Draft Category I paper for the Belgrade Ministerial Conference “Environment for Europe”: Mobilising Finance for Environmental Priorities: Recommendations for the Future Craig Davies PPC Executive Secretary Tenth Meeting of the EECCA Environmental Finance Network Paris, February 2007

Background to the paper The sixth “Environment for Europe” Ministerial Conference is taking place in Belgrade on October 2007 The conference will include a session on “Environmental Financing”, with representatives of the private sector and IFIs A draft Category I paper (for consideration by Ministers) on environmental financing in EECCA and SEE has been prepared jointly by the PPC, EAP Task Force, REC for Central & Eastern Europe and the World Bank The paper is intended to provide recommendations on future actions to support environmental financing and provide a basis for discussions on financing issues at Belgrade

Objective and scope Objective of the paper:  To identify actions that can be taken by actors in the EfE process to ensure that adequate levels of finance are available for environmental improvements in EECCA and SEE countries to meet commitments under the Environment for Europe process Scope of the paper:  A brief assessment of the trends in environmental expenditures and access to finance in the region  A consideration of the roles of public, private and international sources of finance and the opportunities these present for supporting environmental improvements

Main findings of the paper Access to finance, both public and private, to address environmental challenges has improved across the EECCA and SEE regions, especially in oil- and gas-rich countries But this has not always led to environmental improvements due to the needs for policy and institutional reforms and barriers to project development In low-income countries these problems are compounded by more limited access to affordable finance Action is required by EECCA and SEE governments, donor country governments, international bodies including IFIs and the private sector to find innovative ways of optimising flows of environmental finance

Recommendations for Ministers (I) Environmental expenditure as a percentage of GDP in EECCA and SEE needs to increase to levels comparable to those in CEE countries net of EU funds; Environment ministries can help to achieve this by supporting mid-term budget frameworks and preparing sound environmental investment programmes within these frameworks; Donors and IFIs could align their assistance plans with such programmes, while using more performance-based aid instruments to create clearer incentives for results; To take advantage of Kyoto Protocol financing mechanisms the eligible countries should implement adequate legal and institutional frameworks by 2008.

Recommendations for Ministers (II) Environmental ministries could encourage more private sector finance by implementing market-friendly reforms of environmental policies and institutions; Sustained donor grant co-financing is required to make IFI loans accessible for low-income countries; Middle-income countries could attract more international finance by making it more accessible at sub-national levels; donors could help by providing market friendly aid; Assistance is needed to build the capacity of potential project proponents to prepare viable environmental investment projects.

Next steps in the finalisation of the paper Draft paper was approved in principle by the Executive Committee of the Working Group of Senior Officials on 15 February Delegates asked for the final draft to be made more reader-friendly and for the language to be made less prescriptive Draft paper now to be presented at the Joint Meeting of the EAP Task Force and PPC on March for approval Final version to be completed, taking into account all comments received, and submitted to the Environment for Europe Secretariat by 1 May

Key issues for consideration Does this paper capture the key financing issues to be brought to the attention of Environment Ministers at Belgrade? Have the drafters successfully kept the focus on issues that are within the mandates of Environment Ministers? What further refinements should be made to the report before it is finalised? How can EECCA governments support the paper’s messages during the preparations for the Belgrade Ministerial Conference?