61888 Environment Notes Strategic Environmental Assessment SECTOR POLICY Number — 07 Greening Growth through Strategic Environmental Assessment of Sector 1 Reforms Fernando Loayza, Daniel Slunge, Rob Verheem, May 2011 and Anna Axelsson Overview Policy makers are under increasing pressure to deliver policies that not only foster employment and growth but also are environmentally sustainable. Green growth seeks for even more ambitious results where employment and growth are stimulated by technological and insti- tutional changes arising from better environmental stewardship and adaptation to and mitigation of cli- mate change. As green growth may become the growth Authors paradigm for the 21st century, policy makers require Fernando Loayza (Senior Environmental Economist, World Bank); Daniel Slunge (Environmental Economist, Department of Economics, University of Gothen- policy tools for addressing this challenge. burg); Rob Verheem (Deputy Director, Netherlands Commission for Environmen- tal Assessment); and Anna Axelsson (Adviser, Swedish EIA Centre, Department for Strategic environmental assessment of policies (policy Urban and Rural Development, Swedish University of Agricultural Sciences). SEA) is one of these tools. Policy SEA is an analytical and participatory approach for incorporating environ- Peer Reviewers Marianne Fay (Chief Economist SDN, World Bank); Johan Schaar (Director, Depart- mental, social, and climate change considerations in sec- ment for Policy Support, SIDA); and Grain Malunga (Minister, Ministry of Natural tor reforms. Based mostly on results of the World Bank’s Resources, Energy and Environment, Malawi). SEA Pilot Program (World Bank and others 2011), Additional Reviewers this note briefly discusses what policy SEA is, why policy Useful comments and suggestions received from Herbert Acquay (Sector Man- SEA is needed in greening growth, when policy SEA ager, SASDI); Ernesto Sanchez-Triana (Lead Environmental Specialist, SASDI); could be applied, and who should be involved in policy Shakil Ahmed Ferdausi (Senior Environmental Specialist, SASDI); Marcelo Acerbi (Environmental Specialist, LCSEN), all of the World Bank; and David Annandale SEA.1 Acknowledging that sector reform is a unique (Consultant) are acknowledged. opportunity for major policy and institutional changes, Strategic Environmental Assessment SECTOR POLICY the note argues for policy SEA as a proactive, systemic, and ity with respect to the Earth system, might have been Number — 07 strategic approach that promotes environmental and social surpassed (Rockström and others 2009). Migration and sustainability of growth-oriented reforms (green growth). involuntary resettlement have worsened environmental degradation because newcomers have limited allegiance A Strategic Approach for to local governance structures and culture. Furthermore, Managing Environmental and the capacity to address these challenges and man- age natural capital in a sustainable way is constrained. Social Risks and Opportunities For example, environmental management in poor and 2 The need for greening economic growth is receiving centralized states is often limited to reviewing environ- increasing political attention.2 This interest comes from mental impact assessment studies and issuing permits, a growing understanding of the economic costs associ- leaving compliance to the whim of those regulated. In ated with climate change and loss of ecosystem services. several cases, communities affected by environmental It also acknowledges the growth opportunities of an degradation have borne the brunt of the costs of growth environmentally smart growth process such as green policies while others, living in distant places closer to jobs creation and the fostering of technological change. centers of power, have received most of the benefits. (Stern 2006; World Bank 2010a; OECD 2010; UNEP As a result, environmental degradation has exacerbated 2011). economic and social inequalities fostering conflict and political instability. The high economic growth of countries such as Brazil, China, India, Indonesia, and South Africa is creating The need for a more systemic and proactive approach an unprecedented demand for energy, water, land, and to integrate environmental and social priorities in raw materials. In the next decades, billions of people the policies and instruments for economic growth is will aspire to achieve a middle-class standard of living. evident. A strategic lens that accounts for cumulative This will significantly increase the existing pressure impacts, institutional and governance weaknesses of on limited environmental resources. The sheer scale of existing environmental policies, asymmetries in power, expected global growth makes it impossible to ignore and asymmetries in the distribution of environmental the systemic and macro environmental risks facing and social benefits and costs of growth is badly required. humankind, which come on top of existing environmen- Policy SEA is such a lens (Box 1). tal issues that traditional policies have been unable to tackle. Furthermore, the implementation of policies to Benefits of Policy SEA tackle global environmental change is expected to induce Policy SEA can enhance the greening of growth by: large-scale innovation and technological change leading to new opportunities for economic growth. As a result, • providing data and analysis of the capacity of natu- environmental sustainability is moving to the core of the ral resources and environmental services to support growth agenda. sectorwide economic activities and sector growth. The SEAs for the tourism sector in Honduras and The issues at stake are challenging, as manifested in a Mexico, for example, developed scenarios of tour- range of global assessments of the state of the different ism demand and supply to assess the sustainability ecosystem services (Millennium Ecosystems Assess- of alternative strategies such as mass tourism and ments 2005). The cumulative impact from an increasing upscale nature and cultural tourism. These scenarios number of separate activities have resulted in, inter alia, integrated considerations of sustainability, resilience, soil erosion and deforestation, water degradation in river and economic growth in land use plans (Brakarz and basins, and climate change. Several planetary boundar- Quintero 2005; World Bank 2005). Multi-country ies, which define the safe operating space for human- clusters of mining activities and ancillary power and Strategic Environmental Assessment SECTOR POLICY and information provided by an SEA could be a Number — 07 first step of a larger effort to monitor the progress Box 1. What is in achieving green growth transformations. Strategic Environmental • highlighting institutional and governance gaps or constraints affecting environmental and social sus- Assessment (SEA)? tainability. In Hubei, China, the SEA for the Road SEA is an approach used by governments world- Network Plan suggested data sharing of baseline wide to safeguard sufficient quality of information, analyses and inter- and intra-institutional coordi- participation, transparency, and accountability of nation. Although some recommendations created their strategic planning. Typically it is laid down in 3 controversy, they also stimulated a more detailed regulation. Originally designed as an extension of monitoring of the overall development of the road environmental impact assessment (EIA), the world- wide most used assessment approach at project framework. Likewise, the SEA of the Kenya Forests level, SEA has developed into a more strategic Act raised awareness of the need for inter-minis- direction, responding to the different needs politi- terial collaboration, and facilitated understanding cians and governments have at the strategic level. of the new forest-users rights in enhanced forest The essence of SEA is to integrate into planning and management by rural communities (World Bank policy making a continuous process of fact finding and others 2011). and dialogue with civil society and the private sec- • promoting capacity building and institutional, legal, tor, aiming to influence decision making for envi- ronmental and social sustainability. and regulatory adjustments critical for environmen- tal and social sustainability of sector reform. The SEA has been used in industrialized and developing SEA of Lao PDR’s Hydropower Development Plan countries. The United States was the first country to contributed to the adoption of a National Policy on introduce SEA regulation. In Europe, SEA is manda- Environmental and Social Sustainability for the tory. Many developing countries have also adopted Hydropower Sector in 2005, the improvement of legislations or regulations in SEA (Ahmed and Fiad- joe 2006). Among others, these include Chile, China, resettlement and consultation practices, and the Ghana, Guatemala, Indonesia, Lebanon, Mexico, creation of a Watershed Management and Protec- Morocco, South Africa, and Vietnam. Most SEAs have tion Authority (Morgan and others 2009). These been undertaken in support of programs and land actions have led to a less damaging growth upon use plans. Application of SEA in policies has been which further progress can be made. Also, the West sparse but recently its use in developing countries Africa Minerals Sector Strategic Assessment clari- has increased mainly to incorporate environmental fied the link of regional harmonization of national considerations in environmentally sensitive sectors such as mining and forestry. Climate change may mining policies with enhanced governance of the further encourage the use of SEA in policy and sec- minerals sector that lead to a proposal of a mul- tor reform. For example, the Forestry Carbon Part- tistakeholder consultative framework at the local, nership Facility will use policy SEA approaches in national, and regional levels (World Bank 2010b). the preparation of country strategies for the reduc- With assistance of the World Bank this proposal tion of deforestation and forest degradation (see is being adapted to national mining reforms in Slunge and others 2011). Burkina Faso, Liberia, and Sierra Leone. • strengthening accountability on the management of transport infrastructure were identified in Guinea, environmental and social risks through increasing Liberia, and Sierra Leone through a SEA focusing transparency and empowering weaker stakeholders. on mining reform and regional integration. The Policy SEA interweaves analysis and public partici- risk of deforestation and loss of biodiversity in the pation. Policy SEA involves all key stakeholders in upper Guinean forest was factored in assessing the the selection of environmental and social priorities, clusters (World Bank 2010b). In addition, the data exposes them to the trade-offs and dilemmas of Strategic Environmental Assessment SECTOR POLICY policy making, and engages them in validating the Box 2 points to situations where addressing specific Number — 07 SEA recommendations, and in monitoring and in priorities may lie outside the purview of the sector, such following up implementation. SEA can also provide as reforming land access rights and planning systems, a useful framework for monitoring progress of the which would require actions at a higher level than sec- reform. For example, the report of the West Africa tor reform. The ability of policy SEA to call the atten- Minerals Sector Strategic Assessment, which ad- tion of policy makers and stakeholders to cross-sector vocates the need for regional mining sector reform, constraints and opportunities makes policy SEA a truly includes an action matrix that comprises priority strategic process. 4 reform areas; short, medium, and long term actions; and monitorable outcomes of these actions (World When to Consider Applying Bank 2010b, 123-127). It is through these processes Policy SEA? that SEA promotes transparency and strength- ens civil society influence on policy making. This Because of its analytical and public participation com- reduces the risk of regulatory capture by powerful ponents, policy SEA requires investment in time and interests. This important benefit of policy SEA is money. In the World Bank’s pilot program on SEA further elaborated in Box 2. (World Bank and others 2011) a rapid SEA required Box 2. Empowering Stakeholders through Policy SEA in the Mining Reform of Sierra Leone Policy SEA helps policy makers to identify environmental, social, and climate change related issues linked with a sec- tor. Even more importantly, it helps to identify which of these issues need to be given priority in the policy reform process. For example, the SEA of the minerals sector in Sierra Leone (World Bank 2008) showed that communities affected by mining activities had the following priority concerns: land and crop compensation and village relocation, sanitation and water pollution, deforestation and soil degradation, child labor, and postclosure reclamation. But the SEA also identified differences in priorities between provinces: for example, community development and participa- tion were seen as priorities in the southern and western regions, while the negative impacts of blasting were consid- ered a priority in the eastern region. These priorities gave policy makers, the private sector and civil society, a clear indication of the environmental and social issues that need attention across the country and in specific regions. Empowering stakeholders by making them select the policy SEA priorities was reinforced by calling their attention to the following two sets of issues: 1. The capacity, institutional, and governance constraints that inhibited the government to address the priorities 2. The ability of the proposed sector reform to address these constraints While an examination of constraints pointed to the usual suspects—for example, the lack of human and financial resources for ensuring compliance with existing regulations—it also threw light on more complex social and cultural issues. The analysis of postclosure reclamation showed that chiefs granted miners access to land on the condition established by law that miners pay a fee for reclamation to central authorities. However, in practice these resources were rarely paid and, if paid, they were insufficient to cover the reclamation costs of abandoned mines and open pits. Neither the state nor the miners could be effectively prosecuted and the villages had to bear this cost. Because in practice little could be done when mining activities ceased, chiefs tried to maximize compensation for granting access to lands, which led in some cases to rent-seeking behavior. The SEA discussions showed that addressing this problem requires more transparent and participatory mechanisms for granting access to land, and coordination between customary and government institutions. Thus, the SEA highlighted the need for mending the broken link in development planning across the village, provincial, and national levels in Sierra Leone (World Bank 2008). Strategic Environmental Assessment SECTOR POLICY around three months and US$30,000 to be completed. the reform. This facilitates the interaction between Number — 07 In the same program, full-fledged policy SEAs took from sector specialists, who are knowledgeable on enabling nine months to eighteen months and from US$120,000 and blocking factors for sector growth, with specialists to US$500,000 to be completed. Although there is familiar with the environmental, social, and climate room for cost and time optimization, the fact remains change challenges facing the sector. For this reason the that policy SEA should be used wisely and mainly when sector leading the reform should also be in charge of significant policy changes such as sector reforms are the policy SEA. The role of the environmental author- envisaged. ity is that of an advisor who provides information and knowledge through inter-ministerial advisory or steer- 5 Sector reforms are major shifts in policy processes usu- ing groups governing the SEA. Unlike environmental ally undertaken to create an enabling environment for impact assessment of projects, policy SEA should not increasing investment, output, and productivity. Because be seen as an environmental safeguard but as a strategic of these overriding goals, reform priorities are tradition- planning tool. ally defined in terms of economic and efficiency goals that are seldom interwoven with environmental and Critical for successful policy SEA is to establish a social priorities. Critical sustainability issues are often framework to enable a constructive policy dialogue and overlooked. As a result, the link between environmental ownership of the SEA results. The following elements and social priorities and the reform’s economic and ef- were found important for enabling multistakeholder ficiency goals is weak and many times lost. The purpose frameworks (World Bank and others 2011): of policy SEA is fostering green growth by reverting this • The lead agency should have both the capacity and disconnection early on when the reform is conceived. incentive to take ownership of the SEA process. If In addition to sector reform, Box 3 lists circumstances these are not in place, SEA capacity building needs favorable for applying policy SEA. to be undertaken prior to the commencement of the SEA.3 For example, under the context of a Who Should Be Involved in wide-ranging SEA regulation Bhutan undertook Policy SEA? a substantive capacity-building program across economic development ministries. As a result, the This note has argued that policy SEA should be well National Planning Agency of Bhutan that was integrated with policy formulation and implementa- originally reluctant to take on the environmental tion. When possible, the team undertaking the policy mainstreaming agenda now recognizes that it is the SEA should be members of the policy team preparing key agency for enforcing the requirement to inte- Box 3. Windows of Opportunity for Policy SEA • A change of government to one that is more open to deliberation, and to the incorporation of environmental issues in development policy; • A government’s development strategy prioritizes specific sectors for development. Usually this would lead to sector reform of these same sectors; • Market or environmental conditions change radically, which underline the need for major policy revisions. Exam- ples might include the food crisis and steeply rising oil prices that drive the introduction of renewable energy technologies, or economic stimulus packages that favor green jobs; • Civil conflicts are resolved and a new desire for development presents itself; and • Civil society organizations are given more freedom to participate and advocate. Source: Adapted from World Bank and others 2011, 61. Strategic Environmental Assessment SECTOR POLICY grate environmental considerations into all sector mining sector reform, and convening international Number — 07 development plans (Annandale and Brown 2010). meetings of steering committee members kept the Multisector ownership also could be an alternative, interest in the progress of the SEA high. particularly when capacity and institutional mea- • Sector reform is typically a sensitive political sures are required in several sectors. This was the case process. Policy makers being subject to political in the SEA that supported the implementation of pressures risk paying low attention to recommen- the Liberian National Forestry Law of 2006, where dations of environmental assessments unless there besides the forestry sector, mining, agriculture, and are constituencies that support them. Engaging in 6 planning were also involved (World Bank and oth- the policy SEA key private and civil society stake- ers 2011, 60). holders is, therefore, critical. These stakeholders • SEA steering committees can be mechanisms to fa- also need the right incentives for participation. A cilitate intersectoral coordination. However, ensur- transparent multistakeholder dialogue where the ing meaningful participation depends on steering voices and concerns of stakeholders can be heard committee members having the right incentives to and articulated into specific reform’s priorities and participate. In the Hubei Road SEA, the incen- actions has proved to be an effective mechanism tive was access to data and analysis that provided for engaging stakeholders (World Bank and oth- a more comprehensive picture of environmental ers 2011). This enhances the political support and issues in transport planning (World Bank 2011). In legitimacy of the reform. Box 4 presents some hints the mining SEA in West Africa, sharing national and good practices on multistakeholder dialogue in experiences, mutually comparing challenges of policy SEA. Box 4. Engaging Stakeholders in Multistakeholder Dialogue The multistakeholder dialogue conducted as part of the policy SEA of the mining sector in West Africa created strong demands for a more permanent multistakeholder platform which could follow up on the integration of environmen- tal and social concerns in the implementation of the West Africa Mineral Governance Program and other large-scale mining initiatives in the region. This dialogue was undertaken at the regional, national, and village level (World Bank 2010b, 187-213). A profile of common and differentiated priorities at these different levels of participation emerged, which gave policymakers a nuanced picture of the sustainability challenges facing the mining sector in West Africa. In the SEA of the forest sector reform in Kenya, an important outcome was a policy action matrix. This matrix was designed to be a key guide and monitoring device for the implementation of the new Kenya Forests Act. Endorsed by all the different groups of stakeholders (including the Ministry of Finance and the Ministry of Environment and Natu- ral Resources, civil society and private sector organizations), the matrix is an important tool that permits stakeholders to monitor progress on implementation and suggest adjustments when needed (World Bank, 2007). An important element of multistakeholder dialogue is to engage marginalized stakeholders such as women, local and indigenous communities, and the youth. Their dispersion creates constraints for their collective organization, and they are thus easily sidelined in policy dialogue by more powerful stakeholders. The challenge is, therefore, to bring the voices of these groups to the dialogue through processes that are culturally adequate. Surveys combined with focus groups have been reasonably helpful tools to this effect (World Bank and others 2011). Still, care needs to be taken to ensure that the outcomes of such activities are not diluted when the policy dialogue moves ahead to formulate policy recommendations. Strategic Environmental Assessment SECTOR POLICY Conclusions Number — 07 2. Analytical work to clarify and operationalize the concepts of Green Economy and Green Growth is under way. The World Bank is currently preparing a Green Growth re- Policy reform is typically a sensitive political process port. The OECD is developing a Green Growth Strategy. that is hard to undertake. Policy makers may think that UNEP has prepared a Green Economy report (UNEP, incorporating environmental, social, and climate change 2011). Green Economy will be a key theme at the UN considerations into sector reforms would make reforms meeting in Rio de Janeiro 2012 and several countries even harder to be implemented. Quite the contrary— have developed strategies for low-carbon growth. experience shows that policy SEA may increase the sup- 3. For example, the UNDP-UNEP Poverty-Environment Initiative (PEI) has been supporting countries in capac- port for and legitimacy of sector reform because it opens 7 ity building for environmental mainstreaming, which the policy process to the influence of all key stakeholders contributes to capacity building in policy SEA. Further within well-defined boundaries. By giving voice to mar- information can be found in the following Web site: ginalized stakeholders, policy SEA brings the ultimate http://www.unpei.org. beneficiaries of sector reform into the policy dialogue and paves the way for their constructive participation during reform implementation. 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Strategic En- mitment to greening sector reform through supporting vironmental Assessment for the Honduran Tourism capacity development and institutional strengthening Sector: Integrated Report. Washington, DC: World on policy SEA. It is also likely that policy makers in Bank. partner countries would seek technical assistance on Millennium Ecosystem Assessment. 2005. Ecosystems and policy SEA as the recognition of the need for greening Human Well-Being: Global Assessment Reports. Wash- growth is increased. These trends may eventually lead ington, DC: Island Press. in some countries to the use of policy SEA across all Morgan, Glenn, Fernando Loayza, and Hayato Ko- key sectors undergoing reform for fostering economic bayashi. 2009. Lao PDR Nam Theun 2 (NT2) Hy- growth. Then, integration of environmental, social, and droelectric Project SEA Case Study. Environment climate change considerations in sector reform would Notes No. 2. Washington, DC: World Bank. simply be a regular component of robust policy making. OECD. 2010. Interim Report of the Green Growth Strat- egy: Implementing our commitment for a sustainable fu- ture. Paris: OECD. Endnotes Rockström and others. 2009. A safe operating space for 1. The publication Strategic Environmental Assessment in humanity. Nature 461:472-475. Policy and Sector Reform: Conceptual Model and Opera- Slunge, Daniel, Anders Ekbom, Fernando Loayza, Paul tional Guidance (World Bank and others 2011, chs. 3 and Guthiga, and Wilfred Nyangena. 2011. “Can Strate- 4) provides guidance on how to undertake policy SEA, and discusses the role of stakeholders and government gic Environmental and Social Assessment of Sector agencies in implementing SEA at the policy level. 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Washington, DC: World Bank. Environment Department 1818 H Street, NW The World Bank Environment Notes Washington, DC 20433 USA www.worldbank.org/environment