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FIN 650: Project Appraisal Lecture 10 Environmental Appraisal of Projects. Environmental Appraisal. Environmental appraisal is the term used to describe the assessment of the environmental consequences of proposed policies, plans, programs, or projects.
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FIN 650: Project Appraisal Lecture 10 Environmental Appraisal of Projects
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.
Environmental Parameters • Environmental parameters consist of components of environment and can be grouped into major components.
Terrestrial Ecology Aquatic Fisheries Eutrophication Aquatic Weeds Species Diversity Endangered Species Forest Wildlife Species Diversity Endangered Species
Groundwater Physico-Chemical Land 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
Socio-Economic Human Interest Aesthetic Diseases Sanitation Nutrition Land Loss Crop Production Aquaculture Irrigation Navigation Flood Control Transport Re-settlement Employment Agro-Industrial Health • Landscape • Recreation
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
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.
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.
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.
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.
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.
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."
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.
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
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.
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.
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.
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
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
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
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
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
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)
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.
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
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)
Objective • THE EQUATOR PRINCIPLES PROVIDE A FRAMEWORK FOR BANKS TO MANAGE ENVIRONMENTAL AND SOCIAL ISSUES IN PROJECT FINANCE.
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.
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 (DealogicProjectWare). • More are coming!
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).
PROJECT FINANCE: ASSESSMENT AND MANAGEMENT OF SOCIAL AND ENVIRONMENTAL RISKS
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.
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
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