29.9.2006   

EN

Official Journal of the European Union

C 235/1

I-VI

1-7

1-3

4-7

8-27

8

9-13

14-27

15-17

18-23

24-27

28-46

28

29-35

36-38

39-46

47-81

47

48-56

57-81

58-63

64-67

68-70

71-72

73-77

78-81

82-101

82-86

87-101

87-93

94-97

98-101

ACP

African, Caribbean and Pacific States signatory to the Cotonou Agreement

ALA

Asia and Latin America developing countries

CEPs

Country Environment Profile

CSP

Country Strategy Papers

DFID

British Department for International Development

DG DEV

Directorate-General for Development

DG ENV

Directorate-General for Environment

DG Relex

Directorate-General for External Relations

DWNP

Department of Wildlife and National Parks

ECOFAC

Ecosystèmes Forestiers d'Afrique Centrale

EIA

Environmental Impact Assessment

Europeaid

Europeaid Cooperation Office

FAO

Food and Agriculture Organisation

GEF

Global Environment Facility

iQSG

Interservice Quality Support Group

KfW

German Kreditanstalt für Wiederaufbau

MDGs

Millennium Development Goals

MEAs

Multilateral Environment Agreements

MEDA

Measures to accompany the economic and social reforms in the Mediterranean non-member countries

NRPP

Natural Resources Policy Programme

OECD

Organisation for Economic Cooperation Development

OECD DAC

Development Assistance Committee of the Organisation for Economic Cooperation and Development

OQSG

Office Quality Support Group (OQSG)

PEP

Poverty and Environment Partnership

PRSP

Poverty Reduction Strategy Papers

SEA

Strategic Environmental Assessment

UNDP

United Nations Development Programme

UNEP

United Nations Environment Programme

WSSD

World Summit on Sustainable Development

WWF

World Wildlife Fund

I.

Protecting the environment is a vital part of promoting sustainable development. The Treaty requires that environmental protection be integrated into the definition and implementation of all Community policies and activities, including the Community's external aid. More generally, the environment has come to figure as a key item on the international development agenda, and environmental sustainability is one of the Millennium Development Goals (see paragraphs 1 to 3).

II.

The European Court of Auditors therefore undertook an audit in 2005 of the Commission's management of the environmental aspects of its development aid. The audit examined whether the Commission had a comprehensive strategy for addressing the environmental aspects of its development cooperation, whether it had made adequate management arrangements to implement the strategy, how far the environment had been integrated (mainstreamed) into the Commission's development programmes and projects, and what were the results of the Commission's environment projects. As well as reviewing Commission systems in its headquarters and delegations, it also audited 65 environment projects (total value: 560 million euro) and 43 non-environment programmes and projects (total value: 1 073 million euro) in 16 countries (see paragraphs 4 to 7).

III.

The Commission needs to establish a clear comprehensive strategy for the environmental aspects of its development aid. While since 2001 there has been a strategy on the need to integrate the environment into development cooperation, the approach to financing programmes and projects in the environment and natural resources sector has not been clearly addressed. The new development policy signed in December 2005 provides a good basis for establishing a comprehensive strategy (paragraphs 9 to 12). The Commission's action plan for implementing its mainstreaming strategy has not been systematically followed up and co-ordinated by the three Directorates-General primarily concerned. As a result, planned measures have generally been implemented after some delay or not at all (paragraphs 15 to 17). The Commission has not carried out an adequate review of the staffing implications of its mainstreaming strategy. The Commission has relied on an Environment Helpdesk manned by external experts to provide support to Commission staff, but there was no Helpdesk in place from mid-2002 to mid-2004. The environment integration manual, to be introduced in 2003, was still not completed at the end of 2005, although this manual was important both for defining mainstreaming procedures to be followed by Commission staff and as a key training input. Training courses have not been compulsory for key officials, although this was foreseen, and have often been poorly attended (see paragraphs 18 to 23). There is a need to further strengthen reporting, monitoring and evaluation systems on the environmental aspects of the Commission's development cooperation to enable its performance in this area to be better assessed (see paragraphs 24 to 28).

IV.

The Commission has made only limited progress since 2001 in mainstreaming the environment into its development cooperation. The Country Strategy Papers (CSPs) drawn up by the Commission in conjunction with beneficiary countries covering the Commission's aid to beneficiary countries over the period 2001 to 2006 did not take sufficient account of environmental issues. In preparing the new generation of CSPs (2007 to 2013), the Commission has been taking a much more systematic approach to analysing environmental issues in beneficiary countries through the establishment of Country Environment Profiles (CEPs) although it is too early to assess how far this analysis will influence the CSPs themselves (paragraphs 29 to 35). Despite the increasing importance of budgetary support as a form of development aid, the Commission has done little to mainstream the environment into this area (paragraphs 36 to 38). There has been no consistent system for the environmental screening of new projects. The Commission has no inventory of Environmental Impact Assessments (EIA) performed on development projects and evidence was found that they had not always been carried out where they should have been carried out. There is also a need to establish procedures to ensure the implementation of EIA recommendations (see paragraphs 39 to 46).

V.

Almost all environment projects examined were relevant to beneficiary country needs, and frequently also addressed global conservation needs, particularly in relation to forest and biodiversity conservation. Project outputs and results achieved have frequently fallen short of objectives. Moreover, the project approach has inherent difficulties in achieving significant impacts and assuring financial viability (paragraphs 47 to 56). Key factors influencing project effectiveness have been overambitious project design, delays in project preparation and implementation, limited progress in building institutional capacity, difficulties in addressing the needs of local communities for development while meeting conservation objectives, projects' insufficient impact on the policy and legal framework, and the unrealistic goals set for financial sustainability after the end of project funding (see paragraphs 57 to 81).

VI.

Detailed recommendations on establishing a comprehensive environmental strategy and following up its implementation as well as how to make both environmental mainstreaming and environment projects more effective are given in paragraphs 88 to 101.

1.

Since the 1972 United Nations Conference on the Human Environment in Stockholm the issue of the environment and how to ensure that development is sustainable has become a subject of international concern. The 1992 United Nations Conference on Environment and Development in Rio de Janeiro further raised the profile of the environment and sustainable development, and led to three Multilateral Environment Agreements (MEAs): the Convention on Climate Change, the Convention on Biological Diversity, and the Convention to Combat Desertification. Although in the second half of the 1990s the development agenda refocused to a certain extent on poverty reduction issues, environmental sustainability was chosen as one of the eight Millennium Development Goals (MDG) established at the UN Millennium Summit in 2000. The 2002 World Summit on Sustainable Development (WSSD) in Johannesburg sought to address both poverty and environment issues.

2.

There are basically two types of intervention through which the donor community has sought to address the environmental aspects of development cooperation:

3.

The Commission's attention to mainstreaming the environment in the context of development should be seen not only in terms of an increased recognition by donors of the importance of this approach but also in the context of the wider European Union legal and policy framework. Thus Article 6 of the Treaty establishing the European Community, as amended by the 1997 Treaty of Amsterdam, stipulates that: ‘Environmental protection requirements must be integrated into the definition and implementation of Community policies and activities…, in particular with a view to promoting sustainable development’. In June 1998 the Cardiff European Council stressed the importance of integrating environmental protection and sustainable development into the major policy areas, including development aid, managed by the Commission and invited it to put forward appropriate strategies. In 2000 the European Community development policy was adopted which included environment as a cross-cutting issue. The development policy consensus agreed between the European Commission, the Member States and the European Parliament in December 2005 not only maintained the environment as a cross-cutting issue but also made environment and natural resources one of nine priority sectors for funding.

4.

In view of the environment's key role as one of the three pillars of sustainable development and its importance as one of the Millennium Development Goals (MDGs), the European Court of Auditors carried out an audit in 2005 of the European Commission's management of the environmental aspects of its development cooperation with Asian and Latin American developing countries, southern Mediterranean countries and the African, Caribbean and Pacific group of States. More specifically, the audit focused on the following key questions (1):

5.

Environment is not an easy term to define. For the purpose of this audit, environment was understood in the first place in accordance with the relatively narrow sense defined by the OECD Development Assistance Committee (DAC) for project classification purposes (see Annex I). In addition, the audit also took into consideration the natural resource sectors (forestry, water, fisheries) and focused on one of these areas, namely forestry (2). The commitments for programmes and projects in these areas in 2003 and 2004 are given in the table below:

Table

Budgetary commitments to environment and natural resource sector 2003 to 2004

6.

Work was carried out at the Commission's headquarters, notably at the Europeaid Cooperation Office (Europeaid), the Directorate-General for Development (DG DEV), the Directorate-General for External Relations (DG Relex) and also the Directorate-General for Environment (DG ENV), in order to identify and assess the systems established to manage the environmental aspects of development cooperation. On-the-spot missions were carried out in Botswana, Brazil, the Central America region, China, Congo, Gabon, Indonesia, Mali, Mauritius, Morocco, the Pacific region and Tanzania. During these missions the Court audited 65 environment projects, representing commitments of 560 million euro over the period 1995 to 2005, to assess their effectiveness. In addition, it examined 43 other development programmes and projects (total commitments: 1 073 million euro), where support to the environment was not the primary objective, in order to assess how well environmental aspects had been integrated into these interventions.

7.

Meetings were also held with the World Bank, the United Nations Development Programme (UNDP), the British Department for International Development (DFID), and the Organisation for Economic Cooperation and Development (OECD). This allowed a comparison to be made with the Commission's approach to managing the environmental aspects of its development cooperation. In addition, meetings were held with two leading NGOs in the field of the environment, the WWF (European Policy Office) and the International Institute for Environment and Development.

8.

The audit sought to establish:

9.

Environmental protection is one of the three pillars of sustainable development (3). As such it should be an essential component of development objectives (4). The European Community’s development policy adopted in November 2000, the overarching objective of which was poverty reduction, sought to address the environment by treating it as one of several ‘cross-cutting issues’ to be integrated into all development programmes and projects. It did not, however, include the environment as one of the six priority fields on which financing of aid programmes and projects would be concentrated.

Box 1The Council and Commission joint declaration of 10 November 2000 on the EC development policyOverarching objective: poverty reductionPriority fields of cooperation:

10.

The development policy, in following an approach which focused very largely on mainstreaming the environment, did not sufficiently take into consideration the fact that existing regional cooperation frameworks with the ACP States (5), Asia and Latin America (ALA) (6) and the Mediterranean region (MEDA) (7) provided for the possibility of significant funding of programmes and projects in the environment and the wider natural resources sector. Indeed, budget lines for technical and financial assistance to ALA and MEDA regions set aside 10 % of financial resources for environment and natural resources. At the same time, although not referred to in the development policy, a specific regulation on forest conservation and management stipulated that a sum of 249 million euro would be allocated to this purpose over the period 2000 to 2006 (8).

11.

The lack of full coherence between the development policy's approach to the environment on the one hand and the approach foreseen in legal frameworks for development cooperation on the other hand highlighted the need for a comprehensive overall strategy on the environmental aspects of development cooperation. The main strategy paper drawn up by the Commission on the environmental aspects of its development cooperation is the Commission Staff Working Paper ‘Integrating The Environment Into EC Economic and Development Cooperation — A Comprehensive Strategy’, of April 2001. This document stresses the importance of the environment to sustainable development, outlines how it can be mainstreamed into overall EC development policy, and identifies actions to be taken to implement the strategy. However, it does not represent a comprehensive environment strategy of the kind adopted by several other donors which clearly address not only environmental mainstreaming but also the financing of environment programmes and projects. Some of the key issues which such a strategy could be expected to address are set out in Box 2.

Box 2Examples of strategic issues relating to the financing of environment programmes and projectsWhat are the Commission's objectives and priority areas for funding environment programmes and projects, taking into account its strengths and weaknesses and the role of other donors?Where the Commission does provide financing for a specific programme or project, in what cases should it manage the project itself, and in what circumstances might other donors better manage the project?What are the comparative advantages of the different instruments available to the Commission for financing interventions in the environment sector (‘big’ projects, ‘small’ projects, sector policy support programmes, trust funds etc)?What should be the link between projects funded through bilateral aid and through the Environment and Tropical Forest budget line?What are the financial implications of the Commission's commitments under the MEAs, for example in relation to institution building in beneficiary countries?How far and in what ways will the Commission address the issue of financing of global public goods?What are the Commission's objectives and funding priorities at regional level?

12.

In December 2005 a new EC Development Policy (The European Consensus on Development) was signed. The new policy seeks to address the environmental aspects of the Commission's development aid not only through environmental mainstreaming but also by making the environment and natural resources one of nine priority sectors for funding. In proposing this new approach the Commission recognised that the previous policy had relied too heavily on mainstreaming to ensure the environmental aspects of the Commission's development cooperation were addressed (9).

13.

However, while the new policy makes clear the Commission's intention to increase the priority it attaches to funding environmental programmes and projects, there remains the need to make the policy operational by establishing a clear strategy. In particular, in addition to the issues raised in Box 2, the strategy should address the question of how the Commission will seek to ensure that this policy priority is actually translated into environment programmes and projects in the Country Strategy Papers. This is an important consideration since this sector is only one of nine priority fields and beneficiary countries are required to concentrate funding received on just one or two focal sectors. Given that in most beneficiary countries environment is not the highest priority, there is a risk that they will allocate relatively little funding to the environment and natural resource sector despite the new emphasis in the Commission's development policy on financing environmental programmes and projects.

14.

Given the fact that the main strategy document on the environmental aspects of development cooperation focuses on mainstreaming, this section particularly addresses the management arrangements put in place to follow up this strategy. The section also assesses what steps have been taken by the Commission to assess the overall environmental performance of its aid, both in terms of mainstreaming and environment projects financed.

15.

The implementation of strategies to mainstream the environment into development cooperation is proving a major challenge not just for the Commission but also for other donors. In the Commission the fact that responsibilities for external aid are spread across three Directorates-General (Directorate-General for Development, Directorate-General for External Relations, Europe Aid Office) renders the task even more difficult.

16.

With a view to ensuring effective implementation and facilitating coordination, the Commission established an ‘Operational Framework for Further Mainstreaming’ as an Annex to its Staff Working Paper on environmental mainstreaming. This framework sets out the objectives, type of activities, completion dates and Directorates General involved. However, no interservice steering group was established to ensure the systematic overall follow-up of the framework's implementation. Partly for this reason progress on the different activities identified in the framework has varied greatly, depending on the area concerned, but has nearly always been delayed or not implemented.

17.

The Staff Working Paper notes that ‘in order to steer the environment integration process it will be necessary to develop a set of performance criteria that can measure its progress’. However, no such performance criteria have been established, nor has there been any overall internal or external reporting on the framework's implementation status.

18.

The question of whether the Commission has sufficient staff to implement its environmental mainstreaming strategy has not been subject to an adequate review by the Commission. In its Staff Working Paper on environmental mainstreaming, the Commission merely noted ‘a need to increase the number of environmental generalists’ and a requirement for ‘specialists … for short periods of time’. The Commission has not taken sufficient steps to address these needs despite the fact that conclusion 4.3. of the Goeteborg European Council stated that: ‘The capacity of the Commission services required for effective environmental integration, both in Brussels and in the delegations, should be ensured through the allocation of appropriate human resources as well as training, knowledge-sharing and the proper use of feedback’.

19.

The Commission's approach to building up its capacity has focused on training and support to existing staff on mainstreaming the environment. The main tools for doing this were:

Because of limited in-house expertise, the Commission has contracted environmental experts to carry out this work. However, it has experienced difficulty in the implementation of each of these areas.

20.

While an environment helpdesk was in place from 1999 to 2002, after the expiry of the contract a new helpdesk, consisting of three environmental experts, was not contracted until 2004. In a situation where the Commission relied heavily on outside expertise, this two-year gap has seriously delayed the implementation of the Commission's mainstreaming strategy, since the helpdesk provides not only advice but has also been responsible for the manual and training.

21.

The mainstreaming strategy included the establishment of an environment mainstreaming manual by 2003. Although preparation originally began in 1998, at the end of 2005 it was still not completed (see Box 3 for details).

Box 3A Manual for mainstreaming the environmentThe Commission contracted a consultancy firm in 1998 for 12 months but the manual finally produced in 2001 was considered to be inadequate and was not formally approved. As a result it remained only a draft document. The manual has been little used firstly because of its draft status, secondly because it was extremely lengthy, and thirdly because its existence was not even known by some staff. Significant work on a revised manual only began in mid-2004 with the contracting of a new consultancy firm. Because of the complexity of the task, the higher priority assigned by the Commission to setting up a training programme and frequent changes in the Commission staff managing the contract, the revised manual had still not been completed at the end of 2005.

22.

The mainstreaming strategy foresaw that ‘every official in key policy areas or with geographical responsibility in headquarters and Delegations’ would have completed training by the end of 2004. In fact the training courses only began in November 2004 and have not been compulsory. It was also planned that the training would use the new manual but this has not proved possible (see paragraph 21). Courses at Commission headquarters have been poorly attended. While overall attendance levels have been better for training at the Delegations, the number of Commission staff attending is still limited (see Box 4).

Box 4Environmental mainstreaming trainingFor courses at Commission headquarters, the average number of participants per training module was eight, compared with the fifteen planned. Several sessions had to be cancelled because of insufficient participants. 37 staff from DG Relex attended a half day training course on environmental mainstreaming at the programming stage, however only 9 staff attended the full 2 day training module on this subject, although 2005 was the key year for DG Relex to prepare the CSPs for 2007 to 2013. For the Delegations, the training budget allocated was only sufficient for courses to be held in 20 Delegations (attended by Delegation staff and staff from organisations in the beneficiary countries). The training took place too late for most Delegations in Asia, Latin America and the Mediterranean to be able to benefit from it when preparing the new CSPs.

23.

One initiative which had the potential to build up the Commission's in-house capacity to manage the environmental aspects of development cooperation was the setting-up in 2003 of an ‘environmental focal point network’. The network was intended to identify and link up one official from each unit to work on how to better take into account environment questions in development projects and contribute to disseminating best practice. However, while the network met four times up to May 2004, no meetings have been held since. The network was also largely centred on officials in Europeaid and did not sufficiently incorporate other Commission services, in particular the Delegations. The network has therefore thus far made little contribution to building up in-house capacity.

24.

The Commission also conducts evaluations, both at the level of regulations and sectors, which are organised by the Europeaid Evaluation Unit, and of individual projects, which are organised by its Delegations. The Commission's operational framework (see paragraph 16) required the independent evaluation of the environmental performance of EC aid over the period 1996 to 2000, as part of a regular evaluation process for environmental performance. This could have been used to establish baseline data and test out performance indicators (see paragraph 17). In addition, it could have identified the lessons to be learned from previous interventions and these could have been used as inputs to developing a comprehensive strategy for the environment (see paragraph 11). However, the evaluation, which was planned to be completed by mid-2002, has still not been carried out (10).

25.

At the level of individual environment projects the Commission's headquarters have no system for obtaining and assessing the results of evaluations organised by Commission delegations. Consequently there are no procedures for disseminating lessons learned and best practices from completed evaluation projects. There is similarly no system in place for obtaining and assessing information on the environmental impact of non-environmental projects.

26.

The Commission has had a system in place since 2001 to monitor ongoing development projects called the ‘results oriented monitoring system’. The system requires all development projects over one million euro to be visited approximately every twelve months by monitors from consultancy companies contracted by the Commission for this purpose. The monitors assess each project and give it a ‘score’ based on a set of five criteria: relevance, efficiency, effectiveness, impact and sustainability and related sub-criteria including environmental sustainability. However, the quantitative and qualitative findings of these reports are not systematically analysed by Commission headquarters to assess the overall performance of environment projects and the degree to which the environment has been integrated into other development projects.

27.

The Commission uses the OECD DAC financial monitoring and reporting system which is not adequate since it allows projects to be identified where environment-related expenditure has been made but not the amount of that expenditure. The coding system used by the World Bank tackles this issue (11). In addition, inconsistent use by the Commission of the marker system established for identifying expenditure made in the context of the MEAs has meant that it has not been able to accurately meet its reporting obligations under the MEAs.

28.

This part of the report assesses how effectively the Commission has mainstreamed the environment into its development cooperation. The assessment was carried out on three different types of Commission intervention:

29.

The Commission drew up Country Strategy Papers (CSPs) for the first time in 2001 and 2002 for each of the countries and regions to which it gives development assistance in order to set out what form the Commission's assistance should take over the period 2006 to 2007. In principle, CSPs were to take into account each country's development priorities, so as to ensure country ownership, as well as the Commission's own policies. The Commission's strategy concerning the environmental aspects of its development aid, as set out in both its 2000 Development Policy and the Commission Staff Working Paper on the subject, focused on mainstreaming the environment into all areas of development cooperation. Therefore it was essential that the environment was mainstreamed into its Country Strategy Papers (CSPs) if the overall strategy was to be effective.

30.

In fact, reviews of this first generation of CSPs (2001 to 2007) by the Court during the audit and also by the Commission's own services showed that the environment had not been satisfactorily mainstreamed into them. The analysis of environmental issues in the CSPs was generally weak and the Commission's response strategies did not adequately address environmental considerations in priority fields to be funded. In a sample of 60 CSPs, none of them mentioned the Millennium Development Goals (MDGs) on environmental sustainability and only approximately a quarter made reference to Multilateral Environment Agreements (MEAs).

31.

To some degree the lack of environmental mainstreaming into CSPs reflected the limited priority attached to this issue by many beneficiary countries. For countries with a Poverty Reduction Strategy Paper (PRSP) (12), it has been the Commission's policy to align its CSP to the PRSP. As a World Bank study has shown (13), the environment has generally not been mainstreamed into PRSPs, partly because of a lack of recognition by many beneficiary countries of the important linkages between poverty and the environment. Ministries of Environment should in the first place be the advocate of environmental issues in national policies but in practice these ministries, even in more developed countries with major environmental concerns such as Brazil and China, do not have the resources and influence of other, longer established ministries.

32.

Nevertheless the lack of environmental mainstreaming into development aid also reflects shortcomings on the Commission side. Although the Commission Staff Working Paper on Mainstreaming the Environment stated that such Country Environment Profiles (CEPs) were an important tool for mainstreaming at the programming stage, a Commission review in 2002 covering a sample of 60 CSPs found that only six such CEPs had been drawn up. This is despite the fact that such country environmental analysis has been best practice since 1992 when the OECD Development Assistance Committee issued guidelines on the subject (14).

33.

The Commission took an important step in 2005 to address this issue by establishing CEPs for Asian, Latin American and Mediterranean aid beneficiary countries as part of the process of preparing the next generation of Country Strategy Papers for the period 2007 to 2013. A similar approach is being followed for the ACP States. As the CSPs were still under preparation at the time the audit was completed, it was still too early to assess how far the CEPs had improved mainstreaming in the CSPs. This ultimately depends on how high a priority both the beneficiary countries and Commission services attach to addressing in the CSP the environmental issues raised by the CEPs.

34.

In this respect the Commission has made only limited progress in building up environmental awareness and mainstreaming capacity in beneficiary countries since the adoption of its own mainstreaming strategy. A specific instrument available to the Commission for promoting the integration of the environment into its development cooperation is Regulation (EC) No 2493/2000, which has a budget of 93 million euro over the period 2000 to 2006 (15). However, the instrument has had only limited impact. This instrument could significantly help environmental capacity building in developing countries. But the Commission has not established an overall approach to capacity building, and has only developed individual projects on an ad hoc basis.

35.

On the Commission side, it is of concern that only limited use was made in 2005 by officials responsible for CSP preparation of the opportunities for training in environmental mainstreaming (see Box 4). While DG Development, DG Environment and Europeaid all have specialised units reviewing the environmental aspects of CSPs, these reviews are not generally based on the detailed knowledge of the country concerned, while the spreading of limited staff resources across these three DGs also means that checks are often superficial.

36.

It is Commission and wider donor policy for budgetary support to make up an increasing percentage of overall aid. Thus, approximately 25 % of EDF funding allocated to ACP countries under the current CSPs has been allocated to such support. However, the Commission has done little to mainstream the environment into this newer form of aid although the Council stated in its conclusions of 31 May 2001 on the Commission's environmental integration strategy that: ‘environmental considerations should be systematically incorporated into the preparation of all … structural adjustment programmes and sector-wide reform and support programmes’ (16).

37.

The main environmental appraisal tool to be used in the context of budgetary support programmes is the Strategic Environment Assessment (SEA). This examines the environmental aspects of the beneficiary countries policies, plans and programmes financed by the budgetary support, notably the Poverty Reduction Strategy Papers. The Council conclusions noted that ‘to achieve mainstreaming, Strategic Environment Assessement (SEA) should be used systematically particularly during the preparation of structural and sectoral programmes and for new infrastructures’ (17). The importance of SEA is also recognised in the Commission's mainstreaming strategy. The Commission has made very little use of it so far, partly because, in contrast to CEPs and Environmental Impact Assessments (EIAs), it is a relatively new tool which the donor community as a whole is still mastering (18). Nevertheless, the Commission could have used its extensive manuals on budgetary and sectoral support to stress the environmental aspects of such aid, but they contain virtually no reference to the environment. Thus, Commission staff has had no guidelines either on when and how to use SEAs and on how to carry out more limited environmental appraisals where SEAs are not considered appropriate.

38.

This lack of environmental appraisal procedures is reflected in the preparation of budgetary support programmes:

39.

Despite the increasing proportion of aid channelled through budgetary support, the funding of projects is still the main aid delivery mechanism. A first step in the environmental appraisal of projects is to screen them in order to assess potential environmental risks and opportunities. The 2001 draft Environment Integration Manual established the principle of such screening in the form of an ‘Environmental Integration Form’ to be completed for each project and following guidelines in the manual. Since the Manual has remained only a draft (see paragraph 21), this procedure has not been systematically introduced. As a result many Delegations used other procedures or did not follow any environmental screening procedures at all.

Box 6Environmental screening in the Commission's delegation in NicaraguaThe Commission's Regional Delegation in Nicaragua deals with six countries and has over 140 staff. The audit found that no guidelines for environmental screening are used by the Delegation and no environmental screening leading to further detailed assessment had been carried out for projects and programmes in the 2002 to 2006 CSP. Moreover, the Delegation did not have an environmental expert although such an expert could have supervised and provided support to environmental screening procedures.

40.

In practice, the main procedure used by the Commission for checking environmental screening is in the context of preparing project identification fiches, which are drawn up by Delegations at the beginning of the project cycle and submitted to the Europeaid Office Quality Support Group (OQSG). The environment is, however, only one of a whole series of issues to be addressed by these fiches and the audit of 20 project identification fiches reviewed by the OQSG in 2005 found that environmental issues had not been adequately addressed in them:

41.

These deficiencies are partly due to the fact that environmental experts are not involved in screening non-environmental projects. In the Delegations, environmental expertise is largely focused on countries where the environment is a priority field, and in any case such expertise is not used to check the environmental aspects of project identification fiches for non-environmental projects. At Europeaid, the number of environmental experts is similarly only sufficient to assess the quality of environment and natural resource projects but not whether the environment has been mainstreamed into non-environment projects.

42.

Shortcomings in the screening process contributed to problems in identifying when Environmental Impact Assessments (EIAs) should be carried out. EIAs are long-established tools for identifying ex-ante the likely impact of a project on the environment and recommending mitigating measures for the design and implementation phase. The European Union has had EIA legislation for internal policies since 1985 (20). The 1990 Lomé IV Convention required EIAs to be carried out for large-scale projects and those posing a significant threat to the environment (21). In 1992 the OECD DAC issued best practice guidelines on ElAs for development projects to be followed by all its members (22).

43.

EIAs are particularly relevant for infrastructure and mining projects, since these generally have a high environmental impact. Up to 35 % of ninth EDF financing under the current Country Strategy Papers (CSPs) is allocated for road projects alone. However, the Court's audit identified several such projects where no EIA had been drawn up. A Commission evaluation in 2004 of ‘EC interventions in the transport sector in third countries’ found that no EIA had been carried out for four of the fifteen projects evaluated. Even where more substantial EIAs had been completed, their focus was generally on the direct impact of the road project itself on the environment rather than the impact on the environment of the new economic activities brought about by the improved access. This weakness is especially important for roads crossing sensitive areas such as tropical forests, where there is a direct link between the improved access and increasing deforestation and illegal hunting.

Box 7Environmental impact assessments for large infrastructure and mining projectsIn Tanzania, for the rehabilitation and upgrading of the Mwanza Border-Tinte and Isaka-Nzga Roads (eighth EDF, 85 million euro), what the Financing Proposal termed an EIA amounted to only one page in the feasibility study.In Botswana, no EIA was carried out on a Sysmin project (eighth EDF, 30 million euro) which provided assistance to extend the life of the Selebi Phikwe copper/nickel mine without immediately addressing the serious risk of the collapse of tailings dam or the unacceptably high level of sulphur dioxide emissions from the smelter.In Guatemala, no EIA was carried out for a project to resettle refugees (12 million euro) although resettlement projects can be considered a priori to have a potentially significant environmental impact. The resettlements caused significant damage to local ecosystems.

44.

Apart from large infrastructure, agricultural and mining projects, where an EIA is a necessity, there are many other kinds of projects where an EIA would be desirable or even essential. However, without clear guidelines or requirements on which projects should be subject to an EIA, there was a considerable risk that EIAs would not be carried out even when they should have been.

Box 8Environmental impact assessments for other kinds of projectsIn the Pacific, at least four of the projects audited would have benefited from an EIA. For example, for the Kiribati Seaweed Development project (seventh and ninth EDFs, 2,8 million euro), wooden posts needed to support seaweed cultivation were cut from the surrounding vegetation, including mangrove trees, which are important to marine ecosystems and coastal protection. In addition, protected turtles eating the seaweed plantations are killed by seaweed farmers. An EIA could have identified such issues prior to the project and recommended how to tackle them.

45.

Insofar as EIAs had been carried out and mitigating measures identified, there was no system to ensure that these measures had been laid down in an environment management plan to be implemented during the course of the project. Nor was the inclusion of EIA recommendations, where appropriate, in the technical specifications of works contracts systematically allowed for. Where EIA recommendations were included in the contract, penalties were not always attached to non-compliance with the environmental stipulations in the contract.

Box 9The follow-up of environmental impact assessmentsIn the case of the Northern Plains Irrigation project in Mauritius (7th EDF, 9 million euro), although a detailed EIA for the replacement of a pipeline was carried out and the special conditions of the Financing Agreement provided for ‘a systematic monitoring of environmental impacts to ensure that mitigating measures proposed by the EIA are implemented’, no evidence of this was found.In Mali, for the project ‘Support to the Rice Sector’ (eighth EDF, 15,4 million euro), the EIA recommended replanting trees around villages, monitoring the levels of water pollution and performing a study on recycling oil, but this was not included in the contract's technical specifications.For the Rewa Bridge project in Fiji (seventh and eighth EDFs, 11 million euro), because of the potential impact on kai fisheries, the contract included a requirement for water quality monitoring. This requirement was not met by the contractor but no penalties were stipulated in the contract for non-compliance.

46.

The Commission has no central register of ElAs carried out for development projects funded by the Commission. This is a weakness in internal management information. Such a register would also facilitate the public's access to this information.

47.

In addition to measures to mainstream the environment into development cooperation, examined in the previous section, the Commission has also sought to address environmental issues by financing programmes and projects in the environment sector. Despite the fact that the sector was not a priority field in the 2000 development policy (see paragraph 9) and commitments in this area as a proportion of total aid funding has been relatively low (see Table), the Commission has remained active in this field and may become more so with the adoption of the new development policy where environment and natural resources will be a priority field (see paragraph 12). The audit sought to:

48.

The Court examined 65 projects representing commitments of 560 million euro in 16 countries. The projects were financed from the General Budget over the period 1995 to 2005 and from the seventh, eighth and ninth EDFs. Projects examined were of two main types:

In addition, one intervention examined was a budgetary support programme rather than a traditional project, a sectoral policy support programme for wastewater treatment in Mauritius (ninth EDF, 29,8 million euro). This reflects the limited use of such programmes in the environment and natural resources sector.

49.

Five criteria were used for assessing the effectiveness of the projects:

50.

The Court's overall assessment for each of these five criteria is given in the chart below. A detailed table showing the Court's assessment of each project according to these five criteria is given in Annex II and a narrative overview of project effectiveness by country is provided in Annex III. Given that not all projects had been completed at the time of the audit and that definitive judgements on impact and sustainability may not be possible until well after the end of the project, the assessment is only to be considered as indicative.

51.

The audit found that in virtually all cases projects were, to varying degrees, relevant to the needs of the beneficiary countries and frequently also addressed global conservation needs, particularly in relation to forest and biodiversity conservation. In the absence of comprehensive assessments of the environment it was not possible to establish whether projects funded were the most relevant to beneficiaries' needs. However, the increasingly systematic use from 2005 onwards by the Commission of Country Environment Profiles (see paragraph 33), which are intended to provide a full assessment of environmental issues in each beneficiary country, should enable it to better identify the highest priority projects.

52.

According to the Court's assessment in 63 % of projects outputs had been or were likely to be fully achieved. In 37 % of cases outputs had been partially achieved, or were likely to be partially achieved within the project timeframe.

53.

In 58 % of projects most of the results had been achieved, in 21 % of projects some results had been achieved and in a further 21 % of cases few results had been achieved. Clearly results will generally not be met if outputs have not been produced.

54.

In 42 % of projects was the impact assessed as being, or likely to be, medium to high, while in 58 % of cases impact was assessed as low. While impact is always a key issue, it was particulary important issue for many environment projects examined, since they were designed as pilot or demonstration projects with a view to their then being replicated in other regions of the beneficiary country.

55.

In 45 % of projects were the prospects for sustainability considered to be good, while in 55 % of cases they were considered to be limited. Financial viability is a particularly key aspect of sustainability since, in so far as environment projects focus on conservation rather than development, they may require beneficiary countries to continue to provide financial support for conservation activities after the end of donor assistance while forgoing potential economic benefits.

56.

The general trend that emerges from these figures is that, while projects are almost always relevant, they do not always produce all the planned outputs. A little more than half fully achieve the results planned and somewhat less than half have a significant impact beyond the project and are likely to be sustainable. The example in Box 10 below illustrates these different aspects of project effectiveness in relation to one of the most important projects funded by the Commission.

Box 10An illustration of the assessment criteria — the case of the regional programme for the conservation and development of the forestry Ecosystems of Central Africa (ECOFAC)Since 1992, the Commission has played a leading role in initiating activities for the conservation and sustainable use of the forestry ecosystems of Central Africa, mainly through the Regional Programme for the Conservation and Development of the Forestry Ecosystems of Central Africa (ECOFAC) programme (sixth, seventh, eighth and ninth EDFs; 72,45 million euro).The programme is highly relevant as it helps to preserve what is the second largest continuous expanse of rainforest after the Amazon for the global benefits of conserving biodiversity and preventing climate change. On a regional and national level the forest is an important source of revenue for Central Africa’s countries, both in terms of industrial exploitation of timber and non-timber forestry products and game meat.In terms of outputs, ECOFAC has put in place a wide range of infrastructure (access roads, tracks, bridges, research centres, reception centres, tourist camps, viewpoints, bush airports, equipment for forest-rangers and staff) for the management of protected areas.In terms of results, the programme has raised awareness of the need to conserve the forestry ecosystems of Central Africa, and contributed to the creation, development and safeguarding of important protected areas which are critical for the preservation of the unique biodiversity of the region. It has also enabled a large amount of scientific research to be carried out. On the other hand, the promotion of the natural and cultural heritage of these protected areas by developing tourism has been limited because of several factors (cost of air transport, Ebola virus epidemics, lack of success in accustoming gorillas to the presence of humans in the Lopé reserve in Gabon, lack of involvement of national authorities and lack of interest of private investors).Outside the protected areas, the programme has had little impact. The programme has paid little attention to key issues such as legal and illegal logging, and illegal hunting, outside the protected areas. Its contribution to poverty reduction among forest peoples has been low, partly due to the unsuccessful rural development measures implemented.The protected areas are not financially sustainable and remain highly dependent on external financing. Because of that, ECOFAC has been repeatedly extended since 1992. The programme was able to set up a Network of Protected Areas of Central Africa (RAPAC) together with the institutions and administration responsible for managing the protected area, such as the COMIFAC (Conférence Ministérielle des Forêts d’Afrique Centrale). This was a good step to ensure more involvement by the national authorities, but the financial resources have not followed.

57.

This section of the report identifies key factors which have influenced the effectiveness of projects. Given that the Commission's development aid is based on the principle of partnership with beneficiary countries, some of the problems identified resulted at least in part from weaknesses on the side of beneficiary country. Nevertheless the Commission also has the responsibility to address such issues to the extent possible.

58.

Larger bilateral projects are jointly designed by the Commission and beneficiary governments with the aid of consultants, the Commission then having responsibility for their final appraisal before a financing decision is taken. The typically smaller projects financed from the Environment and Forestry budget line are designed by the NGOs although the Commission is also responsible for their appraisal. Approximately half of all the projects examined suffered from an overambitious design, in particular because they were aiming to achieve too much within the available timeframe. In such cases project design sometimes did not sufficiently take into account the fact that, in order for environment projects to be effective, considerable time has to be devoted to consulting with local communities and securing their active participation.

59.

The Environment and Forest budget line has required projects to be implemented in a maximum of 36 months and sometimes only 24 months. This in most cases was not realistic. The fact that the project proposals submitted for funding are competing against other projects creates the risk that project objectives are overly ambitious because projects promising to deliver more may be more likely to attract funding.

60.

Since 2002 the Financial Regulation has required that all projects should be fully contracted within three years of the budgetary commitment for the project being established. This imposes a new constraint which may be particularly difficult to achieve when trying to design the large kind of environment projects funded from bilateral aid.

61.

Many environment projects are implemented in vast and remote geographical areas. Despite this, several regions are sometimes unnecessarily included in a single project when it would be better to focus on one. In such cases the overly ambitious approach taken may result from local conditions not being sufficiently taken into account. In Indonesia, the geographical scope of two projects audited had to be reduced during implementation because the design was overambitious.

62.

The outside consultants and NGOs who generally draw up the detailed project designs do not always have a detailed knowledge of the Commission's implementation procedures, which are, even if implemented without delay, relatively lengthy. The underestimation of the time required to follow these procedures is a further reason why some project objectives were too ambitious.

63.

Since 2002 Europeaid has made significant efforts to improve project appraisal procedures through its Office Quality Support Group (OQSG). However, in addition to these review procedures in Commission headquarters there is a need to ensure that sufficient resources are devoted to the field appraisal of projects by Commission staff teams which have sufficient environmental expertise and knowledge of local conditions and Commission procedures.

Box 11An example of an overly ambitious project designThe natural forest management project in China (16,9 million euro) seeks in a five-year timeframe to introduce a completely new approach to forestry management in China involving ‘co-management’ between State forest villagers and enterprises. How ‘co-management’ should work in the Chinese context is still undefined. The project covers 3 provinces in south western China (Sichian, Hunan, Hainan) and will involve interventions in 6 counties, 11 townships and 58 villages across these three provinces. In addition to the core work on co-management, a poverty alleviation component to the project provides for at least 290 small public infrastructure projects in the villages. New institutions such as village-township co-management committees and micro-finance units are to be created in each project county and township. In addition, substantial institution building support will have to be given to the State Forestry Administration at provincial and county level, where capacity is weak, if it is to play its role in the project. The first 18 months of the project were subsequently lost because the technical assistance tender was cancelled.

64.

The Commission has overall responsibility for establishing the procedural framework for project preparation and implementation. The beneficiary country authorities or NGOs then generally implement the projects subject to detailed checks at each stage by the Commission services. Not only are project objectives often unrealistic because they do not take into account the time required to implement projects in compliance with Commission procedures, in addition most projects examined experienced significant unforeseen delays during their preparation and implementation. In most cases the problems encountered were not of a kind specific to the environment sector but likely to be met in projects in other sectors too. Responsibility for these delays lay both on the Commission and beneficiary country authorities (or NGO) side.

65.

Projects often experienced long preparation periods from identification to approval. Unlike the implementation phase, there are no restrictions on how long this phase may be. In the case of projects funded from the Environment and Forestry Budget Line, the time taken by the Commission to proceed from the issuing of the call for project proposals to the signature of the grant contract has been excessively long. Thus for the call for proposals issued in January 2001, contracts for approximately 50 % of the projects approved for funding were not signed until the second half of 2002, while the other 50 % of contracts were not signed until the second half of 2003. Such delays have sometimes had the effect of reducing project relevance because the project context had changed since the time when the original project proposal was submitted (see Box 12).

66.

Delays frequently occurred between the approval of the projects and their becoming operational. The two most common causes have been delays in the initial transfer of funds and in the procurement of project technical assistance. During implementation, environment projects, other than the small projects funded from the environment and forest budget line, tend to necessitate a large number of different (infrastructure, services, equipment) procurement contracts, grant contracts as well as the preparation and approval of work programmes to achieve their outputs and results. This means that they are more likely to experience delays than projects in certain other sectors. A particular difficulty has been when equipment which should be available from an early stage in the project, both to achieve project results and to allow sufficient time for beneficiary country staff working with it to be trained by technical assistance, is only supplied at the end of the project. For example, the Liaoning Integrated Environment Project in China suffered from the fact that equipment for three different components water resource, air quality and energy were all received almost at the end of the project.

67.

For two projects in Brazil, one in Guatemala and one in Morocco, project implementation was delayed because of the need to suspend the projects while financial irregularities were being investigated. In the case of the projects in Brazil, operations were restarted after the irregularities had been cleared up. In Guatemala and Morocco it was decided that the projects should be closed down.

Box 12Examples of delays reducing a project's relevanceThe Responsible Coffee Consumption and Production project in Nicaragua (1,2 million euro) was only approved two years after its submission. This resulted in key activities, such as an organic coffee programme and market opening, being implemented by the beneficiary with other financial resources.The Promotion of Ecologically Sustainable, Socially Equitable, and Economically Viable Forest Management Through Implementation of Credible Certification Systems project in Indonesia (0,9 million euro) was also approved two years after its submission. This, coupled with the planned project duration of only two years, led to the reduction of the initially foreseen five target regions to three.The Sustainable Development of the Cuiabá-Santarem Economic Corridor project in Brazil (1,5 million euro) was approved two years after its submission as well. Meantime, the region where the projects were to take place evolved to a worrying situation of conflicts of interests and violence affecting the activities of the project-implementing NGO.

68.

While institutional capacity building is a vital element in all development cooperation, as already noted (see paragraph 34), Ministries of the Environment and other environmental institutions are often relatively new and therefore especially in need of such assistance. This is all the more the case in countries where recent decentralisation has led to the transfer of more environmental responsibilities to regional and local level. Projects without effective institution- building support have reduced prospects for becoming sustainable, even if they achieve their immediate technical results.

69.

When the Commission has provided institutional building support, it has not always ensured there is enough commitment from a high level in the beneficiary country to ensure that the support is effective. In Botswana, a major 14 million euro project, focusing largely on institution-building in the Department of Wildlife and National Parks (DWNP), was implemented without sufficient participation and commitment from the Ministry of Wildlife, Environment and Tourism, to which the DWNP reported (see Box 13). Although technical assistance is the main vehicle for institution building, it has only been able to build capacity when enough counterparts at an appropriate hierarchical level are made available by the beneficiary institution to work with it. In practice, this is frequently not the case, while the typically high levels of staff turnover lead to whatever training benefits have come from the provision of technical assistance being lost to the organisation.

70.

Too often, in the absence of adequate local personnel from the beneficiary authorities, technical assistance has taken on an executive rather than advisory role in order to try to ensure the achievement of project results, but at the expense of developing longer term sustainability. A further diversion from sustainability issues is the time which highly qualified technical assistance personnel are obliged to spend on procurement and administrative matters. In addition, projects have frequently suffered from one or more changes in the composition of the technical assistance during the course of the typical three to four year contract they are engaged under.

Box 13An example of problems affecting institution-building projectsThe eighth EDF Wildlife Conservation and Management Programme in Botswana (14 million euro) illustrates many of the problems faced in institution-building projects. A seventh EDF project had financed support to the wildlife sector but had done little to address institution-building issues. This eighth EDF project was intended to address this shortcoming. The status of DWNP has been uncertain, the possibility existing that it would be transformed into a parastatal organisation. This has made project preparation and implementation more difficult. The TA team leader did not work at a senior level within the DWNP but only at a middle management level. His counterpart was not an official of the DWNP. Instead the DWNP assigned another foreign technical assistant. The first TA team leader had to be replaced after 11 months and was not replaced until 5 months later. Much of the TA team leader's time is devoted to project administration, which does not represent a cost-effective use of his time. A key part of the project was to be a management audit of the DWNP but halfway through the project this had not been carried out, in the absence of support from the DWNP and involvement by the Ministry. Although an Institutional Strengthening TA Advisor was also planned, this post was only filled midway through the project.

71.

A key requirement for ensuring that environment projects achieve their full objectives and become sustainable is that local communities participate in their preparation and implementation. The Commission has steadily increased the attention it gives to this aspect, partly as a result of the Development Policy established in 2000 which focused on poverty reduction. This has required more account to be taken of community development alongside conservation issues.

72.

Nevertheless, the reconciling of the economic needs of local communities with the need for nature conservation represents a major challenge. Insufficient attention has been given in projects to helping local communities generate income in a sustainable way from natural resources. Thus, for example, illegal hunting (‘poaching’) by local communities remains a serious threat to the results achieved by conservation projects and their environmental sustainability. This is true even in areas where the Commission has provided support over long periods of time, such as the Serengeti National Park in Tanzania and protected areas in the Central African region funded by ECOFAC. The development of tourism is a means of improving local as well as national income. However, in Botswana, the eighth EDF Wildlife project did little to help develop tourism in the Makgadikgadi National Park even though an earlier, sixth EDF tourism study on Botswana had recommended such an approach. The ECOFAC programme, despite its conservation achievements, has made little headway in addressing tourism issues (see Box 10). This emphasises the need for the Commission to continue to seek ways to help establish alternative sources of income for such communities.

Box 14A project illustrating the importance of assessing the needs of local communities in environment projectsThe pilot project ‘development of a model for managing fauna in the forests of Central Africa in north east Gabon’ (1,9 million euro) was designed to address the problem of commercial poaching in the forests of the Congo basin. The project accordingly included several measures to be enforced by anti-poaching units. However, the project designers failed to recognise that most of the local communities were also involved in hunting. Because of this, the project had not identified ways to assist them. During a visit by the audit team, representatives of one of the local fishing communities admitted that it had five hunting bases inside the forest which were destroyed by the anti-poaching units and explained that it was faced with the dilemma of a real decline in the amount of game and the necessity to meet its short-term needs.

73.

Without a clear and supportive policy and legal framework, the prospects for a project's moving beyond immediate outputs and results to achieve long-term sustainability and have a wider impact are greatly reduced. Insufficient attention has been paid by the Commission, when identifying projects, to whether such a framework exists and, if it does not, whether funding the project can serve to bring changes to the framework.

74.

Incomplete legal frameworks, particularly in relation to the land rights of project beneficiaries in local communities have, for example, hindered forestry projects in Indonesia and China. In Botswana and Tanzania, the lack of definitive laws to establish community-based natural resource management and wildlife management areas is also an obstacle to projects achieving their full impact. In several countries the lack of resources or will to enforce anti-poaching laws to protect wildlife has undermined the sustainability of projects after their completion.

75.

One way to use projects to bring changes to the policy and legal framework is for the Commission to attach conditions to their funding. However, this approach is not feasible in the case of projects implemented by NGOs funded through the Environment and Forestry budget line since beneficiary country governments are not eligible. In some cases, bilateral projects funded by the Commission sought to require beneficiary governments to take ‘accompanying measures’ to establish appropriate policies. However, such measures were not always well defined and followed up by the Commission.

76.

Moreover, the limited financial amounts involved in even these relatively large bilateral projects make it more difficult to insist on the accompanying measures actually being taken. For example, in Tanzania, the Commission sought to ensure that the government allocated more of the revenue earned from hunting concessions to covering the operating costs of the game reserves. However, the Commission did not address the fundamental issue of the untransparent way hunting concessions were awarded, and this was made more difficult by the fact that the project concerned was only for 2 million euro. In this respect, the inclusion of environmental policy and legal reform packages in large direct budgetary support would be a better way to help establish the necessary frameworks in which project level interventions could be sustainable and have an impact.

77.

The dissemination of project results and lessons learned can also play a key part in influencing policy. However, in general, project design does not set out clear approaches for dissemination. Moreover, the overambitious timeframes and subsequent delays have reduced the scope for technical assistance and NGOs to disseminate results before the end of the project. Policy impact is particularly problematic for the Environment and Forest Budget Line. While one of the main objectives of the budget line is to support pilot projects in order to contribute to the development of new policy approaches, the Commission has largely used NGOs to implement these policies and the Commission has not established any mechanisms for ensuring that governments in beneficiary countries are systematically informed of the results of these projects.

Box 15An example of project impact and sustainability reduced by problems with policy and legal frameworkIn Brazil, the Commission, through the Natural Resources Policy Programme (NRPP), finances the definition and implementation of an integrated environmental management model and its decentralisation from central Government to the state and municipal levels in five States of the Amazon (16,7 million euro). The NRPP was the main project funded under the Rain Forest Pilot Programme (PPG7), aimed at reaching the overarching objective of controlling and reversing deforestation in the Amazon.The environmental management model has been less effective than anticipated for controlling deforestation. Among the reasons behind this, the lack of political commitment at State political level was determinant. The precarious finances of most of the States and municipalities and the vested economic interests of some State and local elites make it possible for local governments to accept logging concessions and agriculture expansion, which generate revenue and employment to the detriment of forest management. Because of these, in some States the model has had little impact on public policy or, at worst, has been applied as a purely restrictive instrument. Furthermore, it has been used to identify areas of further economic expansion rather than for environmental management. The State of Mato Grosso, where the model is best developed, was, however, the state with the worst deforestation rate in 2004.The programme has not been able to guarantee that environmental issues are effectively mainstreamed in other sectors like agriculture, forestry, education, transport, etc. in the States. This is a crucial aspect as the programme operates in a political and economic context of short-term pro-development policies and priorities that do not coincide with sustainable development. The poor environmental mainstreaming policy means that State environmental agencies have to rely too much on command-and-control procedures. However, this is heavily constrained by the lack of financial resources and trained staff to so there is no effective licensing and control.

78.

Commission projects in the environment sector, as in other sectors, have included the assumption that they should ultimately be financially sustainable. In revenue-generating projects this is a goal which can be realistically pursued. Indeed, in wastewater treatment projects in Mauritius and Tanzania's second city, Mwanza, good progress was being made towards this objective, water tariffs steadily being increased towards the level where they would cover operational and depreciation costs. On the other hand, in the Pacific region solid waste disposal projects in Fiji and Tuvalu were experiencing difficulties because of the population's unwillingness to pay for the service.

79.

In the case of projects funded from the Environment and Forestry Budget Line, one option is for these relatively small, often pilot, projects to receive further funding in the form of larger projects financed from the EDF and geographical budget line. However, this has rarely happened in practice. This is partly a result of the Commission not having had a clear strategy to promote the follow-up of these smaller pilot projects by larger bilateral projects. Indeed, in both the Commission and in beneficiary countries there has been a tendency to consider funding available under the Environment and Forestry budget line as a reason for not allocating bilateral funds to the environment sector.

80.

In any case the prospects for financial viability without government support are very limited in most countries, and in many developing countries government budgets are insufficient to finance conservation measures. In order to encourage more financing of environmental protection by beneficiary governments, scope exists for the Commission and other donors to support more research and engage in more dialogue with beneficiary countries on the economic benefits of environmental conservation and the need to avoid the unsustainable depletion of natural resource assets. Nevertheless, for many beneficiary governments, greater economic benefits, at least in the short term, can be derived from exploiting the natural resources available in conservation areas. Several cases of this were found during the audit which threatened to undermine the results the projects had achieved (see Box 16).

81.

At the same time, the benefits derived by the European Union from the continued protection of the environment in developing countries should be clearly recognised. In these circumstances, the question should be raised whether the Commission's traditional development project approach of funding a project for only a few years, after which it is required to become financially viable, is appropriate to the environment sector. Had the Commission established a comprehensive strategy for dealing with the environment in the context of development aid (see paragraph 11), greater consideration could have been given to alternative approaches to aid delivery such as:

Box 16Economic activities threatening to undermine effectiveness of projectsIn Indonesia the Commission has supported the development of sustainable forest management in the Berau area of Kalimantan. However, Berau Coal Company has a licence for 25 % of the area, which includes 16 of the 18 long-term research plots being funded. Although coal mining activities are officially suspended until at least 2011, the initial end of the current project, exploration activities on the coal layers were taking place even during the Court's mission in June 2005. Illegal logging also continued to undermine the effectiveness of Commission funding to the forestry sector in Indonesia.In China, despite a general logging ban, in two (Hainan, Hunan) of the three provinces covered by the Natural Forestry project, deforestation continued.In Tanzania, mining exploration activities were taking place in the Kigosi Game Reserve, one of the reserves being funded from the EDF.

82.

The Commission has yet to sufficiently address the environmental aspects of its development cooperation and has still to establish a comprehensive environment strategy for its development cooperation. The new development policy, signed in December 2005, provides a clearer basis for developing such a strategy by recognising the importance not only of mainstreaming the environment into all development programmes and projects but also making the environment a priority field for expenditure. Nevertheless, without a clear strategy to help make the new development policy's approach to the environment operational, its potential benefits are likely to be undermined.

83.

Over the period 2001 to 2005, the Commission's strategy was focussed very largely on mainstreaming the environment into development cooperation. However, implementation of this strategy has been slow and not adequately followed up while the implications of the strategy in terms of additional staffing needs have not been properly addressed. Although training for existing staff on environmental mainstreaming did begin in 2005, it has suffered from not being compulsory for key officials. The preparation of a manual on environmental mainstreaming has been seriously delayed and was only nearing completion at the end of 2005. More generally, greater attention could have also been given to monitoring, evaluating and reporting on the environmental performance of the Commission's development cooperation.

84.

Partly because of some of these shortcomings, the environment has yet to be effectively mainstreamed into the Commission's development cooperation. Current CSPs (2001 to 2006) have not adequately addressed environmental issues although the Commission has taken significant steps to improve the environmental analysis available for the next generation of CSPs now being prepared. How far this improved analysis will actually be translated into the new CSPs still depends on the priority given to the environment by both the Commission and beneficiary countries. While mainstreaming the environment into direct budgetary aid is a significant challenge for all donors, the Commission has done little to address this important issue. At project level, environmental mainstreaming has suffered from a lack of systematic procedures in the absence of a manual which clearly defines key procedures and makes compliance with them compulsory.

85.

While environment projects financed have been relevant the outputs and results achieved have frequently fallen short of objectives although in some cases this was due to overambitious project design. Apart from design and implementation problems the project approach, at least in isolation from other aid instruments, has inherent difficulties in achieving significant impacts and assuring financial viability. This points to the need to assess the possibility of using other instruments to better address these issues in the context of an overall environment strategy.

86.

There is a need for the Commission to clarify how high the environment ranks as a priority amongst the many different priorities it has to address in the field of development cooperation. If the environment is to be seen as one of the three pillars of sustainable development this indeed requires that the Commission seeks to ensure that this policy priority is actually translated into environment programmes and projects in the Country Strategy Papers, that it has sufficient in-house environmental expertise and that clear environmental integration procedures are both defined and complied with.

87.

The Commission should establish a comprehensive strategy for the environmental aspects of its development cooperation, based on the new approach to environmental issues adopted in the 2005 Development Policy.

88.

The Commission should establish a new operational framework for implementing its environment strategy and ensure clear performance indicators and coordination mechanisms for its implementation.

89.

The Commission should review the adequacy of its in-house capacity to implement its environment strategy.

90.

The environment integration manual should be completed and approved as quickly as possible and the appropriate mechanisms put in place to ensure the procedures laid down in the manual are systematically implemented.

91.

Training, taking into account the new manual, should be made compulsory for all key staff and sufficient funding should be allocated for this purpose.

92.

The Commission should establish a comprehensive system for reviewing its environmental performance by carrying out an overall evaluation, improving the systems for evaluating individual projects and better exploiting data from its external monitoring system.

93.

The Commission should review its internal financial reporting system to ensure the recording of environment-related expenditure within the framework of projects which do not have the environment as their primary objective.

94.

The Commission should ensure that the analysis and recommendations of the recent CEPs are systematically and transparently followed up when preparing the new CSPs.

95.

The Commission should make a particular effort to better mainstream the environment into its direct budgetary support, in particular by ensuring that SEAs are carried out and by seeking opportunities to include environmental indicators.

96.

Specific procedures for ensuring the environmental screening of all projects should be established and these should be checked by environment focal points in Delegations and by the specialist environment staff in Europeaid.

97.

Specific checks should be introduced to ensure that EIAs are undertaken wherever appropriate and that their recommendations are followed up in environment management plans and contract conditions.

98.

The Commission should give a higher priority to the on-the-spot appraisal of environment project proposals.

99.

The Commission should take further steps to identify and remove bottlenecks in procurement procedures.

100.

The Commission should give greater attention to helping local communities find sustainable ways of using natural resources.

101.

With a view to improving impact and sustainability, including building institutional capacity, the Commission should analyse the effectiveness of different aid instruments in the environment sector. As alternatives to the current approach of using relatively short term projects, consideration should be given to making greater use of the sectoral policy support programmes, trust funds, and co-financing with the Global Environment Facility as well as funding traditional projects over longer time periods.