65344
The Nexus Between
Infrastructure and Environment
From the Independent Evaluation Offices of the
International Financial Institutions
ECG PAPER 1
THE EVALUATION COOPERATION GROUP
The Evaluation Cooperation Group (ECG) was established in October 1995 by the heads of the evaluation depart-
ments of the major international financial institutions. The ECG's mandate is to strengthen cooperation among eval-
uators, to enhance collaboration within the evaluation community of development organizations, and to increase
the impact of evaluation through harmonization and dissemination.
The Nexus Between
Infrastructure and Environment
From the Independent Evaluation Offices of the
International Financial Institutions
African Development Bank, Asian Development Bank, European Bank for
Reconstruction and Development, European Investment Bank, Inter-American
Development Bank, International Monetary Fund, and the World Bank Group
ECG Paper 1
June 2007
http://www.ecgnet.org Washington, D.C.
©2007 Independent Evaluation Group
Knowledge & Evaluation Capacity Development
The World Bank
1818 H Street, NW
Washington, DC 20433 USA
E-mail: eline@worldbank.org
Telephone: 202-458-4487
Fax: 202-522-3125
http://www.worldbank.org/ieg
All rights reserved
This publication is a joint product of the evaluation offices of the African Development Bank, the Asian Development Bank,
the European Bank for Reconstruction and Development, the European Investment Bank, the Inter-American Development
Bank, the International Monetary Fund, and the World Bank. The findings, interpretations, and conclusions expressed here
do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent.
This publication was originally published as Evaluation Brief 5: “The Nexus Between Infrastructure and Environment�? (June
2007).
The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denomina-
tions, and other information shown on any map in this work do not imply any judgment on the part of the World Bank or
IEG concerning the legal status of any territory or the endorsement or acceptance of such boundaries.
Rights and Permissions
The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission
may be a violation of applicable law. IEG encourages dissemination of its work and will normally grant permission to repro-
duce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with
complete information to eline@worldbank.org.
The lead author for this ECG Paper is John D. Shilling with input from
Kenneth Chomitz and Ann E. Flanagan.
Contents
v Acknowledgments
vii Executive Summary
1 Chapter 1 The Infrastructure-Environment Nexus and the Future of Development
3 Chapter 2 Infrastructure, Growth, and Poverty Reduction
5 Chapter 3 Environment and Development
11 Chapter 4 The Nexus at the Project Level
15 Chapter 5 Sectoral and National Policies
25 Chapter 6 Conclusions and Follow-Up
27 Bibliography
Acknowledgments
This report represents a collaborative effort of Thomson from the European Investment Bank;
the Evaluation Cooperation Group. The project Inder Jit Ruprah and Patricia Sadeghi from the
was undertaken at the request of the Evaluation Inter-American Development Bank; and Marcelo
Coordination Group (ECG) members, Douglas Selowsky from the International Monetary Fund.
Barnett, Bruce Murray, Fredrik Korfker, Peter Since the paper was drafted in Washington, a
Maertens, Alain Sève, Stephen A. Quick, Thomas large number of World Bank Group staff were
A. Bernes, and Vinod Thomas. Overall task interviewed and many made significant contribu-
management was provided by Patrick G. Grasso. tions. These include Ajay Chhibber, Nils Fostvedt,
The main author was John D. Shilling, with input Alain Barbu, Linda Morra, Denis Carpio, Nicholas
from Kenneth Chomitz and Ann E. Flanagan. Burke, John Redwood, Stephen F. Lintner,
George Pitman, Maisha Hyman, Roy Gilbert, and
Individuals from ECG provided valuable inputs Peter Freeman.
and comments. Contributions were made by
Francois Botes, Foday Turay, and A. E. N’Diaye We greatly appreciate the efforts of all of these
from the African Development Bank; Ramesh people in helping complete this report. The
Adhikari, David Edwards, Hemamala Hettige, successful coordination among the members of
Tyrrell Duncan, C. C. Yu, and Renato Lumain from the ECG in producing it is an important step
the Asian Development Bank; Nicolas Mathieu toward achieving its mission of fostering collabo-
and Dennis Long from the European Bank for ration and harmonization of evaluation work
Reconstruction and Development; Campbell among the evaluation units of its members.
v
Executive Summary
Infrastructure plays a crucial role in the drive for reach four to eight percent of GDP for some
achieving development by providing energy, developing countries, with most of the effects
transportation, and water. There have been ups falling on the poor.
and downs in the degree of emphasis placed on
infrastructure, but infrastructure has remained The Evaluation Coordination Group (ECG)
the largest component of the public investment recognizes the importance of this linkage, which
programs in developing countries—two to six we call the infrastructure-environment nexus. It
percent of gross domestic product (GDP). Nearly represents a large and growing challenge for the
half of the international financial institutions’ countries and the international financial institu-
project lending to developing countries goes to tions (IFIs) in their development goals. Meeting
infrastructure. Going forward, the Organisation the Millennium Development Goals depends on
for Economic Co-operation and Development the provision of adequate infrastructure, such as
(OECD) estimates that developing countries providing clean water and sanitation, as well as
might have to invest over $700 billion a year in on reducing adverse environmental impacts,
infrastructure in the coming decade—rising to such as reducing the impacts of air pollution on
$1 trillion a year by 2030—in order to sustain health and agricultural production (e.g., acid
rapid growth rates. rain). The ECG commissioned this initial review
of members’ experiences to learn what can be
Well-designed infrastructure can have positive done both to minimize the detrimental impacts
impacts on the environment, which also is of infrastructure on the environment and to
crucial for development. However, there is a dark enhance infrastructure’s positive contribution to
side to infrastructural investments: they often the environment beyond the role of existing
lead to environmental degradation. Fossil fuel safeguards.
energy generation and transportation create
emissions that contribute to acid rain locally and The evidence points to the need for the nexus
global warming. Hydropower and irrigation can issues to be addressed both at the project level
lead to flooding, water pollution, and disruption relating to selection, design, implementation,
of communities. Roads can lead to erosion, and supervision, as well as at the sectoral and
deforestation, and biodiversity loss. These national level relating to policies, regulations,
environmental costs have been estimated to and environmental capacity. Most attention to
vii
E C G PA P E R 1
environmental impacts is currently focused at integrated approach at a national and sectoral
the project level—whether safeguard criteria are level can produce satisfactory environmental
met and efficiency improved “within the project results while meeting project goals.
fence.�? This is important, and there are areas in
this respect that need greater attention. Second, national policies can provide incentives
Importantly, once projects are implemented, for increasing the efficiency of infrastructure
effective operation and maintenance of projects. Sound pricing and market incentive
infrastructure is needed over the full life of the policies help control excessive demand for
project to assure that environmental safeguard infrastructure services, assure adequate mainte-
measures are implemented. Evaluations by the nance, and encourage shifting to more conserva-
International Finance Corporation (IFC) and the tion. Cutting water subsidies will reduce
European Bank for Reconstruction and Develop- unnecessary depletion of water, and proper
ment (EBRD) demonstrate that projects which energy pricing and incentives will reduce demand
successfully take account of the environmental and increase conservation. Incentives for new
do as well financially and economically as technologies can also make a difference: CO2
projects which do not. emissions from coal-fired plants can be reduced
by up to one-third with the latest technology.
While project-level efforts across the Regions
have produced significantly positive results, far Third, encouraging more private investment,
more attention needs to be paid to sector-wide with proper regulation and cooperation between
and national issues that have far-reaching the public and private sectors, can expand
impacts. There are more environmentally infrastructure availability effectively, as
friendly alternative means of satisfying the needs, Morocco’s pubic-private coordination policies
such as the energy conservation program run by have demonstrated. Involving recipients in
Global Environment Facility (GEF) in Thailand, infrastructure projects will also help. For
which reduced peak demand by a gigawatt with instance, the poor are willing to pay for clean
a benefit-to-cost ratio of 1.7. Alternate site water, if they understand the costs and benefits,
selection in infrastructural investments could as has been demonstrated in the Bolivia
help, such as roads routed around unexploited PROSABAR Project.
forests with a buffer zone of protected areas built
in, as possible in countries such as Brazil. Water Finally, dealing effectively with governance and
conservation could reduce water usage to corruption issues is an especially important
sustainable levels, for example, by reducing the priority when it comes to infrastructure com-
Middle East and North Africa’s withdrawal of over pared to other sectors. Improving governance
100 percent of renewable water. and reducing corruption can significantly reduce
the cost to society of infrastructure, improve its
The interface between projects on the one side efficiency, and lead to better planning, design,
and sectoral and national actions on the other implementation, and outcomes.
remains a challenge. The first area for action
concerns strategies and institutional approaches Overall, there is considerable scope to reduce
themselves. National governments need to the negative environmental impacts of infrastruc-
establish national environmental strategies ture, to mitigate the impacts of others, and to
through Strategic Environmental Assessments or actually enhance the environment in many cases.
similar documents with implementation and This requires moving beyond the conventional
follow-up. Strengthening national environmental “do no harm�? approach at the project level to a
management capacity will mitigate damage and more proactive “do good�? approach at both
promote a better environment. Experiences with project and national levels. The evaluations
the Bolivia-Brazil pipeline and Nam Theun 2 dam reviewed demonstrate that this is an important
projects have shown how taking a more possibility that can and should be exploited
viii
THE NEXUS BETWEEN INFRASTRUCTURE AND ENVIRONMENT
much more extensively than is currently the • The ECG members can support work on the
case. nexus issues by building and sharing fuller
databases, by undertaking meta-analyses of in-
This review across regions provides implications frastructure policies to learn how to help coun-
for actions by the IFIs and the countries, by the tries better address nexus issues, and by
evaluators, and by the ECG. assuring more complete cost-benefit analyses
• The IFIs can work with countries to ensure that are conducted to demonstrate the real costs of
a more environmentally strategic approach is not adequately addressing the nexus.
used in project selection, design, and manage-
ment; that more incentives are provided to re- Action on the nexus is a huge priority for the
duce environmental damage; and, better yet, industrial countries as well, whose record on this
that measures are taken to improve the envi- score needs much improvement. Action by both
ronment through conservation and stewardship. industrial and developing countries will generate
• Evaluators need to examine the infrastructure- beneficial results for the whole world—including
environment linkages in their project, sector, importantly for developing countries and
and country assessments. A special effort needs especially the poor. The payoffs to all will be
to be made to cover the full operational life of immense from building sound infrastructure
projects in order to capture the full range of in- while strengthening the environment. What is
tended and unintended effects which often needed is a shift in priorities and emphasis to
emerge over time. make that happen.
ix
CHAPTER 1
The Infrastructure-Environment Nexus
and the Future of Development
Infrastructures are at the very heart of of environmental concerns with the need for
economic and social development. The developmentally important infrastructure—what
next decades are likely to see an accentua- we call the infrastructure-environment nexus.
tion of two facets of infrastructures. On the
one hand, they will prove a vital tool in Infrastructure is essential for growth, which is
resolving some of the major challenges essential for poverty alleviation. Expanding
faced by societies—supporting economic infrastructure to meet expanding demands will
growth, meeting basic needs, lifting mil- absorb trillions of dollars of investment over the
lions of people out of poverty, facilitating coming decades in the developing and transition
mobility and social interaction. On the economies. Many infrastructure investments
other, environmental pressures in the form deal effectively with their environmental impacts
of changing climatic conditions, congestion or directly promote environmental improve-
and so on are likely to increase, turning the ments, but many kinds of infrastructure also
spotlight firmly on the inherent tensions pose serious threats to the environment. If these
between the imperative for further threats are not addressed, many of the benefits
infrastructure development and the quest of growth will be undermined, especially for the
for sustainability (Infrastructure to 2030, poor, who often suffer disproportionately from
OECD, June 2006). environmental damages. Infrastructure lasts for a
long time, often 50 years or more, and greatly
The recent report on climate change by the influences the direction of further development,
United Kingdom’s Economic Service, commonly so it is vital to take account of the full extent of its
referred to as the Stern Review, highlighted the impacts. The infrastructure-environment
importance of environmental risks inherent in nexus addresses the challenge of meeting
world economic growth and development.1 This the demand for infrastructure services
concern affects all countries and all populations, while maintaining or improving the quality
but the report points out that: of the environment.
The most vulnerable—the poorest At its semi-annual meeting in Manila in the fall of
countries and populations—will suffer 2005, the Evaluation Cooperation Group (ECG),
earliest and most, even though they have representing the independent evaluation de-
contributed least to the causes of climate partments of the international financial institu-
change (Summary of Conclusions, p. 2). tions (IFIs), recognized the critical importance of
this infrastructure-environment nexus. It
Thus, as development agencies pursue their commissioned this initial review of its members’
efforts to promote economic development in experience to see what lessons can be learned to
poor countries and improve the lives of their avoid the detrimental effects of infrastructure
people, they are warned to be cognizant of the and contribute to environmental enhancement.
need to ensure that development is achieved in To address this topic’s scope and complexity, this
ways that minimize environmental damage or— paper sets out an analytic structure for assessing
better still—improve environmental quality. This the nexus and uses evaluation results to illustrate
is nowhere more evident than in the intersection that infrastructure outcomes are affected by
1
E C G PA P E R 1
project design and implementation and by sector based power may be better when all factors are
and national policies and practices. It offers considered, or improvements in end-use
guidance to the IFIs’ management and staff on efficiency could obviate the need for new generat-
how they can better achieve their institutions’ ing capacity and thus save money while reducing
goals in infrastructure and environment. In air pollution. These considerations go beyond
particular, evaluating projects and programs in traditional project-focused safeguard policies. So
developing countries needs a more systematic the second, broader question is whether the right
approach. The ECG members should work kinds of projects are being selected and whether
together to strengthen the evaluation of there are policy alternatives (such as price
infrastructure-environment nexus issues. reforms or market-based incentives) which are
preferable to brick-and-mortar infrastructure
Questions Addressed investments. In many parts of the world, the
This paper addresses two crucial nexus broader question should also address regional
questions related to IFI activities: coordination of infrastructure and environmental
• At the project level, how effectively do project planning, such as African transport and energy
design and implementation incorporate envi- networks or Mekong water management to
ronmental considerations? assure that highways open landlocked countries
• At the sectoral and national levels, do policy to trade and that roads and dams do not
and regulatory regimes and investment port- excessively disrupt downstream water flows.
folios effectively incorporate environmental
considerations? In addressing these two questions, we will
evaluate outcomes, the relationship between IFI
These questions are closely linked. The first deals processes and outcomes, and the evaluation
with traditional “within-the-fence�? efforts to process itself. This paper focuses mostly on
ensure that projects meet environmental transport, energy, and water, which account for
standards, often by applying environmental the bulk of infrastructure lending and tend to
safeguard policies in project design. Safeguard have more prominent biophysical environmen-
policies may, for instance, ensure that thermal tal impacts and very significant socio-economic
generators incorporate adequate controls for air environmental consequences that need to be
pollution. However, there may be alternative taken into account. We will begin by examining
projects or other actions that offer superior the role of infrastructure in growth and poverty
economic and environmental outcomes. For reduction, and then consider the environmental
instance, hydropower rather than fossil fuel- impacts and how they can be addressed.2
Notes
1. United Kingdom Economic Service, 2006, Stern
Review on the Economics of Climate Change.
2. The safeguard policies include both biophysical
and socioeconomic factors. This paper concen-
trates on the biophysical, but takes into account
the impact of infrastructure on poverty and the
Millennium Development Goals.
2
CHAPTER 2
Infrastructure, Growth, and
Poverty Reduction
Roads, electricity, clean water, and irrigation are past 15 years, infrastructure lending has
integral parts of development and poverty comprised about 50 percent of project lending
reduction. Some infrastructure investments are and 40 percent of total lending. Within this
directly linked to the Millennium Development roughly constant share, there has been a relative
Goals (MDGs). Provision of clean water, for shift from power to transport (see Figure 2.1 and
instance, is an integral part of target 10 (in the Figure 2.2). IFI lending constitutes less than the
environmental goal) and is critical to achieving majority of infrastructure investments in
target 5 (reduction of child mortality). The African developing countries, but its relatively high
Development Bank (AfDB) estimates that less than quality and profile help set standards that
two-thirds of Africa’s urban population has access contribute to better overall infrastructure.4
to safe water and barely one half to sanitation—if
all the systems work as designed. Access in rural Future Infrastructure Requirements
areas is much lower.1 Other linkages are likely to The Organisation for Economic Co-operation
be strong but indirect—for instance, the role of and Development (OECD) estimates that total
rural roads in boosting farm incomes and improv- global expenditures on infrastructure in energy,
ing access to schools and health facilities. transportation, and water from 2000 to 2030
will need to be about $57 trillion (in constant
Good infrastructure is part of the enabling 2000 US$) in order to achieve targeted
conditions for sustained economic growth which, economic growth rates.5 Nearly half of this
in turn, is a prerequisite to reducing poverty. For expenditure will be in developing countries,
instance, Fan and Chan-Kang (2004) report which have the greatest needs for additional
excellent returns to rural road investments in
India.2 They estimate a reduction in the poverty Figure 2.1: IFI Infrastructure Lending
head-count of 10 people per 1 kilometer of road
extension in low-potential rain-fed areas and 120
economic rates of return in the hundreds or even
thousands of percent. Similarly, for China, they 100
estimate high economic returns to road invest-
Lending, billion US$ (2000)
ments, concluding that among infrastructure 80
investments, roads had the greatest impact on
reducing poverty. The International Energy 60
Agency estimates that energy, as a factor of
production, accounted for 13 percent of China’s 40
GDP growth over 1980–2001, 15 percent of
India’s, 30 percent of Mexico’s, 50 percent of 20
Korea’s, and 77 percent of Brazil’s.3
0
IFI Infrastructure Lending 1990 1995 2000 2005
Not surprisingly, then, IFI lending emphasizes
Power and energy Transportation Water
infrastructure. IFI lending for infrastructure Other IFI infrastructure IFI total lending
amounted to over $40 billion in 2005. Over the IFI total project lending lending
3
E C G PA P E R 1
Figure 2.2: Infrastructure Share of IFI Lending infrastructure (see Table 2.1). To support
continued high growth, infrastructure invest-
60 ment will have to average over $700 billion a
year in this decade, rising to over $1 trillion a
year by the 2020s. The World Bank estimates
50
that developing countries will need to invest
about six percent of their gross domestic
Percent of lending
40
product (GDP) annually in infrastructure,
rising to as high as nine percent for the lower-
30 income countries. 6 However, current invest-
ment levels in Africa and Latin America and the
20 Caribbean are well below this target level,
which has contributed to their relatively lower
10 growth rates. Investment levels in Asia are
generally high, exceeding seven percent of
0 GDP for infrastructure in rapidly growing
1990 1995 2000 2005 countries.7
Power and energy Transportation Water
Other Total project lending
Total lending
Table 2.1: OECD Estimates of Infrastructure Investment Requirements
2000–10 2011–20 2021–30 2000–30
Average Average Average Percent
annual Total annual Total annual Total Total of total
Total, developing countries 701 7,011 880 8,805 1,048 10,476 26,291 46
Energy 317 3,174 385 3,852 398 3,982 11,008 47
Transportation 83 826 92 919 108 1,075 2,820 31
Water 301 3,010 403 4,034 542 5,419 12,463 52
Source: Based on OECD, 2006, Infrastructure to 2030: Telecom, Land Transport, Water and Electricity, Paris: OECD.
Note: Investment figures are in constant 2000 US$ billion.
Notes 5. These estimates are derived from OECD, 2006,
1. African Development Bank, 2003 (July), Evaluat- Infrastructure to 2030: Telecom, Land
ing Bank’s Support for Capacity Strengthening Transport, Water and Electricity, Paris: OECD,
of Urban Water Supply and Sanitation Entities and represent estimates of what is needed to
in Regional Member Countries. achieve desired growth rates. Based on past
2. Shenngen Fan and Connie Chan-Kang, 2004, experience, actual spending often falls below
“Returns to Investment in Less-Favored Areas in what is needed to provide the appropriate level
Developing Countries: A Synthesis of Evidence of infrastructure.
and Implications for Africa,�? Food Policy 29(4): 6. World Bank, 2005 (September), “Infrastructure
431–444. and the World Bank: A Progress Report.�?
3. International Energy Agency, 2004, World Energy 7. Asian Development Bank, Japan Bank for
Outlook 2004, Paris: OECD/IEA. International Cooperation, and the World Bank,
4. The World Bank’s review of China has shown this 2005, “Connecting East Asia: A Framework for
to be the case. IEG (OED), 2004, China: An Infrastructure.�?
Evaluation of World Bank Assistance.
4
CHAPTER 3
Environment and Development
Infrastructure services are vital for supporting yield by up to 50 percent in the immediate
economic growth and improving the quality of environs of large power plants.2 On the social
life by improving transport and communications, side, particulates and smog from power plants
sanitation and home heating, access to and traffic are estimated to cause 427,000 excess
education, health services, etc. However, provid- deaths annually in China3 and 107,000 in India.4
ing these services can have environmental Global damages from infrastructure-related fossil
impacts that also have important implications for fuel emissions—such as climate change—are
quality of life, including both biophysical and additional to these local damages. Emissions are
social aspects. The former affect geological and inherent in fossil fuel energy (power and
biological conditions such as land quality, water transport), and the challenges are to minimize
management, biodiversity, etc.; the latter affect emissions, promote alternate energy, and
health and other social conditions due to air and encourage conservation.
water quality, resettlement, etc. Well-designed
infrastructure projects can produce positive Rural road construction can also contribute
environmental impacts, e.g., by reducing water to environmental damage, both directly and
pollution, or mitigate negative environmental indirectly. The direct effects include erosion and
impacts, e.g., through emissions controls. sedimentation. Unpaved forest roads can be a
However, when environmental consequences are major cause of erosion, gullying, and stream
not taken into account, infrastructure projects sedimentation. The indirect effects can be much
can pose serious threats to the environment and larger. Chomitz (2006), in an extensive literature
resultant quality of life. Land degradation, review, confirms that roads are a major trigger for
flooding, water and air pollution, and acid rain tropical deforestation.5 The challenges are to
that result from poorly designed projects design and maintain roads well, route them to
seriously degrade living conditions, especially for avoid negative impacts on forests, and enforce
the poor who lack the resources to compensate land use regulations.
for the impacts. The nexus focuses attention
precisely on this intersection between environ- In transportation, investment in urban mass
ment and infrastructure. transit systems may be more environment-
friendly than building more extensive road
The construction and operation of infrastructure systems that encourage automobile use,
generally pose risks to local environment, which extended urban development, and the concomi-
will result in environmental damage if not tant rise in demand for fuel.6 Thus, while
adequately mitigated or compensated. This is infrastructure often requires mitigation mea-
well documented in the case of energy, sures to minimize environmental damage, in
especially where power plants or industry burn some cases it can directly reduce the need for
coal. In China, acid rain and other biophysical mitigation and enhance environmental benefits.
effects of coal combustion have reduced crop
yields by five percent to 30 percent for 70 percent Irrigation works can lead to overuse of water,
of all crops.1 In India, acid rain has acidified soils land degradation, and downstream pollution
in a large part of the country and decreased crop (pesticides, herbicides, etc.). The Millennium
5
E C G PA P E R 1
Ecosystem Assessment (MEA) claims that irrigation developing countries. Urban development that
already consumes 20–30 percent of the planet’s fails to plan for and provide basic public utilities
available freshwater resources.7 Statistics reported contributes to both infrastructure and environ-
in the World Development Indicators are less mental problems, especially in poor countries.
alarming at the global scale, but report that South Insufficient roads prevent adequate access for fire
Asia withdraws 52 percent of internal renewable fighting and solid waste collection. Lack of access
freshwater resources (90 percent for agriculture), to electricity and cleaner fuels can result in
and the Middle East and North Africa withdraw 105 excessive use of coal and firewood for cooking
percent (89 percent for agriculture). A study and heating, leading to high levels of interior air
conducted by the United Nations Environment pollution and negative health impacts. Water
Programme found that “half of the world’s irrigated supplies and sanitation are typically insufficient.10
land has been affected by water-logging, salinity, or
alkalinity. Salinity seriously affects productivity on Estimates from the late 1990s (currently being
about 22 million hectares of land and has less updated) indicate that environmental degrada-
severe impacts on another 55 million.�?8 Irrigation tion is increasing and that the damages are
and other water projects may also deplete water spread across all regions in a number of environ-
resources and lower water tables. The challenges mental categories (see Figure 3.1). This poses a
include effectively managing watersheds while growing threat to developing countries as the
providing clean water and sanitation locally, and not costs of such environmental damage are being
disrupting water downstream. increasingly felt and have the potential to
undermine their potential for sustained growth.
In contrast, investment in sanitation represents an
example of infrastructure specifically designed to Policies toward Positive Environmental
improve the environment. A 2005 United Nations Impacts of Infrastructure: Overview
Task Force report on water and sanitation Infrastructure is a double-edged sword, associ-
highlighted the health, poverty reduction, and ated with income gains and also often with
environmental benefits of improved sanitation environmental costs. But those costs are, to a
infrastructure and recommended steps to provide large extent, avoidable. There are several ways to
this infrastructure.9 reduce the costs and increase the environmental
benefits of infrastructure projects, at both the
The pressures on the urban environment and project and national/sectoral levels. There are
urban infrastructure are particularly acute in the also regional and global challenges that have
world’s mega cities, many of which are in been identified through evaluations.
Figure 3.1: Environmental Damages Increasing in the Developing World
Arctic
Asia Latin North West and
Africa Pacific Europe America America Asia Antartic
Land: degradation
Forest: loss, degradaton
Biodiversity: loss, habitat fragmentation
Fresh water: scarcity, pollution
Marine and coastal zones: degradation
Atmosphere: pollution
Urban and industrial: contamination, waste
Increasing Stable Decreasing N/A
Source: United Nations Environmental Programme, 1997.
6
THE NEXUS BETWEEN INFRASTRUCTURE AND ENVIRONMENT
Project Level Substituting environmental capital for
Project design choices can reduce environmen- physical capital. In the water sector, the need
tal impacts. Coal-fired power plants can use for major investments in water purification can
efficient technologies and incorporate scrubbers be reduced by introducing upstream steward-
or other end-of-pipe pollution controls. Roads ship methods for watershed management and
can be routed around sensitive environmental reduction of polluted runoff (e.g., incentives for
sites and incorporate drainage systems that farmers and others to modify their practices).11
reduce runoff and erosion. Watershed manage- Other examples include using wetlands and
ment can reduce flooding and water shortages floodplains as buffers against flooding; using
while preserving access to good water supplies. mangroves as buffers against storm surges and
Properly insulating and orienting buildings can tsunamis; and reducing urban “heat island�?
reduce their heating and cooling demands. effects through vegetative planting.
These design considerations are important
because buildings, power plants, and other Infrastructure siting and spatial planning.
infrastructure have operational lives of 40–100 Infrastructure siting decisions can profoundly
years. affect environmental impacts. For instance, the
environmental and social impact of dams
Operations and maintenance are important depends on the size and population of the basins
determinants of economic and environmental that they flood. Figure 3.2, based on data from
outcomes at the project level. Maintenance is Ledec and Quintero (2003),12 plots the relative
critical for end-of-pipe pollution control impact of large dams along two dimensions:
equipment. Because it is costly, facility operators displaced people per megawatt (MW) and
may skimp on maintenance in the absence of hectares flooded per MW (bubble size is propor-
incentives or controls. Similarly, road mainte- tional to the power plant’s generating capacity).
nance is crucial in order to avoid costly The figure shows that some dams are 100–1,000
reconstruction and to reduce runoff and erosion, times more efficient (less damaging per MW)
and urban sanitation and drainage systems will than others along these two dimensions.
fail in the absence of maintenance. Similarly, road siting presents tradeoffs in
induced deforestation versus stimulus for local
National/Sectoral Level development. Preferentially siting new roads and
At the national (sectoral and cross-sectoral) level, road upgrades in more densely populated,
there are many more options for increasing the already degraded areas, and surrounding
benefit-to-cost ratios of infrastructure invest- unavoidable forest roads with protected area
ments. These options may not be apparent if corridors, can mitigate or possibly even reverse
environmental assessments are only undertaken the potential growth-environment tradeoff
at the project level. They require sectoral or associated with road construction.
national planning, which includes:
Investing in efficiency. Increased efficiency of
Shifting infrastructure toward more environ- water and energy use can reduce the need for
mentally friendly technologies. For instance, costly and environmentally damaging invest-
the electric generation portfolio could move ments. Efficiency is typically low in irrigation: for
toward clean and renewable fuels and away from instance, MEA (2005) reports only 40–50 percent
coal, or toward more efficient technologies, or of diverted water is used by crops. Water is often
toward conservation. While some of these used for low-value crops rather than higher value
changes may cost more up front, their reduced industrial or domestic use. In water-scarce South
environmental impacts will produce more Asia, for instance, average water productivity is
benefits over the longer run. Determining which $0.20 per cubic meter in agriculture versus $5.90
shifts are most effective would employ more in industry.13 Likewise, there are many opportu-
extensive cost-benefit analysis. nities for increased efficiency of energy use.
7
E C G PA P E R 1
Figure 3.2: Environmental and Social Impacts by coordination and cooperation among
of Dams neighboring countries. Watersheds often span
one or more national borders. Energy sources,
1,000 such as hydropower, can have impacts on
countries along the river sources. Landlocked
People displaced/MW
100 countries need access to the sea to participate in
global trade. These regional issues affect nearly
10 all developing countries. Despite many common
features, there are also distinctive challenges in
1 the major regions.
0.1 1 10 100 1,000
0.1 Africa: Infrastructure is inadequate and must be
Hectares flooded/MW expanded in ways that promote growth and
better integrate environmental factors. These
Shifting from incandescent to compact fluores- countries have a relatively small infrastructure
cent lights can realize substantial electricity base and are investing only two to three percent
savings and postpone the need for building more of GDP in infrastructure.14 They should take
generation capacity. advantage of the opportunities to adopt more
advanced, integrated, and environmentally
Policy reforms. Sectoral policies can profoundly sound approaches to infrastructure. This will
affect the demand for, supply of, and utilization enable them to generate more effective growth
of infrastructure. For instance: and poverty alleviation, reduce threats to their
• Reducing or eliminating agricultural price dis- environments, and provide greater capacity to
tortions that excessively favor water-consuming deal with frequent natural disasters.15 Cross-
crops and that boost demand for irrigation boundary watershed management and prospec-
with no net increased benefits, and setting tive continental road and power networks are
water prices at levels that discourage excessive critical for Africa and will require international
use of water for low value crops. cooperation and environmental assessments.
• Reducing or eliminating gasoline and diesel
price subsidies to reduce demand for road- Asia: These countries are investing about six
ways, especially where prices do not fully re- percent of GDP in infrastructure, and their rapid
flect congestion and pollution costs. expansion of urban infrastructure and energy
• Reducing subsidies that favor coal-fired gen- demand will require greater efforts to enhance
erators over less-polluting natural gas plants. environmental protection and to remediate the
serious losses resulting from past environmental
Such policy reforms have the potential to reduce degradation. Studies have estimated that environ-
environmental damages associated with the use mental damage has cost China and India four to
of infrastructure. eight percent of GDP annually, and a significant
portion of that comes from the impacts of
Regional and Global Level infrastructure.16 Given the expected rapid
Many of the infrastructure challenges are expansion of infrastructure, especially related to
common across regions. In all areas, there will be energy production for power and transportation,
growing demand for power and transport. these countries should give energy conservation
Demand for urban infrastructure (including an increased priority.17 While many Asian
water and urban transport) will surge as cities countries have adopted good environmental
grow in Asia, Latin America, and Africa. Beyond policies, implementation and enforcement
dealing with common problems, a number of remain a serious challenge. IFIs can play an
environmental challenges have to be addressed important role in strengthening this process.
8
THE NEXUS BETWEEN INFRASTRUCTURE AND ENVIRONMENT
Eastern Europe: Further rehabilitation and emissions, especially where they depend on coal
management of infrastructure will accelerate the for energy.20 Promotion of energy efficiency and
transition to modern economies, building on a renewable fuels can help retard global warming
reasonably successful program to date. These while providing local benefits in reduced air
countries must meet the high standards set by the pollution. Carbon reduction finance and trading
European Union (EU) environmental policies to programs could help to support more environ-
better integrate into the European economy, mentally friendly infrastructure; carbon trading
which gives them a strong incentive to further programs are in place in the World Bank Group
improve infrastructure in relation to the environ- (WBG), the Asian Development Bank (AsDB),
ment. They have focused on improving both the European Bank for Reconstruction and
physical elements and management in their transi- Development (EBRD), and the European Invest-
tion to more market-oriented processes, which ment Bank (EIB).21
has helped reduce emissions and pollution.18 As
with Africa, regional planning of infrastructure and In addition, the effects of climate change on the
environmental management would contribute a prospects for sustainable development are serious.
great deal to their mutual well-being. Many countries face major impediments to
development from changing rainfall and water
Latin America: Infrastructure investment needs shortages, rising sea levels, and temperature
to recover from recent lows of one to two fluctuations that will affect agricultural production,
percent of GDP to help accelerate growth, as overall growth, and poverty-reduction prospects.
levels of infrastructure are well below that of The dual role of infrastructure in contributing to
faster growing Asian countries.19 Nevertheless, climate change while providing important services
the environment has often suffered from what has not been adequately addressed in ways that
infrastructure has been built, especially roads in would create opportunities to generate more
the Amazon region and support for the exploita- positive effects in well-designed infrastructure
tion of natural resources. There is a need to projects. These potentially adverse impacts also
reduce the negative environmental impacts that need to be addressed in the infrastructure-
have characterized much of the infrastructure environment nexus to make sure that infrastruc-
development to date and to build a sound ture projects help protect against the impacts of
infrastructure that strengthens the environment climate change.
in an integrated way to provide a basis for more
sustainable development and poverty alleviation. Summation
This brief review has illustrated the magnitude of
Global: Local infrastructure development has future infrastructure demand and the potential
global implications. The manner in which energy environmental issues. Furthermore, it has
and transport systems are constructed will have established that there are ample opportunities
long-lasting implications for CO2 emissions and to mitigate the potentially negative impacts of
thus for global warming and the recently infrastructure on the environment. The follow-
recognized threat of ocean acidification. Beyond ing sections will examine whether IFI projects
the direct impacts of infrastructure projects on have been designed and executed properly
the environment in their immediate areas or within a well-structured environmental strategy,
countries, global environmental impact issues whether the IFIs adequately pursue opportuni-
should receive more attention. Currently most ties for environmental strengthening, and to
CO2 emissions come from developed countries, what extent they have been successful or fallen
but several fast-growing developing countries are short of desired results. Both the project and
rapidly increasing their energy consumption and national/sectoral levels will be considered.
9
E C G PA P E R 1
12. George Ledec and Juan David Quintero, 2003,
Notes
“Good Dams and Bad Dams: Environmental
1. Chameides et al., 1999, “Is Ozone Pollution
Criteria for Selection of Hydroelectric Projects.�?
Affecting Crop Yields in China?�? Geophys. Res.
13. World Bank, 2006, World Development Indicators.
Lett., 26, 867-870 as cited in Zmarak Shalizi,
14. See World Bank, 2005, Infrastructure and the
2006a, “Climate Change Implications for Energy
World Bank: A Progress Report, for GDP shares
Infrastructure in China and India (Clean Energy
in other regions.
and Energy Efficiency),�? ABCDE Conference.
15. African Development Bank, 2004, “African Develop-
2. Mitra and Sharma, 2002, “India Aerosol: Present
ment Bank Group’s Policy on the Environment.�?
Status,�?cited in Shalizi above.
16. World Bank, 1997, Clear Water, Blue Skies; World
3. World Bank data as cited in Shalizi above.
Bank, 2005, Environment Matters, Annual
4. Cohen et al., 2004 “Mortality Impacts of Urban
Review; and Kirit S. Parikh, 2006, “India Energy
Air Pollution,�? cited in Shalizi above.
Needs, Options and Environmental Sustainability.�?
5. Kenneth M. Chomitz, 2006, At Loggerheads?
17. Zmarak Shalizi, 2006, “Energy and Emissions:
Agricultural Expansion, Poverty Reduction, and
Local and Global Effects of the Rise of China and
Environment in the Tropical Forests.
India,�? Chapter 5; GEF and World Bank, 2006,
6. World Bank, 1996, “Sustainable Transport: Priori-
“Thailand Promotion of Electrical Energy
ties for Policy Reform�?; and World Bank, 2006,
Efficiency Project.�?
“Safe, Clean and Affordable Transport for Growth:
18. EBRD, 2005, “Power Sector Restructuring Loan,
An Update of the World Bank’s Sector Priorities
Summary of the Operation Performance Evalua-
for the Period 2007–2011.�?
tion Review,�? and EBRD, 2005, “Water and Waste-
7. Reid et al., 2005, Ecosystems and Human Well-
water Company, Summary of the Operation
Being: Synthesis, p. 747.
Performance Evaluation Review.�?
8. Morris et al., 2003, Groundwater and Its Suscep-
19. “Slow: Government Obstacles Ahead,�? The
tibility to Degradation: A Global Assessment of
Economist, June 17, 2006.
the Problem and Options for Management, p.
20. E.g., China and India; World Bank, 1997, Clear
87.
Water, Blue Skies; World Bank, 2005, Environment
9. United Nations Millennium Project, 2005, Health,
Matters, Annual Review; Zmarak Shalizi, 2006,
Dignity and Development: What Would It Take?
“Climate Change Implications for Energy
10. African Development Bank, 2003 (July), Evaluat-
Infrastructure in China and India (Clean Energy
ing Bank’s Support for Capacity Strengthening
and Energy Efficiency)�?; and Kirit S. Parikh, 2006,
of Urban Water Supply and Sanitation Entities
“India Energy Needs, Options and Environmental
in Regional Member Countries, and World Bank,
Sustainability.�?
2006, World Development Indicators.
21. EIB, “Proposal from the Management Committee
11. Such approaches have proven successful in both
to the Board of Directors Concerning the EBRD-
developed and developing countries. John D.
EIB Multilateral Carbon Credit Fund�?; EIB, “EIB
Shilling and Jennifer Osha, 2002, “Making
Carbon Funds Overview�?; and EIB, “Proposal for
Markets Pay for Stewardship�?; and David Reed,
Cost Recovery Basis, World Bank-EIB Carbon
2006, Escaping Poverty Grasps.
Fund for Europe (WB-EIB CFE).�?
10
CHAPTER 4
The Nexus at the Project Level
At the project level, much of the concern on Most of the projects which have major environ-
environment is captured through safeguard mental impacts are in infrastructure. Environ-
policies and environmental assessments. mental assessments are designed to play a major
However, analysis of the evaluations suggests role in defining the scope of these impacts, the
that this approach may be too narrow, and in any management issues to be addressed, and the
case is often more of a bureaucratic exercise than actions that need to be taken. They constitute a
a serious attempt to enhance environmental major part of the IFIs’ environmental and social
values in infrastructure-related projects. safeguard policies.
National and IFI Project-Level Safeguard policies play an important role at the
Safeguards project level in improving the quality of projects
Safeguard policies outline the minimum require- and reducing negative environmental impacts.
ments necessary on the part of the IFIs to identify, However, compliance with safeguard policies is
avoid, minimize, mitigate, and monitor the most often focused on environmental factors
negative environmental impacts of projects.1 during project preparation and appraisal. They
Safeguards are increasingly coordinated through have increasingly become seen as a checklist that
a common framework and harmonization narrows the focus on environmental issues to
process led by the Multilateral Financial Institu- those explicitly listed in the safeguards. The
tions Working Group on Environment, which also World Bank’s Third Environmental Assessment
includes some bilateral donors, export credit Review (2002) found that EAs are often not used
agencies, and others.2 to help identify projects in terms of alternate
sites or means of achieving the project’s goals
Project screening highlights areas of possible since they are incorporated into the project cycle
environmental impact and is used to categorize beyond the point where such questions are most
projects by the extent to which implementation relevant.4 ECG evaluations have found that most
will impact the environment—from significant of their infrastructure projects focus primarily on
impact to no impact at all. The WBG and AsDB issues “within the fence�? of the project.5 The EAs
categorize projects into Type A, Type B, Type C, are carried out by the borrower and are often
and Type FI. Type A projects are those with signif- inadequate in addressing all the environmental
icant potential to negatively impact the environ- issues. Furthermore, project teams report rarely
ment; Type B projects have less severe having adequate resources to properly address
environmental impacts; and Type C projects are environmental issues during the implementation
unlikely to adversely impact the environment. period.6
Type FI flags lending through financial interme-
diaries. Type A projects require full environmen- The potential environmental impacts of
tal assessments (EAs), and Type B projects infrastructure projects are likely to be more
require EAs of aspects which are expected to extensive than project-specific safeguard policies
have an impact on the environment. Other IFIs are designed to handle. For example, hydroelec-
use similar categories to determine environmen- tric power projects are widely recognized as
tal impacts. 3 having broader environmental impacts that need
11
E C G PA P E R 1
to be taken into account. The World Dam mental categories at the two institutions. In both
Commission (2000) has described such impacts the World Bank and AsDB, the rigor with which
in detail. 7 Ledec and Quintero (2003) noted the the environmental safeguards are applied varies
environmental impacts of hydro dams are across regions. The AfDB has reported instances
minimized by optimal site selection. From an where projects were misclassified as well.13 The
environmental viewpoint, dams should not be AsDB has noted that some projects are specifi-
located along major rivers but on their upper cally designed to exclude components that
tributaries.8 Thus, applying safeguards after a site would get an A rating.14 With different safeguard
is chosen may be too late to minimize environ- requirements for different categorizations, the
mental impacts. implications for environmental degradation are
clear. Projects with Type A environmental
There are few positive incentives built into the impacts, if misclassified as Type B, would be
safeguard policies or project evaluations to subject to the less-stringent safeguard policies
encourage staff to take on environmentally of Type B projects, placing the environment at
complex projects.9 On the contrary, IFIs and task risk.15
managers have incentives to avoid projects
which require an intensive environmental impact Project Success and Environmental
assessment (EIA), as they are costly to Performance
undertake.10 When there is strong external It is common to assume that in order to meet
pressure to do so, thorough environmental environmental standards, projects must bear
assessments and management of projects are additional costs or forgo some benefits. But
undertaken, as with the Chad pipeline project or when consideration of environmental impacts
the Laos Nam Theun 2 dam project. However, contributes to better project design or negative
task managers often perceive that the rewards impacts are otherwise compensated, there may
for success in undertaking environmentally risky be no such tradeoff. This may involve more
projects are outweighed by the detrimental extended consideration of the indirect impacts,
effects of failure on career advancement.11 These externalities, or public good implications in
perverse incentives created by the safeguard estimating the real costs and benefits.
policies result in “rational�? decisions by IFI staff
and executing agencies for the IFIs to not be AsDB experience with water projects has
involved in some challenging projects. However, demonstrated that successful projects can
it is possible that alternative financing sources improve both economic conditions and the
would apply less-stringent environmental environment, while weak design and execution
standards and oversight than the IFIs. Future may result in immediate economic gain but lead
evaluation efforts might assess the extent to to detrimental environmental effects which limit
which this occurs, and the implications for IFI the sustainability of these gains or even lead to
safeguard policies and staff incentives. negative overall results. The Dalian project in
China addressed major problems of water
Environmental Classification of IFI shortages and pollution around the city of
Projects Dalian, which posed a serious constraint on its
This type of procedural compliance undermines economic growth. The project design consid-
the spirit of safeguard policies.12 The costs ered the linkages among water projects and
associated with environmental assessments may environmental issues, and the project was able
lead IFI staff not to undertake some valuable to increase good water supplies while treating
projects or to misclassify Type A projects as Type wastewater and reducing industrial pollutants.16
B projects. A comparison of road rehabilitation However, other AsDB water projects in Sri Lanka
projects funded by the WBG and the AsDB and the Philippines have produced poor results
found projects with similar environmental due to lack of integrated planning and mitigation
impacts were likely to have different environ- processes.17
12
THE NEXUS BETWEEN INFRASTRUCTURE AND ENVIRONMENT
A review of transport and power projects by the Environmental outcomes of projects are evaluated
International Finance Corporation (IFC) illus- and rated by only three IFIs: the AfDB, EBRD, and
trates that projects which perform well environ- IFC, while EIB formally reports on environmental
mentally also perform well financially, as shown outcomes in its evaluations but does not give a
in Table 4.1. The mean rate of return for projects rating. However, the assessments may be
with satisfactory environmental assessment hampered by inadequate data or reporting. The
ratings is statistically indistinguishable from the lack of monitoring or baseline data also suggests
mean for those with unsatisfactory ratings.18 This that project design may not have adequately
simple tabulation illustrates that successful incorporated environmental considerations.
application of safeguards can maintain or
improve economic returns. It is consistent with Even where environmental outcomes are
the hypothesis that well-designed and executed evaluated, monitoring of public sector projects is
projects perform well on both environmental rarely continued after project closing. Insufficient
and financial measures. data and too short a monitoring time-frame make
it difficult to determine (i) whether the
Monitoring Operation and Maintenance safeguards have been effectively implemented,
for Environmental Outcomes however well the they were designed into a
Operations and maintenance matter a lot to project; (ii) whether environmental strengthen-
environmental impact. Projects need to be ing actions have been carried out; (iii) whether
efficiently managed during their operating lives. the expected benefits have been achieved; or (iv)
Depending on the type of project, monitoring whether there are significant environmental
may require following proper operational impacts that need to be addressed. However,
procedures for the equipment, assuring regular longer-term supervision is demonstrably feasible.
maintenance and repair, and monitoring the The IFC and EBRD keep track of private sector
activities of users. Yet operations, maintenance, projects, including monitoring for environmental
and management of completed public sector factors, until the loan is fully repaid or their equity
projects are generally not monitored by the IFIs. sold. The EIB requires member countries to
respect EU environmental regulations during the
It is hard to assess the infrastructure-environment operation of its projects, assuring longer-term
nexus if we lack the most basic monitoring data. observance of environmental norms.19
Table 4.1: Mean Rates of Return by Environmental Assessment Rating,
IFC Infrastructure Projects 1996–2004
Environmental assessment Average economic Average financial
rating rate of return rate of return
Satisfactory 20.8% 12.7%
Min = 5.0% Min = 2.2%
Max = 62.4% Max = 34.6%
(11.1) (6.3)
N = 37 N = 30
Unsatisfactory 19.2% 10.6%
Min = 11.5% Min = 3.0%
Max = 31.6% Max = 17.6%
(8.8) (6.0)
N=7 N=7
Note: Standard deviations in parentheses. Economic rates of return exclude environmental benefits. Includes power and utilities; transport and warehousing.
13
E C G PA P E R 1
Notes the Last Two Decades of World Bank Engage-
1. World Bank, 2002, Safeguard Policies: ment.�?
Framework for Improving Development 6. Based on staff interviews and several evaluation
Effectiveness. The World Bank Group’s (WBG) reports from ECG members and environmental
safeguard policies include environmental assess- units.
ments, natural habitats, resettlement, indigenous 7. World Commission on Dams, 2000, Dams and
peoples, forestry, dam safety, pest management, Development: A New Framework for Decision
protection of cultural property, international Making.
waters, and disputed areas. The Asian Develop- 8. George Ledec and Juan David Quintero, 2003,
ment Bank’s (AsDB) safeguards include policies “Good Dams and Bad Dams: Environmental
on involuntary resettlement, indigenous peoples Criteria for Selection of Hydroelectric Projects.�?
and environmental policy. The IFC’s Environ- 9. AsDB, 2006, 2005 Annual Evaluation Review;
mental and Social Performance Standards are IEG, 2002, Bridging Troubled Waters: Assessing
included under the umbrella of safeguards. The the World Bank Water Resources Strategy; IEG,
IFC’s standards include policies on social and 2003, Power for Development: A Review of the
environmental assessment and management, World Bank Group’s Experience with Private
labor and working conditions, pollution preven- Participation in the Electricity Sector, and
tion and abatement, community health, safety interviews with WBG staff.
and security, land acquisition and involuntary 10. For task managers at the World Bank, the risks
resettlement. The focus of this review is on associated with review by the Inspection Panel
safeguard policies directly related to the environ- are deemed to be great.
ment. 11. AsDB, 2006, “Environmental Safeguards.�?
2. World Bank, 2005, “A Common Framework for 12. One of the major findings of the AsDB’s recent
Environmental Assessment, A Good Practice study was an overemphasis on procedural
Note.�? compliance—an application of rules at the
3. AfDB uses category I for those with environmen- expense of results.
tal impact and II for those without. The EIB has a 13. AfDB, 2004, “African Development Bank Group’s
double classification. Ex ante, EIB refers to the EU Policy on the Environment.�?
Directives with four categories: A and B with EIA, 14. AsDB, 2006, “Environmental Safeguards,�?
C with EA, and D without; acceptability (on p. 28.
environmental grounds) and degree of residual 15. AsDB, 2006, “Environmental Safeguards,�?
environmental risk are measured again with four p. 28.
levels, A being acceptable and low risk, B1 accept- 16. AsDB, 2003, “Dalian Water Supply Project in the
able with moderate risk, B2 acceptable with high People’s Republic of China, Project Performance
risk, and C not acceptable with high risk. Audit Report.�?
4. World Bank, 2001, Third Environmental Assess- 17. AsDB, 2002, “Impact Evaluation Study on Water
ment Review (FY 96–00), p. 41. Supply and Sanitation Projects in Selected
5. See, for example, AsDB, 2005, “Country Developing Member Countries.�?
Assistance Program Evaluation for Indonesia�?; 18. These results derive from a small sample and
EBRD, “Municipal Water and Waste-Water should be interpreted with care.
Services, Summary of the Operation Performance 19. EBRD, 2005, Evaluation Policy; EIB, 2004, EIB
Evaluation Review�?; IDB, 2003, “Project Perfor- Environmental Statement; IFC, “IFC’s Policy and
mance Monitoring and Classification, Guidelines Performance Standards on Environmental
for Project Performance Monitoring Report�?; and Sustainability and IFC’s Disclosure Policy,�? and
World Bank, 2006, “Infrastructure: Lesson from interviews with staff.
14
CHAPTER 5
Sectoral and National Policies
The preceding section strongly suggests that can be vitiated by upstream activities or
project-level environmental assessments, by downstream impacts. For instance, hydrologist
themselves, however well done at the project Ian Calder argues that construction of water
level, do not adequately handle the nexus issues. catchment structures in small semi-arid Indian
ECG evaluations indicate that the environmental watersheds does not increase the total amount
analysis of most of their infrastructure projects of available water; instead, these structures
focuses primarily on issues “within the fence�? of merely shift water from one user to another.
the project.1 They often do not look “beyond the
fence�? to assess the whole “area of impact.�? They The environment, including links to poverty allevi-
do not consider the interactions among projects ation, was well embedded in the AsDB strategy
over time and space, nor do they undertake life- documents following an increased emphasis on
cycle analyses of the project’s impacts, including the environment in the early 1990s; however, in
procurement and sources of inputs to the terms of achievement, the results have been
construction and operation of the project (e.g., mixed. An AsDB evaluation of the Indonesian
fossil fuel production for and transportation to country assistance program demonstrates that
thermal power projects). Infrastructure pro- inadequate coordination among activities on
grams and projects are often not linked to larger environmental matters in a watershed can be
national environmental strategies and assess- detrimental.4 Two kinds of coordination problems
ments, nor are alternatives fully considered in were reported concerning the $2 billion of
environmental assessments, which themselves lending for river basin management projects.
may be weak, limiting the potential to design
projects that strengthen the environment.2 The First, projects in the same watershed were
IFC, however, has recognized the need to move sometimes not integrated. For instance, separate
beyond the fence, and its recently revised and uncoordinated projects for land manage-
environmental policy emphasizes the need to ment and coastal management were put in place
account for a broader area of impact in environ- in Java in the 1990s, even though linkages
mental assessments.3 between land management and the coastal
environment were well known. Second, planned
Spatial Coordination of Projects coordination was not always successfully
Our analysis indicates that there are considerable implemented. Flood control projects in Java’s
advantages to taking a broader view than the short, steep watersheds typically planned to
project level—a regional, national, or sectoral undertake upper watershed management activi-
view. The following section illustrates how the ties such as regreening, sanitation, and controls
lack of a broader view can lead to environmental on forest encroachment to enhance the
problems and how taking a broader view can effectiveness of downstream infrastructure being
result in more successful results. installed. However, the upper watershed
activities—the responsibility of a ministry not
Watershed management is one of the most involved in the project—were typically not
important areas to look “beyond the fence�? implemented. In some cases the projects were
when planning projects. A project’s local benefits cancelled due to corruption, lack of an
15
E C G PA P E R 1
integrated approach, lack of sustainability, weak project for Sustainable Coastal Resources
ownership of environmental resource manage- Development in China started with a production-
ment, and lack of institutional capacity. oriented goal of increasing aquaculture produc-
tion in a coastal area, including some necessary
In contrast, the recent experience of planning a infrastructure. After analysis of the likely environ-
Laotian dam is more positive, although it is too mental impacts of these activities, it became clear
soon to draw conclusions about operational that significant changes would be needed to
impacts.5 Hydro dams in Laos have attracted a assure sustainability. In mid-course, the project
great deal of attention because of their adverse objectives were changed to improve the environ-
impact on the environment and the welfare of ment by instituting coastal zone management, by
local people. Broad public concerns over past designing project components that fit within
unsatisfactory performance related to environ- local carrying capacity, by conserving endemic
mental impacts and adverse effects on people led species, by taking pressures off of natural stocks,
the WBG and the AsDB to create a broadly and by assuring environmental monitoring. In
integrated project management team for Nam short, the project transformed from a narrow “do
Theun 2 to try to assure that all issues were no harm�? approach to the environment to a
adequately addressed. more inclusive “doing good�? approach.
These concerns have been monitored closely Promoting Efficiency of Infrastructure
over 10 years, during which extensive analysis, Another sector-level issue is to consider the mix
consultations, and preparation were undertaken. of infrastructure investment: spanning the range
There was considerable involvement of environ- from new construction, to improved efficiency in
mental groups, although some criticism remains. new and existing operations, to better manage-
Several related projects and grants were made to ment of demand and conservation. Burgeoning
manage the watershed of the dam and address demands for water and power can be met either
other environmental and social issues over a by building new infrastructure capacity or by
longer term. Since the implementation of the promoting greater efficiency in the distribution
Nam Theun 2 project is in its early stages, it and use of the infrastructure services. From an
remains to be seen whether the integrated engineering and project planning perspective,
approach will continue to produce satisfactory building capacity is simpler. On the other hand,
outcomes over the life of the project. correcting inefficiencies offers the potential for
large financial returns and improved environ-
The challenges faced in dealing with such mental outcomes. Inefficiencies can arise from
integrated issues are illustrated in the less- poor design and management or from market
prominent Nam Leuk dam. Although the project failures of various kinds. IFI interventions can
was rated as successful because it was technically have significant impacts in both of these areas.
sound and resulted in substantial economic These interventions can take place either on the
benefits, the AsDB evaluation observed that the supply side (e.g., reduction of distribution losses
project had not generated enough environmen- in irrigation, power, or district heating) or the
tal data and had not addressed the longer-term demand side (e.g., promotion of proper pricing
environmental maintenance issues or made and market based incentives, efficient lighting,
provision to manage them over time. It or drip irrigation).
suggested that such projects would benefit from
allocating a portion of their revenues to Promotion of efficiency has been a major
managing the environment in the watershed of concern of the EBRD. Inefficiencies are rife in its
the dam to assure its effective operation. area of operation. District heating plants operate
with 35–40 percent distribution losses, as
A Chinese project provides an example of compared with a more typical five to seven
successful integrative planning.6 The WBG percent in other regions. There are similar losses
16
THE NEXUS BETWEEN INFRASTRUCTURE AND ENVIRONMENT
in electricity transmission and distribution. In energy sources remain subsidized, however,
industry, Russian and Ukrainian steel mills dampening incentives for investments in
consume 32 percent and 100 percent more efficiency.9 Four of eleven AsDB India subpro-
energy, respectively, than EU counterparts. jects realized increases in efficiency of 18 percent
Consequently the EBRD invested 11 percent of or more.10 In China, a multicomponent project
its total portfolio over 1991–2000 (Ä1.67 billion) succeeded in boosting outputs and improving
in projects to increase energy efficiency. While financial performance while reducing energy
the projects did not generally incorporate intensity at cement and caustic soda plants. The
monitoring and evaluation systems sufficient to real financial rates of return were in the 8–10
yield quantitative measures, an EBRD evaluation percent range, with higher economic rates of
concluded that 11 of 15 studied projects return. At one soda plant, there was a 64 percent
achieved “good�? or “outstanding�? improvements reduction in the ambient concentration of partic-
in energy efficiency. The review concluded that ulates, a 92 percent reduction in wastewater
“it would be adequate to study more carefully the flows, and other pollution reductions.
regional energy supply and demand scenarios to
make sure that investment in extensive new National and Sectoral Policy Issues
power generation capacity is really needed. An National and sectoral policies can have a
alternative to new large investments could be profound influence on the infrastructure-
investing in better demand side management to environment nexus. This is especially true with
reduce the energy demand.�?7 respect to infrastructure pricing, often set by
government policy in the case of publicly owned
This alternative is being actively promoted by the or regulated infrastructure. There are often
Global Environment Facility (GEF) through political pressures for local or national govern-
energy conservation projects. The GEF’s evalua- ments to under-price water, electricity, and fuel.
tion of a Thailand demand-side management Justified as protecting the poor, subsidies or
project found impressive results, though the price controls often end up providing dispropor-
results are sensitive to assumptions about the tionately large benefits to higher-income people.
counterfactual.8 The $60 million project pro- Evaluations have shown that even poor users are
moted the dissemination and use of high- willing to pay for water and other services, if they
efficiency light bulbs and refrigerators. It had a understand and respect the operation of the
benefit-to-cost ratio of 1.7 (evaluated at a 10 project.11 Under-pricing also leads to artificially
percent discount rate) over 1993–2000. This did high demand and thus either to the construction
not include the value of projected greenhouse of unneeded infrastructure or to excess demand
gas emissions reductions of 25.3–45 million tons and shortages. This can intensify environmental
of CO2 over 1993–2004. The project was also damage, as when unreliable power grids induce
estimated to reduce SOx emissions by firms and households to buy small, polluting
6,600–12,400 tons and NOx by 66,700–119,900 diesel generators. At the same time, under-
tons. It was projected to reduce peak electrical pricing jeopardizes operations and maintenance
demand by about a gigawatt—in other words, of the infrastructure plants. Pricing policies also
effectively substituting for a large generating affect the willingness of the private sector to
plant. participate in infrastructure provision.
Some countries have made progress in reforms Lack of adequate pricing of infrastructure
to increase efficiency. The AsDB has funded services can adversely affect the management of
industrial energy efficiency projects in India, natural resources, with both economic and
China, and elsewhere. India, for instance, has environmental impacts. An evaluation of the
reduced diesel subsidies and set up regulations WBG’s country assistance strategy for Morocco
requiring industrial energy audits. Kerosene, reported the effects of policy distortions on
liquid petroleum gas, low-grade coal, and other water use.12 Water is Morocco’s most pressing
17
E C G PA P E R 1
environmental problem. About 85 percent of it is serious problems.16 Many of the weaknesses and
used for irrigation, for which fees are collected. shortcomings of infrastructure programs and
However, in the case of the large-scale schemes projects stem from corruption that affects their
supported by earlier projects, fees fell well short design, contracting processes, and execution,
of covering the costs of operation and mainte- which can lead to more negative environmental
nance and thus required substantial subsidies to impacts stemming from delays in implementa-
the water suppliers. These water subsidies, in tion, failure to observe safeguards, misuse of land
conjunction with trade protection of certain and other resources, and diversion of resources
agricultural imports, have encouraged expansion allocated to addressing environmental issues.
of water-intensive crops in which Morocco has
no comparative advantage. The AfDB’s analysis In 2004, local, independent research firms in
confirms Morocco’s weak water planning and China, Indonesia, Japan, the Philippines,
management, highlighting its failure to Thailand, and Vietnam conducted a survey of 132
adequately link provision of sanitation to nongovernmental organizations (NGOs) to
extensions of clean water supply, contributing to assess the relationship between infrastructure
increased wastewater pollution.13 Morocco’s key and corruption.17 The respondents were
water management issues would be more randomly chosen from lists provided by a
effectively addressed through policy reforms to number of sources. The survey found that: (i) 95
remove subsidies and trade barriers to encour- percent of respondents felt that corruption was
age efficient planning, rather than by more an obstacle to providing infrastructure; (ii) 91
infrastructure construction. percent felt that the potential for corruption
should be taken into account in planning
Institutional Issues at the Sectoral infrastructure; and (iii) 77 percent felt that their
and National Levels government was not doing enough to prevent
Investing in institutional capacity building is corruption in infrastructure. Factors that help
fundamental to dealing with the nexus at the explain why corruption is often associated with
sectoral and national levels. Three distinctive infrastructure include: (i) monopoly structure
institutional issues of planning, policy, and provides significant opportunities for rent-
implementation have been identified. Two of seeking; (ii) political protection and intervention
these are important to the nexus, but broader in blurs financial accountability and provides cover
scope: setting up systems to fight corruption and for a range of corrupt activities; (iii) infrastruc-
encouraging and regulating private sector partic- ture providers can inflate levels of capital
ipation in infrastructure. A third is central to the spending or hide under-investment; (iv) the
nexus: the application of strategic environmental large scale of infrastructure creates opportuni-
assessments and country environmental ties for large kickbacks in procurement or award
assessments. of franchises; (v) lack of transparent procedures;
and (vi) crony capitalism. There are many
Corruption and Governance examples of these kinds of practices.
Corruption is increasingly becoming the focus of
attention of the IFIs.14 This paper does not While IFI policies (such as for procurement) are
consider broad corruption issues, which are important in the fight against corruption, institu-
being addressed by other units in the IFIs, but tionalizing good governance requires additional
only corruption that directly affects the actions at the local, sectoral, and national levels.
infrastructure-environment nexus and leads to The AsDB has analyzed how these factors work,
waste or misuse of project resources and as discussed in Box 5.1. Monitoring the activities
degradation of the environment.15 WBG has of government agencies by the public can help
examined the problems corruption poses for hold a government accountable for its actions
infrastructure and other activities in a number of and reduce misuse of pubic funds. One way to
its country evaluations and found that it poses do this is to involve the relevant communities in
18
THE NEXUS BETWEEN INFRASTRUCTURE AND ENVIRONMENT
Box 5.1: Addressing Corruption in the Power Sector
As part of a broader power sector evaluation the AsDB ex- AsDB and other projects), and proposed means of combating
amined corruption in the power sector in the Philippines in 2005. corruption under the Keep It Simple and Transparent princi-
This sector was generally considered to be susceptible to ple. Measures included increasing transparency, introducing
corruption, indicated by various sources, frequent cost over- mitigating measures at each stage of the project cycle, mak-
runs in projects, and the general perception that corruption was ing more information available to the public via the Internet,
widespread in the Philippines. Despite extensive legislation building civil society capacity to monitor and report on proj-
against corruption, few cases were brought to court. The ects, monitoring actual payments, and harmonizing activities
AsDB review identified the risks of corruption at each stage with other development partners (“Sector Assistance Pro-
of the project cycle, from bidding to execution and manage- gram Evaluation of Asian Development Bank Assistance to
ment, examined how specific projects had been affected (both Philippines Power Sector,�? 2005, OED).
the design and oversight of infrastructure 15 years. It peaked at $128 billion in 1997, and
projects and in regularly monitoring project then fell back to $58 billion in 2005.18
managers. Although few projects try to address
this issue, it has been done with positive results, The results of private sector involvement have
as the Bangladesh case shows in Box 5.2. been mixed. In some cases, the private sector has
done well in providing the needed services, and
Private Sector Involvement has often done as well or better than IFI projects
The public-private sector interaction is central to in respecting conventional environmental
the infrastructure-environment nexus. Privatiza- safeguards.19 The IFC has effectively promoted
tion of many elements of public infrastructure the Equator Principles, which establish sound
has been a major component of the IFIs’ environmental guidelines for private investment,
infrastructure strategies over the past decade and which have been widely accepted among
and a half. A growing portion of infrastructure is principal private international financing agents.
being shifted to the private sector in a number of In other cases, progress has been less than
developing countries to improve the efficiency expected due to risk factors, ineffective govern-
of production and delivery of services, gain ment regulation procedures, problems in
access to private investment funds, and extend establishing profitable rates or levels of subsidies,
the range of services. The private sector has and concerns about natural monopolies and
financed 20–25 percent of investment in equitable access to the infrastructure services.20
infrastructure in developing countries in the past As a result, the rate of privatization has stagnated.
Box 5.2: Public Accountability to Reduce Corruption: Bangladesh Rural Electrification
The WBG financed this project with the Rural Electrification Board. sumers and payments on each part of the distribution network. The
It was designed to expand access to electricity in rural areas and project added 600,000 new customers each year, maintained low
to prevent corruption. The latter goal was achieved by a series of losses (13 percent), and had high collection rates (97 percent). The
measures to assure that consumers elected the Boards of each rural electrification has increased agricultural productivity, raised
cooperative, approved and monitored the salaries of managers, education levels, and improved the quality of health services in
monitored performance targets, reduced incentives for improper areas’ service (“Scaling Up Infrastructure: Building on Strengths,
meter reading, and made public the surveys of potential con- Learning from Mistakes,�? 2006, World Bank).
19
E C G PA P E R 1
The IFIs are revising their approach to help environmental assessments beyond the project
develop programs and policies that will encour- level to the sectoral or national level. Thus SEAs,
age a resurgence in private investment in if properly institutionalized, would be an
infrastructure to meet growing needs. The EIB is appropriate vehicle for addressing the nexus
promoting EU directives which are in many issues. SEAs are sometimes commissioned in
respects equivalent to (or more stringent than) connection with IFI projects, but may also be
the Equator Principles. undertaken by national agencies and integrated
with the policy process.
Promoting more private sector participation in
infrastructure requires proper policies and their A recent WBG (2005) review notes the increasing
enforcement at the sector level. It is important to use of SEAs in connection with sectoral loans,
create an effective enabling environment in these including adjustment (policy) lending.21 It
sectors to attract more private funds, to assure looked at six examples of SEA applications to
that their projects are operating effectively, to sectoral policies, including assessments of Slovak
confirm that they meet the infrastructure needs energy policy, Argentine and Colombian water
of all segments of the population, and to provide and sanitation policy, Czech Republic tourism
clear guidance on environmental standards. The policy, and South African industrial policy. The
experience in Morocco has demonstrated that SEAs varied in their integration into the policy
with these conditions, the private sector can process, from fully integrated (Slovak case) to
contribute a great deal to expanding infrastruc- “late-stage effort�? (Czech Republic case) to
ture efficiently. See Box 5.3. disintegrated (South Africa). The review found
that with the exception of the South African case,
Projects by the EBRD and EIB to facilitate the all the SEAs influenced policy design—on paper.
transformation of eastern European economies But the review was unable to confirm impacts on
regularly deal with improving the management actual policy implementation.
of infrastructure at the local level, as a means to
prepare for privatization or to permit long-term Designing and implementing effective infrastruc-
concessions. The EBRD is also working to ture programs that respect the environment
promote compliance with EU environmental requires a sound national environmental strategy
standards. See Box 5.4. that identifies key concerns, sets environmental
standards, and helps coordinate programs across
Strategic Environmental Assessment, National sectors and over a reasonably long time horizon.
Capacity, and Public Involvement To accomplish this, an environmental manage-
“Strategic environmental assessment�? (SEA) is a ment agency or other entity must be in place to
term broadly applied to the scaling up of collect data on key environmental indicators,
Box 5.3: Public-Private Partnerships in Infrastructure: Pragmatism in Morocco
Since the early 1990s, Morocco has pioneered public-private part- government in designing and implementing pragmatic methods of
nerships in the Middle East and North Africa. Beginning with engaging the private sector—licensing, concession management
Maghreb Gas Pipeline, the government has extended private par- contracts, privatization of state-owned companies, etc. As a re-
ticipation to cover the full range of infrastructure. While the World sult, Morocco has attracted over $13 billion of private investment
Bank has continued to fund some projects, including rehabilitation in infrastructure, improved the management of state-owned in-
of services in the water supply and sanitation sector, most infra- frastructure, and increased access to efficient infrastructure
structure funding has come from private sources. The Bank has throughout the economy (“Scaling Up Infrastructure: Building on
been called upon to provide expertise in various areas to assist the Strengths, Learning from Mistakes,�? 2006, World Bank).
20
THE NEXUS BETWEEN INFRASTRUCTURE AND ENVIRONMENT
Box 5.4: Privatization of Public Water and Wastewater Systems in Central and Eastern Europe
In the Central and Eastern Europe Region, in the early 1990s, most ronmental objectives. The system was successfully privatized
municipalities had existing systems that needed to be upgraded and the new company has issued shares on the local exchange.
to bring the systems into compliance with EU environmental In Sofia, Bulgaria, EBRD again worked with the municipality to
standards. In Estonia, EBRD worked initially with the national gov- improve the city’s water and wastewater system. This munici-
ernment to commercialize the capital city’s water and wastewater pality chose a slightly different path and established a long-
system. Once under municipal ownership, EBRD worked with the term (15-year) concession. The system has been upgraded to
city to bring the operating plants into compliance with EU stan- meet EU standards, partly through EU-Phare co-investments
dards in preparation for privatization, meeting the EBRD’s envi- (from EBRD contribution to report).
make the information public, and enforce member countries have appropriate legal and
environmental regulations. National and local regulatory frameworks and accountability
authorities must give high priority to the environ- systems, and where they encourage trans-
ment, assure staffing is adequate to address parency and public participation, there are pos-
environmental matters, and promote coordi- itive effects on integrating infrastructure-
nated planning among government agencies, environmental programs, and potential gains are
multilateral financiers, and the private sector. realized.22 Without such capacities, or without
adequate attention by national authorities and by
The AsDB evaluation of environmental the IFIs, there may be poorer environmental
safeguards found that while some developing results. See Box 5.5.
member countries have relatively well-
developed environmental safeguard systems, Environmental management requires a host of
others do not. To move toward adopting the capabilities in addition to SEAs, including
improved country systems in a phased and environmental monitoring and enforcement.
concerted manner, the member countries may Countries should be encouraged to create
be divided into at least three groups: (i) effective national strategies and action programs
countries with well-developed systems that that provide the basis for assessing their environ-
embody most of the objectives and principles of mental needs and associated risks and to collect
AsDB’s policies and with a reasonable track the relevant information needed to design and
record in implementation; (ii) countries with monitor environmentally sound infrastructure
semi-developed legal, institutional, and policy projects. The IFIs could assist in preparing these
frameworks and some capacity for environmen- strategies where needed, and could take them
tal safeguards but requiring substantial strength- (or their deficiencies) into account in preparing
ening; and (iii) countries with weak systems and their country assistance strategies and sector
capacity. Any move toward adopting country lending programs. Improving capacity at national
systems should not be achieved through and other levels is vital to project and program
watering down AsDB’s current environmental success, as illustrated by the AfDB’s experience
safeguard standards. These findings apply to in Mozambique. See Box 5.6.
other IFI members as well.
Evaluations also indicate that involving
Sound infrastructure sector policies and stakeholders and beneficiaries can have quite
practices are vital for the success of projects and positive effects on infrastructure investments.
for meeting sectoral and development goals. The people involved appreciate better what is
ECG evaluations have shown that where being provided, how they will benefit, and what
21
E C G PA P E R 1
Box 5.5: Yemen Needs Water
The January 2006 WBG-IEG evaluation of Yemen’s country as- on the team and staff turnover, along with focus on macro pol-
sistance strategy pointed out that the paramount environmen- icy issues rather than domestic capacity building and provid-
tal concern of water availability had been ignored in the ing functioning capital, also contributed to this. Similar problems
strategies until quite recently. Even when addressed in princi- were observed in the evaluation of the Jordan assistance pro-
ple, projects focused on groundwater management and con- gram (“Republic of Yemen, Country Assistance Evaluation,�?
servation did not receive adequate attention. Lack of specialists 2006, IEG (OED)).
the costs will be. They can provide valuable Local groups can play a pivotal role in initiating
inputs into the design and management of sound infrastructure projects. In Ethiopia, a group
projects and are more willing to bear the costs, of women convinced an international NGO to
up to their capacity. The experiences in Bolivia build a large reservoir scheme with 32 community
shown in Box 5.7 illustrate that proper water-distribution points. This investment freed
community involvement produces good results, up the women’s time that had been spent fetching
and failure to do so can lead to real problems. water, allowing them to engage in more produc-
The AsDB review of environmental safeguards tive activities and improved access to safe water
underlines how the interest of NGOs in mitigat- for the community. Community consultations
ing environmental problems has sometimes resulted in the management and ownership of the
resulted in achieving better development results dam being granted to the women, who function
by creating pressures for continued AsDB through a general assembly and executive board
monitoring after project completion. and manage the water sustainably.23
Box 5.6: Strengthening the Role of Governments: Dealing with Mozambique’s Energy Sector
The second power project of the AfDB in Mozambique was de- only one of 15 supervision missions. And there was inadequate
signed to extend and rehabilitate the national power grid in reporting by the executing agency. As a result, environmental
1996. It was initially rated as Category II (no EIA needed). It was results were only partially satisfactory, but fortunately the dam-
later discovered that there would be environmental impacts, and age was not permanent and overall the project has provided sub-
the executing agency (EdM) subsequently carried out an EIA, stantial benefits in energy availability in Maputo. The AfDB and
which recommended a number of mitigating measures. Unfor- government have subsequently begun working to improve the
tunately, neither the EdM nor the environmental ministry was environmental management of projects by strengthening national
able to assure that the contractors carried out these recom- agencies and improving monitoring and supervision. Lessons
mendations, and the AfDB did not provide adequate environ- were learned and progress is being made (AfDB report).
mental supervision. An environmental specialist participated in
22
THE NEXUS BETWEEN INFRASTRUCTURE AND ENVIRONMENT
Box 5.7: Community Involvement in Infrastructure: Getting It Right (and Wrong) in Bolivia
Water Supply and Sanitation in Bolivia: Getting It Right: In the An OED Review of the World Bank’s Assistance to Water Sup-
1990s, the World Bank supported two water projects in Bolivia. ply and Sanitation,�? 2003, IEG (OED)).
One, PROSABAR, initially devoted resources to organizing and And Getting It Wrong: In dealing with water in the major cities,
training communities, which helped pick projects that met local the World Bank insisted on privatization of the water providers
demands in accordance with their ability to pay for operation and before making its loan. This led to such popular opposition in the
maintenance, and which assured that the full benefits of safe two largest cities that the privatization deals had to be restruc-
water, sanitary excreta disposal, and health education were tured, and the government regulation was inefficient. This re-
provided. The other was a general loan to the Social Investment sulted in little or no improvement in services, but unacceptable
Fund, which concentrated on building projects quickly, with lit- increases in rates in poor areas, due to poor planning and man-
tle community involvement and little success. It did poorly. The agement by the Bank and government. In one city, a participa-
PROSABAR project was so successful that the general loan tory consumer cooperative was established, and the results
project was retrofitted to include the community involvement, with exceeded expectations (“Scaling Up Infrastructure: Building on
much improved results (“Efficient, Sustainable Service for All? Strengths, Learning from Mistakes,�? 2006, World Bank).
of the World Bank’s Performance.
Notes 7. This paragraph is based on EBRD, “Project
1. See, for example, AsDB, 2005, “Country Assistance Evaluation Department. Summary of Special
Program Evaluation for Indonesia�?; IEG (OED), Study: Evaluation of Energy Efficiency in Bank
The Effectiveness of World Bank Support for Projects.�?
Community-Based and -Driven Development; 8. GEF and World Bank, 2006, “Thailand Promotion
IDB, 2003, “Project Performance Monitoring and of Electrical Energy Efficiency Project, Post-
Classification, Guidelines for Project Performance Implementation Impact Assessment.�?
Monitoring Report�?; and World Bank, 2006, 9. AsDB, 2005, “Industrial Energy Efficiency Project
“Infrastructure: Lesson from the Last Two Decades in India, Project Performance Audit Report.�?
of World Bank Engagement.�? 10. AsDB, 2005, “Industrial Energy Efficiency Project
2. AsDB, 1998, “Special Evaluation Study on the in India, Project Performance Audit Report,�? and
Social and Environmental Mitigation Measures in AsDB, 2005, “Industrial Energy Efficiency Project
Selected Bank-Financed Projects�?; AsDB, 2004, in India, Project Performance Audit Report.�?
“Fourth Rural Water Supply and Sanitation Sector 11. IEG (OED), 2002, Bridging Troubled Waters:
Project in Nepal, Project Completion Report�?; Assessing the World Bank Water Resources
World Bank, 2006, “Infrastructure: Lessons from Strategy; IEG (OED), 2003, “Efficient, Sustainable
the Last Two Decades of World Bank Engage- Service for All? An OED Review of the World
ment.�? Bank’s Assistance to Water Supply and Sanitation.�?
3. IFC, 2006, “IFC’s Policy and Performance 12. IEG (OED), 2001, “Morocco Country Assistance
Standards on Environmental Sustainability�? and Evaluation.�?
“IFC’s Disclosure Policy.�? 13. African Development Bank, 2003 (July), Evaluat-
4. AsDB, 2005, “Country Assistance Program ing Bank’s Support for Capacity Strengthening
Evaluation for Indonesia.�? of Urban Water Supply and Sanitation Entities
5. AsDB, 2004, “Nam Leuk Hydropower Project in in Regional Member Countries.
the Lao People’s Democratic Republic, Project 14. IEG, 2006, “Governance and Anti-Corruption:
Performance Audit Report�?; World Bank, 2005, Ways to Enhance the Bank’s Impact.�?
Environment Matters, Annual Review; and World 15. AsDB, 2005, “Sector Assistance Program Evalua-
Bank, 2006, “Infrastructure: Lessons from the Last tion of Asian Development Bank Assistance to
Two Decades of World Bank Engagement.�? Philippines Power Sector�?; World Bank, 2006,
6. IEG (OED), 2002, Promoting Environmental “Infrastructure: Lessons from the Last Two
Sustainability in Development: An Evaluation Decades of World Bank Engagement.�?
23
E C G PA P E R 1
16. IEG (OED), 2001, India: The Challenges of 20. IEG (OED), 2002, Bridging Troubled Waters:
Development: A Country Assistance Evaluation; Assessing the World Bank Water Resources
IEG (OED), 2004, China: An Evaluation of Strategy; IEG (OED, OEG, OEU), 2003, Power for
World Bank Assistance; IEG (OED), 2004, Development: A Review of the World Bank
Brazil: Forging a Strategic Partnership for Group’s Experience with Private Participation
Results: An OED Evaluation of the World Bank in the Electricity Sector; World Bank, 2006,
Assistance; IEG (OED), 2005, Bolivia, Country “Scaling Up Infrastructure: Building on
Assistance Evaluation; and IEG, 2006, Pakistan: Strengths, Learning from Mistakes.�?
An Evaluation of World Bank’s Assistance. 21. World Bank, 2005, Integrating Environmental
17. AsDB, Japan Bank for International Cooperation, Consideration in Policy Formulation: Lessons
and the World Bank, 2005, Connecting East Asia: from Policy-based SEA Experience.
A Framework for Infrastructure, Box 4.3. 22. AsDB, 2006, Environmental Safeguards, Special
18. Oxford Analytica, 2006, “Private Money Needed Evaluation Study; World Bank, 2006, “Infrastruc-
for Infrastructure.�? There is a larger share of ture: Lesson from the Last Two Decades of World
private infrastructure investment in some Bank Engagement.�?
countries than others. 23. AfDB, 2003 (July), Evaluating Bank’s Support
19. IEG (OED, OEG, OEU), 2003, Power for Develop- for Capacity Strengthening of Urban Water
ment: A Review of the World Bank Group’s Experi- Supply and Sanitation Entities in Regional
ence with Private Participation in the Electricity Member Countries.
Sector; IFC, 2006, “IFC Sustainability Report 2005.�?
24
CHAPTER 6
Conclusions and Follow-Up
Infrastructure investments contribute impor- projects tend not to consider the whole area of
tantly to growth and poverty alleviation. Better impact, interactions among projects, or life-cycle
infrastructure and the adoption of appropriate impacts. ECG suggests that the management and
policies can help address the world’s environ- staff of the IFIs can address these issues by:
mental problems. But infrastructure generally • Incorporating environmental considerations
imposes environmental burdens that must be well upstream in project selection, design, and
mitigated or compensated. Based on the ECG implementation. This could entail changes in
evaluations and other studies, this report has project mix and greater degrees of sector and
presented evidence and arguments underlining cross-project coordination in project selection.
the importance of the nexus. • Shifting from a “checklist�? application of safe-
guards late in project design to incorporating
There are many opportunities to mitigate environmental considerations up front in proj-
environmental burdens while meeting ect and site selection in order to improve their
global demands for energy, transport, and overall design and integration into national
water. Perhaps even more importantly in environmental objectives in relation to the
many cases, the right infrastructure can nexus.
advance environmental values, especially • Working with partner countries on strategic
when projects are properly integrated into planning that combines growth, poverty alle-
the national environmental strategy, well viation, and environmental improvement; that
designed, and carefully managed. Many of emphasizes removal of perverse subsidies and
these opportunities involve promoting efficiency better maintenance of existing infrastructure;
in the use of infrastructure services, thus that promotes conservation measures to re-
reducing the need for new construction. The duce demand; and that uses natural capital as
suggestions emerging from this review can be a substitute for physical capital where feasible.
grouped into those for the leadership of the IFIs, • Supporting replicable pilot projects that sub-
those for the evaluators, and finally those for stitute environmental capital for physical
ECG itself. capital—for instance, using watershed man-
agement to complement water treatment and
To the Management and Staff of the IFIs flood control infrastructure—and incorporat-
Seizing these opportunities requires that the IFIs ing monitoring and evaluation into these proj-
go “beyond the fence�? of project-level planning ects to promote learning and to replicate
by harnessing their multi-sectoral and policy- successful innovations.
advisory experience. But as reported above, we
have found that project-level environmental To the Evaluators in IFIs and the
assessments often do not do this. Moreover, Countries
application of safeguard policies often is treated One obstacle to the pursuit of nexus opportuni-
more as a matter of procedural compliance than ties is a lack of quantitative evaluations of the
as an opportunity to consider project design in economic and environmental impacts of policies
view of broader environmental considerations. and projects. This lack is attributable in large part
ECG evaluations have found that infrastructure to the failure of the IFIs (or national authorities)
25
E C G PA P E R 1
to track environmental performance of projects • Conducting rigorous analyses of the full costs
and sectors. More rigorous analyses of successes and benefits of interventions to promote effi-
and failures in pursuing the nexus could inform ciency in infrastructure use, and pooling these
the IFIs and national agencies as they undertake analyses to determine the conditions under
strategic assessments. Specifically, there are large which efficiency-promoting projects or poli-
potential gains from evaluation processes that: cies offer high returns.
• Undertake increased and more rigorous as- • Building and sharing databases on the pricing
sessment of economic and environmental im- of infrastructure and related services and com-
pacts of infrastructure projects and policies modities such as electricity, fuel, water, etc.
• Track environmental performance over the These could facilitate comparative analyses of
long term through improved project-level data infrastructure projects and policies.
gathering and monitoring of environmental • Developing shared geospatial databases of in-
impacts during construction and post- frastructure projects in order to promote co-
construction operation ordination, assess the appropriateness of siting
• Enhance national-level systems to check that during project design, and facilitate impact
expected nexus benefits are being achieved evaluation later. For instance, IFIs, bilaterals,
• Use strategic environmental assessments to and national authorities could pool information
screen for the right kinds of projects, to ensure on the location of proposed new road links and
spatial coordination of projects, and to identify overlay it on maps of population density,
policy reforms that promote efficiency and use poverty, agricultural potential, biodiversity, and
of environmental substitutes for brick-and- other measures of environmental sensitivity.
mortar infrastructure. The comparative advan- • Undertaking case studies of efforts to reform
tage of the IFIs is in promoting more complex, suboptimal infrastructure policies to help their
higher-payoff interventions to correct market organizations learn from experience. For in-
failures. stance, it would be useful to study cases where
perverse subsidies were removed, analyze the
To ECG Members political economy of reform, study the results
From the evaluation perspective, ECG members of institutional strengthening, and assess en-
have not consistently conducted rigorous cost- vironmental and distributional impacts.
benefit analyses of nexus-related projects and • Carrying out more systematic reviews of pol-
programs, nor have they worked together to icy lending to determine its potential impacts
develop quantitative and qualitative databases on the infrastructure-environment nexus. This
that can help to evaluate them. They could could cover both sector policy lending and
consider strengthening their role in analyzing development policy lending which affects na-
nexus issues by: tional policies.1
Note
1. AsDB, 2006, 2006 Annual Evaluation Review,
chapter II, and IEG (OED), 2005, The Effective-
ness of World Bank Support for Community-
Based and -Driven Development have begun to
address some of these issues.
26
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