Donald M. Goldberg and David B. Hunter, Center for International Environmental Law

Editor's note: Donald M. Goldberg is an attorney at CIEL conducting research on international financial institutions, climate change and technology transfer issues, international trade, and comparative environmental assessment laws. He is adjunct professor of law at the Washington College of Law, The American University. David B. Hunter is an attorney at CIEL working primarily on issues related to multilateral development banks and providing law drafting assistance to developing countries on a variety of comparative and international environmental issues. He, too, is adjunct professor of law at the Washington College of Law and co-director of the CIEL/AU Joint International and Comparative Environmental Law Research Program.

Introduction

Environmentalists had high hopes when the European Bank for Reconstruction and Development (EBRD) was established in 1990. The EBRD was the first multilateral development bank with an explicit environmental mandate built into its charter. That mandate requires the Bank to promote "environmentally sound and sustainable development" in "the full range of its activities." The charter also commits the Bank to fostering democracy and democratic institutions, rule of law, and respect for human rights in helping the countries of Central and Eastern Europe make the transition from centrally planned to market economies.

But the Bank has frustrated environmentalists' expectations during its four years of operation. Critics contend that the EBRD is not living up to its commitments and, in some respects, is even less progressive in its environmental policies and procedures than other international lending institutions. In particular, environmentalists point to the Bank's apparent willingness to jettison its own Environmental Procedures when they interfere with other Bank aims, to its lack of openness and weak public participation procedures, and to its failure to create a plan for establishing environmentally sound and sustainable economies in client states.

Environmentalists had high hopes for the European Bank for Reconstruction and Development. But four years later, it is clear that the Bank is failing to follow its environmental mandate.

Neglecting the Environmental Mandate

The EBRD has not yet incorporated its environmental mandate into its project selection process. An especially disturbing example involves Bank funding of a major polluter, the ZSNP aluminum smelter in Slovakia. ZSNP will remain a significant source of pollution in the region, even though the Bank loan will finance improvements in the smelter's environmental performance.

The ZSNP plant, utilizing approximately 10 percent of the total energy produced in Slovakia, also puts a severe strain on Slovakia's overburdened electricity generating capacity, supporting the government's contention that the nuclear power plant at Bohunice, one of the most dangerous in Central and Eastern Europe, cannot be closed until its capacity can be replaced.

In Slovakia, the Bank is funding an aluminum smelter that is a major source of pollution and requires huge amounts of energy from an unsafe nuclear power plant.

By financing ZSNP, the Bank made it more difficult to close Bohunice and more likely that Mochovce would be completed. Had the Bank weighed the environmental and social impacts of the two projects prior to approval of the ZSNP loan, it may well have concluded that the combined environmental and social costs outweighed the benefits and, in any event, would not be consistent with the Bank's environmental mandate.

EBRD Needs A Sustainable Development Policy

The links among ZSNP, Bohunice, and Mochovce demonstrate the importance of overarching planning for sustainable development. The Bank typically does not investigate such links in assessing the environmental impacts of projects it proposes to finance. If the EBRD has any hope of achieving sustainable development in the region, it must abandon its piecemeal approach to project selection.

The Bank needs to create a sustainable development policy to ensure that projects are chosen not because of political or economic expediency, but because they will put the region on the path to environmentally sound and sustainable development. To ensure that its projects are consistent with the policy, the EBRD should develop a set of criteria for sustainable development. At a minimum, the Bank should make sure that its projects: (1) use energy and other resources efficiently; (2) foster diversity of production; (3) incorporate clean production technologies; (4) do not rely on environmentally damaging government policies, such as energy subsidies; (5) promote human resources over capital resources; and (6) support global environmental goals.

Assessing the Environmental Impacts of the Bank's Actions

A major failing of the Bank is its approach to assessing the environmental impacts of its actions. Bank staff require environmental assessments (EAs) in only a very small percentage of EBRD projects. Furthermore, the EAs do not contain all elements of proper assessments. Most notably, they do not routinely examine alternatives to the proposed project, including the critical "no action" alternative.

Environmental assessments are performed in only a very small percentage of EBRD projects. Furthermore, the EAs do not contain all the elements of proper assessments

The EA is usually prepared by a consultant, but the Project Sponsor, the person(s) or group(s) with the greatest financial interest in the project, is responsible for providing information to the consultants and, ultimately, for the EA itself. Consultants sometimes have been unable to reach conclusions because of insufficient data. This may be due to the haste with which some assessments are prepared rather than to the Project Sponsor withholding information. Nevertheless, there is an inherent conflict of interest when the Project Sponsor is responsible for the EA.

The EBRD needs to expand the role of EAs. Bank staff must diligently review EAs while they are being developed to ensure that they fully address all areas of potential concern, that all relevant data are provided to the preparers, and that all procedures particularly for public participation are followed. The Bank should also routinely conduct sectoral and regional EAs to integrate development planning and identify links among proposed projects. The Bank has failed, so far, to perform any sectoral or regional EAs, even though its Environmental Procedures provide for them. Sectoral EAs would be particularly useful in conjunction with the Bank's sector operations policies (see page 4). Regional EAs should be undertaken to integrate development activities planned or proposed for a localized geographical area.

Improving Procedures for Environmental Assessments

As noted above, far too few EBRD projects are subject to full environmental assessments. Environmental staff are supposed to "screen" projects according to lists in the Bank's Environmental Procedures, which predetermine the level of assesment required. The Environmental Procedures also state that projects must receive, at a minimum, the level of assessment called for in national environmental laws. But projects that, according to the Environmental Procedures or national laws, should be classified "Category A" requiring full EAs are frequently screened for only the partial environmental analysis required for "Category B" projects. These screening decisions are not open for public review, nor is supporting information made available to the public.

Many projects are not screened for the full environmental assessment required by the Bank's Environmental Procedures.

To create a dialogue among Project Sponsors, government officials, and the public and to plan the scope of the environmental assessment, the Environmental Procedures set up a public "scoping" process that Project Sponsors are to follow. Scoping is supposed to be open and transparent to ensure that all important issues concerning the proposed project are identified early in the EA process. Project Sponsors have either ignored this requirement or treated it as a public relations exercise. In short, they have not provided the public a genuine opportunity to participate in scoping. The Bank should insist that Project Sponsors conduct full public scoping, including notification and public meetings, for all Category A and Category B projects. This will go far to rectify the problem of poor environmental assessments.

Perhaps the most profound flaw in the EAs is their failure to examine alternatives to the proposed activity. The importance of investigating all environmentally sound and sustainable alternatives cannot be overstated. EAs should broadly describe the need and purpose of the project and assess all alternatives that would meet that need and purpose. As an example, the need for improved energy services could be met by new supply or, in many cases, through greater efficiency and conservation. But efficiency and conservation are unlikely to be considered as options by the decisionmaker unless they are included in the EA. Analyzing all alternatives in the EA also permits the decisionmaker to identify their economic and environmental costs and select the least-cost approach.

There also needs to be a "no-action" alternative to serve as a baseline for comparing and contrasting the impacts of other alternatives. Each EA should evaluate three types of impacts: direct, indirect, and cumulative. Indirect and cumulative impacts can be as severe as direct impacts, but they are often more difficult to identify, making their inclusion in the EA all the more important. The Bank's EAs generally do not explore all foreseeable indirect and cumulative impacts, even the significant ones, and they ignore global impacts.

The Bank's environmental assessments do not explore all foreseeable indirect and cumulative impacts, even the significant ones, and they ignore global impacts.

One strength of the EAs is that they often contain detailed recommendations for mitigating identified adverse impacts and remedying existing environmental damage even if the recommended approach increases the cost of the project. The Bank appears to be taking such recommendations seriously, frequently requiring mitigation and remediation that should improve the environmental performance of the projects it finances.

Monitoring to ensure compliance with project parameters is required by the Environmental Procedures. But monitoring plans are not routinely included in EAs. The Bank must insist that all EAs contain detailed plans for monitoring project development, operation, and termination. If carried out diligently, monitoring would help the Bank to determine whether its mitigation and remediation requirements are being fulfilled and whether they are effective. And the monitoring process should involve the public, as the EBRD has proposed for the ZSNP project.

Public Participation and Access to Information

Its Articles of Agreement commit the Bank to democratic principles and to promoting entrepreneurial initiative. First and foremost among democratic principles are the rights of all citizens to be informed about, and to participate in, decisions affecting their well-being. Open and informed citizen participation has been a driving force for protecting the environment in the United States and other Western countries.

However, the EBRD's policies on access to information about its projects do not reflect its stated commitment to public participation throughout the project cycle and are contrary to its mandate to promote democratic principles. Unlike the World Bank, the EBRD has no general policy on information disclosure. The EBRD does not make any of its internal documents available to the public; thus, virtually all information about projects must come from the Project Sponsor. While the Environmental Procedures state that Project Sponsors must provide "adequate" information on the environmental impacts of projects to governments at all levels and the general public, the only specific document Project Sponsors are required to make available is the EA.

EBRD policies on public participation and access to information about projects are woefully inadequate and contrary to the Bank's mandate to promote democratic principles.

Go to Part II