Mainstreaming Environment and Climate Change into Sector/Macro approaches and Budget support – Module 7 1

Environment and climate change in development cooperation

Structure of module 7

• Overview – approach – modality – programming cycle

• Integrating in a sector approach• Terminology• Five sector entry points (policy, budget, coordination, institutions,

monitoring)• Four entry stages (identification, formulation, implementation,

evaluation)

• Integrating in a macro approach• Terminology (macro approach – budget support)• Types of budget support contracts • Four eligibility criteria (policy, macro-economic, PFM, transparency)

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Overview of aid delivery

Project approach

Sector approach

Macro approach

EC contractual & financial procedures

EC contractual & financial procedures

Pooled fundPooled fund

Budget support

Budget support

APPROACH FINANCING MODALITY

Programming

FormulationImplementation

Closure

Policy dialogue

IdentificationEvaluation

PROGRAMMING CYCLE

Terminology

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Sector approach = a way of working shared by a government, development partners and other stakeholders; aimed at developing a sector in a holistic manner, based on a continuous process

• Sector programme = the result of a sector approach; includes: sector policy; sector budget; sector coordination framework

• Sector Policy Support Programme (SPSP) = the EC instrument to support the (national) sector programme

• A sector approach can have a strategic impact on integrating environment and climate change – if successful it can internalise integration throughout a sector and beyond.

5 elements of a sector programme

2 additional elements that influence the performance of the sector programme(2 of the 4 eligibility criteria for budget support)

Key elements of a sector programme

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Building blocks ....same message

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Source: PEP 2012

The elements

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1. Sector policy and strategy2. Sector budget3. Coordination – sector and donor4. Institutional 5. Performance monitoring

• Economic analyses macro/meso/micro• Vulnerability and adaptation assessments• ENV and CC assessments (SEA, EIA, CRA)• Demonstration projects• Communication and advocacy • Workshops and focus group discussions. • Policy dialogue (beyond focus groups)

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Identification and formulation are based on policy / strategy assessment.

Integrate early on – be opportunistic – find allies - use evidence based tools – national development plans – sector plans – poverty reduction strategies – specific strategies on green growth

What are the tools?

1 Sector policy and strategy

2 Sector budget

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The Public Environmental Expenditure Review (PEER)

• Allocation, management, effects of public environmental expenditures

• Provides key guidance to strategic planning and budget preparation

• Supports improved efficiency and effectiveness of resources

The Climate Public Expenditure and Institutional Review (CPEIR)

• Addresses policy, strategy, institutional aspects

• Reviews climate expenditures from domestic and external sources

• Key for developing a climate fiscal framework.

• Improves prioritisation, efficiency and effectiveness of resources

MTEF – ideal for considering longer term interventions

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MTEF

Medium-term allocations are predictable

Clear action plan with defined, feasible outputs & outcomes

Medium term allocations focus on strategic priorities

Comprehensive & integrated coverage

If the country has an MTEF then use it as an entrance point – depending on your position

Expenditure framework - resource allocation

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How to integrate environment and climate change and/or trigger the green economy - Buzz group- 5mn:

•Reallocating funding to vulnerable/priority sectors and regions•Providing funding for environment, adaptation/ mitigation•Adding environment/ climate change considerations to the

criteria for screening and selecting projects and investments•Making room for ‘cross-sectoral’ activities (e.g. DRR)

This process typically involves a mix of top-down and bottom-up processes – budget setting process

Keeping track of environment and climate-related expenditures

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During budget preparation, implementation, monitoring and reporting, ‘keep track’ of main environment and climate-related public expenditures• Adapt the budget classification – not easy• ‘Flag’ incremental climate-related expenditures embedded in

‘non climate’ programmes

This is important for:• Monitoring the implementation of environment and climate-

related measures in national and sector strategies • Reporting to the UNFCCC (national communications)• Securing eligibility for funding from specific environment and

climate adaptation/mitigation funds

Inclusion of environment/climate in TOR of the sector group

• Increased focus on environment and climate• Improved links to other environment and climate efforts outside the

sector

Establishment of an ENV and CC working group

• Dialogue on challenges and priorities related to environment/ climate• Better coordination between donors

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3 Sector and donor coordination

Coordination

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4 Institutional - who

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NGOs and Various Interest Groups

4 Institutional - capacity

Considering institutional issues in the sector• Analysis of institutional drivers and barriers for integration• Institutional risk analysis• Opportunities for supportive and preventive measures

Capacity issues, implementation of the sector programme• Assessment of capacity for:

oReacting to options for improving ENV and CC integration oReacting to means of preventing ENV and CC impactoMonitoring of environmental and climate opportunities and

impact

• Inclusion of relevant capacity building measures, establishing a capacity building programme for the sector.

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Institutional framework

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• Skills • Knowledge • Attitude

Organisations• Strategy, structure, systems• Staff, style, incentives,

shared values

Enabling Environment

• Political economy• Laws, regulations

Individuals

Capacity

development

HRD

training

5 Performance monitoring

• Review the indicators and the monitoring system

• Are the indicators relevant from a climate and environmental perspective?

• Propose relevant indicators covering the key environmental and climate aspects (refer to the SEA)

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Policy

Budget

Action

Monitoring

SEA screening

Climate-related risks, availability of nat. resources?

Development of env’l and CC management capacities?

Identification Fiche: possible entry points

See specific entry points

Env’l sustainability,

contribution to sustainable dvpt?

Env.t- & climate-related issues?

• Description of sector strategy/programme and the level of environmental integration

• Issues and state of play in the 7 assessment areas

• Strategic response incl. cross-cutting issues

• Implementation issues

• Assumptions and risks

• Next steps, work plan and time schedule

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Identification phase: Is SEA needed? Screening questionnaire – the national PPP (Annex 3)

• Significant negative (cumulative?) environmental impact?• Valued or vulnerable areas or landscapes?• Human health or safety, vulnerability to CC?• Other environmentally sensitive sectors?• Dependent on scarse natural resources?• GHG emissions (increase or reduction)?

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Identification phase: Is SEA needed?/2

Screening questionnaire (Annex 3)

• Existing analytical work (CEP, other SEAs)?• Does the PPP promote sound environmental sector

management?• Consideration of sector-related environmental concerns?• Sufficient institutional capacity for environmental efforts?• Local processes promoting harmonisation and alignment?

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SEA + sector support – lessons learned /1

• The Chicken or the egg

Sector Strategy SEA

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Programme

The potential (positive and negative) impacts of the PPP on the environment

The (positive and negative) environmental conditions that may affect the effectiveness, efficiency, sustainability or impact of the PPP

Formulation phase

Impacts generated

Opportunities, risks & constraints

ENVIRONMENT

SEA of a sector PPP

• Identification of ENV & CC opportunities, risks and constraints (incl. those originating from other sectors / policies)

• Identification and evaluation of the PPP’s main environmental impacts: • incl. alternatives• incl. the socio-economic dimension of environmental impacts

• Analysis of the sector PPP’s performance indicators with regard to ENV, CC & GE issues

• Evaluation of institutional capacities to manage environmental issues

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Using SEA /reviews results – buzz group

5. Performance monitoring systems

1. Sector policy and strategic framework

2. Sector budget and its medium-term perspective

3. Sector and donor coordination

4. Institutional setting and capacity issues

5. Performance monitoring systems

Environmental relevance of the performance indicators used or proposed to monitor sector progress and/or major environmental concerns should be assessed having regard to SEA conclusions and recommendations.

Using SEA results

1. Sector policy and strategic framework

Consider ENV. and CC impacts, opportunities, risks and constraints identified by the SEA and the degree to which the policy/strategy framework is adapted to the SEA findings and conclusions.

2. Sector budget and its medium-term perspective

Consider potential environmental expenditure in the sector and the availability of resources for implementation of the mitigation/optimisation and other environmental integration measures identified by the SEA.

3. Sector and donor coordination

Are existing donor and stakeholders coordination mechanisms adequate to ensure follow-up to SEA conclusions.

4. Institutional setting and capacity issues

Incorporate SEA information regarding institutions with environmental responsibilities in the sector, environmental legislation, and environmental monitoring system in the sector. Special attention to the capacity to address the impacts and implement the mitigation/optimisation measures identified by the SEA.

Sector performance monitoring• Development of sector performance indicators• Qualitative reports (working groups, studies, annual

review…)• Implementation of institutional support measures

Participation in sector dialogue

If SBS: tranche disbursement• Evolution of environmental indicators and/or indicators

associated with environmental trends• If relevant, implementation of conditions related to

environmental / natural resource management

Implementation Phase - Possible entry points

ENV and CC indicators related to policy making and implementation

ENV and CC aspects

Building up of env’l mngt capacities

Dialogue on environment and climate related aspects

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• Sector performance evaluation• Evolution of sector performance indicators• Qualitative reports (working groups, studies, annual

review…)• Institutional reforms

• Evaluation of the contribution of the SPSP to the sustainable development of:• the sector• the country

Evaluation phase - possible entry points

Env’l indicators (or ind. associated w/ env’l trends)

ENV and CC aspects

Building up of env’l management capacities

Relevance, effectiveness, efficiency, impacts and sustainability of env’l integration measures 29

Macro approach and budget support

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Integrating in a macro approach

• Terminology (macro approach – budget support)

• Types of budget support contracts (GGDC, SRC, SBC)

• 4 eligibility criteria (policy, macro-economic, PFM, transparency)

Macro approach- Budget support

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Macro approach supports the overall national development policy and the macroeconomic and budgetary framework - PPCM guidelines

• Budget support is an aid modality – not an end in itself• A means of achieving sustainable development objectives.

o dialogue, o financial transfers to the national treasuryo performance assessment o capacity development

• Based on partnership and mutual accountability.• Relevant for sector approaches

What is the relevance of environment and climate change integration?

Budget Support

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Terminology

“Budget support is

the transfer of financial resources of an external financing agency

to

the National Treasury of a partner country,

following the respect by the latter of agreed conditions for payment.

The financial resources thus received are part of the global resources of the partner country, and consequently used in accordance with the public financial management system of the partner country”

Three types of BS contracts• Good governance and development contracts (GGDC), aimed at

promoting a national development strategy and national level

reforms.

• Sector reform contracts (SRC), aimed at strengthening

implementation of sector policies and reforms and at improving

service delivery.

• State building contracts (SBC), aimed at strengthening fragile

states, ensuring vital state functions and basic public services

and supporting transition towards democratic governance.

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Eligibility criteria of EU budget support1. Relevant and credible national or sector development strategy.

2. Stability oriented macro-economic policy.

3. Relevant and credible PFM reform programme.

4. Publication of the budget (transparency and oversight of the

budget).

• During formulation, the relevance and credibility of the

Government’s policies and strategies will be assessed.

• During implementation, emphasis will be put on progress made.

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National strategies

• PRSP• National Development plan

• 2030 Vision etc

Structural licies (1)

• Governance • Public sector

management• Decentralisation• Public finance

management

Policies

• Land use policy & land reform

• Market regulation

• Financial sector regulation

• Environmental regulation

Sector policies

• Public services (education, health, ..)

• Social security• Social protection• Energy, food security….

#1 Criterion National strategy

Are national development plans, policies, reforms and strategy conducive to environmental sustainability and climate resilience?

Do they help trigger a green economy and sustainable livelihoods e.g. Energy price – does it hinder or help energy efficiency/access for the poor?

Are NAPAs / NAMAs aligned with and address the national plans and budgets and across all sectors?

#2 Criterion on macro-economic policy

1. Analysis of main macro-economic

indicators.

2. Assessment of macro-economic

policies.

3. Domestic revenue mobilisation.

4. Vulnerability to external shocks and

macro-economic resilience.

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What are the possible macro-economic imbalances related to environment or climate change and their causes e.g. Dependency on fluctuating natural resources /exports / prices

Do the policies address the imbalances? Do the policies impact environment and climate change? Are they conducive to the green economy and sustainable livelihoods?

How much does the natural resources sector contribute? – Extractive Industries Initiative; environmental accounting

Is climate change a factor e.g. Through changing rainfall patterns (e.g. hydropower provided 80% of electricity in some parts of East Africa)

#2 Criterion on macro-economic policy

• In a stable macro economic framework the government is able to predict the level of revenue it can generate to finance its policies.

• Essential factors are: Growth in GDP; Inflation (Consumer Price Index); Employment; Balance of Payments; Government Fiscal and Monetary policy.

• Understanding the national context

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To what degree does the country charge (including collection) the use and consumption of commodities and natural resources?

What role does payment of environmental services play in the macro economic context?

In which forum can a question on increased payment of environmental services be raised?

Revenues from natural resources – buzz group

Royalties. Production sharing agreements. VAT of domestically used natural resources. Import and export taxes. Corporate income (profit) taxes.

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#2 Criterion on macro-economic policy, cont’d

Key Message - Environment and climate change have implications on both the revenue and expenditure side of the national budget

• Environmental licences• Environmental fees (game park fees, forestry

concessions etc)• Carbon /emission taxes• Income / business tax on natural resources

companies

• Subsidies for adaptation and mitigation, green technology

• Expenditure on adaptation and mitigation activities• Capital works for adaptation and mitigation (e.g.

Dykes)• Reduced expenditure on: Health, Fuel subsidies

Revenue

Expenditure

Making money work for environment and climate change

#2 Criterion on macro-economic policy, cont’d

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- Implications of integration on the revenue side

REVENUES

Revenues

+

-

Carbon tax / Taxes

Foreign grants & transfers

Growth from competitiveness – green economy

Environmental licences and fees –

Reduced taxes on activities that shrink or fail to develop Examples

#2 Criterion on macro-economic policy, cont’d

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- Implications of integration on the expenditure side

REVENUES

Expenditure

Subsidies

Current expenditures activities &

infrastructure maintenance

Public capital investment on infrastructure

Reduced subsidies (e.g. Fuel) as part of Green Economy measures

Reduced spending as a result of successful environmental, adaptation measures

+

-

Examples

#2 Criterion on macro-economic policy, cont’d

What to do about domestic revenue? – Buzz group -

• In resource rich countries: good governance of natural resources

should be an issue of BS-policy dialogue and performance indicators.

• Governments should make better deals with extractive industries

including forestry, fishery and other natural resources.

• Environment /climate integration can improve quality of FDI (Laos)

• Insist on improving transparency and information.

• Support the EITI.

• Strengthen anti-corruption legislation and its implementation.

• Political leaders and public sector officials should not be allowed to

have shares in extractive industries including forestry, fishery and

other natural resources.

• Create an independent oversight mechanism. 42

#2 Criterion on macro-economic policy, cont’d

The Climate Public Expenditure and Institutional Review (CPEIR) (a new tool) • reviews climate expenditures from domestic and external sources • key for developing a climate fiscal framework. • improves prioritisation, efficiency and effectiveness of resources in support of climate adaptation and mitigation• is there tracking of climate related public expenditures?• Is there amending of the budget guidelines and classification?

Criterion #3 Credible PFM system

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The three specific objectives of the PFM system

Aggregate fiscal discipline

Allocation of resources in conformity with policy objectives

Operational efficiency

Public Environmental Expenditure Review (PEER) • analyses allocation, management and effects of public environmental expenditures• key guidance to strategic planning and budget preparation• supports improved efficiency and effectiveness of resources• is there tracking of environment related public expenditures?• Is there amending of the budget guidelines and classification?

Extractive industriesAre extractive industries (including forestry, fishery and other natural resources ) targeted in the PFM actions – especially on the revenue side ?

PFM is about administration and management of public revenues and expenditures.

• Understanding the national context

• What is the level of taxation• Is collection of taxes and fees collective – what can be done to

improve it?• How is the tax revenue distributed between government entities and

between national and sub-national level?• What is the level of corruption, what is done to curb it?• Does the national budget mirror policy statements and strategies?

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Criterion #3 Credible PFM system, cont’d

#4 Budget transparency

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Definition: Budget transparency is the full disclosure of all relevant fiscal information in a timely and systematic manner

Extractive industriesAre the revenues transparent? Can they be traced?

AccountabilityWho watches and controls? Is there a role for civil society?

InformationIs it possible to trace environment and climate expenditure

Module 7 – recap main messages

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• Sector approach and macro approach use similar tools for understanding how to integrate environment and climate change

• 5 assessment areas give us entry points

• 4 phases of the operations cycle give us entry points

• 4 eligibility criteria for budget support give us entry points

• Many different tools and analyses available including SEA and CRA but don’t forget others

Resources

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PEER and CPEIR• Getting the most for the money – WB

http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/ENVIRONMENT/0,,contentMDK:21101719~menuPK:

281647~pagePK:148956~piPK:216618~theSitePK:244381~isCURL:Y,00.html • About PEER – WB

http://www.unpei.org/PDF/budgetingfinancing/Public-Env-Expend-Reviews-PEERS.pdf• About CPEIR – Asia-Pacific Aid Effectiveness Portal

http://www.aideffectiveness.org/CPEIR

Overall• Project Cycle Management – EU

http://ec.europa.eu/europeaid/multimedia/publications/documents/tools/europeaid_adm_pcm_guidelines_2004_en.pdf

• Guidelines on environmental mainstreaming – EUhttp://ec.europa.eu/europeaid/infopoint/publications/europeaid/documents/172a_en.pdf

• Evaluation Guideline – EUhttp://ec.europa.eu/europeaid/infopoint/publications/europeaid/8a_en.htm

Climate change sector scripts (2009)

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• Agriculture and rural development• Ecosystems and biodiversity

management• Education• Energy supply• Health• Infrastructure • Solid waste management • Trade and investment • Water supply and sanitation

• + seven sector guidance notes (refer to module 2)

Optional slides

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Public Expenditure Reviews (PER)

• A tool for analysing how budget resources are planned, allocated and actually spent across competing claims, objectives and priorities

• PERs can be used as a tool for supporting the integration of environment and climate change

– Track adaptation- and mitigation-related expenditures– But also, importantly: focus on public expenditure’s overall

contribution to environment, climate-resilient, low-emission development outcomes

– Green accounting

• When are donors like the EU involved?

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Public Environmental Expenditure Reviews

• Systematically assess the equity, efficiency, and effectiveness of public environmental spending.

• Provide data and insights for designing policy reforms, government budgets, and investment projects.

• Examine whether government expenditures are effectively matched to environmental priorities, and identify areas of inconsistency.

• Highlight any mismatch between (new) environmental policy and plans and (historical) low levels of spending in those areas of government that are now linked to environmental priorities.

• Make the case for redistributing spending towards institutions responsible for environmental priorities, towards longer-term goals.

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PEER examples 1/2

• Madagascar – protected area system with its 50% aid dependence swallowed resources. BUT with ecotourism fees it could yield a net income.

• Ukraine – rationalising many separate environmental funds.

Source: IIED Profiles of tools and tactics for environmental mainstreaming No. 12

Ecotourdirectory.com

PEER examples 2/2

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• In Mozambique – the PEER showed that environmental expenditure was

only 0.9% of GDP, identifying incoherence between environmental

policy and budgets.

Coastal Management Partnership TZ

• In Tanzania – demonstrating the value of environmental investment for livelihoods, and increasing the environment authority’s (then very low) budget by five times.

Source: IIED Profiles of tools and tactics for environmental mainstreaming No. 12

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Pros and cons of PEERS

PEERS:• Very dependent on availability

of data

• Costly – 200,000 USD for full review

• Need skilled reviewers

• Results ignored

PEERs:• bring revenue and expenditure

data on environment / CC together

• Test policy coherence

• Provide evidence base for discussion across sectors on env/ cc integration

• Are flexible in methodology so can be tailored to the country

Climate Public Expenditure and Institutional review

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CPEIR • Reviews climate expenditures - both domestic and external • Tracks climate related expenditures • Supports development of a comprehensive climate fiscal

framework.

CPEIR can help to improve • Prioritisation, • Efficiency • Effectiveness

of public resources in support of climate adaptation and mitigation.