Overview

I. Current Situation

Political, Economic and Environmental situation

Most countries are still struggling with declining economies because of markets lost due to the break up of the Council for Mutual Economic Assistance (CMEA). After this split, former CMEA members had to reorganize economic agreements and identify new markets. Only recently has industrial production recovered in the Visegrad countries. In other CEE countries, the decrease in industrial output has not yet reached bottom.

The number of private companies in industrial, agricultural and service sectors has significantly increased, and most are small and medium in size. Although mass privatization was expected to improve environmental conditions, new commercial enterprises often lack experience in responsible environmental management and face strong competitive pressures to "profit now" and cut costs.

Only very recently have national governments made progress implementing integrated approaches to environmental protection that utilize both regulatory (command and control) and economic (market incentives) mechanisms. This approach is especially evident in the Czech Republic, Hungary, Poland and the Slovak Republic since they have made significant achievements in economic reform.

An important factor shaping the development of the environmental market is the prospect of these countries joining the European Union (EU). All four countries are currently EU associate members and are applying for full membership; to join the EU, they must harmonize their legislative and institutional framework with EU requirements. Although harmonization is an effective catalyst to improve the environmental market, real growth in this sector will come as the Visegrad countries complete their legislative and institutional reform process.

Environmental Investment

Although commercial enterprises usually invest money only when required by law, these governments have established strategies to direct national environmental investment. These strategies are based on each nation's environmental priorities, with human health-related problems (especially in so-called "hot spots") ranking the highest.

The four countries generally have six sources of funds to support environmental investments:

• state budget and regional or municipal budgets
• extra-budgetary funds (National Environmental Protection Funds and other earmarked funds)
• environmental investments of commercial enterprises, both state and privately owned
• commercial credit, both domestic and foreign
• foreign environmental investments
• donations and assistance from abroad (bilateral assistance programs like USAID and PHARE)

Due to the overall economic hardship in most CEE countries, funds for environmental projects are limited. Governments use their funds primarily to cover the cost of environmental administration and to implement high priority projects such as water reservoirs, treatment plants and national parks.

So that environmental projects do not compete directly with other social programs, all four countries have established National Environmental Protection Funds (NEPFs) to provide off-budget funds earmarked for environmental purposes. The Polish NEPF is the largest of the Visegrad four with disbursements exceeding USD 250 million in 1994.

Recipients of earmarked funds are municipalities, industrial enterprises, research and education institutions and NGOs. Noncommercial organizations may receive grants while commercial enterprises may only apply for soft loans. These funds generate revenues mainly from economic instruments for environmental protection such as user fees, disposal charges and noncompliance fines.

Legislation and Enforcement

Enforcement is still inconsistent. However, governments are improving direct enforcement mechanisms to implement newly enacted legislation. Enforcement policies rely mainly on monetary penalties, but also include environmental standards, restrictions, permits and compliance schedules. These mechanisms are often implemented by local governments without coordination at the national level. This results in considerable differences in both requirements and levels of enforcement.

These countries have also included market-based incentives and financial instruments in environmental legislation to improve compliance and generate badly needed revenues. They include:

• reducing the use of subsidized prices for resources
• indexing pollution charges, product charges and non-compliance fines to inflation
• nadopting tradable permit mechanisms for transboundary pollution issues

Voluntary pollution reduction agreements, environmental codes of conduct and improved environmental management practices have not yet become widespread, but are gaining popularity. There are attempts to introduce labeling of environmentally-friendly products in the Czech Republic and Hungary, and to introduce cleaner production techniques in the Czech Republic and Poland. Polish government agencies have initiated several environmental audits at companies to improve environmental management, maximize use of resources and reduce energy consumption.

Environmental Administration

In general, all four countries have established three levels of environmental administration:

• national level ministries with environmental responsibilities, such as the Ministry of Environment, the Ministry of Health, etc.
• regional level (county, provincial) environmental departments of regional authorities, inspection bodies, regional environmental committees or agencies
• municipal level created by local authorities

Each country has different administrative structures for various areas, such as health care, agriculture, forestry, physical planning and transport. Responsibility also varies by media (air, water, soil). Ministries of environment are usually in charge of maintaining pollution monitoring systems, defining environmental protection methodologies, coordinating environmental research, coordinating environmental projects of national importance and maintaining international cooperation.

Institutions subordinate to ministries of environment include:

• data collecting, processing, storage centers, certification laboratories and research institutes.
• inspection bodies at national and regional levels
• EIA coordinating units (Poland and Hungary)
• national institutes for geology, national parks, tourism, radiation, nuclear safety, etc.

Regional environmental administrations are responsible for developing policy, enforcing regulations, issuing permits, imposing penalties, implementing environmental impact assessment (EIA) procedures, developing local standards and collecting environmental charges. Environmental inspectorates conduct site visits to assess compliance.

Free public access to environmental information is guaranteed by law, but is hardly enforceable in practice. Governments collect environmental information, such as records of compliance, ambient monitoring and discharge monitoring, for processing, storage and distribution, but often do not provide timely access to the public. National statistical offices are mainly responsible for processing and disseminating environmental information. Increasingly, authorities release official information through reports on the state of the environment, bulletins and environmental monitoring databases.

Economic Incentives for Environmental Protection

Although these financial incentives have been implemented on a limited basis, the charges or fines can be suspended if the polluter agrees to take measures to comply with environmental requirements as is the case in the Czech Republic, Poland and the Slovak Republic. Table 3 contains an overview of pollution charges, user fees and taxes in all four countries. Details on how the four countries calculate charges, fees and taxes can be found in The Use of Economic Instruments for Environmental Protection, a report published by the Regional Environmental Center for Central and Eastern Europe.