy      Sustainable Use of Forests. The WBG's
Efficiency Fund (including GEF funding); Bank  Forestry Strategy was established in 1991 to
and IFC partnering with GEF and charitable     ensure that WBG-financed investments would
foundations under the Solar Development        not contribute to deforestation, and that World
Group; the GEF-WBG Strategic Partnership for   Bank-supported activities promote forest
Renewable Energy; and the Prototype Carbon    conservation globally. Since then the Bank's
Fund (PCF), a private-public partnership to   lending in the forestry sector has grown by
demonstrate how the Kyoto Protocol             US$1.7 billion in IBRD/IDA lending through 34
mechanisms for reducing greenhouse gas        freestanding forestry projects with an additional
emissions may operate.
Consevatio  and ustaiable  se ofUS$1.8 billion committed for forestry activities
Conservation and Sustainable Use of
Biodiversity. The WBG has been assisting       as part of natural resource management in close
country partners to mainstream the            to another 100 projects. Many of these
conservation and sustainable use of biodiversity    interventions have supported planning,
in their development programs. Over the last   institutional strengthening, policy development,
10 years, WBG funding for these purposes has  conservation, and sustainable forest use. For
involved 226 projects with US$1.0 billion of  the most part, they have focused on
IBRD/IDA resources, US$450 million of GEF     conventional "do-no-harm" interventions but
funds, and an additional US$1.2 billion in co-  have no addressed sector reforms that might
funding from other donors, governments,       lead to significant progress in sustainability,
NGOs, foundations and the private sector - all    forest conservation, and poverty alleviation.
for a total WBG managed biodiversity portfolio     Recent experience from the Bank's forestry
of US$2.6 billion. Over the last two years, a  lending points to the importance of viewing
rapidly growing number of "fast track" projects    forest management as a multipurpose enterprise
(involving medium sized GEF grants) has added    that provides goods and services as diverse as
strength, innovation and diversity to the      timber, watershed protection, ecological
portfolio, and has enhanced the WBG's ability  services, biodiversity habitats, and scenic
to engage new partners.                        beauty. To this end, the WBG has initiated
WBG support in the area of biodiversity   several important strategic partnerships,
involves the establishment and strengthening of    including a formal alliance with WWF to
protected areas (including activities in buffer  increase forest conservation areas and
zones), sustainable use of biodiversity outside  sustainable use; a private sector/civil society
protected areas, eradication of alien species,  dialogue process in the form of the CEO Forum
and biodiversity conservation through          on Forests and its Forest Concession
Executive Summary   xi



Management Initiative to mobilize and          Initiative (which serves as a key forum for the
influence improved forest management; and a   conservation of "the rainforests of the sea").
strategic coalition called Forest Trends that      Addressing Land Degradation. The Bank
seeks to promote expansion of forest           attempts to meet this global environmental
ecosystems through greater recognition of      concern in several ways. First, Bank lending to
market values of forest goods and services. The  client countries for control of land degradation
WBG is currently engaged in a formal review    is substantial - commitments 1990-98 totaling
of its Forestry Strategy to enhance its impact  US$1.8 billion with additional support
upon the conservation and sustainable use of  provided through broader lending for natural
this important resource.                       resource management. On the margin, Bank-
Fresh and Marine Water Resources          GEF funding facilitates projects that contribute
Management. The water sector is one of the    to conserving biodiversity, securing carbon
most important lending sectors for the WBG,    sinks, or reducing carbon emissions. Second,
with commitments totaling US$20 billion over    the Bank's rural development strategy explicitly
the last ten years for projects costing about  recognizes the importance of improved land
US$50 billion. While the bulk of this lending is    and water management in arid and semi-arid
in water supply, sanitation, and irrigation,  areas. Two special initiatives help implement
lending for environment and water projects is  the strategy in Africa: the Africa Soil Fertility
expanding, having doubled over the last five   Inititative and the Africa Land and Water
years. Loans and grants supporting sustainable  Initiative, the latter launched last year by the
use and conservation of freshwater biodiversity  heads of agencies for GEF.
total approximately US$250 million, and those       Third, in association with GEF and the
for management of coastal and marine           Global Mechanism (GM) for the CCD, the Bank
resources over US$720 million.                 proactively mobilizes resources to help
Because management of transboundary       countries implement national action plans.
water resources poses special challenges, the  Looking ahead, the further strengthening of the
Bank works with its GEF partners to actively   Bank's drylands management program requires
support development and implementation of     that we improve our understanding of the
regional conventions or collaborative treaties  dryland ecosystems, and help build
for the management of international waters     commitment and capacity at the country level,
(e.g. Aral Sea, Baltic Sea, Lake Victoria,    including listening to the voices of the poor.
Mekong River). It also undertakes national-level
projects to support implementation of these    What progress has been made in
conventions through the control of non-point  mainstreaming the global environment in the
broader Country and Sector Dialogue?
source pollution from agriculture, coastal zone
management, and conservation of wetlands.     While the broader country and sector dialogue
The Bank's water partnerships include the      does not directly address global environmental
Global Water Partnership (which seeks to       objectives it can do so indirectly. Lending for
promote integrated approaches to water        energy pricing reform creates incentives for
resources management, including ecosystems    adoption of climate-friendly technologies.
management), the World Commission on Dams    Assistance for agricultural intensification or
(a joint initiative of the Bank and IUCN that is  rural non-farm employment often serves to
reviewing the development effectiveness of     reduce pressures on natural habitats and
dams), and the International Coral Reef        biodiversity. Capacity building for management
xii   The World Bank and the Global Environment - A Progress Report



of local environmental issues will help       address these objectives as part of country
overcome barriers to address global concerns.  assistance dialogue need to be strengthened.
Comprehensive assessments and                 The WBG therefore needs to address four
aggregations of the nature and scale of such   main challenges to continue integrating global
impacts within or across sectors are needed   environmental concerns in its mainstream
periodically, and as a first step a practical  development assistance work.
survey methodology has been piloted on a       *. First, we need to work more effectively with
small part of the rural development portfolio.   client country institutions to build local
This analysis can now be fine-tuned and          capacity to address global dimensions of
applied to sectors where linkages to global      national sustainable development - all as
environmental objectives are strong, i.e. rural  part of a broader effort to strengthen local
development (including agriculture and           institutions for environmental management
forestry), energy, transport and mining.         and sustainable development.
* Second, we need in the context of the
Next Steps                                       Environment Strategy to explore options for
The WBG's efforts over the last 10 years to      strengthening our technical capacity to
address global environment issues have led to a  recognize how sectoral reform and
sizeable lending portfolio that directly         investments can help capture global
addresses a broad range of global                environmental benefits, what the options are
environmental issues. The effectiveness of this  for securing additional global benefits with
relatively young portfolio in achieving its      concessional funding from the global
objectives is still to be fully evaluated.       financing mechanisms, and how global
Indications are that GEF and MLF projects        environmental degradation affects the
perform as well if not better in this regard than  economies of client countries.
average Bank projects, and MLF funded         +. Third, we need to use funds from the global
projects have already demonstrated cost          financing mechanisms more strategically to
effective outcomes in terms of quantity of ODS   better blend with and catalyze WBG and
phased out.                                      other donor funding. This requires building
At the same time, there is a much larger     capacity to better link GEF funding to local
WBG portfolio of projects, primarily in sectors  development priorities, associate GEF
like rural development, energy, mining, and      resources more programmatically with the
infrastructure development, that have important  country assistance dialogue and lending
indirect impacts on global environmental         program, and to leverage GEF through
concerns. These impacts need to be better        expanded partnerships including that with
understood and evaluated.                        the private sector.
Progress in incorporating global          *. Finally, we need to consider how best to
environmental objectives at the project level    assist our clients to participate in and profit
depends on how well the environment and its      from trade in environmental goods and
global dimension has been mainstreamed in        services, both global and local or regional
the country dialogue. Over the last ten years    trade that has global benefits.
such progress has been mixed. While                The vision and action plan for how to
operational and sectoral policies are largely  address these challenges form part of the
responsive to global environmental objectives,  mandate of the Bank's new Environment
the tools, skills, and incentives to effectively  Strategy. The detailed elaboration and
Executive Summary   xiii



development of this strategy is scheduled over  programs; acknowledges CDF's role in
the next 10 months. The emerging framework   integrating local, regional, and global
for the strategy, however, suggests          environmental issues in the development of
responsiveness to the above challenges in that  country assistance programs, and emphasizes
it explicitly embraces global environmental  the power of the marketplace in mobilizing
concerns and the WBG's responsibilities vis a  private-sector capital, technology, and
vis global conventions; calls for better      management skills in support of global
integration of the WBG's global environmental  environmental objectives.
agenda with local sustainable development
xiv   The World Bank and the Global Environment - A Progress Report



and the Mission of the World Bank Gr  p
It has now been over ten years since        preparation of an environment strategy
the World Bank Group (WBG) began            designed to better integrate local, regional, and
embracing environmental issues of global    global environmental considerations with the
concern in its development assistance       formulation and implementation of its
programs.' These efforts started in 1990 when  development assistance-all for the purpose of
the WBG became one of the implementing      producing more sustainable, poverty-focused
agencies for the Multilateral Fund for      outcomes. It is expected that through this
Implementation of the Montreal Protocol     highly consultative effort the WBG's endeavors
(MLF), the global financing mechanism for   in the area of the global environment will be
phasing out ozone-depleting substances. They  further harmonized with the objectives and
expanded the following year, when the Bank  programs of the main mission of poverty
agreed to manage the pilot phase of the Global    alleviation, and strengthen the incentives for
Environment Facility (GEF). With the        effective mainstreaming.
subsequent restructuring of the GEF and the       This report is one of many building
WBG's agreement to serve as one of its three  blocks toward the development of the WBG's
implementing agencies, the Bank             environment strategy. It addresses the following
institutionalized a major, long-term
commitment to eniomna suso  lbl             questions:
commitm oenvironmental issues of global  - What are the global environmental issues?
concern.
The trend toward integrating environment    *. How do these issues relate to the WBG's
into the development objectives of the WBG    main mission?
.. What do we mean by mainstream ing
was also strengthened through the publication                  y            g
of the 1992 World Development Report (WDR)    + What progress has been made on
on environment.2 The WDR became an            mainstreaming in country dialogue?
important contribution to the 1992 United   *: What progress has been made at the project
Nations Conference on Environment and         level?
Development, and helped shape the           *: What are the main challenges and the next
environmental debate, including the discussion  steps?
on global issues.                               This introductory chapter covers the first
While important progress has been made  two questions, focusing on the relationship
since then, there has been a growing        between global environmental issues and the
realization within and outside the institution  WBG's main mission, which is to reduce
that the WBG's environmental program has    poverty in a sustainable manner, and the role of
remained too focused on "doing no harm"     the WBG as an implementing agency of the
rather than proactively supporting          global financing mechanisms that serve
environmentally sustainable development.    international environmental conventions. These
Hence in 1999 the WBG initiated the         two sets of institutional commitments-
1



assistance to sustainable poverty reduction and  commons" and involve global externalities and
support to countries for meeting the objectives  those that involve natural resource degradation
of the global conventions to which they are      on a scale that causes world-wide concern. (See
parties-are functionally linked; a theme that    Table 1.)
will echo throughout this report.                     The global commons issues are directly
Chapter 2 addresses the questions on what    related to the maintenance of major
we mean by "mainstreaming" and what progress    components of Earth's systems: global warming
has been made in mainstreaming the global        due to emissions of greenhouse gases (GHGs),
environment at the country dialogue level and in    loss of the protective ozone layer due to
our operational policies and sectoral strategies.  emissions of ozone-depleting substances, and
The fourth question is covered in Chapter 3      the oceanic and atmospheric transport of
which reviews WBG's lending for the global       persistent organic pollutants. To address these
environment. Finally, Chapter 4 conludes by      issues effectively, all countries need to take
taking up the last question of challenges that lie  actions in a coordinated manner, even though
ahead and next steps in meeting them in the      benefits at the national level in some cases may
context of the development of the WBG's          be negligible, particularly in the short term.
environment strategy.                                 Desertification, degradation of land and
water resources, and the loss of forestry and
1.1  Environmental Issues of Global              biodiversity, on the other hand, are all
proceeding on scales that cause worldwide
Clobal environmental concerns are of two         concern. While largely national and/or regional
types: those that relate to the "global          in nature, the severity of these problems often
TABLE I
Global Environmental Issues and Links to National Sustainable Development
Impact on national-level
Types                                    Examples                 sustainable development
Degradation of the Global      e  Climate change (long-term    *  Indirect or diffuse
Commons                            and climatic variations)
*  Occur in the mid- to long
*  Ozone depletion                term
*  Some biodiversity           *  Unpredictable, can be very
dimensions (such as            severe (for example,
migratory species or the       amplifted natural disasters)
existence value of genetic
diversity)
Degradation of Natural         .  Most biodiversity dimensions  *  Immediate (short through
Resources on a Global Scale        (including forests)            long term)
*  Water                       *  Direct (loss of food, water,
agriculture, etc).
*  Land degradation
Note: Adapted from R.T Watson, J.A. Dixon, S.P Hamburg, A.C. Janetos, and R.H. Moss. 1998. Protecting our Planet. Securing
our Future: Linkages among Globol Environmental Issues and Human Needs. UNEP NASA, and the World Bank.
2 The World Bank and the Global Environment - A Progress Report



requires coordinated international action and   fisheries, and forestry. The GEF serves as the
resource transfers, even though the main        financing mechanism of the convention.
beneficiaries in the short and the long term may    * The U.N. Framework Convention on
be local people and local economies. For         Climate Change, signed in 1992, has been
example, losses of biodiversity and forest       ratified by 180 countries. While industrial
habitats are occurring at such alarming rates    countries through ratification of the Kyoto
that these issues have become global concerns.   Protocol of 1997 have agreed to reduce their
Nevertheless, conserving and sustainably        emissions of greenhouse gases during the
managing forests and biodiversity generates      period 2008-12 relative to 1990, developing
benefits that are primarily national in nature.  countries that are party to the convention
have no formal obligations to reduce such
1.2 Global Environmental Conventions            emissions. Rather, their main commitments
and the Role of the WBG                     are to develop national inventories of
WBG member countries have demonstrated           sources and sinks of GHGs; formulate
their commitments to addressing global           mitigation and adaptation programs;
environmental issues by ratifying a series of    promote practices that reduce GHG
global environmental conventions, most of        emissions and encourage sustainable
which come out of the 1992 Earth Summit in       management of GHG sinks; prepare for
Rio.                                             adaptation to the impacts of climate change;
*, The Vienna Convention for the Protection of  reflect climate change in policies and
the Ozone Layer was signed in 1985. In        actions; and communicate information to the
ratifying the convention protocol-the         Conference of the Parties. The GEF serves as
Montreal Protocol on Substances that          the financing mechanism of the convention.
Deplete the Ozone Layer (1987), with        *. The Convention to Combat Desertification,
subsequent amendments-industrial and          signed in 1995, has been ratified by 162
developing countries made a commitment to     countries and requires affected developing-
phase out harmful substances according to     country parties to give priority to combating
an agreed schedule. Two financial             desertification in their development planning
mechanisms are associated with the            and to allocate adequate resources in
Montreal Protocol: the Multilateral Fund to   accordance with their circumstances and
assist developing countries, and the GEF to   capabilities. A Global Mechanism has been
aid countries with economies in transition.   established to help countries that are party to
*. The Convention on Biological Diversity,      the treaty to mobilize resources for its
signed in 1 992, has been ratified by 1 76    implementation. The GEF provides support
countries. The convention obliges its parties  through its focal areas of biodiversity,
to "conserve and sustainably use their own    climate change, and international waters.
biological diversity in accordance with their   The WBG, as one of several implementing
particular conditions and capabilities" and  agencies for the GEF and the MLF, is
calls for "the equitable sharing of benefits  committed to assisting its client countries in
from the utilization of genetic resources." It    their efforts to address the objectives of the
specifies that national implementation shall  global conventions. lt supports planning,
occur through biodiversity-specific national  studies, capacity bui ding, or investment-
strategies, plans, and programs and through  oriented actions. WBG assistance, however,
policies for sectors such as agriculture,   goes beyond transferring GEF and MLF grants
The Clobal Environment and the Mission of the World Bank Group 3



for eligible projects. As discussed in Chapters 2  ecological systems; a decrease in air quality by
and 3, it extends into the WBG's broader       increasing oxidant levels; and materials
country assistance dialogue and regular lending    damage. Because of the effectiveness of the
program relating to client countries' national  Montreal Protocol, stratospheric ozone
sustainable development programs. The WBG      depletion is projected to peak within the next
provides all such assistance within the        several years, but the ozone layer will only
limitations that the international conventions  slowly recover by the middle of this century.
place on the obligations of client countries to  Hence, actions today to phase out ozone-
take specific actions on global environmental  depleting substances have a much delayed
issues.                                       effect of restoring the ozone layer and a
consequential favorable impact on health and
1.3 Global Environmental Issues-Links          local environmental conditions. Although it is
to Poverty Reduction and Sustainable      perceived that this is primarily a concern of the
Development                               industrialized world, it is also true that the issue
The global environmental agenda of the WBG     has important implications to developing
is not a freestanding one. Rather, and as      countries through health linkages and trade
recognized under the ongoing preparation of    issues.
the WBG's Environment Strategy, global             Climate Change. The weight of scientific
environmental concerns represent a logical     evidence now shows that Earth's climate is
extension to the spectrum of local, national,  becoming warmer because of human activities,
and regional environmental issues, all of which  primarily energy and land use practices, and is
are linked to poverty reduction and sustainable  projected to warm even further (1.5 to 6.5
development at the local level.                degrees Fahrenheit) over the next 100 years-
Specifically, global environmental        faster than anything observed during the last
concerns relate to the WBG's main mission of   10,000 years. These projected changes in
sustainable poverty reduction in different ways,    temperature will be accompanied by changes
as summarized here for six major issues. While    in precipitation (more floods and droughts) and
the links are of different strengths and time  an increase in sea level of up to 1 meter. The
perspectives, they all refer to one or more of  potential adverse consequences include a
three main dimensions of poverty: health, the  significant increase in the geographic range and
sustainability of livelihoods, and vulnerability.  incidence of vector-borne diseases in the
Stratospheric Ozone Depletion. There is   tropics, particularly malaria and dengue; a
conclusive evidence that industrial and        significant decrease in food production in the
household use of long-lived chlorine- and     tropics and subtropics; tens of millions of
bromine-containing chemicals is causing a loss  people being displaced, primarily from small
of stratospheric ozone. This in turn leads to  island states and the deltaic areas of Egypt,
increased ultraviolet-B radiation, which, if   Bangladesh, and China; and shifts in the
sustained, can have numerous harmful effects:  boundaries of ecosystems and a change in their
a significant increase in the incidence of skin  structure and function, which will directly and
cancer; eye cataracts, which are the leading   indirectly affect human welfare.
cause of blindness in many developing              Developing countries are generally more
countries; a potential suppression of the human  vulnerable than industrialized countries to the
immune response system; a decrease in the      likely effects of climate change. A number of
productivity of some terrestrial and aquatic   economic analyses suggest a decrease of gross
4 The World Bank and the Global Environment - A Progress Report



world product of 1.0-2.5 percent due to          benefits that could be gained from its wise use
damages caused by a doubled carbon dioxide       are of crucial magnitudes to local and national
world (at equilibrium), with estimates of        economies and to the global community.
sustained losses in developing countries being       Deforestation and Unsustainable Use of
even higher: 5-9 percent of gross domestic       Forests. More than one-fifth of the world's
product per year.                                tropical forests have been cleared since 1960,
Loss of Biological Diversity. Human         with the rate accelerating: annual loss rates
activities are causing biological diversity at the  increased from 11.8 million hectares in the
genetic, species, and ecosystem levels to be     1 970s to 15.4 million hectares in the 1 990s.
lost at an accelerated rate. Based on the        Recent estimates suggest that less than 1
observed rate of loss of animals and plants, the  percent of the world's tropical forests are being
current global rate of loss is estimated to be   managed under reasonable operational norms
50-100 times the average natural rate. This      of sustainable forest management. Loss of old-
situation is due to habitat destruction,         growth habitat in many temperate and boreal
fragmentation, overexploitation, the            forest ecosystems continues, with remaining
introduction of exotic species, and air and      semi-natural forest covering less than 0.8
water pollution. These direct causes are largely  percent of the original forest in Western
driven by increasing demand for natural          Europe. There is also a serious loss of forest
resources due to growing human populations       quality in many temperate and boreal forests
and economic development, as well as by          due to pollution and other injurious agents,
market, policy, institutional, and knowledge     with the associated productivity losses in
failures.                                        Eastern Europe alone estimated at US$30
Biodiversity underpins the existence and    billion per year.
welfare of human life and economic                   Forest ecosystems contain two to three
development. Ecological processes form soil,    times as much carbon as is currently present in
recycle nutrients, cleanse air and water, and   the atmosphere, with approximately one-third
maintain climatic cycles. Soils are the          of this carbon stored in the above ground
foundation of agriculture, which in turn is the  biomass and two-thirds stored in the soil and
basic building block of the livelihoods of the   detritus of the forest floor. Current estimates
poor. At the genetic level, diversity found in   suggest that tropical deforestation and burning
natural life forms supports the breeding         account for some 90 percent of all
programs necessary for the improvement of        anthropogenic biotic emissions of carbon into
cultivated plants and domesticated animals and   the atmosphere, or up to 30 percent of current
the consequent enhancement of food supply        atmospheric carbon emissions. Concern has
and security. Wild plants and fungi are          also been expressed about the potential of
significant sources of chemicals used in        inappropriate management practices in
traditional medicine (often the only forms       temperate and boreal forests to accelerate the
available to rural communities) as well as       mobilization of the large soil carbon stores in
modern medicine. Biodiversity is the common      these ecosystems.
factor supporting and linking agriculture,           The conservation and sustainable
forests, and fisheries, and the careful          development of the world's forests is a critical
management of ecosystems provides a              component of the WBG's mission to help
countless stream of benefits to human societies.    alleviate poverty in its client countries. The
The continuing loss of biodiversity and the      lives of the majority of the rural poor,
The Global Environment and the Mission of the World Bank Group 5



particularly in the tropics, are tied to forests and    The U.N. Food and Agriculture Organization
their role in maintaining natural resources such  estimates that 70 percent of the world's
as soil and water. Estimates suggest that of the 1    commercially important marine fish stocks are
billion people living in or near forested areas in    fully fished or overexploited. The global
the Bank's client countries, about 50 percent  decline of coral reefs, which rival tropical rain
are poor. The deterioration of forests or     forests in complexity and diversity, is expected
woodlands in this situation contributes in a  to lead to irreversible destruction of one-third
direct and significant way to poverty, because  of the world's reefs by 2020 if current trends
people in these areas tend to depend much     persist. Offshore marine environments are also
more on trees and other forest products to    showing signs of stress, with increasing
sustain delicate and often precarious ecological    pollution from shipping and mining activities,
balances and basic sustenance.                unsustainable fishing practices, and the
Degradation of Fresh and Marine Waters.    introduction of alien species through ballast
Freshwater, coastal, and marine water         water.
resources are essential elements that support      Desertification and Land Degradation.
human life and economic growth and            Desertification and drought are global
development. They also play a vital role in the  problems that affect more than 900 million
global environment, covering 70 percent of    people in 100 countries, some of which are
Earth's surface and influencing the global    among the least developed in the world. Forty-
climate, food production, and economic        one percent of the total land area of the world
activities worth trillions of dollars each year.  is being wholly or partially lost to
Currently, at least one-fifth of all people do not  desertification and land degradation: 30
have access to safe drinking water, and at any  percent of irrigated lands, 47 percent of rainfed
given time about half the people in developing  agricultural land, and 73 percent of rangeland
countries suffer from water- and food-related  is undergoing some sort of degradation.
diseases caused either directly by infection or  Desertification and land degradation are largely
indirectly by disease-carrying organisms that  caused by poor land management, often
breed in water and food.                      amplified by prolonged periods of drought.
Despite this vital role, freshwater, coastal,  Desertification and drought affect sustainable
and marine systems are being rapidly degraded  development through their interrelationships
in many parts of the globe. Today, 19 nations,  with important social problems such as
mostly in the Middle East and Africa, are either  poverty, poor health and nutrition, lack of food
water-scarce or water-stressed. This number is  security, and issues arising from migration,
projected to double by 2025, largely due to   displacement of people, and demographic
economic and/or population growth.            dynamics.
Freshwater scarcity is creating conflicts          Rapid population growth, rural poverty,
between sectoral users within countries and   increasing food demands, changing
between nations in some regions.              consumption patterns, unplanned infrastructure
In the coastal environment, where human   development, and other demands are
activities are increasingly concentrated,     combining to create unsustainable rural land
pollution, overexploitation of resources, and  use and land cover change. These changes are
conversion of critical habitats such as wetlands,    having an impact on local environments and
mangroves, and coral reefs have led to drastic  small- and large-scale hydrological and
reductions in nearshore fisheries production.  climatological cycles, but also on global
6 The World Bank and the Global Environment - A Progress Report



geochemical cycles. Long-term land use             strategies and to reflect them in its operational
conversions, primarily of grasslands and forests   and sector policies as well as in its economic
to agriculture, are estimated to have              and sector work. Success in such "main-
contributed as much carbon dioxide to the          streaming" is ultimately measured by the
atmosphere as fossil fuel burning. Land use/       degree to which the WBG's country dialogue
land cover conversions also result in loss of      leads to outcomes that are environmentally
biodiversity, loss of habitat, and often loss of   sustainable and that duly help reduce poverty
ecosystem function. Changes in land use/land       in a lasting manner.
cover are believed to have significant long-term        Experience from WBG lending and
impacts on local and regional climate through,     country assistance dialogue suggests four broad
among other things, changes In the
hydrological cycle and sraesaibed,                 strategic challenges for mainstreaming of global
hydrological cycle and surface albedo, as well     environmental concerns:
as on soil erosion, which has an enormous                      environment             syncerns
economic impact, although this is rarely              Ma        o Pursue development-environment synergy.
factored into national accounts or economic           Many actions that aim to reduce poverty can
decision making.                                      also alleviate global environmental
Synergistic Effects. The trends just           concerns. For example, protecting forest
described do not act individually or in isolation     ecosystems tends to support sustainable rural
on our client countries. More often than not,         livelihoods while also mitigating global
their effects upon poverty or development are         concerns over the loss of forests,
connected in complex ways. For example, the           biodiversity, and carbon sinks. And
effects of climate change on land use in water-       establishing energy services in rural areas
stressed areas will accelerate land degradation       through solar photovoltaic sources helps to
and provide additional incentives for                 address poverty by supplying households,
deforestation. This in turn will result in
accelerated loss of biodiversity and negative      FIGURE I Linkages Among Food Production and Global
effects on food production and thus impinge        Environmental Issues
upon poverty alleviation efforts. Figure 1
attempts to identify some of these linkages.           limate cane                    nsustanabe
The WBG plans to systematically evaluate                                          f
how its lending and nonlending services impact                  fertilization                 and fragmentation
global environmental objectives and how they                                    eThron
have contributed to the overall mission of          Through hydrologic\\                          d sit;
reducing poverty in a sustainable manner. As a       and CO2 changes
first step, the Operations Evaluation                                   0 and                      r
Department of the Bank has begun to examine                                               genetic diversity
the portfolios of various sectors with the view           Through fertilitv loss
to assessing how enhanced environmental                                      rough salinization
management is related to poverty outcomes.
(Land degradation 
1.4  Challenges for the World Bank Group
The WBG seeks to effectively integrate               Note: Adapted from R.T Watson, J.A. Dixon, S.R Hamburg, A.C. Janetos,
environmental objectives, including global           and R.H. Moss. 1998. Protecting our Planet, Securing our Future: Linkages
among Globol Environmental Issues and Human Needs. UNEFj NASA, and
ones, into its country assistance dialogue and       the World Bank.
The Global Environment and the Mission of the World Bank Group 7



schools, and health clinics with affordable   technologies that over the long term may
power. This substitution for traditional      lead to low or zero emissions of GHGs. If
biomass fuels has the potential of reaching   such actions are not taken today, however,
up to 2 billion people, with accompanying     future generations of people will be poorer.
significant greenhouse benefits.              To provide country clients with incentives to
*: Pursue local to global environment synergy.   seize such opportunities, the WBG may offer
Actions on immediate local environmental      compensation in the form of grants from the
problems such as indoor and outdoor           financing mechanisms for the global
pollution by themselves produce global        environmental conventions or facilitates
environmental benefits. For example,          access to markets for the global public good
replacing low-quality biomass fuels with      (such as through the Prototype Carbon Fund).
modern renewable energy services in rural   * Address vulnerability and adaptation needs.
areas improves indoor air pollution and       While the WBG seeks to explore the
reduces GHG emissions. Promotion of more      mitigatory aspects of global environmental
fuel-efficient or nonmotorized transport      management, it simultaneously recognizes
modes will address local air quality concerns  that the poor will suffer the most from the
while reducing greenhouse gas emissions.      impact of the degraded global commons and
4. Provide access to compensation from global   that such impact is already in part
mechanisms. Going beyond the immediate        experienced today. As evidenced by recent
local and global complementarities, WBG       events, climatic variability associated with
country partners have additional              global warming trends makes countries
opportunities to take actions today that will  vulnerable to floods, hurricanes, and other
help prevent future degradation of the global  natural disasters. Hence, assessing the
commons. These are actions that may not be    vulnerability of client countries' agricultural,
in the direct or immediate interest of client  water resources, coastal zones, urban
countries, or that have little priority in terms  infrastructure, and so on-and improving
of meeting the immediate needs of the poor.   their long-term capability to adapt to climate
Among them are the elimination of the use     change-need to be at the core of a poverty-
of ozone- depleting substances and            focused sustainable development strategy of
persistent organic pollutants or investment in  the WBG.
8 The World Bank and the Global Environment - A Progress Report



*          ~~Chapter 2
U.-~~~L 
The ultimate objective of mainstreaming is    or sectoral development objectives in a more
for the environment, including its global      environmentally sustainable and poverty
aspects, to be factored into client countries'  focused manner.
decisions regarding sustainable development         This chapter reviews how far the WBG
options. To this end, the World Bank Group     has come in mainstreaming global
(WBG), like other development assistance       environmental objectives in our country
agencies, promotes its didlogue with client    assistance strategies, its underpinning sector
countries. Its policies, operational tools, and  work, and supporting operational policies and
skills must be geared to support that dialogue,  sector strategies. While focusing on the global
and as appropriate, the formulation and        environment, it recognizes that mainstreaming
implementation of the WBG's development        the global environment forms part of a broader
assistance efforts (see Figure 2).             effort to better integrate environment as a
Mainstreaming the environment in the       whole in development assistance.
country dialogue may result in environmentally
sustainable outcomes in more than one way.     2.1 Country Assistance Strategies
Policy dialogue, appropriately supported by
country economic and sector work, may lead     The Country Assistance Strategy (CAS) is the
to reforms that promote resource allocations   central instrument in the WBG's development
and technology choices that help make          assistance dialogue with individual client
development more environmentally               countries. It describes the understanding
sustainable. A country dialogue in which the   reached between the WBG and a client
environment is mainstreamed may also lead to   government on priorities for Bank development
WBG lending that explicitly targets            assistance over the next three years. It is
environmental objectives and/or to a broader   influenced by all aspects of the country
WBG portfolio of projects that address national  dialogue including the country economic and
FIGURE 2 Instruments for WBG's Development Assistance
Policy dialogue
Bank's sectoral         Country              Project design
and operational4-- - -  Assistance           andfinancing
policies         Strategy
Supporting - - _> Country economic
analytical work      and sector work
Source: World Bank. 1995. Mainstreaming Biodiversity in Development. Environment Department Paper No. 29.
9



sector work, as well as by national and sectoral    WBG procedures indicate that CASs
strategies and action plans.                    selectively highlight sectoral objectives of the
There are several reasons why it would be  WBG's strategy and that "global environmental
inappropriate to hold CASs to an absolute      issues and the role of the (Global Environment
common standard for coverage of                 Facility) are discussed when appropriate."4
environmental concerns.                         Recognizing that all CASs are not required to
*: First, CASs deal with short- to medium-term  address global environmental issues, the FY99
economic problems while many                 CAS review found the coverage of such issues
environmental issues, and particularly global    to be as follows:
environmental issues, require long-term      * A limited number of CASs addressed local
solutions. Given its longer-term framework,     environmental issues of global concern.
the Comprehensive Development                   However, several CASs for biodiversity-rich
Framework, recently adopted on a pilot          countries, where land degradation and
basis by the WBG and selected clients, may      destruction of forests threaten sustainable
evolve into a vehicle to better address longer  development, notably did not recognize
term environmental issues.                      these processes and their consequences for
*: Second, threats to environmental               biodiversity loss as priority issues. With few
sustainability differ in severity from country  exceptions CASs did not acknowledge a role
to country and global environmental             for the WBG in helping countries address
concerns are not of equal importance to all    their responsibilities under global
client countries. Such concerns, however,       environmental conventions.
would be expected to be given high priority  + In countries with Bank-supported GEE
in CASs, for example whenever biological        programs, CASs generally made reference to
resources form an essential part of the         elements of this program, but linked these
national capital stock, or large scale          activities strategically to CAS objectives only
opportunities exist for reducing greenhouse     in every other case, and then almost
gas (GHG) emissions or increasing carbon        exclusively with focus on biodiversity
sequestration.                                  conservation. Where there are no ongoing or
Finally, the selective focus of some CASs       planned WBG-GEF activities, no efforts were
may result in environmental aspects of          m
development priorities being temporarily set    made to assess the role WBG-GEF assistance
aside as lower priorities for the CAS.          could play in the overall country assistance
An analysis of the CASs prepared in FY99      strategy.
revealed that most CASs include specific       w: The degree of integration of GEE activities
sections on the environment, but often treat it   with CAS objectives varied by region, with
in isolation from the rest of the document and    the Latin America and Caribbean region
do not link environmental concerns to the core    showing the strongest performance. The
issues of the CAS. Many CASs therefore treat      Panama CAS, for example, recognizes the
environment as a sector (with separate funding,    importance of WBG-GEF assistance for
objectives, activities, and so on), and not as a  conservation and sustainable use of
cross-sectoral issue. Data and indicators         biodiversity for the objective of
relating to the environment and natural           environmentally sustainable development
resources are generally lacking. Analysis of      (see Box 1).
environment and natural resource issues and         In addition, it is worth noting that climate
their linkage to the development process is     change issues are less frequently reflected in
often weak or missing.                          the CASs than those related to biodiversity and
1 0 The World Bank and the Global Environment - A Progress Report



BOX 1
The Panama CAS and Biodiversity-Toward Best Practice
The FY99 CAS for Panama focuses on poverty alleviation and recognizes that this issue is particularly severe
in rural areas. Consequently, one of the pillars of the strategy is environmentally sustainable development in
rural areas. The proposed activities recognize that Panama is home to a very rich and unique biodiversity, and
that its conservation and sustainable use are necessary elements for such development.
In the past, Panama has used Bank assistance and GEF resources to enhance its participation in the Mesoamerican
Biological Corridor through strengthening its capacity to manage a large protected area system, to increase
rural incomes and curtail environmental degradation, and to develop a National Biodiversity Strategy and
Action Plan. The FY99 CAS emphasizes the need to take these goals further and to address land tenure issues
and policy distortions that provide incentives for unsustainable use of natural resources. In addition, it identifies
the need to protect the Canal watershed, including the establishment of ecological reserves in this area as a
priority.
It is evident throughout the CAS presentation that the objectives of conservation and sustainable use of
biodiversity are internalized in the national development strategy and are mutually shared by the country and
the Bank. The GEF plays an important and explicit role in support of these goals.
forestry, probably because the synergy with     investment priorities of the major economic
national environmental and developmental         sectors in a country with the view to providing
priorities is less evident and in most cases of  the framework for the WBG's lending program
less immediate concern. It is encouraging,       and policy advice in the sector. The objective is
however, to find that for countries such as India
and Mexico, where contributions to global
GHG emissions are not insignificant, the CAS     environmental issues of national and, where
explicitly encompasses support for compliance    appropriate, regional and global consequence.
with the United Nations Framework                While local environmental issues and impacts
Convention on Climate Change (UNFCCC) and        are increasingly being recognized in country
its Kyoto Protocol.                              sector work, issues involving regional and
The review of the FY99 sample of CASs       global externalities are addressed less
points to the need for us to explore how CASs,   frequentl
in appropriate cases, can better link global       qu y
environmental concerns and WB*-GEF                   To address this shortcoming and to
assistance strategically to their objectives. It  provide staff with the tools to apply the Bank's
underscores the need for more systematic         policy that global externalities should
efforts to include environment and, where        "normally" be covered in country economic
relevant, its global dimension in country        and sector work, the WBG is promoting various
economic and sector work and dialogue. The      forms of sectorally and thematically oriented
progress made in the Latin America and
Caribbean region has set an example for others    studies.Som ao es vi tie focu re
to follow.                                       on a specific global environmental concern
(such as biodiversity or climate change), while
2.2  Sector Work and Global                      others approach the analysis from the
Environmental Issues                        perspective of the development of a production
Country sector work analyses development         sector with a global environmental objective
problems, the policies and institutions, and the  added to the study. WBG-supported sector
Mainstreaming the Global Environment   11



work as it relates to global environmental concerns  partnership on the donor side, and with this
in the areas of climate change, biodiversity, forests,  the NSS Program has become a major
and ozone is reviewed below.                     international capacity building initiative,
Climate Change. A major sectoral            involving 22 host countries. Three major
challenge in dealing with climate change is the  areas of activity have emerged from the
need to identify synergistic policies that help  completed studies: (1) strategy and policy
generate national and global benefits            development (for example, the Czech
simultaneously and in cost-effective ways. The   Republic with the National Energy Saving
following WBG efforts are geared toward          Study and determination of the National
supporting this goal:                            Energy Policy-completed);
*. Activities Implemented Jointly (AIJ): The    (2) institutional arrangements and capacity
WBG, with support from the Government of      building programs (such as Colombia - in
Norway, established in 1993 the AIJ           preparation); (3) Jl/CDM project preparation
program for methodological work and           (Russian Federation , Uzbekistan, Slovakia,
investments to clarify how the AIJ and other  Colombia - ongoing and in preparation). In
market mechanisms can benefit client          addition, the completed studies have
countries. A demonstration project has been   facilitated the required country reporting to
completed in Burkina Faso, and others are     the Secretariat for the UN Framework
under implementation in Poland and            Convention on Climate Change.
Mexico. Recently, the India Integrated      * Energy and Environment Reviews (EERs):
Agricultural Demand-Side Management           These reviews respond to the need for
Project has been added to this effective AIj  sectoral environmental assessments well
portfolio. The development and                upstream of lending operations. They
implementation of these projects are          include full reviews of environmental
providing invaluable "hands on" experience    impacts of energy supply and use systems,
to countries as they prepare to participate in  rapid assessments to set priorities, and
the implementation of the agreed              studies on subsectoral topics. With support
mechanisms of the Kyoto Protocol.             from the Energy Sector Management and
* National Strategy Studies (NSS) Program:       Assistance Program (a multidonor program
Started in September 1997 through a           jointly managed by the U.N. Development
partnership with the Government of            Programme [UNDP] and the WBC), EERs are
Switzerland, the NSS program is designed to   being carried out in India, Mexico, Russia,
help client countries develop national        Sri Lanka, and Turkey. As part of the
policies on joint implementation and the      implementation of the Environmental
Clean Development Mechanism,' and to          Strategy for the Energy Sector, six such
identify potential investments for possible   reviews will have been completed and six
future international cooperation in reducing  more started by FY02. Most of them will
GHG emissions. To date, seven studies have    explicitly model the GHG emissions
been fully or nearly completed (among         consequences of alternative energy sector
them, in the Russian Federation, Argentina,   development strategies. An additional 16
Colombia, Zimbabwe, and Uzbekistan), and      subsectoral or intervention-specific energy
numerous others are under way or in           and environment analyses are currently
preparation. Recently, Germany, Australia,    being undertaken by country client
Finland, and Austria have joined the          institutions with support from the Bank.
1 2  The World Bank and the Global Environment - A Progress Report



* The Climate Change Global Overlays                 institutions in countries such as Sri Lanka,
Program: This program demonstrates,                India, Mexico, Chile, Bangladesh, Brazil,
through a set of specific country studies,         Russia, and Fiji. The overlays cover sectors
how GHC reduction objectives can he                such as energy, transport, and forestry (see
integrated with traditional objectives in          Box 2). To support such studies, conceptual
sector analysis and planning. Eight overlay        guidance papers for specific themes have
studies have been completed so far and four        been completed in the areas of energy,
others are under implementation by Bank            forestry, and transport.6
BOX 2
Climate Overlays: Ukraine-Energy Options Global Environment Analysis
A climate change overlay uses an existing sector development strategy for sectors with significant GHG
emissions, calculates the associated emissions, and outlines available cost-effective GHG mitigation options.
A prototype global overlay for the energy sector in Ukraine was completed in 1994. It built on the findings of
a World Bank Ukraine Energy Sector Review, and several prefeasibility studies for GHG emission reduction
programs.
The study's baseline showed that Ukrainian energy consumption and carbon dioxide will decline or remain
stable over the coming decade as the country restructures to a market economy. After 2000, energy consumption
will resume its traditional growth path, with heavily reliance on natural gas and some increases in the use of
coal. The following GHG mitigation options were identified:
-> Coalbed methane recovery
D District heating system rehabilitation and upgrade (coal-fired/gas-fired)
4 Introduction of residential gas metering
4 Energy efficiency in the steel industry.
As shown in the figure,   U �
the last two options are    Ukraine Overlay - GHG                    tement Options
likely to be cost-effective
at projected  energy            120
prices and costs (energy    Costs per                                   District
savings for these projects   Carbon eq.
avoided  -District
are likely to be larger    [us.$]                        Heating
than  the associated            60                      Coal-fired
costs). These projects              Industrial
would therefore not be              Efficiency
prime candidates for GEF                       Methane
funding. By contrast,            o-        \  Recovery
coal-bed methane re-               A        \
covery and district heating                         14A4        22                 43
system upgrades are not                                                          emHGns
cost-effective from  a               Nas                                          avoided
domestic perspec-tive               Metering
alone.   The   study             40                             Souce- RCG/Hagler Bailly, Ukraine Energy
emphasized the impor-                                           Options Global EnvironmentAnalysis, December
tance of  the energy
pricing for the viability of
the gas metering and the district heating projects, and energy prices have recently been raised closer to
market levels. As a result of the overlays, GEF has agreed to fund a coal-bed methane recovery project, and
the Bank has processed an IDA credit for a district heating energy-efficiency demonstration project in Kiev.
Mainstreaming the Global Environment   13



Downstream operational impacts from the    helping Indonesia revise and update its BSAP,
Global Overlays Program include the            one of the first countries to undertake a second
following: In the Ukraine, the overlay study   planning exercise.
resulted in a CEF-financed coal bed methane         These studies have generally been cost-
project and an IDA credit for a district heating  effective exercises to build initial consensus on
energy-efficiency upgrade demonstration        priorities for conservation or management of
project in Kiev. In Syria a GEF-financed project  biodiversity for sustainable use, so that external
objective is to prepare Syria for the accelerated  funding, including GEF resources, can be
adoption of new technology vehicles on a more    attracted and prioritized to address such issues.
widespread basis. In Bangkok a GEF-financed    They have been less effective, however, in
project is under preparation to promote the use  helping to integrate biodiversity concerns into
of electric two-wheelers, both through market  sectoral development planning and
promotion and regional expansion, and as a     implementation.
replacement option in a motorcycle upgrade          In addressing this shortcoming, the WBG,
program. The program also includes the         in collaboration with country partners, has
development of strategic transport management    undertaken a pilot program of biodiversity
and land-use options. It may still be early to  overlays to sectoral planning studies. The
attribute policy switches to the result of Global  purpose of a biodiversity overlay is to provide
Overlay studies. Nevertheless, discernible shifts    better information of domestic benefits from the
in perception have been noted in ministries,   conservation and sustainable use of biodiversity
the private sector, and among NGOs. These      and thereby shed light on how sectoral policies
broadened attitudes will quite probably begin  and development investment priorities would
to affect policy.                              change if such benefits were explicitly
Biodiversity. The WBG has selectively      recognized by policymakers (see Box 3). The
supported the preparation of national          nine overlays that have been completed or are
Biodiversity Strategies and Action Plans       under way are set in different sectoral planning
(BSAPs) in cases where the Bank has an         contexts: rice production, freshwater fisheries,
opportunity to link environmental or natural   forestry, and marine ecosystems management.
resource management issues to a dialogue on         While the results of the pilot program
policy and investment priorities. With the help  cannot yet be fully evaluated, it is clear that
of GEF funding (the Enabling Activities        effective integration of biodiversity concerns in
window), the WBG has over the last five years  sectoral policies and strategies depends on a
supported the preparation of about 20 BSAPs,   better understanding of the nature and scale of
as well as the associated national reporting to  domestic benefits of the conservation and
the Parties of the Convention on Biological    sustainable use of biodiversity. Hence, the
Diversity, all at a cost of about US$2.5 million.    development, use, and replication of
This assistance has included support for       methodologies to assess such benefits is of
national strategies or priority-setting exercises  highest priority for the mainstreaming of
for conservation or sustainable use of         biodiversity.
biodiversity in China, Russia, Pakistan, and        Forests and Forestry. The WBG has been
some 10 countries in the former Eastern        supporting forestry sector reviews in key client
Europe, Central Asia, and Latin America and    countries for several years. These reviews have
the Caribbean. The BSAP process for Papua      provided important insights into the causes and
New Guinea is under way, and the WBG is        consequences of forest loss, as well as the
1 4 The World Bank and the Global Environment - A Progress Report



BOX 3
The Biodiversity Overlays Program-The Case of Fisheries Management Planning and
Biodiversity Conservation in Argentina
The Argentine coastal zone represents one of the richest and most productive temperate marine ecosystems in
the world. Recent studies indicate that overfishing has not only depleted local hake resources (Merluccius
hubbsi) almost to the point of extinction, but may have also adversely affected the marine mammals and birds
that feed on these fish stocks as well as the larger marine ecosystem on which they rely. This biological
diversity supports an important tourism industry along the Argentinian coast. Unless the incentives that drive
the fishing industry are changed, efforts to conserve this globally important marine biodiversity area are likely
to fail and the basis for a sustainable tourism industry undermined.
At the request of the Government of Argentina, the Bank has assisted with a study that would help evaluate
the design and implementation of a fisheries management plan (Individual Transferable Quotas) to limit the
fishing effort in the hake and other fisheries. An ecosystems/biodiversity overlay was added to this study to
provide insights into the consequences of alternative strategies for fisheries management if explicit considerations
are given to conserving the larger marine ecosystem and the globally significant biodiversity that depends on
it.
A Bank team has been working closely with Argentine Government institutions in identifying sustainable
resource use alternatives for their fisheries, all within current limited scientific understanding of the links
between fishery resource utilization patterns and the behavior of marine mammal and bird populations. The
expected major contribution of the overlay is therefore to sensitize fishery policymakers to the need for a
comprehensive ecosystems approach to fisheries management and to help identify priority research needs to
effectively support such an approach.
policy options available to arrest such trends.  up transferable development rights as a forest
Forestry sector reviews have been conducted in    conservation mechanism. On this issue,
Russia, Cambodia, Indonesia, Turkey, Romania,    DECRG has also done a study comparing
Brazil, and other countries in which forests and  carbon offsets from energy and forestry projects
forestry play major economic roles. (See Box 4.)  with the ability of such projects to satisfy
Global attention to the ecosystem           criteria relating to real, additional, measurable
functions of forests is growing. In response the  GHG emission reductions.
WBG, with its Development Economics                   Ozone Depletion. Sector work aiming at
Research Group (DECRG) in the lead, needs to     identifying strategies to phase out ozone-
help client countries ensure that such services  depleting substances (ODS) has laid the
are secured through appropriate policies and     foundation of much of the Bank's work with
programs. As parties to the UNFCCC and Kyoto    client countries in this area. Over the last nine
Protocol, client countries need to analyze the   years the WBG has assisted 17 countries in the
policy issues, development opportunities, and    development of programs that outline their
constraints for carbon sequestration in forest   priorities and methodologies to meet their
and soils eligible under the Clean Development    commitments to the Montreal Protocol. In
Mechanism. A Bank-supported study in Brazil,     addition, the WBG has been working with the
for example, is presently examining trade-offs   larger countries to develop strategies in major
and complementarities between agricultural       sectors, such as the production of
output, biodiversity, and carbon storage in the  chlorofluorocarbons (CFCs), to achieve
Amazon and in Minas Gerais, with particular      reductions using a variety of tools, including
attention to emerging polices, including setting  economic and policy instruments.
Mainstreaming the Global Environment   1 5



BOX 4
Forestry Reform and Innovation in Eastern Europe and the Former Soviet Union
The experience in the Eastern Europe and Central Asia region, using a range of lending and nonlending
instruments and strategic partnerships, provides a good model for maximizing the Bank's comparative advantage
in mainstreaming biodiversity into the forest sector, using the complementarities between GEF grants and
WBG lending in conservation of forest ecss. WBG assistance has focused on improved public-sector
forest management, including fire and pest management (Russia), development of regulatory frameworks,
restitution of forestlands to private landowners and communities (Romania), and restoration of forests damaged
by air pollution (Poland and Belarus).
The Bank has effectively used policy analysis and partnership initiatives to promote sector reform and a wider
involvement of relevant stakeholders. The Bank is currently supporting client country institutions in forest
sector reviews in the Kyrgyz Republic and Kazakhstan. Direct interactions with private-sector stakeholders
undertaken through the CEO Forum have helped improve the design of the Bank's two forestry projects in
Russia and promote open public debate on the future of the forest policy in the largest forest country in the
world.
In Georgia, the Bank is engaged in a dialogue on policy reform and increased community management of
forests and natural resources. In the same country, an International Development Association (IDA) forest
management project linked to a GEF-funided protected area project will support biodiversity planning in
production forests to maintain wildlife corridors. Similarly, GEF resources help implement a transfrontier
project linking protected areas in the Kyrgyz Republic, Kazakhstan, and Uzbekistan within a broader landscape
managed primarily for biodiversity and sustainable resource management.
Likewise, the WBG is helping countries      to measure the extent of resource use, translate
that are far along in phasing out ODS to        it into economic and social impact terms, and
develop national CFC consumption phaseout        over time monitor the state of environmental
strategies-the aim being to identify all projects    resources and the benefits they generate-all to
needed to meet final phaseout targets.           help inform policymakers and guide those who
Investment proposals consistent with these       design and implement development programs
strategies seek to meet specific phaseout        and projects. The WBG through partnerships
objectives while providing maximum flexibility   with other agencies supports this goal, whether
on the methodology to achieve these             it is the development of economic and
objectives. Funding is typically planned for a   environmental indicators, natural resource
number of tranches and is disbursed over a       evaluation, green accounting, research on key
specific number of years conditional on the      environmental issues, or through training and
previous year's performance relative to targets.  knowledge management.
Environmental Indicators. For the
2.3  Operational Tools, Research,                environment to be successfully integrated in the
Training, and Knowledge                     design and implementation of development
Management                                  assistance it is essential that the state and
While integrating the environment and its        change in use of environmental and natural
global dimension whenever called for in CASs     resources be measured. The WBG has been
and country sector work is paramount, this will    actively involved in the development and use
not happen unless we have the necessary          of environmental indicators, both at the project
analytical tools and skills. The goal is to be able    and national levels.
1 6 The World Bank and the Global Environment - A Progress Report



The requirements of GEF projects have      accounting" have been carried out over the
spurred rapid development in the use of         past 10 years (some with Bank assistance);
indicators at the project level. The Bank has   unfortunately, few countries have continued to
developed detailed guidelines for monitoring    develop and maintain complete green
and evaluation in projects that address         accounts. Rather than focusing on single
conservation and sustainable use of             indicators such as "green GDP" or on complex
biodiversity, climate change mitigation, ODS    and extensive systems of accounts, the Bank
phaseout, and international waters protection.  has emphasized resource accounts (the
Progress in the use of these guidelines is being  building blocks for green accounts) for selected
monitored, and the guidelines themselves        sectors of national importance (such as
revised to provide sets of indicators that are  minerals, fisheries, and forests), which are both
simple, practical, and affordable to use.       more realistic to carry out and maintain and
At the national level, the Bank played a   have more direct policy relevance.
key role in the development of the OECD-DAC,        Recent WBG efforts focus on assigning
United Nations, WBG International               values to environmental change in selected
Development Goals for the 21 It century         sectors. At present, sectoral-level analyses have
exercise. As part of this process, some 21      been carried out (in many cases with Bank
International Development Goals indicators      assistance) or are under way in a number of
have been identified to help monitor the        countries in Asia, including China, India,
progress of developing countries toward more    Indonesia, and Mongolia, and in Africa,
sustainable and equitable growth. The set       including Namibia and South Africa. To date,
includes six indicators on environmental        however, there has been little impact on global
themes, including energy use, GHG emissions,    objectives because the initial focus has been at
land area protected (a proxy to biodiversity
the national level. While sectoral accounts
conservation), and access to safe drinking water
(in addition, an indicator relating to release of  couldrefets gbal obe ives,eh minu
ozone depleting substances will be included in    constraints have been a lack of interest in using
a parallel account). By highlighting these     this approach on the part of governments, lack
a paalle accunt) Byhighightng teseof data, and lack of trained people to perform
concerns, the indicators focus on a number of   o      d                   p      p
issues of global importance and facilitate a    the studies when there is interest. To address
process of monitoring progress toward          these concerns, the Bank has spearheaded the
addressing global environmental issues within a    development of two different types of
national development context. By permitting     environmental/economic indicators derived
comparisons across countries, it is possible to  from these same sectoral accounts - national
monitor what is happening at the global level.  wealth measures (a stock concept) and genuine
More experience is required with overall global    savings estimates (a flow measure). In both
environmental indicators, however, to           cases, the management of environmental
effectively incorporate global objectives into  resources and the production of pollution is
development planning.                           factored into measures to help provide useful
Green Accounting. One of the challenges    insights to policymakers on the sustainability of
for national sustainable development planning   a country's development path. While global
is to include the use of natural resources in   values are only partially reflected, they can
traditional measures of national economic       easily be accommodated within this analytical
growth. A number of pilot studies on "green     framework.
Mainstreaming the Global Environment  1 7



Research. The WBG's research activities      centered on Brazil, where some remarkably
are led by its Development Economics             innovative policies are being introduced.
Research Group. Through its efforts, the WBG     This work, undertaken in association with a
has identified land use management as a key      variety of local organizations, includes
"green" environmental issue, integrally          assessing opportunity costs for conservation;
connected with sustainable development and       analyzing the impact of municipal
encompassing both local and global               conservation incentives; assessing the
environmental values. Over the coming            potential impact of tradable development
decades, increasing demands for food will        right schemes on agriculture, biodiversity,
further push the agricultural frontier into      and carbon storage; and providing
natural habitats, threatening biodiversity and   operational tools for the design of
releasing substantial amounts of carbon          biodiversity corridors.
dioxide. Sustainable development requires     *: Developing methodology related to carbon
instruments that encourage efficient land use,   offset implementation. DECRG has worked
maintain rural livelihoods, and supply food      on general methodological issues related to
markets while preserving non-local               the implementation of carbon offsets from
environmental services such as watershed         forestry and land use under the Kyoto
protection, biodiversity conservation, and       Protocol, and developed, under the
carbon storage. Accordingly, DECRG's research    Mesoamerican Biological Corridor Initiative,
and policy agenda focuses on the following       an innovative demonstration project for
priorities:                                      popularizing conservation goals via live
*. Understanding the determinants of             Internet links to a Mesoamerican cloud
deforestation and land use change. DECRG       forest.
has pioneered the use of spatial analysis to
understand where, why, and how much landTrin.ThWBsitealrang
userchanges. Thiseresearch-undertah iand    program on global environmental issues has up
useize Thailand, Brazil, researndeelsewheto recently been largely limited to a yearly GEF
Belize, Thailand, Brazil, and elsewhere-    Wokhpfrts   angr.TeBn'
confirms the overwhelming Importance of     Wrso  o akmngr.TeBn'
cruralmroas ine affectheingdeforestatin ad  environment training program for Bank staff
rural roads in affecting deforestation andunewtamjoovruliFY8nds
habiat hane, nd  ndelins te ncesity underwent a major overhaul in FY98 and is
habitat change, and underlines the necessity  nwi h   rcs  ffrhrcag  n
of careful assessment of potential poverty  nowain th poe  orte cange and
and environment impacts when considering    integration into the World Bank Institute. The
long-term plans for road network expansion.    changes include an important new thrust on
. Devising and applying economic               global environmental issues. For example, the
instruments to optimize land use. DECRG is    environmental economics training program
now working on devising economic            now covers mainstreaming of environmental
instruments that promote more efficient land  concerns, both in policy making and in linking
use by rewarding landholders for external   macroeconomics and the environment. Specific
environmental services and that minimize    workshops on CAS/environmental links, and
the opportunity costs of achieving important    global inter-linkages are also held. Furthermore,
goals that currently do not have a monetary  the new training program for IFC operational
value attached to them, such as maintaining  staff on the "Revised IFC Environmental and
viable examples of representative           Social Review Policy and Procedures" covers
ecosystems. Much of this work is currently  global environmental issues.
1 8 The World Bank and the Global Environment - A Progress Report



Notwithstanding these developments, staff    potential contribution of government and
training on global environment issues focus   various sectors of civil society, and to identify
primarily on the global conventions and the   prototype responses (local, national, and
obligations they impose upon countries.       transnational) that would incorporate global
Adequate attention is not yet given to how    environmental initiatives within programs of
sectoral investment programs or projects can  national sustainable development. The effective
benefit by incorporating global environment   integration of global and national concerns is a
components. Also, environmental training      major challenge for the future training program,
programs needs to include not only staff but  both for client countries and Bank staff.
also managers. The recent addition of an
environmental module in the Executive         2.4 Operational Policies and Sectoral
Development Program will in part help address      Policies and Strategies
this objective.                               "Safeguard" Policies. The Operational Policies
Turning to the WBG's external training    of particular importance to environmental
program on global environmental management    concerns are frequently referred to as
issues, the Bank, in collaboration with UNDP  "safeguard policies," including the ones on
and UNEP, has facilitated 40 country and sub-  environmental assessment (EA) (OP 4.01),
regional GEF/global environment training      natural habitats (OP 4.04), forestry (OP 4.36),
workshops world-wide over the past three      pest management (OP 4.09), involuntary
years, serving 2,500 client country           resettlement (OP 4.30), indigenous peoples (OP
representatives. These workshops have         4.20), and projects in international waters (OP
provided briefings on key global environment  7.50). Global environmental concerns have
issues and the role of the related conventions.  been reflected in these policies following the
In addition, the Africa Region has sponsored  1 992 Earth Summit.
country capacity building activities on climate    To reinforce the importance of strict
change through two sub-regional conferences;  compliance with environmental and social
integrated coastal zone management, via the   "safeguard' policies, a Quality Assurance and
SEACAM network; and six environmental         Compliance Team has been established in the
assessment workshops.                         Environmentally and Socially Sustainable
Recent initiatives by the World Bank      Development Vice Presidency of the Bank. Its
Institute on external training examine practical  responsibility is to audit the implementation of
ways in which global environmental objectives    these safeguard policies and related procedures
can be incorporated in sectoral, countrywide,  during project preparation and supervision,
and regional sustainable development          report to senior management on a regular basis,
programs. Rather than continuing with "free   and advise on policy issues and mandatory
standing" training on global issues, the main  training of staff.
thrust now is on integrating modules on global     Policies on environmental assessment and
themes into existing training programs. The   natural habitats (OPs 4.01 and 4.04) indicate
purpose is to raise awareness of the economic  that the natural environment and transnational
and social costs arising from global          and global environmental issues be taken into
environmental problems, to assess the         account, when appropriate, preclude Bank
constraints faced in taking measures consistent  support to projects that would significantly
with global environment improvement, to       damage critical habitats, and in the case of
improve understanding of the roles and        conversion of other natural habitats provide for
Mainstreaming the Global Environment  1 9



mitigation measures if there are no feasible    This is largely because environmentally friendly
alternatives and the benefits substantially    energy projects are more labor-intensive,
outweigh the environmental costs. While         borrower commitment to fundamental reform is
biodiversity concerns are generally well covered  often weak, and energy efficiency and renewable
in the application of these policies, climate  energy are relatively new business products for
change issues are addressed less frequently.   which skills and experience are scarce.
More frequent use of sectoral environ-         Following extensive consultations within
mental assessments (SEAs) addressing global    the WBG and with a broad range of external
environmental impacts, as appropriate, will     partners over two years, the Environment
help increase the effectiveness of the EA and  Strategy for the Energy Sector was approved in
natural habitats policies and results on the    1999 by the Bank's Executive Board. It attempts
ground. Supporting better implementation of     not just to learn from experience but to indicate
mitigation plans through project supervision is  clearly that the WBG aims to be in the forefront
another priority, as is the adaptation of      of encouraging more sustainable use of energy.
environmental and social assessments to        In this regard, energy sector reform, supply-
various forms of private-sector-oriented       and demand-side efficiency improvements,
projects, such as financial intermediary,       innovative solutions to rural energy needs, and
privatization, and guarantee operations.       aid to markets for cleaner technologies form the
Through awareness building and dissemination   cornerstones of the strategy, along with policy,
of good practice, SEA should be an efficient    knowledge transfer, and lending work to help
tool to make project-specific EA more of an    clients combat both local and global impacts of
adjustment within the proper sectoral or       energy development, exploiting synergies
regional policy framework.                     wherever possible. As such, the strategy firmly
Sectoral Strategies. Key sector strategies  places climate change on the Bank's agenda in
for energy, forestry, and rural development are  the context of its assistance to clients for the
being revised to incorporate lessons learned in  energy sector.
the last decade in terms of emerging trends in      To fully integrate the strategy into WBG
environmental issues, including those of global  work, an action plan for implementation has
concern.                                       been developed, along with indicators for
The WBG's energy strategy supports         monitoring progress. The indicators focus on
lending only when countries commit to          outcomes that contribute to clients'
improving energy efficiency through policy     comprehensive development, rather than Bank-
reform and to promoting renewable energy. (In  driven inputs. Outcome indicators are linked to
certain cases, the International Finance       programs of action and forecasts of short-term
Corporation may finance efficient private-sector    outputs based on what clients are able to
investments in the energy sectors of countries  implement. Progress against these indicators
that are in the early stages of restructuring or  will be monitored to keep the Bank's Board
reform where such investments support the      informed, to provide feedback to staff and
momentum toward further sectoral               managers, and to fine-tune the strategy. The
restructuring or policy reform.) The Bank's    interim progress report is due to be submitted
Operations Evaluation Department has           to the Bank's Board in July 2000.
concluded that although good progress has           The Bank's Forestry Strategy (1991)
been made on the sector reform agenda, the     precludes the WBC from financing commercial
volume of lending for energy efficiency,        logging operations in primary moist tropical
renewables, and rural energy remains modest.   forests, and involves the private sector and
20 The World Bank and the Global Environment - A Progress Report



local people in forestry and conservation      strategies effectively and to take them fully into
management. The Bank's lending operations in    account in the country dialogue.
the forest sector are conditional on government
commitment to sustainable management and       2.5 Mainstreaming WBG's Role as an
conservation-oriented forestry. A review of the     Implementing Agency for Global
implementation of the forest strategy is under      Financing Mechanisms
way, with the intention of developing a forest  So far this chapter has reviewed the results of
sector strategy with monitorable progress      efforts to integrate global environmental issues
indicators.                                    into the country dialogue, sector work,
The Rural Development Strategy (1997)      operational tools, and operational and sector
recognizes the link between rural development  policies. There is, however, the additional
and global environment issues. To help build   challenge of ensuring that GEF and MLF
this link into Bank operations, global         projects are mainstreamed as much as possible
environmental concerns have been integrated    in all relevant aspects of WBG operations,
into sector activities through a Sustainable Land    including the country assistance strategy,
and Crop Thematic Team. The topic of land      projects in the WBG's regular portfolio, and
degradation and desertification is given special  WBG procedures for project processing,
irnportance, as mentioned throughout this      portfolio management, and business planning,
report.                                        as discussed in this section.
The WBG's Water Resources Management           Improving Association and Coordination
Strategy (1993) acknowledges that protection of    with IDA/IBRD Projects. The growth in the
water resources is essential for sustainable   WBG's GEF and MLF portfolios demonstrates
development and calls for a comprehensive      that these programs, while remaining small
management approach. It emphasizes rigorous    relative to the WBG's total development
attention to maintaining biodiversity and      assistance business, are increasingly important
protecting ecosystems in water project design  activities. A key objective is to integrate
and implementation. The implementation of      projects funded by the global financing
this policy is also being reviewed, with the   mechanisms with relevant parts of the Bank's
expectation that a revised policy together with  own portfolio, both from the standpoint of
a complementary sector strategy willI be       functional or programmatic linkages as well as
submitted to the Board by the end of 2000. In  through coordination during the project cycle.
..   .     .                    ~~~~~~~~~While MLF projects, because of their
addition, the Bank is developing a Coastal and  inilLy pecializedaure offer
MaieRsucsStaeyta  ol                        intrinsically specialized nature, offer limited
comaremRenotce Strategy thatswouldes Managopportunities in this regard, GEF projects have
complement the Water Resources Management    cnieal  oeta  o  soito   n
Strategy. This is being prepared on the basis of  ineratin  pogamtial f y a nd
a series of regional strategies and subregional  operation     ally     lnd
operationally, with Bank lending in sectors
programs.                                      such as agriculture, forestry, energy, water,
Clearly, there has been considerable      fisheries, and coastal zone management.
progress in integrating global environmental        A recent review of the WBG's portfolio of
objectives in operational policies and sector  GEF biodiversity and climate change projects
strategies. The challenge now is to provide    attempted to quantify the extent of
management and staff with the ski lls, tools, and  mainstreaming, defined as the sum of three
incentives to implement these policies and     elements: CAS integration, functional links to
Mainstreaming the Global Environment  21



IDA/IBRD projects, and coordination in project    document standards are harmonized as much
processing.7 Results show that for the        as possible with Bank practices and
biodiversity portfolio overall, mainstreaming  procedures, staff and management are
has improved significantly over time and      discouraged from undertaking GEF projects. In
reached well beyond the halfway mark toward   consultation with the GEF Secretariat, major
an optimal state (see Figure 3). This reflects an  efforts have been made to address this need for
improved integration of the objectives of GEF  streamlining. Efforts have also been made to
projects with those of associated IDA or IBRD  ensure that GEF projects are fully integrated
projects, and enhanced coordination of the    with the Bank's information and management
preparation and supervision of GEF- and IDA/  systems governing project processing as well as
IBRD-funded activities. The results are similar  portfolio management and monitoring."
for the climate change portfolio, except that  * The adoption for GEF purposes of the Bank's
programmatic and operational mainstreaming      internal standards for project documents has
has remained at relatively high levels from the  reduced the time spent converting Bank
outset of the GEF program. This confirms the    documents to GEF requirements.
understanding that the development of climate    *. The Bank and GEF project review and
change projects in many cases has occurred      approval steps have been better aligned, and
naturally as an integral part of the WBG's      overall project processing time has been
energy sector dialogue with client countries.   reduced by streamlined procedures for final
Streamlining GEF Processing with Bank       GEF approvals; expedited pathways have
Procedures. Mainstreaming also requires that    been established for processing small to
GEF projects are processed and managed in the   medium-sized grants.
same way as regular Bank projects. The fact   * A fee-based system for budgeting of GEF
that WBG-GEF projects have to be approved by    project-related expenses has been adopted,
the GEF Council (in addition to Bank            making access to funding of administrative
management) imposes additional review and       expenses more timely and predictable.
approval steps over those for Bank projects.  *: GEF projects are included in the WBG's
Unless these requirements and their associated  regular annual portfolio performance
FIGURE 3 Trends in Mainstreaming of GEF Biodiversity Projects
10   -
9                                        4
8 -                          4-0-O-
7
0 6   -<  
4
3    '      -  �    -                 �       R' - 0.3259
2
1990       1992        1994       1996        1998       2000
Year
22 The World Bank and the Global Environment - A Progress Report



reviews as well as in quality at entry reviews  increasingly reflected in country and sector
and supervision effectiveness reviews on a  work and acknowledged, as appropriate, in the
par with other categories of projects.      policy dialogue. On the lending side, we may
* GEF budgeting and work programming           see the promotion of a healthy portfolio of
arrangements have been introduced to        projects or components of projects that
support accountability and incentives for   explicitly address one or more of the six global
GEF operations at the level of management   environmental concerns discussed earlier. We
of regional operational units. These        may also expect that projects in the remainder
arrangements have been facilitated by the   of the WBG's portfolio, while not directly
decentralization of much of the Bank's GEF  targeting global environmental concerns,
coordination function to the operating      should indirectly produce benefits for the
regions.                                    global environment.
A number of tasks remain to be                 A portfolio that explicitly targets global
completed, and innovative ways to further      environment issues. Projects belonging to this
streamline and mainstream the GEF will need    portfolio involve mitigation against
to be pursued. First, and building on our      environmentally destructive patterns of natural
ongoing dialogue with GEF on the use of        resource use, substitution of technologies that
strategic partnerships, we need to find avenues  benefit the global environment, rehabilitation
for serving the demand from our client         of degraded natural resource areas, and
countries for access to GEF resources in a more    strengthening of environmental management at
programmatic way. This should serve not only  local, national, and regional levels. They are
to increase the impact of GEF funding, but also  funded through GEF or MLF grants and/or by
to reduce transactions costs. Second, we need  conventional lending from the WBG (IDA
to further strengthen our system of global     credits), IBRD loans, or International Finance
environment and GEF knowledge management    Corporation loans or equity investments.
so as to facilitate timely access to relevant      The role that concessional funding from
information and knowledge among staff and     GEF and MLF plays in this portfolio is positively
partners. Third, efforts are underway to ensure  related to the size of the global externality
that the Bank's new accounting, budgeting, and    compared with domestic benefits expected
operations monitoring systems, introduced in   from project interventions. For example, MLF
1999, fully cover all WBG-GEF products.       grants to enterprises for conversion to ozone-
Finally, we must to continue working with the  friendly technologies constitute a very high
GEF to see how the external review and         proportion of overall project financing, while
approval cycle can be further streamlined.     projects to control land degradation are largely
funded through IDA or IBRD sources. A review
2.6 Toward Full Mainstreaming                  of the development of this project portfolio is
the subject of the next chapter.
As emphasized at the beginning of this chapter,    Addressing the glba c enr
Addressing the global environment In the
progress in mainstreaming global               broader country and sector dialogue. While
environmental issues in the Bank's country    the WBG's broader country assistance
dialogue is likely to reflect itself in several  dialogue does not directly address global
ways, that is in both lending and non-lending  environmental objectives, it can do so
services. On the non-lending side, we may see  indirectly. For example, a policy dialogue on
global environmental concerns becoming         energy pricing reform can lead to the creation
Mainstreaming the Global Environment  23



BOX 5
Mainstreaming Biodiversity in the Flood-Protection Subsector
An attempt to develop a methodology to measure the mainstreaming of biodiversity conservation objectives
in the broader Bank portfolio concentrated on the Bank's rural development portfolio for flood-related projects
approved by the Bank Board in the period 1988-99.
Each of the 52 projects received a rating based on five assumed mainstreaming benchmarks: not meeting
World Bank safeguard policies and standards (1 point); 'do no harm' and mitigation of biodiversity impacts
planned or not needed (2 points); project design demonstrably influenced and/or changed to support explicit
biodiversity-friendly objectives (3 points); project design substantially influenced by and incorporating explicit
biodiversity-friendly objectives(4 points); and best practice and fully mainstreamed project design fuily
compatible with biodiversity (5 points).
The average mainstreaming rating for the flood-related portfolio since 1988 was found to be 2.31 out of a
maximum possible rating of 5, with one-third of all projects going beyond the 'meeting the safeguard policies"
threshold.
of strong incentives for adoption of climate-   sectors where it is known that the linkages with
friendly technologies. Assistance for           global environmental issues are strong, such as
agricultural intensification or rural non-farm  rural development (including agriculture),
employment often serves to reduce excessive     energy, mining, and urban infrastructure
pressures on natural habitats and biodiversity.  development. A first attempt to develop a
Funding for community-based natural resource    practical methodology for such assessments has
management frequently leads to more             been made and tested on a small part of the
sustainable use of forest and biodiversity      rural development portfolio. (See Box 5.)
resources. And support for building             Although a modest start, this methodology
environmental management capacity helps         could offer a practical way forward to measure
client countries overcome some of the barriers  the mainstreaming of biodiversity and other
toward integrating global environmental         global environmental objectives in sectors and
concerns in national and sectoral development   projects that do not target them.
planning.                                           Although it remains to be seen just how
No comprehensive assessment has been       poorly or how well we address global
made of the extent to which this broader WBG    environmental concerns through the WBG's
country assistance dialogue and lending         broader portfolio, we know that more needs to
portfolio are addressing global environmental   be done. Efforts to do so should form part of a
objectives. While it is easy to identify        deepened institutional commitment to improve
individual cases where such impacts result, a   the mainstreaming of the environment
summation of such impacts by sector or across   generally in Bank operations, a challenge that
the Bank has not been made. Although such an    the ongoing preparation of the WBG's
assessment is an extensive and demanding task,    Environment Strategy is addressing.
it needs to be carried out. It should start with
24 The World Bank and the Global Environment - A Progress Report



-~~~~.
This chapter provides an overview of the     unsustainable use of forests, degradation of
global environment portfolio of the World Bank    fresh and marine water resources, and
Group in the last decade. It involves projects  desertification and land degradation. The order
funded by the Global Environment Facility    in which WBG lending in these areas is
(GEF), grants from the Multilateral Fund for  presented below broadly reflects the relative
Implementation of the Montreal Protocol      importance that concessional lending-that is,
(MLF), and projects funded by the International    grants or concessional loans from the GEF or
Development Association (IDA), International  the MLF-needs to assume in the total
Bank for Reconstruction and Development      financing mix in order to help projects achieve
(IBRD), and International Finance Corporation  their objectives. This importance in turn mirrors
(IFC) lending, all of which directly address the  the magnitude of the global externality
global environmental concerns introduced     involved relative to national benefits associated
earlier: stratospheric ozone depletion, climate  with remedial actions.
change, loss of biological diversity,
3.1  Protecting the Ozone Layer                              Mar. 97
Role of the WBG. Developing countries and
individual enterprises are unable to capture
future benefits from phasing out ozone-
depleting substances (ODS). Converting to
substitute technologies does not always bring
offsetting operational benefits to companies, so
incentives for substitution of substances and
technologies have to be given through a global
premium. Industrial and service enterprises in
developing countries that consume or produce
an emphasis on investment support. Under the
ODS receive such a premium from the MLF,     GEF the WBC is the only implementing
while those in countries with economies in
transition receive it from the GEF.          agency engaged in ODS phaseout investment
The WBG, together with the U.N.          projects.
Development Programme (UNDP), the U.N.           Portfolio Overview. Now in its eighth
Environment Programme (UNEP), and the U.N.    year, the WBG's Montreal Protocol program is
Industrial Development Organization (in the  well established, with more than 63,000 ozone
case of the MLF), serves as an implementing  depletion potential (ODP) tons having been
agency for these two financing mechanisms. In    phased out, which in turn represents 72
both cases, the WBG provides investment,     percent of the total ODS to be phased out
technical, and capacity building support, with  under the MLF-with only 45 percent of the
25



total resources available. WBG management        fiduciary responsibility. These agreements
has committed approximately US$360 million       with countries eligible to receive MLF
and disbursed US$240 million of MLF              funding establish the framework for
resources for some 480 individual projects in   transferring resources for individual projects
20 countries, representing all its geographic   over a minimum two- or three-year period.
regions. Similarly, WBG management has          This saves significant time between MLF
approved funding for 11 ODS projects in          approval and Bank commitments for
Eastern Europe and the former Soviet Union, of  individual projects. Brazil was the first
which 4 have been completed and 7 are under      country to sign an umbrella agreement with
implementation. For these projects, the GEF has  the WBG. Since then, another 23 countries
provided US$125 million out of total project     have entered into similar agreements.
costs of US$237 million.                      * Sectoral approach to ODS phaseout. The
Embracing the WBG's approach of             WBG has been working wfth the
national execution, Montreal Protocol           Government of China to phase out the
operations first helped countries set up the     production of halons and chlorofluorocar-
institutional frameworks needed to support       bons (CFCs) and the use of CFCs in the
project implementation under the auspices of     mobile air-conditioning sector through
the MLF through country programs.                innovative methodologies. The sector
Operational policies and guidelines were         approach is based on a combination of
established congruently with the development     policy tools and financial incentives to help
of early investment projects to facilitate and   all enterprises in a given sector to convert to
standardize project preparation, approval, and  ODS-free technology. In this case, policy
implementation mechanisms. Experience           tools include a national halon and CFC
gained from implementation of initial projects   production quota system and regulations on
led to the development of more strategic and     use of these chemicals. Financial incentives
innovative approaches aimed at minimizing        include a national auction and bidding
project duration, maximizing impact and cost-   system supported by a technical assistance
effectiveness, and increasing project flexibility,  program. Initial results indicate that a sector
depending on the needs and requests of client    phaseout plan that incorporates
countries.                                       comprehensive policy measures with
Partnerships, Innovation, and Special       competitive grant allocations will have a
Initiatives. The WBG has been pursuing           better chance at sustained and overall
innovative approaches on several fronts to      success.
enable client countries to meet their treaty  4 Use of market-based instruments. The WBG
obligations effectively. The IFC has been a full  has been working with the Government of
partner in these efforts, carrying out ODS       Chile to establish a grant auction mechanism
phaseout projects with private companies with   as a way to pursue cost-effectiveness in ODS
whom it has relationships, through both MLF      phaseout projects. This mechanism builds
and GEF resources.                               on the information and knowledge of the
*. Umbrella grant agreements. From the very      enterprises to determine the allocation of
early stage of its MLF program, the WBG       grant resources. Companies are invited to
developed umbrella grant agreements as a      bid on cost-effective conversion projects in
way to minimize legal formalities of          order to receive co-financing from a limited
processing projects while maintaining         resource envelop. So far, four auctions have
26  The World Bar7k and the Global Environment - A Progress Report



FIGURE 4  CFCs Production and Consumption Trends   among enterprises has led to
aggressive CFC phaseout in this
Production of CFCs                    country.
(As Reported to the Ozone Secretariat, UNEP)
I.200,000.00                                  4*. Production phaseout initiatives.
1,200,000.00                                   The WBG has worked closely with
ooo 000.00  0  _     1    1                ]    <       China and India to introduce the first
1,000,000.00                                   projects under the Montreal Protocol
800,000.00                                              that directly target CFC production.
600,000.0 -                                           aThese come in addition to a China/
600o000                19                              World Bank halon production!
400,000.00                                             consumption phaseout project that
o                                                     I    has already phased out 32,000 ODP
200,000.00                                            tons. As a result, China has been
(.00                                    awarded US$150 million and India
1986 19 7 1987 1 9                            US$82 million in MLF funds to help
19  iprce1990                      close down CFC production during
D developing Countries a
DCEiT Countries          Y  r           1994 9the next decade, with 67,000 ODP
Industrialised|Countries                                tons to be phased out. These two
Consumption of CFCs                     projects, along with a WBC-GEF
As Reported to the Ozone Secretariat, UNEP)  supported special initiative to phase
enterpsout CFC production in Russia, are
US$2.5million. This program has eliminated        examplexpected to eliminate more than 82
over 35-0 tons of CFCs. An accompanying set        useinpercent of overall CFC production in
G ndeveloping countries and countries
with economies in transition-
800,000.0
WI  ~ ~ ~ ~ ~ ~ ~ ~~~~~~I equivalent to more than half of global
12600,000.0                                               CFC production.
CL    ~ ~ ~ ~ ~ ~ ~ ~ ~~~I~                      Leveraging. The WBG has been
o   400,000.0                                               actively involved in exploring
200,000.0  ~ ~ ~ ~ ~~~~~ltrative nongrant funding
200,000.0                                 rn~~~~~I    odalities and mechanisms. A US$5
0.0   ~ ~ ~ ~ ~ ~ ~~~I                 million revolving fund was established
1961987 198as part of a US$1 0 million grant to
11989 199    1 92Turkey to assist enterprises with ODS
CIT Countries         Yer994 1phaseout. This led to the phasing out
Industrialised Countries                       1996     of about 1,600 tons of ODS, with a
high rate of loan repayment by
been organized at a cost of about                  enterprises (no default). Another recent
US$2.5million. This program has eliminated        example of leveraging MLF funding through
over 350 tons of CFCs. An accompanying set         use innovative use of concessional lending is
of policy measures undertaken by the              the Thai ChilIler Replacement Program (See
Government of Chile to build momentum              Box 6.)
Lending for the Global Environment 27



BOX 6
Innovative ODS Phaseout Projects-The Chiller Replacement Program in Thailand
Approved in 1998 by the MLF Executive Committee and in 1999 by the GEF Counci I, the Chiller Replacement
Program in Thailand offers an alternative approach to grant-financed projects for future ODS phaseout projects.
It differs from traditional MLF-funded projects in several ways.
First, the program combines funding from two global environmental financial mechanisms, the MLF and the
GEF, under the auspices of the Convention on Climate Change and the Montreal Protocol, to achieve two
separate environmental goals and demonstrate that cooperation between environmental regimes can be efficient
in reaching individual objectives. Second, it uses a new financing modality: an initial contingent grant of
US$5 million will establish a revolving fund to replace 24 chillers over three years. Investment in the chillers
will be repaid through savings earned from increased energy efficiency. When this demonstration phase is
successful-that is, if the new chillers result in significant energy and ODS savings-the initial sum invested
will be used to expand the project, leveraging an additional US$25 million to purchase 520 more non-CFC
chillers. Once conversion has taken place, the CFCs recovered from the old chillers will be recycled for other
necessary domestic uses. Finally, the program is fully nationally owned, with a combination of the Electricity
Generating Authority of Thailand, a public utility company, and a local bank handling implementation and
administering the revolving fund.
The successful implementation of this program will open up a market for energy-efficient technology that is
currently blocked by market, policy, and information barriers. By making large quantities of CFCs available to
service other chillers and thereby arresting the need to import additional CFCs, the program will help Thailand
sustain the 1999 freeze on CFC consumption required by the Montreal Protocol. When the project has been
completed, the CFC demand in Thailand is expected to have been reduced by more than 500 ODP tons and
carbon emissions by about 1,390 ktC, thus deferringthe need forover US$250 million in additional investment
in energy infrastructure.
Lessons Learned. As indicated, the WBG-    technologies, the task now is to support similar
MLF program has partnered successfully with     conversions among smaller enterprises and in
developing countries to pioneer a series of     the informal sector, which account for
innovative approaches, including financing      significant consumption in most developing
modalities, to phase out ODS from industrial    countries. The first challenge, therefore, for the
and other uses. These experiences should help   further development of the WBG's MLF
to design future programs to reduce or          program will be to explore how the use of
eliminate emissions of persistent organic       market-based economic instruments can be
pollutants (POPs) or greenhouse gases (GHGs),    extended to induce ODS phaseout in these
as well as to develop more programmatic
approaches in allocating GEF resources in all   consmtion segments This wilgnedst b
focal areas. Behind the success of all these
innovative approaches lie true country          second challenge is to work with country
ownership.                                      partner institutions on the implementation of
Challenges Ahead. Completing the           CFC production phaseouts in Russia, China,
phaseout of ozone-depleting substances in       and India. Failure to properly implement these
developing countries presents a particular      phaseout programs will adversely affect the
challenge. Given that the largest enterprises   commitment of most developing countries to
have now converted to ozone-free                discontinue any remaining ODS use.
28 The World Bank and the Global Environment - A Progress Report



3.2 Addressing Climate Change
Role of the WBG. The United Nations
Framework Convention on Climate Change
(UNFCCC) and the Kyoto Protocol to the
UNFCCC, adopted in 1997, underpin the
WBG's work in the area of climate change. The
work had its genesis in the establishment of the
GEF as the interim financial mechanism of the                                    _J
convention and the appointment of the WBG      policies and priorities underpinning that work
as one of its three implementing agencies.     have changed overtime. Since 1993, when
Since then, the Bank has actively supported    Bank power and energy efficiency policy
client countries in meeting their international
commiment witin is oveall  andae ofpapers were Issued, priority has Increasingly
commitments within Its overall mandate of      benacre         'ogtigteplc
been accorded to getting the policy
promoting sustainable development. To ensure    fundamentals right, that is, changing the
that national priorities are not compromised,
the Bank has helped clients mobilize resources  ownership  atrure   of the ketorcand
to cover the additional cost of initiatives aimed  promoting greater reliance on market forces for
at meeting convention objectives, including    the efficient allocation of human and financial
invstmeeint, capacity obuidn, and aalyic      resources. Most of these structural changes are
Investments, capacity building, and analytical  amda nraigpiaeivso
work.                                          aimed at increasing private investor
Climate change-related outcomes by our    participation in the delivery of energy services
clients are achieved in part through WBG       and creating a level playing field to foster
projects in sectors such as urban development,    competition, with governments regulating the
environment, transport, and energy. Of these,  private operations.
the principal sector is energy. While the focus    This strategic shift and the need for greater
of this work has remained virtually           selectivity in choice of investments in light of
unchanged-helping clients meet their energy   country needs has changed Bank lending in the
demand efficiently and in a manner that is     energy sector in terms of both composition and
consistent with sustainable development-the    size. (See Table 2.) Average annual project and
TABLE 2
IDA and IBRD Lending for Energy Development, FY94-00
FY94     FY95      FY96      FY97     FY98      FY99      FYOO
Sectors                            (Number of projects)
Power         10        16       20        17        15        6         3
Oil & Gas       9        7         3         4        2          1        1
Mining         I        2         8         2        4         2         1
Total        20        25        31       23        21        9         5
Sectors                        (Commitments in $US millions)
Power        1,613    2,242     3,247     1,889    2,004      440       511
Oil & Gas     1,144     603        56       136       140       18       43
Mining        14        25       692       321      1,377     315       45
Total       2,771     2,870    3,995     2,346     3,521     773       599
Lending for the Global Environment 29



commitment approvals have both declined         operations and US$600 million in
markedly, from 20 projects and US$2.7 billion   commitments in FY00.
in commitments in FY94 to a projected 5             A number of factors have contributed to
the decline in the size of the portfolio,
BOX 7                                         including the East Asian financial crisis, lower
Asia Alternative Energy Program-              than anticipated growth in demand in some
Promoting Alternative Energy                  regions, and the increasing availability of
capital from private sources. These changes
While energy lending has not been a growth area  have also been influenced by the Bank's
for the World Bank in recent years, alternative
energy (renewable energy and energy efficiency)  decision to reduce its involvement in
development in some regions of the world has  generation and supply in favor of unbundling
benefited from convergence of a number of      and formation of transmission and regional
interests: (a) demand from client countries, (b)
interest in investment by the local private sector,  distribution companies. Parallel to this
(c) relevance to the World Bank's mission of  structural shift is an increase in support for
poverty alleviation and growing emphasis on
environmental protection, and (d) strong financial  regulatory reforms, for which the need often is
support from multilateral and bilateral donors.  advice rather than external finance.
These interests have promoted the transition from
energy sector lending focussing on project         This shift in emphasis has been neither
financingtoamoreprogrammaticapproachwhich     easy nor rapid. In particular, developing viable
has benefited the renewable energy sector. Asia  projects for distribution has been difficult. The
Alternative Energy Program (ASTAE) has grown in
significance in this process.                 greater emphasis on distribution and customer-
side service, however, is opening up new
ASTAE is a partnership program, jointly funded by
the World Bank and donor contributions, that is  prospects for energy efficiency, distributed
exclusively dedicated to the promotion of      supply, and off-grid service delivery means-
alternative energy in Asia. This partnership  areas where GEF-supported operations have
provides catalytic support to promote the financing
of alternative energy and in its seven years of  provided invaluable experience. Furthermore,
existence, the World Bank lending in the region  recent developments in conventional and
has increased for a single $ 2 million solar project  renewable energy technologies have made
in FY 1992 to 38 operations in 11 countries with a
total alternative energy project financing of $ 3.5  distributed and off-grid energy services
billion (through FY2003). GEF grant funds     technically and economically more attractive.
committed to alternative energy projects under
implementation in Asia is $123.4 million which is  This further reinforces a changing role for the
leveraging $1.6 billion in total project financing  WBG in promoting alternative approaches to
(leverage ratio of 12.6:1 on an Asia-wide alternative
energy portfolio basis).                      energy service delivery, including giving
service providers incentives to diversify and
Grant support from the GEF has been critical to  innovate to enable clean technologies, fuels,
ASTAE's ability to promote alternative energy
lendingthrough the World Bank alongwith support  and incentives to compete on equal terms.
from bilateral donors. Alternative energy projects  Portfolio Overview. Despite the changing
conventional alternatpives Ftorpterment tharn  priorities and the accompanying realignment in
environmental benefits are typically not reflected  project lending, the WBG-GEF climate change
in the market place. The availability of GEF   investment portfolio has developed generally
resources to offset incremental costs of alternatives,
to remove barriers and offset risks has been a  satisfactorily. As of December 1999, this
determining factor in the acceptance of alternative  portfolio contained 54 projects, including 14
projects by client countries and World Bank staff    that have been approved by the GEF Council
and management.
and await Bank management approval.
30 The World Bank and the Global Environment - A Progress Report



The number of projects approved by the     the cost of prospective low GHG-emitting
Council has increased steadily, albeit with    technologies that are not yet commercially
annual variations, from a low of 2 in FY91 to a  viable in order to enhance their commercial
high of 14 in FY99. The one notable exception   viability (OP 5). The WBG-GEF climate change
is FY94, when no projects were submitted for    portfolio is heavily concentrated on the first
approval, as clarification of the GEF           two project categories with renewable energy
Operational Strategy was pending. Annual        projects having a slight edge. In addition, a
commitment approvals have also increased       limited number of projects involve funding
more or less in parallel with the growth of the  mitigation activities, other than those falling in
portfolio, though the former has varied more    the above programmatic areas, that are
markedly than the latter. (See Figure 5.) The   designed to reduce greenhouse gases cost-
total portfolio has financed projects worth     effectively in the short term.
US$4.2 billion, with GEF contributions of           The Bank's climate change portfolio has
US$641 million and contributions from IBRD,     now begun to diversify into the transport sector
IDA, private co-funding, and government         under a recently approved new GEF
counterparts of about US$3.5 billion.           Operational Program. Some elements of this,
WBG-GEF projects have addressed the        such as the promotion of non-motorized
objective of climate change mitigation in three  transport initiatives (of particular relevance to
main ways: by removing barriers to the          countries in South and Southeast Asia and in
implementation of climate-friendly              Africa) are particularly relevant to the poverty-
technologies, commercially viable energy-       environment nexus. Other components have a
efficient technologies, and energy conservation  more cross-sectoral basis, such as the
measures (GEF Operational Program or OP 5);     development of transport planning and the
by reducing the implementation costs of         encouragement of modal shifts in transport.
commercial and near-commercial renewable            Partnerships and Special Initiatives. The
energy technologies (OP 6); and by reducing     magnitude of the sustainable energy challenge
FIGURE 5 Annual Commitments-WBG-GEF Climate Change Projects
1,000
900                     . _
800      -fr
700   - - _ _ _ _ _ _
Z  600      -  _   _  _1              
500    ~ ~ ~ ~ ~             '     /     "              4GEF
Ii,' 600  X_ X   tWorld Bank
3 400                                 _                               & Cofinan.
0
E                              /                                  --Total Annual
300            -   -_                  _ _ _ _ _ _ _
200   -
100-              -
1991  1992  1993  1995  1996  1997  1998  1999  2000
Fiscal Year
Lending for the Global Environment 31



and the need to bring new skills and resources  Fund, the first global private equity fund
to bear have motivated the WBG to enter into   devoted exclusively to investments in
new partnerships, often of a public-private    renewable energy and energy efficiency
character.                                     projects. The fund recently achieved a first
The GEF-WBG Strategic Partnership for     closing of US$65 million and is authorized to
Renewable Energy, approved in principle by     raise up to US$100 million in equity
the GEF Council in May 1999, envisages a       subscriptions. The fund, pioneered by the IFC
series of larger, long-term renewable energy   as the lead investor, is operated by an external
projects undertaken on a programmatic basis    management team with investments for the first
rather than the on-off approach used in most  closing coming from private companies in the
GEF projects to date. Modalities being explored  United States, Germany, Finland, the
under the partnership include:                 Netherlands, and Belgium. It will be supported
* The use of Adaptable Program Loans (APLs)    by a parallel discretionary debt facility of up to
to permit more flexible project support over  US$100 million consisting of an IFC loan of up
periods of up to 10 years, and to increase  to US$20 million and up to US$80 million in
client country interest in renewable energy  syndicated loans. The fund will also have
options as part of the development          access to a unique co-financing arrangement
objectives                                  with up to US$30 million in concessional funds
*. A flexible decision authority for IFC to make  supplied by the GEF.
rapid decisions on the use of GEF funds in      The Solar Development Group (SDG) is
private-sector investment projects (based on  the result of a joint initiative between the WBG
previous experience with GEF approaches,    and a number of charitable foundations to
and with validation undertaken on an ex-    further stimulate development of a viable
post basis)                                 market for solar home systems using solar
*. The use of long-term technology financing or    photovoltaic (PV) technology in rural regions of
contract mechanisms (such as Non-Fossil     the developing world. The goal is to accelerate
Fuel Obligations or Energy Feed Laws) to    the development of viable, private-sector
send long-term, predictable pricing signals to    business activities in the distribution, retail
technology developers                       sales, and financing of off-grid rural
* The fostering and engagement of in-country  electrification applications in developing
intermediaries to help identify, appraise, and  countries, initially concentrating on PVs.
implement projects.                             SDG has a target capitalization of US$50
Project development efforts now under     million, of which more than US$25 million has
way include an Energy for Rural Transformation    been committed from among the founding
Project for Uganda and a potentially very large  investors, which include the World Bank, the
technology support program for China being     IFC, the GEF, and a number of charitable
designed to help the country retain a 5 percent    foundations. It will have two separate
contribution from renewables over the next     programs: an investment fund of approximately
decade. Additional projects in early stages of  US$30 million for financing private-sector PV
design include ones for the Philippines, Egypt,  or PV-related companies and financial
and other Latin American and African nations.  institutions, and the Solar Development
The IFC has joined with several other     Foundation, which is expected to disburse
private- and public-sector groups to invest in  approximately US$20 million in grants or "soft"
the Renewable Energy and Energy Efficiency     loans (including US$10 million in GEF capital)
32 The World Bank and the Global Environment - A Progress Report



to companies and programs that further SDG's  under the Kyoto Protocol. PCF's approach to
mission. The foundation will use grant funding  baseline determination and validation,
to provide business advisory services,        monitoring, verification and certification, and
awareness/education programs, and             contracting for carbon purchase are shared with
concessional financing to stimulate demand    the public.
and foster growth of individual enterprises.       By transacting the business of reducing
The Prototype Carbon Fund (PCF) is a      emissions, the PCF will develop a major
private-public partnership that aims to       knowledge base. It will maximize the value of
demonstrate how the Kyoto Protocols project-  its experience by collecting, analyzing, and
based mechanisms for reducing greenhouse gas    disseminating information and knowledge to
emissions may operate. The WBG Board of       nongovernmental organizations (NGOs),
Executive Directors approved the establishment    governments, private-sector interests, and any
of the PCF in July 1999 so that it might      other stakeholders involved in the climate
contribute practical learning experience as   change negotiations. (See Figure 6.)
negotiations continue on the final rules and
procedures regulating the market for project-  FIGURE 6 The Prototype Carbon Fund
based emissions reductions. PCF is strictly a
prototype fund to contribute practical lessons in            .-
how to achieve environmentally credible
emissions reductions and to stimulate
predominantly private sector investment in JI  4                                      E
and CDM transactions.
The Bank has no intention to compete
with the private sector as the market moves             Technology  F  Finance I  Emission Reductions
beyond the current embryonic stage. PCF was              _  
designed to operate as a Fund of $100 million
with funding contributed equally by companies      Lessons Learned. The sharper focus on
and Governments and investment in the Fund    poverty in the WBG's development assistance
is legally capped at $150 million. The PCF was  has important implications for efforts to address
opened to subscription in November 1999 and   climate change. The character and volume of
as of its first closing on April 10, had achieved  WBG activities on GHG emissions abatement
$135 million from 6 governments and 15        will be largely determined by the WBG's
companies. It should be noted that demand     strategies in the "real" sectors-certainly
from the corporate sector for PCF participation  energy, but also transport, infrastructure, and
has been particularly high.                   urban services-and how they will address the
The PCF's two major products are          goal of poverty reduction.
reasonably priced high quality emissions           For example, the WBG's recently adopted
reductions and knowledge acquired through a   Environment Strategy for the Energy Sector
"learning-by-doing" process for generating the  assigns high priority to environmental health
new "sovereign commodity" of greenhouse gas    impacts on the rural and urban poor. Hence, it
emissions reductions which could be registered    stresses the provision of basic modern energy
with the UNFCCC for purposes of assisting     services to the rural poor and peri-urban
industrialized countries in meeting their     populations. This would involve replacement of
quantitative emissions reductions obligations  low-quality biomass fuels with more-efficient
Lending for the Global Environment 33



modern fuels or of centralized fossil fuel     challenges will be addressed partly through the
electricity generation with off-grid renewable  implementation of the Energy-Environment
systems. The ensuing greenhouse benefits       Strategy and partly through further
would not likely be large relative to promoting  development of WBG's Environment Strategy.
large-scale, centralized renewable energy      The first challenge is building private-sector
systems. Replacing traditional biomass fuels,  and entrepreneurial depth, which often is in
however, has a potential of scaling up to some  short supply in client countries. Second, poor
2 billion people, representing a considerable  rural and peri-urban populations have almost
opportunity.                                   by definition only limited capacity to invest and
Reflecting on the experience of almost a  to service debt. There is limited international
decade, GEF operations have been in the        experience that can be called on for developing
vanguard of changes now resonating in the     instruments that would best meet the needs of
Bank's portfolio. Projects under GEF's        these populations. Third, there is a clear need
operational programs for climate change have  to better integrate environment and energy
provided much needed information about the     services access considerations in the sector
nature of the barriers that constrain the      reform process.
adoption of energy efficiency and renewable        Fourth, major challenges also lie in efforts
energy and the measures and strategies        to protect and sustainably use natural systems.
required for removing such barriers.           The maintenance of local environmental and
In particular, GEF's support has          biodiversity services could have strong benefits
demonstrated the financial and economic       for the enhancement of forests and soils as
viability of off-grid service delivery mechanisms    carbon sinks. Local and global synergies can be
or renewable-based mini-grids as alternatives to    tapped if climate change-motivated finance
extending wires for rural and peri-urban      increases the benefits of sustainable land
electrification. Thus, although promoted       management.
initially as a market development mechanism        Finally, the resilience to climate change is
for globally beneficial technologies, these   inversely related to economic prosperity: the
alternative service delivery mechanisms have   poor will suffer most. Hence, assessments of
enhanced the ability of the WBG to integrate  the vulnerability of our clients' agriculture,
more fully the issues of modern energy access  water resources, coastal zones, urban
in its sustainable poverty reduction strategy.  infrastructure, and so on-and improving their
Challenges Ahead. Going forward, the      long-term capability to adapt to global climate
WBG faces a number of challenges to fulfill its  change-need to be at the core of a poverty-
energy access mandate through                  focused, environment-based Bank strategy on
environmentally sustainable means. These       climate change.
3.3 Conservation and Sustainable Use
of Biodiversity
Role of the WBG. The WBG's goal in this case
is to assist client countries, through its lending
and nonlending services, to mainstream the
conservation and use of biodiversity in
environmentally sustainable development. In
doing so, it will help client countries address
34 The World Bank and the Global Environment - A Progress Report



the objectives of the Convention on Biological  capacity to embrace this latter role effectively
Diversity, which the great majority of WBG      in all cases where it would be called for.
member countries have signed. The WBG is            Portfolio Overview. Over the period
seeking to meet this challenge through lending  1 988-99, the Bank approved over US$1.6
and nonlending services.                        billion for biodiversity conservation in 226
In addressing this challenge over the last  projects involving its own resources (US$1.0
ten years the Bank focused its assistance on the  billion of IDA and IBRD funds) or resources
protection aspect of biodiversity management.   that it administers on behalf of the international
The real mainstreaming opportunities,           community (US$0.6 billion from the GEF and
however, lie in the sizable lending that the    the Brazilian Rain Forest Trust Fund). (See
WBG provides to client countries for            Table 3 and Figure 7.) An additional US$1.0
agricultural, forestry, coastal zone, and water  billion in co-financing was leveraged from
resource development and management. These      government counterparts and other financiers.
opportunities are only recently being realized  Two points stand out from these statistics: The
on a greater scale. As will be explored further  WBG is a major player, if not the largest, in the
under the development of the WBG's             international funding for biodiversity. More
Environment Strategy, they should lead the      important, however, member countries are
Bank into further supporting the conservation   willing to borrow from the Bank to finance
and sustainable use of biodiversity in the      biodiversity conservation activities.
broader rural landscape.                         TABLE 3
Going in this direction, the WBG needs to    World Bank Support for Biodiversity,
consider possible areas of comparative            FY88-99* (Total number of projects = 226)
advantage to bring to the benefit of its client
Funding source                Amount in million US$
countries: its ability as a GEF implementing     IBRD                                  576
agency to make concessional funding available    IDA                                   466
to countries to help them fund the               GEF                                   445
"incremental" costs of generating global         Rain Forest Trust Fund (PPG-7)        155
Co-funding and counterpart funding   i ,013
benefits from conservation and sustainable use   Total Funding                        2,632
of biodiversity; making available a menu of      *Note: FY99 data is preliminary.
instruments for financing biodiversity
conservation by public and private parties,         The greater part of this portfolio supports
including innovative ways of financial          the establishment of new protected areas and
intermediation or investment funds developed    the strengthening of management of existing
by the IFC; support for country efforts to      ones, including activities in buffer zones. In
coordinate and mobilize financing for           many such projects, the Bank is bringing its
biodiversity conservation from the broader      expertise to bear on the establishment of trust
donor community; and its ability through its    funds to finance recurrent costs of protected
high-level country dialogue process to enable   area management. More recently, however, the
country policymakers to look at biodiversity as  Bank is assisting in the management of
an economic good that needs to he harnessed     biodiversity outside protected areas through
for the benefit of national sustainable         habitat protection, eradication of alien species,
development. As discussed in the previous       and habitat restoration, and through
chapter, the Bank does not yet have the         biodiversity conservation through improved
Lending for the Global Environment 35



FIGURE 7 Annual World Bank Funding for Biodiversity, FY88-99*
500_
450-i
400                                                     0~~~~~~~~~~~~~~~~~~~~~ Cofunding
* RFTF
300                                                                        U 
.2
=250
E                                                                              IDA
200                                                                          GEF
150
100
0
0F~~~R Aq qq� qq                           qqZ    q    q    q  qbsq    q    q
*Note: FY99 data is preliminary.
management and sustainable use of natural       *. Environmental Trust Funds of various kinds
resources in the production landscape.            have been established in more than 50
This latter category represents a fast-       countries, many of which have been
growing segment of the portfolio and offers       financed through debt-for-nature swaps and
considerable opportunities for combining          GEF funds. In partnership with the GEF and
biodiversity objectives with poverty alleviation  other donors, the Bank has strengthened or
initiatives, for example through support for      established more than a dozen conservation
alternative livelihoods, which take pressures off  trust funds in Asia (Bhutan), Latin America
natural habitats, or by creating other incentives  (Peru, Bolivia, Colombia, Mexico), Africa
for protection and sustainable use of the          (Uganda, Cape Floral Kingdom), and the
resource base. Finally, the portfolio also        Pacific (Papua New Guinea (PNG)). In
includes support for inventory work, research,    addition, the WBG is testing sinking funds
information management, and monitoring, as        (Brazil) and alternative livelihood funds
well as ex-situ conservation. Many projects       (Philippines and Zimbabwe GEF projects as
cover several of these elements, and almost all   well as Bank-financed forestry projects in
projects include components for capacity          India).
building, institutional strengthening, and      * Creating markets for ecosystems services.
awareness raising.                                Another new and exciting financing
Partnerships and Special Initiatives.         mechanism aims at creating markets for
Mechanisms for financing biodiversity             biodiversity and ecosystems services. In
conservation (and thereby increasing its          Costa Rica, a new Bank-GEF project wil I
sustainability) plays a key role in the WBG's     support a program to pay landowners for
biodiversity program.                             maintaining forest cover and thus water
36  The World Bank and the Global Environment - A Progress Report



capture and habitat conservation services.
When benefits accrue to downstream users,       BOX 8
for example mini-hydroelectric plants, they     GEF Medium-Sized Projects-
pay for the services. When the benefits         Opportunities for New Partnerships
accrue to the nation as a whole (such as in     One of the most important developments of the
the case of habitat conservation), payments     last two decades has been the emergence of a
are derived from a trust fund. Hence, a real    strong NGO movement. NGOs today represent a
powerful force providing technical assistance and
market is created that brings together buyers   policy advice to govemments and societies all over
and sellers of ecological services, creating    the world. The WBG has strengthened its capacity
strong incentives to achieve sustainable        to engage NGOs effectively, but until recently it
biodiversity conservation,                      lacked meaningful tools to support them directly.
* IFC's Small and Medium-Sized Enterprises        GEF's program for medium-sized projects has
Program (SME) seeks to overcome barriers to     helped provide support to NGOs and government
sustainable use of biodiversity (and energy-    agencies in amounts up to US$750,000 through
streamlined documentation and expedited
related natural resources) that are caused by   approval procedures. As a result, a vibrant and
the scarcity of term financing. GEF resources   innovative portfolio has developed, with an
are channeled through financial                 emphasis on NGOs. The WBG's pipeline of such
grants is expanding rapidly and represents the
intermediaries to SMEs for commercially         fastest-growing segment of its GEF portfolio.
viable and GEF-eligible projects in
sustainable forestry, agriculture, and          There are now  28 such projects under
ecotourism. (See Box 8.) The aim is to          implementation and over 100 project proposals
are at various steps of preparation. The most
develop a track record of GEF financing to      interesting aspects of these projects are that they
leverage larger flows of private finance. The   effectively involve NGOs in project preparation
program has so far engaged 19                   and implementation and that they support highly
interesting, innovative approaches to the
intermediaries in 17 countries through          sustainable use of biodiversity. Examples include
which US$5.7 million has been committed         establishment of a new communal reserve to be
for conservation or sustainable use of          managed by indigenous people in Vilcabamba
(Peru), enhanced conservation of bird habitats in
biodiversity. Innovative projects with          the Seychelles, sustainable  biodiversity
emphasis on sustainable biodiversity use        management in the agricultural landscape and
include a successful project in the buffer      mountain meadows of Slovakia, and incentives to
zone of El Triunfo's Biosphere Reserve in       farmers in El Salvadrtyfrendlycoffeeproduction
Mexico, where local farmers are producing       under forest cover.
biodiversity-friendly coffee grown under
forest cover for export markets.
makes investments of between US$500,000
* IFC's Terra Capital Fund seeks to facilitate
and US$3 million in small, private
access by medium-sized enterprises to            b
equity financing for biodiversity-related        businesses that meet environmental and GEF
activities. The fund is a private, for-profit,   criteria in such areas as sustainable forestry,
environmental venture capital fund for the       agriculture, ecotourism, and other
Latin America and the Caribbean (LAC)            biodiversity-based businesses. It has started
region. It has been capitalized from a variety   to make a number of investments.
of private, governmental, and multilateral         The WBG biodiversity program is based
sources. With an initial capitalization of    on partnerships designed to help deepen the
US$15 million, it is based in Brazil and      dialogue and relationship with client country
Lending for the Global Environment 37



partners. To this end, the Bank fosters working  funds, sinking funds, alternative livelihood
relationships with major international NGOs      funds, user fees and resource rents, and
such as the World Wildlife Fund, the Nature      private-sector involvement. In addition, the
Conservancy, the Wildlife Conservation           Bank can play an important role in helping
Society, the World Conservation Union-IUCN,      to leverage cofinancing. The effectiveness of
Conservation International, World Resources      these alternative mechanisms to accomplish
Institute, Birdlife International, and Wetlands  financial sustainability remains under
International as well as other international and  review. A recent GEF evaluation of the use
national NGOs. Activities involve policy         of environmental trust funds, however,
studies, methodology development,                highlighted the need to maintain transparent
biodiversity assessments, strategic planning for  governance structures with strong civil
biodiversity conservation, and development of    society participation and minimal
individual projects. Project implementation is   government interference.
carried out in partnership with national and   *: Monitoring and evaluation. These are an
local government agencies, NGOs                  essential part of project activities and key
(international, national, and local), local      determinants of project success and impact.
communities, and indigenous peoples.             The WBG has built on lessons learned and
Lessons Learned. Experience from the         experience to develop guidelines for
development and implementation of the            practical monitoring and evaluation of the
WBG's considerable biodiversity porfolio         biodiversity and socioeconomic impacts of
suggests that three factors are critical for     our growing portfolio of biodiversity
successful project design, implementation, and   projects. Since the full impact on
impact: engaging and empowering local            biodiversity may not be apparent within
communities and other stakeholders, achieving    relatively short project lifetimes, the WBG is
financial sustainability, and applying effective  working to build capacity to monitor and
monitoring and evaluation.                       evaluate at the project and national levels,
* Stakeholder involvement. The Bank              and establishing local systems to monitor
continues to build upon past experience and    simple, practical, replicable indicators. The
lessons learned in its IBRD, IDA, and GEF      guidelines provide menus of indicators to
projects to encourage effective partnerships   allow managers to choose those appropriate
for conservation and sustainable use.         to the site and main objectives of the
Projects can help build strategic partnerships  project.
between government agencies, NGOs, and           These lessons were largely confirmed by
local communities to harness maximum        the WBG's Quality Assurance Group (QAG) in
expertise and ownership in order to meet    evaluating a sample of five biodiversity projects
biodiversity objectives and local and       in Africa. It concluded that all five projects
national needs. While stakeholder           made contributions to better biodiversity
involvement and creative partnerships are   management and were at the forefront of
keys to project success, no one formula     introducing stakeholder analysis and
works in every context.                     beneficiary participation. Biodiversity
* Financial sustainability. Alternative financial  operations are not likely to be sustainable,
mechanisms have to be explored to meet the    however, unless they are integrated into
recurrent costs of protected areas and long-  country and Bank development strategies or are
term conservation efforts. They include trust  adequately financed including, where
38 The World Bank and the Global Environment - A Progress Report



appropriate, funding on a continuing basis from   approaches based on national priorities in
the international community. The review also      which mainstreaming becomes a central
emphasized the need for disciplined project       driving force. While a country program may
design and for more aggressive supervision. A     be consistent with the Bank's CDF and
central recommendation was the need for the       present opportunities for more strategic
WBG to become more proactive in helping to        approaches to GEF investments, many issues
set the biodiversity agenda in the context of the  will have to be identified and solved,
country's overarching development needs.          including financing, country commitments,
Challenges Ahead. After more than 10         and the development of realistic targets.
years of experience in biodiversity               Nevertheless, country program approaches
conservation, the WBG has made important          present significant advantages over project-
progress in mainstreaming the biodiversity        based intervention and are likely to become
agenda, but it still faces major challenges.      major sources of interventions in the future.
Although the establishment and management of      In the same vein, the Africa region is
protected areas will continue to be the           developing a GEF strategy for sub-Saharan
cornerstone for WBG support, the Bank needs       Africa, linking national conservation
to expand its biodiversity portfolio further into  priorities with proposed development plans
the production landscape, where most              and Bank projects in the pipeline.
development lending occurs and where its       *, Linking biodiversity management with
greater comparative advantages remain.            ecosystem services and mitigation of risks.
Moving in this direction presents the following   The full economic value of ecosystem
key challenges and opportunities:                 services such as watershed protection and
*. Linking biodiversity to poverty alleviation.   flood control still needs to be assessed.
A major challenge for future development of     Nevertheless, it is clear that the loss and
the biodiversity portfolio will be to seek out,  degradation of natural habitats along the
create, and nurture real opportunities and     coastline and in upstream watersheds has
synergies between national and global          exacerbated the impacts of natural disasters
conservation priorities and poverty            such as Hurricane Mitch in Honduras and
alleviation needs. Parts of the current        the recent heavy floods in Mozambique.
portfolio provide a living laboratory for      Coastal mangroves provide coastal
better understanding such synergies. The       protection, while forested watersheds slow
biodiversity and other environmental           runoff and help flood control. A key
specialists in our institution will need to    challenge is how to better assist countries to
work closely with their country team           incorporate such biodiversity benefits in
colleagues to help mainstream biodiversity     national accounting (see section 2.3, above,
in the rural development agenda. Key           on Green Accounting) so that they can
vehicles for such mainstreaming are the        weigh the true costs and benefits of land use
Comprehensive Development Framework            changes and habitat conversion and
(CDF) and Poverty Reduction Strategy           degradation. The Bank is taking this
processes, and the CAS dialogue and its        challenge seriously. The World Bank
supporting sector work.                        Institute and environmental specialists are
* Linking biodiversity to country program-        developing a set of training modules and
matic approaches. The GEF is starting to       materials to emphasize the links between
experiment with country program                 biodiversity and ecosystem services.
Lending for the Global Environment 39



3.4 Sustainable Use of Forests
Role of the WBG. The stakes of successfully
tackling the critical global issues on which
much of human life depends are rising. The
approval of the Bank's Forestry Strategy in 1991
through a highly participatory process became
a major watershed event in the sector. Its goal
was twofold: to ensure that WBG-financed
investments would not contribute to
deforestation, and to promote forest
conservation globally.                         and services they produce-have much
More recently, new international           stronger linkages to other parts of the economy,
mechanisms have provided opportunities for     especially in areas where less formal markets
supporting forests on a large scale. Noteworthy  predominate, than is generally recognized.
among these are the UN Framework                    Portfolio Overview. The Bank's forestry
Convention on Climate Change (in which         project portfolio (FY92-99) contains 34
forests and forestry could play a major role in  projects totaling US$1.7 billion in lending. (See
addressing carbon cycle imbalances), the       Figure 8.) An additional 94 projects fall under
Convention on Biological Diversity (in which   the broader category of natural resource
forests have become one of its most important  management, with US$1.8 billion committed
implementation pillars), and the Commission    for forestry activities. Many of these
on Sustainable Development (in which the       investments have concentrated on
work of the International Forestry Panel       conventional, "do-no-harm" interventions and
provides guidance to governments globally).    have not addressed reforms that might lead to
All in all, the demand for financing in the  significant progress in sustainability, forest
forest sector (from both a conservation and a  conservation, and poverty alleviation.
sustainable use perspective) has increased     Moreover, there has been insufficient economic
markedly during the last decade. Nonetheless,  and sector work in forestry, and a lack of Bank
the trends suggest a shift toward a forest sector  continuity or presence in some countries with
in which forest management will be viewed as   important forest sectors. A recent review by the
a multipurpose enterprise, providing services as    Operations Evaluation Department (OED) of
diverse as timber, watershed protection,       the World Bank observes that due to the highly
ecological services, biodiversity habitats, and  contentious and political nature of the forests
scenic beauty.                                 sector, decisionmaking processes within the
As clarified under the CDF, the WBG is     Bank on forest sector interventions have
moving away from emphasizing individual,       become risk-averse.
stand-alone projects to an integrated program       On the positive side, Bank-financed
of intervention. In forests, this is relevant for  projects in China and India have contributed to
two reasons: first, forests are affected by     poverty reduction and sustainable
activities in a number of other sectors and, to  development. In Russia, Cambodia, and
date, the Bank has been less than successful at  Indonesia, the Bank has initiated a more
taking these impacts into account in its       comprehensive approach to the forest sector,
programs; and second, forests-and the goods    bringing into play a wider set of instruments, in
40 The World Bank and the Global Environment- A Progress Report



FIGURE 8 Current World Bank Forest Project Portfolio, FY92-99
(Total commitments equal $1.7 billion in 34 projects)
40 ,_U Neber of
projects *0
percet of
total forest
_____________                          ~~~~~~~~~~~~~~~~~~~~project
2 0~~~~~~~~~~~~~~~~~ 
3 0                                                           U . |Com mitment
X 10                                                          p of
~  0
Africa   East Asia/  Europe/   Latin    Middle  South Asia
Pacific  Central Asia America/ East/North
Caribbean   Africa
particular structural adjustment, to combat    fashion, except if they are tropical moist forests,
deforestation and forest degradation effectively  in which case the Bank's forest policy
and to promote better forestry sector outcomes.    prohibition applies. (The IFC does not directly
In Costa Rica, innovative approaches for        finance timber harvesting operations in intact
financing conservation and sustainable forest   tropical moist forests.) Through its GEF-funded
management are being tested, including forest   SME Program, the IFC has engaged with a
carbon trading and the development of           number of small-scale sustainable forestry
ecomarkets. However, it has to be               initiatives, including a project in Costa Rica
acknowledged that Bank interventions have not    with FUNDECOR that encourages smallholders
significantly reduced the rate of deforestation in   to engage in agroforestry operations and a
general, although this was one of the main      project in Papua New Guinea with WWF
intents of the 1991 Forest Strategy. Likewise,  where an Integrated Conservation and
governance problems are an important issue      Development Plan has been prepared for a
and have had a negative impact on forests in    community-run forestry enterprise that provides
many forest-rich countries, but have rarely been    an alternative approach to destructive clear-
addressed effectively by the World Bank.        cutting.
The IFC's disbursed forestry project            Partnerships and Special Initiatives. In
portfolio through the end of FY98 totaled       recent years, a number of special initiatives
US$300 million. Most investments are in wood    have been launched to enrich and complement
processing operations, where the raw material   the more traditional investment and policy
often comes from commercial forestry            lending approach of the Bank. These include a
plantations, both temperate and tropical. The   private sector/civil society dialogue process-
IFC can only invest in wood processing          the ad hoc CEO Forum on Forests-chaired by
operations that obtain their supply from natural    the World Bank's President and the Global
forests when those forests can be shown to be   Alliance on Forests (WWF/World Bank
managed and harvested in a sustainable          Alliance), which has ambitious targets for
Lending for the Global Environment 41



improved forest management and forest            with funding from the Bank and the MacArthur
conservation. (See Box 9.)                        Foundation and overseen by a international
The Forest Concession Management             board covering the full spectrum of forest
Initiative is a direct spin-off of the CEO Forum.  sector industry and NGOs. It is a strategic
It aims to mobilize and influence the private    coaliton for achieving healthy and expanding
forest products industry toward improved forest    forest ecosystems by using market forces to
management and to mainstream biodiversity        ensure that all forest goods and services are
conservation in production forests, particularly  recognized and appropriately valued in market
in the tropics. The initiative will build up a   transactions. It also sponsors initiatives to
knowledge base to counteract the growing         develop alternative sources of fibre to reduce
negative impacts of migratory logging            timber product demand, especially from old-
companies that practice unsustainable "mining"   growth forests. Now a year old, Forest Trends
of forests.                                      has been an effective catalyst in thinking on the
Forest Trends represents another             forest carbon market, and in sustainable
partnership designed to engage the private       forestry and independent certification.
sector and the market place to support                Lessons Learned and Challenges Ahead. In
sustainable use of forest resources. Forest      order to rectify the somewhat ambiguous role
Trends is an independent NGO established         the Bank has had on global and national levels,
BOX 9
The Global Forest Alliance
The WWF/World Bank Alliance for Forest Conservation and Sustainable Use was formed in April 1998 as a
response to the continued depletion of the world's forest biodiversity and of forest-based goods and services
essential for sustainable development.
Specifically, the Alliance is helping countries to create 50 million hectares of new protected areas of forests,
and to ensure that a similar amount of existing protected areas come under effective management by 2005. In
the same time frame, the Alliance also aims to have 200 million hectares of the world's production forests
under independently certified sustainable management.
The targets for creation of new protected areas and strengthening existing parks are well on track, supported
by normal Bank lending and GEF projects. In Brazil, for instance, the Government has committed to protect
28.5 million hectares in 82 new conservation areas in the Amazon rain forest, and in Peru, an additional five
protected areas will be created, covering 6 million hectares. Through the WWF-Bank organized Yaounde
Summit of March 1999, Heads of State of Congo Basin countries committed to the creation of a further 3
million hectares of new forest protected areas and to moving progressively towards independent certification
of improved forest management in the Basin.
The sustainable forest management target is more challenging. Alliance partners have broadened the application
of independent certification and verification to bring transparency and accountability to bear on the most
vexatious issue of forest sector management: poor governance and forest crime, and protecting the interests of
the poor and forest dependent peoples who have historically had little voice and recourse to justice to protect
their livelihoods. Practical measures to develop locally meaningful performance indicators and arrangements
for multi-stakeholder review of the performance of forest resource managers at all levels are currently being
developed. In Viet Nam, for example, the Alliance has been able to mobilize more than US$1 million in
private-sector investment from the Tropical Forest Trust, an association of furniture buyers. The Alliance is
also promoting the development of a global vision for 2050 to shift the balance from forests as a source of
fiber production to forests managed to meet the needs of local communities, as well as for environmental and
aesthetic values.
42 The World Bank and the Global Environment - A Progress Report



a review of the Bank's forest sector strategy was   forest conditions to structural adjustment
launched in 1998. This review, led by the           loans has already proved to be a useful way
OED, aims to assess the Bank's role in the          of informing government policy and forest
forest sector and in other activities that affect   management in PNG (see Box 10). In
forests and to develop a strategy to improve        Indonesia, conditions on International
performance in the sector, particularly to assess   Monetary Fund and Bank lending have led
the possibility of a new and expanded role in       to a government decision to implement a
forests. Raising the Bank's performance in the      moratorium on all further conversion of
sector in a manner consistent with the broader      natural forest until a National Forest Program
and more comprehensive framework of Bank            has been agreed and there is a clear and
assistance will require:                            transparent process in place for review of
*. Making better use of Bank instruments,           any land use proposals.
particularly the adjustment instrument, to     *. Assuming a stronger role in the sector as
combat deforestation and forest degradation      partner, convener, and catalyst, especially
effectively and to promote significantly         improving partnerships in countries where
better forestry sector outcomes. Linking         the sector is important. This relates to the
BOX 10
Forest Conservation and Management in Papua New Guinea
Papua New Guinea still has 33 million hectares of closed natural forest, home to countless endemic species.
Some 15 million hectares of forests are accessible for logging, of which 1.5 million hectares have already
been logged, generally in an unsustainable manner. Of the over 6 million hectares of approved timber blocks,
more than 1.5 million are located in areas of high biological value. Forest loss and degradation are now
becoming serious problems.
The Bank has been assisting the Government of PNG to assess and resolve difficult trade-offs and conflicts
between conservation and development. Protected areas under government management cover only 0.2
percent of total land area, and opportunities to expand the conservation estate depend on local landowners
adopting conservation-friendly land use practices. Bank-funded Australian scientists have tested tools to identify
priority areas for biodiversity conservation in PNG using a rapid assessment methodology to determine a
range of options to jointly optimize biodiversity conservation, agricultural productivity, and forestry
opportunities.
A new WBG-GEF project will work with the Government of PNG to improve current forestry practices to
become ecologically and socially sustainable. Forest policy changes have been initiated as a prerequisite for
a Bank structural adjustment loan. A transparent concession award system has been put in place and higher
royalties accrue to landowners. Under a WBG loan, the Forestry Authority will be strengthened in its planning
and monitoring role to encourage sustainable forestry management, and independent audits will be conducted
of all logging operations. The project will also strengthen environmental institutions responsible for monitoring
environmental impact assessments. In addition, and most important, there will be a comprehensive effort to
improve access of landowners to information and technical advice for more informed land use decisionmaking.
A conservation trust fund has been established to finance implementation of landowners' choices to follow a
conservation rather than a full-scale development path.
Because alternative livelihood options such as ecotourism are limited, some international NGOs have already
accepted that lighter, reduced-impact, community logging operations are more desirable than the larger-
scale, more destructive commercial, logging. Such initiatives are being piloted in the Kikori Basin, with a
strong emphasis on planning to set aside conservation areas and to monitor biodiversity impacts. These pilots
could provide a model in which sustainable forest management can be combined with biodiversity conservation
and better and more equitable sharing of benefits.
Lending for the Global Environment 43



need to work much more comprehensively      ... Managing forests sustainably. In developing
with other donors, including the GEF,           its forestry lending program, the WBG needs
government and private-sector agencies, and    to proactively support systems for
civil society groups on sector issues analysis  sustainable forest management while
and strategy development. An important         ensuring that these systems are sustainable,
aspect of this will be to mainstream the       support biodiversity conservation, and serve
efforts to reform the forestry sector in the   social and poverty goals. Natural forests,
WBG's strategy, dialogue, and major            especially lowland tropical forests, sustain
adjustment interventions.
very high levels of biodiversity, but this
*: Developing a programmatic approach to the      value decreases with intensity of
sector, both inside and outside the Bank, to    modification. Within tropical forests, the
replace the frequently ad hoc, opportunistic,
standaloneprojet invstmen scenrio,area of logging concessions today is eight
standaloneprojet invstmen scenrio.times greater than that of protected areas.
This is essential for the Bank to be able to
address forest issues seriously in a global    Thus the WBG could play an important role
context. It is also required to properly take  by encouraging more sustainable
into account the potential impacts of          management in production forests and
activities and investments originating outside  maintenance of a permanent forest estate.
the sector on forested areas and the
livelihoods of those dependent upon them.
3.5 Fresh and Marine Water Resources
Management
Role of the WBG. In 1993 the Bank issued a
comprehensive statement on water, "Water
Resources Management: A World Bank Policy
Paper." This policy views freshwater, coastal,
and marine resources as a management
continuum that requires cooperative
development of strategies and implementation
of actions at the regional, national, and local
levels. The policy emphasizes that water is a
unitary resource that needs to be addressed in a    Portfolio Overview. From FY88 to FY99,
comprehensive manner, with particular          the Bank's total water resource portfolio,
attention given to the environment. It          including irrigation and drainage, water supply
recognizes the important linkages between      and sanitation, industrial pollution control,
actions taken upstream and their downstream    hydropower, and natural resource
consequences for river basins, lakes, and      management, encompased more than 700
coastal zones. The policy framework has        projects. Total commitments in the water sector
provided the basis for regional water strategies  amounted to about US$20 billion for projects
in the Africa region and in the Middle East and  costing a total of about US$50 billion, making
North Africa region, and, at the national level,  it one of the most important lending sectors for
in several countries. (See Box 11.)            the WBG. Although the bulk of this investment
44 The World Bank and the Global Environment - A Progress Report



BOX 11                                           BOX 12
Strategic Support-African Water                 Trinidad and Tobago Water Resources
Resources Management                             Management Strategy
* Sub-Saharan Africa Water Strategy             The Water Resources Management Strategy has
*:. Sub-Saharan Regional Efforts:            integrated several cross-sectoral issues, including
the development of a water resources policy and
Lake Victoria Environment Management       institutional framework for the regulation of water
Volta River Basin Study                    resources, which will be particularly essential for
Nile Basin Action Plan                     regulating a privately operated water and sewerage
utility; a water resources development planning
SADC Water Resources Strategy              framework, which will use surface water,
-. National Water Resources Policies/Strategies:  groundwater, and desalinated water for municipal,
C6te d'lvoire   Nigeria                    industrial, and agricultural supply, incorporating
ecological flow requirements for the Caroni and
Ethiopia        Senegal                    Nariva Swamps (a Ramsar site); a flood control
Ghana           Tanzania                   strategy; a pollution control and water quality
Kenya           Uganda                     management strategy; a watershed management
Malawi          Zambia                     strategy; and a public awareness strategy.
Mozambique      Zimbabwe                   Recommendations include:
Namibia                                     -: Implementation of the concept of integrated
water resources management
is in water supply, sanitation, and irrigation, the  4. Establishment of an effective and financially
WBG's holistic water management approach             autonomous institutional framework that
allows for a growing number of environmental         facilitates efficient water resources
benefits to be generated through this portfolio,     management
as demonstrated in Trinidad and Tobago. (See       s- Actions to meet the growing demand
Box 1 2.) Lending for environment and water        s Protection of environmental quality and
projects is expanding, having experienced a          ecological systems
I 09-percent increase over the last five years.   4+ Development of capacity and tools to support
Operations supporting the management of              decisionmaking.
coastal and marine resources are estimated at
over US$720 million and include more than 30     other partners to actively support development
separate operations supported by Bank lending    and implementation of regional conventions for
and grants from the GEF, European Union,         the management of international river basins
bilateral donors, and other sources.            (Danube, Nile, and Mekong Rivers), shared
Partnerships and Special Initiatives.       lakes (Lakes Ohrid and Victoria), regional seas
About 300 major river basins and many            (Aral, Baltic, Black, Caspian, and Red Seas and
groundwater aquifers cross national              the Gulf of Aden), and recently shared
boundaries, and coastal and marine               groundwater aquifers (Guarani aquifer in Latin
environments are often shared between several    America and shallow aquifers in West Africa).
countries. It is essential for riparian and littoral  (See Box 1 3.) It also undertakes national-level
countries to find effective ways of cooperating  projects to support implementation of these
in the management of these shared resources.    conventions through the control of nonpoint
In this context, the Bank works with the GEF     source pollution from agriculture, coastal zone
(through its International Waters Program) and   management, and conservation of wetlands.
Lending for the Global Environirrmerit 45



Programs are being undertaken with the
BOX 13                                        Government of Germany to examine
The Strategic Partnership for Nutrient        management of transboundary waters, and with
Reduction in the Black Sea/Danube             the Government of the Netherlands to prepare
Basins                                        water resources and environment guidelines.
Eutrophication isthemostserious medium-tolong-  The International Coral Reef Initiative (ICRI)
term environmental problem in the Black Sea,  serves as a key partner in efforts to conserve
causedbynutrin-primarilyofagriculturalorigin-  "the rainforests of the sea." The Bank is a
carried by tributary rivers to the sea. Because of
strong divisions between sectors involved in  founding partner, active representative, and
competitive agricultural production and       contributor to ICRI. All these partnerships
environmental protection, and limited public  extend to the operational level.
awareness of the long-term dangers of the problem,
it is difficult to implement long-term policies to  Lessons Learned. WBG experience in
address this issue.                           addressing environmental aspects of water
With this difficult situation as a backdrop, the  management has demonstrated that the
World BankandtheGEFaredevelopingaprogram      development of a shared vision through
to address the investment needs of the Black Sea  cooperative planning processes allows a wide
and Danube, 'The Strategic Partnership for    range of parties to reach agreement on the
Nutrient Reduction in the Black Sea/Danube    goals, objectives, and measures required for
Basins." According to the proposal, the GEF would
provide US$70 million in grant financing over a  effective freshwater, coastal, and marine
six-year period to cover the incremental costs of  management. These processes should be
obtainingglobal benefitsforinvestments.Thefunds  inclusive and should help the cooperating
under this umbrella investment program would
leverage local, World Bank, bilateral, and    parties to worktogetherforcommon purposes
European Union financing for investments in   on a long-term basis. Also, the success of these
wetland restoration, agricultural nonpoint source  efforts is often directly related to the sustained
pollution, and municipal and small industrial  political commitment and broad based public
wastewater treatment.
support they receive. Maintenance of support
requires effective dissemination of accurate
This portfolio is being expanded by the         information about the objectives,
addition of a number of medium-size grants      achievements, and challenges of these efforts,
from the GEF.                                   presented in a manner easily understood and
The Bank's range of partnerships in the    used by decisionmakers and the public.
area of water extends further. The Global Water     There is also a need to provide balanced
Partnership promotes integrated approaches to   support for both preventive and curative
water resources management and includes a       measures. Preventive measures, by far the most
window for ecosystems management. The           cost-effective type of intervention, can be
World Commission on Dams is a joint initiative    complemented by curative actions when
of the Bank and IUCN that is reviewing the      needed. The use of preventive measures,
development effectiveness of dams and           however, also provides an important
assessing alternatives for water resources and  opportunity to integrate the environmental
energy development, and will develop            dimension into the development process
internationally acceptable criteria and         broadly in order to ensure sustainability.
guidelines to advise future decisionmakers in   Finally, the effective development of
the planning, design, construction, monitoring,  partnerships between a diverse range of
operation, and decommissioning of dams.         cooperating parties is critical for providing the
46 The World Bank and the Global Environment - A Progress Report



basis for sustained political interest and strong  These approaches incorporate a range of
public support, and for facilitating major      complementary actions-policy, regulatory,
resource mobilization efforts. Partnerships have  management, investment, and institutional-
proved to be important in the development of   that, with phased implementation, facilitate
strategies, identification of priorities,       environmentally sound management of these
development of practical actions, and           resources. Finally, and where innovative
implementation of activities.                   solutions to freshwater, coastal, and marine
Challenges Ahead. Addressing remaining     resources management have been found to be
concerns in the water sector requires strategic  successful, these approaches need to be more
shifts to support implementation of an          broadly applied and made part of mainstream
integrated approach to water management.        operations.
First, there is a need to move toward more          An important and emerging area of
comprehensive approaches. The Bank has          concern in water management is the serious
given priority to developing and implementing   threat of persistent organic pollutants to human
regional and basin-level programs that promote  health and the environment. The WBG is
integrated strategies for freshwater, coastal, and  presently reviewing its existing portfolio to
marine resources. Second, as mentioned          ensure consistency with a soon-to-be-
earlier, it is necessary to further emphasize   developed international legal instrument
preventive measures, since the costs are small  controlling POPs emissions. It is also
compared with remediation and rehabilitation.   considering how to best assist countries in
Third, there is a need to move towards more     preparing for a future convention. All of the
strategic approaches through regional           above challenges and emerging areas of work
programs, regional and national water           are being considered during the preparation of
resources strategies, and projects for river    a WBG Water Sector Strategy.
basins, lakes, coastal areas, and marine areas.
3.6 Addressing Land Degradation                        7-:r
and Desertification
Role of the WBG. The majority of the world's
poor live in rural areas where continuing
processes of land degradation and
desertification undermine efforts to sustain
livelihoods. The signing of the Convention to
Combat Desertification (CCD) in 1995, and its
ratification by 162, countries demonstrate the    for sustainable policies that reverse serious
magnitude of the global concern and the           degradation of soils, particularly in Africa,
strengthened national commitments to address      where the impact on poverty is the greatest.
these issues. The WBG is responding to these      Second, WBG lending in support of
developments in several ways:                     controlling land degradation totaled US$1.8
*. First, an important element of the WBG's       billion in the period 1990-99.
rural development strategy focuses on        *. Third, as explained in detail in this section,
improved land and water management in          the WBG through its association with GEF
arid and semi-arid areas, including support     and the Global Mechanism (GM) for the
Lending for the Global Environment 47



CCD is taking a proactive role in resource  and the World Bank are major partners through
mobilization and donor coordination in    the Facilitation Committee, which also includes
support of national action plans to address  the African Development Bank, Asian
desertification and unsustainable land    Development Bank, Inter-American
practices.                                Development Bank, GEF Secretariat, UNEP,
4* Finally, the WBG is seeking closer working  FAO, and the CCD Secretariat. The World Bank
relationships with UNDP, UNEP, the        is currently exploring the possibility of
International Fund for Agricultural       supporting the GM through its Development
Development (IFAD), the Food and          Grant Facility with a grant of US$2.5 million
Agriculture Organization (FAO), and other  over two years.
agencies and NGOs that are active in           The Africa Land and Water Initiative,
supporting drylands management.           launched in 1999 by the heads of UNEP,
Portfolio Overview. Between 1990 and    UNDP, GEF, and WBG, seeks to improve
1998, the Bank approved financing for 159   mechanisms for integrating existing efforts for
projects directed wholly or in part at natural  sustainable land and water management. The
resource degradation in affected client      proposed action program to implement the
countries. Direct lending totaled the equivalent    initiative involves appraisal of successful
of about US$9 billion and leveraged about    experiences and aims to promote new ways to
another US$9 billion, resulting in a total   link actions by various implementing agencies
dryland investment portfolio exceeding US$18  through natural units such as watersheds and/or
billion. Of this total, 54 projects were primarily    political unit approaches. The program will
directed at land degradation, with lending of  benefit from the special institutional strengths
US$1.8 billion. A regional breakdown shows  and comparative advantages of the
that 40 percent of these projects were in sub-  collaborating agencies working together. Four
Saharan Africa, 18 percent in Latin America  projects have been identified as pilot
and the Caribbean, 13 percent in Middle East  candidates: World Bank/UNDP Nile Basin,
and North Africa, 13 percent in South Asia, 9  UNDP/World Bank Lake Chad Basin, World
percent in East Asia, and 7 percent in Europe  Bank Senegal River Basin, and UNEP/GM Futa
and Central Asia. In addition to Bank lending,  Djalon Mountains.
GEF funding helps ensure that, wherever          The Africa Soil Fertility Initiative supports
feasible, the design and implementation of   the dual goals of poverty alleviation and
large projects contribute to conserving     environmental protection. Its specific objective
biodiversity, securing carbon sinks, and     is to improve the productivity of cultivated
reducing carbon emissions.                   lands and raise the revenue of farmers through
Partnerships and Special Initiatives. Many    a combination of technology adaptation and
of the initiatives to address land degradation  policy reform. It will focus on dissemination of
are implemented in partnership with other    appropriate technologies, economic valuation
international organizations. Three of these  of soil fertility benefits, rationalization of local
initiatives are particularly noteworthy.     input markets and distribution mechanisms,
The Global Mechanism has been           and policy reform to encourage more efficient
established under the CCD to help country    distribution of costs between private and public
parties mobilize and rationalize resources to  sectors and to provide appropriate incentives.
support the implementation of the convention.    Lessons Learned and Challenges Ahead.
Although the GM is housed by IFAD, UNDP      Until recently, drylands management was to a
48 The World Bank and the Global Environment - A Progress Report



large extent seen as a defensive battle: a   quality and natural resource use practices affect
struggle to protect and conserve dryland     welfare and economic development.
resources from degradation-in other words, a     Listen to to the drylands communities.
fight against desertification. Although there are  Finally, participation by drylands communities
environmental resource problems threatening  is crucial to improved drylands management. If
the livelihood security of people in the world's    policies and practices of governments and
drylands, there needs to be a greater focus on  donors are to succeed, they must be based on
possibilities and options.                   the knowledge, aspirations, desires, priorities,
Understand the dryland ecosystems and   and decisions of the people living there. These
the interaction of society and ecology.      communities have a strong interest in the
Perceptions of "desertification" and land    preservation of the resources that provide for
degradation have changed considerably over   their survival, but they are often constrained by
the last decade. The most alarming reports of  inappropriate government or donor policies.
growing deserts and soil loss have been found
to have poor empirical foundation. Although  3.7  Implementation of the
land degradation does occur, a large portion of  GEF Program
the vegetational changes observed in recent  The above review of World Bank Group issues
years can be attributed to long-term fluctuations    of global concern has demonstrated the
in rainfall, in addition to human resource use.  growing importance of the WBG's GEF and
Drylands have a high degree of resilience to  MLF programs (see also Figure 9). The latter
human interventions and dryland populations  program focuses exclusively on the protection
have developed well-adapted and efficient    of the ozone layer and was reviewed in the first
resource management and utilization practices.    section of this chapter. The WBG's GEF
These findings have important implications for  assistance, on the other hand, covers several
developing "good practices' by governments  thematic areas-biodiversity conservation,
andevopngr wgooa praticgtointes"ene by goern s  climate change, the protection of international
drylanddos wantieengto inevnei mpoig         waters, and the ozone layer. This section
drylands management..'
Build commitment and capacity at the    provides an overview of that program.
Build ommitent ad capcity t theThe creation of the GEF in 1991 stemmed
country level. Effective action to improve the   The wrldwide omenmae in   the
livelihoods of drylands populations while    precedin  decde for entin atin on
presrvin th natralresorce aserequres preceding decade for International action on
preserving the natural resource base requires  environmental issues. Since the 1992 Rio Earth
government commitment, political will, and   Summit, the GEF has emerged as a facilitator
capacity-all of which need to be strengthened.    and a funding mechanism for integrating global
Environmental issues, including the follow-up  concerns into the development process. After a
to the CCD, are often the domain of specialized    three-year pilot phase, the GEF was restructured
environmental agencies, with little impact on  in 1994 to provide for universal membership,
macroeconomic and sector policies. For       greater transparency and participation in its
environmental concerns to be better integrated  affairs, and a role as interim financing
into economic policymaking, it is also       mechanism for the global conventions on
important that country environmental         climate change and biodiversity. Under the
agencies-as well as environment or natural   guidance from these conventions, the GEF has
resource sections of donor agencies-are able  adopted 12 Operational Programs that provide
to show more clearly how environmental       the framework for determining eligibility for
Lending for the Global Environment 49



accessing GEF funding. This framework will     and climate change, which together have
continue to evolve and to challenge the WBG's    absorbed 75 percent of WBG-GEF grants,
ability to integrate global environmental       leaving a smaller share for projects designed to
concerns in its development assistance.        protect international waters and the ozone
Together with UNDP and UNEP, the           layer. With the expected completion over the
WBG has served as an implementing agency       next few years of national ozone-depleting
for the GEF for nine years. The WBG's mandate    substances phaseout programs for countries
is to primarily "ensure the development and    with economies in transition, the WBG-GEF
management of investment projects,"            ODS program will come to an end.
complementing the mandates of UNDP                  As the WBG's GEF portfolio is young and
(primarily capacity building and technical     the expected environmental benefits have a
assistance) and UNEP (catalyzing scientific and  long gestation period, it is not possible at this
technical analysis and global and regional     stage to assess the impact of the efforts of
enivironmental assessments).'                  WBG-GEF lending services. However, the
Portfolio Development and Performance.     performance of WBG-GEF projects are
The GEF program has grown over the last nine   regularly assessed based on the criteria used for
years into a strong and diversified portfolio that    the WBG's portfolio as a whole. Results from
embodies innovative approaches to address
annual performance reviews show that GEE
global environmental issues at the local level  projects perform as well as if not somewhat
and that IS becoming increasingly better
indtegated with theoming iregulars dingl e    better than other Bank projects with respect to
operations. In total, WBG management has       disbursements, implementation performance,
operaions In otal WBG nanaemen hasand expected impact on project objectives.'�
approved 142 projects in close to 70 countries    adepced   action project    iv
for a total of US$1.1 billion in GE funding.   Progress has been achieved in eY99 in
The 142 projects represent a diverse set of    incling GEr op     the  standard
lending instruments, purposes, and activities,  quality work of the Quality Assurance Group:
lendng nstumens, urpses andactvites, For example, seven GEF projects were included
including enabling client countries to plan for  fo exam pl v       projesw encue
and report on their obligations under the global    in the third Rapid Supervision Assessment's
environmental conventions (grants of up to     sample of Bank operations. This is equivalent to
US$350,000 under expedited procedures),        about 10 percent of the active GEe  portfolio,
engaging NGOs and communities in               the same as for the Bank. Projects financed by
addressing local environmental priorities with  the GEF and MP have above-average results
links to one or more of GEF's focal areas ("fast  compared to Bank-wide results in the Quality at
track" medium-sized grants of up to US$1       Entry Assessments for 1999, with half of the six
million), and providing incremental cost       GEF/MP operations receiving a "highly
funding to public- and private-sector clients to  satisfactory" rating.
support their capacity to invest in or remove       Leveraging Action. The WBG's GEF
barriers to adopting global environmentally    financial commitments are small relative to the
friendly development and natural resource      size of the global environmental problems.
management options (grants ranging from US$1   However, the Bank can leverage action for
million to US$50 million, and averaging        global environmental management by
US$10 million).                                mobilizing resources, promoting technology
As can be expected, the portfolio is      transfers, and, as reviewed earlier, fostering and
dominated by projects focused on biodiversity  strengthening partnerships.
50 The World Bank and the Global Environment - A Progress Report



FIGURE 9 The World Bank Group's GEF and MLF Programs at a Glance
WBG - GEF Commitments* and Disbursements                                               World Bank/Montreal Protocol Cumulative
$1200   -          -  -             ___  ___  ___                   --                         Commitments* and Disbursements
350.00          -       __    _     _        ______           _ __
$1,000   _
300.00 _     _       _       _                      _       _, 
____                       -   ___ -              ~~~~~~~~~~~250.00-__    __
ffl  $ 600   - _   -   _ --_- --                                                     250 .00 8   ,_               __           _-    -       _ _    _  _
tt0                                                   $200 00                                              __
$400     _       _                 , 'S                                                      --
--a                        *100.00   -                                       _-                    - -  -
$20    o                                                                          50.00              n----   -_
$                                                                                0 - r. 0 0 
92      93     94      95      96       97     98      99                          92      93      94      95      96      97       98      99
Bark Fianc-al Year
Commitments (USOMillions)        *  Disbursemnents (US$MiiIons)           r-        Commitments_(US$Msillons)       *  Disbursements (US$Milions) 
Comm'cmnnts are based on World f-ask Management apprcvals                          'Commitments a,e based on World Bank Management approvals.
Funding of WBG - GEF Projects by Focal Area                                        World Bank/Montreal Protocol Cumulative
Commitments by Sector
International       Oeone DepletiomOttDple                               SSl,silants 40                               Aerosol
12%            ~~~11%             2%                           US$ 12.31              -.. 4              -US$12A46        F
_W__ S$n US$13392
ClinatonChange                                -         Biuderaruity                USS183.13ronacucon r   PrcessAgents   Other                        to
36%                                                  39%o                                          US$32.84            US$0.07      U$55J93
Funding of WBG - GEF Projects                                                   World Bank/Montreal Protocol
by Financing Source                                                   Cumulative Commitments by Region
Muaitlateral           Privte                                             Ems Asia                                               u.p
2%                   32%                                               US$68.39                                              Cent,al Asia
Lanai     '/-                                                                                                                                US$16 13
Cot.                                                                 Oth
Cammanisim>        .-6o                                                                                                               o       l
Lati, Ameri,a
US$58 77
China
US$165 62
8 Biateral                    GEF                                                    Africa.US$0.68               US$50.16
9%                          20%
Funding of WBG - GEF Projects by Region
Middle East &     South Asia           Africa
NorthAfrica         7%                  14%
69
Gobal    -_Eat Asut &
9%                  ~~~~~Europe &Pacifi
Central Asia                        25%
23%
Lending for the Global Environment 51



Objective measurements of funds actually    technologies are crucial for the ultimate goal of
leveraged by WBG's GEF resources are difficult   climate stabilization. With GEF grant resources,
to establish, since it is not always possible to  the WBG is able to accelerate the development
determine which funding source has leveraged  and transfer of globally friendly technologies to
another. However, for every US$1 of Bank-GEF    developing-country partners. To illustrate,
assistance provided, there is an associated   Bank-GEF support to India for wind power
US$1 of IBRD/IDA resources as well as US$2    paralleled explosive market growth during the
of cofunding from other donors, foundations,  mid-I 990s fueled by favorable investment tax
and the private sector. (See Figure 10.)      policies. A US$26 million GEF contribution
The portfolio contains ample evidence of  directly financed 41 megawatts of wind turbine
projects where access to GEF resources has    installations and strengthened the capabilities
accelerated the mobilization of resources to  of the India Renewable Energy Development
support local action on global environmental  Agency to promote and finance private-sector
concerns. The Lake Victoria Environment       investments, and more than 270 megawatts of
Program is a good example, where the          wind projects were financed through this
prospects of substantial GEF support led the  agency. Today about 1,080 megawatts of wind
three riparian countries to agree in 1994 on a  capacity have been installed in India, and
priority action plan to reverse serious ongoing  dozens of domestic wind turbine manufacturers
environmental degradation. The US$35 million  have emerged, many with foreign partners.
GEF grant wasintrmetgLessons Learned and Challenges Ahead.
GEFtgrant wans insrument  inA mobelifinge     To further growth and mainstreaming of the
matching funds from IDA to help finance
priority investment addressing pollution "hot  GEE in WBG's overall development assistance
spots;' other bilateral donors followed by    program, several lessons and associated
expanding their assistance for environmental  challenges stand out:
First, we need to strengthen our capacity
management of the lake and its ecosystem.     toln  E  udn  n  oa  eeomn
Todays resarch,develpment andto link GEF funding and local development
Temodstray'  eorese    development and    priorities. Despite the progress that has been
demonstration efforts to develop new energy   md  omisra   h   E,tegoa
made to mainstream the GEF, the global
environment and the GEF program are still too
FIGURE 10 Mobilizing Resources for the        feunl  okduo  sasprt  n
GlobalEnviroment trough  BG-GEFfrequently looked upon as a separate and
Projects                                      externally driven agenda. The extensive synergy
that exists between the global environment and
($5.9 billion)                 local development challenges is not sufficiently
understood at the country level or within the
*   .        .    .                WBG itself. This calls for a program to
strengthen and accelerate in-house and client
training on understanding the links between
_ *- *  B_                          global environmental objectives and
sustainable development and the opportunities
for addressing them in WBG development
assistance and national sustainable
development planning.
Second, we will explore modalities for
linking GEF funding more programmatically to
52 The World Bank and the Global Environment - A Progress Report



the WBG's country assistance dialogue and     developing and implementing GEF projects
lending programs. The greater part of WBG-    with accountability to the GEF Council via the
GEF assistance has been characterized by      WBG as one of the three GEF implementing
single project interventions typically over a  agencies. Efforts in forging such partnerships
period of five to six years. Proposals for such  must be intensified if the WBG is to live up to
projects have not always been placed in the   its own expectations and those of others
broader sectoral development context and its  regarding our role in transferring concessional
related environmental management priorities.  funding to client countries for global
As a result, links to associated WBG lending  environmental objectives.
are not as strong as they could be, sustainability  Finally, the greatest potential for action on
of outcomes is frequently an issue (as pointed  global environmental issues is in the private
out in the QAG's evaluation of Bank-GEF ICRs),   sector and we must accelerate our efforts to
and opportunities for maximizing the impact of    engage them more effectively. Governments
GEF funding on local action to address global  through regulatory and policy frameworks
environmental objectives are missed. This     affect decisions by local resources managers
suggests the need to explore more effective,  (communities or corporations) and can through
long-term, country- or region-based           such efforts help promote environmentally
programmatic strategies. Two recent initiatives  friendly resource decisions. Government as
illustrate the way forward: the WBG-GEF       landowner, national parks manager, or owner
Strategic Partnership on Renewable Energy     of public transport or power utilities is also
Technology Development and the proposed       directly involved in making choices that affect
WBG-GEF Partnership on Nutrient Reduction     global environmental objectives. GEF
in the Danube Basin and the Black Sea.        assistance can play, and in some cases has
Third, we will seek to leverage our GEF   played, an important role in making such
program through expanding partnerships.       choices as environmentally friendly as possible.
Beyond the fundamental relationships with     Unless we recognize the importance and
client countries, the WBG has entered into a  potential of the private sector as the key agent
diverse and extensive set of partnerships under    for change, however, GEF will not secure the
its GEF program. Some serve to strengthen our  "hang for the buck" that it seeks.
programmatic collaboration with the GEF and        Engaging the private sector effectively
its partners, such as the GEF-UNDP/UNEP/      presents two specific challenges for the WBG.
WBG Land and Water Initiative in Africa or the  We are investigating how, through the
strategic partnerships just described. Through  continued involvement of the IFC, private
others we reach out to NGOs to build on their  capital, expertise, and privately held
capacity to work with local communities in    technology and techniques could be redirected
identifying or implementing opportunities for  and mobilized to more effectively serve
GEF funding; to the private sector for        environmentally and socially sustainable
mobilizing their financial and technical      development, including its global
resources to address global environmental     environmental dimensions. Furthermore, we
priorities; to U.N. specialized agencies for  need to expand our work with client countries
assistance to client countries in project     and partners on finding ways to provide local
execution; and to multilateral and bilateral  communities with the necessary incentives to
donor agencies not only for cofinancing of GEF  abandon destructive land use practices in favor
projects, but also for responsibility for     of sustainable and environmentally friendly
Lending for the Global Environment 53



practices. As discussed earlier, this must     conservation of biodiversity as well as
include creative mechanisms for funding        supporting other ecosystems services, including
conservation and sustainable use and           carbon management.
54 The World Bank and the Global Environment - A Progress Report



The preceding chapters have examined         longer the time horizon for looking at the two
the progress the World Bank Group (WBG) has    objectives, the more these objectives should
made in addressing global environmental      converge-in the end, of course, the
concerns in its development assistance       maintenance of the global ecosystem, the
program, how such progress has been reflected  global commons, is a necessary condition for
in its lending services, and what lessons can be    future generations to be free from poverty. Yet
drawn from these experiences. This concluding  because of the global externalities involved,
chapter summarizes the areas where we need   individual countries have limited incentives to
to do better to fully integrate the environment  act today in the interests of the global
and its global dimension in the WBG's main   commons. Existing global financing
mission. The strategy and actions to address  mechanisms-the Global Environmental
these challenges will be determined through  Facility (GEF) and the Multilateral Fund for
the completion of the ongoing work on the    Implementation of the Montreal Protocol
WBG's corporate Environment Strategy.        (MLF)-seek to strengthen such incentives.
Much more needs to be done, however, and
4.1 Challenges and Priorities               the WBG, through the Prototype Carbon Fund,
for Action                               has taken a first step toward helping clients
The WBG has reaffirmed that its development  participate and trade in global environmental
assistance mission is to alleviate poverty with  benefits (carbon offsets).
lasting results. It has also committed itself to  Against this background, the WBG will
help client countries fulfill their global   explore, in the context of the environment
environmental commitments under              strategy, the following four main challenges of
international conventions. This report has   integrating global environmental concerns
stressed that these two objectives are to a  effectively in its mainstream development
considerable degree complementary and        assistance work.
interrelated. Yes, it is true that the scale of  Strengthen "in-house" capacity to pursue a
present destructive practices for use of land,  client dialogue that integrates global
water, forest, and biodiversity resources give  environmental concerns within national
rise to global concerns. It is equally true,  sustainable development programs. Where
however, that efforts to manage these resources    conditions call for it, the link between global
on a more sustainable basis typically form part    environmental objectives and national
of a successful national strategy to promote  sustainable development goals needs to be
sustainable development and reduce poverty.  made in the country assistance dialogue and in
National policymakers, however, see     the Country Assistance Strategy, To achieve
trade-offs between global environmental      this, the Bank will explore options for
concerns and more pressing priorities of the  strengthening the capacity of its staff to
rural and urban poor. Viewed collectively, the  recognize the "win-win" opportunities that exist
55



for sectoral reform and investment programs to     Use funds from the global financing
help capture global environmental benefits, as  mechanisms more strategically to better blend
well as the options that may be there for      with and catalyze WBG and other donor
securing additional global benefits with funding    funding. Our clients' interest in pursuing global
from the global financing mechanisms. The      environmental issues will be driven, at least in
Bank will also promote a greater understanding    the near term, by access to GEF and MLF
among staff of how global environmental        concessional resources. As they complete their
degradation increases the vulnerability of the  national strategies and action plans in response
economies and peoples of client countries, and    to obligations under the conventions, and as
how the Bank can assist in coping with such    guidance from these conventions expands, the
consequences. Training of managers and         demand for such assistance will increase. A
technical and operational staff, building the  third challenge for the WBG, therefore, is to
analytical tool box, funding of global        respond to this demand in a way that meets
dimensions to country sector work, and         GEF and MLF objectives to catalyze additional
increased accountability for results are the key  WBG or other co-funding for these projects,
measures for bringing about change.           and that better integrates GEF support
Help client-country institutions better   (prospects for MLF are naturally restricted) in
understand and capture "global-local"         the WBG's development assistance in the
synergies. A second challenge is to support    agricultural, forestry, and energy sectors of its
client country institutions in building local  client countries.
capacity to address global environmental issues    Help clients access markets for global
in the context of national sustainable        public goods. Finally, we need to consider
development and poverty reduction. This calls  how we best can assist our clients to participate
for technical training, strengthening of       in and profit from trade in environmental goods
administrative and managerial functions in key  and services, both global and local or regional
agencies, and support for networking of        trade that has global benefits (through Kyoto
professionals within and between countries.    mechanisms, for instance, or certified forest
The objective is not to promote centralized    and fisheries products).
"global environmental management capacity"         These challenges all form part of a broader
within environmental ministries. Rather, it is to  goal to link environmental objectives and
help senior officials, planners, and technicians,    programs closer to sustainable development
such as those in agricultural or forestry      and poverty alleviation outcomes. The vision
ministries/agencies, recognize the importance  and action plan for how to accomplish that
of conservation or sustainable use of          goal is the subject for the Bank's new
biodiversity and carbon sequestration to       Environment Strategy, which is currently being
sustainable production, or to enable energy    prepared. (See Box 14.)
sector planners and engineers to see the
opportunity to use climate-friendly technology  4.2 The Environment Strategy and
to reach their goal of local pollution             Mainstreaming the Global
management. The Environment Strategy will          Environment
discuss the renewed commitment of the World    To our member countries, acting on global
Bank Institute to strengthen and expand training    environment priorities is of interest when it
for clients and development partners in local  enhances national sustainable development or
and global environmental management.           generates local or regional developmental or
56 The World Bank and the Global Environment - A Progress Report



BOX 14
The World Bank Group's Environment Strategy-Emerging Framework
The goal of the strategy is to reinforce the WBG's mission of fighting poverty by enhancing people's livelihoods,
improving their health, and reducing their vulnerability to environmental risks today and in the future. The
World Bank Group will do this by helping to enhance environmental quality and natural resource management
and to maintain global ecosystems. Using its comparative advantages to fulfill these three objectives, it is
proposed that the WBG focus its interventions in the following three broad areas of action:
I tntegrating environmental considerations into strategies and actions for poverty reduction. This will
require environmental inputs into key elements of the country policy dialogue; stronger integration of
environmental considerations into country dialogue; and sectoral policies, strategies, and operations.
*4 Establishing public policies that enable sustainable economic growth led by the private sector. Policy
frameworks for the use of natural resources, for the provision of environmental services and
environmental performance, and for safeguards against pollution and other harmful impacts on people
and ecosystems need to be implemented through credible regulation, incentive policies, monitoring, and
enforcement, backed by strong institutional capacity. The WBG can assist its clients to build such policies
and institutions, facilitate investment in sustainable private-sector development, and encourage
constructive public-private partnerships.
* Addressing regional and global environmental challenges. The WBG can play the role of an honest
broker and financier in addressing international environmental issues. As discussed throughout this
report, WBG assistance to countries to address local environmental issues also generates regional and
global environmental benefits. Additionally, the WBG has a mandate and a track record in channeling
financial resources to clients under the GEF and the Montreal Protocol.
In implementing the strategy, the World Bank Group will aim to adhere to the following principles: listen to
and work with the people and their representatives in client countries; focus on environmental interventions
benefiting the poor; identify and work toward measurable outcomes; take a cross-sectoral and long-term
perspective on development; facilitate regional and global policy dialogue; harness the role of markets and
the private sector to promote sustainable environmental management and investment; promote cost-effective
solutions to environmental problems; and be selective and work with partners for better results.
environmental benefits. Hence, we will build    sustainable development and the improvement
on the synergies and complementarities          of people's well-being, the WBG needs to
between local, regional, and global             accelerate the shift from viewing environment
developmental and environmental benefits. We    as an externality and a separate sector toward
also recognize that interventions as well as    considering it as an integral part of
technologies, policies, and practices that have  development.
multiple benefits may contribute to                  The detailed elaboration and development
environmental objectives at more than one       of the strategy described in Box 14 is scheduled
level (local to global). All this calls for the  over the next six to eight months, with the
integration of a WBG's strategy on global       global environment dimension to be woven
environment issues with the development and      into the strategy together with the local and
implementation of a broader corporate strategy  regional dimensions. It is, however, possible at
for the environment.                            this stage to identify some broad implications
As noted, such a strategy is presently     that the proposed framework for environment
under development. It recognizes that as a      strategy development is expected to have for
development institution concerned with           mainstreaming the global environmental
fighting poverty and interested in long-term     agenda in WBG work.
Challenges and the Way Forward 5 7



First, the proposed framework is           entry points for GEF interventions that are
consistent with the responsibilities that the   better aligned with the WBG mission. As the
WBG has assumed vis-a-vis global conventions    country assistance strategy dialogue becomes
and recent global public policy initiatives. It  better informed by these strategic linkages,
explicitly embraces global environmental        WBG-GEF support in the form of "freestanding"
concerns, whether they are related to the       projects can be expected to gradually phase out.
degradation of the global commons or to the         Third, the Comprehensive Development
loss of natural resources, including biodiversity,    Framework (CDF) presents an important tool to
on a global scale. The objectives of the strategy  help integrate local, regional, and global
refer to the need to reduce people's            environmental issues in the process of
vulnerability to adverse local impacts of       developing and implementing a country
climatic variability and long-term climate      assistance program. The CDF has been adopted
change. The proposed framework supports a       by WBG as a holistic approach to outcome-
role for the WBG in the international policy    oriented development assistance planning,
dialogue that is required to help manage global    emphasizing multisector and donor
environmental issues, as well as for promoting  coordination. This orientation, and the longer-
regional cooperation on management of           term perspective of the CDF, offers an
transboundary water resources and terrestrial   opportunity for more systematic and integral
ecosystems. In sum, these principles and        treatment of environmental issues in the
objectives reinforce the WBG's commitment to    development of country assistance strategies.
help its client countries build capacity to          Finally, the proposed framework for the
implement the conventions on climate change,    Environment Strategy emphasizes the power of
ozone, and biodiversity as well as to capture   the marketplace. This supports the WBG's on-
the benefits under their associated protocols   going efforts to mobilize private-sector capital,
and financing mechanisms.
Sefnacnd teheapropose  framework calls for technology, and management skills in support
bettecitegond o the propose s glamewobkcallof global environmental objectives. It is also
environmentegraltend  withe WBGsgloal sutanalconsistent with GEF's interests in maximizing
environmental agenda with local sustainable     thleraigoisowfudan
development programs. The envisaged focus       thleraigoisowfudan
development~~~~~~ prgas.h niae  ou      mainstreaming of its objectives into private-
on poverty outcomes, the recognition of longer-   stream aingo   obee in  privt
term impcts, an the empasis onsector decisionmaking. There is growing
term Impacts, and the emphasis on
cross-sectoral perspectives should help         integration among the WBG's various private-
accomplish this objective. Specifically, it     sector activities, and the International Finance
provides opportunities for building more        Corporation (IFC) already coordinates its CEF
strategic linkages between poverty alleviation  efforts closely with the Bank. In particular, the IFC
interventions and the mitigation of and         has demonstrated a broad range of innovative
adaptation to climate change, sustainable use   GEF activities involving the use of nongrant
and conservation of biodiversity, management    financing modalities, new approaches to risk
of regionally shared water resources, and       mitigation, and significant leveraging of GEF
reversal of land degradation. In so doing, it  funds through private equity funds and financial
would help to identify more systematically      intermediation.
58 The World Bank and the Global Environment - A Progress Report



The World Bank Group includes the            Environment Facility (GEF) in the Bank's
International Bank for Reconstruction and    regular portfolio. All full-sized GEF projects
Development (IBRD), the International        approved for funding by the GEF and
Development Association (IDA), the           implemented by WBG were given a rating
International Finance Corporation, and the   on a scale of 1 to 3 for the following three
Multilateral Guarantee Agency.               criteria: prominence in the country
2. World Development Report 1992.                dialogue of the issues addressed by the
Development and the Environment. Oxford      project, dependence of the GEF objectives
University Press. The World Bank,            upon the objectives of the initiatives
Washington, DC.                              addressing the baseline, and integration of
3. Adapted from R.T. Watson, J.A. Dixon, S.P.    GEF and baseline project preparation and
Hamburg, A.C. Janetos, and R.H. Moss.        supervision.
1998. Protecting our Planet, Securing our  8. To further strengthen mainstreaming of
Future: Linkages among Global                GEF-funded activities within the Bank, a
Environmental Issues and Human Needs.        Presidential Task Force established in 1996
UNEP, NASA, and the World Bank.              recommended actions in the following
4. Operational Manual B.P. 2.11, Annex A.       three areas: streamlining procedures and
5. The Kyoto Protocol of the U.N. Framework     reducing transactions costs for processing
Convention on Climate Change                 Bank-GEF projects, integrating GEF
Convention allows the transfer of            portfolio management and budgeting in
greenhouse gas emissions reduction from a    WBG overall systems for portfolio
project to the investing country included in  management and business planning, and
Annex 1 of the Protocol. When the project    injecting global environmental concerns
host country is not from the Annex 1, the    and GEF assistance in the country
certified emissions reductions are           assistance dialogue. The recommendations
transferred though the Clean Development     of the Task Force have been implemented.
Mechanism.                               9. Instrument for the Establishment of the
6. This includes a handbook on greenhouse        Restructured Global Environment Facility
gas assessment, guidelines for climate       (Annex D, Section II 9c).
change global overlays, a framework for   10. The annual performance review for FY99
interpreting climate change externalities in  shows that only 6 percent of the Bank-
Bank sector work, a study on mitigating      managed GEF projects received
climate change vulnerability and             unsatisfactory ratings for either
adaptation into Bank work, and an analysis   Implementation Performance,
of the greenhouse gas mitigation options in  Development (Global) Objectives, or both,
the transport sector.                        compared with 14 percent for the Bank's
7. A methodology was developed and tested        portfolio of standard lending operations.
to measure mainstreaming of the Global       The number of GEF projects at risk
59



represents 15 percent of the Bank-managed     This is considerably better than the Bank's
GEF portfolio, compared with 19 percent       performance, which was at 21 percent in
for the Bank standard lending portfolio.      FY99. The net disconnect ratio (differences
The Operations Evaluation Department          between current and ex-post evaluations of
deemed 2 out 12 closed GEF projects (1 5      project outcomes) for GEF projects was 1 5
percent) as exiting with marginally           percent, slightly higher than the Bank's
unsatisfactory or unsatisfactory outcomes.    ratio of 12 percent.
60   The World Bank and the Global Environment - A Progress Report






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