7. Financing Environmental Improvements
ALBANIA
The Committee for Environmental Protection (CEP) is mainly dependent on the State Budget and has very limited resources to finance its activities. The budget (from the Ministry of Health) is sufficient to pay for the staff and some small scale projects. No money from environmental taxes, fines or other instruments are earmarked for the environment. Hence, CEP is mainly dependent on foreign aid and cooperation with international organizations. The CEP has ideas to introduce an ecotax, but this proposal is in a very early stage. Too little experience with this approach is available in Albania.
BULGARIA
The major financial mechanism for environmental protection is the state budget. In 1992 the National Environmental Protection Fund was established. There are some pollution fees and fines, but it was stated that the amounts actually collected are insignificantly small. Apparently there are plans to further develop the pollution fines system and to introduce new environmental taxes. Municipal Environmental Protection Funds also exist and there are also incentives in the forms of tax reliefs and exemptions for environmental technologies.
With domestic finances water purification stations are being constructed in certain strategic areas, it should also be possible to develop environmental education programs, protect valuable natural areas, enhance public participation in environmental decision-making and implement small-scale projects at the local level. To properly manage hazardous waste, build wastewater treatment facilities for large cities, make nuclear power plants safer, and install modern pollution control equipment foreign financial assistance will be necessary.
CROATIA
In the present economic situation it is difficult to get funds from the state budget for environmental purposes, as the environment is not appreciated as it should be. There are no environmental funds at the state or regional level. The new draft law plans to establish a state fund and some money will go to the local level as well. Also, probably a stronger MoE will be able to get more funding. At present there are only small funds available. Waste and wastewater treatment can be paid for by taxes and other incomes from the local level. Part of the prices collected for sewage system and water supply can be used for environmental purposes but only some is left at the local government level.
The idea of using economic incentives as efficient tools for environmental management is widely accepted, but few instruments are in operation: some tax preferences, (fuel and tourist tax), tax preference on non-leaded petrol, environmentally friendly packaging; a fee system for water pollution; user's fee for extraction of minerals, ecological rent in waste management and pricing system introduced in the field of energy. Some of the above are functioning well, but they can only have a limited impact as they are isolated examples, and there is no proper management framework behind them. Most of the money is channelled back to the State budget, not toward environmental investments. Some of them, like the fees, are nominal. Improvements should be made in the pricing system including making clear differences between industrial and household energy use, and urban and countryside consumption.
CZECH REPUBLIC
The situation regarding the financing of environmental investments needs to be improved. A major problem in obtaining money for environmental investments is the short time required for repayment of a loan, usually four or five years. For long-term environmental investments, often a longer term is necessary for repayment. In addition there are no guarantee funds available for environmental projects, banks are not prepared to bear the risks at this point. Some banks in the Czech Republic have a policy on environmental management.
The State Fund for the Environment could grow large in the future as more companies are required to pay into it. The management of the fund is interested in how to improve the decision-making process and to establish a loan system to replace the current grants system.
Companies complain that the current structure of economic instruments is inefficient and doesn't provide much incentive for environmental improvements (e.g. fees for air pollution). The situation is better regarding wastewater (fees reflect investment and operational cost) and in the area of waste treatment (they can compare whether it is more useful to pay the fine or to pay for changing the technology). They also complain that the collected fees, through the State Environmental Fund, are then not used effectively for industrial needs.
There is some interest in the business community in tools that allow the optimal environmental benefit from an economic point of view. They would like to get away from "command and control" regulations and replace them with this new idea of "eco-efficiency".
HUNGARY
The Central Environmental Protection Fund is a state fund earmarked for financing environmental measures with environment related revenues bypassing the Budget. Sources are fines, product charges, user fees, and funds allocated from international aid programs. The Fund has a separate administration under the auspices of the MoE. Five major foreign aid sources financing environmental projects are EU PHARE, OECD (bilateral), German Coal Aid, US AID and international NGOs. Hungarian banks have no special schemes to finance environmental investments. EBRD applies environmental auditing to all its programs. Privatization deals sometimes include obligations for abatement of past pollution in return of price cuts. However, in such cases many buyers prefer more expensive green field investments. In cases of immediate environmental hazards the State has intervened to contain the pollution. The new environmental law draft foresees a series of economic incentives, but their introduction is as yet uncertain. Presently fines, user charges and product taxes are the only existing measures, and they all have a punitive character. More realistic prices for energy and water should work as incentives, but their introduction carries political risks. Consumer pressure is expected to rise in reaction to ecolabelling, but certainly not in the short term. Also, ecolabeling will only be applicable to a limited set of products.
FYR MACEDONIA
According to the experts the only financial mechanism for environmental protection is the general State budget, and this source is too small. One expert noted, however, that the polluting enterprises themselves make some investments in environmental protection and that the government tries to monitor and record these investments. Some new mechanisms are proposed in the new draft law, such as pollution fines and an environmental tax on automobiles.
Most of the experts believed that environmental legislation and policy could be improved with existing resources, and that law enforcement could be carried out much more effectively. Several experts stated that small local problems could be successfully addressed and communal waste management was cited as one such example. Improvements in environmental education and awareness raising were mentioned by a few experts, as was the reduction of air pollution from automobiles. Other issues noted were the establishment of a National Environmental Fund, energy efficiency and completion of the conversion to natural gas, and the establishment of a separate MoE.
Problems mentioned as being solvable only with foreign assistance included hazardous waste management and the protection and restoration of the major water bodies - Lakes Ohrid, Prespa, and Dojran, and the Vardar River. These will require extensive water treatment facilities.
POLAND
Poland utilizes a variety of sources and several very effective financial mechanisms for environmental protection. Chief among them are national, provincial and local funds for environment protection, which are financed by pollution fines and natural resource user fees. These funds provide soft loans and grants for environmental investments. Poland also has ECOFUND, an innovative debt for environment swap mechanism established in cooperation with some Paris Club countries. Additional mechanisms include the general State budget, and the Environmental Protection Bank which provides preferential loans for environmental investments.
Poland spends about 1 billion USD annually on the environment, (about 1% of gross national product). Foreign assistance, while amounting to only 5% of this total, plays an important catalytic role in launching projects and developing institutional capacity and know-how. It is realized that most environmental problems in Poland will have to be solved using domestic financial resources, however, foreign aid helps to speed the process.
ROMANIA
The general State budget is virtually the only mechanism for financing environmental protection. The amount of money appropriated from the State budget for environmental purposes is already very small and diminishing. In theory there is money generated by various pollution fines, but in reality this money is so minimal as to be insignificant. International institutions also contribute for environmental protection and there is financial support for NGOs coming from foundations. New mechanisms, including stronger pollution fines, environmental taxes and a National Environmental Fund are propsed in the draft environmental protection law.
Some environmental problems can be solved with domestic resources, but it is difficult to know to what extent given the uncertainties as to just what the domestic resources are. Problems which might be solved using domestic resources include nature protection, repairing and maintaining existing pollution abatement equipment and environmental damage caused by poor agricultural practices. Foreign financial assistance is probably needed for new environmental technologies, especially in connection with large capital investments like wastewater treatment facilities and air protection devices. Remediating serious environmental hazard areas will also likely require foreign assistance.
SLOVAK REPUBLIC
Sources of funding include: the State budget, the State Environmental Fund and foreign assistance. In the State Environmental Fund, the revenue of the environmental fines and charges is deposited. The money is then redistributed through a grants program. The Government is currently discussing to establish a "revolving fund" which is intended to be a mechanism for softening loans for environmental improvements. This program will probably be open to companies as well as to municipalities.
Slovakia is faced with the economic hardship and can't invest adequately in new technologies (e.g., pollution control, abatement and energy efficient technologies) and in the reconstruction of old facilities. The lacking resources for investments are the major problem.
While funding is generally insufficient in Slovakia, there are areas where small investments would yield significant results, e.g., environmental education esp. for long term benefits or pilot projects to demonstrate the advantages of sustainable economy or management (in the areas of energy, tourism, recycling, water management etc.)
It is a real problem that there are no tax breaks or subsidies to encourage businesses to invest in environmentally sound practices. For example, there were initiatives to separate plastics from the municipal waste in Bratislava, but the lack of incentives for recycling the plastics defeated the enterprise. In the tax system, which consists of 8 special taxes, an ecological tax is exists. But it is not in force yet and in fact nobody knows, how the ecological tax should look like.
SLOVENIA
There is a decrease in funds for the environment. In Slovenia some economic instruments were already in use in past years. An Ecofund existed in 1989-90. It was financed by taxes on water management, and the use of the environment in the fields of air and waste. 33mln USD were collected. The previous government system, however, eliminated the funds in 1990 and therefore Slovenia has lost more than 60 mln USD of funding. Environmental projects have since been funded from the State budget and by foreign assistance programs, as well as fees and penalties paid by polluters. The new environmental law entails setting up an Environmental Fund which will be finances partly from the State budget and partly from foreign loans.
Some of the major environmental projects are funded by international development banks (World Bank, EBRD). These loans should be payed back with money eventually generated by the investments. Local communities get funding from industrial users of the environment and larger contributions are being requested from local residents for waste and water management projects and gasification.
The idea of applying economic instruments is widely accepted in Slovenia. The Environmental Fund will be operational from 1994. However the Ministry of Finance is against earmarking funds for the environment and would prefer the use of the central budget and banking system. Economic instruments currently used (taxes, fees, penalties) serve more to augment the budget than to provide incentives for environmental protection. Increases in energy prices are also considered as a possible way to generate funds and protect the environment.
REC * PUBLICATIONS * STRATEGIC ENVIRONMENTAL ISSUES 1 * ANNEX
