[Rwanda] Poverty-Environment Initiative Environmental Fiscal Reform (EFR) Country Experience Presented to the PEI Africa Regional Economic Forum 8-11 November 2010

Government of [Rwanda] UNDP-UNEP Poverty- Environment Initiative 1.PEI Program Objectives 2.Key Achievements related to Environmental Fiscal Reform 3.Objectives and Methodology 4.Key Findings/Recommendations 5.Policy Impact 6.Challenges and Response 7.Lessons Learned 8.Next Steps Outline

Government of [Rwanda] UNDP-UNEP Poverty- Environment Initiative Aims to enhance the contribution of sound environmental management to poverty reduction, sustainable economic growth and achievement of the Millennium Development Goals Phase II is the integration of environment into national policy and district planning, policy and budget processes to implement the Economic Development and Poverty Reduction Strategy (EDPRS) Improved capacity within key ministries and institutions Improved capacity at district level Increased awareness and more effective participation of stakeholders Improved national funding levels for investing in environmental sustainability Improved capacity for monitoring poverty and environment linkages BACKGROUND

Government of [Rwanda] UNDP-UNEP Poverty- Environment Initiative PEI, Rwanda is implemented by a cross-ministerial stakeholder partnership that includes: Ministry of Environment and Lands (MINELA); Ministry of Forestry and Mines (MINIFOM); Ministry of Finance and Economic Planning (MINECOFIN); Ministry of Local Government (MINALOC); Ministry of Agriculture (MINAGRI); Ministry of Infrastructure (MININFRA) and Ministry of Industry and Trade (MINICOM). Local level implementation is executed through the decentralization policy process The project will be coordinated and implemented by Rwanda Environment Management Authority (REMA). BACKGROUND

Government of [Rwanda] UNDP-UNEP Poverty- Environment Initiative It has demonstrated potential for new sources of capital for Fonerwa (the fund for environment) and as such is will promote sustainability towards effective poverty reduction and economic growth. The study will continually inform coordination and management of other funds in the pipeline at both national and regional levels including but not limited to Climate Change Adaptation Fund. Engaging the government on processes that can trigger additional external incentives and resources –Funds in the name of climate change e.g. REDD –Funds under Clean Development Mechanisms and payment for ecosystem services Raising voice to ensure treasury provides reasonable seed funds for start-up; Promoting political momentum towards internal and external resource mobilization management for poverty reduction; Broadening advocacy for sustainable financing to overcome the challenge of budget constraint KEY ACHIEVEMENTS

Government of Rwanda UNDP-UNEP Poverty- Environment Initiative Objectives: Identification of ecosystem goods and services, the costs and benefits for their exploitation; Identify and assess existing and potential Environmental Fiscal Reform and other Economic Instruments in support of environmental management; Improve national funding levels for investing in environmental sustainability. Methodology: Literature review and analyses of secondary sources, interviews with representatives from the key institutions, such as Ministry of Economy and Finance, REMA, sector ministries and research institutions as well as district staff in order to obtain decentralized information. METHODOLOGY

Government of Rwanda UNDP-UNEP Poverty- Environment InitiativeMETHODOLOGY Economic Instruments EFR Other EIs -Fiscal instruments - Charges & user fees -Liability system e.g. fines - Property rights -Market creation -Bond & performance system -Command and Control -Standards -Laws and Regulations -Voluntary compliance - Environmental agencies Other supportive instruments

Government of Rwanda UNDP-UNEP Poverty- Environment Initiative Clear linkages between poverty, the achievement of the MDGs and environmental degradation The current economic base cannot sufficiently address the above challenges because of limited allocation to environmental management (PER) Domestic sources of national revenue is primarily taxes which do not even cover recurrent expenditure (based on 2004 data). In 2008, only 1% was spent on environmental management. EFR should be seen as the opportunity to increase allocation and expenditure on environmental management Currently, EFRs are not identified as such and therefore there are lack of coordination mechanisms to measure and monitor impacts on national budgets, environmental sustainability and poverty reduction KEY FINDINGS AND RECOMMENDATIONS

Government of Rwanda UNDP-UNEP Poverty- Environment Initiative The study has generated interest among the parliamentarians as well as the broad policy and decision making bodies as it is seen as an opportunity to generate additional financing that can be appropriated for improved environmental management. The likely policies to be affected include: Investment policy, policies that are relevant to natural resources and public financial management including taxation policies. The EFR study has provided impetus for the operationalization of FONERWA as there now exists clear mechanism to generate income for capitalization of the bill. EFR is likely to influence the formulation of new and emerging policies such as the Biodiversity policy and the water policy and the related laws. POLICY IMPACT

Government of Rwanda UNDP-UNEP Poverty- Environment Initiative CHALLENGES AND RESPONSE There are challenges associated with implementation because there is limited capacity that is needed to support effective institutionalization of the instrument across sectors. The Ministry of Finance is slowly coming on board in their support for environment as a cross cutting issues. To fully mainstream environment into planning and budgeting will require sustained technical support to the Ministry, particularly the national budget department. This will create an avenue to introduce EFR options into the public financial management schemes in the name of sustainability The process of dissemination of the study findings was conducted with broad stakeholder workshop for all sectors in which MINECOFIN made presentations on broad aspects of environment mainstreaming. Presentation of EFR to Parliament as a potential tool for enhancing financing for sustainability.

Government of Rwanda UNDP-UNEP Poverty- Environment Initiative 1.PEI countries in the region all face challenges of budget constraints to support sustainability. EFR serves as an entry point for diversifying domestic revenue that can be channeled to improve environmental management, poverty reduction and economic growth. 2.This will be possible through capacity building to develop a knowledge base that is essential in the policy dialogue and implementation of the EFR and other Economic Instrument schemes 3.To fully exploit the potential for EFR and the full range of EIs towards sustainability, will require training in extended cost benefit analysis and inform green accounting. Payment for Ecosystem Services (PES) is one such avenue. Capacity building support is urgent to ensure this happens 4.REMA/PEI partnership with MINECOFIN as well as engagement of parliament is seen as a good opportunity for expediting the implementation for EFR/EIs. Engagement with other REMA projects that support World Conservation Society (WCS) in conducting studies on PES LESSONS LEARNED

Government of Rwanda UNDP-UNEP Poverty- Environment Initiative Developing proposals for implementation of the EIs that were part of the follow up study on EFR Show how PEI’s economic work will have positive outcomes in strengthening the poverty environment linkages for the country The EFR study findings have been shared with MINECOFIN and the engagement has improved understanding of sustainability and is influencing debate on environmental management and sustainable development. MINECOFIN has a requirement for EIA for all new major projects to be cleared for implementation The parliament has pledged to set up a network at national and regional levels that will ensure support for sustainability Support for EIs, PES will take on emerging issues such as climate change, Carbon trade and Clean Development Mechanism. NEXT STEPS

Government of Rwanda UNDP-UNEP Poverty- Environment Initiative Thank you for listening (Murakoze)