1. FIN 650: Project Appraisal
Lecture 10
Environmental Appraisal of Projects
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2. Environmental Appraisal
Environmental appraisal is the term used to describe the assessment of the environmental consequences of proposed policies, plans, programs, or projects.
The objective of environmental appraisal is to determine and evaluate the environmental implications of development and thus, ensuring sustainable development through the integration of environmental, social and economic objectives into the policy and planning process.
Both Environmental Impact Assessment (EIA) and Strategic Environmental Assessment (SEA) are tools which can assist in the achievement of sustainable development and sustainable use of resources.

3. Environmental Parameters
Environmental parameters consist of components of environment and can be grouped into major components.

4. Ecology Aquatic Terrestrial Fisheries Eutrophication Aquatic Weeds
Species Diversity
Endangered Species
Forest
Wildlife
Species Diversity
Endangered Species

5. Physico-Chemical Groundwater Land Regional Hydrology Recharge
Erosion and Siltation
Backwater Effect
Bank Stability
Drainage
Soil characteristics
Regional Hydrology
Recharge
Water Table
Water Pollution
Surface Water
Atmosphere
Regional Hydrology
Silt Load
Water Pollution
Air Pollution
Dust Pollution
Noise Pollution

6. Human Interest Socio-Economic Health Diseases Sanitation Nutrition
Land Loss
Crop Production
Aquaculture
Irrigation
Navigation
Flood Control
Transport
Re-settlement
Employment
Agro-Industrial
Diseases
Sanitation
Nutrition
Aesthetic
Landscape
Recreation

7. Types of Impacts & Their Attributes

8. Ecological Impact: Road Project
Fisheries:
(-) Roads prevent longitudinal and lateral migration of fishes in the flood plain
(-) Obstruct movement of fishes onto natural feeding and breeding grounds in the flood plain.
Forest:
(-) Roads running through forest area and plantations may be the cause of destruction of trees in the forest and alteration of ecology of the forest

9. Ecological Impact: Road Project
Plantation:
(+) The roadsides may be used for plantation of trees which is favorable impact of road construction.
Wetland and Wetland Habitant:
(-) The road may encroach wetlands which may alter the ecology of wetlands and may cause destruction of wetland habitat.
Nuisance Plant/Eutrophication:
(-) The Roads running through forest area and plantations may be the cause of destruction of trees in the forest and alteration of ecology of the forest.

10. Physico-Chemical Impact: Road Project
Erosion and Siltation
(-) causes erosion during flood and siltation in the downstream.
Drainage Congestion /Water logging
(-) roads interfere with cross drainage and can cause flooding or drainage congestion in adjacent areas during periods of high precipitation.
(-) May cause crop damage, water pollution and breeding of mosquitoes.

11. Physico-Chemical Impact: Road Project
Regional Hydrology/Flooding
(-) Roads constructed across flood plains perpendicular to the direction of water flow cause back water effect and increase duration, frequency and extent of flooding in the up stream.
Obstruction to Waste water flow
(-) Roads may obstruct the drainage of sewage and industrial waste water loading to serious pollution problem.
Dust /Noise Pollution
(-) Dust raised from unpaved rural roads and blown by the vehicles can pose a health hazard and damage vegetation along the sides of the road.

12. Impact on Human Interest: Road Project
Loss of Agricultural Lands
(-) Construction of any road is associated with the loss of agricultural lands.
Generation of Employment Opportunities
(+) Construction of road generates temporary employment during project implementation and permanent employment during maintenance phase.
Navigation and Boat Communication
(-) Roads interference with navigation and boat communication at least for certain period of the year.

13. Impact on Human Interest: Road Project
Commercial and Service Facilities
(+) The thana roads provide benefit of fast communication, transport facilities etc.
Industrial Activities
(+) Road communication promotes industrial activities.
Irrigation Facilities
(+) Borrow-pits by the side of the roads provide facility for small scale irrigation.
Landscape
(-) Scattered borrow pits, unauthorized growth around road , erosion result in marred landscape.

14. Adverse Environmental Impacts and Mitigation Measures

15. Environmental Event
Action
Impact
Mitigation Measures
Loss Fish Breeding
Loss of breading, nursery and feeding ground in flood plain.
Reduction in fish protein consumption.
Unemployment of fisherman.
Allow controlled flooding.
Compensate the loss by fish culture.
Obstruction to Fish
Obstruction to mitigation of fish.
Same
Provide adequate opening in roads and embankments along routes of fish migration.
Pesticide
Reproduction failure and destruction of fish by uncontrolled use of pesticide.
Adopt Integrated Pest Management (IPM) for pest control.
Prevent Drainage from agriculture land from reaching water bodies.
Drying Wetland
Drying up of the wetlands for agriculture purpose and destruction of habitat for fish, birds, amphibians etc.
Reduction in fishery.
Elimination of species of fish, birds, amphibians etc.
Disruption of wetland ecology.
Avoid complete drying up of wetlands and swamp land.
Restore alternative habitat for endangered species.

16. Environment al Event
Action
Impact
Mitigation Measures
Cutting Trees
Clearing of forest lands and cutting of trees within the right-of-way of the road.
Reduction if forest cover.
Reduction in forest products.
Disruption of forest ecology.
Find alternative route to avoid forest through planning exercise.
Replace the trees by plantation along road sides.
Nuisance Plants
Spreading of nuisance plants from borrow pit.
Damage crops during flood.
Incorporate destruction of such plants in maintenance program.
Convert the plants into a compost for application as a soil conditioner/manure.
Pollution from Drainage
Discharge nutrient enriched agricultural land drainage in surface water.
Causes eutrophication and surface water pollution.
Makes the water unsuitable for beneficial uses.
Destroys aquatic environment.
Prevent agricultural land drainage from reaching surface water.
Water Pollution
Reaching residues of pesticides in surface and groundwater from agricultural lands.
Cause water pollution.
Contaminates sources of water supply.
Pesticides residues accumulate in bio-mass.
Reduce use of pesticides through IPM.
Prevent agricultural land drainage from reaching surface water.

17. Environment al Event
Action
Impact
Mitigation Measures
Erosion and Siltation
Erosion of road and embankment surfaces and sides, road openings, bed and banks of rivers/canals subsequent siltation in downstream.
Cause damage to road and embankment.
Affect stability of road/embankment and their structures.
Increases turbidity of water.
Siltation of canal bed and agricultural lands.
Select appropriate soil for road and embankment construction.
Compact the road materials properly.
Provide proper slope for surface drainage and vegetation cover.
Provide adequate opening for discharge of flood and accumulated rain water.
Drainage Congestions or Water Logging
Drainage congestion and water logging.
Crop Damage and loss of agricultural lands.
Cause water pollution.
Provide ground for mosquito breeding.
Provide adequate opening for drainage.
Provide facilities for pumping of congested water.
Regional Hydrology
Disruption of regional hydrology through obstruction of flood flow.
Back water effects due to constructions across flood plains.
Increase duration, severity and frequency of flood.
Changes flooding pattern and ground water recharge.
Avoid road construction across the flood plain in the direction perpendicular to flood flow.
Provide adequate opening for flood flow.

18. Environment al Event
Action
Impact
Mitigation Measures
Backflow
Backflow of water through drainage canals.
Causes early flooding.
Install regulator to control inflow and outflow through drainage canal.
Obstruction to Waste Water
Obstruction to waste water flow by roads and embankments.
Creates water pollution.
Deteriorates quality of environment.
Provide drainage structure.
Install pumping facilities.
Install treatment plant for waste water treatment.
Dust Blowing
Dust blowing from unpaved roads during construction and movement of vehicles.
Health hazards due to dust pollution.
Damage to vegetation and trees along the road.
Control moisture content during construction by watering.
Stabilize road surface with a suitable stabilizer.
Increase vegetation cover on road surface and slopes.
Polluted Irrigation Water
Use of irrigation water with high and imbalanced salt content.
Increases soil salinity and alkanity/acidity.
Alteration of soil texture and permeability.
Affects soil fertility.
Use surface water where available.
Conduct chemical analysis of ground water before use and select the aquifer producing good quality water.
Determine salinity of surface water in coastal areas before use as irrigation water.
Contaminate d Irrigation Water
Use of irrigation water with high iron content.
Impart reddish color to top soil.
Changes soil texture and permeability.
Look for an alternative water source, the right strata producing water with low iron content.
Detain the aerated water in a reservoir canal before application in the field.

19. Environment al Event
Action
Impact
Mitigation Measures
Loss of Land
Loss of agricultural land.
Deprives a group of farmers of their means of living.
Increases landlessness in the area.
Reduces employment in agriculture.
Affects agricultural production.
Plan the project to avoid fertile agricultural land.
Rehabilitate the affected people.
Generate employment opportunities in other activities.
Obstruction to Navigation
Obstruction to navigation and plying of boat.
Disruption of cheap mode of transportation.
Adverse effects on communication.
Provides openings at major routes and construct road structures leaving adequate clearance above high flood level for plying of boats.
Land Ownership Pattern
Change in land ownership pattern within project area.
Inequitable distribution of project benefits.
Regulation of land ownership transfer in the project area.
Inadequate Landscape
Inadequate considerations to land use and landscape.
Landscape disfiguration by irregular borrow pits, deep cuts, fills, unplanned growth of shops, and other services.
Replant disfigured surfaces.
Use a design to blend with landscape.
Prevent unplanned construction and unauthorized uses of roads and embankments.

20. Importance of Environmental Assessment
This cartoon portrays the need for environmental assessment by comparing the impact of economic collapse with the impact of environmental collapse. In the event of an economic collapse, there is scope for recovering economic growth. However, environmental collapse puts survival of mankind into jeopardy.

21. Environmental Impact Assessment
Environmental Impact Assessment (EIA) is defined as the process of evaluating the direct and indirect environmental and social implications of a proposed development project.
The International Association for Impact Assessment (IAIA) defines an environmental impact assessment as "the process of identifying, predicting, evaluating and mitigating the biophysical, social, and other relevant effects of development proposals prior to major decisions being taken and commitments made."

22. What is an Impact?
In “Environmental Impact Assessment”, the term “Impact” is used instead of “Effect”.
The Impact of an activity is a deviation (a change) from the baseline situation that is caused by the activity.
The “Baseline Situation” is the existing environmental situation or condition in the absence of the activity.

23. The Baseline Situation

24. Reasons for using EIA
EIA has been developed as a result of the failure of traditional project appraisal techniques to account for environmental impacts.
Projects designed and constructed in isolation from any consideration of their impacts on the environment have resulted in:
Higher costs,
Failure of projects,
Significant environmental change, and
Negative social effects

25. Essential Elements
Identification of possible positive or negative impacts of the project.
Quantifying impacts with respect to common base.
Preparation of mitigation plan to offset the negative impacts.

26. Steps in the EIA Process
1. Screening-
Determination of the nature and magnitude of the proposed project’s potential environmental and social impacts.
Classification of EIAs.
Deciding upon the nature and extent of the EIA to be carried out.
The EIA process comprises six steps starting with Screening which involves review of project proposals. Each project is assigned one of three environmental categories- category A, category B or Category C (see next slide).

27. Classification of EIAs by Category
Category A
Full EIA required
Significant adverse impact: severe, irreversible and diverse
Category B
Full EIA not required, some environmental analysis is necessary
Less significant impact: not as sensitive, numerous, major or diverse
For irreversible impacts, remedial measures can be more easily designed.
Category C
No EIA or other environmental analysis is required
Negligible or minimal direct impact
Attributes of Category A projects include the following:
Direct pollutant discharges large enough to cause degradation of air, water or soil
Large-scale physical disturbances of the site and/or surroundings
Extraction, consumption or conversion of substantial amounts of forest and other natural resources
Measurable modification of hydrological cycles
Hazardous material in more than incidental quantities
Involuntary displacement of people and other significant social disturbances
Category B projects usually involve rehabilitation, maintenance or upgrading rather than new construction.
Category C projects focus on education, family planning, health and human resource development.

28. Steps in the EIA Process
2. Scoping-
Identification of key issues and development of the Terms of Reference (TOR) for the EIA once a project is categorized.
Defining the project’s area of influence.
3. Impact Identification-
Projection of the future state of the valued environmental and community resources within the vicinity of the proposed project.
Formulation of a series of environmental design objectives to aid both the EIA and project design process.

29. Steps in the EIA Process
4. Impact Prediction-
Forecast of the potential effects in terms of-
Magnitude,
The affected feature/resource/population,
Action causing the effect,
Timescale and duration of the effect,
Level of uncertainty in the forecast,
Proposed mitigation/enhancement measures,
Significance
The effects must be recorded in terms of-
Short term /Long term
Direct/Indirect/Synergistic
Cumulative/Increase/Reduce with time

30. Steps in the EIA Process
5. Mitigation and Enhancement-
Identification of mitigation and enhancement measures that reduces project costs and community costs.
Measures should be capable of being delivered in a cost effective manner.
6. Reporting-
The EIS should report the following-
Environmental objectives and policy context
Existing environmental situation
A description of the project
An assessment of the effects of the project
An environmental action plan or management plan
A summary of the effects and recommendations

31. Steps in the EIA Process
Environmental Management Plan (EMP)
An Environmental Management Plan (EMP) sets out the actions for monitoring and evaluation of the project during implementation or construction and operation. Its content will include:
Mitigation measures to minimize adverse impacts
Measures to enhance environmental benefits
Identified risks and uncertainties
Institutional support required for effective monitoring
Monitoring and auditing program details
Environmental legislations and standards which apply
Resources, funds, contractual and management arrangements

32. Steps in the EIA Process
Environmental Audit/ Evaluation
An environmental evaluation is increasingly undertaken to-
confirm that the performance of the project conforms to the specification and environmental performance standards specified in funding arrangements
examine the EMP and review the monitoring data in order to reveal scope for improvements

33. Methods of Assessment Environmental Impact Value
Vi = Relative change of the environmental quality of parameters
Wi= Relative importance or weight or parameter
N = total number of environmental parameters

34. Quantification of Environmental Impact
Changes of environmental parameters
Severe (+5 or -5)
Higher (+4 or -4)
Moderate (+3 or -3)
Low (+2 or -2)
Very Low (+1 or -1)
No change (0)

35. Relative importance of Environmental Parameters
All parameters are not of equal importance or weight.
It varies from country to country
In Bangladesh flood, employment, agriculture, fisheries carry more importance.
In next slide, a summary of relative importance of parameters for a particular Road project is presented.

36. ENVIRONMENTAL PARAMETERS Relative Importance Value Degree of Impact
EIV
I. ECOLOGICAL
Fisheries
Forest
Tree Plantation
Wetland/Wetland Habitant
Nuisance Plant/Eutrophication
II. PHYSICO-CHEMICAL
Erosion and Siltation
Regional Hydrology/Flooding
Drainage Congestion/Water logging
Obstruction to Waste Water Flow
Dust Pollution/Noise Pollution 10 5 2 4 1 6 3 -2 +1 -1
-19
-13
EIV stands for Environmental Impact Value. In order to derive this value for a category (e.g. Ecological) Relative Importance Value for each sub-category (e.g. Fisheries) is multiplied by corresponding values of Degree of Impact and then, summing the values up gives the environmental impact value of that category.

37. ENVIRONMENTAL PARAMETERS Relative Importance Value Degree of Impact
EIV
III. HUMAN INTEREST
Loss of Agricultural Lands
Employment Opportunities
Navigation/Boat Communication
Commercial and Service Facilities
Industrial Activities
Irrigation Facilities
Landscape
Total Environmental Impact Value 8 3 6 2 +3 +4 -3 +2 -1
+27 -5
Summing the environmental impact values for each category gives the total environmental impact value.

38. Potential Impacts on Environment
A change in system exerts certain influence on many different environmental parameters resulting a net positive or negative impact on the environment.
Impact on major Infrastructure development projects such as:
Road projects
Irrigation schemes
Drainage and embankment projects

39. Absence of Proper EIA EIA=Environmental Impact Assessment
If proper EIA is not conducted, the situation will be similar to what this cartoon is indicating. Companies will be assessed based on contents included in their brochure rather than depending on proper environmental assessment results.

40. Equator Principles

41. The Equator Principle
The Equator Principles (EPs) are a credit risk management framework for determining, assessing and managing environmental and social risk in project finance transactions.
The EPs are primarily intended to provide a minimum standard for due diligence to support responsible risk decision-making.
The EPs are based on the International Finance Corporation (IFC) Performance Standards on social and environmental sustainability and on the World Bank Group Environmental, Health, and Safety Guidelines (EHS Guidelines)

42. Objective
THE EQUATOR PRINCIPLES PROVIDE A FRAMEWORK FOR BANKS TO MANAGE ENVIRONMENTAL AND SOCIAL ISSUES IN PROJECT FINANCE.

43. Background
IFC asked to convene a meeting of banks to discuss “the problem” (October 2002)
From denial to acceptance in a few hours
Working group formed to explore options
(ABN Amro, Barclays, Citigroup, WestLB, IFC)
Proposal presented (February 2003)
Consultations with clients and NGOs
Agreement to move to adoption and development of timetable (April 2003)
June 4, 2003: 10 banks announce adoption of Equator Principles at IFC headquarters, Washington, DC
First Released in 2003, subsequently revised in 2006
Adopted by over 40 Financing Institutions during a Three Year Implementation Period.

44. The New Industry Standard
10 banks from 7 countries:
ABN AMRO, Barclays, Citigroup, Credit Lyonnais, CSFB, HVB Group, Rabobank, Royal Bank of Scotland, West LB, Westpac
10 more banks from 5 more countries have joined:
ING, Royal Bank of Canada, MCC of Italy, Dresdner,HSBC, Dexia, Standard Chartered, Mizuho, KBC
20 Equator banks arranged over 78% of project finance market through October 2003 (Dealogic ProjectWare).
More are coming!

45. Application Projects with total capital cost of $50 million or more
All industries
Environmental risk categorization & industry standards apply globally. Safeguard Policies apply to low and middle income countries (as defined by the World Bank).

46. Project Categorization

47. PROJECT FINANCE: ASSESSMENT AND MANAGEMENT OF SOCIAL AND ENVIRONMENTAL RISKS
EPFI=Equator Principle Financial Institutions

48. Capacity: Training Available from IFC for Equator Banks
Executive Briefing: Half day-analysis of E&S risks, understanding of the Equator framework.
Target Audience: Senior management and those requiring a general awareness.
Equator Implementation for Project Finance: Two days- program focused on practical implementation-categorization, client analysis, EA design.
Target Audience: Frontline PF staff responsible for implementation.

49. Benefits of the Equator Principles
A global standard. Easier to navigate than the multiple requirements currently in place.
Save borrowers time and money on sensitive projects
Implementation is, over time, expected to raise global environmental and social performance
Reduce “loan-shopping” based on environmental and social criteria
Better information for banks to make decisions
Provide basis for stakeholder engagement
Expedite consensus-reaching among banks in large loan syndications

50. Criticisms of the Equator Principles
Lack of proper enforcement, accountability and transparency
Prevalence of free-riders and hypocrisy
Policy vacuum amongst banks on vital EP issues
Limited awareness and training
Lack of expertise on social assessment
Lender knowingly permitting pollution
Lack of awareness as to who are the reputable experts in these areas
Lack of objectivity on the part of sponsors and their consultants and advisers in carrying out due diligence on behalf of sponsors and lenders

51. Criticisms of the Equator Principles
Stabilisation clauses in host country and intergovernmental agreements
Omission of differences in environmental, social and governance standards
Circumvention of EP by using other forms of finance or self-finance followed by general borrowing to meet general debt or expenditure
Legal challenges in multiple legal forum: Human Rights Commission, IFC CAO, national courts, US courts
Scope of EP is limited to project finance only